Coach to Team: Get Back to Fundamentals.
Oct 27 2008
You current and ex-athletes were probably told by your coach that solid fundamentals make winning more likely. Same holds true for your finances. So let’s get back to the fundamentals! Here are a couple high-priority financial game plans to use for your family.
Eliminate the debt. But how? Follow the table below. Rank order your debts with the highest interest rates at the top. Concentrate on the top debt. Pay the minimum on the other debts. Pay as much as possible, while being fiscally responsible with your household requirements, on the top debt. When the top debt is eliminated, roll that payment down to the next debt by adding the top debt’s payment to the second debt’s minimum payment. Continue as indicated in the table. When you are debt free, stay that way. Remain a cash-basis family. Credit, when used, should be paid off, in full, the next month. If you can’t pay the debt in full the next month, don’t charge it. Save for the purchase until you can afford it. Use lay-a-way! If absolutely necessary, use your emergency savings for the unexpected emergency.
|
|
Interest rate Min Payment |
Initial Round |
Second Round |
Third Round |
Final Round |
|
Credit Card #1 |
16% $25 |
$50 |
0 |
0 |
0 |
|
Credit Card #2 |
15% $20 |
$20 |
$70 |
0 |
0 |
|
Credit Card #3 |
15% $20 |
$20 |
$20 |
$90 |
0 |
|
Credit Card #4 |
12% $15 |
$15 |
$15 |
$15 |
$105 |
|
Auto loan |
6% $300 |
$300 |
$300 |
$300 |
$300 |
|
Total Monthly Payment |
$405 |
$405 |
$405 |
$405 |
|
Have a simple financial game plan. You must, repeat must, put yourself in the mind set of paying yourself first. Then do it. But how? First, decide what percent of your paycheck you can afford to deposit into an emergency savings account…consistently…and not have to tap the account to pay bills or entertainment costs. Then decide a percentage of your paycheck to contribute to your retirement account…consistently. Live on the rest. This forces you to live below your rmeans (provided you aren’t abusing your credit cards). Increase the percentages after raises or promotions. The emergency account should hold between 3 and 6 months worth of monthly expenses. In an emergency, you’ll be able to pay bills for a while. Or pay for that broken refrigerator or car. Prefer a picture? Need the picture to be larger? Just click on it. Here you go…
As the account value in the Living Expenses bucket grows, the extra spills down into the Emergency savings bucket. And all extra amounts in each bucket spill down to the buckets below. NOTE: the spill down from the 401k/TSP bucket to the IRA is not based on the value of the 401k/TSP. It is based on the amount of the contribution. If you are maxing out the amount of contribution and you have extra money that can be contributed to your retirement accounts, then put the extra in your IRAs. IRAs are also used to hold your rolled over 401k/TSP monies after you leave the service or an employer.
Get back to fundamentals. In a future article, we’ll talk about how to manage the retirement accounts.
