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The Financial Weed Round Up Method

May 06, 2019
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How to Go From Debt to Savings in the Least Amount of Time

It’s that time of year; the annual lawn and flower bed beautification ritual to create the clean, crisp, weed-less yard for you and your neighbors to enjoy. Like most things in life, the enjoy part does not come without a fair amount of labor. The weeds always appear before the flowers, and if unattended, they will take over leaving you with the worst lawn in the neighborhood.

The same is true of your money. The financial weeds are anything that stops you from first, getting out of debt, and second, saving money. The weeds are easy to see but hard to stop. These are the things we spend money on that we never intended. When making a budget, you should prioritize your spending and predetermine your wants from your needs. Label each of your expenses and assign a dollar figure, like this: Needs vs. Wants. If you are about to spend money on anything that does not appear in one of these columns, then you’re in the weeds. If you are about to overspend on a budgeted item, you’re in the weeds. The point of this is not whether you should spend the money or not; only you can make that choice. There are, however, unintended consequences to any additional spending choices you make. If you have overspent, you will need to make more money, cut back on something else, or add debt to cover the additional spending. Adding debt is the usual choice because it is perceived to be less painful. This choice is the trap that keeps people in debt.

The additional expense is likely a material possession, and until you evaluate the item against your needs vs. wants budget, you should not purchase it. Don’t impulse buy! Go home and think about it. Use the 48-hour rule for any item not included in your budget. Use that 48 hours to first add the purchase to its proper place in your budget. Next, look at the effect on your current budget to determine if the expenditure will set you back from achieving your goal of getting out of debt and becoming a saver. Lastly, if you still intend to make the purchase then determine how you will adjust your budget to accommodate the additional expense. The 48 hours buys you time to decide if it is worth it to alter your budget or to determine if it is a purchase that can and should be avoided or postponed. This process is a helpful exercise in weed prevention.

Ok, so that’s weed prevention. But how do we get rid of our current weeds in the yard? We spray “Round-Up” because it is known as the weed killer. Round-Up kills the weeds all the way down to the root. You can then finish by pulling the dead weed. This process guarantees a weed-less yard, not necessarily a good looking yard! A plush, attractive yard requires a lot of work; spreading fertilizer, aeration, mowing, and mulching. Luxurious yards require time and effort much the same as having control over your finances.

The Financial Round Up Method

If you want to get rid of your current financial weeds, debt, and have a plush investment portfolio in the future, then consider the roundup method. When my wife and I got married, we also had matrimony of several credit cards with high interests rates, a couple of car loans, and a student loan. Each month we would sit and determine the minimum payment on each bill. We did not have a lot of money, but we knew we would never get out of debt by paying the minimum payment, so we rounded up the minimum on each bill to pay more. I think a lot of people do this and while not a bad idea, the strategy needs some refining to maximize it’s potential.

The first problem with the round up method, as described above, is that no attention is given to the effective interest rate. The debts need to be listed out in descending order from the highest interest rate to the lowest. Include the effective interest rate for each debt item. Also, in another column, include the minimum payment for each debt. Then create another column labeled the “Round Up” column.

The typical “Round-Up” amount is either $10, $20, or $50 based on your budget. The “Round-Up” amount will be added to the minimum payment for each debt item you listed. For example, if the minimum payment was $25 and your round-up amount is $10 then round the payment to $35. Do this for every item of debt you listed at the start of this exercise. If rounding by $10 is not leaving your cash flow in a state of panic, then round up by $20 and keep moving the round-up amount higher until your bills are gone.

The Advanced Financial Round Up Method

To get the most out of this method, you need an additional step. You need to add up the minimum payment column and round up the column and subtract the difference. The difference is the amount you should pay, along with the minimum payment, against the highest interest rate debt. Pay the minimum payment for the rest.

Paid in Full

Once the first debt is paid off, apply the minimum payment on the old debt plus the round-up amount plus the minimum payment on the next highest interest rate debt. Do this every month until all the debt is eliminated. Use this worksheet each month (Debt Payment Scenario) and compare the worksheets as you go. It is important to see your hard work paying off as you go from a yard of weeds to a beautifully manicured one.

Another key is never paying less per month than the original round-up amount. You made a commitment to yourself to use a certain amount of your monthly cash flow toward debt reduction. Reducing this amount will only prolong your indebtedness. Of course, you can increase the amount but again, try not to decrease it. This is an important habit because once you have eliminated your debt, all of the money committed to getting you out of debt can now be saved. Since you are not used to spending this money, it should be easy to switch your strategy from debt reduction (now that you are debt free) to building your savings. My wife and I took this point one step further.

Now, Become a “Saver”

We created a separate checking account which we called the “Debt Fund.” This was a checking account at our bank, separate from our other banking accounts, that had checks but no debit card attached. This money was strictly for debt reduction and eventually the beginning of our wealth building.

“Pay Yourself First”

At the beginning of each pay period, we would transfer the “round up” amount before any bills were paid, we would transfer the “round up” amount to the “debt fund” account. Once the debts were paid, this same account became a “Savings Fund.” From here the money can be applied to all kinds of investment vehicles (but we’ll cover that another time!). This money is easily saved because you are not used to spending it. Don’t spend it! Save it instead.

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal,,,,,,,, Eurostat, Statistics Canada, Yahoo! Finance,, Chaikin Analytics,,,,,,, W E Sherman & Co, LLC)
Hayden Royal is an investment adviser registered under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply any level of skill or training. The information presented in the material is general in nature and is not designed to address your investment objectives, financial situation or particular needs. Prior to making any investment decision, you should assess, or seek advice from a professional regarding whether any particular transaction is relevant or appropriate to your individual circumstances. This material is not intended to replace the advice of a qualified tax advisor, attorney, or accountant. Consultation with the appropriate professional should be done before any financial commitments regarding the issues related to the situation are made.
The opinions expressed herein are those of Hayden Royal and may not actually come to pass. This information is current as of the date of this material and is subject to change at any time, based on market and other conditions. Although taken from reliable sources, Hayden Royal cannot guarantee the accuracy of the information received from third parties.
An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance to certain asset classes. Index performance used throughout is intended to illustrate historical market trends and performance. Indexes are managed and do not incur investment management fees. An investor is unable to invest in an index. Their performance does not reflect the expenses associated with the management of an actual portfolio. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. All investing involves risk including loss of principal. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market. Past performance is no guarantee of future results.