Personal Financial Strategies to Become Debt Free.
Control Your Finances: There is Good Debt and Bad Debt!
Why do we borrow or in other words, ‘spend what we don’t have’?
The answer is because we want something and we want it now, but we don’t have the cash to pay for it. We either get a loan from a bank or financial institution or use our credit card. This need for instant gratification has a cost – it’s called interest.
Credit card debt is one of the highest costs of interest and can put us on a rollercoaster ride where we are not in control of our finances or of our destiny.
The Golden Rule for borrowing: Borrow for things that appreciate in value and/or will generate income and avoid (or minimise) borrowing’s on things that depreciate in value.
Action tips: How to get out of debt - Take back control of your life.
- If your credit card has never been paid in full each month then stop using it. Best of all cut it up or place it in a sealed envelope and ask a trusted friend or family member to keep it for you. Tell them that they are not to let you have it on any account.
- Pay the highest interest cards and debt first, making sure you still make some payment on due date to other loans.
- Do a budget! Boring as it may sound it is one of the most important things you can do. And even if you don't look at it again it will make you more aware of how much you are spending. It's no use burying your head in the sand. Be aware, and take charge.
- Your budget should include annual expenses as well as those monthly bills and your casual spending.
- Try keeping a notebook for a few weeks and record your spending. You may be surprised at just where that money is going.
- Once you've kept your note book for a couple of weeks revisit your budget. Is it realistic? Can you tweak it? One less $5 coffee a week will give you $260 a year and little savings like this do add up. Make it a game to see how much you can save.
- If you get a pay rise or an unexpected bonus pay this off your debt. When debt is out of the way you can then start a saving plan with the amount. Don't increase your lifestyle because you've got extra cash, you got by without it before so don't get used to having it for spending.
The Real Cost Of Credit Cards
Many people get a credit card without being aware of the costs. Credit cards come with hidden costs and charges, and you should always be aware of these before you apply. Although fees will be in the terms don't be afraid to ask the question of the supplier. In many cases, these fees and charges don't get noticed until it is too late.
Being unaware of the hidden costs of credit card could easily end up costing card holders thousands of dollars by the end of the year – without them realizing it. If your credit card has rewards, these rewards could easily be destroyed by these hidden costs. Even though some users may realize it, many have no idea of the costs.
One of the first hidden costs is found in the grace period. Always pay your credit card on or before the due date. After this period interest will be charged. And if you haven't made the payment in full, only covering the minimum required, interest will accrue from the period before the due date.
Late fees are common with credit cards and this is another factor that is often overlooked. Some people just choose to pay it, unaware that these costs are adding up. You should always know what the late charges are and how fast they can add up. Paying your bill late is never a good thing, as it can easily destroy your credit rating. If you continue to make late payments, your company or bank may increase your interest rates.
The easiest way to avoid any type of hidden fees or costs is to pay your bill on time and in full - as soon as you receive it or at least by the due date. If you are unable to pay in full you should pay more than the minimum, making sure that you pay it immediately you receive the bill. This helps to pay your bill off faster and ensures that you are paying the principal and not just the interest.
Remember that no matter what you do, you should always pay your credit card bill on time. Credit card companies and banks won't specifically tell you what the hidden fees are, unless you ask them. Of course they will have been in the terms when you signed up but how many actually read this information?
To protect yourself and your credit - you should always be aware of the costs - and how to prevent expensive surprises from happening to you.
Protect Yourself from Credit Card Fraud
Unfortunately credit card fraud is really quite common these days, but there are ways that you can help to protect yourself. Becoming a victim of credit card fraud causes a lot of unnecessary hassle and is a very stressful experience.
- Don't give your PIN to ANYONE!
- Never sign a blank receipt
- Check your statements monthly and report any add transactions
- Carry your cards separately to your wallet...reduce the loss if stolen
- Use a credit card protection sleeve
- Keep your eye on your card during transactions
I was given one of these for my birthday last year and I've been very pleased with it. It holds all my credit cards and EFTPOS cards. After getting my credit card with its chip to use 'pay wave' I was a bit apprehensive...aware that thieves can scan through your wallet and bag! Now I feel so much more confident.
Stabilize Your Current Situation Before You Invest
Before investing in any type of market, you should take a good look at your present situation. Investing in the future is a good thing, but clearing up a bad situation is much more important.
If, for example, you have $20,000 to invest, but you have $20,000 worth of bad credit, you are better off clearing debt first!
Create a monthly budget and get an idea of what you spend your money on. Get rid of unnecessary expenses. Pay off high interest credit cards and get rid of them. If you have any high interest loans, pay them off as well.
Get yourself into a good financial position before investing. There is no use investing if you are struggling with your monthly bills. There will be time for investing later.
Educate yourself while you are in the process of clearing up your present financial situation so that you learn about various types of investments. When the time comes you will be armed with the information to make sound investment decisions for your future.
Take the Test
Are You a Compulsive Spender?
Answer these questions truthfully:
1.) Does your spouse or partner complain that you spend too much money?
2.) Are you surprised each month when your credit card bill arrives at how much more you charged than you thought you had?
3.) Do you have more shoes and clothes in your closet than you could ever possibly wear?
4.) Do you own every new gadget before it has time to collect dust on a retailer's shelf?
5.) Do you buy things you didn't know you wanted until you saw them on display in a store?
If you answered "yes" to any two of the above questions, you are an impulse spender and indulge yourself in retail therapy.
This is not a good thing. It will prevent you from saving for the important things like a house, a new car, a vacation or retirement. You must set some financial goals and resist spending money on items that really don't matter in the long run.
Impulse spending will not only put a strain on your finances but your relationships, as well. To overcome the problem, the first thing to do is learn to separate your needs from your wants.
Advertisers blitz us hawking their products at us 24/7. The trick is to give yourself a cooling-off period before you buy anything that you have not planned for.
When you go shopping, make a list and take only enough cash to pay for what you have planned to buy. Leave your credit cards at home.
If you see something you think you really need, give yourself two weeks to decide if it is really something you need or something you can easily do without. By following this simple solution, you will mend your financial fences and your relationships.
Are you an impulsive spender?
First Steps to Budgeting.
If you are taking your first steps to budgeting -- congratulations! Setting up your budget will give better control over your finances. It is not difficult but it takes a bit of time at the beginning. Here are the steps to take:
- Calculate your regular income from all sources such as wages, interest on savings, overtime or any other sources of income. Variable income such as bonuses, tips and overtime should be listed separately as you cannot rely on these.
- Identify your expenses. There are three major categories: commitments, essentials and discretionary.
- Commitments include housing costs such as rent or mortgage, loan payments, insurance premiums, and utilities. They are the must cover expenses.
- Essentials include food and clothing. Just don't confuse clothing with keeping up with the latest fashion trends!
- Discretionary spending is for items are not essential expenses but something that is nice to do, such as your daily caffeine fix. As this is an area that can get you into most trouble with overspending you will find it helpful to record your discretionary spending in a small book for a few months. This way you can see exactly what you do spend your money on.
Compare your income and expenses to see if you are living within your means. If your spending is more than the money you have coming in this is known as a deficit. You will need to do some tweaking on your budget -- start with the discretionary category. If your income exceeds your expenses then: congratulations -- this means you have a surplus!
Artwork by Lyn
The Budget Puzzle - newly published
I don't feel it is right to review my own work so I have included one from Amazon.
"Detailed and perceptive cash management.
Useful and practical, the book contains everyday financial advice to assist anyone achieve their retirement goals."
Take the Poll!
Do you budget?
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Only borrow for things that increase in value or help produce income.
Control your expenses and remember to budget...it's not a dirty word!