Be Conscious of Choice and Change

I am honored to have been asked to be a presenter in Fort Lewis College’s Fire Side Chat series.

This post is a compilation of my preparation notes and the resources mentioned during my talk.

Thanks,

Matt Kelly, Personal Finance Coach

If I knew in college what I know now, I would have made more conscious choices about things that affected my personal finances.  My hope for you is that you will make conscious choices and will consider the long-term affect your choices will have on your stress levels and true happiness.

Our choices are driven by our Dreams, Goals, Beliefs, Values, Culture and Lifestyle.  These are powerful forces.  They are able to help us achieve much and they can cause us to unconscious choices too. Consider your motivation regarding where you want to live, what type of home and car you want, will you live with debt, will you use credit cards, what type of wedding will you have, will you marry at all?

The list could go on and on and it is important to note that each choice we make is an effort to make ourselves happy.  Though if we have not consider what makes us deeply happy and peaceful we may be living someone else’s dream.  And no amount of spending will make us truly happy if we are not living our own authentic life.

Change is inevitable: So be prepared appeared in the September 29th edition of the Durango Herald.

Personal Finance Vocabulary:

Here is a link to my personal finance vocabulary document.

Resources:

Use the After Tax Take Home Pay Calculator to find out home much of your income you’ll really have available after taxes.  Because you can only spend what you bring home after all of your taxes have been paid.

Use this calculator to compare the cost of living in two different cities. As you choose where you want to live it is very important to consider the cost of living not just how much you expect to earn.

Knowing what you can expect to earn is critically important to choosing where to live. This report details the median household incomes for the the MSA’s in the US.

Of course how much you earn is also affected by your career choice.  Here is a link to a salary wizard which will help you determine how much you’ll earn based upon where you live.

Housing is typically the most expensive item in your budget.  Where you choose to live determines how much you’ll pay for rent and how much it will cost to buy a home.  The more you spend on housing the less money you’ll have for saving, investing and spending.  This report details the median cost of a home in the MSA’s in the US.

At 17% of household income transportation is the second most expensive budget item.  The Real Cost of Car Ownership is a calculator that can help you see how much transportation really costs. And it calculates how much money you would accumulate if you were to opt not to have a car and invest the difference.

Another look at the cost difference between car-commuting and public transportation is provided by Public Transportation.org in their report Save $9,381 by Riding Public Transportation. In Denver it is estimated that you would save $9,761, slightly above average, annually.

Plugging these numbers into a savings calculator I found that if you invested that $9,761 dollars each year at the end of 20 years you would have accumulated $482,417.14 and with no further investing that money will grow to be just over 1 million dollars in just 10 additional years.

Financial institutions and lenders are marketing debt. Why?  Because they make lots of money when you are in debt.

Don’t believe me that they are marketing debt?  Check out these three examples:

1. Credit has become a media topic. Take for example this CNN Money article, 6 steps to improve your credit score and it’s accompanying graph about how to get the perfect credit score so that you can get the best rates on homes, autos and credit cards.
2. Visa commercials telling you not to pay with cash because it slows life down.
3. Look at your mailbox and how many pre-approved credit card offers are crammed in there every week.

So what can you do?

1. Don’t believe that your “I Love Debt Score” (FICO Score) means anything about who you are as a person.
2. Stop believing the lie that credit is better than cash.
3. Stop the unsolicited credit card offers by calling 1-888-5-OPTOUT (567-8688) or visit www.optoutprescreen.com for more information.

Today I’m going to review the United First Financial The Money Merge Account® Program; also know as a MMA for Money Merge Account.

They say, “Eliminate Your Mortgage.
The Money Merge Account program pays off mortgages faster using an interest-cancellation strategy. While many homeowners realize that they can save money by reducing the interest rate they pay on their loans, few think about the length of time they will be paying. The Money Merge Account program combines innovative software with traditional banking systems and personal coaching to drastically reduce your mortgage term and minimize your interest.”

So far so good; I totally agree with paying off all debt.

So how does the MMA system work?

First buy their system for $3,500.

Then they say the user will

1. Need a deposit account; usually a  checking or a saving account.
2. What they call a Facilitating Account which is a savings account or a Line of Credit.
3. Need their software to tell them when to transfer money between accounts.

What I’m not liking here is the idea of using debt to pay off debt. Not to mention that banks aren’t really excited about Home Equity Lines of Credit at this time.

What I’m seeing is that if you were spending less than you make the software might have you fill the facilitating account with surplus money and then pay off debt with that money.

Or as I saw with friends who bought this program, for $3,500, the software told them to pay off a higher interest rate truck loan with their Line of Credit and then there was nothing they could do until the paid down the Line of Credit.  All that advice for $3,500?

One of the reasons they say you can’t do this yourself is that it’s too complicated and requires very sophisticated software.

I just don’t agree – you could do this with a pencil, paper and calculator and some basic personal finance principles.

My opinion is save the $3,500 and do it yourself.

Here are the steps I teach in my personal finance class:

1. Save a $1000 Emergency Fund
2. Establish a budget
3. Start using the cash envelope system
4. Begin paying off your non-mortgage debt from smallest balance to largest
5. Consider selling anything that will take longer than 18 months to pay off
6. When your done paying off your non-mortgage debt, grow your emergency fund to equal 3 – 6 months of living expenses
7. Begin saving for financial independence
8. Begin saving for college, if you have kids or someone you want to send to college
9. Begin saving a $20,000 major medical fund
10. Begin paying off your home aggressively

I tend to put paying off your home last in the the process, but that is because I value peace of mind over not having a mortgage.

Don’t get me wrong – I want that mortgage done ASAP too.  I just don’t happen to believe in magical software and borrowing to pay off debt.

Here is an excellent rent Vs own calculator that can help you make an informed decision about how to spend your housing budget. Home ownership is a dream when you can afford it and can quickly turn into a nightmare when you can’t.

The true cost of ownership is not just the PITI (principal, interest, taxes and insurance), but also the maintenance of the home and lifestyle of the neighborhood.

Home maintenance must be part of your budget and saved in your Momentum Account.

Keeping up with the Jones’ is a real thing. Your neighbors are will likely become your friends and your social reference so beware of moving into a neighborhood where your neighbors earn substantially more money than you do. Keeping up can lead to consumer debt.

Green with Envy by Shira Boss is a wonderful look into the lives and checkbooks of our neighbors.