Beating Broke

Personal Finance from the Broke Perspective

Financial Steps for After the Election

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Up until now, we’ve all heard about the various ramifications of one Presidential candidate over the other.  We’ve heard about what differences will be made to the tax system and how it will affect you.  And sometime after midnight tonight, we’ll know which set of changes might take effect.

So, now what?  Regardless of who wins, if you put yourself in a position for it to not make a huge difference to you, you won’t have to worry.

Following a few principles we call the Beating Broke rules, we can set ourselves up financially such that changes to the tax code and other programs like Social Security and Medicaid have a very minimal impact on us.

Begin by paying off all of your debt.  Most debt is bad debt anyways.  Pay it off and you can afford to pay a little extra in taxes if you have to.  Nobody likes taxes, but the law is the law and there is very little that you can do about that.  Having fewer bills to pay frees up some money to compensate without having to take the money from another place like food or rent.  While we’re at it.  Stop acquiring more debt.  Get debt free and stay that way.

Start Saving.  Begin with an emergency fund and go from there.  Once you have an emergency fund set up, start saving for retirement, college, and that new car and house.  If you can pay cash for all those things, you don’t need to care whether social security or welfare or medicare or any other social program they put in place will still be available to you when you need it.  Financial independence from those programs frees you to worry less about those policies and worry more about where you’re going to vacation this year.

With those two steps, you can make yourself nearly financially independent from the policies of our political leaders.  They won’t help you much with their policies on foreign war, foreign relations, immigration, or many of the other policies.  You’ve still got to decide on a candidate for those things.  But if you can relieve yourself of worrying about their fiscal policies, you can focus more intently on their other policies.

Start now.  The next election is in only 4 years.

Mark Cuban Lays it Out

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If you’ve been reading Mark Cuban’s blog lately, you’ve likely noticed that he’s been talking alot about the current economic situation and also about how a person should handle his/her money.

Today is no different.  In a post entitled “Where to Put your Money Right Now“, Mr. Cuban gives some advice in a manner that only he can.

So in a nutshell, while the interest rate on your credit cards is going up, the return on your investments has been going down. You know what they call someone who keeps on giving money to their stockbroker, mutual fund or 401k, but doesn’t pay off their credit card balance in full every month, BROKE AND STUPID !

The first thing you do with your money is if you have money market funds, you take the money out and pay down your credit card debt.

A little brutal and not even close to politically correct.  I love it!  I think it’s statements like this that have drawn me to people like Mr. Cuban and Dave Ramsey.  They aren’t afraid to tell you when you’ve made a complete buffoon of yourself.

I would strongly encourage you to read the rest of Cuban’s article.  It’s a little long, but it is most certainly not short on good advice and sound instruction.

Debt Avalanche? Correct?

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There are many theories as to how best to pay off your credit card debt.  One, the Debt Snowball, was popularized by Dave Ramsey and has many followers.  In it, a borrower pays off the lowest balance rate card first and then “snowballs” the payment from that card onto the next lowest balance until they are all paid off.  One of the benefits of doing it this way is that you get a “quick win” when you pay off the first card.  And because you are “snowballing” the payments onto the next card, as the balances go up, so does the payment and your first “quick win” turns into another. Then another.

Flexo at Consumerism Commentary seems to think that that isn’t the best way to do it.  According to him, the method that he calls the “debt avalanche” is the “correct” way to pay off debt.  In this method, you arrange your debts in order of highest interest rate first to lowest interest rate last.  As you pay off your debts, you are saving more money on interest and paying the grand total off in a faster length of time because of it.  In his words:

By choosing the Debt Avalanche method, you will pay off your total debt faster, you will pay less interest, and you are mathematically efficient.

And he’s right.  Mathematically.  And if we are all robots, it will work for each and every one of us.  What he fails to do is take into account the human factor.  Let me make an example for us.

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