Sunday, September 26, 2010

If the credit cards aren't the problem, then who or what is?

A recent article from Creditcards.com features Lynnette Khalfani-Cox, a money coach who was in debt to the tune of $100,000!  Khalfani-Cox metioned that she already had a will, 401(k) and other forms of security firmly in place.  However, the one thing she couldn't reign in was her spending.  She had never heard of the term delayed gratification.  Khalfani-Cox stated that one of the ways that she was able to get out of debt was by learning how to control her spending. 

She was able to get out of debt quickly by reducing some costly expenditures. She removed her children from a private school that charged $20,000 a year to a more reasonable school that was a fourth of the cost.  She was also able to use the sale land that she owned and took the $30,000 profit and put it towards her debt.  She also took any "extra" money that she received and used it to pay down her debt.

I have a few problems with this article.  One, it's coming from creditcards.com. When you go to the site, you can find out that they are designed to offer you help in choosing the best credit cards.  This would probably explain why Khalfani-Cox kept saying, "The credit cards aren't the problem. We're the problem."  That's akin to the NRA saying, "Guns don't kill people. People kill people."  Khalfani-Cox may have written 7 books about personal finance, but I think she needs to think about who she offers interviews to. 

The message that Khalfani-Cox is spreading is to teach people how to balance their credit, but I think creditcards.com wants people to feel comfortable with getting more credit. I am sure with this current financial crisis many citizens are giving credit card companies the evil eye. Who wants to pay higher fees on things they purchased four years ago?  Who wants creditors calling their house and job looking for their minimum payment? No one.  Khalfani-Cox laid out some basic advice in getting out of debt quickly.  She also defended her role as an advisor:

I was doing a lot of things right. Sometimes when people know about my story, they think, "Oh my God, you were a financial professional giving people advice?" That is true, but I certainly don't want to give the impression that I was a complete basket case. I had a very healthy six-figure 401(k) because I had been saving and investing. I had created a will. I had disability protection. I had life insurance. So I had some level of cushion that I think a lot of people don't traditionally build up when they're struggling financially。(http://finance.yahoo.com/banking-budgeting/article/110746/qa-with-lynnette-khalfani-cox


Khalfani-Cox had the basics in place. It's good to know that she had the first steps to building a solid retirement plan in place.  I think it's important to note that many people don't have these things in place. One thing that she mentioned was how she put all available funds towards her outstanding debt. I'm going to tell you two things she did wrong!

First, she put all available funds toward her outstanding debt!  I think Khalfani-Cox should have taken 30% of her profit from the sale of her land and put it towards buying another property.  She was already in debt and paying it off in three years may have been her own personal challenge.  Taking 30% off the top may not seem like a lot, but why do you want to give all of your money back to the credit card company. Pay yourself first!  She could have taken 10% and put it towards charity, 10% towards emergencies, and the remaining 10% towards investments.  She still would have paid off her debt and it may take a bit longer, but I think it's important to save something for yourself.

The second mistake was putting all "extra" money towards her debt.  She needs to follow the same principle.  By giving all of your money to the creditors you aren't taking care of yourself.  You may want to argue that she already had a 6 figure retirement plan and a 401(k) why does she need to set more aside, I'll tell you why.  Khalfani-Cox has allowed money to slip through her fingers, part of this could be due to the fact that everything happened via credit.  I think if she needs to reprogram herself and change her spending habits. In a lot of ways she went from one extreme to another. 

If you are trying to get out of debt, do it! You will feel happier, but don't forget to pay yourself first!!! You are more important than that credit card!

Know!

Wednesday, September 8, 2010

Give me one sec...I just have to write down my...

Goals.  Have you ever said that? I have a list of things to do, I need to write my goals. My goal is to write my goals by next week. One afternoon I was having lunch with a friend and I asked, "Where do you see yourself in five years?" My friend is about 3 years older than me, so I expected a litany of things that he may have wanted to accomplish. I know I was nearing 30 and had a list that I was constantly checking off. When he told me, "I've done everything I've always wanted to do. I was on television, I had a play produced, etc." At the time, even though my mouth wasn't on the floor, my brain was.  If you don't have goals, then you might as well die. What are you living for?  If you don't have a plan or a clear outline for what you want to accomplish in life, then just perish.  There really isn't a need for you to continue living. 

Well, I have goals. Before I turned 30 I created a list of things that I needed to accomplish and I did all of them. I am now in the process of creating my new list of things to do before I turn 35.  The list has changed somewhat but it has been a great barometer in making decisions and helping me decide my path in life. 

If you haven't written your goals, then how are you going to plan your financial freedom?  Dan Kennedy, author of No B.S. Time Management for Entrepreneurs, states,"...the disciplined act of focusing on questions such as What do I really want?  What do I want my business to be like in three years? and writing down answers is very productive in and of itself." If you don't know where you're going, then how do you know where you're at?  Now, maybe you aren't trying to start a business, but this life that we live is akin to a business. It's my personal business. How I plan and outline my next steps can help dictate the direction of my life.

Writing down your goals paints a visual image in your brain and in your subconscious that you are working towards something.  You may think this is strange, but I have a list of goals taped up in my bathroom.  While I'm brushing my teeth I can read them and then afterwards I say them out loud. No one is there to hear me but my mind, body, and spirit.

If you want to be financially free, how are you going to get there? What steps are you taking to ensure success and a financially free retirement?