On The Money Latest Financial Fitness Posts
On The Money Latest Posts
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Income shmincome!
We have a bad tendency to think that how much we make determines to a large part our financial fitness. The reality: our income ranks low on the list of what makes us financially fit. Last night we met Raquel, the first member of our Financially Fit Club. A successful professional who recently lost her job (with a good severance), Raquel made a very good salary but she was living as if she made more than twice that. She owns a car that in ‘true total cost’ (check out our free workbook to figure out your true cost of owning your car) is more than half her former salary while her mortgage and housing costs were much more than she can comfortably afford (40% of her monthly income). This is all on top of five-figures of credit card debt.
Just as important as it is to make sure that the biggest expenses in your life, such as your mortgage and transportation costs are within a ‘safe’ zone in your budget (see my budget calculator here), it’s important to recognize what bad habits are contributing to big, bad debt loads. Think of credit card debt as trans fat. You may not be able to avoid it completely, but you want to keep it as low as possible. Raquel thought she had anywhere from $25,000 to $30,000 in credit card debt but a review of her credit report revealed that she had closer to $15,000 and some cards with balances as low as $14! Raquel lived large—too large. Her state of financial fitness shows it.
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As Raquel considers what line of work she goes into next, she can make some big changes in her numbers that will make her much more ‘fit’ instantly. She can downsize her mortgage and with a solid financial ‘core’ of $200,000 in equity, she’s in a great position to sell and take on a more manageable home that will most importantly, give her the stability she needs. Raquel can also downsize her car payments by selling her BMW and looking into going CPO (certified pre-owned) at half her current payments, saving not only on total costs, but depreciation as well. And as Raquel tackles her credit card debt while she looks for a new source of income, she can start learning how to spend right—in a financially fit way. We’re going to check in with Raquel along the way and see how far she’s come, so stay tuned!
Tonight we’ll meet Ron, a former NFL player who went from making $300,000, to making 85% less. Income be darned—more keys to financial fitness are just hours away.
Data is a real-time snapshot *Data is delayed at least 15 minutes