Tag Archives: debt

Are You Overspending Today Because Of A Future Inheritance?

by
Overspender

Always Broke

 

I have a friend at work who seems to have holes in his pockets!  He is always broke and deep into credit card debt and doesn’t have any equity in his house after paying into his mortgage for over ten years (he keeps refinancing, taking the equity out).

Just this year, he’s bought brand new leather living room furniture, a new expensive washer and dryer, a new zero turn riding lawn mower (so now he has 2 of them in total),a full house backup generator, and well over $1,000 in paintball guns and equipment.  Oh, I forgot that he remodeled his master bedroom, buying hard wood floors and had someone come out to rebuild his deck, oh and bought expensive new bikes for him and his wife.  This is just that stuff that I’ve heard about!

My friend is a clever guy and a peer, so I wondered how we could be so different…  So one day, after his incessant complaining to me about his lack of savings, I asked him why he always spend so much money on new expensive things all the time.

He leaned in close and told me that he plans on inheriting a good chuck of money from both his parents and his wife’s parents.  In fact, he mentioned that his wife’s parents are really loaded.  I hope the expression that reflexively popped on my face didn’t reveal my feeling on his line of thinking…

I think that it’s risky and horrible to overspend today while waiting to receive a future inheritance for these reasons:

  • The parents could give the bulk of the money to charity, leaving my friend a much smaller amount.
  • Some financial disaster could happen and that money could evaporate (think Bernie Madoff or Enron)
  • Some medical problems could eat away at their parent’s money too.
  • Perhaps their parents aren’t as rich as they appear to be.
  • It’s a sucky way to live life waiting for your parent to die to get money, very sad really…
  • Their parents could decide to spend the money, going out in style as they age.
  • You risk becoming your parent’s pets the entire time they are alive.
  • You miss out on trying to establish your own financial empire (lol).
  • You begin to view your parents as an investment instead of your parents.
  • You might be stressed whenever they spend money.

I admit, I envy his lifestyle, and I’m a bit disappointed that I’ll never catch up to him or surpass him financially since he has huge advantages.  That said, I do feel that I’m accomplishing my own financial future by living more within my means and my by financial planning over the years.

So should I hate my friend because he’s overspending today because of a future inheritance?

Naw, I hope the best for him, after all he is a friend first.  I just wish deep down inside I wouldn’t think he was such cold-hearted reptile.  I wonder how long it will take them to blow through their inheritance once the do receive it?

Do you know anyone similar to my friend?  What is their deal?

MR

Debt Reduction and the 3 Steps For Creating a Repayment Plan That Is Almost Fun

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Believe it or not, but “Debt Reduction” can almost be a fun process!  During the time that I was repaying my mortgage and two car (all at the same time), hitting certain milestones that I created was almost fun!  I thought I would share my process and how to get the most out of it.

Step 1

Use a spreadsheet to track your debt payments and the effects on the amount you owe!  What if you don’t want to spend money to buy a spreadsheet?  Consider the spreadsheet program in Open Office Calc or use Google Spreadsheets.

This step is my base, without this step I wouldn’t have been as motivated!  I took it a step further and made a what if page to calculate how changes in the amount I paid would affect the life of the debt and the total interest that banks would receive.

Step 2

For this step, I created financial milestones!  Once we crossed these financial milestones (really mortgage milestones, but the idea is similar), we would reward the crossing of the milestone by going out to eat at a decent, but not too expensive restaurant.

Note, we chose to make the milestones significant.  So we set our milestone at 20% intervals of the amount owed.  So if our debt was $100,000, we would celebrate at 80,000; 60,000;  40,000;  20,000 and obviously at zero!

Step 3

At this step, you’ve paid off your debt and how you have all of this extra money rolling in because your debt obligations are gone…  so what do you do?  Well, in my case I decided to use the extra money to buy stocks that provide a dividend.  Then my idea is to use the dividend to eventually pay for those fun expenses (like lunch, eating out, vacation, etc) while at the same time pumping my extra earned income into solid dividend stocks and other new investments.  That dividend could then serve double duty and cover hard expenses (food, utility, taxes and other non-fun expenses) in times of tightening.

What about retirement, 529s and other important expenses?

Do it all, or at least that is what I did.   During my repayment plan for my cars and house, I continued to fund my 401k and 529 plans for my kids.  I was even able to put a little bit in my Roth IRA.  It was tough, and instead of paying my mortgage off in 5 years, it took my a bit over 10 years to pay everything off.

I believe that a balance approach towards finances is the best approach.

The key is to make the best of your situation, and enjoy life!

Here wishing the best for your finances,

MR

Saving By Paying Attention – Impulsers, Part 1 of 4

by

Impulse Buyer

I have friends, lets call them Impulsers (yes, I made this term up), that are constantly driving to the store to get a snack, pop or ice cream or _________ (insert convenience item on the line to the left).

Typically the Impulsers group are non-financial people that don’t understand (or were never taught) finances so they never picked up even the most basic money skills.  They usually buying everything on impulse, whenever they want it, including big ticket items like cars and boats.

The Impulsers typically live paycheck to paycheck, or worse, go into debt spiral!  Money is like air to them; they breathe it in (salary/wage income) and breathe it out (consumer items and non-appreciating assets) and then some…

Impulsers are not bad people per say, but a little naïve about money management!  So what do you to do if you have a close friend that is bad with money like the Impulsers?

2 Ways to overcome Impulsers’ weaknesses:

  • Budgeting!  Yep, the “Impulsers” have the most to gain by using a budget versus any other group! Ironically, there is an excellent personal finance blog out there called www.Budgetsaresexy.com that actually is really cool.  So cool, that I believe the Impulser’s group would appreciate it and perhaps get hooked on it.  They might start to reading it on a daily basis.  This would be a win-win for anyone in the Impulsers group, because they would derive entertainment value out of the Budgetsaresexy.com website, while at the same time learning a thing to 2 about budgeting!  J.Money even has a special Millionaire Club group, that is basically a pledge of things to do to try to reach that elusive Millionaire level status.  This hands down is the coolest blog about budgeting you will ever find!
  • What if they don’t want to do read a blog? Well, that brings me to what I’m trying to do currently with a friend.  First, we are close… almost brothers, so that gives me a little extra wiggle room, versus a friend you might have know for only the last couple of years.  What I’m going to do is have my friend and I do the budget together!  You might be wondering what am I going to use as the carrot?  Well, my plan is to use the old “I need help” and “Let’s try this out as a team” approach.  The reason for this approach is that your friend doesn’t believe that he/she has a problem.  But, like most good friends, if you come to them asking for help by doing something together, it might have a chance!  You’ll have to spend some time creating the program in addition to the work creating budgeting program.  But if you do it right, and have periodic meetings (monthly or maybe quarterly) somewhere fun (maybe a bar?) it might work!  During these meeting times, voice your concerns to your friend about your financial goals and talk about your expenses and how you plan on controlling them.  You might be able to even animate certain expenses.  By animating certain expenses, it will give it a face!  That will enable you and your friend to recognize the face of the enemy and try to conquer it by keeping it contained (via the budget)! He/she should be able to pickup your concerns and how they relate to him/her.

Also make sure you really do it all out (afterall it’s really a stealth mentoring thing). If you don’t follow through with your budget, how can you expect your friend to either?  I think it might be fun, actually!  Perhaps another win-win scenario.

If you have any additions or any questions about my suggestions please jump in and post a comment.  The water is warm and friendly here are Money Reasons!

-D