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Think Want, Need, Must About Your Money

pyramids Today we’ll discuss a simple, yet effective, way to make sure you’re spending your money how you intend. Divide your spending into three categories – wants, needs, and musts.

We used to think about luxuries and necessities. This splits those luxuries into two categories because, over time, luxuries tend to become necessities.

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georgeLike the dishwasher we have. It’s not a need; it’s a want. But I’d sure hate to live without one!

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marylynnI think my cell phone is a need. But the unlimited texting and the ability to watch videos are wants that I added to my package.

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With our cable TV, we have DVR and premium channels. Those are definitely wants, but we love the convenience and variety.

Climbing the pyramid

Picture a pyramid, with wants at the base, needs in the middle, and musts at the top. We tend to move things up the pyramid. The importance we place on them climbs, so to speak. We look at things that are truly wants as needs; we view things that are really needs as musts.

That’s why we think it’s a good idea to break necessities into two – needs and musts. It helps us refine what is really important.

Mixed message

It’s pretty easy to define our musts – food, clothing, shelter, and transportation. But even within this category, there are mixed messages.

For an example, let’s consider transportation. At its most basic level, the only thing we need from our chosen form of transportation is the ability to get from one place to another. Public transportation clearly would suffice for many people.

However, if you use public transportation, you lose some control over your own schedule. You give up the convenience of having your own vehicle.

So some people may need a car because of their job. They need a vehicle to drive to appointments. Could it work without one? Possibly, but it might cost you too much time to be worthwhile.

It depends on your situation. In the end, only you can know what is best for you.

Gizmos and gadgets

There’s another way that wants, needs and musts can come into play. We’ll stick with the example of a vehicle. Even if you need a car, what do you really need? Something reliable or that fancy car in the ad? Just the basics or a vehicle with all the gizmos and gadgets?

The second of these choices, which are clearly wants, can make a huge difference in the price you pay for a car. And if you happen to finance it, they will add many dollars more in interest costs over the years.

We interviewed Adam Shepard on The Bigg Success Show not long ago. Upon graduation from college, he decided to see if the American Dream was still alive. Starting with only $25 and the clothes on his back, he was eventually able to buy his own vehicle among other things. His vehicle wasn’t anything fancy – an old pick-up truck with manual windows, one which didn’t work. But he still had the transportation he needed!

Keep these three categories in mind and you’ll keep your budget in line!

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Thanks for reading our post today. Join us next time when we’ll discuss how these same three categories relate to how we spend our time. Until then, here’s to your bigg success!

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Direct link to The Bigg Success Show audio file:
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Deep in Debt? Take These Drastic Steps

pennies We’ve heard a lot of discussion about the toxic assets held by our financial institutions. Here’s what hasn’t been explicitly stated too often – in order for these financial institutions to have toxic assets, many of us must be carrying toxic debt.

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We’ve seen government at all levels, corporations, and yes, individuals borrow more and more money over the past few years. Many people now have this sinking feeling that they will never get out from under it all.

So today we want to talk about what to do if you have that feeling.

The King and Queen of Personal Finance

Cash is king again and credit score is queen. In the coming years, people with cash and a good credit score will have more options, be able to take advantage of more opportunities, and will experience less stress. Isn’t that a nice place to be?

A Timeless Principle Makes a Comeback

It requires discipline. It’s amazing how we can rationalize our purchasing decisions. If I can’t afford to buy it now without credit, why would I think that I can afford to pay for it later along with an exorbitant interest rate?

So we need to pay cash or don’t buy at all. Eliminate purchases on credit, even ones that promise “no interest, no payments” for some period of time. Of course, if you already have the money, and you’re just using their money, and you need the item … really need it … then go ahead and enjoy!

Two Important Financial Moves

Perhaps more so than at any time in our lives, we need to build up our emergency reserves. Financial planners have been saying it all along, for the most part. Many of us weren’t listening. Keep six to twelve months of living expenses in a readily-accessible reserve account just in case you need it.

Pay off almost all of your debt. You may not pay off your mortgage. You may even keep a car loan for a time. Get rid of all other debt; it’s robbing you of your future.

Then you’ll be ready to start looking for the tremendous opportunities that will be available to anyone with cash to invest.

Drastic Steps to Dispose of Toxic Debt

Drastic times call for drastic measures. These steps will not be easy. In fact, they will be uncomfortable at best. However, if you’re feeling overwhelmed by all of your debt, they are necessary.

Sit down and logically determine how quickly you could get out of debt, given the two exceptions we noted above. If it’s more than five years, even after considering the steps we’re about to outline, it’s probably best to seek professional help. Here are the steps:

Sell assets

Look around for anything that you don’t need, never needed, don’t use, or never used. Get rid of it and use the money to build up your cash reserves and/or pay off debt.

Get a second income

Get a part-time job or find a way to make some spare money. Even if it’s only $300, $400, or $500 a month, plowing this money into paying off high-interest debt will pay you bigg dividends in the future. This doesn’t have to be something to do forever, just do it until you get your financial situation shored up.

Cut back on contributions to your retirement plan

We always hesitate to suggest this because you’re robbing your future. Talk to your financial planner before you take this drastic step. But even with an employee match, it may be better to pay off high-cost debt. You may earn 30% by paying off a credit card, for example, and give yourself more room to maneuver through tough times and unexpected events.

Reduce housing costs

With the price of houses down in many markets and the continued lack of buyer demand, now probably isn’t the time to consider downsizing. However, analyze your specific situation because you might be surprised.

Another option might be to rent part of your home. Or find other ways to cut costs on your existing house. For example, property tax assessments will be going out in January. Check your assessment and the price of houses that have sold nearby to see if you can protest the value you’re being charged for.

Cut transportation costs

Could you get by with one less car? Could you take advantage of public transportation? Could you car pool? All of these ways put money in your pocket that can be used to build up cash and pay off debt. 

Stretch your dollars

We’ve covered the bigg ones, but it’s also important to look at all your other discretionary expenses. Many people have already cut back on dining out. Go even further – buy fewer prepared foods and cook meals yourself. Sure it will take more time, but it will save you money that can be used for stockpiling cash and knocking down debt.

Look for your recurring expenses – cable bills, cell phone bills, and everything else. Is there a way to make cuts?

Strive to stretch every penny you can out of every dollar you bring in so you get back on your feet and on track to being a bigg success!

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Get the tips and tools you need to be a BIGG success!
Subscribe to the Bigg Success Weekly – it’s FREE!

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Next time, we’ll discuss the “must-haves” for your productivity tool kit. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

Subscribe to the Bigg Success feed.

Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00246-102008.mp3

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I Need Money! Should I Cash Out My Retirement Plan?

frustrationThe financial news seems to be all gloom and doom these days. The reports are that we’re not in a recession, but times are tough for a lot of people.

No matter how tight things get, we still have bills to pay. People are responding to this very intelligently. They’re turning to public transportation, eating out less, seeking cheaper forms of entertainment, and cutting back on unneeded items.

But what do you do if that isn’t enough?

Tapping your retirement plan …

It’s tempting to pull money out of your retirement plan, like a 401(k), especially if you change jobs. In fact, about 40 percent of job changers in their twenties and thirties have done just that, according to a recent report by the Financial Industry Regulatory Authority (FINRA).

… could cost you $130,000 …

If you’re under 59½, it’s usually not a good idea to cash out your retirement plan. Let’s look at the example that FINRA used:

You’re 30-years old with $20,000 in your 401(k). If you earn just 6% on that money until you retire at 62, you’ll have nearly $130,000 in your account, without making any additional contributions.

… and then some!

Of course, you can start over. But you lose the power of money compounding on top of money on top of more money, all accumulating tax free until you take it out. So it’s like taking at least two steps backward.

But that’s not all. Here are 4 other steps back:

  • You’ll have to pay income taxes out of this money, since it was invested pre-tax.
  • There’s also a 10 percent penalty for early withdrawal (unless you’re over 59½)
  • Your employer is required to withhold 20 percent toward income taxes.
  • If you owe money, your creditors can’t touch your 401(k) unless you cash it out.

By the time you get a check, that $20,000 will probably be more like $14,000 net of everything. So cashing out of your retirement plan is a short-term solution with long-term consequences. 

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