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Knocking Out Your Credit Card Debt

Credit card debt has become common for some families. Recently NerdWallet did an analysis data from the Federal Reserve and others on average households’ credit card debt. They found that the average household has $7,087 and when you look at just the indebted households it comes out to $15,191.  Families not only have to deal with the balances, they typically have to pay high interest rates on them, making it harder to get out of debt.

What if you are one of those families and you’re tired of having your paycheck being devoted to just keeping up with the bills? There are ways you can take control of your finances and gain your financial freedom.

Find Out Exactly How Much You Owe

This may seem like a obvious step, but you may be surprised with what you find out like discovering that your interest rate had shot up on one of your credit cards. Once you have a list all your creditors, the interest rates, and the total amount you owe, it’s time to get organized. You can use free online tools like ReadyForZeroFinovera (read my review here) or Mint to pull that data for you or if you prefer, you can use  a debt reduction spreadsheet.

Create a Spending Plan So You Stop Using Credit Cards

When I had credit card debt, taking the cards out of my wallet was a easy and effective step. I had less temptation to rely on them when I wanted to make an impulse buy. I was creating a barrier for myself and improving my finances. For others, you may have to lock them away or shred them to stop using them.

Tucking away your credit cards isn’t enough.  You can’t get out of debt if you keep going back into it. That means that the two of you need a spending plan that will avoid having to rely on credit cards in between paychecks. It has to be realistic and sustainable.

Choose a Payment Plan That You Can Keep

The wonderful thing with getting out of debt is that there are several different routes you can take to reach your goal. Use either a debt snowflake, snowball, or even an avalanche to work your way to being debt free. Just use a method that works well with your spending habits.  Highest interest rate method is the financially sound decision and lowest debt is the psychologically empowering decision.

I went for the debt snow ball method (lowest balance first) to give myself a win quicker and to keep me on the plan. When we were married and were paying off the car loan early, we relied on one another to keep motivated.

You two can set up payments through your credit union or bank so you don’t have to constantly worry about whether you did it while juggling your regular responsibilities.

Staying Motivated While Getting Out of Debt

Speaking of encouragement, most of us can appreciate rewards. As humans we all need incentives to do something. For some people seeing the numbers go down on their debt is motivation enough to continue. For me, it was celebrating each credit card pay off. Everyone has something that can keep them focused.  It doesn’t have to be big or expensive (no need to undo what you did), it just has to be special.

Thoughts on Paying Off Credit Cards

I hope you’re revved up to tackle your debt. For those who have conquered your credit cards, what tips do you have on paying off debt? 

Photo Credit: 401kcalculator.org

 

How Bad Investing Habits Can Kill Your Returns

With April wrapped up and my estimated taxes paid, I decided to follow my own advice and check into our retirement accounts to make everything was being  distributed according to our plans.

Last week I did some ‘spring cleaning’ and sold some stocks. I had bought years ago based on surface level research (aka reading and digging around the web). They had all increased since I had bought them which was a plus, but they didn’t match my target asset allocation, so I sold them.

The goal is for me to remove bad investing behavior, such investing based on the emotion and hype and instead focus on building  a solid and sustainable portfolio.

Avoid Bad Investing Behavior

There can be a huge difference between investment returns vs investor returns.  Why? Most cases, the reason is human behavior. While we may know what we should  be doing, we tend to react to news about the market in a very emotional way, such as buying or selling at the wrong times.

You’re Not an Investment Guru

Even if we think we are more knowledgeable than the typical investor, studies have proven we’re more likely to benefit from following a systemic approach with investing than going with our ‘instincts’.  David Swensen, Yale’s investment portfolio manager who has track record of great returns, has commented that regular investors simply don’t have the resources to keep up with the market by stock picking. He advises a portfolio with diversified mix of index funds.

  • 30% Domestic stock funds
  • 20% Real estate investment trust
  • 15% U.S. Treasury bonds
  • 15% U.S. Treasury inflation-protected securities
  • 15% Foreign developed-market stock funds
  • 5%   Emerging-market stock funds 

Too Much Noise

Everyday we are bombarded with the people and experts declaring the biggest stocks to buy (or sell). Fortunately (or unfortunately depending on your viewpoint) it’s mainly noise that you can ignore. The concept of noise vs signals is recognizing the inconsequential and useless information  and instead finding the actually meaningful information and using that to adjust your portfolio as necessary.

How can you cut back on the noise?

  • Remind yourself of your plan. Keep a post it or note about what your target asset allocation is for your portfolio. Have your reasons why you chose this accessible so you can refer to it when you’re tempted to chase a ‘hot tip’.
  • Check the data yourself. News pieces tend to focus on the narrative or story, but that doesn’t give the whole picture. You have to be comfortable with the data behind the story. Does it make sense to you? If you don’t feel comfortable understanding it or perhaps with the argument, then hold off on acting on the ‘tip’.
  • Be selective with your sources. Choose your investing sources widely and ask yourself,  what is the credibility of this site or show? What is their goal  and how do they make money? And yes, that includes personal finances blogs. A good many (including Couple Money) have some sort of partnership with companies, that doesn’t necessarily make it bad, but you should factor that into your decision.

Not Having It Automatic

The last major mistake investor makes is not having a plan or schedule for their contributions and instead trying to time the market. It’s impossible to predict the market, so most times, it’s better for you to go ahead and just make regular investments. One way to take care of that is to automate them.

Once you’re set with your contributions, you can fine tune it by having a schedule to review and adjust your portfolio’s holding so you maintain your plan. My husband’s account at Betterment takes care of that for him. If your broker doesn’t offer automatic re-balancing, then set it on your calender to check up on your portfolio on a quarterly basis.

Why is it important to keep your asset allocation in check? Asset allocation is about maximizing your portfolio’s return while minimizing your risk. If you are willing to knock out your bad habits and focus on your goals and the fundamentals, you can boost your returns.

Not Getting a Portfolio Review

Even if you think things are going well, it’s also handy to do a check up on your portfolio to make sure things are truly squared away. Besides making sure that your asset allocation meets your plan, you should also see if there is a way you can lower your fees. Personal Capital offers a free portfolio review so you can eliminate excess fees from your 401(k).

Thoughts on Investing

I’d like to hear your take on investing . How many of you have automated your investments? What has worked well for you?

Launching a Business as a Creative Entrepreneur

unconventional guide designed to sell

Besides financial independence, I have discovered many couples also want creative freedom when it comes to their careers. For some, getting their financial freedom leads to have the resources to make the leap while others take the opposite approach – they use their creative talents to work their way towards financial independence. Whether it’s with hobby that becomes a business or a side projects that leads to a new career, more and more couples are looking to gaining more options with their time and money.

Using Your Creativity to Launch Your Career

I’ve written a few times about the joys and work of freelancing and on occasion, I’ve shared resources that I think those looking to start their business would appreciate.  One of my favorite freelancers – Chris Gullbeau has taken it one step further by not only writing on how he made the leap, but he’s also been collaborating with others to dissect how to start a profitable business.

Ever since publishing his book The $100 Start-Up, Guillbeau has been working on projects and guides on specific niches including publishing,

Designed to Sell is the most recent release and Jen Adrion and Omar Noory, the illustration duo and owners of These Are Things, are the voices behind it. They are a great choice to head this new project as they have personally have started a thriving business that has included international clients such as 3M, American Greetings, Rodale, and T. Rowe Price.

Jen Adrion Omar Noory

Starting with their modern world map, the creative pair have grown and developed their business to suit their needs.

What’s Included in Designed to Sell?

Jen and Omar have compiled and organized resources to create a thorough guide for the creative entrepreneur.

  • Designed to Sell  – A 130 page manual that walks you through you from finding a profitable business idea that aligns with your talents, starting a business, and expanding it at your pace.  You can preview the book here.
  • Roadmap to Creative Freedom  -A handy checklist to help you stay on top of your tasks.
  • Creative Business Directory – No business is an island Jen and Omar share some wonderful tools, services, and suppliers to start and grow your business.

For those looking for even more material, there are even more resources including audio interviews, video interview where Jen and Omar share all their mistakes so you can avoid repeating them, pricing toolkit, pitch samples and templates, and more.

If you’re interested, please check it out here and choose the edition that fits your needs.

Designed to Sell Guide Overview

The main guide is divided in five sections.

  • Your Big Idea: The first section dives into refining your idea and turning it into a viable business.
  • Creativity and Cash: Setting up the business means making it official with proper bank accounts, budgets, and fundraising in some cases.
  • Open for Business: Jen and Omar go into e-commerce business platforms and getting the launch ready.
  • Spread the Word: With your product or service polished for launch, it’s time to spread the word.
  • The Road Ahead: The last section covers expanding your business without losing control.

As you can see this from the topics covered, Omar and Jen give a fairly detailed road-map on starting a profitable and creatively oriented business.

Is Designed to Sell Right for You?

Like most of Chris’ projects, this guide is not everyone. Designed to Sell is for entrepreneurs who are willing to put in the effort to start a real and sustainable business. It’s more than’ find your passion, start a business'; it is about using your talents in a way that fills a specific need that customers are willing to pay for. That success takes careful thought and it means making significant efforts.

There is really no way around – you have to be willing to work to start a business and grow it. Designed to Sell is a guide that can help you make the transition. It’s not the only way to be a creative entrepreneur, I just think it’s a concise guide that can help you. If you do want to grab a copy for yourself, you can do so here.

For those who are on a smaller budget or you just want to test out the waters, you may want to check out The $100 Start-Up. It’s  a wonderful book that can help you jump start your side business. You may be able to get it at your local library, which makes it an even better deal.

Thoughts on Building a Business

How many of you are thinking of starting a business this year?

Disclosure: If you purchase the guide through our affliate links, you’re supporting Couple Money; thank you!

10 Ways for Couples to Master Their Money

One of the most powerful tools you have to tackle and master your finances is not some fancy calculator or new app, but your spouse. You two are in this journey together and that means using this opportunity not just increase your net worth, but to actually becoming closer.

10 Things You Two Can Do to Build Your Net Worth

When I first started Couple Money, I shared some tips on building a financial plan together. Now older (and hopefully just a little bit wiser), I’ve adjusted my suggestions and added two more. Whether you are newlyweds or have been married for a few years, there are ten things you two can do together that will build your net worth.

  1. Create and share a list of all your debts and assets. This is a difficult step for most people because it can be scary to see where exactly you stand financially. Resist the urge to minimize or feel overwhelming guilt about the numbers. The point of this step is not to place blame, but to get a starting point. Owning up to mistakes can be productive, but only if you use it as motivation to change your money habits.
  2. Work out long and short term goals. Now that you two have an idea of where you are, take some time to just talk about your goals and dreams, nothing else. This is the fun part – the two of you can work out what you’d like to do and where you would like to be next year, in five years, and beyond. Do you want to travel? Do you want to start a family? Have you thought about becoming business owners? Whatever it is, talk about it, in detail. The more you can see it, the more likely you two can work towards it.
  3. Have joint accounts. If you haven’t already, have a joint checking and savings account for your bills and mutual goals (like a house down payment). Make sure the accounts are accessible to both of you. Whether or not one handles the day to day deposits and withdrawals, you are both accountable.
  4. Create a spending plan together.  This is the step where the two of you allocate your income to reach your goals. The easiest way we’ve found for getting  there is by automating our payments and transfers.  Use your bank or credit union’s bill pay system to handle all of your regular bills, debt payments, and savings.
  5. Make paying off debt a priority.  Think of your debts as dead weight, slowing you down on reaching your goals. Cut down drastically so you can eliminate your high interest debts (like credit cards) as quickly as possible. Begin with your smallest debts and move up to larger ones so you can get motivational boosts as you knock out each debt. Use debt snowflakes to speed up the process.
  6. Build an emergency fund. Prepare for the unexpected and relieve some stress in your marriage by having a financial cushion such as an emergency fund. Try and save $1,000 or one month’s worth of expenses and go until you both are comfortable with your buffer.
  7. Keep your essentials affordable by being conservative.  One of biggest favors you can give yourselves is having a low overhead for your necessities. For us, that meant looking for places that we could afford with one income. That gave us some peace of mind and the second income was used to take care of debts and increase savings.
  8. Drive used cars. If  you have to own a car, take the time to find a dependable one within your budget and if at all possible, avoid car loans. If you already have one, make paying off your car loan early a short term goal.
  9. Do a monthly review. With your system in place, schedule a time each month to check on your progress. Talk about what went well and what didn’t the past month and think of ways you can improve. The goal is communication, not arguing.
  10. Celebrate each win. Finances isn’t just about the numbers. When you two reach a goal, like paying off that department store credit card or saving $1,000, take some time to acknowledge the occasion – take a weekend trip, have a party, or just dance. The point is that every accomplishment deserves recognition.

There you have it – a handy list of tips you two can use to grow your money faster.

Thoughts on Building Your Finances Together

I know of course that these tips are not the only thing you can do, so I’d love to get your feedback on how you have done it. How have you worked together to accomplish your financial goals? What helped you to reach them?

Photo Credit: Danumurthi Mahendra

Keeping Tabs on Our Retirement Accounts

Over the last few years as we’ve been working together and I’ve been sharing our progress on Couple Money, you may have noticed a few constant themes coming across in several posts, two of them being automate your finances when possible and save for retirement.

I think that one of the most helpful things we have done as a couple is creating a financial system that basically takes care of the essentials so we are freed up to  spend more time on people and activities that matter to us. As working parents, we would honestly rather do other things than looking over everything continually.

Stressing over finances can take a toll any family, so automating our finances is both a way to reduce needless noise and build our net worth. Our retirement accounts are pretty much on autopilot and it has made things much easier to manage.  For those interested in looking under the hood, I want to share what we use.

Set It and Forget It

I know everyone is different, so what works for us may not work for you. There are some people who love to constantly track every peak and valley of the market, getting alerts on all the news of the day.

Neither of us are like that.

We are the type who have no problem reading books, articles, and talking with others to come up with an investing plan. From there we want to be able to have automated contributions based on our plan and have access to check on our accounts as needed (which is hopefully once a quarter).

When we were devising our plans for the 401(k) and the Roth IRAs, we were looking at passive investing and in particular index funds. My husband’s job offers a match with their 401(k) so we made sure to max his contributions to take advantage of  this wonderful benefit. The down side is the 401(k) has limited options, so we choose a few solid funds.

With the Roth IRAs, we have a bit more freedom so we are able to get the accounts to our desired asset allocation. In general, I based mine on David Swensen’s model.  The general asset allocation Swensen recommends includes:

  • Domestic Equity (30 percent)
  • Real Estate Investment Trusts (20 percent)
  • Foreign Developed Equity (15 percent)
  • U.S. Treasury Notes and Bonds (15 percent)
  • Emerging Market Equity (5 percent)
  • U.S. Treasury Inflation-Protection Securities (TIPS) (15 percent)

Since I have decades before I expect to draw money from this account, I don’t really have much in the way of bonds and the more conservative investments so I have a bit more in foreign developed equity than in treasury bonds.

investing for future

Using Vanguard and Betterment for Our Roth IRAs

I’ve written the process of open an IRA with both Betterment and Vanguard so if you are thinking about using either please check out my reviews. I highly recommend both companies as we’ve been happy with both their services. So far we haven’t had any problems, which has made investing that much easier. Both of these companies suit our personalities and allow us to painlessly sock away money.

Betterment is great for my husband as everything is automated for him, including rebalancing his portfolio. For those just starting out or with low balances, you may want to try Betterment as most of Vanguards fund have a minimum of $3,000 (the big exception are their target funds).

I love Vanguard because they have numerous funds that have low fees, meaning more of your money goes towards growing for your benefit. They also are considered the leader in their field, offering a ton of resources and research on investing.

Either one you choose, you can easily grow your portfolio by signing up for automated contributions. If you’re interested, you can sign up for a new account at Betterment * here or Vanguard here. It will probably take you 20 minutes to set up and open.

 Thoughts on Setting Up Your Retirement Portfolio

Like I mentioned earlier, what works for us may not be your cup of tea so I’d like to know how you two manage your retirement accounts? How did you set it up? What companies do you use? How often do you check your accounts?

Disclaimer – I am an affiliate of Betterment. 

Photo Credits: Behavior Gap and Chris Potter