Thursday, January 9, 2014

Retirement and debt

Dr. Stephen Coles said that "The human condition that distinguishes Homo sapiens from other mammalian species is an appreciation of the implications of 'death'.  So far, humans haven't figured out what to do about it, but some day we will, just like we figured out how to fly hot-air balloons, heavier than air craft, or land on the moon after longing for millennia about how birds can fly but we can't." The problem is that we although we have not yet figured out what to do about death, we are living longer and as we live longer we need to manage our financial situation. One way to do that is to reduce debt, before we retire if we can.

 First, get rid of credit cards debt. I paid off my credit card debt and now pay off the cards every month. I use the cards but am very careful about what I use them for, if I cannot afford to buy the item I delay the purchase. I figured that what I couldn't pay for in that month, was either worthless or worth saving for. 

The second thing I did to get out of debt was to start saving. I had made myself a promise that I would save a percentage of my take-home pay, but I never did it. So I talked to my bank and set up a forced saving account, which I recently turned into a Tax Free Savings Account, program from which I  buy stocksThe withdrew  takes a set amount of money from my primary account every month and puts it in another one. That program allowed me to gradually increase my saving from 5 to 10 percent of my income.

If you are spending more than you are making, get rid of your credit cards. To get used to spending less, remind yourself repeatedly that most of the junk you buy (a) becomes unused after a few months and (b) doesn't provide you with much value anyway. Remember that the best things in life - the picnics you have with your family, the walks you take by yourself, the time you spend with your friends - are free, or nearly so. 

Create a separate bank account that you'll use to pay down your debt, or have your debts automatically deducted from the one account you have.  Increase the amount of your take-home that goes into debt payments every month. You might start, for example, with 10 percent and then increase that by 5 percent a month. 

Six months from now, you could be living on half of what you spend now - and I'll bet you will be feeling a lot better about yourself. You'll have less stress, more energy, more confidence, and the beginnings of a lifelong habit of wealth building. 

There are so many ways to save money. You can spend less on just about anything without giving up either the pleasure you take in buying or the quality you get from your purchases. 

Instead of buying new clothes that will be out of style in a year, buy vintage clothing that looks great and distinguishes you. 

Instead of signing a lease for an expensive car, buy something old but still good that has a personality. 

Instead of going out to lunch every day, eat some fish or other protein at your desk. This is one of the things I did.  Instead of plodding along in your same old job, make the decision to earn more money. 

In addition to working extra hard at my primary job, I earned a second income by teaching a class graduate students and undergraduate students part-time at a local university. It wasn't a ton of money, but it helped. 

What I discovered was that working hard when you are motivated is a lot more fun than hardly working when you don't like your job. That was a lesson that made a big difference in my life. If you are in debt and have too little income, it's a lesson you should teach yourself. 

Work more. Save more. Spend less. Waste less. You'll be out of debt and on your way to building real wealth in no time. 

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