Kurt Fischer isn't interested in abstract ideals. His blog, Money Counselor, is respected across the web for its no-nonsense approach to personal finance and saving for retirement, inspired by Kurt's time as a credit counselor. Kurt took a moment to speak with us about what it takes to do right by your money.
The tagline of your site is "Money ideas for people who work for a living." What led you to choosing that?
From working for a period as a certified credit counselor and from personal observation of the state of financial affairs in America, it's become obvious to me that all strata of the middle class in the U.S. are, as a whole, struggling financially. I'm more interested in helping people pay off debt, save enough for the sort of retirement they want, get the kids through college and still have fun - the challenge of the middle class, in other words - than I am in helping the rich get richer. So by "people who work for a living," I mean the middle class. Sure, upper-class people work too, but for the most part they're not working to put food on the table and keep the bills paid.
What are some common misconceptions about debt you see out there?
I saw a billboard recently for a company that sells loans. The message began with something like, "In debt up to your eyeballs?" If so, then you're invited to use the advertised service to take out a loan. Huh?
Many people do not seem to grasp this simple fact: Absent a windfall, bankruptcy, debt settlement or some other rare or undesirable path, the only way to retire debt is to spend less than you earn and send some or all of the difference to the creditor. Consolidation loans, balance transfers, home equity loans - while these can sometimes make financial sense in the short term, the reality is that the most common reason people pursue these options is because they consciously or subconsciously want to postpone dealing with their debt problem, not tackle it head on.
I think also many people are in denial about how much debt is costing them. $10,000 on a credit card with a 15% APR sucks $125 a month out of the family budget, and the family gets absolutely nothing back in return. Paying interest has zero benefit; you're purchasing nothing, except time to pay off something you probably couldn't afford to buy in the first place (mortgage interest excepted). Many people's definition of doing fine financially is being able to make the minimum payment each month on a bunch of maxed out credit cards. I'm working at Money Counselor to change that perception!
If you could teach everyone one thing about personal finance, what would it be and why?
I would start with this simple, but for many elusive, equation:
Retirement Savings (i.e., lifestyle) = Working Lifetime Earnings - Working Lifetime Spending
I'd teach this first and foremost because unless this concept is embraced, nothing else matters.
Unless you aim to be dependent, you cannot retire if you don't save. A lot. Not rocket science, is it? I think many middle-class people these days find the challenge of saving for retirement so daunting that they've essentially thrown in the towel on saving and plan to work until they drop, literally. I see more and more people apparently in their seventies working. I think that's great if that's what you want to do, but this plan is often derailed by health challenges. If you're 68 and are no longer physically or mentally able to work and you've saved only $50,000, then what? I don't want to be a very scared and dependent senior citizen!
What kinds of debt do you see people collecting and why?
Credit card debt remains the most onerous type of debt plaguing the middle class. It's expensive, and it's seductive. We're absolutely bombarded with marketing pitches and messages, and it's tougher and tougher for us vulnerable humans to resist the constant encouragement to spend, spend, spend now! Spending and consumption has become an integral part of American culture. If you're not spending, something's wrong with you!
For the lower middle class and lower class, payday loan debt is epidemic and incredibly destructive of family finances. Educating Money Counselor's readers about the reality of payday loans is one of my primary missions!
What are some early warning signs you're taking on too much debt?
- You can't easily pay off your entire credit card bill each month.
- The size of a mortgage payment you're contemplating would keep you from maxing out your 401(k), IRA and similar retirement accounts.
- You spend time moving debt around (balance transfers, consolidation loans) instead of paying it off.
- You buy a car with a payment that absorbs all the free cash in your budget instead of first figuring how much payment you can afford - and still meet all of your saving goals - and then restricting your shopping to appropriately priced vehicles.
- You don't want to think or talk about your finances. The thought of visiting with a credit counselor makes you queasy.
When looking at a budget, how do you know what to cut?
You have to subscribe to the urban legend of Willie Sutton's reply when asked why he robs banks: "Because that's where the money is."
Many financial pundits harp on cutting out the latte and other nickel-and-dime savings. Living frugally (but sensibly - you need to have some fun and little luxuries too!) is great, but for middle-class people, buying too much house or, repeatedly, too much car makes saving enough for retirement really tough, no matter how many lattes you forego and how much boxed mac 'n' cheese you eat.
Focus on the big, costly stuff! For most of us, that means the house, for starters. Don't let your realtor or mortgage banker tell you how much house you can afford. The right way to make that judgment is to put together a budget that includes savings for retirement, kids' college education and contingencies, and then see how much room you have in that budget. If the answer is $1,000 per month, then that's the largest mortgage payment, including property tax and insurance, that you can afford, period, even if your lender would approve you for a mortgage with a $2,000 monthly payment. Don't be seduced!