Archive for the ‘Financial Independence’ Category
Tips to help you avoid holiday debt
By Firm Hope
The holiday season seems to lure us into overindulgence. Eating too much stuffing or drinking too much eggnog is one thing. Charging too many gifts on your credit cards is another. Although the holiday season may entice you to spend more than you can afford, a little self-discipline can help you keep your purchases to a manageable limit.
Why You Should Limit Your Holiday Card Purchases
Credit cards are only an illusion that can buy more gifts than you actually can afford. Here’s why you should limit your credit cards purchases this holiday season.
- Gifts bought on credit end up costing more. Add in months of finance charges and you’ll ultimately pay more for your gifts than you would if you’d used cash.
- Credit scores fall from high balances. Spending more than 30% of your credit limit will cause your credit score to drop.
- The best laid plans…. Unexpected post-holiday expenses might postpone your credit card payment plan, lengthening your credit card debt.
By sticking to a few spending principles, you can keep your holiday spending to a minimum and avoid paying for holiday gifts until the next holiday season.
How To Avoid Holiday Debt
When you’ve made the decision to keep your credit card purchases within a reasonable limit, here’s how to put it into practice.
- Save up. Spending cash instead of using credit for your holiday purchases allows you to avoid holiday debt all together. If you haven’t started saving, put aside something each paycheck starting now and use that to finance your holiday purchases.
- Set a budget before you shop. Setting a spending limit and sticking to it will keep you from overspending. Be disciplined and don’t go over your budget, no matter what.
- Make a list. Santa makes a list and checks it twice, so should you. Even though you might feel compelled to splurge on everyone in your life, you don’t have to. People appreciate simple and meaningful over expensive and useless.
- Don’t shop for yourself. Avoid the “one for you, one for me” shopping mindset. You’ll end up spending double what you would had you shopped only for the loved ones in your life.
- Ignore “big” sales. More often than not, they’re not really sales at all. Those “Buy 2, Get 1 Half Off” deals only trick you into buying more than you would otherwise. Remember, stick to your list.
- Shop online first. The internet makes it easy to shop around. It also makes it harder to buy on impulse. Since most retailers have inventory on their websites, you can decide exactly what you want to buy before going to the mall.
- Leave your credit cards at home. Without your credit cards, you’ll have a hard time charging them up. If you must use credit for your purchases, pick one credit card and stick to your spending budget.
- Don’t buy if you can’t afford to pay. Keep in mind that when you use credit, you’re borrowing from your future income. You know your finances better than anyone. Only charge what you can afford and you’ll avoid paying on your holiday debt until the next holiday season.
SOURCE: About.com
Topics: Build Self-Reliance, Financial Independence | No Comments »
Debt Strategy: What do you pay off first?
By Firm Hope
Paying down your debt can be a great tool to help you stay on track financially, especially when the economy slows. But how do you know which debts you should tackle first? Where do you put your extra money each month so that it will make the most difference? Below we’ve provided a few tips to help you prioritize your debt pay-off strategy.
Priority #1: High-interest-rates
No matter if you have a little or a lot of debt, you’d probably rather spend your money on something besides huge interest fees every month. That’s why most financial experts agree: face those balances with the highest annual percentage rate (APR) first. This tactic can save you money in both the short- and long-term.
The strategy is simple: Pinpoint one high-interest account until it’s paid off, then move onto the debt with the next-highest interest rate. And repeat.
Priority #2: Small balances
Removing a bill or two from the monthly pile can free up at least a few more dollars a month fairly quickly. So if you have several balances that are small, consider paying those off at the same time you are paying down the high-interest-rate accounts.1 Taking care of those easy-to-address, lower balances can give you additional encouragement because you’ll see results right away.
Priority #3: Secured debts
Secured debts are those that are backed by some sort of asset, such as your home or automobile. Unsecured debts, such as credit cards, are not tied to any asset as a basis for the loan. Secured debts tend to be for larger sums of money than unsecured debts, meaning you likely will be paying interest on these types of loans for a longer period of time than smaller, unsecured debt amounts.
That’s why making extra payments on a secured debt like your mortgage has the potential to really work in your favor. By making additional principal payments, you may be able to pay off your loan faster — shaving years off your loan term — and helping you save hundreds or even thousands of dollars on interest payments down the road. Plus, if you pay off your mortgage early, that gives you more money by the end to invest in things like retirement or other savings accounts.
Topics: Financial Independence | No Comments »
You CAN get out of debt!
By Firm Hope
If you’re like most Americans, you have debt. If you’re like many Americans, you try not to think about just how much debt you have and what it’s really costing you. If you did think about it, you might not sleep well.
But ignorance never was bliss, and in order to get out from under the burden of debt, you need to face the uncomfortable (and perhaps downright ugly) truth: it may take you 30 years to pay off that credit card balance.
How can this be, you ask? You may have balances totaling less than $5000. Surely this will be paid off in no more than a couple of years. The credit card company wouldn’t let you take so long to repay them, would it?
The answer is: yes, it would. In fact, if you took 30 years to pay off your balance, you would be the ideal customer.
It’s important to understand that the credit card companies don’t allow you to pay back your debt in small amounts out of the kindness of their hearts. This is how they make their money. Paying the minimum payment (usually around 2% of your balance) each month, guarantees that you will be filling the credit card company’s cash coffers with your hard-earned money for many years to come.
You should be absolutely unwilling to pay only the minimum balance on your credit cards each month. If you can’t afford to pay more than the minimum balance, you can’t afford whatever it was you charged to the card in the first place.
Your payments include both interest and principal (the amount you borrowed). When you pay only the minimum payment, most of it goes towards interest, which is why it takes so long to pay off the original debt. You wouldn’t pay $7,000 for an item that is clearly marked with a $2,000 price tag, would you? Yet that is exactly what you’re doing when you buy it using a credit card with an 18% interest rate and then only pay the minimum balance each month. No wonder you feel like you just can’t get ahead!
If you need to buy on credit, at least do it with your eyes wide open. If you’re already in debt, use these tips to get out and get ahead:
- Don’t get any deeper into debt. Save the credit card with the most favorable terms and cut the rest up. Put the one you saved in a safe place (not in your wallet) and use it only for emergencies (not to include a big sale at Macy’s!)
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Pay more than the minimum balance. Much more. - Shop around for cards with low interest rates, but beware of come-ons that offer a low introductory rate and then take a big jump. The Internet makes choosing a credit card easy, but be sure to read ALL the fine print.
- Move balances on cards with high interest rates to cards with lower interest rates.
- Use your savings to pay down debt. It makes no sense to earn 1 to 3% interest on your savings account while paying 12 or 15 or 18% interest on credit cards.
- Come up with a written plan for reducing your debt systematically.
- Add up all the money you spend each month on credit card payments, and think about what you could do with this money if you weren’t paying it to the credit card company.
One of the best methods of systematically paying off your debts is what I refer to as the Credit Crunch. List your debts, including the balance and the interest rate for each one. Each month, pay the minimum balance on all credit cards except the one with the highest interest rate. Pay as much as you possibly can on this card each month until it is paid off. Then start paying as much as you possibly can on the card with the next highest rate, while continuing to pay the minimum balance on the others. Keep doing this until they’re all paid off. This is the only time you should ever pay the minimum balance on any card.
SOURCE: About.com
Topics: Build Self-Reliance, Financial Independence | No Comments »
Beginners Guide to Budgeting
By Firm Hope
Budgeting isn’t a punishment for not being born wealthy. It’s an avenue to know where your money goes and help you reach your financial goals, whether it’s a new home, a comfortable retirement or just making it to your next paycheck. You simply can’t spend more than you make, at least not for long.
What’s going out?
The first step is figuring out where your money goes right now. Use an online worksheet or a plain old notebook to keep track of your spending for a few weeks. Go through your checkbook and credit card statements. Add up the amounts, and you’ll have a good idea about your spending habits.
A few things to consider:
- Common budget categories include housing (rent or mortgage, homeowner dues), recurring bills (cable, utilities, insurance and credit card minimums), food and entertainment.
- Let your categories fit your life. You might have expenses for school-related items (tuition and books), pet care or travel. If your hobby is your passion, make it a category.
- Account for big expenses that occur once or twice a year, such as car insurance.
- Consider making your vehicle its own category. Payments are only the start.
What’s coming in?
When your expenses are tallied, go through your pay stubs and calculate your average monthly income. Don’t forget to include interest income, dividends, bonuses and alimony.
Once you know how much you earn and how much you actually spend, decide where and how much you want to spend. Divide by 12, and voilà – you’ve got a monthly budget. Adjust as necessary until your monthly budget equals your monthly income.
Some things to keep in mind:
- Figure out which of your expenses are wants and which are needs. Actual needs are fairly limited: food, shelter, clothing. Nearly everything else is a want, but even the way we fulfill our needs involves choice.
- Try “The 60% Solution.” Essential spending comes out of the first 60% of your income. The rest includes retirement, emergencies, debt repayment, fun money, etc.
- Prioritize. Fund your retirement first, no matter what. Put enough in your 401(k) to grab the employer match. Then start tackling your debts.
- Don’t forget an emergency fund. This will go a long way to keeping you out of debt should the unexpected happen — and it will. If you don’t have funds now, use your income-tax refund or set up a regular electronic transfer from checking to savings.
Take a little off the edges
Once you’re on your way, keep track — at first weekly, then monthly — of where you’re going off budget and adjust your allocations.
Food, for instance, often goes unchallenged. You might wince at the checkout counter, but you do have to eat. Still, there are ways to cut the food budget without sacrificing quality or quantity.
- Many stores reduce their products based on a 12-week cycle, so notice when something goes on sale, but don’t buy until it hits the rock-bottom price.
- Keep a notebook for a while so you get to know the rock-bottom prices on items that you frequently purchase. Keep track of which products are cheaper store by store.
Food isn’t the only place for savings. Here are some other ideas for keeping your budget on track:
- Bookmark deal-finding Web sites and check them before making any purchase online or any big purchase offline. Check sites such as MyBargainBuddy.com, AbleShoppers and Dealnews for online bargains and coupons
- Review your habits. Do you need the full-on cable package or caller ID? Do you pay full price at a convenience store for items you could buy for less on your weekly grocery shopping trips?
- Some people fritter away cash; others use a debit card as if it had unlimited credit. Whichever you might be, consider converting. A debit card devotee is more likely to think twice about spending cash, especially if you leave your ATM card at home.
- If things still aren’t adding up, look at whether you need to adjust your allocations or change your spending habits.
Building the budget habit
Successful budgeting takes time and persistence, so don’t be discouraged if you don’t hit your monthly goals at first. Here are some ideas to make it easier:
Write it down. If you don’t, you probably won’t stick to it.
- When good fortune comes your way in the form of an “extra” paycheck or a bonus, pay an annual premium, make an additional mortgage payment or use it for seasonal extras, such as summer vacation costs or Christmas presents.
- If you can’t spend less, earn more.
- Get into the habit of thinking ahead. If you know your situation is going to change — a new baby, new winter clothes, a new job — plan for it and try to pay cash.
- Remember, budgeting is the means, not the end. Keep spending “mistakes” in perspective.
- As your income climbs, don’t splurge until you’re sure you’re staying ahead of inflation. A good budget grows with you, so it’s worth re-evaluating your budget every year.
Topics: Build Self-Reliance, Financial Independence | 1 Comment »
