Changing Your Money Mind Set
Many of our habits and thoughts about money are already ingrained by the age of just seven. That’s great if your parents had and demonstrated good financial habits but if they didn’t it can be hard to change your money mindset.
There are some personal finance mistakes we just have to let go of like the ones we made because we were young and dumb.
We took out $100,000 in student loans when we were 18 and got a degree in South American literature. Not many career choices with that one, huh?
Or maybe you took a car loan out on that new car that didn’t really fit into your monthly budget after all.
We aren’t likely to make that kind of mistake again so we just have to move on.
There are some money mistakes that we made when we knew better. We knew we were doing something that would have bad consequences and we did it anyway.
When we look back later, or sometimes immediately after we’ve done something like that, we feel guilty and ashamed. There is a lot of guilt and shame around money. But those feelings are only useful when we can learn from those mistakes.
If you went out and bought a bunch of stuff you didn’t need and charged it to a credit card because you didn’t have the cash to afford it, what lead to that?
Did you have a bad day at work, get into a fight with your partner?
We all have behaviors we use to cope with stress, anxiety and unhappiness and some can be destructive. We have to develop better ways to deal with uncomfortable feelings that don’t hurt us.
Stop being lazy about money
You often get hit with overdraft and late fees not because you don’t have the money to pay your bills but because you just can’t be bothered to do it on time.
There is really no excuse for this now that we have so many ways to automate our finances available.
You can easily go online and see how much money is in your checking account before you charge something that costs more than your balance. If your checking account balance is low, you can easily transfer money from your savings account.
You can set up auto-pay so your bills are paid on time. If you don’t feel comfortable using auto pay, set up alerts on your phone for two days before a bill is due and set them for a time that you know you’ll be home so you can sit down and pay them immediately.
Some bills allow you to change your billing date. If this is an option, change the dates to the same day so can pay all or most of your bills at once. Just be sure you have enough money to cover all those bills at once.
You don’t really think about it much and are happy if all your bills are paid and you have $20 in your pocket? You can get away with that attitude in your 20’s but if you don’t change your money mindset, it can catch up with you.
Everyone should be saving for retirement as early as possible. The earlier you start investing, the more time compounding interest has to work it’s magic. So go open that Roth IRA you’ve been putting off for weeks.
It’s almost never too late to start investing but the later you leave it, the more catching up you have to do. Once you throw a family into the mix, it’s harder to find money to save making catching up even more difficult.
Building Financial Freedom
We want to use our money to buy our freedom. So how do we achieve financial freedom? The first thing we have to do is to kill of high-interest debt, usually credit card debt.
The average interest rate on a credit card is 15% but there are some that approach 20% or even more. People paying interest rates that high have usually had late payments which trigger a higher rate of interest than the card had initially.
Its extremely hard to be financially independent when you have that kind of debt dragging you down. Credit card debt is your priority and you need a plan to tackle it.
There are two popular methods to efficiently pay it off, snowballing and stacking. Read the details and pros and cons of each and decide which method will work best for you.
Once you have that debt tackled, it’s up to you to decide how to handle low-interest debt like student loan payments or a mortgage.
If your student loan interest is higher than 4%, you can look into refinancing for a lower interest rate. Even an interest rate 1% lower than your current one can save you thousands of dollars over the life of a loan.
The same for your mortgage. You may be in a position to refinance. Refinancing for a lower interest rate is great and we advise it but we feel your money is more effective when you use it to invest rather than pay off low-interest debt.
The average rate of return over time in the stock market is 7% so you can invest and make money while still paying off those low-interest loans.
Some people hate to have any debt so if that’s how you feel, paying off those low-interest loans, while not my idea of the most efficient use of your money, it’s certainly not a bad thing, and if it keeps you sane I say go get it!
Once you have the really burdensome debt out of the way, you can focus on wealth-building. For most of us, the kind of wealth it takes to achieve financial freedom isn’t going to come from our careers.
Not everyone has a high paying job. And some of us aren’t really that interested in having a career at all. We want low stress, low responsibility jobs.
Luckily, there is a way to build financial freedom that has nothing to do with your career, your job, or your time.