Making ₵ents: What’s Your Number?
I’m sure we’ve all seen the commercials regarding the number (in dollars) that we need to save to achieve our financial dreams in retirement. In those commercials, the individual’s numbers range from $698,172 to $2,654,712. Another man just had a random thought as to what he needs…a gazillion.
A few weeks ago, I was in a bank that has a television in a sitting area where a news program was on. The program was covering the topic of US debt and the gross domestic product. The percentage was 70% of the GDP. Let’s think of that in personal terms. What if you carried the same percentage of debt as the national government? If we relate the percentage of US debt to the estimated median income of the Center Grove area, $79,660, 70% would equal $55,762. Under that load, it would be tough to get anything accomplished regarding debt reduction, saving up an emergency fund, saving for retirement, vacations, and college.
Cash flow planning is good for knowing where your money goes. It can help make behavioral changes. But we can’t deny the debt load. Does it make sense to have minimum payments and car payments the rest of our lives? The government seems to think so, but personally, we should strive to be as financially savvy as we can be. I believe that comes from not carrying debt.
Our family’s personal debt number in late 2004 was over $65,000. It was comprised of credit cards, car loans, unsecured lines of credit, as well as a student loan. When we decided to become debt free, it was scary and a little intimidating to see the full amount of our debt number on paper. Honestly, it made us nauseous. What were we doing? What did we have to show for it?
In about 22 months, we paid off all that debt. Doing a monthly budget, limiting our spending, and using the debt snowball accomplished this. The debt snowball is a list of your debts from smallest to biggest. The goal is to budget minimum payments on all monthly debt payments with as much as you possibly can pay on the lowest overall balance. Before long, it will be paid off and you can move that payment to the minimum of the next lowest balance. As a result, the amount of money paid each month to the debt will increase. Just keep following this plan and the last obligation will be much more manageable when you are applying the new cash available to the minimum payment. Don’t worry about interest rate. The goal is to have momentum as you knock out each debt.
It wasn’t easy, but now that we are almost 6 years removed from that final credit card payment (by the way, it was our Discover Card) life is better. I wouldn’t trade that experience or challenge; I only wish that we were debt free sooner. If only we knew then what we know now. Such is life.
Know your debt number, be proactive, and achieve a debt number of zero, not including your mortgage. That’s our debt number, so now we focus on those crazy numbers like in the commercial to fulfill our dreams for retirement, our boys, college funds, and anything else we desire. I love ZERO when it comes to debt.
Kate Rhoten is a financial expert of what to do and not do with money as well as owner of 4 Walls Financial, A Coaching Focused Company. She has attended and completed Dave Ramsey’s Counselor Training. Follow Kate on Twitter @4WFCoach, reach out to her via email at firstname.lastname@example.org or visit www.4wallsfinancial.com. Feel free to share ideas or questions for future articles.