How happy are you with your financial success in 2014? How would you like 2015 to be your best year ever, financially speaking? Creating financial success does not have to be complicated. If you implement my two simple strategies, you can put your 2015 success on auto-pilot.
Reverse Budget Strategy. Budget…such a distasteful six-letter word. Like DIET, it’s one of those things you start out as an enthusiastic undertaking only to eventually fail miserably. The concept behind the reverse budget is to remove most of the pain of traditional budgeting by using a simple 2-step process:
Step 1. Decide how much you intend to save each month (and for what).
Step 2. Set up an auto-draft from your checking account (or payroll deduction) to your savings or investment account.
With traditional budgeting, you itemize target spending for multiple categories such as groceries, utilities, insurance, etc. With a reverse budget you automate your savings/investing targets and “spend the rest”…no itemized tracking. The one rule is that you don’t do anything to create new debt. You’ll obviously need to have a good idea of what your non-discretionary expenses are each month (rent or mortgage payment, estimated utilities, homeowners/car insurance, etc.) and keep a watchful eye on your discretionary spending (eating out, shopping, personal expenses). Tip #1: Use “weekly” cash for your discretionary spending. Cash a check each week as an allowance to cover personal spending and when the cash runs out…so does your spending! You’ll find that after a couple weeks you’ll figure out how to focus spending on things that really matter to you versus wasteful spending. Tip #2: Enter all credit card charges directly into your checkbook register and subtract the charges from your checking account balance. This will help you keep track of your total spending and help make sure you don’t spend more than you have. When your credit card bill arrives, pay it off in full but don’t subtract the payment from your checking account balance because you have already done this (item by item).
Debt Pyramid Reduction Card Game. Who doesn’t like a good card game? At the same time you are saving and investing under my Reverse Budget Strategy, you need to be attacking your debt. With the Debt Pyramid Reduction Card Game, you can explode your way out of debt by following these three simple steps:
Step 1: Take one index card for each individual debt you owe and record the basic information about each debt:
- Who you owe the debt to.
- The total debt amount (how much to pay it off).
- Minimum monthly payment required.
- Interest rate being charged.
Step 2: ‘Shuffle’ your cards so that the debt with the highest interest rate is first; next highest interest rate is next and so forth…so highest interest rate to lowest interest rate. Alternative: Shuffle the cards from lowest balance to highest balance. My preference is to always be attacking the highest interest rate but some folks like to see that first debt drop off quickly.
Step 3: You pay the minimum payment on all debts except the first card (the one with the highest interest rate). For your number one card, you pay the minimum plus an extra amount that you can afford each month (say $100). Once #1 is paid off, take what you were paying on #1 and add it to the minimum payment on card #2. Each time you pay off a debt (don’t forget to celebrate!), add that payment to your next card. Continue this process until you are debt free!
Hey, this is easier than it seems! Treat it like a card game where the objective is to eliminate all cards as fast as possible! Get a couple of friends to play the game with you with a little side betting to keep it interesting (… “you win, I wash your car…”).
By following these two simple strategies, you can make 2015 your best financial year ever and set yourself up to be on track to becoming financially free! Happy New Year!