3 Reasons to Keep a History of Your Financial Information

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Working at my computer last night I found that I had added a duplicate bank account in the Quicken, and I didn’t know how to fix it. I spent about 45 minutes trying to fix the problem, and then I got frustrated. I had a bright idea , and I thought to myself “Quicken has a restore function, lets restore the system when I didn’t have this problem.”

Before I did the “Restore to a Previous Date” function, I decided to do a backup before any major changes. After the backup completed, I started to download all my bank information from their websites, and then I thought I was almost done.

I got to one of the accounts that I manually put into Quicken, and my heart dropped into my stomach. I thought I didn’t have the information. Luckily, I remembered that I just did a backup. It’s a good thing that I did because I forgot to download information for two accounts.

Two hours later, the restoration was complete and I learned three very important things.

1. Keep Good Records of Your Financial Information.

You never know when you’ll need fix a a problem with a computer program or when you’ll need to report records to your accountant. Having a good system to keep your financial information intact is a must.

Make sure you keep a lock box or an area designated in your home for your important financial records. You never know when you’ll need your social security information, life insurance policy, or passport.

For electronic records, properly have information saved where you can easily access it. Have a system of backing up the information once a month.

2. Money tells a Story

Your financial information tells a story of what you did in the past and what you spent your money on. Recently it reminded me of being able to take my father-in-law out for his birthday. It was fun and we had a great time trying new food.

It also tells you of the mistakes that you have made financially in the past like taking out student loans and not paying them back, or having invested in business deals that didn’t go well.

Your history is a learning tool. Learn from your mistakes and success and use that information to make better decisions in the future.

3. What You Spend Your Money on is what is Important to You

It took me a while to understand, but where and how you spend your money says a lot of where you spend your time. A great teacher said “Where your treasure is, there your heart will be also.

Rick Warren said “Here’s how you know what’s really important to people: Look at their calendar, and look at their bank statement. The way we spend our time and the way we spend our money says what’s really important to us.”

Personal Finance in Paradise – Debt Elimination Series: Part 3 – 5 Step Plan of Attack toward Debt

Wailua Falls. Kaua'i

Photo by: thisworldexists

In this final step of the process. This is where you plan your month before you start it. This is like an architect who begins the process of building a house. You start with blueprints and then you begin the building process with raw materials to start the foundation. Your budget and debt snowball is the blueprint and the building of the house are the actions you take to get out of debt (budgeting).

You can do this on Microsoft excel or a notepad.

Step 1 Income: Start your month with your first paycheck and have this at the top of your sheet.

Subtract your fixed expenses first. This will let you know how much get to spend for the rest of the month. Then subtract the amount you may need for variable expenses. This will give you the remainder that you can spend on anything that may come up.

At this point, every time you make a purchase subtracted from your paycheck amount. This is going to keep a running tally of how much you can spend for the month. This will keep you from going over budget

Step 2 Fixed Expenses:  Find out what your monthly recurring expenses are.  They are typically savings, cell phone, subscriptions, donations, student loan payment, car payments, health and life insurances. It’s best to know theses expenses before you get caught in a crisis. You will probably end up having to use your credit card to pay for these expenses, and then get further into debt.

Savings is first on the list because your goal will be to live the remaining money. Trust me, you will be able to make better judgments throughout the month with the rest. You can start saving with 1% of your income. Get your feet wet, and over the months, you can increase the amount you save by 1 more percent.

My car insurance is paid every six months, so I take the total amount and divide it by six. It helps me to break down the payment into smaller manageable amounts instead of having to come up with $360 in one month.

For instance, if you have a car insurance to in January for $360 you would take $360 divided by six to get $60 dollars which would you will put away in either a savings account or leave in your checking until it becomes due in January.

Step 3 Variable Expenses: Like I said in the previous post, we are bad at estimating our true expenses. What we want to do here is get a general idea of what we may be spending in each category of non reoccurring expenses and then add 25%. It’s better to overestimate than underestimate your expenses.

These are things like groceries, gas, and other miscellaneous expenses that you may come up with over the month.

Remember for the categories, like groceries, make sure to add what you spent as an expense, and then subtract from what you had set aside for groceries for the month.

Step 4 Tracking: Take your notepad and and pen, and every time you use your debit card, credit card for use cash, will write down the expense. What you are doing is keeping a register of the expenses you have during the month.

The act of writing your expenses will keep you accountable to yourself. It also makes you think about what you’re buying. For instance, will I need this extra water bottle? Will this handbag be worth it in the future?

Step 5 Make Adjustments: If this is the first time you’re making a budget, you will make mistakes and overestimate expenses. This it took me a few months to get a handle of what I could pay for variable expenses. It’s a learning process and the more you track, the more practice will get by doing it.

Let me know your thoughts and if you have any better ideas please let me know.

See you soon

Personal Finance in Paradise – Debt Elimination Series: Mindset

Kahana Bay

Debt elimination strategies should always start with how you think about money and how you use it.

I feel that it is easy to blame ourselves for the debt situation that we are in. it is easy to be the victim and take no responsibility for what we have done to ourselves. Does take a bit more courage, and small tasks to step up and take real responsibility to pay off all of the debt we have accumulated.

At the same time,  we have a chance to remember that we have more than 80% of the people in the world.  It is better to focus on what is going right in our lives, and to appreciate what we already have what we have right now.

Marie Forleo has a great video about how to have a mental shift around money. I find it really helpful because the six steps she talks about are ways all of us should be reminded about how we can make small changes in mindset. It’s always the small things that can do on a daily basis to feel a little bit better about our situation.

Carol Dweck also has a great book called Mindset. Its main focus is to teach us about the growth mindset. This is where we look at the positive side of the situation, not in a sense where we pretend that the negative isn’t there, and seeing the situation or how it can make us be a better person.

It is a chance to grow from the struggle, and a chance to work through the problem to be a better person. Paying one small debt, choosing not to buy a cookie or a DVD, and finding ways to save money will help build new habits and get us one step closer to financial freedom.

Money is a powerful force that can destroy you if you let it. You have to learn to control your money instead of letting it control you. If you don’t, you will never get out of debt and will continue to dig a deeper hole.

Be honest with yourself, and and really examine the reasons why you are and that. Be aware of your desires and you wants.

Personal Finance in Paradise – Let Me Introduce Myself

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My name is Mike

I’m the creator of Personal Finance in Paradise. The reason behind why I started this blog is because I hate debt.

Prior to getting into debt i had quite a bit of savings, and I used it all on trips and training in other parts of the country.

I’ve been in debt as far as $66,500 and having not much to show for it, and I felt that I needed to do something different with my life.

I looked and searched for all of the ways possible to get out of debt. I read online for specific tips and tricks, even paid for a program that said it would pay off $25,000 in debt be 24 months with an annual net income of $40,000. (Come to find out that program lied, and I believed the impossible). I continue to read both secular and non-secular ways of how people do with money.

I’ve been around the block. Making bad mistakes along the way, and trying to find out the best way possible to get out of debt.

A Few Examples of Bad Decisions

I cosigned two loans that the original payers defaulted on, and creditors came after me for that as well. I was able to fend off those creditors and point them into the right direction.

Creditors called me, and I was able to fend them off. They tried to subpoena me, and force me to tell them that I owed a debt that I didn’t own personally.

I’ve had an “a wide” set of experiences in my life. At the top that all off I do live in Hawaii. That’s one of the most expensive places in the world to live.

Sometimes you you may have seen that you get a two bedroom home here in Hawaii for the price that you would get a mansion out in Texas. The goal of this site is to keep not only myself accountable, but to also teach my experiences to help you get out of debt as well. My goal is to reach out to you who have been in my situation.

Some of this may sound not so “grammatically correct”, because I’m not a grammarian nor am I a grammar Nazi. I’m using a program called “Dragon Dictate” to record my voice  and put it down here on the website. So going to apologize ahead of time that this may not be completely grammatically correct.

I’ve heard it said that “smart people learn from their own experiences, and wise people learn from the experiences of others.” My goal is to help you to be wise.

I’m excited to hear from you, and I’m glad that were going on this journey together.

Personal Finance in Paradise – Veteran’s Day – How You Handle Your Money: Mindset

How mental accounting affects your spending

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It’s Veteran’s day!

I want to thank all the veterans who have served our country. Thank you for being able to protect the freedom we take for granted and are able to take part of today.

Let’s talk about how we label money affects our buying decisions as some of us shop online and at the stores.

The Scenario

Let’s say this morning you wake up and start the day off great with a good breakfast, and you even got to sleep in. Then you go online and start shopping at your favorite clothing store site. You see a great looking shirt that you think you would look great in, and you buy the shirt on credit. For the moment, it makes you happy, and you don’t give it a second thought because you can just pay it off later.

Later in the day, you go on a hike with a few friends and you have a blast being in the sun. On the way home, you see your favorite coffee shop, and you haven’t had anything to eat since breakfast. You remember that they the best coffee cake. You and your friends decide to go take a peak. Once inside, you find that your favorite barista is working. You ask him to make a large iced caramel macchiato. You have a few laughs with the barista, and he gets your name wrong again on your cup. You pull out your credit card again, and you notice you have a dollar and some change in your wallet. Feeling generous, you place the money in the tip container as you leave.

Then in the evening, you take it easy and you go to a movie with your friends. You have a great day celebrating veterans, sharing some laughs, and enjoying life. Then later in the month you get your credit card statement, and you are confused on why you spent so much. What happened?

Mental Accounting

Why did we decide to go out and spend more money than we wanted? We’ve fallen victim to mental accounting. It is a concept where we treat dollars differently depending on where it comes from and how we have labeled the use of that money. The difference is that when we pay for merchandise with cash or with checks we see immediate consequences. The obvious answer is that that we have less money to spend.

We place less value on money we put on credit cards because we do not see the immediate consequences. At the same time, we don’t see that buying merchandise on credit is more expensive because of the interest that gets charged when we use the card.

Small Amounts of Money

People who have harder time holding onto small amounts of money, like putting small amounts into tip jars, have a harder time saving money. It’s because that the money we have wasn’t labeled for anything important. I”m not saying that you shouldn’t be grateful and tip your barista, it’s that if money isn’t labeled for a specific use, we will find a way to spend it.

Takeaway

To get around mental accounting, place money in accounts that are labeled for a specific purpose. For instance, a savings account, which was marked for the down payment of a house. We would be placing a higher value on the account because it limits what we are willing to do with the money.

Pre-spend money before you have the chance to spend it yourself. Let me say it this way, have your money sent over to a savings account, or investment account before you have a chance to see it in your account. Psychologically it’s much easier to set your money aside this way than by writing a check to your savings or investment account.

Track your spending at the end of the day, and keep a list of your expenses.

Have a great veteran’s day. Please feel free to comment, and let me know if there’s anything you want me to talk about.

Personal Finance in Paradise – How to develop a Financial Plan

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“If you were to show me your current financial plan, would I get so excited by it that I would go across the country and lecture on it? If the answer is no, then here’s my question: ‘Why not?’ Why wouldn’t you have a superior financial plan that is taking you to the places you want to go?” — Jim Rohn

Many of us have never been taught how to develop a financial plan, and we walk through life guessing what is the next financial move that we should make. It’s possibly the main reason why people are live paycheck to paycheck.

It took me a year or two of research and testing to figure out what I wanted in my life. One thing I recommend is the worksheet from Missouri State University which is provided in the link. The worksheet is a good start point.

The process

1. Determine your current financial situation

One of my mentors told me that your net worth is your adult report card. We lose sight of how we are doing financially, and one way is to measure how we are doing is by looking at your net worth. My financial plan started out with me being $66,500 in debt in 2007 and no savings. I started to track every purchase, and it helped me to clarify where I wanted to go in the future.

Begin with how much you have saved up (in savings accounts, Roth IRAs, and other investments), and then subtract your liabilities (all of your debt from credit cards and loans). Begin tracking your expenses and organize your financial records.

2. Develop your financial goals

I wanted to get out of it the fastest way possible and not lose any of the activities that made me happy. I asked the following questions. It helped me find out where I wanted to be in the future.

  • What do you want for the future?
  • What do you want to achieve?
  • Do you want to save a certain amount of money a month?
  • Where do you want to travel?
  • What are your financial values?

3. Identify alternative courses of action

Seeing that my purchasing behavior and spending got me into trouble, I knew that the behavior was the first thing to change. I thought to myself “there’s nothing wrong with making mistakes with money. Learn from the experience and move forward.”

Remind yourself that there is no reason to beat yourself up over the situation that you’re currently in. Your circumstances can change. It’s a learning process and it’s alright if you don’t know everything now.

4. Evaluate alternatives

Because the $66,500 price tag was looming over my head, there needed to be a major decision to be made. How much could I put toward paying down the debt. After running numbers in my budget, I decided to put $1,250 a month to the debt and that was the first thing to come out.

Of course I had to give up a few luxuries like being able to eat out often. As I learned and searched for alternatives, I gained respect for money, and relearning delayed gratification. The choices you make now get will get you closer to your goals in the future.

Weigh the costs of the choices that you make. For instance, Can I make steady payments of $650 to my debt per month? What better choices can I make with my money so I can get to the $650 goal

5. Create and implement your financial action plan

After I decided to take action, all the stress and emotion was taken out of the decision making process. It ended up becoming a game of how could I make better decisions to pay the debt down faster.

Once you have made a few decisions on what you want, and the direction you want to go, it’s time to make that plan work. This is the testing phase to see if you are able to work with your plan, and if it will work for you. The hardest part of gathering all the information and planning is complete.It will be hard at first, and the process will be worth it because you are beginning to change habits that you didn’t know you had before. You are on the road to becoming better with money.

6. Review and revise the financial plan

Your first plan isn’t going to be your last. As you move along in life, your financial situation is going to change. My financial situation changed many times over the years. Yours will too. Trust in the process, adjust when you have to, and restart from the beginning when you have to.

For more detail go to wikiHow to get deeper into the planning. Let me know if this helped you, or if you have any suggestions please let me know. See you again soon.

If you go to work on your goals, your goals will go to work on you. If you go to work on your plan, your plan will go to work on you. Whatever good things we build end up building us. – Jim Rohn

10 Things Americans Waste Their Money On

Dave Ramsey posted a while ago 10 Things Americans Waste Their Money On, and they are:

  1. Credit Card Interest
  2. Deal Websites
  3. Appetizers
  4. ATM fees
  5. Overdraft Fees
  6. Speedy Shipping
  7. Designer Baby clothes
  8. Unused gym memberships
  9. Premium cable packages
  10. Daily coffee trips

I agree that some of these are wasteful, for instance #1 and #4.  There shouldn’t be any reason why you should be paying fees on things you could get for free.

My personal experience with the top ten are

  • Credit Card interest – Since I have a balance transfer on my credit card, the company is trying to have me pay interest. I will be paying the remaining balance this month so that I won’t have to deal with that anymore.
  • Deal websites – I don’t shop on deal websites, but I do occasionally take part on deals when it comes to getting cheaper quality clothing. I like to shop at H&M or take advantage of workout clothes from Hylete.
  • Appetizers – If and when I go out with my wife or friends, sometimes I’ll order an appetizer as my main dish. It comes out faster and it’s generally cheaper than a whole meal.
  • ATM fees – I don’t pay these ever.
  • Overdraft fees – I have an overdraft account that helps me speed up the process of paying down my debt.
  • Speedy Shipping – normal shipping is fine for me. I’m not in a rush for immediate gratification.
  • Designer baby clothes – I don’t buy these
  • Unused gym memberships – I go to Crossfit a 3-5 times a week. So my membership is fully used.
  • Premium cable packages – My wife pays for Netflix, and I tend not to spend too much time watching TV.
  • Daily coffee trips – I don’t drink coffee

What do you think of the list above? How do you compare to what Dave Ramsey thinks people waste their money on.

Money Moves October 2015

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Welcome to Money Moves for October. This is the section for review and to reflect on the things I have done and what could have been done better for the month. I hope you find it interesting. Hopefully it will help you make better decisions for yourself.

Let’s begin with what the end of the month with my my financial report card. It looks something like this:

Net Income from Work  $2652.99
Expenses $2652.99

Reoccurring Monthly Expenses:
Rent: $1045 1 bedroom 1 bath. It’s Hawaii, rent is expensive
Car Payment: $316.97
Student Loan $202.05
Life Insurance $187.51
Extra to debt 130.98

Assets:

Cash value in 2 life insurance policies $16,276.48
SEP IRA $11,630.85
Total: $27,907.33

Liabilities

student loan $20,023.06
Car loan $10,015.61
Chase credit card $3448.54
miscellaneous loan $6312.88
Total: ($39,800.09)

Current Net Worth: (11,892.76)

A few things to note, I had my credit card paid off, but  I had an idea a few months ago that  I could do a balance transfer and continue to use my credit card without paying interest due to the CARD Act. I wanted to continue using my credit card to take advantage of the 1% cash back, and it would benefit me as long as I continued to pay my balance off in full. I confirmed it with a representative, and he confirmed that I could use my credit card and not be charged interest.

When I got the statement the next month, I found saw that I was charged interest. I had to talk to two different managers to find out that the initial guy was wrong. I have nothing against with balance transfers, if you have a plan to pay it off and get the right information. To say the least, the idea bombed, and I get to have a nice conversation with my credit card company to reverse the interest charge.

 Another thing you might notice is that my expenses are exactly what I make in a month. I pay for all of my purchases in the same month that I charge them, and I am paying more toward the principal balance of the loan. Essentially, I am using the debt snowball method of paying down my debts.

My checking account is attached to a personal loan account where an overdraft amount is taken out to cover any charges that I make beyond what is in the account. There is no fee charged if I use the overdraft amount, which is really nice, and I am able to pay down my balances on my debts a little bit faster.

Using the debt snowball method and using all of the money in my checking account; I save a little bit on interest charged daily.

I have cash value in my whole life insurance policy (actually it’s 2 policies) that I use as a bank. Cash value life insurance has many living benefits, and being able to use the money in your policy as a “banking system” gives a person a lot of flexibility when purchasing something and being able to grow and get dividends on the amount in the policy as well.

The last thing to note is that I received income from my employelr in a retirement fund. As you can see above income, from the SEP IRA, has been into the 70% stocks and 30% into bonds. Using Fidelity as the brokerage firm, the money is invested into a few stocks of Netflix, a total stock index fund from Vanguard, and a total bond index from Vanguard. I did that so that I would have the ability to have growth in the stock market and pay the least amount of fees possible. I’ll talk about fees and how it hurts the growth of your investment in the future.

Plans for the Next Month

I’ve finalized how I am going to pay off the debt in the most efficient way. I’m going to pay off the remainder of my credit card balance with cash that is in my whole life policy. That way I won’t have to pay any interest on my credit card, and I no longer have to call my credit card company to reverse the interest charges.

Paying myself back for the loan balance I have taken out at my insurance company. The policies do not accrue interest on a daily rate like credit cards, and interest is only charged to me when my premium is due. That means that I pay my premiums in in July and October, and if there is an outstanding balance, I pay interest then. Also, I’ve got it set up where I don’t have to pay interest at all on the loan by filling up my policies before the billing statements come out.

Setting up this website and making it look presentable. I’m doing my best at getting this website started with a little mishap of setting up the domain and host of the site. As this site begins to grow, I hope that I can add more to it in the future.

Welcome to Personal Finance in Paradise – What This Site is About

Welcome to part two of my financial adventure. I’ve been wanting to heart a blog and put my thoughts out into the world so that people can learn from what I have been learning. I feel that people can learn from my mistakes and also from my victories along the journey.

I hope you get to share some thoughts with me along the way, and that we are able to learn from each other.

I’m excited to be able to go on this journey with you, and that we are able to be driven to grow your net worth, destroyed debt, be able to construct good habits around money, and change your mindset along the way to become prosperous during the journey.

I look forward to hearing from you. Thanks for joining me