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Creative Experiments - Shoutpost HelpOprah's Debt Diet Revisited
2007-06-10
On Oprah 6/8 it was a show about money, "This is the Year to Get Richer" and an update a year later on the three families involved in Oprah's Debt Diet Program.
First up was Jean Chatzky (new book: Make Money Not Excuses) who took two couples and a single person out of the audience for a money makeover in an hour that could/can change their lives. More on that in a bit.
Jean says that she hears the following excuses all the time when it comes to personal money management:
1. I am not good with money.
2. You/I only live once!
3. I fear if I invest I will lose money.
4. I don't have time to manage money.
5. I am too old and it is too late for me to start.
She says enough of the excuses and get started it is never too late ever.
Discussion was then on how woman feel safe and comfortable with their husbands handling all the money. They feel they are being "taken care of". This is a big mistake.
Kerry (age 48) had the luxury to become a stay at home mom (SAHM) when her husband was making good money. They upgraded their home to 3000 square feet.
A larger home means more expenses, more taxes and utilities, insurance.
Her husband managed all money, bills, debt. One day he came home and said he was divorcing her with no warning after 13 years of marriage.
Kerry was shocked, had no job, no money of her own.
She said she had a combined total of around $100. in savings and checking.
Her family and some friends helped her out financially and she needed to rebuilt her live as well as her money portfolio.
Kerry figured out all her monthly expenses and then figured out how much she needed to earn to make ends meet and to start saving.
Jean suggested she needed 2K (k=thousand) a month for living expenses and save 10K a year. It then worked out to be
$3800. per month, which included 1K for savings per month.
At retirement (age not specified nor time frame), if she put the 1K per month away in a solid high
earning savings/investment account (interest rate not specified but usually it is around 8-10%), she would have 600K at retirement.
They did not say what sort of profession she worked in to be making that sort of money.
Jean suggested that you use an online savings calculator to find out how much you need to save, time frame, and interest rate to equal your savings goal.
Lesson: always have a written plan with finacial goals.
Woman need to save money in their own name for their own protection.
Four Steps to Take
1. Maximize your money
a. Set income goals
b. Ask for a raise
c. Work an extra hour a week (guess that means if you have an hourly wage job not a saleried one or one with overtime)
2. Spend less than you earn. (Previously mentioned on the show was that you base your spending on what you actually take home, not what your yearly salary is.)
a. Pause before you purchase -- do you need it or just want it? do you want to take care of it?
b. Pay all your bills on time. Pay your bills before you spend on yourself.
c. Use a debit card -- a debit card is like a check and money is taken out of your account so the money must be there.
d. Shop around and find the best price for goods or services, including bank rates.
3. Invest the money you don't spend (your savings)
a. Save automatically. Some employers allow you to designate an amount that will be automatically deposited into your savings account from your paycheck.
b. Earn more interest -- find a better way to save more money with higher interest rates. (I like ING Direct Orange Savings.)
4. Protect your money
a. Get the proper insurance for you, your house, car, etc.
b. Get a will -- a legal clinic can draw you up one for a small fee compared to a lawyer if you can't afford one.
c. Open up accounts in your name to save for you.
The Smart Cookies -- a group of five girlfriends who were inspired to save and revamp their lives (money attitude makeover) after watching the Oprah's Debt Diet last year.
Over the past year, a group of five friends got together on a weekly basis and discussed money issues, finacial goals.
It cost them $6.00 each a week to have a get together with food. The discussions lead to changes in all their lives.
In a year's time, they saved among them, a total of 15K, got rid of 15K in debt (mixed types), and brought in 45K more income.
One gal said that the spend now pay later hit home as she was spending more than she actually made.
Another thought she was too young to save money.
Clothing seemed to be a major purchase and now they buy and share.
Another one gave up her car for public transportation.
A wedding for 22K was paid in cash.
The Smart Cookies said small changes made a big difference and how much better they feel about themselves and managing money with the support of each member.
The Debt Diet -- 1 year revisited
Jean Chatzky was their financial coach:
Lisa and Steve -- 102K income, 170K in debt ready for a divorce because of out of control spending.
They paid off 50K in debt in a year.
They got rid of two cars, the super sized TV. They did not spend and did not eat out all the time like they once did.
(Lisa did not know how to cook and they were eating off paper plates every night.)
They increased their income by 26K, with overtime and two part time jobs.
SAVE SAVE SAVE was their mantra.
They said the Debt Diet was a blessing, they do not argue, their relationship improved and along the way they lost some friends (interesting)
They renewed their wedding vows.
There is more communication between them, and if making a major purchase consult with one another before the purchase is made.
David Bach ( author of "The Automatic Millionaire", "Start Late Finish Rich") was their financial coach:
Dan and Sally, school teachers, 90K income, 115K in debt
They admit, that they were impluse spenders with 12 credit cards maxed out and near bankruptcy.
They got lower rates on their credit cards with a phone call.
In a year, they have paid off 26K. They found extra work to pay off their debt.
David Bach's suggestions to them that they followed:
1. Have a plan for the long term
2. Recognize your debt, don't be in denial, be responsible for your spending and paying your bills.
3. Be consistant in paying off debt -- Dan and Sally raised their FICO score 100 points in 9 months.
Glinda Bridgforth (author of"Girl Make Your Money Grow", "Girl Get Your Credit Straight") was their finacial coach:
Mark and Marnie battled over money with their two teenage girls.
Seems like the girls get their own way and the parents could not say NO to them ever.
In a year's time, their debt increased 37K.
They did simplify their credit card debt from 16 cards down to 6.
They also refinanced their house cutting their mortgage down.
Marnie thought the process was invasive and intrusive. She did not want to do it. (why ask for help in the first place?)
David Bach mentioned that their situation was the ultimate American Nightmare.
They cut down their credit card debt and refinanced their house lowering the mortgage considerably but instead of looking at it like it was money to pay off their debt,
they went out and spent MORE.
When you refinance, you need to change your spending and saving habits.
The money they saved on the mortgage payment, and credit card bills, should have gone toward their debt to reduce it faster.
Mark admitted that they started out ok but eventually lost focus to stick with the program.
Marnie, in my opinion, needs some cold water thrown on her. Look at what they are teaching their children!
At the end of the show, the Money Makeover Dream Team had plans for the audience members picked previously at the start of the show.
Lindsey and Matt
Ages 25/29 with a baby on the way
97K annual income, 6K debt, and 65K student loans
Advice: Find savings accounts with higher interest, open Roth IRAs, downsize their car and Matt is going to sell his Playstation.
Kathy and Steve
Ages 51/51
100K annual income, 34K debt
A few kids are still at home but one, a 22 year old is not contributing to the household kitty, Steve did not know that.
Advice: They got their 29% APR (annual percentage rate) credit card interest rate down to 5% with a phone call negotiation.
The 22 year old needs to contribute or move out and be on their own, paying their own way.
Diana
Age 23, single
50K annual income, 6K debt, 37K in student loans
Advice: Get a room mate to split expenses, create a savings plan, cancel the monthly gym fee since she does not go.
Ok that is the round up of information.
Sit down, look at your income and bills, create a plan, open a higher interest savings account, pay your account first and regularly, pay your bills first then spend, review your plan from time to time
and always look over to the long term of savings.
Another note -- Oprah covers many people earning large incomes when there are many struggling with under 50K a year. I think she needs to address this issue in the future as the place you live determines the kind of income you will make. Cost of living expenses in some areas are much higher than in others.
Oprah's Debt Diet Plan and printable worksheets -- at Oprah.com
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