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The Road to Financial Literacy

Woman looking at paperFinancial literacy is one of the key components to achieve a successful financial life. Some people have the right resources and opportunities but their lack of knowledge only led to the loss of what could have been a good shot at personal wealth. Financial literacy and opportunity goes hand in hand in ensuring proper finance management.

Having the right tools to manage your finances normally leads to a path of financial freedom as well.  Debt is often the product of uninformed financial decisions that can be compounded by unfortunate life circumstances. But focusing on those that can be addressed is an important step in getting out of debt and on to a road of financial independence.

Financial literacy in the country

Moneynews.com recently rated the states in the country in terms of financial literacy. New Hampshire took the top spot by ranking number one followed closely by Utah and Virginia. New Jersey and Minnesota rounds off the top five in the study. The study shows that these five states are conscious and serious about proper financial management.

The study used metrics to measure education and knowledge as well as daily habits and planning as well. The study also revealed rankings of different states according to characteristic:

Dropout rate for high school

Education at any level is important for an individual. It works with the character and determination of a person to succeed in life. It is not the only determining factor in success but it is a very crucial tool in reaching greater heights. There are also some schools teaching your kids about finances.

The study showed that New Hampshire has the lowest dropout rate of 1.2%. This is a good factor leading in why the state is leading the pack in financial literacy. It is also a good sign of a healthy educational system.

Emergency fund

Saving up for a rainy day is important in getting over unforeseen challenges life will throw our way. Medical emergencies or losing a job could be some of the events our emergency funds can address. Without it, you can get deeper and deeper in debt as your only option is to get a loan to have the money to survive.

Arizona tops the list at 53%. More than half its population knows the value of a rainy day fund. They build on it and put it aside hoping they never get into a situation where they need to use it. But if they do, then they have something to pull out. Indiana is at the bottom of the list at 33%.

Unbanked

Bank accounts are essential tools in safekeeping hard earned money. Better than just letting the funds collect dust at home, they earn interest in the bank. And you also almost the same type of access to your money in the bank just as you would put it in a drawer.

New Hampshire tops the list again with just 99.1% of residents having a bank account. This means they are well on their way to ensuring their funds are kept safe. It is also important for parents to tell their kids about their finances in case of emergencies, they know the financial standing of the family. Mississippi is rounds up the list with 15.1% of residents not having a bank account.

Sustainable spending habits

Making good use of the money you earn is a good sign of sound financial literacy. Maryland residents know about this as they top the list at 14%. Most of them know the value of a dollar and uses them wisely. Mississippi is again at last place with only 22% of its population guarding their spending habits. Proper spending habits can also make you confident about personal finances.

Borrowing rate

This is a great gauge on the risk profile of state. The lower the number, the lesser the chances of default and the better the credit score. It also echoes the health of the economy in a  particular area. Excluding bank rates, New Jersey tops the list with only 16% and Oklahoma is at the bottom with 40%.

Financial literacy occurs on two levels. Looking at the macro-perspective, consumers need to understand the policies that are formed and how it relates to their finances. They need to be updated with rulings and recent news that could affect their lives. On a micro level, consumers need to be aware of personal financial traits and characteristics. This can include saving, spending and even consumption. The understanding that encompasses these two levels can greatly contribute to financial literacy.

Financial literacy month

April was financial literacy month and it was a great time to remind us that at the end of the day, we are all responsible in our financial standing. It also made us realize the importance of saving and what it brings to our future. In light of this, MN.gov came out with some points on how to create our map to financial literacy.

  • Commit to financial change. Financial literacy starts with a commitment. It starts with the individual wanting to change and a commitment to stick to a lifestyle of sound financial decisions.
  • Check your financial standing. Doing an audit of your situation financially can get your started in the right track. It is important to know where you are coming from in order to prepare on where you want to be. Financial literacy starts with an honest assessment of one’s self.
  • Credit report clean-up. Making sure that your credit report is accurate will help you open numerous financial opportunities down the line. Check the accuracy of your report and if there are any problem, report them right away so they can be fixed.
  • Priority setting. It is crucial to lay out your priorities to reach your goal. Knowing where to start with and what to aim for first can guide you in the right direction. This can also help remind you of what financial journey you are on.
  • Set goals. Classifying your goals as short, medium and long term can help you prioritize even more. This can give you a clear direction on where to start and when you should end on a specific goal. It allows as well to put a time frame to your goals to push you even more.
  • Debt payments. It is quite a challenge to pursue financial dreams with a ton of debt breathing down your neck everyday. Paying down and paying off your debt should be on top of your list. Clearing up income payments that go to debt payments and channeling them over to your goals will help achieve them faster.
  • Emergency fund. As with everything, we need to expect things will not always turn out the way we want. There will be bumps along the way that could steer us off-course. The way to remedy this is to prepare for the unexpected. Build an emergency fund to help you through rough times and prevent them from getting rougher.
  • Retirement fund. You are only young once so save up for those winter days. Tackling retirement early will help you retire when you want not when you need to.
  • Track your expenses. Keeping tabs on where your money is spent is a good practice on financial literacy. It is easy to remember the big ticket items but those small repetitive ones are quite hard to tally up. By tracking them, you will see just how much you are spending on unnecessary items and can help you save up precious dollars.

Emergency Credit Cards? 6 Reasons Why It Is A Bad Idea

road signsNobody knows what the future brings and it is for that reason why we have to be very careful about preparing for it. Some people may think that you are being paranoid when in truth, you are just being cautious. It is also being practical because there are many disadvantages of being unprepared for an emergency. When we say unprepared, we are mostly talking about not being ready financially.

In most cases, an unexpected event comes with a financial need. Whether it is an accident, an illness or any other requirement in your personal or work life, it usually requires you to pay a certain amount to get over it. If you are not prepared, the chances of you being in debt is very high. Instead of solving the problem entirely, you have just immersed yourself into another financial emergency.

This is where most people turn to emergency credit cards. Their inability to pay for emergencies in cash made it alright for them to use credit cards. While it may seem logical to do so, you have to understand that it will actually do you more harm than good.

6 ways that using a credit card for emergencies is a bad financial choice

In an article written by Dave Ramsey in his website, daveramsey.com, he revealed an important truth about credit cards. He said that cash is better to use because you have an emotional attachment to it. That mean you will be more cautious in using it. When you use credit card, Dave Ramsey said that you are more likely to spend more because you do not feel the parting with your money. In fact, his article cited a McDonalds study that revealed how consumers usually spend 47% more when they use credit cards.

Even if you are using emergency credit cards, it will still work the same way. You will still experience a detachment when you pay for that emergency expense. But beyond that, here are 6 reasons why it is a really bad idea to use credit cards for emergencies.

  • A credit card is a loan. Do not think that just because your credit card is under your name, you are using your money. That is what makes people overspend through their credit. You have to understand that this is not an extension of your wallet. Every payment that uses your credit card is actually using the money of the creditor. You are just borrowing money. That means when the whole crisis or emergency situation is over, you have yet to deal with the payments of your credit card bills.

  • You can put yourself under so much debt. As mentioned in the Dave Ramsey article, credit will make you spend more. If you cannot pay for  your dues immediately, your credit card balance will incur finance charges. That will make your debt grow until you have paid it off completely.

  • You will not feel the need to look for alternatives to finance your situation. Since the credit card will make you feel like you have sufficient funds, you will not feel the need to look for alternatives to lower the cost you need to pay for. You have to understand that looking for better options should be a priority – regardless of how you intend on paying off the unexpected expense. You will not feel the need to approach charitable organization or similar companies that have programs to help you out.

  • Even emergency credit cards can be closed due to inactivity. You may be wondering why this is an issue. An emergency cannot be predicted. That means you can go for a long time not having an emergency. If that happens, you can have your credit card closed due to inactivity. These cards are usually automatically cancelled when there is no activity within 6 months. If you are not aware of this and something does happen, you may find yourself really unable to pay for that financial need – both card and cash.

  • Emergencies can strike one after the other and that can lead in accumulated debt. The opposite of the previous reason is you can have one emergency after the other. If that happens, the debt on your card can continue to accumulate even before you have the chance to pay for the previous debt. Do not let that happen by relying entirely on emergency credit cards. Your credit score may be seriously affected by this.

  • Your budget will be ruined. An emergency can ruin your budget because you have to input your credit cards payments into it. Depending on how much you credited to your card, you can spend months or even years paying off this expense. That will limit your budget even further.

The thing about paying off credit card debt is you will be wasting a portion of your money on interest rates. Credit.com revealed in an article about medical bill nightmares that the credit extended for medical emergencies usually start out with a low interest. The example was 9.9%. But that will rise after the introductory rate to as high as 24%. Imagine the money that you will be wasting if you use your card for emergencies. And we all know that most of the expensive unexpected expenses are our medical treatments.

The better alternative to using a credit card for the unexpected

Obviously, the better alternative to emergency credit cards is growing your reserve fund. You want to be prepared to pay for these unexpected expenses in cash. But unfortunately, only 38% of Americans have an emergency fund. That is according to the data compiled by Statisticbrain.com. That means 62% of Americans do not have savings to deal with emergency situations. They are more than likely to depend on credit cards to help them survive a crisis.

If you are part of the statistic that does not have a cash emergency fund, you need to work hard to build up one. There are many benefits to relying on a cash emergency fund and here are some of them.

  • After the financial crisis, you do not have to worry about any additional payment and you can move on immediately.

  • You will not waste money on the interest rate.

  • You will be living a stress free life because you know that you are prepared for any emergency.

  • When tragedy strikes, you can concentrate on how you can solve it because you have the funds to back up any plan or solution that you can come up with.

Given all of these points, you know that you have to start computing your emergency fund target so you can work on your financial security. Growing your reserve fund to replace your dependency on emergency credit cards is simple but it requires some form of sacrifice from you. Naturally, you have to ensure that there is something left over from your income so you can put it aside in your savings account. You can work longer hours to earn more or you can cut back on some of your usual expenses. Either way will help you grow your emergency fund the fastest.

When is it okay to pay for emergency situations with credit cards

While we strongly advise you to build up your rainy day fund, we are not saying that you completely shun emergency credit cards. If you can only be a smart credit card user, you can really make this work for you.

What we are proposing is for you to have both – emergency cash and credit cards. But instead of prioritizing the use of your card, you turn to your cash first. If the need is great and you require additional funds, you can look at your card already for help. Here are important reminders before you use your emergency credit cards.

  • It has to be used for a real emergency only. That dress that you need to buy for a friend’s wedding is not an emergency. These include the car breaking down, an illness that has to be spent on or the pipes breaking.

  • You have to completely pay it off in the shortest amount of time. That way, you minimize the money you waste on interest.

  • Look for other options before using it. As mentioned, there are other ways for you to finance an emergency – you just have to look really hard for these options.

Be wise with your credit card spending so that you will have less to worry about in your llife. Here is a video from National Debt Relief to give tips on how you can get credit card debt help in case you have accumulated this debt already.

6 Ways To Get Financial Help In Times Of Emergencies

two men getting a loanAfter everything that we have gone through, do you really think that we are now able to survive a financial crisis? We can never tell what will happen in the future but when something does happen, will you be one of those who will need financial help just to get past the dilemma?

Last year, Fidelity.com published the results of their study titled “Five Years Later” to document the changes that Americans went through after the recession. The research was done on investors since they have record losses when the market collapsed in 2008. According to the study, the bad effects of the economic crisis brought forth positive behaviors that included better retirement contributions, lower debt and a more secure emergency fund.

That being said, should we feel complacent about the future – knowing that we have learned our lesson in the past?

Probably not.

In most cases, being in an emergency will put us in a position wherein we will require financial help. That is beyond our control. What you can control, however, is where you will get that aid from. Your decision will determine how effectively you can get past that particular event in your life.

5 options to get money during emergencies

Fortunately for you, there are many ways for you to get out of the financial fix that is brought about by your emergency situation. We have 6 options for you but we will start with the first 5.

Option 1: Borrow from family.

The first option is to ask your family for financial help. Now there are many experts you will say that you should not borrow from loved ones because it will put your relationship at risk. But if you know yourself and that you will find a way to pay back the money you loaned, then you should not be afraid. Borrowing from your family is the best way to get the immediate finances that you need without going through any credit check or the usual process that will take time. In fact, a study from Cash Net USA revealed that 30% of Americans turn to their relatives to get help in times of emergencies. Most of the time, you will be given the money that you require. Of course, you want to assure the person you are borrowing money from so document the loan. Make it as formal as possible and be very careful about the terms that you will promise. Just be truthful and trust that the person you are asking help from loves you enough to give you what you need.

Option 2: Look for non-profit organizations who can help out.

Believe it or not, there are organizations that provide financial aid for people who are in need of financial help. You just have to look for them. There is a story about a group in Arkansas that campaigned to drive away abusive payday lenders by providing financial help to those in need. They accept borrowers who need a small amount and allows them to pay over the course of 6 to 16 months.

Option 3: Ask for a salary advance from work.

Another source of financial help can come from your workplace. Simply call your employer or the Human Resources to ask if you can get an advance from your next paycheck. This will be limited of course and subject for approval. The downside for this is you will be getting a lower amount when your payroll comes in. However, you don’t have to pay interest on this because you did not really borrow money. You simply took what is already yours. If the salary advance is not allowed, ask if they have financial assistance programs for employees. This will have an interest but at least they can easily take it from your paycheck. That should help with the approval process.

Option 4: Apply for a bank loan.

This is not similar to the traditional loans that you will encounter. Most financial institutions know that a lot of consumers require fast cash sometimes. It is possible that they came up with this new loan option to compete with the infamous payday lenders. When the need is immediate, there are FDIC Model Safe Accounts wherein consumers can get financial aid that is up to $2,500. This can be approved within 24 hours after the submission of the application.

Option 5: Get a cash advance from your credit card.

You are allowed to borrow money from your credit card but be cautious about this option because it does have very high interest rates. In most cases, it is even higher than those of your credit card purchases. If you will avail of this option, make sure that you have incoming money that will help pay for this amount as soon as possible. Not only will you accrue interest on the balance, you will also be asked to pay a fee that can be as high as 4%.

There is another option known as payday loans but we strongly discourage against it because of the ridiculously high rates. Sometimes, it can go as high as 400%. If you need money fast, do not opt for payday loans. It is very difficult to get out of this type of debt because of the interest rate alone. Unless you are sure that you can get the finances to pay for it immediately, then stay away from this option.

Here’s the 6th and best way to finance emergency situations

You are probably wondering, what is the 6th option? We’ve looked everywhere to find financial help but there is one source that proves to be the best option: yourself.

That’s right. The last option is to simply build up an emergency fund so you can serve as your own financial aid. Even the government understands that financial emergencies can happen and you need to be prepared for it. They put up a website, Ready.gov that provides resources for consumer to help them in times of need. May it be because of a natural disaster, calamity, economic collapse or a personal medical condition – you need to be financially prepared for it. The site even mentions that “winging it is not an emergency plan.”

We understand that you are reading this article because you are already in a financial crisis and you failed to prepare for it. Well let this be a lesson for you. Make sure that this is already included in your list of options the next time around. Or better yet, eliminate the other options and make this your only choice. We recommend this because of so many reasons.

  • After the crisis is over, you can rest your weary head because you do not need to think about any payment.

  • You do not have to worry about additional interest rates.

  • No need to apply for it or beg someone for it. You can immediately get the money without any hassle.

  • You will not fear another emergency again. Now that you know you are capable of financing any unexpected event.

Now that you know that you need this emergency fund as a future source of financial help, you need to know how you will compute your emergency fund target. It is a simple computation that is based on your monthly expenses and how long you want to be able to live off of it when tragedy strikes.

Here is a video from National Debt Relief that discusses how consumers can prepare for emergency situations.

8 Ways You Can Remove Financial Ruin From Your Future

woman breaking a credit cardWe all want to keep ourselves from a financial ruin. For some people though, this is easier said than done. They have immersed themselves in so much debt and other financial obligations that it is difficult for them to establish a long lasting financial security.

An article in LA Times that was published almost a year ago (Jan 30, 2013), discussed a study that revealed distressing news about the average American household’s finances. The article published in the LATimes.com revealed that 44% of households are in a financial situation that makes them vulnerable to be in a financial crisis. If one emergency happens, their financial standing will come crashing down on them.

The article explained that a financial ruin is when a household does not have enough to spend on their basic needs – at least enough to cover three months. In case someone gets sick or requires an unforeseen expense, they will not have any money to avoid a crisis from happening. The study also reveals that one third of Americans in early 2013 does not even have a savings account. This lack of financial security is even more dangerous in light of the fact that a huge percentage of households have some form of debt. It could be on mortgages, student loans, credit cards and auto loans. These are the usual debts that consumers have to pay off. With a lot of them living from paycheck to paycheck, you can just imagine how one additional expense that is unexpected could tip them over the edge.

8 habits that will keep you from ruining your financial situation

Staying out of a financial ruin does not only require preparation, it also requires you to practice the right habits that will keep it at bay. Sometimes, preparing to survive a financial crisis is unnecessary if you learn how to prevent it in the first place.

In most cases, people actually know what is wrong. However, a lot of us refuse to face up to the music. We ignore the problem while it is brewing. The only time that we acknowledge it is when it is already too late – we are already in so much trouble.

To help you avoid this, here are 8 habits that will keep you from ruining your financial situation.

  • Not relying on a future paycheck. Debt happens because you are relying on a future income that may or may not come. You have to be very careful of this mentality. Whenever you use your credit card, that is what you are doing. The needs of today are financed by your future income. This is a mindset that has to change if you really want to avoid the devastating effects of too much debt.

  • Keeping your bills organized and paid on time. A study shows that paying the bills is one of the top financial concerns of American household. That means this is a staple item in your life. To keep yourself from being late on your payments, you need to keep your bills organized. Know when every account is due and try to set up a system that will help remind you of your obligations. One of the signs you are nearing a financial crisis is when you always have late penalty charges on your bill and you can’t seem to keep up with your payments anymore.

  • Limiting your credit card accounts. When you have too many credit cards, any of the two habits mentioned above will be developed. If you wish to keep yourself from depleting your income even before it arrives, you have to use your credit card in moderation. When you have more cards than you can count, organizing the bills and tracking all of their due dates will take too much effort. Managing multiple credit cards without ending in debt is more work than you imagine. Keep only the card that you really need. You do not need store cards for every establishment that you visit. That is a quick way to end up in a financial ruin.

  • Avoiding overdraft fees. When you are withdrawing more money on your checking account than what is allowed, you are setting yourself up for financial failure. Make is a habit to avoid incurring overdraft fees so you will not waste your money paying it off. It is bad enough that you almost have nothing left after all the financial obligations are met. When you include all of these unnecessary fees, you will be throwing away money that could have gone to more important expenses.

  • Discussing money matters with your partner in a peaceful way. Money is one of the leading causes of conflict between couples. Do not let financial ruin destroy your relationships. DIscuss money problems before they become out of hand. Make sure that you are both honest with your financial habits. There is such a thing as financial infidelity that can lead to the destruction of trust between you and your partner. Communication is the key to keep this from happening.

  • Securing your retirement money. One of the best ways to reward yourself is to keep your retirement money intact. Regardless of the situation, you need to avoid using this fund unless it is a matter of life and death. There are penalty charges and double tax payments that will waste your money. Look for other options before you consider using this fund.

  • Refraining from using the equity of your home. Your house builds up equity over time. As you pay the mortgage off and as the value of the land increases, you will be tempted to borrow against your home to finance the debt payments that you can no longer afford. Try not to do this unless you have no other choice. Your home’s equity can be a source of emergency resources but it should never be your first option. When all else fails, having a home is one of the things that will keep your from falling over the edge of financial ruin.

  • Growing your savings. Your savings will help you get out of the unexpected expenses that will almost inevitably happen in your life. Financial security happens when you can go through an emergency without fear because you know that you do not need to borrow money just to finance it.

Combine all of these to keep financial ruin from hurting your future. The rewards of that will be a stress free present and comfortable future for you and your family.

Key to survive a financial crisis

There are many things that you can do to keep yourself from a financial crisis. What you need begin with is to grow a sizable amount of emergency fund to ensure that you will not be left wanting when you need it the most.

Bankrate.com conducted a study back in June 2013 regarding the financial security of American households. It revealed the following statistics.

  • 27% of respondents do not have any emergency savings. 23% have less than three months saved, 21% have 3 to 5 months saved and 24% have enough to cover at least 6 months worth of household expenses.

  • 55% of women respondents have less than 3 months of emergency funds compared to 45% of men.

  • 32% of respondents feel less comfortable about their savings – compared to a year ago.

  • 54% feel that they did not improve their net worth compared to the previous 12 months.

  • For 49% of the respondents, they feel that their overall financial condition is about the same as a year ago.

Based on these statistics, we still have a long way to go to keep ourselves from a financial ruin. You have to act now to improve your financial situation because if not, it could be too late for you. The financial situation that you are in right now will only get worse if you let it unravel on its own.

Here is a video from National Debt Relief that we hope can help you get started on your emergency fund.

7 Reasons Why You Need An Emergency Fund

checklistPeople have been wising up when it comes to their money. They know that having a stable job is not enough to make your finances secure. It is not the only way for you to stay out of debt. If you really want to protect your future from financial ruin, you should stash up on your emergency fund.

Before you can try to learn the emergency fund best practices, it is important that you try to understand why you are doing this in the first place. Sometimes, building up your savings will bring out all sorts of temptations to use it – especially when you see the amount growing in your bank account. To help battle these temptations so you can be kept from touching your emergency fund, you have remember the reasons why you want to build up this reserve money in the first place.

7 ways your reserve fund can help you

There are many reasons why building up your emergency cash fund is necessary. But among all of them, here are 7 ways that should encourage you to build it up.

  • Eliminates the need to borrow money. The most common reason to get an emergency fund is to keep you from using credit just to survive an emergency situation. You want to make sure that you have the money to finance these unexpected scenarios. That way, your usual budget does not have to be compromised.

  • Provides for you and your family even after a job loss. One of the reasons why people are so scared of a losing their jobs is because they are left without the resources to help provide their the needs of their family. When you have an emergency cash put aside, you do not have to worry about these things. You can concentrate on getting a job because you know that your family has the means to survive in the meantime.

  • Removes the hesitation to spend on medical related expenses. As important as our health may be, some people actually forego getting medical treatment just because their finances are not enough. You do not want to make this difficult decision especially when it involves someone that you love. If you do not have the savings for this, you could end up letting your health deteriorate or put yourself under so much debt for it.

  • Keeps you from taking money from your 401(k). The retirement fund that you are putting aside for the future is your money – you technically, you have every right to use it. This is why some people dip their fingers in their retirement money when they are in financial need. But when you think about it, you don’t really have to reach a point wherein you have to use the money you had been saving for the future. You can save up for these unexpected scenarios so your retirement fund remains intact.

  • Gives you the ability to invest your money. By building up your savings, you get to put aside money for possible investments in the future. Sometimes, an opportunity comes that you just have to grab. When you have some money in your savings account, you can grab these rewarding opportunities to grow your money.

  • Protects relationships from ruin. A lot of marital issues stem from financial problems. If you want to make sure that your marriage, or even partnership, will not be ruined, an emergency fund may be able to help with that. It will keep both of you from blaming each other for being forced to cut back on your expenses.

  • Makes a stress free living possible for you. Lastly, and probably the most important reason for you to build up your emergency fund is for your own peace of mind. Having this fund will keep you from worrying about the unexpected because you are financially secure.

Remember these reasons as you start building up your emergency fund. This will help keep you from straying from your saving goal.

Computing how much is needed for your emergency cash fund

Once you understand why you need this fund, you may want to consider how much money you need to put aside. This really depends on the type of lifestyle that you are leading. You can use online calculators like those from PracticalMoneySkills.com or Calcxml.com to help give you an estimate. But for a more accurate target amount, you may want to follow these steps.

  1. Look at your current budget. Identify the expenses that you need right now and anticipate what you will need in the future.

  2. Make two categories for your expenses. You want to segregate the necessities from the luxury for future reference.

  3. Take the total amount of both your wants and needs.

  4. Choose how long you want to be able to survive on your emergency fund. The average unemployment period is at 9 months so that means you may want to target this amount. You multiply the total amount from step 3 and you multiply it by 9. If you will feel more secure with a 12 month emergency fund, then multiply it by 12. This will be your target emergency fund.

As you are building up your funds, you need to make sure that you are constantly checking if the expenses that you based it from will be enough. Sometimes, we think that we have enough but inflation could make our funds fall short.

In case you have to use your emergency fund, estimate how long you may have to rely on it. If you think it will be for a long time because the financial crisis seems to be nationwide, then consider spending only on your necessities. Live on a frugal budget so your 9 month emergency fund can be stretched even longer. This is how you really ensure your financial security.

What Is The Issue With Medical Credit Cards?

medical professional with cash in the backgroundWhen you are sick, you want the peace of mind that comes with knowing that you can afford your payments. This is not the time to be worrying about your finances because you need to concentrate on getting better. Sometimes, the stress is what aggravates the whole situation. So you want to make sure that this is a problem that you will not worry about when you get sick.

This is probably why people opt to get medical credit cards. This is a limited-purpose credit card that you can use on health related costs. Usually, people use this for expenses that are beyond the Medicaid/Medicare coverage – or other private health insurances.

The problem with health care credit cards

While the main intention is a good one, this type of credit card poses a lot of issues. We came across an article from Kiplinger.com and they mentioned a couple of problems with medical credit cards. They said that using these will not really help you with your health – it could even make it worse. Here are the important facts that are mentioned about these credit cards.

  • It is the health care providers who offer the option to patients. They give the option of paying for the treatment with medical credit cards. Although they do the talking, these cards are owned by financial institutions like Wells Fargo, Citigroup, etc.

  • The cards are usually for expenses that are not covered by government or private health care insurances like dental, audiology, vision and other similar treatments. It can also cover vet-related expenses.

  • The medical credit cards are offered with deferred interest – this means the consumers will not pay interest as long as the full amount is paid back in 6 months. Depending on the card, this can reach up to 2 years.

These facts shows a lot of issues that we should have with these medical credit cards.

  • Since cards are offered through the health care provider’s office, the consumers availing it are not scrutinized for their ability to pay.

  • Since the interest is deferred consumers are more tempted to use it more without considering how much they will end up paying on the service.

  • There is a possibility that consumers will skip negotiating with health care providers.

  • Offering the card to patients is a tricky way to encourage credit card use. Since they are vulnerable, they will be more inclined to accept the card without really thinking about the repercussions of using it.

  • It is a financial trap that will only benefit the health care providers because they will be paid by the credit card company immediately. It will not help consumes but instead, it will endanger them by putting them through so much debt.

  • It shields the rising cost of health care services and the interest rate from the cards will heighten that further.

  • Although the interest rate on the charges will only take effect after a certain period, it will be imposed on the original amount – and not the current balance. So let us assume that the patient has a $1,000 bill and they have been paying without interest for the last 6 months. When the interest rate kicks in, they will still be charged on the original amount owed – $1,000.

  • Those offering the credit cards do not explain all of these and they are not held accountable if the patients misunderstand the details of the card. This is not yet covered by any law that protects medical credit card users.

What is sad for this scenario is the fact that those who are using it are usually the elderly or low income families who have no cash or health insurance to help with medical expenses. This is definitely an issue that the government has to address to head off any lasting problem in the future.

Is it wise to rely on cards for medical expenses?

In the end, we are confronted with the question about using credit cards for emergency situations. What are the emergency fund best practices that you should follow? Does it include the use of medical credit cards?

In all honestly, it is unlikely that this will be one of the practices that you should follow. Using credit cards for emergency situations means you are more likely to make the wrong financial decisions. You will be in a vulnerable state and that makes you in an irrational state of mind.

The best option for you is to build up your cash emergency fund. That way, when you need the money for your medical expenses, you don’t have to worry about it. When you pay with credit cards, you still have to think about where you will get the money to pay for that. After all, you paid with the creditor’s money – not your own.

If you build up your cash reserves and you get in an emergency, you can pay with cash. We all know that it is more psychologically restricting to pay in cash and that makes us more hesitant to spend. It will encourage us to negotiate with health care providers for a lower rate on the services they will give us.

If you like the additional security, that is when you should use medical credit cards. But you should never use it as your primary source of funds.

In case you have acquired so many debts already, here is a video that will tell you where to find credit card debt help.

6 Tips To Help Survive A Looming Financial Crisis

The last recession brought most of us to our knees because we were basically left to fend for ourselves. With the government struggling with the economy in general, we all had a difficult time getting help for our personal financial crisis.

It seems that a similar event could happen again. On October 1, the government shutdown some of its operations because the House and Senate could not agree on their funding. With no funding, they have nothing to spend to make operations possible. The solution is to shutdown the government.

But what does that mean exactly? And more importantly, what does this mean for the average American? Here is a video released by CNN about the government shutdown – at least, it was filmed before it happened. It shows interviews from citizens and foreigners alike to reveal what the public has to say about the upcoming shutdown.

With the recent government shutdown, people are having mixed reactions. Some are suddenly in fear that another financial crisis could be looming ahead. Some are confident that we will pass this unscathed. After all, this is not the first time that it happened and the nation is still around to tell the tale about it.

One thing is for sure though, personal finance management is necessary more than ever.

6 tips to help shield you from an economic crisis

Its not like you are being a pessimist or anything. However, you can never go wrong by being overly prepared for a financial crisis. Unless you want to go through another devastating phase in your life, you may want to learn from your mistakes in the past and wise up.

Here are 6 tips that we suggest you should start doing just in case things turn for the worse.

  1. Keep your eyes and ears open. As much as you want to keep your attention inside your happy family bubble, you need to start paying attention to what is going on around you. At least, if you haven’t done so already. Watch the news and surf online for the latest news. Read the papers too if that is still something that you do. Even if your business is not directly affected by the affairs of the government, as a citizen, you need to make yourself aware. If events similar to the government shutdown drags on, you could find yourself in some deep trouble.

  2. Create a frugal budget. Another preparation that you need to look into is your frugal budget. This is probably the best tool that will help you survive a crisis. If you feel up to it, you can ask the whole family to start implementing your frugal budget – at least, until the “event” is over. Whether it results in a crisis or not, you will still gain a growth in your savings. In case it does get worse, you won’t have a hard time transitioning like the rest of the nation. We found a bare bones budget worksheet from About.com that you can pattern your frugal budget on.

  3. Check on your savings. It is time for you to start looking into your savings to gauge if it can tide you over another crisis. In case it is still lacking, you might want to prioritize it before things progress negatively.

  4. Look for other sources or income. If you haven’t worked on it yet, you have to start looking for other sources of income – in case something happens to your day job. Search for online jobs or put up a passive income business. You can clean up your garage and convert it into a studio apartment and have it rented. Anything that will get you to earn money aside from your current job.

  5. Stay away from purchases. This is especially true for expensive purchases. It is not wise to buy a home or a new car at the moment. Put it on hold so you have extra money to spare.

  6. Avoid more debt. If you planned to make the purchase through credit, that is all the more reason not to push through with it. You don’t want to waste your limited resources on interest – considering what is happening around you. In case you are still burdened with debt, it may be best to continue paying them off while keeping a close eye on your savings. Do not use your savings to pay it off. That is not really a good idea at the moment.

The key to survive any financial problem

man stressedIf you notice, the key to survive any financial crisis is simply to be prepared for it. Sometimes, a bit of paranoia is also necessary. You want to make sure that you are ready just in case. If nothing happens, then there is no harm done. You can just put that aside to add to your savings or you can use half of it to spend on something that you wanted to have.

It is very important to build up your emergency fund – just in case there is something that you have to spend on. Whether the crisis is personal or on a national scale, there is nothing wrong to prepare for any event that could turn your life around. If you have to give up your work, you know that you are capable of doing that. You will not be tied down by a necessary expense that you have to finance. At the very least, an emergency fund that is not spent can be added to your retirement fund. That should enable you to retire early.

5 Basic Questions When Computing Your Emergency Fund Target

home with cashLearning how to save money is one of the most important lessons that you have to go through. This is one of the ways that you can protect yourself from the unexpected circumstances in the future. Your savings will help you finance any emergency situation without jeopardizing the expenses that you are currently making.

Your emergency fund is an important saving goal that will protect you from debt. People who do not have this fund usually spend for the unexpected expense by either compromising their budget or borrowing money. In most cases, people choose the latter by using their credit card.

If you want to protect yourself from debt, you should seriously consider building up your emergency fund. But even as you are convinced that you need this fund, an important question to ask is, how much should you put aside for this saving goal?

5 questions to help determine your target reserve fund

It is true what they say, saving can save your life when emergency strikes. But you need to save up the right amount in your emergency fund to keep you from falling short. You can overestimate the amount but having insufficient finances when you need it the most can prove to be disastrous. Despite your best efforts, you could still end up in debt if you fail to save enough funds.

To help keep this from happening, here are 5 questions that you need to ask yourself.

What is the condition of my home?

One of the biggest expense that we spend for involves our home. If you rent your place, all you really have to worry about is your lease. But if you own your home, things could get a bit more complicated and oftentimes more expensive. If you still owe on your mortgage, you want to make sure that an emergency crisis will not compromise this payment because you can end up losing your home. Not only that, you need to consider the repair and maintenance costs of the appliances, furniture and fixtures in your house. The same is true for the structure of your home. The older it is, the more money you have to prepare to spend for its upkeep.

What is the state of my car?

Another culprit that eats away at our emergency fund is our vehicles. Changing tires, oil, busted transmission – all of these have to be attended to. Not only do you have to pay for the parts, the labor is also quite costly. You do not want to tinker in your car yourself because your inexperience can put you in danger while you drive. Leave it to the professionals and just save up for it.

How stable is my job?

A freelancer’s emergency fund differs from someone who is employed by a big corporation. There is consistency in the salary of a person who is employed. A freelancer, on the other hand, relies on project based compensation. If you have an irregular salary, you should aim for a bigger emergency fund to help tide you over the lean months when you have no clients.

Do I have insurance?

Your insurance is one of the ways you can also prepare for an emergency. However, the insurance is usually for a specific purpose only like your health, car, home, etc. If you have most of the possible emergencies covered by insurance, you can target a smaller amount on your emergency fund. After all, these insurances sometimes need monthly payments too.

How many are relying on me?

If you are alone, your emergency fund can be relatively small since you only have to think about your expenses. But if you have a family, you need to consider the number of people that will be relying on your reserve fund. This includes your spouse, children and even your parents. This is a very important consideration when you are trying to figure out how much to put aside for unexpected situations.

Steps when calculating your savings amount goal

When you have answered the 5 questions mentioned above, your next step is to do the computations. Here are the steps that you need to follow.

  1. Create a budget plan. A budget plan will identify the various costs that you are spending your net income on. If you do not have this yet, spend a month or two in listing down the expenses that you usually make. Do not forget to factor in any expense that you make once a year or even quarterly.

  2. Look at your monthly expenses. Scrutinize the expenses that you make – both wants and needs. Total this amount and multiply it by 8 months. That is the amount that you need to save up for to live comfortably for 8 months in case your job is compromised.

  3. Determine the emergency costs. These include the repairs and maintenance costs that you need to expect. You may want to estimate for medical funds – at least those that are not covered by your health insurance.

  4. Factor in the rising cost of living. Although your emergency fund is calculated for the next 8 months, the rising cost of living could shorten that. When the time comes, your fund may only be able to finance 6 months of your needs.

All in all, you have to add your monthly expenses, multiply it by 8 months and add the emergency cost that you have estimated. Put a little buffer for the inflation rate and you should be able to arrive at your target emergency fund.

You don’t really need a financial planner to help you out. There are various tools available online that will help you calculate the amount that you need to target for your emergency fund. All you need is to input the details found on your budget plan. You can check out the emergency fund calculators of the following site: PracticalMoneySkills.com and Calcxml.com. It will help you get started on an amount. If you think that it is not enough, feel free to increase it further. Having a big emergency fund is never a bad thing.

Keep Your Finances From Flying Apart Through Saving

man behind dollar signFinancial management is an important part of a person’s life. While you may not like to sound materialistic, money does have a significant impact on your lifestyle. If you know how to manage your finances wisely, you will realize just how easy it is to stay out of trouble.

One of the foundations that will help you practice proper financial management relies on your saving habit. In fact, MyMoney.gov names it as one of the five principles that will help you manage and grow your money. Alongside earning, spending, borrowing and protecting money, saving is the key to help you take back control over your finances. You need to have this control for you to maximize the benefits that your hard earned money can give you. Not only that, if you want to be financially successful, you need to have an adequate amount of reserve fund to support whatever wealth you have built up for yourself.

How your life turns to chaos without a reserve fund

When you do not have any savings, the chances of your financial life turning for the worse is not unlikely to happen. Chaos is not far from happening – even if you make all the right choices in your life. You can use your credit card and pay the balance in full before the grace period and still be in danger of a financial crisis. You can implement your budget strictly and perfectly and still end up in debt.

The only way that you can really keep your financial life from turning into a crisis is when you have enough savings in your bank account. If not, here are some of the things that you could suffer from.

  • You will fall easily in debt. One of the main negative effects of not having any savings is you will easily fall into debt. Some people may be living within their means to stay out of debt but one emergency can ruin all of that. Even something as simple as the car breaking down or a medicine that you have buy could lead you into debt.

  • One small event can lead you to panic. When that emergency strikes, your lack of reserve fund can really push you towards the edge of panic. Regardless if the situation is big or small, it adds to the sense of helplessness that can really affect your ability to get out of that emergency situation.

  • You will be immersed in stress. When you know that you are not financially prepared for an emergency, you will always have that sense of dread at the back of your mind. That anxiety translates to stress which in turn could lead to a more serious illness. If you got yourself in debt, you can also suffer from debt stress which could be a real health threat to you.

The absence of an adequate saving fund will really take its toll on you and the security that you should be feeling about your future. Having your reserve fund stashed away just in case has the power to ease your stress and calm your nerves. In the long run, the stress free life is worth every sacrifice that you have to make just to grow your savings.

Use frugality to help you save

In some way, adapting a frugal life as you build up your savings can be really helpful. There are two important lessons that frugality will teach you which will contribute to your intention of growing your savings.

Budgeting

A frugal life is not about restrictions but more of knowing what expenses you want to prioritize and spend on compared to the others. Your budget will help you accomplish this. A frugal budget plan indicates the amount of money that you have coming in and the list of expenses that is financed through it. You can easily put the priority expenses on top of the list so it is always funded. For the variable and discretionary expenses, you get to decide which of them will be cut back on and spent on. That will help you enjoy the things that you want to spend on without going over your means. You can use this budget plan to ensure that you will have an amount put aside for your savings every time your paycheck comes in.

Here is a video that we created to help you make a budget that is realistic enough for you to follow. Sometimes, we make assumptions on our budget and we end up with something that is very restricting. That makes it difficult to implement in our lives.

Smart Spending

The next lesson that frugality teaches you which will lead to the growth of your saving fund is smart spending. A frugal life is not about deprivation. However, it is all about stretching you money so it fits all your needs. For instance, it means baking your own bread so you can afford to buy the sweets that your children love to eat. It is skipping that weekly date to save enough for your annual vacation. An important concept of smart spending that people do not realize is saying no to purchases that is unnecessary – even if you can afford to buy it in cash. Through frugality, you will learn to recognize when to prefer saving over purchases.

Emergency Fund Best Practices

piggy bank with red crossAn emergency fund is defined by Investopedia.com as an account that you put aside to help you through the unexpected yet important financial needs that you will encounter in your life. Regardless of how careful you are in your life, there are certain things that you cannot avoid and given that, you need to be prepared always.

There is no saying what the future will bring and even the medical community believes that prevention is a lot better than cure. That is the same principle that can be used in your financial life. The only way that you can prevent a financial disaster is when you have enough savings that will tide you over in case something happens that compromises your budget.

It may sound like a cliche but your savings can literally save your life. If you have no plans for your future that requires you to put aside money for your savings, the very least that you can do is to make it secure.

There are three important considerations when you are building your emergency fund and we will discuss them one by one. It is not just about the accidents or sudden illness that you need to prepare for. When you understand the different aspects that requires a reserve fund, then you can feel more secure about your future.

Saving for the predictable annual expenses

Most budgets are created with a monthly time frame. This means you consider your monthly income and expenses and you stick to that. This is a great way to keep your budget flexible since our expenses encounter seasonal changes. However, we oftentimes concentrate on the month on month spending and we fail to consider the expenses that come only once a year. There are two categories that you need to save up for:

  • Annual fees and charges. These include our property taxes or those once a year membership fees and other charges that we have to pay for. If you do not prepare for these, it can ruin your budget once the bill for these annual costs come in – at least, the budget for the month when the payment is due.

  • Annual events, occasions. You should also consider the once a year expenses like birthday event, anniversary dinners and holiday gifts that you need to spend on. These can be controlled but you nevertheless have to know how much you can afford to use from your budget. In case something happens, you don’t have to worry about sacrificing these expenses.

Setting up a reserve fund for repairs and maintenance expenses

These are part of the unexpected costs that you have to spend on repairs and maintenance costs. You can put everything under one account or you can put it in separate car and home repair/maintenance funds. Your car breaking down is an immediate need that is not always a cheap expense. The same is true for your home’s heater or air condition unit. These can also include the replacement budget that you may want to spend on when your possessions have gone past their life expectancy.

The reason why you want to be prepared for these instances is because you cannot prolong the repair or replacement of your home/car without sacrificing the comfort of your family. Also, taking too long could worsen the condition of your possessions. Sometimes, to avoid this, we opt to borrow money to finance these needs. But if you already have the emergency fund ready, you can save yourself from borrowing and being indebted to someone else.

Preparing for emergency situations

Of course, your emergency fund should also be primarily used for the unexpected emergencies that may or may not happen. The first two expenses can actually be predicted and thus are not entirely unexpected. The factor that makes them a part of your emergency fund is the fact that you do not know when they will happen or how much you need to spend for each event. With an emergency, we are referring to job loss, a sickness, an accident or even a natural disaster. These are situations that are usually grave enough to change your lifestyle entirely. You need  prepare for these by stashing an amount of money that can support your way of living for the next 8 months to a year even without a main source of income.

Admittedly, it can be difficult to set up all of these emergency funds but there are tools that can help you cope. The National Debt Relief website has a free budget planner that you can use to input the monthly amount that you have to set aside for your emergency fund. Also, monitoring can be done through online tools like Bankrate’s saving goals calculator. Search the Internet for other tools that you can use to help you grow your emergency fund.

Here is a video that we created to help you come up with a budget that compliments the type of lifestyle that you want to have.

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