Do this to ensure your financial success in 2021

2020 is over its time to move on from it and get back on track and become more disciplined. We are in January, and it’s likely that you will have a credit card bills coming in from the holidays. Did you overspend? You aren’t alone if you did, many people who were at home found it easy to shop online and spend. Even if you didn’t overspend below is how you can ensure financial success in 2021.

Step 1: List all your debt’s smallest to largest. (total owed)

Step 2: Next to each debt, if you know it, list the minimum payment for each.

Step 3: Next to each Minimum payment, list the type of debt. (credit card, Auto loan, house payment.

Step 4: next to each debt, if you know it, list the minimum payment for each.

You should now have a matrix of 4 columns, if you did it in Excel even better, paper is fine too. You now have a list of the all the items that are crippling you financially and holding you back from obtaining wealth and freedom. It’s at this point you should take a break from this task. To this point it likely took you from 15-30 minutes to organize but emotionally you might be exhausted.

Now we start on ensuring your financial success in 2021.

Come back to your list when you are ready, but no longer than a week. (you should work on this for at least ½ hour a week, you can do that). Add the column of minimum payments, this is how much you are spending a month on debt. This is IN ADDITION TO your rent, food, utilities, travel. Calculating those are a separate exercise. For now, stick to the total number in column “minimum payment”.

Total DebtMinimum PaymentType of DebtInterest Rate
1$128,000.00($1,500.00)Mortgage4.25%
2$97,000.00$0.00Student loans8.00%
3$17,500.00($585.00)Car Payments5.50%
4$2,500.00($50.00)Discover21.00%
5$800.00($25.00)Master Card17.50%
6$750.00($25.00)Visa18.00%
Total Debt($2,185.00)
Total Fixed($1,815.00)
Grand Total($4,000.00)
Income$4,250.00
Net$250.00
A simple spreadsheet is enough

For my example it is $2185.00. Now add to this your other fixed expenses for the month. Rent, food, utilities all the things you have to have to live, not the things you want. Let’s say that number is $1815, add those two together = $4,000.00 below the 4000.00 put your monthly take home pay.

Your half hour is up, take a break and come back when you are emotionally ready. You now have the blue print to ensure you financial success in 2021. If your monthly take home pay is less than your total expenses your pay has to increase or your expenses have to decrease. You can increase your take home pay by working more, reducing your retirement contributions as an example. Expenses can be reduced by moving to a cheaper apt, less food as an example.

We now start the methodical work of eliminating debt smallest to largest. In my example I have a surplus of $250.00 per month. I am going to take that surplus and ADD IT TO the minimum payment of the smallest debt, my $750.00 visa. In 3 months that card should be paid off. At that point I would then have a surplus of $275.00 a month, which I ADD TO the minimum payment of the next smallest debt the $800 master card which would be $300.00 a month payment. In 3 months that should be paid off.

You rinse repeat for every debt. Eliminating credit cards along the way (you only need one) and revisiting this matrix for ½ hour a week, every week through 2021. You will begin eliminating debt and increasing your net surplus every month. THAT is financial success. You have more money every month to live on, imagine when there is no debt? You have a surplus of 2K plus a month?

Vacations, retirement, new clothes, vehicle upgrades are all on the table at that point. The key to ensuring your financial success in 2021 is becoming debt free ASAP. Then instead of working to send your money to someone else, you get to keep it. ½ hour a week is all it takes. Focus on it, make it a ritual and really invest in your personal economy.

Any questions along the way ask and if I can I will help you.  

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Paying off debt for people with Anxiety

So if you are a regular reader of my content you know I have been working in the finance field for literally decades. This blog isn’t about finance generally; however, I do give advice and strategies in finance from time to time for people with anxiety.

Anxiety sucks and finances can really lend to your anxiety spiraling out of control. In the very best scenario you have a written budget you stick too, you have an emergency fund (I went over this here) and you are debt free. If you are like most people you might have one of the above, its likely you struggle with all of the above.

You don’t have to be great at finance to be successful financially. You do have to be disciplined and this is where so many people crumble. This post isn’t here to judge you, this post is going to be a simple tool you can use to start to tackle your debt. Below are 5 simple steps that if you stay with and focus on, in time you will be debt free.

  1. List your debts smallest to largest. Everything gets listed. Every situation where you owe someone or something money you list it in order by total dollar amount. EXAMPLE:
    • Joe = $500
    • Mastercard = $2300
    • Car = $11,000
    • Student loan = $38,000
  2. Next to each debt on your list, record the minimum payment you can make. Estimate it if you don’t know but the point is we need a monthly total of the minimum amount you can pay per month on each debt.
  3. Determine the maximum amount of money you can spend on your debt. Look everywhere for income and come up with a number you can live with. Not the minimum payments, a flat number. So, if its $500 a month you can spend on paying down debt, fine. This is not the sum of your total minimum payments, don’t confuse item 2 and 3.
  4. Subtract the total minimum payments in item 2, from the total you can spend in item 3. This is your working cash. So, if your minimums = $400 and the max you have to spend is $500.00 you have $100 working cash.
  5. Take the working cash (in our example $100) and add it to your payment on the smallest debt.

What this is called in the finance world is the debt snowball. So, you are applying your working cash on the smallest debt first to get it out of your life faster. You continue to work the formula, but now you have your lowest debt paid. That minimum payment should add to your working cash and you now apply that to your next smallest debt.

The effect is over time as smaller debts get paid, your working cash gets larger so your payments against larger debts is more impactful and thus they get paid off faster.

I know this is just not some peoples cup of tea. Finance, numbers etc. just sucks. So does anxiety, and the anxiety of being in debt can be crippling. Work this program, you’ll feel better, you’ll improve your credit, you’ll get people off your back for money, and you will have less anxiety.