Even if you are living paycheck to paycheck, this report will show you how to start paying your debts, put together a cash fund for emergencies and even set aside money for investments.
1- How to pay off your debts and save
You’re living a day and that it causes a lot of stress. The receipts and payments of your credit card consume almost all your income. You know you need to get rid of your debt and save some cash-an equivalent of between three to six months of living expenses for emergencies background. And would like to start investing regularly to start to have some financial security.
But how can you do it with the kind of receipts you have and the unexpected expenses that always seem to automatically build up grabbing the available cash? Chances are that you find difficult to do something you do not know where to start.
Reassurance. Many people are in your situation. What you need to do is face the facts and establish a plan of action. Now is the right time to do it. With a little discipline and some faith in yourself, your financial picture can potentially change for the better in about six months.
2- Pay your debts and save
What should I do first? Do you reduce your debt or start saving? The following three-part strategy may help you control your cash flow, pay off your debts and increase your savings to handle unexpected expenses that could have made into debt in the first place. Over time, you are ready to invest. But first you need to know how much you can spend and what you are spending.
3- Keep track of your expenses
The steps below will help you determine how much cash you have to pay for your debts.
Then you must keep track of your expenses in a typical month or more, to know where you spent your money. Also calculate your unexpected expenses in the year viz. repairs to your car and your home, gifts, holidays, etc. and divide that number by 12. You may want to use some program costs of software available to track your spending. Once you have a record of what you spend, compare your monthly expenditure with your monthly income. If you have a surplus, that’s the amount you can spend each month to pay its debts and to a savings fund. If you have a deficit, you need to reduce your expenses.
HOW MUCH TO PAY YOUR DEBTS
Step 1: Create a personal balance sheet and list your debts organizing them according to the interest rate, from highest to lowest.
Step 2: Add up your liquid assets, including savings and investment accounts, if present.
Step 3: List any major purchases you need to make in the next year. Subtract that amount to its liquid assets. What remains is the amount available to pay your debts.
4- How to increase your savings
A key to establishing good saving habit is to make saving easier to spend.
Here are some tips:
• Ask your bank if you can link your checking and savings through a card to make ATM withdrawals. Create three savings accounts with different objectives. One could be designated as “protection” to have emergency cash, a second account for “expenses” for unexpected expenditures and a third for “investments”. Carry your card only when you really need to go transactions and remove only the amount you need for a week. So you will not feel tempted to spend cash on impulse purchases.
• When you get paid, deposit only what you need to live for a month (or two, if you are paid every two weeks) in your checking account. (If you deposit a larger amount, probably this money will be spent).
• If possible, allocate an amount equivalent to one month’s expenses for unexpected expenses. The idea is to have a background however small, to make it less likely to have to use your credit card if your car needs new tires.
• Begin to increase your emergency savings fund to deposit a portion of your salary to a savings account “protection”. If your goal is to get three months’ living expenses, it would reach its target in 30 months to save 10% of your monthly salary, or 15 months if you save 20 percent of your salary.
• Leave what you have left in your account “investment”, including additional money as cash gifts for the birthdays, Christmas bonuses, bonds or money earned in a garage sale. If you get a raise, deposit the difference in your account regularly.
• If your bank can not link your checking and savings accounts, or if it seems difficult to control your spending when you can easily access your savings account, ask at work that make a direct deposit to your account. You can have an amount deducted from your paycheck to automatically deposit it in your savings account.
5- How to reduce debt
Pay off debt is easier once you stop using your credit cards.
• Pay off debt credit card with higher interest rates, making sure to avoid the “minimum payment trap.” Because credit card companies make money from interest payments, minimum payments intentionally set these for you in a later years to pay the full balance. Pay just a little more than the minimum can make a big difference.
• For example, suppose you have a balance of $ 5,000 with an interest rate of 15% and make monthly minimum payments of 2.5% of the balance or $ 25, whichever is greater. It would take 183 months to pay off your debt and spend $ 4.395 on interest. However, if you pay an extra $ 150 each month would pay only $ 845 in interest over 27 months. This is a hypothetical example, for purposes of illustration only.
• Consolidate your debt by transferring your outstanding balances to cards with lower interest rates. Currently, competition among institutions that issue credit cards is so intense that they often can negotiate your interest rate. If you do not want to transfer your balances, chances are that the company’s current credit card can offer interest rates of a competitor.
• Cancel your old cards so you are not tempted to reuse. At best, you need two. And leave them at home unless you really need them.
• Set a realistic payment schedule and stick to it. If you need to reset it, do it. If you have problems, talk to a professional.
Make additional payments and save
You can eliminate debt and save money by paying an amount greater than the minimum monthly payment on your credit cards. The table below shows the difference between making a minimum payment of $ 20 on a debt of $ 1,000 compared with $ 40 a month.
Total payments remaining months to pay
$ 20 a month
06% $ 1126.97
12% $ 1353.43
18% $ 1783.97
$ 40 a month
06% $ 1025.24
12% $ 1103.28
18% $ 1,199.00
It assumes that the monthly composition of annual percentage rates and the overdue amount (principal plus accrued interest) payable in full
6- Put time on your side
Maybe you can not solve your debt problems overnight, but it can resolve with the passage of time. Reduce debt, combined with a savings strategy, not only now begin to lighten your load, but will help you feel better about your future.
• Many people have problems to reduce debt and save, because they do not have a strategy. A good plan can help channel your funds to a more optimal use.
• A three-steps strategy which is to control your cash flow, save and reduce your debt can help lighten your load now and feel more optimistic about your future. Once you settle your debts, you are ready to start investing.
• Consolidate your debts using credit cards with low interest rates. If you do not want to transfer your debts, ask the company of your credit card to reduce your interest rate to match the competition. Chances are your company is willing to negotiate.
• Set up a payment plan and stick to it. If you need help, talk to a professional.
• Set a realistic amount to pay your debts and analyze your options to consolidate several loans into one account with a low interest rate plan.
• Create a realistic budget for your home and stick to it.
• Calculate your needs for emergency savings fund and start putting money away regularly.
• Use the money you have saved for your debts to increase contributions to your retirement account.