WARNING: Bad Debt Ahead

Helllo!~ Another week, another financial blog post. How has your week been? Mine has been going pretty well, and I am super stoked about today’s topic.

Did you know there are two types of debt? Now, I know if you’re reading this you think debt is most likely bad. That ALL debt is bad. Bad, bad, bad. But, what if I told you there is Good and Bad Debt? I mean… most debt is BAD, but there are some good guys too.

Today I want to focus in on those bad guys – the bad debt, and see what it is and how we can combat getting ourselves into it.

 

Defining Bad Debt

Bad debt, in the Personal Finance sense, is debt that has massive depreciating value or has an extremely high interest rate. A high interest rate I would consider as anything >6%, because that’s definitely worse than long term market gains. But, a mortgage isn’t bad debt and neither is a business loan (for the most part), so if an interest rate is >6% on either of those things, I would not consider them bad debt, except in extreme circumstances.

 

What is Bad Debt? – Common Examples

 

Credit Cards are the most common form of bad debt. Do you know the interest rate on your credit card? Most are >18%! This rate is significantly higher than most consumer loans. The payment schedules are also maximized so the debtor will owe as much money as possible.  Any type of balance on a credit card is never a good idea.

Cars are the second form of bad debt. How many people do you know with $30,000/yr income or $60,000/yr income with cars that are $30,000 or more? Thousands of Americans fall into this trap of having a high car payment. While the interest rate on car loans is often low, transportation costs per month should be <10% of your income. This includes gas, maintenance, registration, and a car payment. Having a car payment you can’t afford on an asset that loses thousands of dollars in value within months is never a good idea.

Consumable Goods America, and many globalized cultures value spending money and the “consumer debt”. Have you ever gone into debt during the holidays, or spent more than you planned? This is consumer debt and most things bought have no or little resell value.

“Transportation costs per month should be <10% of your income. This includes gas, maintenance, registration, and a car payment.”

 

How to Avoid Bad Debt

If you’re familiar with personal finance or the Femillionaire mindset, you know exactly what I’m about to say. If not, that’s okay! Welcome to the club.

Step 1: HAVE AN EMERGENCY FUND. I cannot stress this enough. Seriously, you need to have savings set aside for when shit hits the fan- because it will, and usually it’s a lot of shit all at once.  Just start. saving. now. Even if it’s only $15 a month, having a $100 emergency can compound into $200 very quickly when put on credit cards.

Step 2a: Be smart and have awareness of your financial situation, especially when buying a car! Buy a car that you can afford, has low monthly payments, will be paid off in 36 months, and that you can put a big, cash deposit down on. I know this is a lot and often means you won’t be buying a new car, but there are so many used cars that are only a couple of years old, have low miles and are incredibly reliable.

Step 2b: Buy a reliable car! Research which brand/years are most reliable. Generally, you can never go wrong with a a Honda Civic, Honda Accord, Hyundai Elantra, or Hyundai Sonata.

Step 3: Self Control. This is going to be one of the more challenging steps (if not the most challenging!). You can have an emergency fund and an affordable car, but still lack self control.  If you don’t have self control,  you’ll find yourself in a cycle of gaining bad debt, paying it off, and taking on more bad debt.

 

“You can have an emergency fund and an affordable car, but still lack self control.”

 

The Bottom Line

Bad Debt is, well, bad.  It’s bad for your wallet and your mental state. Avoiding bad debt at all costs should be your primary goal. If you already have bad debt, paying it off before all other debt should be your priority.

 

Have you ever had bad debt and paid it off or are in the process of paying it off? I would love to hear your stories below!

 

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2019 IRA LIMIT INCREASES by $500!

You heard it here first folks, in 2019 IRAs are increasing their limits from $5,500 to $6,000 per year. The $6,000 contribution is based on the government’s fiscal 2019 calendar, which starts in April 2019, but you should be able to start contributing larger amounts for the Fiscal Year starting in January. Just make sure you’re 2018 IRA account is already maxed!

How Much Should you Contribute per Paycheck to Max Your IRA?

  • If you are paid monthly (12 paychecks/year) and you max it out in 12 months, you need to contribute $500/paycheck to max out a 2019 IRA.
  • If you are paid bi-monthly (24 paycheck a year) and you want to max your IRA, you need to contribute $250/paycheck to max out a 2019 IRA.
  • If you are paid bi-weekly (like me! 26 paychecks a year) You need to contribute $230.76/paycheck to come close to maxing out a 2019 IRA. You’ll need to contribute an additional $0.24 to reach $6,000. Easy peasy.

 

For me, this increases my per-paycheck contribution up from $212 to $230. I’m not quite sure if I’ll be getting a raise this year as I plan to negotiate for more PTO, way more PTO.

But, I also may not be doing the per-paycheck method anyway. I anticipate a bonus of ~$3,000 and if I actually receive it I’ll dump it all into my IRA to already have it half maxed.

 

Do you max an IRA every year? What method do you use to max it out?

 

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Where have I been?

I’ve been busy. Very busy.

I have been BUSY and spending way too much money. Like, way too much. BUT the things that I’ve recently bought brought me more joy than anything else this past year. I mean, besides my cat, my boyfriend, and our trip to Cabo. I’ve learned a really important lesson on how spending money can be beneficial, and it’s not all bad.

My New Computer

I built and bought a new computer. First, I’m not hugely into computer components and understanding every last detail about them, but I do have enough knowldge to be intereted in how to put a computer together and how to make a dope as fuck computer. I wanted something with speed, agility, and beauty. Also, my current 8GB of RAM laptop was dying. It was time to buy something else. And this time, I finally wanted to buy/build something I never had growing up, a computer that was fully functional for what I wanted to do.
I went for a super computer with an AMD professor, 512GB of storage on an M.2 SSD  that clipped right into the motherboard. Building the PC was a whirlwind of events. But eventually, I turned it on and saw the MSI home screen, figured out how to install Windows, and never looked back.
My new computer is a total UFO, I can play games, create huge spread sheets, and do what I really wanted- edit videos.

I’m a Youtuber

I’ve wanted to join Youtube for YEARS. When I was in college, I couldn’t afford Netflix or Hulu and if I wanted to watch TV I would go to websites that allowed streaming. Que Youtube. I found free entertainment with some of the funniest, most creative people who were living lives I wanted so badly. I watched many girls around my own age, including Remi Ashton, Alisha Marie, Casey Holmes, and more. I lived vicariously through their Black Friday shopping adventures and their Target Hauls. Their DIYs were so cute and for five minutes at a time I could pretend I didn’t have homework, work, or student debt. I could pretend I just hauled a bunch of makeup from Sephora.
I finally took the plunge this Fall. After I built my computer, I bought lighting, created a background, and started brainstorming video ideas. I’m using a GoPro I bought in the Spring to film with, and it’s not great, but I’m working on my content and what I want my channel to be. Of course it will focus on finances and building income and wealth. But I also have some Hauls, DIYs, and random videos up as well. I’m working on my video editing skills and having lots of fun while doing so.
It feels like something I’ve wanted for so long is finally happening and I couldn’t be happier.
Check out my <a href=”https://www.youtube.com/channel/UClrLWlfevT77PN9jheHrCrQ?view_as=subscriber&#8221; Youtube channel </a> if interested! I’m going to be adding YouTube videos to more of my posts!

I Threw a Huge 25th Halloween Birthday Party

It’s not every day we turn 25.  And not everyone has such a close birthday to Halloween.  I was blessed with both of those things this year, along with enough disposable income to throw a huge party with the perfect food spread, tons of booze, and the perfect decor. All in, I spent about $2,500, along with a $562 gift from my boyfriend the party cost $3,000. And we had it in our condo!
Halloween decor is already marked up because it’s a holiday, and a few items were even more marked up because they’re such specialties. Enter <a href=”https://amzn.to/2CEfbdd”&gt; blood bag drink holders.</a> All the money was well spent, and I now have memories that will last the rest of my life. Clean up was sticky and the hangover was real, but I would throw it again and am even contemplating a huge 30th…

<h2> All In </h2>

All in, the past three months, including my rent and normal purchases, I’ve spend >$7,000. But it’s all been worth it. I think I’m finally understanding investing in your hobbies, because now I CRAVE to be on my computer (even more so than before) and I hope I’m inspired to publish more on my blog and create great Youtube content.

 

Until next time!

Finances

Spend Report – August 2018

Spending Report August 2018

This entire year has been rough when it comes to spending. There has just been a spend bug in my body the entire year. A lot of it is stuff I actually use – or services that make my life better. But as I want to FI, I need to find the areas that spark joy and truly do make my life better for the expense. One of these things has been fake lashes. I love them, but fuck they’re expensive. I go to a great woman, and I technically need a fill next week, but I honestly don’t know if I’m going to go. I should, but it’s so, so, so incredibly expensive. Ugh. And I’ve been into eye makeup more, and the lashes do kind of get in the way…  I probably won’t go.

Anyways, what you came here for:

My August Spend Report

A Brief Note on My Expenses: I live with my boyfriend who charges me $550 in rent for rent/utilities/groceries. Recently, I’ve been into credit card churning and have been paying for groceries, Netflix, and Hulu rather than giving him $550 a month. I reconcile this monthly and carry forward any remaining negative balance. Some groceries I do pay for myself and don’t bill him (like if it’s part of a Target run).

I break my categories into Category1 and Category2, Category2 is a sub-category of Category1. I try to get as detailed as possible in my Excel budgeting model. If I go to Target, I break out every item. If I go to the grocery store and only buy groceries- I lump it all together, but if I buy household items, they get categorized accordingly.

Below is my August 2018 Spending, This is a Pivot Table in Excel. I’ve purposefully broken out Category2 for Certain Categories

August 2018

In Review

This was a heavy spending month. I spent more than I have left over after I invest and save cash. $3,064 is definitely a lot of spend. Thankfully, most of that increase were due to unforeseen expenses (or foreseen, since I did have savings for them.

A few specifics:

  • Annual There were a lot of gifts this month!
    • My boyfriend’s birthday is next month. I bought him a very expensive, very nice kitchen knife.
    • My mom needed a new purse so I bought her one.
    • Our friend’s baby turned 1!
  • Personal Care I spend a lot of money on myself. Mainly on beauty.
    • High End Make Up stands out, Sephora had a 20% off sale so I got the < a href=”https://amzn.to/2LLRVLk”&gt; Tatcha Silk Canvas Primer</a> . I also made a stop at Ulta because I needed more eyebrow pencils.
    • Skin Care Stands out as well. Turns out I’m a sucker for everything Drunk Elephant. But in reality, I needed to refill my Vitamin C and buy a full sized Glycolic Acid . I had the mini, it was time to upgrade!
    • I also decided to purchase a meal plan from the fitness trainer I’ve been working with.
  • Transportation Car repairs
    • This month I needed my oil changed. It also came with $800 in car repairs. A cracked radiator, something wrong with the gas fumes leaving the car (I reported it). It adds up. But I love my mechanic! and the 2003 Hyundai Sonata chugs along.
    • This also came with ~$30 in Uber rides since I didn’t have a car for 3 days.
  • <strong> Household</strong> New furniture!
    • Although I’m not paying for it, my boyfriend bought a new coffee table and rug this month. We’re adulting pretty hard and this is definitely an abnormal expense.
  • <strong> Business</strong> Buying Domains and Ads
    • I started my venture into earning money online! Read that post here (if no link, it isn’t written yet 🙂 )

<h4> All of the Unusual Expenses added up to 40% of my monthly spend </h4>

August 2018 Unusual

 

<h3> Lessons and Spend for Next Month </h3>

September should calm down a little bit. Maybe. I’m anticipating getting my hair done, which will be anywhere from $200 – $600, depending on if I choose to get extensions or not. I’ve always wanted to try them and can fit them into my budget. I may or may not get lashes (eeek, what to do). I also plan on throwing a huuuge 25th Halloween themed birthday party. So shopping for that will definitely add up as well.

I should have fewer business expenses, although I plan to build up my Poshmark and upgrade this Website to WordPress business, which is another $200.

I have a feeling the rest of the year is going to be expensive. But as long as I keep contributing to my Brokerage, Roth, and Cash savings without skipping a deposit, I’ll be okay.

 

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August 2018 – My Road to Financial Independence

My Road to Financial Independence 201808

 

This is the introductory post to my journey to Financial Independence. I’ll probably do these quarterly or even semi-annually, with a large one done every January for a true annual check-up.

My current goal is to fatFIRE between 45 and 50 with $3.5Million in invested assets. This does not include any equity in property or cash. With this fatFIRE amount, I’ll be able to take 3+ international vacations a year, buy whatever I want, and maintain a very fun and social lifestyle. This amount would also mean I no longer have a mortgage or am very close to paying the house off. I assume if I have a partner at this time, they’ll have their own assets or will continue to work.

This number can always change, and who knows, once I’m fully FI I may not want to Retire Early. But this is my goal for now.

My Road Map to My Current Status

September 2014

-$25k Networth

May 2015

-$16k Networth

January 2016

$0 Networth!

  • $4,500 in a 401(k)
  • $4,500 in student loans left

March 2016

  • Debt Free!
  • Salary increase to $70k, still contributing 10% to 401(k)

January 2017

  • $18k Networth
  • Emergency fund funded!

January 2018

  • $50k Networth

August 2018

  • $93k Networth
    • $18k Cash Savings
    •  $7k Checking/Savings that will be used eventually
    • $68k Invested in RothIRA, 401(k), HSA, and brokerage
    • $2K in Crypto, going to HODL this
    • Currently have 2k on my credit card (this gets paid monthly)

Current and Future Goals

I turn 25 this October and my goal by January 2019 is to be worth >$100k. Right now I’m on track to be there, I just need to be careful with holiday spending. I’m also throwing a large birthday party in October and I’ll need to monitor those costs.

My current job does not have a 401(k) and maxes my HSA for me. So I have no pre-tax savings on my income.  Of my take home pay, I invest 47% and save 19% for a total savings of 66%. I do save other monies, but it’s all earmarked to be spent (i.e. I save money to travel, but don’t include it in the 19% savings above). The cash savings above is for various things, a new car, getting my teeth done, maybe a boob job, maybe for a one-day wedding, a house down payment, etc.  This is also my emergency fund (although that is currently fully funded).

If I want to buy myself something nice and “save” for it, that money also come from elsewhere, not from my cash savings.

In 2019 my goal is to invest $45k and save $6,000 cash.  Ideally, if the markets stay stable my net worth at the end of 2019 will be slightly over $150k. But the faster my NW grows, the better. I’d love to push for $200k. I also don’t make “Net worth” goals in the short term, the market crashing is out of  my control. Most of the money from my 2019 goal can come from my main income. But, I strive to diversify my income as well. Follow those pursuits in my Extra Income category!

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