Personal Finance Advice

We all remember fondly the games we played when we were children. There is a simple game that kept me entertained when I was young. It was called Barrel of Monkeys. My Barrel of Monkeys came in a bright yellow plastic barrel with twelve monkeys inside. The monkeys’ arms were sort of S curved and the object was to hang or hook together as many monkeys as possible without them falling apart.

If you followed the original instructions, the little plastic monkeys were made in such a way that stringing together more than six or eight resulted in monkeyshines – the monkeys went flying everywhere. I used to hang the little buggers off of everything, curtains, trees, knobs, whatever was handy.

Money and debt can be compared to that bright yellow barrel full of monkeys

When the monkeys are all tucked safely into their barrel, they have no entertainment value – they don’t do anything. But, the anticipation of fun is of value. Money, tucked safely away, in a savings account or under a mattress, has anticipation value and little else. Savings accounts presently pay so little interest that they are merely a place to keep money; much like the yellow barrel was not a part of the game, just a place to store the monkeys.

Now let’s analogize further, think of each silly monkey within the barrel. Pretend that the monkey symbolizes a hundred dollar bill. Every month, you try to organize your debts, one by one, and pay them off. But the balancing act fails and your monkeys refuse to cooperate. They would rather be off eating bananas somewhere.

What would happen if you gave your monkeys a firmer foundation to hang from instead of letting them fall willy-nilly out of the barrel onto the table? You would be able to hang more monkeys. So let’s make the yellow barrel a part of the game. The monkeys hang quite well from the edge of the barrel.

Many people have savings accounts and a heavy debt load. A savings account gives a sense of security. You know the money is there if you need it. Now, I’m going to be blunt; if you have a savings account that pays 2% interest and a credit card that you have to pay 14% interest on the balance – how are you actually saving money? It’s time to hang your monkeys from the edge of the barrel. Take the money out of the savings account and pay off those bills.

I will admit that it’s scary to use the money in your savings account. But you absolutely have to prioritize and see the bigger picture. If you pay off your debts, you can put more money into your savings at a quicker rate. It’s as simple as that.

I’m not suggesting that you empty your savings account. It’s important to leave enough in it for small emergencies. I think that an amount equal to two months income is sufficient for a short time. This amount will cover small emergencies like car repairs and keep you motivated to pay down the bills.

Organize your debts by amount and interest rate. Start with the smallest bill with the highest interest rate. Prioritize it exactly like that – the smallest amount first, then the highest interest rate. Say you have a doctor’s bill that is $200 and the interest rate is 0. You also have a SuperMaster Card that is $200 and the interest rate is 13%. Pay the SuperMaster Card first, then the doctor’s bill. After you pay those two off, pay the next lowest bill with the highest interest rate and so on, this is the way you make your money work for you. When you are no longer paying out 13% interest, the money you put in a savings account will actually grow, even at a low interest rate.

If you are laboring under a heavy debt load with high interest rates, you can apply the same principle to the amount you put into your 401k every payday. I don’t advocate taking money out of a 401k to pay down debts (definitely know the solo 401k rules), but it can be useful to stop paying into a 401k for a year or so until you eliminate your debts. Then when you resume 401k contributions, you may be able to up the amount you contribute. After all, you won’t have any debts because you paid them all off.

Paying off debts takes a multi-faceted approach. You have to look for different ways to increase the amount of money you can apply toward the debt. It’s not always possible to get a second job to increase your income, so you must look for other ways to free up cash flow. If you really start to examine where your cash is and what it’s doing, you will start to look at money in a whole new way.

You don’t have to be a child to enjoy playing games and you don’t have to be an accountant to understand that saving money at 2% and paying out money at 13% is not really saving money. You do the math and decide which you would rather have; a barrel of monkeys or a barrel of money.