The reasons people fall into the debt trap are varied and complex – from a simple lack of financial education or poor budgeting, unemployment, gambling problems or an unexpected illness that wipes out your savings, or just plain overspending! Cultural values also play their part, with some countries just seeming to instill a belief in the importance of saving and living within your means more than others.

Whatever the underlying reason, debt is a growing issue that more and more people find themselves facing, and sitting down and crunching the numbers can create an almost paralyzing sense that you just won’t be able to get out from under the beast. Because of this, many people try desperately to ignore the reality of their circumstances, ducking and diving and living in constant anxiety. In some cases, this type of lingering stress can even make you lose focus at work and become a threat to your career, which certainly isn’t going to help the situation!

The answer is obvious, but you have to be willing to accept it. If you ever want to get out of debt, you’re going to have to face some possibly awkward conversations, man up to your mistakes, and yes, your lifestyle may have to change, possibly drastically. But facing the problem is the only way it’s ever going to go away – and with a little bit of help and some discipline – it can.

Get help!

Contacting a professional firm to investigate your debt review or credit counseling options is a great place to start. One thing’s for sure, you certainly won’t be the first person to face this problem, and you’re sure to receive solid and nonjudgmental advice. Debt review firms and credit counselors can help you in a variety of ways, from helping consolidate all your debts into one manageable monthly payment, helping you come up with a realistic budget, negotiating better interest rates on repayments and even protecting your assets from repossession.

Many lenders will even offer a lower total repayment on your outstanding account when they see that you are serious about paying them back – it makes financial sense for them to recoup a smaller amount rather than run the risk of you not being able to pay anything at all. This will depend on your personal situation of course, so you will need to be completely upfront and honest about what your income and expenses are. Taking the first step is the hardest, but the relief you get from knowing the journey back to financial freedom is actually underway is more than worth it!

Getting out of debt for good

If you have several debts to pay off, it may make sense to harness the power of the snowball effect. This concept revolves around starting with your smallest debt, and paying that off first, which offers two benefits. The first, and perhaps most important if you’re at the beginning of your journey, is the psychological boost you get from ticking one debt off the list for good. And secondly, not only are you now used to getting by without that money each month, but your overall debt has shrunk too.

Really evaluate your spending habits. It’s so obvious that people underestimate just how important it is to have an accurate idea of where your money is actually going each month. This doesn’t mean scribbling down what you estimate you spend on groceries, fuel, fees and contracts – this means actually getting the real figures. Commit to either keeping your receipts (if you tend to draw cash) or only using your card so you can track payments on your monthly statement. Draw up a spreadsheet, use an online tool or whip out your calculator, whatever works for you. The important thing here is creating an accurate picture (maybe even a pie chart if you’re so inclined) of where your hard earned cash is going. Prepare for some shocking truths! Once you have the data in front of you, seeing where and how much you can cut back becomes simple.

Once you’ve committed to making payments each month, have them set to come off your bank account automatically via debit order or automatic deduction. If you have a good relationship with your employer, ask them to deduct the money from your salary each month on your behalf. This means you’re less likely to find an excuse not to make a payment because it would mean having to explain yourself to them too!

Getting out of debt entirely really is possible – and even better, once your debts are cleared, you’ve learned an even more valuable lesson. Don’t go back to your old habits and spend that money you were setting aside each month. Keep the trend going, and set the same amount each aside to save and invest each month. The lessons you’ve learned in getting out of debt can now serve you in saving up for retirement or a reward you’ve truly earned!

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In the USA the figures don’t make good reading. Many citizens are carrying credit card debt that incurs a high rate of interest. Too few have sufficient in their retirement fund and seem to think that Social Security will make a significant contribution to comfortable retirement. The latter is simply untrue; it was never designed for that and the System is increasingly under pressure as the fund is dwindling. Don’t expect the Republican Party to increase taxes any time soon to boost it. You need to be saving and one thing that you can do immediately to help if you have credit card debt is to borrow ironically. A personal loan can pay off that balance and the interest you will be paying is significantly lower.

You deserve a comfortable retirement after a long working life but you have to earn that as well. The sooner you start to save, the more chance you have of success. If your dreams of traveling, fishing and spending time with the grandchildren, you will need money and after the regular monthly paycheck stops, you must know where the finance is coming from. Today’s population that is approaching retirement has begun to understand the problem. According to a recent survey by Transamerica Center for Retirement Studies almost half fears that its investment is insufficient.

Things for Serious Consideration

Here are a few things to consider when you are thinking about retirement:

• You can draw Social Security as early as 62 but you will receive significantly less per month than if you wait until full retirement age, 66 and rising to 67. If you can wait until you are 70 there is more again.

• You should not be carrying any significant debt if you are considering retirement. Some as normal as a credit card balance will be a problem because of the interest you will be charged.

• Hopefully all your children will now be financially independent. That means they are working and in control of their own finances, including the repaying of their student loans direct lenders where applicable.

• If you are helping to support elderly parents then it may be you need to delay the decision to retire.

• You certainly must sit down and work out a realistic budget. If you have lived by one throughout your life there is nothing that should cause you too much concern. However, if you have found that over the years you have been spending virtually all your monthly paycheck to cover your bills, you should reflect that on retirement, your paycheck stops.

• Those of you that have had an investment portfolio and can afford to maintain one after retirement should look at whether you have too much risk in that portfolio. The recession hit many portfolios but although the recession has gone, there are some economic indicators that suggest there is no boom on the horizon even if Donald Trump suggests he can get the country moving ahead. If you have any concerns, you should talk to a financial advisor and address those concerns.

• Retirement affects more than just yourself. There may be wife, children and even elderly parents. You should certainly discuss everything with your wife to reach the best possible answer to your circumstances. If you are both working then you may decide that one of you retires immediately and the other continues for a while. It is a matter of doing the calculations.

So What Do You Think?

After looking at each of these aspects, you may be closer to reaching a decision on retirement. You need to consider how you will spend your time, bearing in mind you will need to be able to finance those activities. If you have many friends who have retired that is a different position than if your friends are mostly working. One thing is certain; there are too many Americans today who have not got the luxury to retire early with plenty of money to enjoy the dreams they had when they were younger. If this is you and retirement is still some years away, act now, reduce any debts you have and start to save.

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Most people I know deal with a financial advisor. It makes total sense since we can’t be good at everything and personal finance is probably one of the most important things in your life. If your finances are not in order, you won’t be able to do what you like and financial problems often lead to high levels of stress. This is why we all look for a financial advisor to help us take care of our personal finances. As is the case with any other job, some financial advisors are awesome while others are clowns. Let’s just say that it’s harder to find a good advisor than most people expect!

We are often stuck with very few options when it’s time to find our financial advisor. We either go to the bank we do business with and pick the guy or the gal who’s available or we ask our entourage for a referral. You may have been solicited as well by people who promise that they are better than who you have right now. It might be true (if it’s me calling…lol!) but how can you really tell the difference between a professional and a clown?

The answer is easier than what you think…For each industry, there are some “secret facts” known by those who work in the field and may be ignored by others. If you want to know which car breaks down more often, don’t ask the dealership, ask a trusty mechanic. It’s the same thing in the financial industry; the professional will tell you about his secrets…

#1 How much he earns

The first question you should ask your advisor is how much he earns and what pays him the most. Money drives everything, once you know how your advisor is paid, then you know how he can help you… or waste your time.

#2 Should I pay my debts?

If you have money sitting in a cash or money market account and you have an outstanding debt at 6%, sound financial advice would be to use your cash to pay off your debt. Most advisors will ignore this principle since each time you withdraw money from their  your account, they lose money.

#3 Are you worth your rate?

I don’t believe the best financial advisor is the cheapest one. Your mortgage rate may be higher or your banking fees might be competitive but not the cheapest in town. However, if your financial advisor picks up the phone to advise you about finance without you asking for anything; this guy worth every extra penny you paid. Ask your advisor why he is more expensive – the right answer is “because I am worth it”.

#4  What’s good about my investment?

A good financial advisor won’t be afraid to tell you that a part of your portfolio (or even the whole investment) is well invested even if it’s with a competitor. The point is that you ask him to be honest; if you are doing the right things he must be able to tell you.

#5 Insurance is incredibly profitable

If you didn’t know yet, one of the best secrets of the industry is that insurance policies sold are incredibly profitable for the advisor (and his firm). Ask him how profitable the insurance you purchased from him is… and wait for his answer.

#6 Insurance shouldn’t be sold with fear

I’ve ran into too many insurance agents selling insurance based on the clients’ fears. Insurance needs are real, fear isn’t. Therefore, ask for a realistic proposal with numbers that make sense for you. I once saw a permanent life policy of $300K for a client who was sitting on $1M cash in his company…. What are the odds he needs an additional 300K upon his death if the company is already full of cash?

#7 He doesn’t call all the shots

Regardless of which firm your advisor works for, he doesn’t call all the shots. It’s better for him to be upfront and tell you that a credit department or a compliance board will have the final say in your application. It’s better if he’s transparent.

#8 Mutual funds are good even if they are expensive

Yes, mutual funds can be seen as expensive and they are if you compare yourself to a DIY investor who picks his own ETFs. However, when we make this analogy, we don’t consider the time and passion invested by a DIY investor to manage his portfolio. If you ask any mechanic about an oil change, they will all tell you it’s stupid to pay for that since you can do it yourself. Well, when you don’t want to take care of something, you might want to pay a professional to do it for you. This is why mutual funds can be good for investors who don’t want to manage their own portfolio.

#9 How much it will cost if you leave

Some advisors don’t have any penalties attached to their investments or mortgages while others charge a final bill if you ever leave. This is important to know the complete structure of your personal finance and to understand if you are attached to your advisor (and his company) or not. It’s not necessarily a bad thing, but you need to know before your sign-up!

#10 Why he is doing this job

I believe personal finance is more personal than financial. Therefore, the most important thing when you deal with a financial advisor is to be able to trust him and get along with his way of working. A simple question that will tell you a lot about the guy/gal in front of you is “why do you do this job?”.

Here’s my answer:

Because I love the stock market, I love to talk about finance and love even more when I can teach finance to other people.

This will tell you if he will stay in his job or not!

What else? Do you have any tricky questions to ask your financial advisor?

Readers, do you have any good questions you would like to ask your financial advisor? What do you do before you can trust him?

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A few weeks ago, I read a great article from Joe @ Retire at 40 talking about whether retirement planning is a sprint or a marathon. I’ve been giving it some thought lately about how we should approach retirement planning and I really liked the running analogy. There are several ways to retire just as there are several ways to train for a run.  Let’s revisit how you can retire depending on your “workout”:

Sprint – Is this an Option?

In my opinion, you can’t really sprint your way to retirement. Unless you have the ability to make a lot of money in a very short period of time, the sprinting method will not happen. In order to build a solid nest egg, no matter how good you are at saving, you will need at least ten years to build it.

Unfortunately, we see too many people waiting until they hit their late forty’s before thinking about retirement planning. This is when you wish you make a lot of money and that you have finished paying off most of your debts. If you are not in this situation, the sprint to retirement will be harder than you think.

For example, someone at 45 saving $10,000 per year at 5% will gather only $330K before he retires à 65. At the same rate of investment, the 330K can generate $26.5K per year as a pension and the payment will stop at the age of 85. This calculation doesn’t take in consideration inflation so you can guess that 26.5K in 40 years in not much to live comfortably! If we increase this amount to $20,000 per year, the retirement nest egg grows up to $661K and will generate $53K per year for 20 years. So if you are thinking that sprinting is a good option; you’ll have to save $1,666 per month if you start at the age of 45!

Spartan Race – For Those Who Eye Early Retirement

If you ever have the chance to do a Spartan Race, Prison Break or a Tough Mudder race, DO IT! I did one myself this summer and I truly enjoyed this mix of hiking, running and military training. It truly demands all your body’s abilities.

You can take the Spartan Race way to plan your retirement. It will be harder than a regular race. Instead of focusing solely on saving money, you will need to work on all your personal finance abilities. This may include saving more, creating a business, paying off your debts very quickly, etc.

My plan to retire looks like a Spartan Race: I work more hours than a normal job since I work at both my job and online business. By doing both at the same time, I make sure that I have my “normal” retirement plan on line while I try to reach early retirement.

My normal retirement plan includes investing $5,000 per year in my savings account + my pension plan. This plan ensures that I’ll be making roughly $100K per year starting at 65 and ending at 90. This should be enough to cover for both my wife and I.

Now that I’ve secured this option, I can start my Spartan Race and look for early retirement. For example, if my online business generates over $20,000/month in ten years, I might be able to stop working in my early 40’s.

As is the case with real Spartan Race, I’ve faced a few obstacles with my retirement plan. Having three kids has slowed me down since I have more expenses and less time to work on my company. I don’t regret my choices at all, and I just came to the conclusion that the Race was harder than I thought in the first place and that retiring early is quite challenging. I also failed to resist spending more in previous years. This had a big impact on my early retirement plan.

At least, my “marathon” plan is on pace and I know that in the worst case scenario, I will retire at 65 with a solid pension.

The Marathon – The Right Way to Approach Retirement Planning

I’ve never run a marathon… yet. The biggest race I’ve done was 16.5km and that was this summer. In order to reach that level, I started by running 5km 3-4 times a week this spring and ran 10km once a week. I started slow and increased as I think my body can support it. I expect to be able to do my first half-marathon next year. In fact, I could probably take the step this year but I’m not sure I’ll have enough time ;-).

Retirement planning way ahead is like training for a marathon; there is nothing exciting about it! When you make a habit of saving money on each pay check, you ensure a safe retirement. At the same time, you don’t have to starve for years or stay on your couch for your vacation. Actually, if you save $1,000 per month toward retirement for 35 years, you will be a millionaire (this makes $1,083K at a 5% investment return). Since you don’t need that much money to retire, you can drop your monthly retirement plan to $600 per month and still gather $650K in 35 years.

No matter how you run your race, the end is always a finish line. The only thing that is different is how you feel once you have crossed the line! Are you going to be proud, exhausted or feel ashamed because you haven’t trained enough for your race?

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Has your spending been out of control? Do you want to get things back on track?

I must admit that my spending falls off-track once in a while. Despite writing about saving money for the last 5 years, I still make plenty of mistakes. It’s easy to get distracted in life. It’s also easy to lose track of the basics and the fundamentals that got you to where you are. This is why you always hear people talking about going back to the basics. This is what we will do here. It’s time to go back to the basics and save some money.

Before we can save any money, we have to fix our spending so that we watch where are hard-earned money goes. As I’m sure your parents told you growing up, it doesn’t matter how much money you make, it’s how much you save that counts.

Let’s get started!

How can you fix your spending in 7 days?

Track it.

This is the most common advice for a reason. It works. If you don’t know where your money or what the problem is, you’ll never be able to fix it. This same logic applies to your eating and other habits in your life.

The good news is that you don’t have to be one of those folks that tracks spending 24/7. I personally could not imagine doing that. However, I want you to track your spending for the next week so that you see where your money goes on an average week. The trick is ensure that it’s a typical week and not an anomaly where you’re away on a trip or have to spend huge money on bills. Just your average week.

How can you track spending?

1. An app. People have apps that count how many times they blink per minute. There’s likely an app available to you that helps you with tracking spending. I’ve played around with a few. They can get pretty slick. The app I used many years ago when I was an iPhone user (don’t judge) allowed me to track fixed expenses, variable ones, and the types of categories that the spending fell under. Find an app that works for you.
2. Use credit/debit. One of the main benefits of a credit card is that you can track your spending. You just swipe to make your purchases. Then you go online to look over your statement. This is my preferred method. Plus you can get points with your credit card.
3. Write it down old school. Pen and paper style. Carry around a notepad if you don’t have an app on your phone.

Find out where your problem areas are.

The whole point of tracking is to see where you’re making mistakes.

What are your problems area?

My problem area for the longest time has been food. Every single time I track my spending I noticed that my spending on food is out of control. I now track only how much I spend on food because I don’t really spend much on anything else.

The trick is to find your problem areas.

• Are you eating out too much?
• Do you shop for clothing once a week?
• Do you spend too much money at the movies?

Attack one problem area at a time.

It just won’t work if you try to cut back on everything all at once.

Attack your problem areas. Attack one at a time ruthlessly until you have it figured out. Be aggressive  Try to cut back. Try to find alternatives. Work on it slowly.

I’ve come to accept that I’ll never be perfect with my eating. The goal isn’t to be perfect. The goal is to be better. A little better every day will go a long way. You can slowly attack one problem area at a time.

The goal is to find out what your problem areas are and to decide which one you’ll go after first.

That’s how you can fix your spending in a week.

Where are you spending all of your money?

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