A couple of weeks ago, I wrote an article about Standing Your Ground.  I discussed collectors and a few best practices when dealing with them.  At the end of the article, I made the following statement:

I encourage you though to find a way to resolve your debts so that you can build a solid financial house.  A house with holes in a few windows (the bad debts) doesn’t look too appealing. Does it?

Although I used broken windows as an analogy, it’s actually a theory first introduced by James Wilson and George Kelling.  A portion of the theory states:

Consider a building with a few broken windows.  If the windows are not repaired, the tendency is for vandals to break a few more windows.  Eventually, they may even break into the building, and if it’s occupied, perhaps become squatters or light fires inside.

Or consider a sidewalk.  Some litter accumulates.  Soon, more litter accumulates.  Eventually, people even start leaving bags of trash from take-out restaurants there or breaking into cars.

The underlying meaning is that when a window is broken in the neighborhood, it should be fixed immediately.  This more than likely will deter further damage from those that are attracted to vandalize.  Cleaning up the sidewalk every day, prevents others from seeing the need add to the pile.

Now, as I consider it here, I think about broken windows in terms of the financial house most of us are striving to build.  We all have some type of structure we reside in whether it be a single family home, condo, an apartment, etc, right?  Well, when a window is broken, you have to make one of two choices:  fix it or ignore it.

To warn you of potential danger, I’ve created a short list of “windows” to be aware of and offer some encouragement of right action along the way.

• Credit Limits

When you’re trying to get your money train back on the right track, your credit limit is something you might want to keep under your radar.  Why?  There are two reasons: one – to avoid the trap of the “over the limit fee”, two – to help your credit scores.  A high balance greater than or equal to your maximum credit limit does not have a positive affect on your credit scores.  And how does it look to potential lenders?  Not good at all.  Though you may pay your bills on time every month, you’d be considered a high risk.  

• Credit Reports

Since we’ve looked at the credit limits being a broken window, let’s look at the larger picture of the full credit report.  It must be checked.  You have the right to obtain a free copy of your credit report once every twelve months from each major reporting agency: Experian, Equifax and TransUnion by way of www.annualcreditreport.com.  A good idea is to not request them all at once.  Spread the three requests out asking for one every four months checking for accuracy.

Xenophon says, “…but accuracy is everything.”  I couldn’t agree more.  Checking everything from the personal and public information, as well as the credit history.  If anything looks strange, you have a right to request an investigation.  Don’t let the litter accumulate.

• The Mail

This broken window will probably require some time a patience, but it’s repairable nonetheless.  You know that pile of bills you’ve got stuffed over in the corner? Yeah, that one.  It’s time to pull it all out and deal with it.  Yes, the time is now.  Believe me, it’s not going away. 

It’s easy to put it to the side and say, “I don’t have time for this right now.”  But if not now, when?  Small debts become collections, collections become judgments, judgments become garnishments.  A little extreme, but some collections may even lead to jail time (click here to see a recent newspaper article about that).

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The bottom line is this:  Being held hostage to unwanted guests is not going to be an option if you don’t repair your windows quickly.  As stated earlier, this is a short list of ideas (things we may ignore).  You could probably think of some examples from your own situation or someone you may know.  Feel free to write about it in the comments.

 Thank you so much for spending your time here with me today!

Image Cred gregoreosz

Hello Everyone,

I’m not sure if you’ve ever heard of the two following words together: opportunity cost.  I’ve only become familiar with it over the last couple of years.  If not, no fret.  It’s what the topic of discussion is all about today. 

With each choice we make to spend money, we’re defining our own opportunity cost to travel the world, purchase a home, buy a car, invest for retirement, someday purchase a home, etc.  Think of it like this, if I make “X” choice today, how will it affect my opportunity for “X” in the future?

What about living for now you say?  That’s definitely ok…it’s actually wonderful to enjoy the moment.  I wholeheartedly agree.  But I also agree with preparing for the future and making decisions with the thought of how they’ll affect my purchasing power tomorrow.

You can’t get back money that’s spent, I’ve had to learn that the hard way.  Ninety three thousand dollars?  Where did it all go?  Some of it accounted for; the other portion…well.  I probably should have cashed my paychecks, gotten in my car, rolled down the windows and thrown it out.  Sounds funny, but that’s just the way I feel sometimes.  At least that way I’d know where it all went.

I’m just kidding, but you can see where I’m going with this.  We all are guilty of enjoying today’s pleasures not thinking of how it’ll affect tomorrow’s desires.  Eckhart Tolle calls it living unconsciously…just going through motions with no thought.

For instance, I watched a couple on Property Virgins (an HGTV Network show) look for a home as first time home buyers.  They seemed to be very smart and intelligent, but they had one major issue….NO DOWNPAYMENT.  Why no down payment?  The bulk of it went towards eating out at least 5-7 times a week with friends.  If I remember correctly, they were spending over $10-20,000 per year just eating out.

So now, their payment has to be higher because of past decisions with spending.  It’s cost them the opportunity to have a much better deal when purchasing their home.  I can’t remember the outcome of the show, but needless to say a lesson has been learned.

Of course, swallowing dollars is definitely not the only culprit that can keep our future opportunities out of reach.  For each one of us, our goals, opportunities and costs are different.  But whatever your costs are, remember this:.

One secret of success in life is for a man to be ready for his opportunity when it comes. ~Benjamin Disraeli

In the end, it’s your life and I’ll leave you to live it.  But if for some reason there is an opportunity you miss due to misguided past choices, don’t beat yourself up.  We’ve all fallen victim.  You’ll just know to make better decisions in the future and next time, you’ll be ready when opportunity arises.

So what do you think?  I love hearing your feedback, so please leave a comment below with questions or your own thoughts about opportunity cost and what it means to you.  Don’t forget to share this post with your Facebook and Twitter friends by clicking on the icons below.  They’ll love you for it!  Thank you for sharing your time with me today!

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Fortune Image by Elle

I’ll start today with a little history lesson.  See that picture to the left?  Well, that is a picture of the Philadelphia County Prison in Philadelphia, PA called…the debtor’s wing.  This wing and others like across the American colonies in the early 1800’s, held people that owed debts but were unable to pay.

It was a very simple process.  Creditors who were owed money would simply ask the sheriff to arrest those that owed and throw them in jail.  The only way the debtors could be released was to post bail or pay the debt.  Since most couldn’t do either, they remained in jail for months or even years depending on the size of the debt and their family’s ability to raise the money.  Some even died before being released because of disease that ran rampant in the close quarters of the jail.

In 1831, the United States government ended this practice with the introduction of the Act to Abolish Imprisonment for Debt.  Whew!

Now almost 180 years later, most of us spend our time creating our own debt prisons.  No, we don’t have to worry about going to jail (except for taxes or child support), but it’s a jail all the same.  As Jon Hanson said, “Working while carrying a load of debt is like a prison work-release program.  You are released each day to work, but the balance of your time is spent in a mental prison.”

Over the last several years, we have really seen the effects of debt.  The lives of normal families that were living the American Dream shattered due to the carelessness of creating debt instead of wealth.  As I see it, living in a constant state of want leads to us becoming a prisoner to our passions.

Work no longer becomes a privilege, it’s a necessity in order to survive.

Think about the feelings you had as a child…probably “free”.  Yes, the responsibility of provision was upon your parents, but there was a feeling that time was no option and your opportunities were limitless.  Becoming an adult was like being given a huge stack of blank paper that weighed about the size of an elephant.

We aim wanderously, happily spending money and using credit when we really shouldn’t.  Most of us don’t even realize what we’ve done until it’s too late.  Picture this…you sitting down on the floor “Indian style”.  Now, add up all the debts you currently owe (credit cards, personal, consumer, student loans, etc).  Imagine yourself being surrounded by this amount stacked in dollars.  If you stand, can you see the outside world easily?

See, those few moments of fun have a price tag attached.  That price tag then leads to frustration and unhappiness.  So before you make you next purchase, ask yourself… “Is this helping me to get closer to my goal?”  If not, make the decision to walk away.  Just turn and walk away.  You can do it!

If you’re in a debtor’s prison, what’s your sentence?  How long do you have before release?

Philadelphia County Prison Image by whitewall’s buick

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Thanks everyone for reading!  I really appreciate it.  Feel free to share your own experience with debt in the comments, if you’d like.  So until next time…

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Financial Contentment.  I’ve thought a lot about this concept over the last few years.  What does it really mean? And how does it relate to our lives? 

Contentment is defined as satisfaction or ease of mind.  So, we can say that Financial Contentment is being satisfied or having an ease of mind about our current financial status. 

There are many thoughts that have been shared in reference to the concept of contentment.

Health is the greatest gift, contentment the greatest wealth, faithfulness the best relationship. – Buddha

There is no end of craving.  Hence contentment alone is the best way to happiness.  Therefore, acquire contentment. – Sivananda

Be content with your lot; one cannot be first in everything. – Aesop

Keeping in line with these ideas is where I think most people get stuck.  Don’t get me wrong, I love these quotes and I think that they inspire us by helping to maintain peace in our lives.  But I’m working towards a key point here, so stay with me.

There is another word that can be used as a synonym for content.  It is called complacent.  The definition of complacent is pleased or satisfied.  So, if they have the same definitions then they must have the same literal meanings right?  Wrong.   These two concepts are really not one in the same.  You can have contentment without being complacent.  When you mix the two, you get caught in what I’ll call non-action. 

Let me give a few of examples:

1. Jill is a college graduate and a receptionist for a local contracting company.  Her current annual salary is $25,000 per year.  She receives annual raises of about 2-3%, but the maximum she will ever earn in this position is roughly $30,000.  She has no debt and has managed to save over $50,000 within a 15 year time frame.  Should Jill think of or find ways to make better use of her educational resources to increase her income?
2. Patricia, an 18 year old, has not had the best start in life.  As a child, she was teased in school because she didn’t have the best of attire and the latest gear.  Her parents don’t have the best education which means that money is always a scarce commodity.  Should Patricia have the attitude that this is how it is and this is how it will always be?
3. The Carter’s, a nice suburban family with a house, two kids and a dog.  Both are educated people and have great incomes, but over the course of their lives have managed to build up a load of debt and are basically living paycheck to paycheck.  They sometimes wonder what life could be like if they didn’t have the debt, but that’s all – wonder.  Are they living to their maximum potential?

If you answered the questions above, you probably quickly said yes, no and no.  Now, step outside of your own life…tell your story.  Do you recognize any financial contentment AND financial complacency in your life?

Push the Envelope

What I think financial contentment really means is to be grateful for what we have and where we are in our journey, BUT always having dreams and goals of something better.  Setting goals.  Taking action.  There’s no harm in that.  Just don’t be caught in the next 5 years moaning and groaning about the same issues you have today.  Start now to create the financial changes you want to see.  Paying off debt. Giving to others.  Starting a business.  Building wealth.  Each day remember…one step in front of the other.  Eventually you will reach your destination. 

I have a few goals I’m currently working towards and one of the most important is to be able to give more of my money and my time helping others.    I can’t make this happen if I’m lost in contentment and complacency.  Neither can you.

It’s o.k. if you’ve set financial goals and have gotten off course, just realize that you don’t have to stay there!

How do you view this concept?  What has been your story?  Start or join the conversation in the comments.

Happy Monday!

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When my husband and I decided to dump our debt, I wished that there was a button we could press that would make it all go away.   Reality was that we had to have a plan.  

We’d read a couple of books related to personal finance, but the one book that really made paying off debt simple was The Total Money Makeover by Dave Ramsey.  Most books give all the fluff and theoretical processes related to debt elimination.  The Total Money Makeover was the most simple “how to” book I’d ever read related to personal finance.

So to begin the course of action, our debt elimination involved five initial steps:

1. Accessed the problem.  We sat down together and listed our debts and the balances for each.  Those debts included two car loans, medical bills, a credit card, and a home equity line of credit.  It was a shock to realize that we owed approximately $93,000.  Yes, that’s right….$93,000.  It absolutely took our breath away.  The questions that arose were…how did we get here?  Does everyone have this much debt?  How long is it going to take us to get out of this?  O.k., after the initial shock, let’s move on.

2. Created the Snowball.  After we accumulated the damage, we listed the debts from smallest to largest balance.  Known more commonly as The Debt Snowball Method, this became the order in which we would pay the debt.  You may ask, “Why not pay off the balance that has the highest interest rate?”  Well, for us the debt snowball method allowed faster victories and the motivation to continue with the plan.  I couldn’t imagine paying on one debt for two years and it be the first successful payoff of the plan.  I know I would have given up.

3.  Stopped the bleeding.  We had to immediately stop using any form of credit.  If we couldn’t pay cash for the item, we could not purchase it.  This included any recurring payments that were being made automatically by the credit cards, i.e. subscriptions, memberships, etc.

4. Created a budget.  Yes, the dreaded “B” word.  You may want to call it a spending plan.  Either way, this I believe is the most important factor.  Instead of winging it every month, we actually became the boss of our money and told it what to do.  EVERY DOLLAR of our paycheck was accounted for.  The budget was not just for bills, it included everyday expenses such as eating out, purchases for the children, grocery, dry cleaning, etc.

5. Started an emergency fund.  Ideally, the minimum amount for the emergency fund would be $1000.  The money should be in a savings account, not easily accessible for daily use and is earmarked for “emergencies only”. 

After we started the process, we could immediately feel a sigh of relief.  Even though debt freedom was the goal we were working towards, the initial victory was that we finally had control of our money.  There was a plan, a workable plan.   We were now going to be debt free!!!!!!  Debt freedom is truly possible, not a dream, but a reality of what can be achieved.

Where do you stand currently with your debt?  Feel free to share stories, tips, or questions in the comments.

Thanks so much for reading!!!