# Archive for November 2006

## What is your debt freedom date?

Want to know what your debt freedom date is?

It is pretty easy to calculate.

I do want to say, however, that there is one prerequisite to this calculation: You must STOP signing up for more debt! If you keep adding more debt, the debt freedom date will keep moving away from you!

So, knowing that you have said NO! to debt from now on, here is how you calculate your debt freedom date.

1. Download the Debt Freedom Date Calculator.
2. List all of your debt information as shown in the example below. You will need your debt name, debt balance, and your current monthly payment.
3. The balance of your debt balances and your payments will be totaled.
4. The calculator will do the rest by dividing your total debt balance by your total monthly payments. This yields your Debt Freedom Date!
• \$26,445 Debt Balance/\$1,105 Total Monthly Payments = 23.9 months Debt Freedom Date

NOTE: This will get you really close to your actual debt freedom date.  You might notice that we did not include interest rates. We also did not include positive financial events like pay raises, tax refunds, bonuses, money freed up from budget improvements, and selling stuff.  For the average person who pursues debt freedom with much intensity, it is actually accomplished in about 2/3 of the time calculated here.

You now have your Debt Freedom Date! Post it on the refrigerator and celebrate as you see each debt disappear from your life.

## Should you withdraw money from your 401(k); 403(b); etc. before retirement?

Want the short answer?   NO!!!

Why?   Most of the contributions to an employee-sponsored retirement plan are done so on a pre-tax basis.   The contributions have never been taxed.

Here are my reasons why you should not pull money out of your retirement plan early:

• Lose the opportunity for your money to grow tax-deferred
• Time-value of money is crushed when you pull out the money you have saved for retirement.   You will never get that time back!
• If you pull money out of your retirement plan early, it will be subject to taxes PLUS a 10% penalty.
• You will  have to recognize the withdrawal as income for that year which will usually bump you up a couple of tax brackets.
• It is a VERY EXPENSIVE way to obtain money.   You will ultimately pay around 45% taxes on the money you withdraw!   If you pull out \$50,000, you will actually bring home \$27,500!   Taxes and penalties will cost you \$22,500!   That is worse than a credit card!
• I would ask the question, “Why do you need the money?”   There is some reason that is causing you to want to pull the money out.   In MOST cases that I see, the reason is that the person(s) are spending more than they make and are turning to debt to make up the difference.   They view this cash withdrawal as a way to avoid more debt.   I have seen too many cases where the money is withdrawn (very expensively), and they never change their spending behavior.   They then end up with  zero or very little in their 401(k) PLUS they still have a pile of debt that increases every month!
• FINAL REASON:   It’s for RETIREMENT!!!   That is why it is called an employee-sponsored RETIREMENT plan!!!   Trust me.   You WILL be tired some day.   You WILL want to reTIRE someday.   If you take this money away, how will you be able to retire?

## Have you taught your children about compound interest?

I met with another person today who did not know about compound interest!

When I am able to show a person the POWER of compound interest and how it can help them (investing) or hurt them (paying interest on debt), I get pumped up! This is LIFE-CHANGING information!

I cannot believe that schools in America are not required to teach this to every single student! Math teachers should be required to teach it every single day! I mean, I have learned about derivatives and integrals and kernels and that knowledge does not help me every day, but compound interest DOES help me every single day!

I know that my investments are relatively small today, but, oh baby, when I see where they will be in 10 years, 20 years, and 40 years from now. WOW!!!!

\$100/month at 12% return for 40 years is \$48,000 invested but is worth \$1,176,477!

Are you investing YET? RUN to the nearest investment office!

Have you taught your children about this? Do not depend on the school to do it! You need to teach them and model this for them. Kids get this stuff!