12 Twelve.docx

Twelve Let’s agree by now you have started to follow and implemented a few suggested strategy solutions into your daily routines. And by now you have a much better understanding of your money, credit, and finances and are anxious to learn more. Your financial literacy has grown tremendously, and you...

Twelve Let’s agree by now you have started to follow and implemented a few suggested strategy solutions into your daily routines. And by now you have a much better understanding of your money, credit, and finances and are anxious to learn more. Your financial literacy has grown tremendously, and you realized and have seen the potential for exponential increases in your purchasing power. What are you going to do with some of your extra money from following some of the suggested solutions? All that money you can save from; just to name a few, reducing your ‘eating out’ habits and repurposing that money to invest in a washer and dryer or a freezer. Now that you ‘got bank’ or plenty of money, there’s a plethora of an abundance of choices for the use of these newly earned and uncovered funds. Hopefully, you would be saving a portion of these funds toward having those six months to twelve months cushion of your monthly expenses and insurance policies in the event of a lay-off, illness, or emergencies. Please make sure all your higher-interest APRs credit cards and loans are paid off first. Some of this money could be saved for retirement, future planned purchases or to reward yourself with something special you wanted, just keep it in moderation. First a basic note on budgeting - keep in mind the difference between your ‘needs and wants’. You can live without your ‘wants’ but it would be very difficult to live without your ‘needs’. Your ‘wants’ belong much lower down on your budget’s priority list than your top five needs such as food, shelter, clothing, utilities, and transportation. You won’t be able to evaluate if you can afford those ‘want’ items until you have given them the same amount of planning and budgeting as you did for the five monthly overhead need expenses. If you make larger ticket purchases without planning, you will quickly learn that these items don’t just pay for themselves. Nor does the money to pay for them just magically appear. Again, use an accounting ledger book so you can input your monthly income and expenses every month going forward. After you’ve listed all your monthly overhead expenses plus those ancillary expenses such as your personal care, hair care, manicure, pedicure, body waxing, cleaners, and limited entertainment, etc., you will see more opportunities where you can reduce and cut your expenses. It’s very important that you have the knowledge of where and how you are spending all of your monthly income. Whatever income or money you have remaining after paying all your overhead expenses is considered discretionary income and will be the core source of money for any major purchases. You should always save a portion of your discretionary income to have as much money as possible later for needed purchases. Once you’ve completed your research for the best value it should be easy for you to determine what price range you can afford to spend on those purchases. Scenario one, can you pay the full purchase price for a large item with your discretionary income? If the answer is yes, then you are in a good position to continue with the purchase as planned. Just having the available discretionary income allows making the purchase immediately if you desire especially if it’s on sale. This would be a good opportunity to use a credit card to receive the offered reward points and pay the balance off in full when it is due. Scenario two, if you don’t have enough discretionary income to make the purchase and need three to four months to save up before you can make the purchase. While waiting a few months, gives you the time to evaluate if it’s cost-effective to use your credit card for the purchase today and pay off on your credit card in the next few months. For this strategy to work, the benefits of making the immediate purchase would have to far exceed the amount of interest you’ll have to pay using your credit card to pay off the balance in a few months. If the item is on sale plus an additional 10% plus discount, perhaps a very good credit score would warrant a short-term personal loan to keep building your credit rating may be an option. You need to make a commitment to yourself to pay off this purchase within four months. Here is an example of replacing a washer and/or dryer immediately rather than going to a laundromat that saves you that money you would spend for the next four weeks at the laundromat. The interest you would pay on your credit card for three months will probably be far less than the total money spent at the laundromat. Replacing your vehicle’s tires when they are worn down at the ‘safety’ notches now rather than waiting until you have the money available could prevent you from causing an accident by hydroplaning and sliding into someone or something. Your insurance deductible for repairs is probably much more than the interest you would pay on your credit card over three months if you purchased the tires now. Article: To keep major purchases or celebratory events from blowing your budget out of whack, begin your research by identifying the desired purchase and the specific price cost. Know how much you’re willing to spend and start planning well in advance. Here are a few of the things it might make sense to pay for through a sinking fund: Sinking fund is savings account set up for a future need or expense. Home repairs or upgrades like remodeling a bathroom or kitchen. Vacations and travel Celebrations Replacement vehicles Kids’ activities or events Replacing furniture Price each item you wish to purchase in order to get some realistic savings projections on paper. This will help you decide which major purchases you can afford to move forward with first. For example, let’s say you’ve been spending way too much time and money lately on auto repairs, and you’re pretty sure you’ll need an $8,000 replacement car in about a year. To make that happen, you’re going to need to begin budgeting about $650 a month. If that sounds too steep for your current income and expenses, be ready to adjust your expectations on either the amount you can spend or how soon you can buy. Or let’s say you’re dreaming about taking a $3,000 anniversary trip in six months. You’ll need to budget about $495 a month until then to go into your vacation sinking fund. If that’s too much, delay the trip and spread the cost out over more months. By: Smart Dollar Let’s review the process of considering the upgrade of your current vehicle or purchasing your first vehicle. Since you have maintained a very good to excellent credit score, you should have many low-interest-rate vehicle financing options available to you. Ask yourself, what is the intended use for the vehicle? Do you want a new or pre-owned vehicle? Do you want to purchase or lease it? Some experts would say it is better to purchase or lease the best-valued vehicle versus the vehicle you think you may want. No matter what vehicle you choose, you should go through these stages in your selection process: research, plan, budget, comparison analysis, auto buying reviews, consumer reviews, and recalls. Buy wisely and focus on your needs rather than your ‘wants’; the vehicle should fit comfortably within your budget first consider reliability, longevity, and value. During our lives, we will make many unnecessary ‘want’ purchases such as replacing perfectly good furniture. Many of these purchases are considered major purchases that need to be financed. It’s good practice to never make any major purchases impulsively, without first planning how you are going to pay for them. I understand things happen to create an emergency situation and having to replace an appliance immediately to mitigate and minimize your losses. However, seldom does this ever occur without any previous indication or warning that it’s starting to malfunction and fail. Please, pay attention to these signs and start looking now. That’s why it’s extremely important to thoroughly research and plan for all these types of purchases to receive the best value for your dollars. It is also why we have incorporated savings into our budget plans. Please, do your homework! At least research the industry expert reviews, consumer reviews, and product comparisons. The more knowledge you have before you make the purchase the less likely you will make a bad choice and be unhappy with your purchase. You have seen those TV commercials which bombard you with enticing ads to make these ‘Holiday Promo’ offers for a major appliance, furniture, carpet, and mattress purchase what seem to be incredibly great promotional offers. They offer 0% APR financing for 12 up to 96 months or Deferred Interest Financing for periods for the first 6 to 24 months and up to five years of financing. You are usually approved if you make a minimum of about $300 a week, regardless of your credit score. These programs are designed to entice you to make an emotional, impulsive, unplanned purchase, without having time to really analyze the true cost of the offer. If you take the bait and make the purchase, you won’t have time to plan to see if the monthly payments fit into your current budget. Most of these retailers use sub-prime lenders who finance the less credit-worthy, higher-risk customers and charge much higher interest rates from 29.9% APR to 34.99% APR for purchases if you default. If you haven’t planned and budgeted for these major purchases, your emotions and excitement make it easy to be enticed by these promotions and create an unwise expense. If you don’t have the discipline or can’t make your payments on time as agreed to in the terms of the contract, these promotions can become a financial disaster and nightmare. On the other hand, if you have planned and budgeted for major purchases before you saw this promotion, and you have the money available in the bank, these types of promotions can be a financial windfall for you. You can leave your money in the bank earning interest for the entire 0% APR period and make the monthly payments by the agreement easily with no risk of ever missing any payments. The 0% APR Interest programs are great as long as you are able to make the required monthly payments. If you default on the terms and agreements the interest will jump from 0% to the 29.9% APR to 34.9% APR interest rate on the remaining balance until the loan is paid off. The Deferred Interest programs will also require you to make monthly payments. If you default on the terms and agreements the interest rate will increase to 29.9% APR or 34.9% APR interest rate from the original start date of the loan until the loan is paid off. Included in the two examples below show you how exactly much more interest these promotional programs will actually cost you if you default on the terms. If you haven’t planned and budgeted for these types of purchases, you will regret these purchases should any financial emergency situation occur. Especially if the emergency requires you to use your payment money and miss a payment and causes you to default on the agreement. If you break the terms, the costs for that breach of this contract can be far more than you could have ever imagined. If you had planned and calculated ahead of time the cost of defaulting on the higher interest rate and penalties, you definitely wouldn’t have made the purchase in the first place. You would have been able to determine the cost and the risk of defaulting far outweighed the benefits of having those items now. This is the primary mistake so many people make who end up defaulting; they didn’t calculate or know the actual cost of failing to meet all the agreement terms. Household Goods 0% APR Financing for 12 to 36 Months In this 0% APR Interest scenario, the borrower is required to make pre-determine dollar monthly payments during the term of the loan to pay off the entire loan balance. The loan must be paid off in full before the term or the 12 to 36-month ends. If the borrower is 60 days late or misses two payments, they would be responsible to repay the remaining loan balance back subjected to a 30% APR interest rate from that date. This individual made the first 12 payments on time then defaulted on the terms of the agreement and the promotion was revoked. The loan balance on the $2,000 loan after the payment default is $1,333 increasing your monthly payments and the defaulted $4,000 loan balance is $2,667. This is how your loan payments snowball out of control making it nearly impossible to make your loan payment on time. This is a classic example of how those who make quick unplanned financial decisions end up being really bad decisions and have a negative impact on your credit score. Household Goods 0% Financing for 12 Months Monthly Interest Total Options Loan Amount Months Rate Payments Paid Payments 1 2,000 36 0 56 0 2,000 2 4,000 36 0 111 0 4,000 What Happens If You Default on Loan Agreement After Paying 12 Months 1 2,000 36 30 84 1,057 3,057 2 4,000 36 30 170 2,113 6,113 Retailers also offer 0% financing programs for up to seventy-two months or six years. These offers may initially look appealing, however the longer the 0% term the higher the probability you could have an emergency event that will cause you to default on the loan finance agreement. The chart below shows you how much you will end up paying in interest penalties for defaulting on the loan agreement. This is why it’s so important to plan all your financed purchases. If you decide to use these ‘Promos’ your financial strategy should be to do whatever it takes to never let any 0% Promotions Never Default. It will become your worse financial nightmare and can ruin your credit for the rest of your life. Furniture Loan 0% APR Financing for 48 to 72 Months In this scenario, the borrower is required to make equal monthly payments during the 0% APR loan term until it’s paid in full. If the borrower is late on or misses a payment, they would be responsible to pay the loan balance back subjected to a 30% APR interest rate on the unpaid balance from the date of the missed or late payment principal for the rest of the loan on the loan term. Again, the individual defaulted after 12 months of paying on time, on the terms of the agreement, and the promotion period was revoked. At the time of default, the $4,000 loan balance is $2,667 and the $8,000 loan balance is $6,667. Furniture Loan 0% Financing 48 to 72 Months Monthly Interest Total Options Loan Amount Months Rate Payments Paid Payments 1 4,000 72 0 56 0 4,000 2 8,000 72 0 111 0 8,000 What Happens If You Default on Loan Agreement After Paying 12 Months 1 4,000 72 30 108 3,137 7,137 2 8,000 72 30 216 6,275 14,275 The next illustration represents Deferred Interest Period Programs. There is no interest charged during the first 6 - 24-month period of the loan which can be up to 4 - 5 years, which is rarer. You are required to make the minimum payments over the promotional terms and have the entire balance paid off by the end of the term otherwise you will be charged interest from the original date of purchase. You should plan to at least make equal monthly payments based on the loan amount and length of the loan, so you’ll know your exact needed payments. If you default on the payments the program perks will be revoked, and you will be required to pay the default interest rate of 30% APR from the original date of the purchase. If you are unfortunate and find yourself in this situation, if you have any unused balances on your credit cards, you should take a cash advance to make sure the payments on this potentially high-interest promotional loan are paid on time. The monthly payments with interest on your credit card balance will keep you from defaulting on the terms and would be significantly lower than 30% APR. Deferred Interest Payments for 36 Months Monthly Interest Total Options Loan Amount Months Rate Payments Paid Payments 1 2,000 36 56 0 2,000 2 4,000 36 111 0 4,000 What Happens If You Default on Loan Agreement After Paying 12 Months 1 2,000 36 30 84 1,057 3,057 2 4,000 36 30 170 2,113 6,113 As in chart #1, you intended on paying off the entire loan during the Deferred Promotional Interest period, however, you can see that if you defaulted in month 12, the terms and conditions of the Deferred Interest loan on a $2,000 could end up costing you over $3,057 or 34.6% APR interest over 36 months. Yes, that’s $1,057 in interest payments. The $4,000 loan could end up costing you $6,113 or again 34.6% APR interest. Yes, that’s $2,113 in interest payments. When your intentions were to defer the interest over the entire 36 months at the time of your purchase. If you borrow $4,000 on the Deferred Interest program and default the loan could end up costing you $6,113 in interest payments or again 34.6% APR interest, that’s $2,115 in interest payment. When your intentions were to pay 0% APR interest over the 36 months at the time of your purchase. On a 72-month loan, a default on the loan would cost you over $11,071 in interest at 2.77 times the amount you financed or 277% interest when the interest is calculated from the start of the loan. When your initial intentions were to pay no interest at all. It’s one of the most devastating financial avoidable mistakes you can make that will surely ruin your credit rating causing financial hardships for the rest of your life. These examples show that both promotional programs have similar high-interest penalties if you don’t keep up your end of the agreements. Assuming you have 24-month promotion periods, the 0% APR Interest Promo would be the least costly with the penalties because of the default in the 12th month, the higher interest rate would only apply to the last twelve months of the unpaid balance. Whereas if you default in the 12th month of the Deferred Interest Promo, the higher interest rate is applied from the original date of the loan agreement. So, in the Deferred Promo, you would be required to pay the higher interest rate from the first month until the loan is paid in full. Therefore, you would pay a higher interest rate even for the 12 months you paid on time, making the cost of the loan much higher. Again, this would be a perfect time, if you have any unused balances on your credit cards to make a cash advance to pay off these types of loans before they default to the higher 30% plus APR penalty rates and then pay off the balances at the lower interest rate on your credit cards, hopefully, less than 10% APR. You would have in essence lowered the potential interest rate by 20% plus, from a possible 34.9% APR to whatever your credit card interest rate is currently. It would also eliminate having a defaulted loan on your credit report. These promotional purchases should never have been made in the first place. If you haven’t planned and budgeted for these types of Promo purchases, you will usually select the longest terms available trying to get your payments as low as possible. These 48-month to 72-month terms leave you exposed to defaulting over a much longer period of time, increasing the possibility of defaulting. Again, it can’t be stressed any more directly, if you haven’t planned and budgeted for these totally necessary monthly expense payments then don’t make the purchase, Period. There are many unforeseen emergency expenses that can occur that require the money you need for the payments launching you into the penalty clause of the agreement at the 29.9% APR to 34.9% APR interest rates. They’re always loose, lose situations for you, if they aren’t planned ahead of time. These are the very high financial consequences of not planning and budgeting for these promotional purchases. As shown, these higher interest rates end up costing so much more if not all of your disposable income than you could have ever imagined. This is a major reason why so many people end up having very low credit scores. They miss payments, incur compounded higher interest rates, ruining their credit scores and creating a negative notation on their credit history. These negative credit dings on your credit report history can take up to seven years to drop off. This means a minimum seven-year sentence of higher interest rate before it drops off your credit history. This period of higher interest rates makes making any payments more challenging, causing your credit score to go even lower. Over your lifetime a below-average credit score can cost you tens of thousands of dollars if not hundreds of thousands of dollars in higher additional interest payments. This lower credit rating will cost you much more to borrow for a vehicle, which will be at a much higher interest rate APR, making it even harder for you to make future payments on time. It’s that vicious struggling cycle of ‘bad credit’ many folks fall into and can’t get out and this book helps you avoid it. Now, was that 0% Promo offer worth all this financial drama? Another No, No would be to have the discipline to resist opening those store brand credit cards. Those are the credit cards that can only be used in that specific store. These store-brand credit cards usually have a very high-interest rate of 29.99%, APR, if you don’t pay the balance off in full every month. If you end up carrying a balance over several months, you run the risk of being charged compound interest on the interest which you incurred in the previous months. You can easily end up paying $30 plus in interest for every $100 of balances carried over one year. Please stay away from these credit card temptations. The lessons learned here would be to practice patience and exercise good buying habits by determining if the purchase is a need or not a ‘want’. Then plan and budget for the purchases by doing some type of true cost analysis calculations. This way you’ll know in advance the financial consequences if you default on the terms of the agreement. If you can’t afford the purchase now, then wait and start saving up for it until you can afford to purchase it. Waiting for it will cost you less. Also beware of your online purchases, whenever you need to return a product and have to pay the cost to return the item to receive your credit card credit. You can end up paying to return items and not having kept any merchandise at all. There are times like in June 2022, when world events caused the country’s inflation to rise 10%. The cost of groceries was up 12%, gasoline rose $2.00 per gallon, housing rents rose 10 -20%, and people have a hard time paying for their necessities. These unpredictable events can ruin your budget and cause you to default on those 0% Financing Promotions that will ruin your credit score forever. This book, ‘Soaring Toward Financial Freedom’ was written so you would have the financial literacy knowledge, foresight, and awareness to avoid many of the financial mistakes most people make learning to transition into financially responsible ‘Adults’. It also provides you with the life skill tools to make the best financial decisions to move forward from your current financial situation to a more secure financial situation in pursuit of your dreams.