Do you know what today is? It's my anniversary!
I did my first post on Dec. 27, 2005. And it's been quite a financial ride since then. On my first post I lamented about how much debt I got myself into by charging silly things and having no clue what was coming in and going out. But, I resolved to turn it all around.
Here I am a year later and thought of the Top 10 personal finance lessons I've learned since then. Today, 10 through 5:
10. Debt is not a part of life.
Many people actually believe that you have to live with a certain amount of debt if you want to have the things you want. I used to believe it. It's not true. Now, many of us will not be able to cut a check to buy a house -- we'll need a mortgage. And I don't know anyone with $20,000 laying around to buy a car outright. But, as my pastor said, you must pay what you owe. Dragging around debt is like pulling a boulder behind you everywhere.
9. You MUST have a plan to get out of debt.
Otherwise, you may throw thousands of dollars at your credit cards and not get anywhere, like tossing it into a black hole. When my debt was scattered over four cards, I had no idea how much I actually owed. So when I had a little extra cash, I would make big payments on a card, but then I often didn't have enough cash to make the minimums on another card. I did the Motley Fool Get Out Of Debt Seminar online shortly after I started this blog and figured out what I was doing wrong and created a plan of action to pay off the credit cards.
8. Budgeting is not an option.
One of my earliest posts was about how I didn't need a budget. I quickly learned I was wrong. No major corporation starts the year without a budget, so that should tell you something. I needed a budget to figure out how I was going to pay my bills, attack my debt and have a little left for me.
If you don't have a budget, you'll likely start one, drop it, start again when crisis hits and drop it once you get annoyed. It's okay. It's part of the process. When I started my first budget, I didn't pay attention to how much money I was earning. I just allotted money to categories based on what I thought was reasonable. I call that "phantom math." It doesn't work, as I learned the hard way.
I tracked my spending for 3 months (horribly tedious, but necessary). I saw exactly what I spent and on what and so I knew where things were out of control and how to fix it. It wasn't until I figured out my budget that I could really begin paying down my debt.
7. It takes a long time to pay off debt.
This isn't always true, but if you're like me, it took years to build a lot of debt, so it won't be paid off in a few months. At first, I was looking for a secret trick, a complex financial method or anything to help me pay off my debt quickly. Yeah well, there is no such trick. But, once you budget and have a debt repayment plan, you can see exactly how long it will take to pay it all off. Having a finish line in sight makes the repayment journey less arduous.
6. Financial jargon isn't scary.
I remained ignorant about money for a long time because I was afraid to look stupid. I started reading a book on the stock market and was so freaked out by the terminology I stuck it in a pile and never planned to touch it again. I would tune out conversations about Roth IRAs, 401K and interest rates. Don't do that. Once you read a few things, you find that the terms don't change much and things start to make more sense. Besides, if you really want to build wealth, you'll need to know these terms so you can make your money work for you.
5. Whenever possible, pay cash.
At least until you become disciplined enough to pay off credit cards in full each month. But you have to be out of debt to do that to begin with. Besides that, cash runs out long before credit. Once the cash is gone, you have to stop spending and you can't put yourself in debt.
Tomorrow: My number 1 finance lesson (and 2, 3, and 4 of course.)