Category — Debt

My friend Texy and I were chatting via IM about my Help I’ve Fallen In Debt And I Can’t Get Up! post and she had some great comments and pointed out some places I was not as clear as I could have been. Her points were important ones so I wanted to get them up for folks to consider.

Step 1. Set up all bills you can for electronic payment (and make payment automatic).
It’s significantly faster and easier to pay bills online. And if you can make the payment automatic, perhaps simply paying the minimum amount due. This will help you to avoid late fees which , I’m sure you are already aware, are incredibly painful. This first step can help you from falling deeper into a financial hole through late fees.

I should have been more clear about what type of automatic payment I was talking about. I meant that if your bank supports electronic bill pay you should configure your payments within your online bank account settings to automatically pay the minimum amount on the due date. With my bank, I am alerted when the bill comes in, I quickly review the total and if it is in line with previous months I do nothing else. If it were way out of line, I would review the bill to make sure there was nothing else added to it. Ideally you would review all of your bills to make sure there were no erroneous charges on it. But when you’re drowning in debt you take baby steps.

Setting up automatic payment where your payees automatically withdraw money can lead to trouble. If they bill you incorrectly or continue to bill you after you’ve canceled an account, getting things  straightened out can be a nightmare. Texy made this point loud and clear to me.

She also pointed out that you should check to make sure your bank doesn’t charge a fee for setting up electronic payment or receiving ebills. My bank doesn’t, so the thought hadn’t crossed my mind.

Side note: One of the great things about having started 60 Second Finance is I’m now talking more than ever about financial topics with my friends and family. And it’s discussions like this one that help me to improve my own thinking about money matters.

When you think about financial matters are you overcome with dread? Do you get a giant knot in the pit of your stomach when you think about trying to pay off your credit cards? Do you panic when the phone rings and check caller ID against your known list of bill collectors? Is there a pile of unopened bills sitting in a drawer so that you won’t have to think about them right now? [Read more →]

“Mind the gap” is a warning to train passengers to remind them of the sometimes significant gap between the train door and the station platform. - Wikipedia

Minding the gap is also the key to financial freedom. The key to amassing wealth is not to make more money. If every month you spend more than you take in you don’t have wealth, you have debt. That’s true if you make minimum wage or if you make $250,000 per year. “The gap” is the difference between how much you make and how much you spend. By focusing on making this number a positive one and increasing it over time you build the foundation of financial freedom.

What is your current financial focus? Dollars to donuts more people who read this article will know how much money they have in their 401K or whether the DOW finished up today than can state their personal gap for last month. On one level, “the gap” is a small thing. But, if you take care of the small things, the large things take care of themselves.

It is said that the journey of a thousand miles begins with one step. So today focus on taking just a single step. Pull out your paycheck for last month write down your net pay. Then open your bank statement and determine what your expenses were for last month. Once you’ve done that you’ll know your personal gap. Write it down… on the back of a paper napkin or in Excel, it doesn’t matter. Next month do the same thing and compare the two. And between now and then focus on increasing the gap (or decreasing it if your gap is currently negative).

This is not just an exercise for a financial newbie. Even seasoned investors can benefit from this analysis. (Re)focusing on the fundamentals is the true secret to financial freedom and there is nothing more fundamental to finance than minding the gap.