evvdphc1nm7qedgkqn5bm3ju09 "Fun Money" Fridays
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  • Nicola Lambo

"Fun Money" Fridays

Ep. 3 WHEN THE ODDS ARE STACKED AGAINST YOU. . . 💰

“Put up your dukes” and defend yourself…Fight back!

Week two of April catches us right in the midst of National Financial Literacy Month and one day closer to being past this epidemic and the presence of some undeniable facts!


We are deeper in the money pit than we've ever been and nowhere the wiser as a nation, an issue very evident by the financial situation rapidly unfolding as a side dish to this unexpected crisis, it has suddenly become front page evident by the impulse buying plot twist exposing the massive lack of literacy we face as a collective. The rapid pace and dollar amounts of stimulus packages tells us so.

We gotta be asking ourselves, "How is it possible that 99% of the population still doesn't understand money?”

As a matter of fact the only version of financial education provided for most people is in school and revolves around how to "successfully borrow money ”.

Well, part of the culprit is the illusion that banks operate solely for your financial benefit and that seduces us into thinking that what they sell us is good for us.

Just a small serving of education, banks practice "Fractional Reserve Banking" where they are allowed to loan up to 10x the amount of money their customers deposit into their checking and savings accounts leaving only a fraction of the bank’s deposits backed by actual cash on hand and available for withdrawal.

***FYI: ALL banks are paid a rate of interest on reserves…

You do the math, if Betty keeps roughly $2,000 in her checking and savings account, the bank can now lend out $20,000.

SPOILER ALERT ~ If you're tracking with me, that means Betty parks her hard earned money with the bank, they use her money, lend it out, and earn interest on her money in return, the kicker is, often times lending her $$$ right back to her in the form of credit cards or loans. Hmmmm, the nerve!

The take away here is understanding that in this relationship, banks need you but you don't need them! Credit Unions are a lovely alternative, a not-for-profit financial institution that is owned and operated entirely by its members in the community and are required to maintain a greater reserve on hand..


Just have the awareness that banking is a business and their biggest pitch is,

"You need to get good credit."

Raise your hand if your parent took you down to the bank to open up a checking and savings account? 🙋🏽‍♀️

That's actually where it all begins (check out my colleagues book, "Rich Man, Poor Bank" by Mark Quann for details on this process)

What they neglect to tell you is that their existence is based on your "Borrowing Belief System" that when left unchecked, leaves you in dire straits deep in debt and no sign of ever making your way out in this lifetime.

To be fair there is such a thing as good debt but that's a lesson for another day.


What we're addressing today is the "Debt Matrix" and how you can become a "dead beat", literally a term the financial industry uses for people who use credit cards and immediately pay them off, never leaving a balance to accrue interest on your purchases.

Who wants to be a DEBT FREE "DEAD BEAT" ???

It is no secret that our economy is currently in a financial crisis, this isn't new, it's just continuing to evolve every year into trillions of dollars of debt, but Why?


We lack as a country the basic fundamentals of money.

FACTS: 37 states teach mandatory sex education and only 4 states offer financial education as an elective.

Enter the "Debt Matrix"

It's an insidious habit that has left America with an average household credit card debt of $16,000 with an average interest rate of 16%.

To understand the gravity of these stats, let's 1st explain the rule of thumb, a mathematic formula that helps calculate compound interest, called

"THE RULE OF 72" :

72 ÷ × (%) = the years it takes for your money to double.

This formula can work for you or against you, put it this was, Albert Einstein, who rediscovered this rule many moons ago said,


"COMPOUND INTEREST IS THE 8TH WONDER OF THE WORLD. HE WHO UNDERSTANDS IT, EARNS IT... HE WHO DOESN'T... PAYS IT."

Story time:

It was such a proud moment when mommy took Boss Babe Becca down to the bank to open her very 1st checking and savings account, she diligently deposited her paycheck but unfortunately was never taught to pay herself 1st, the savings account sat there with the initial $50 her mom deposited for her while her checking went up and down and up and down depending on her spending.

By the time she was headed to college, she had nothing saved but needed books, a computer, and lunch money for eating on campus and wouldn't you know, she had just turned 18 and was eligible for a credit card. Becca was primed for that precise moment when she stepped onto campus and they were handing out credit card applications with all sorts of swag.

She "needed" it because she didn't have savings, her parents couldn't afford anything extra financially, and because of her class load, she could only work on the weekends for minimum wage.

By the end of her 1st year Becca had racked up $10,000 at an 18% interest rate because, you know, she had no credit history so her rate was high.

Any over achiever calculate the “magic” of compounding?

72 ÷ 18 = 4 yrs

Becca carries that debt and doesn't pay down the balance….

Let the compounding interest begin doing what it does best, a DOUBLE to $20,000 in 4 short years, then double again in 4 more years to $40,000 and after the 12th year she’s ballooned up to a whopping $80,000 in debt by 30 years old.

***Keep in mind, we only ran these numbers for year 1 of $10,000 of unpaid debt compounding, the reality is she has 3 more years to go…..

Can you imagine that our system is designed to kick out newly graduated students into the world with a harsh reality check on day one. Carrying the weight of a hefty 6 figure debt on their back with no job to speak of just yet, and possibly no prospects of getting one in time for their 1st loan payment to come due.

Becca is destined to start out her life in a hole she may never see her way out of.

Incidentally, did she need a car?

Is she paying rent or living with her parents?

Does she need groceries, have a cable bill, owe for utilities?

Swipe, swipe, swipe, swipe, swipe 💳

Kinda makes you wish you could #swipeleft on it all huh? (instagram humor)

Well, maybe not that easy, but it can be simple.

AVOID THE “DEBT MATRIX”

1. Save at least 10% of your income to establish an Emergency Fund

2. Live within your means by deciding what are "needs" vs "wants"

3. Avoid credit card debt, if you don’t have the cash to pay it off, you can’t afford it.

4. Put a portion of your money to “work for you ” in places that it can grow

(Details on this in Ep. 4, plus examples of why a savings account is not gonna cut it)

5. Establish a Financial Plan for short term, mid term, and long term savings goals so you can accomplish some of those big ticket dreams.

Wait, STOP RIGHT THERE 🛑

You’re thinking, “I’m up to my neck in debt already, it's too late and too deep of a hole.”

Remember I said:

Fight back👊🏽 SNOWBALL or STACK

Both debt snowball and debt stacking plans differ in approach but some of the basics are the same:

1. Start by listing all of your debts.

2. While you pay the minimum on all of your other debts, focus on paying any extra money you have toward one specific debt.

3. As soon as that specific debt you’ve been focused on is paid off, apply that payment amount plus the extra you’ve been paying toward the next debt until it is paid off.

4. Continue this process until all your debts are paid off.

5. Inevitably as you pay off more debt, you’ll free up more money to attack the remaining debt faster with larger dollar amounts.

Debt Snowball:

List all of your debt from smallest to largest dollar amount.

Pay down the specific debt with the smallest balance first and work your way up to larger debts

EX:

1. $5,000 Student Loan at 4%

2. $6,000 Credit Card at 18%

3. $10,000 Car Loan at 9%

Debt Stacking:

List all of your debt by interest rate from highest to lowest.

Pay down the debt with the highest interest rate first and work your way down to lower interest rates

EX:

1. $6,000 Credit Card at 18%

2. $10,000 Car Loan at 9%

3. $5,000 Student Loan at 4%

Pros and Cons:

Debt snowball ~ allows you to see results quickly as you are tackling smaller amounts and can manage to clear them away faster. This method is a psychological win as it is satisfying to cross a debt off your list. However, this will allow for larger amounts with potentially higher interest rates to linger longer and cost you more money by way of interest. As we’ve seen by the Rule of 72, interest is a powerful thing that you might not want working against you.

Debt stacking ~ allows you to benefit mathematically by saving tons of money on interest. This helps you to pay off debt sooner because as you reduce the amount of interest that you pay, you also reduce the amount of time it takes to pay off the loan. However if the high interest rate is on larger loan amounts, not seeing results right away may prove to be difficult and a bit discouraging at the start.

{ Psssst…this is the ‘Narrow Road ’ less traveled but will most often keep more money in you pocket 💰}

The method that is best is the method that you will stick to.

SMART & FINAL Here is an example of what your money looks like working for you.

(The Topic of Ep. 4)



The biggest add value I want to share with you is the biggest misstep that I see people make in reference to debt.

Picture this~

You are a Champion Bad Ass Boss Babe you have slayed in the arena of Debt Stacking, you bit the bullet, pulled up your pants and buckled on your boot straps.

You are 3 teeny tiny months away from being DEBT FREE!!! And wham…

The Unexpected Emergency out of nowhere got you good, this isn’t one of those flat tire deals, this is a full on living room flood, the disasterous kind of deal and you now find yourself in a pickle….

You see, you decided to do one and not the other, you decided TO FOCUS ALL YOUR ATTENTION ONLY ON GETTING RID OF DEBT and figured you would save after you were out of debt. Minor Emergencies care nothing about timing, life happens whenever, wherever, and however, we can only do what we can do, which is BE PROACTIVE.

Yep you guessed it, these two things must happen simultaneously or you will be caught with your proverbial “pants down”!

Nobody wants that!

PAYING OFF DEBT & PAYING YOURSELF 1st HAPPEN AT THE SAME TIME, they must work together in tandem because the very last thing, and I mean, last thing

you want is to have worked so hard and END UP RIGHT BACK WHERE YOU STARTED at square one! Imagine how defeated you would feel?

So stack the chips in your favor!

But all is not lost if the hole is too deep and the sum seems overwhelming and insurmountable, there are other more weighted Debt Solutions available to you if you find none of these are viable for where you are. I am here, let me know and we can discuss those things too. Speaking from “been there done that” land!

Bye for now, happy stacking on this happy Fri-yay, may the odds be with you!

Until next time,

Nicola



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