“Should I Put off Paying My Student Loans so they can be Forgiven?”

Almost every corner you turn, someone you see will have a student loan and with those come massive student loan payments. We constantly think about how to get rid of the things, knowing they’re holding us back from buying a house, from starting to invest, from starting our lives. 

And with these thoughts come a lot of talk in the news lately about how to forgive our student loans. We’re going to attempt to address this problem now.

Vanessa writes in: “Hello Mike, thank you for everything you do here. I was hoping you could answer my question about mine and my husband’s student loans. We have combined student loans of $205,000. We’re both teachers and we’re making the minimum payments because any more than that seems unreasonable.

We were following the news stories and we know a lot of politicians are putting plans up to forgive student loans immediately. And also, because we’re teachers, if we make the required payments for 10 years, our loans will be forgiven in full. Curious to know what you think about trying to pay these off. Thanks!”

Thanks for writing, Vanessa. I’m going to try not to be blunt here. Putting off payments on your student loans will possibly be your biggest setback of your life. I know it sucks and I know it’s hard. It’s supposed to be.

Anytime the government comes up with these plans to help, run! They’re trying to get your vote; it doesn’t mean they care, it doesn’t mean anything will pass. And more importantly, it doesn’t mean it should pass. We are responsible for our own debts, regardless of how absurd the amount seems. 

The student loan forgiveness program for teachers could end at anytime, and it also comes with a lot of stipulations that if you do one thing wrong at any time during the ten-year period, which they like to make a moving target, you’re back to square one.

I never tell people to put off paying down debt because of a loan forgiveness program, especially one run by the government. You don’t want to be in debt for that long. Ten years is too much time to have this looming over you and destroying your life. 

Sallie Mae needs to die and a well-sharpened budget is your greatest weapon. Sorry if that sounds too brutal, but it needs to be said. Thanks for writing, Vanessa.

 


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This article is not intended to be legal, tax, or financial advice. For help regarding your specific situation, please consult a local advisor.

“What is the First Step to Getting Out of Debt?”

Every one of us that has struggled to do something has had that moment where we say, “That’s it, I’m sick of this. I’m finally going to do it.” And that applies even more so when we’re talking about a person that has finally hit their breaking point and is ready to get out of debt.

Janice writes in: “Mike, thank you so much for what you do here. I’ve been following the blog and I need to know your thoughts on how to get out of debt. My husband passed a few years ago and I was left with a lot of medical debt from that.

I’ve tried a lot of different options, but I just need to know what the first step is. What can I do to make myself feel like I’m making progress instead of going backwards?”

Janice, I’m so sorry about your husband passing and I’m sure that wasn’t easy. The first step we take when we want to accomplish anything is to secure ourselves to brace for the journey. 

When you’re getting ready to go rock climbing you harness yourself in for safety. When you’re about to go for a road trip, you check the car has everything it needs and fasten your seat belt.

When we’re trying to get out of debt, we have to secure ourselves with a starter emergency fund. The amount of this will be different per household, but we usually recommend anywhere from $1,000 – $5,000.

Without a starter emergency fund in place, any setbacks you have will just slide you right back into debt instead of using the cash and you’ll have a different mindset about utilizing debt.

Now, of course before getting the emergency fund together, we have to make the budget and make sure there’s enough coming in and staying in after all minimum expenses are met so that we can even put together an emergency fund.

If it’s an income problem, there’s no easy way to say it; you either need a better job or a second (or third) job. When we’re deep in debt, we need to be intentional and focused.

I’m not saying you have to keep a second job forever or work a ton of overtime the rest of your life, but it is important that we get done what we need to.

Janice, I hope this helped. Let’s power through this and if you have any more questions, please feel free to write in.

 


To have your question featured, please leave a comment below.

This article is not intended to be legal, financial, or tax advice. For help regarding your specific situation, please consult a local advisor.

“Should I Loan Money to My Sister?”

Families can be difficult, and money can be even more difficult. But when you put the difficulties of both of these things together, the results can be catastrophic if not handled appropriately.

Mike writes in: “Hey there, I’m a new follower. I have a question about how to handle my sister and finances. She’s been asking me for money a lot lately and I’ve been giving her quite a bit of money. She’s never been great at handling her finances and I’ve always been a bit more of a saver. I feel like I have to help her out, but it’s getting to the point that I don’t know if I can keep helping her out.

My problem is that now her car broke down and it’s beyond repair. She has to buy a new one but she can’t get financing. She told me that if I loan her the money, she’ll never ask for money again. This sounds reasonable and I was hoping I could get your opinion on it.”

Thank you for writing, Mike. It’s great that you want to help your family and it’s a blessing that you can afford to. But I want you to take a step back for a second, Mike, and think about what you’ve been doing and if this is really helping your sister, or is it just encouraging bad behavior?

When you give her money, does she spend it wisely or does she come back to you the following week, in more debt, having more “problems,” and you’re there to help her out? Most of the time in these situations, it’s going to be the latter. 

Now, giving money to family members and loaning them money are very different things. When you give them money, you’re okay with them having it, no strings attached, and you won’t get mad at how they spend it, because it was a gift. 

When you loan them money, and you expect repayment, you get mad or frustrated when you see them enjoying themselves with money instead of repaying you with it.

Do you feel comfortable that giving your sister the money will result in her paying you back? When a family member gives a loan to another family member, it is generally a recipe for disaster. It can lead to broken relationships and hurt feelings. 

Any time you see them spend money while they’re still indebted to you, you’ll wonder in the back of your mind, “Don’t they know that they owe me money and that is my money they’re spending?” It will cause what seems like at first a minor strain on the relationship, but it will get worse.

If you ever loan money to family or a friend, know in advance whether the money is worth more or less than the relationship. If they cannot repay you, how will you handle it? Will you cut off ties or will you forgive the debt? You may be faced with that decision so prepare well in advance.

In case I did not make it clear enough, we here at Foxx are against loaning money to family members. We are against most forms of debt altogether, but when family members are in the mix, it only gets worse. 

Hope that shed some light on that, Mike. Thank you for writing in.

 


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This article is not intended to be financial, legal, or tax advice. For help regarding your specific situation, please consult a local advisor.

How Much Should I Have in an Emergency Fund?

We’re all on the path to better ourselves financially, and a big part to that is having a safety net. When it comes to our finances, that safety net takes a few different forms; but usually this boils down to a form of insurance.

And an emergency fund is insurance against going into debt.

A question we get a lot is: “How much money should I have in my emergency fund?”

The good news and the bad news is the same in this case: There is no right answer. Everyone is going to be different. At its core, the answer to this question is “however much money you need to have saved up not to go into debt in the case of an emergency.”

But What Do the Experts Recommend?

Financial planners generally recommend that you save up three to six months worth of expenses in an emergency fund. It is important to remember that we’re talking about three to six months worth of expenses, not income.

Look at your budget and determine how much money you have going out in expenses that are required to live every month. This does not include money going toward savings, investments, charities, etc. That income is strictly surplus money in the budget.

What Do You Recommend?

Generally, we recommend the same as the experts. Three to six months should suffice most financial catastrophes. But we like to call the number that works for you and your spouse the Sleep at Night Number.

What number in your savings account helps you sleep at night? What number in your account helps you not worry about what your investments are doing? What number helps you and your spouse not feel stress about money?

That number is your sweet spot.

What number helps you sleep at night? Do you agree with the experts with three to six months or do you have a different idea of what should be in your savings account?

 


This article is not intended to be financial, tax, or legal advice. Please consult a local professional for help with your specific situation.

Should I Pay Off Debt and Invest at the Same Time?

We all want to pay off debt. And we all want to put more money into our retirement plans (401k’s, IRA’s, etc.). But do these two things conflict?

They shouldn’t. They’re both working towards the same goal: a better financial future for yourself.

So Do I Invest While I Pay Off Debt?

We hear the argument made all the time: “Why would I pay off debt at 3-4% interest when my investments make an average of 6-7% every year? I can make the minimum payments on my debt and invest and come out ahead.”

Look, we get that you can crunch the numbers. But this is personal finance. And it is important to remember that nothing in personal finance makes mathematical sense. Personal finance is almost entirely psychological, not numerical. And that statement alone is enough to make a person with a finance degree cringe.

If we made personal financial decisions based on what made numerical sense, we wouldn’t have debt in the first place.

So I Shouldn’t Invest While Paying Off Debt?

Yes. Saving and paying off debt are conflicting goals. This has nothing to do with the numbers making sense or that both of these actions help work toward your future.

They conflict because you can only do one thing aggressively at a time. If you try to pay off your pile of student loans at the same time you are trying to grow your investment portfolio, you will lose your mind. You will get burnt out and give up.

It is so important to feel small victories when working on yourself financially, just like it’s important to have small victories when dieting or exercising. This is where the psychological side of personal finance comes into play.

The balance in your 401k won’t matter when you have hundreds of thousands in student loan and credit card debt. The stress will pile up from the debt and your IRA won’t be there to comfort you until you turn 59 ½.

But what do you think? Have you gotten out of debt at the same time you invested? Do you think it’s more beneficial to focus on paying off debt before investing in mutual funds?

 


This article is not intended to be financial, tax, or legal advice. For help regarding your specific situation, please consult your local professional.

What Category Do I Start With For My Budget?

Jason writes in: “My family and I are trying to figure out where to even begin with budgeting. What category do I start with?”

Thanks for writing, Jason. Where you start is going to depend on you and your family. Specifically, it is going to depend on where you are on your journey to becoming debt-free, as well as your family’s values.

A good place for anyone to start with the budget is the essentials: you have to eat, you have to keep the heat/air conditioning on, you have to keep the lights on, and you have to pay rent/mortgage. If you are really struggling to get by, that is where your budget will start every month until you have breathing room.

If you and your family are having trouble staying above water, then you will be living as frugally as possible: no going out to eat, working extra hours, or even taking a second job.

But if you are not struggling, then you may want to consider broadening your budgeting categories. You might start with charitable giving. If your family values helping others, then this would be a good place to start as it puts your values on the forefront and helps to change your mindset toward money.

If you struggle with saving, you may want to make the first and second categories Long-Term Savings (Retirement) and Short Term Savings (Emergency Fund, New Car Fund). This makes it easier to save so it isn’t something that is on the back-burner but instead is something that you do at the beginning of every month with little thought.

The most important thing to remember is that budgeting is a personal process and everyone will have different categories, values, and percentages set aside for every category. The important aspect of this is remembering to even start the budget. Knowing where your money is going is the first step to changing any potentially bad behaviors. It is also potentially revealing as to what your family values.

Thanks for reading. What category does your family start the budgeting process with?


This article does not constitute legal, financial, or tax advice. For specific information on budgeting and helping your family get out of debt, please consult a local professional.

To Rent or to Buy?

To buy or not to buy?

That is the question.

To clarify, we’ll solely be discussing the benefits and drawbacks of renting and buying of houses, however some information may pertain to other purchases, such as cars.

So to start, we’ll tackle the obvious benefits of buying a house, the one everyone loves to say when in the discussion of renting or buying: You build equity!

And you do. But the drawback that no one likes to mention is that in order to build equity, you have to take on a massive, massive liability. In accountant speak, you are now financed more by liabilities, and not equity. Your balance sheet doesn’t look very attractive immediately after taking out the mortgage, and it won’t look very good for quite a few years thereafter.

It takes years to pay off much of the principal (the portion of the mortgage that builds equity for you once it’s paid). For the first few years, all you’re doing is paying off a huge amount of interest expense. Essentially, the only actual equity in your house is the down payment and the small principal that you pay on the principal every month.

But You Don’t Build Any Equity At All When You Rent!

True, and that’s why we won’t be talking about that. Just because renting property doesn’t build you equity, doesn’t mean it doesn’t have any benefits.

And just to be clear, we feel that owning a home should be the end goal for anyone and everyone. But sometimes in the short term, some benefits of renting may outweigh the fact that you won’t build equity.

When renting, much of the repairs and maintenance of your apartment or rented property are handled by your landlord. The tradeoff for not being able to build equity is the ability to save on expenses. In essence, you are shifting the liability of ownership as well as the expense of maintenance and repairs onto the actual owner.

What we’re trying to say is, depending on where you are in life, renting or buying may be the best choice for you.

So Who is Renting For and Who is Buying For?

Just because a college kid’s parents are pressuring him or her to buy their first house and not “waste” the money on renting, that doesn’t mean it’s the best choice for them.

If you’re fresh out of college or trade school and starting a new career, you’ll likely have to put in a lot of hours working. Those hours may restrict you from having to put in the time and energy for regular maintenance of your home and you may lack the ability to pay for the expense of having someone else take care of the maintenance, such as a lawn care service.

If you’re young, lack the time for the maintenance, or lack the money for a down payment of a house, renting may be the best option in order to build up your bank account. The hidden costs of home ownership may outweigh the mostly upfront fees of renting a space.

But what do you think? What are your personal experiences with renting and how do you feel about a young couple trying to buy a house? More importantly, what tips would you like to give to them?

 


This article does not constitute financial advice. For information regarding your specific situation, please consult your local financial advisor.

How to Budget for Your Family

When it comes to our financial lives, nothing is easier or more difficult than planning. And our plans generally (or should I say, hopefully) take the form of a written, thought-out budget.

We must meticulously plan out every aspect of the budget; we have to think of every expense and every source of income that we will potentially incur.

But more important than the planning for the budget, of course, is the changing and required variability of the budget. The budget– and you, by extension– has to adapt accordingly to any change that is going to happen.

The budget might not change this month if a large, unexpected expense is to happen. But for the next month, that expense needs to be taken into consideration. And for every month thereafter until you’ve recovered. You have to reduce your other expenses (or possibly increase your sources of income) until everything is back to normal for your finances.

I get all the planning stuff. But how do I do the budget?!

Alright, so you’re going to have to be your own personal accountant. And myself, personally, I recommend Wave to track your expenses and income for free. It does the bookkeeping for you so after you’ve hooked up your bank accounts and credit or debit cards so you don’t have to do anything other than check the reports at the end of the month.

It categorizes your expenses so that you can easily see where your money is going and where you can afford to stop your money from going.

More importantly, after you see realistically where your money is going for a month and what it is being spent on– and also where your money is coming from and realistically how much you make in a month– you can create a budget in an Excel spreadsheet based on those numbers.

This is how businesses track their income and expenses. This is how businesses know when to increase their income and how to decrease their expenses. If it works for them, it will work for you.

But what do you think? How do you and your family track your income and expenses?


This page is not meant to constitute financial advice. For specific information concerning your financial situation, please contact your local financial advisor.

Is a Financial Advisor Worth the Cost?

A family having a financial advisor has had a strong correlation to familial and personal wealth. But people from less fortunate walks of life often believe they don’t need, or simply can’t afford the services of a financial advisor.

The high cost of financial services, the barriers to saving, and a lack of affordable insurance may be a leading cause of poverty in the country. When people live paycheck to paycheck, it leaves them vulnerable to emergencies and the financial constraints that come with it. This is due to a lack of insurance that would cover these life events and a lack of savings. The people that would be most exposed to these problems also find they can’t invest in human capital to better themselves or even purchase a home. This leads to a cycle of poverty and financial restraints.

The way we spend our money often makes little to no sense to an outside observer, the reason being we all have different wants, tastes, and needs. But we have to have a basic understanding of how we behave to understand economies and people’s spending habits.

We originally held the idea that every person from every walk of life had similar thought processes. However, we’re finally starting to understand that people living in poverty have different thought processes, the reason being that financial constraints put more pressure on these people, leading to risk-taking as a way out. But financial services are seen as not important enough, not having enough urgently realized benefits, or too expensive to take part in.

Behavioral economists tend to focus more on the rationales and what the limits of our rationalities are. This is where the “culture of poverty” theories stem from. The idea is that the poor harbor certain personality traits, those being social deviance, laziness, and impatience.

These personality traits may affect the attitudes toward risk-taking, savings, and insurance, leading the poor to view financial services as only available to the rich. The personality traits labeled on the poor may stem from apathy toward their situation and no way out of the cycle of poverty.

Making financial services either more affordable or showing the industry in a different light may lead to opening up these services to new, needy markets. This is a tactic that could benefit both those in the industry and those who desperately need the help of advisors to help them plan for the future.

What are your thoughts on the correlation between wealth and having a financial advisor? Can trustworthy advisors help people escape the cycle of poverty?

 


This post is not intended to constitute financial advice. For specific information regarding your financial situation, please consult your local financial advisor.

Budgeting: Getting Your Spouse Involved

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When it comes to laying out a budget for yourself and your family, the most important aspect of making sure that the budget is followed is to make sure that every person involved is on board and agrees about every aspect of the budget. The first step in ensuring this is having everyone that will be affected by the budget involved in its making so that everyone understands every aspect of the budget.

It’s equally important to have open discussions regarding the budget and making sure that everyone knows that the budget is only a tool (albeit a very powerful one when used correctly), not something that will control the lives of those involved. It’s therefore good for no single person to solely control the budget. Spouses must have equal input in the budget, regardless of how many of them are actually bringing in an income.

Because both spouses are likely spending and using the money, who is bringing it in is not nearly as important as making sure that both partners are managing it carefully and responsibly.

There’s two sides of the budget equation: the outgoing and the incoming. Because those two sides are equally important and both sides can always be improved by each partner involved in the budgeting process, both partners must be involved in the making and planning of the budget. Each person involved must feel as though they have equal say in the budget, or else they will likely stray from the path you have outlined in the budget.

Remember, the budget is only the starting point to getting to a point that your family feels financially secure. It’s something that will need constant revisions, improvements, and open, honest discussions about. Both partners must always feel in control of their finances and work together in unison to find financial peace.

 


Disclaimer: This information does not constitute financial advice. For specific information concerning your financial situation, please consult your local financial advisor.