Monday, March 13, 2017

Trick yourself out of debt!

Trick Yourself Out of Debt

As this tragic story demonstrates, debt can have life-shattering consequences. Seriously, follow that link and read the story. I’ll wait here.

Done? OK, welcome back! Pretty somber stuff, huh?...

For all the talk about money—how to save ithow to manage it, how to invest it, how to pay off your debt, which app is best to help you stick to a budget—there is very, very little talk about the emotional side of money. And that’s a topic that we obviously cannot continue to ignore!

You may have heard of the so-called ‘debt snowball’ method: pay off the debt with the lowest amount owed; once that’s paid off, put that extra money toward the next smallest debt, and so on.

Some people take issue with this, since it’s more productive to put your money toward the debt with the highest interest payment first—the so-called ‘debt avalanche’ method. Advocates of the debt avalanche often fail to understand why people would use the obviously inferior debt snowball method instead.

The answer should be obvious, but I’ve found that numbers seem to obscure or distort the truth as often as they reveal it. The simple answer to why debt snowball works is that it gets people out of debt for the same reason they got into debt in the first place: because of how it feels!
  1. Debt snowball feels good. If you have debt on multiple credit cards, plus student loan debt, plus a car loan, and you’ve just realized that you have over 4 times as much debt as your annual salary, the ensuing feeling of anxiety can be absolutely overwhelming!

    Many people are completely crushed by this realization, sometimes turning to alcohol or drugs to ‘escape’ the reality of their financial situation. As the link above shows, some people are desperate enough to take their own lives! And, since student loan debt cannot be discharged by bankruptcy or other legal means, such extreme actions are understandable.

    Debt snowball turns that emotional state around, giving debtors a sense of financial control and power—often for the first time in their lives!

    Consider a [fictional] person named Robert. “Robert” uses the debt snowball method to attack his $130,000 debt. First, Robert pays off a $2000 credit card debt in six months. That quick ‘win’ helps him to realize, “Hey, I can do this! I can actually defeat this debt!”

    Even though the $2000 debt that Robert just paid off is only a small fraction of his total debt, the feeling that he’s just “won,” that he’s just “beaten” his creditors, can be intoxicating! That feeling energizes Robert, encouraging him to redouble his efforts and tackle his next debt (a $4500 car loan) with renewed zeal!

  2. Debt snowball feels easy. So much of the financial world seems extremely complicated. Variable APRs, small cap vs. large cap stocks, shorting, put options, bonds, dividends, tax-sheltered accounts, whole vs. term life insurance…

    This stuff really isn’t that difficult to understand, once somebody boils it down into plain English for you. Often, the problem is finding somebody who can explain these concepts plainly and simply, but isn’t incentivized to oversimplify or slant the truth in order to make money by leading you to a less-than-ideal choice.

    [*An important aside: This is why you need to pick a ‘fiduciary’ financial advisor. Fiduciary advisors usually charge an upfront fee of a couple hundred dollars. The advantage is that they will help you set up a plan that’s best for YOU, without concern for whether they’re paying for that BMW at your expense. Even though people may balk at the upfront fee, it’s much better for you in the long run.*]

    In contrast to much of the financial world, debt snowball is really simple to grasp, and it isn’t trying to deceive you in order to make big bucks for a financial company or a Porsche-driving Wall Street financier. Combined with a savvy marketing strategy to spread the word about this method, debt snowball is now a well-known and established method of destroying debt.
The bottom line

Even though I ultimately agree with the people who advocate the debt avalanche method instead, I understand that the debt snowball approach is useful for many people because of its emotional sophistication. Debt snowball tricks you into getting just as excited to knock out your debt as you were to get the stuff that put you into debt in the first place!

Essentially, debt snowball turns debt repayment into a game of sorts. And it simultaneously sets up the rules so that you get a couple quick wins to boost your confidence, turning despair into self-assurance.

Here’s the bottom line:
  • Debt avalanche is the best way to knock out your debt ASAP.

  • Debt snowball is the best way to trick yourself into getting started.
Which should I use?

There’s value in both approaches. Debt avalanche has the mathematical advantage; debt snowball has the psychological advantage. So, if you’re struggling with debt, I’d like to propose a hybrid of the two. Let’s call it the ‘debt jump-start.’

Saturday, March 4, 2017

The 3 best passive income apps

The first guest post to be featured on my site! Dylan of offered to write a guest post reviewing some extra ways to make some extra money. These are some good options to accomplish this goal! Take it away, Dylan...

The Three Best Passive Income Apps
By: Dylan, Founder/Owner of

Let’s face it: we could all use a little extra cash!

Wednesday, March 1, 2017

A little fun

Today in unnecessary censorship:

No, Yahoo, my e-mail address does NOT contain a swear word! But gee, thanks for implying it...

This reminds me of the classic (and not kid-friendly...probably not work-friendly either, depending on the personality of your co-workers and/or boss) unnecessary censorship video of Ernie and Bert in conversation.

As far as I can tell, they're playing tag and Ernie is actually saying that Bert is "it." But nonetheless, it cracks me up every time! Maybe I just have a juvenile sense of humor. But hey, it gave me a good laugh anyway!

After all, they say that laughter is the best medicine!

Or, if you've seen The Dark Knight (the second movie in Christopher Nolan's Batman trilogy with Christian Bale as the Batman), Heath Ledger's Joker seems to think instead that slaughter is the best medicine...
[A good movie, but I obviously don't condone harming anybody]

Thursday, February 23, 2017

Is your retirement in jeopardy?

Due to severe budget problems, Puerto Rico will have to slash its budget, as announced in February 2017 (see This includes cutting 10% from the retirement system for government employees, since that system is on the verge of running out of money completely. Sound familiar, U.S. residents?...

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Saturday, February 11, 2017

Should you trust the stock market? Pt I

Should you trust the stock market? Part I

Historically, the returns have been good on the Dow Jones or the S&P 500. But, as every financial advisor cautions, past performance is no guarantee of future results.

Dow Jones (all-time, also note the log scale—this should be steeper):
A historical graph. From its record low of under 35 in the late 1890s to a high reached above 14,000 in mid-2011, the Dow rises periodically through the decades with corrections along the way eventually settling in the mid-10,000 range within the last 10 years.

Dow Jones (all-time, labeled with some historical highlights):

S&P 500 (since 1950, including adjustment for inflation):

Or, for those who would prefer an annualized chart of S&P 500 returns, here you go (all-time--note that the S&P 500 was called the "Composite Index" before 1957):

Notably, John Bogle is not optimistic:

So, should you be optimistic? Is it wise to invest in the stock market? Is the market really trustworthy?

You don't need my advice. Take a look at the graphs above and decide for yourself.

Friday, February 3, 2017

How advertising ruins your life

According to this article, companies spent nearly $600 billion—that's billion with a b—on advertising around the world in 2015 alone!

All of this money is geared toward one thing: convincing you to spend, spend, spend! Is it really any wonder that consumer debt is sky-high, and 70% of Americans believe that debt is necessary? I'm here to tell you that it's not necessary. Not at all.

The point of advertising is to make you want stuff. And if you spend your money on stuff, it can't be invested and go to work for you. In fact, many businesses use some pretty clever psychological tricks to get people to spend money on an annual, biannual, or monthly basis. So, despite the clickbait-y title, it's true in a general sense: the constant stream of advertising ruins people's lives!

What happens if you don't buy into the advertising hype? Well, take me for example: I live on under $13,000 a year, before taxes. And I make money doing it! Not much money, mind you, but I live well below my meager means!

Saturday, January 28, 2017

A Tale of Two Kingdoms

My friend Bill at Wealth Well Done writes some true-ish stories as a creative way to communicate financial wisdom. So, in honor of Bill and of the parables of Jesus (many of which had to do, at least on the surface, with money), I've created a parable of my own:

A Tale of Two Kingdoms
There once was a kingdom with a very powerful army. One day, the king realized that he could make money while also providing protection for the nations he had conquered: he would allow the conquered nations to maintain their existing social orders, including their own forms of government. In return, each nation could choose one of a few different levels of protection—the amount of the conquered nation’s annual tribute depended on the level of protection they selected.

Wednesday, January 18, 2017

Links for your financial health, January 2017

Links for your financial health

Confused about the difference between Roth IRAs and regular IRAs or 401(k)s? Mr. Tako explains clearly and succinctly at

"IRA / 401(s) — Don’t pay taxes now, pay later!
Roth IRA — Pay taxes now, but don’t pay taxes later!"
The above link at provides a great resource on wealth-building--a recommended read! Some other interesting and important thoughts for your financial health: