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Amazingly Simple Solution To Money Problems – Shred Your Credit Cards

cutting a credit cardCredit card debt has become an increasingly big problem for many Americans. We owe an average of $13,177.75 per household just in credit card debts. But that’s only an average. The fact is that many individuals owe $15,000, $20,000 or even more on their credit cards. Here’s an example of what this amount of debt could mean. If you owe $20,000 at an average of 16% interest, and paid $400 a month on your credit cards it would take you 83 months to pay them off and would cost you $13,177.75 just in interest alone. And that’s assuming you charge exactly nothing on those cards for the whole 83 months (nearly seven years).

We’ve become a nation of credit card junkies

The fact is we’ve become a nation of credit card junkies. As of July of this year, there were 1,895,834,000 credit cards in use here in the U.S. That’s nearly two billion credit cards. And wee have an average of 3.75 credit cards per person. Given these numbers it’s no wonder why many Americans are struggling with their credit card debts.

It’s borrowing from your future

The really destructive thing about using credit cards is that it means borrowing from your future to pay for things today. There’s an old saying that if you want to dance, you’ll have to pay the piper. In the case of credit cards what this means is if you want to buy things today you can’t really afford by using credit cards, you’re basically borrowing money you’ll have to repay some time in the future. And when that some time rolls around, you’ll have less money available to pay for the things you’ll want then.

The nasty power of compounding interest

If you don’t pay off your credit card balances every month, you’ll soon run into the power of compounding interest. If you’re not familiar with this it’s when the interest you owe on a credit card debt is added to your balance so you end up paying interest on the interest. Here’s an example of how this works. Let’s say you have a credit card with an interest rate of 20% monthly on your unpaid balance. If you factor this into an unpaid balance of $1000 at the beginning of the year this will turn into $1200 in debt by year’s end. Multiply this by 20 (an unpaid balance of $20,000) and you will see how much you could be hurt financially by compounding interest.

Shred them but don’t close your accounts

According to a recent study done by the National Foundation for Credit Counseling about 20% or one in five people live without credit cards. This means it obviously can be done. So if you want to get your finances back under control, you need to shred all your credit cards. But don’t close the accounts. You may eventually want new credit in the form of an auto loan or mortgage. When you apply for new credit the first thing your lender will do is check your credit score, which is made up of five components. One of the most important of these is your debt-to-credit ratio as it accounts for 30% of your score. This ratio is calculated by dividing the amount of debt you have by the total amount of credit you have available. For example, if you have $10,000 in available credit and only $2000 in debts, your debt-to-credit ratio would be 20%, which would be excellent. But if you were to close your credit cards your available credit might drop down to something like $2000 and your debt-to-credit ratio would be 100% and that would have a dramatically negative effect on your credit score.

How to live without credit cards

Despite what you might think, it should be fairly easy to live without those credit cards. While you have to basically pay cash for all of your purchases, this could be in the form of a check or debit card. You could also purchase prepaid credit cards or secured credit cards and use them to pay for your purchases.

The differences

Before you trot off to get either a prepaid or secured credit card, you need to know their differences. A prepaid card is just that – you deposit money in advance and then use the card to pay for your purchases until your balance reaches zero. At that point, you can then either add more money to the card or simply throw it away and get another one. A secured card is different in that you make a cash collateral deposit usually $300 or $500 – that gives you a line of credit, which usually will be a percentage of your deposit or possibly the full amount. You then make monthly payments on your balance just as you would with a standard credit card. Also like a standard credit card if you fail to make your payments on time you will be charged a late fee and there will probably also be a fee for any over-the-limit transactions. However, unlike a regular credit card if you exceed your balance or default on your payments you could lose your deposit and your account would likely be closed.

How could you pay cash for all your purchases?

If you’ve been living on a steady diet of credit card usage the idea of shredding your cards and paying cash for everything can be scary. But it shouldn’t be. The secret is to start tracking your spending so that you can develop a budget. There are a number of apps available that make tracking spending just about brain dead simple. One of our favorites is Mint.com. It’s free and not only tracks your spending but will automatically divide it into categories such as rent or mortgage payment, groceries, utilities, medical bills, clothing, entertainment and so forth. You could use this information to create a budget and Mint.com we’ll even help you stay on it. In fact, if you overspend in any of your categories, Mint will send you an alert via email.

Is A Frugal Budget Really HelpfulWhen you know what you’re spending, you’ll know where you can make cuts

Once you’ve had some experience with your budget, you should be able to find areas where you can cut your spending. Most people divide their budgets into two major categories – fixed expenses and discretionary expenses. You may not be able to do much about your fixed expenses such as your rent or mortgage payment, auto loan and utilities. But you should be able to find areas in your discretionary spending where you could make cuts. Take groceries as an example. If you focus your attention on cutting your food costs by careful shopping and the use of coupons, you might be able to cut those costs in half or better. This will free up money you could use to pay down and ultimately pay off those credit card debts.

The snowball strategy

If your goal is to get those credit card debts paid off, one of the best ways to do this is what’s called the snowball strategy. This means ordering your debts from the one with the lowest balance down to the one with the highest. You then focus your attention on paying off that debt with the lowest balance while continuing to make at least the minimum payments on your other debts. When you get that first debt paid off, you will have extra money to pay off the debt with the second lowest balance and so on. If you’re wondering why this is called the snowball strategy it’s because the idea behind it is that as you pay off each of your debts, you will gain momentum to continue paying them off just as a snowball rolling downhill gathers momentum.

Note: If you’d like to know more about how to snowball your debt, here’s a short video with more information …

Los Angeles To Be Among The Highest Minimum Wage Cities

minimum wage signThe minimum wage is always something that we will aspire to increase. According to the definition from Wikipedia.org, it is the lowest hourly wage that employers are required to pay a worker. No legal employer will ever give you anything lower than the minimum. That will give you grounds to sue them.

While a lot of people are convinced that a higher minimum compensation rate will lower the poverty level in the country, some people believe it is not the real solution. In case the minimum salary does increase, soon enough, we will be asking for another increase, again.

One by one, local governments have come forward to express their intention to follow through with the encouragement from President Obama to increase the minimum wage. And among, them, Los Angeles is the last to consider raising the income level of its local constituents.

Los Angeles plans to increase the minimum salary

Ever since the President announced that he will be increasing the Federal minimum wage, local governments have started considering if they will impose the same changes in the private sector. If the local governments decree that the minimum salary will increase, the private businesses will be forced to increase the wages of their respective employees.

Of all the cities, Los Angeles, is the last city to declare that they have plans to follow the suggestion of the President when it comes to increasing the wages of American workers. According to the article published on the CBSLocal.com, Mayor Eric Garcetti intends to raise the minimum wage as high as $13.25 per hour.

The Mayor said that this raise intends to help workers improve their financial situation. Those who are working hard, according to the Mayor, should not have to live in poverty.

Before employers raise their concerns, this increase will not be done immediately. The initial increase during the first year will be $1.25. In the next two years, the increase will be $1.50 per year before it finally reaches $13.25 per hour in 2017.

This is intended to keep the inflation rate from rendering the hike useless. In the past, the wage hike fails to alleviate the consumers from poverty simply because it cannot keep up with the inflation rate. Of course, we cannot increase the wages immediately because a lot of businesses will suffer. This is why the local government is targeting a slower and more gradual increase of wages.

The current minimum wage in California is $9 and the intention of Los Angeles to increase the minimum wage to $13.25 is considered to become the highest among the other cities.

This announcement is met with mixed reactions from the public. Workers take it as good news, because a higher wage means better financial conditions for them and their family. For one, an increase in income can help pay off debt. It can also boost savings. Not only that, it can also allow consumers to spend on things that they used to hold back on – especially when it comes to their kids.

However, some workers, especially part time employees are concerned about job stability. After all, to cut back on the overhead expenses, business owners might end up laying off workers to keep the higher minimum wage from eating their bottom line.

But the article stated that a study done on the plans of Los Angeles revealed that the effects on employment might not be as significant as one would fear. There may be increase in commodity prices but the article mentioned that businesses should be able to absorb this change without a problem.

Effects of increasing the minimum compensation rate of workers

According to the analysis done by the CBO.gov, the minimum wage increase has two effects on low income households.

It will increase the household income.

Obviously, low wage workers will not have an income boost. For instance, a $9 per hour income that is increased to $13.25 is a big increase. If you work an average of 8 hours a day, that means having $34 more each day. Even if you have a part time job of 5 hours, that is still an increase of $21.25. For a full time worker, that increase means they have $170 extra a week. For part time workers, that is $106.25 increase each week. For a low income family, that is something big. It can guarantee better food for a lot of people.

It will jeopardize employment conditions.

While the article from CBS Local stated that the effects to the employment will not be significant but they did not say there will be no effect. It will affect some people and low wage workers might lose jobs in the process. That is because increasing the wages of the minimum earners does not mean companies do not have to increase the wages of the high income earners. Some of them could ask for an increase as well. If that happens, business will have a hard time coping with the increase in minimum wage.

In truth, the drive to boost the minimum salary is brought about by the growing debt in the country. It is not really just about poverty, it is about debt. But you have to keep in mind that an income increase will not help you stay away from debt. You can earn more but if you do not change your financial habits, you might end up still feeling like your finances are not enough.

Tips after getting a salary increase

Since the minimum wage increase are all likely to happen, you may want to ensure that you will be maximizing the benefits that it will give you. Here are 4 important tips that you need to follow so this increase will lead to your financial independence.

  • Improve your debt payment plan. Most low income earners have debts. This is why our first tip is for you to improve your debt payment plan by making more payments towards your debts. Try not to do anything else until you have paid off what you owe – or at least a significant percentage of it. By freeing yourself from debt, you are actually increasing your extra money for basic commodities.
  • Do not be too quick to upgrade your lifestyle. Do not move to a bigger apartment or do not buy new clothes if it is not needed. Concentrate on the things that matter the most like your debts or savings. The only thing that you can improve on is your food purchases but that does not mean you will eat out more often. Be wise about where you will put this extra money that you have.
  • Come up with saving goals. If you do not have one, make one up. Save up for your emergency fund. Save up so you can purchase more energy efficient appliances. These are better uses for your extra money. Instead of blindly increasing your purchases, it is best to just save up for future needs so you do not have to borrow money in case of an unexpected need.
  • Invest your extra money. The last tip is to see if you can invest your money. This is the most proactive way that you can use your money to improve your finances. You do not have to invest a lot – you can start small and then increase that as soon as your initial investment gained profit. Soon your investment will grow without you knowing it.

While the minimum wage seems like the answer to your prayers, make sure you do not depend on it to improve your financial situation. It is best to work with what you have right now and save or invest whatever increase you will get in the future. That is the secret to being rich.

17 Nuggets Of Wisdom That Could Help Improve Your Financial Life

Couple Using Laptop And Discussing Household Bills Sitting On Sofa At HomeLet’s face it. Thinking about personal finances isn’t much fun unless you’re a member of that fortunate 1%. Of course, if you’re a member of the 1%, you probably don’t have to think much about your financial life anyway. But if you’re like us and are a member of the other 99% then finances are something you think about a lot. You’ve probably read articles or even books about personal finance with advice about creating a budget, having an emergency fund, paying down your debt and so forth. Beyond this, there are some other things you could do that would help improve your finances and here are 17 of them.

Create a roadmap of your goals

Just sitting down and asking what are your goals can get you on the path to realizing them. Don’t be afraid to think big and pursue those really big dreams even if they don’t seem doable. If you want to increase the chances that you will succeed, create a spreadsheet and do some number crunching to make sure you will have enough money to fund those adventures.

Drive less

This may seem a bit radical but the less you can drive your car the better. While driving is very handy, it can also be incredibly expensive when you take into consideration the oil and gas, insurance and depreciation. Automobile accidents are very common these days and if you get into one – even if it’s not your fault – you would have to at least pay the deductible. If you do have to drive a lot, make sure you do regular oil changes and all of the maintenance recommended by your car’s manufacturer.Avoid products that could be dangerous

Avoid products that could be dangerous

The Consumer Product Safety Commission is now issuing hundreds of product recalls a year. This makes it hard to keep track of all of them. It’s easier if you sign up for alerts from the Commission or download an app that will alert you when a recall occurs. Be particularly careful when it comes to used baby products, as there has been a number of crib, stroller and highchair recalls.

Cut your spending dramatically

If you focus your attention on monthly expenses such as cable, phone and Internet, you should be able to reduce them and your spending dramatically. Once you’ve done this, get to work on some of your variable expenses like groceries. We know of one person that did all of this and managed to cut his spending by $1000 a month.

Use the new online tools

There are a wide variety of web-based tools and apps available to help you manage your money. The company Corporate Insight recently found there are more than 100 new startups with apps or software that could help you manage your finances. In addition, there are apps such as Shopular, RetailMeNot and RedLaser that make it easy to use coupons and discounts when you’re making purchases.

Commit to earning more

If you’re one of the many Americans that are under-earners, commit yourself to earning more money. The best first step is to promise yourself to earn more and to make sure you say “yes” to any opportunities you come across that would allow you to do it.

Keep your finances off of Facebook

While it might be fun to brag about your high credit score on Facebook, it’s much better to keep that kind of information off the Internet. Facebook and other types of social media are very public and are places where the scam artists hang out and look for financial information they could use to defraud you. When it comes to your personal finances, a good rule is that less sharing is better.

Review your auto and life insurance policies

Automobile insurance policies can have different deductible amounts, coverage limits and important limitations. These are things that could surprise you if you’re in an accident. Review your policies and make sure you understand them including your life and disability insurance. If there is insurance available where you work think about supplementing it with your own policies.

Be ready for an increase in interest rates

Interest rates are now very low. However, most financial experts say they will eventually rise and possibly more sooner than later. To get ready for this, you need to pay off any debts where your interest rates could rise, and if you are a homeowner you should think about refinancing if you haven’t already done so. If you are a first-time buyer and are looking to buy a home, you might want to think about doing it very soon so that you could get rates that are still low.

Reduce your tax bill

The ugly fact is that many people pay more in taxes than they really should. If you put money into a retirement account that is pre-tax, buy some municipal bonds or start your own business, you will pay less in taxes. If you’re part of a gay couple you might also check to see what refunds you’re entitled to for the past two or three years as the Internal Revenue Service now recognizes same-sex marriages for income tax purposes.

Trade for or rent a high fashion dress

While you may not be aware of this, you can rent and trade for high-end clothes on the Internet. For example, Tradesy makes it very easy to sell and buy seldom-worn fashion items including designer dresses. This gives you the opportunity to wear fancy clothes without buying them. There is also a number of websites growing in popularity such as Bag Borrow or Steal and Lending Luxury where you can rent accessories and dresses for that big party. While it will cost you some money, you will spend a lot less than if you were to purchase the items and will still look like a million bucks.

Kick something off on Kickstarter

More than one hundred thousand projects have been launched on this site and about 44% achieved their goals as of December 2013. You don’t have to be a celebrity to use Kickstarter to fund that creative idea of yours. If you do go for it, promote your project first on Facebook and Twitter and to your friends. Make a great video and, above all, have a very appealing product like the Coolest Cooler that just raised millions of dollars.

man holding credit cardsGive gift cards

While gift cards might seem a little soulless, they really are an ideal gift in a lot of ways. And this reduces the time and strain of gift giving. The majority of people say they really like to get these cards. If you choose cards that are retailer specific (think Cabela’s or Ace Hardware), they generally don’t have fees or penalties for delayed use. Be careful about gift cards from the credit card companies as they generally come with fees that can range from $4 to $6.95. Also, you can get some additional protection by registering the card in the event it is stolen or lost.

Watch out for online scams

It’s easy to buy items on websites like Craigslist but there are fraudsters that prowl these sites. To make sure you’re safe, always arrange to meet the person face to face when paying cash for goods. Be sure to meet some place public and if possible bring along a friend for added protection. And under any circumstances do not wire money before you see the item, as this is how much fraud occurs

Talk to your honey about money

Finances are one of the biggest reasons why couples end up splitting. You should always be honest with your spouse or partner. One good idea is to make a periodic “money date” to review your finances, talk about the big decisions and consider each other’s financial mindset. Do this and you should be able to work together to set and reach big-money goals whether it’s buying a home or traveling to Europe.

Stop worrying and be happier

Finally, sitting around and worrying about money can waste a lot of time. One recent study found that 36% of the people queried said that they spent at least two hours a day worrying about their money or managing it. There are a number of free resources available that can help reduce some the strain of personal finances and save you time to boot. So get busy, find a few apps and stop worrying so much.

Wake Up, People! You Absolutely Must Know These Things About Your Credit Score

Video thumbnail for youtube video 6 Tips For Simplifying Your Financial LifeA study done in 2013 revealed some amazing facts about how ignorant many Americans are regarding their credit scores and credit reports. For example, 2/5ths of those surveyed did not know that credit card companies and mortgage lenders use credit scores to determine their eligibility for credit. Another 2/5ths incorrectly believed that personal characteristics such as marital status and age are used to calculate credit scores. Between 25% and 33% did not know when it is that lenders must inform borrowers of the credit scores used in their lending decisions. More than 25% do not know how to raise or maintain their scores. And 36% incorrectly believed that credit repair agencies are usually or always helpful in improving credit scores and correcting errors in credit reports.

Wake up, people!

If you don’t understand credit scoring and credit reports you could be facing big trouble. If you’re not aware of this, you definitely need a good credit score to qualify for an auto loan, a mortgage and other financing. And if you make just one misstep such as forgetting to pay a credit card bill, you could be on the slippery slope to serious credit problems.

Do you know who compiles your credit reports?

Your credit reports are compiled by the three major credit bureaus – Experian, Equifax and TransUnion. The information they use comes from banks and the financial institutions with which you do business and includes every credit contract you’ve ever had related to debt. Debt collectors even report to the credit bureaus. So if you have an old unpaid medical bill, this could pop up on your report and damage your credit score.

In addition, the three credit bureaus collect information from public records on tax liens, court judgments and bankruptcies. Any time you apply for any type of credit (called a credit inquiry), this will be reported to the three credit bureaus. In turn, the credit bureaus provide your credit report to the lenders when you apply for new credit.

Banks and credit card companies aren’t the only ones that access your credit reports either. Cell phone providers, landlords, insurers and utility companies will also ask for a credit report in determining whether or not they want to deal with you.

What about employers?

According to the Fair Credit Reporting Act, employers can check your credit reports but they have to get your permission to do this. Of course, if you’ve applied for that dream job and your prospective employer has asked to check your credit reports, you’ll probably feel pressured to say yes. If you say no this would be as good as saying that you have poor or bad credit. And under no circumstances are employers or prospective employers permitted to check your credit score.

The inverse ratio

There is an inverse ratio to credit scores. The higher your score the lower the interest rate you will be charged on an auto loan, a personal loan, credit card, and a mortgage. Even your auto insurance will cost less if you have a high score. Conversely, the lower the score, the higher your interest rates will be.

One freebie a year

You can get a free copy of your credit reports once a year. This is a perk that was legislated by Congress a few years ago. There is a website, www.annualcreditreport.com, where you can get all three of your credit reports either simultaneously or one at a time. Alternately, you can get your credit report free from each of the “big three” credit bureaus. You should get these reports and review them carefully to make sure they do not contain errors. If you do find an error in one of your reports you need to immediately dispute it with the appropriate credit bureau. What some people do is get their report from one of the credit bureaus every three months, which is a way to monitor their credit and immediately spot any fraud.

Man climbing range of credit scoresThey won’t include your credit score

Your credit reports will contain a lot of information but they won’t include your credit score. While there are a lot of different credit scores floating around the most important one is your FICO score as this is the score that most lenders use in determining whether or not to extend you credit. You can only get your FICO on the website www.myfico.com.

Where else to get your credit score

Getting your credit score used to be a fairly big job. But it’s becoming much easier. You can get your score free on websites such as CreditKarma.com and CreditSesame.com and from the three credit reporting bureaus. These won’t be your true FICO score but should be close enough to give you a good idea of how you stack up. Whatever your number is, don’t fixate on it. The important thing is to understand how you stand in the range being used. FICO scores range from 300 to 850. This means that a score of 800 would put you in the range of very good or excellent credit. However, the VantageScore, which was developed by the three credit reporting bureaus, has a range of 501 to 990. It also assigns a letter grade to scores. If you were to have a VantageScore of 800 you would be ranked as C or Prime, which wouldn’t be as good as an 800 FICO score.

It’s becoming easier

If you have a Discover card you’re probably seeing your credit score every month on your statement. The credit card companies, 1st Bankcard and U.S. Bankcard have said that they will soon be sharing FICO credit scores and related information with their customers. This is in response to the US Consumer Financial Protection Bureau (CFPB), which has been urging the credit card companies to do this because it believes the more information a consumer has, the better a job he or she will do in managing their credit. While this has not yet proven to be true, it certainly can’t hurt for people to be able to see their credit scores every month and whether they’re getting better or worse.

How your score is calculated

No, your age, marital status, number of children or any other personal information is not used in calculating your credit score. It is based on six factors: Your payment history, debts owed, length of credit history, amount of available credit, types of credit and your credit inquiries.

If when you get your credit score you find that it’s either poor or bad there’s nothing you can do about your payment history. History is, after all, history. You also can’t do anything about your length of credit history. However, there is one factor you could get to work on – which is your debt-to-credit ratio. It’s calculated by dividing your debts owed by the amount of available credit you have. For example, if you have available credit in the amount of $10,000 and $5000 in debts owed, your debt-to-credit ratio would be 50%. Since this accounts for 30% of your FICO score this is an area where you could do something to affect it positively. The two alternatives are to either pay off some of your debts or ask one or more of your creditors to increase your credit limits. Do either one of these and you would lower your debt-to-credit ratio and this should have a positive effect on your credit score. If you’d like more tips for improving your credit score, watch this short video courtesy of National Debt Relief.

The net/net

What all this boils down to is that your credit score pretty much rules your credit life. And since your credit score is based on your credit reports – or how well you’ve used credit – the best policy is to always use it sensibly.

How To Give Your Finances A Good Scrubbing

Couple Using Laptop And Discussing Household Bills Sitting On Sofa At HomeFall is upon us for at least most of the country. Of course, if you live somewhere such as Southern California or Florida then fall is only a concept or a memory. But regardless, the holidays will soon be here so that now would be a good time to give your finances a good going over. What do you need to do? Here are tips for giving your finances a good scrubbing to make sure you’re in tiptop financial shape for Thanksgiving and Christmas.

1. Prioritize your budget

First, review your budget. If you had a hard time prioritizing things, you need to review your expenses and determine which ones are fixed and non-negotiable such as rent or mortgage payments, auto loan payments and utilities. You might also add other things such as groceries and gas into this category. Add up all these expenses and subtract them from your monthly income. What you have left is what will be available for your discretionary spending such as entertainment, shopping, dining out and travel.

Next, make sure you budgeted for an emergency fund. You just never know when your car might break down, your dishwasher stops working or someone in your family suffers a major illness. You need to be prepared for these unexpected items by having an emergency fund. Most experts say that your fund should be the equivalent of six months of living expenses. If this seems too daunting try saving for at least three months worth.

Review your housing costs, as it’s possible that you might be living beyond your means. In this case, consider getting a roommate to reduce your living experiences. You can also cut expenses by carefully furnishing and maintaining your home. Buy used furniture and appliances instead of new ones. Then take the time to refurbish them yourself. You could probably solve many household maintenance issues yourself and eliminate the need to hire an expensive contractor.

Review your spending for the past few months. Did you find some problem areas? Or maybe there are areas where you budgeted more than you really needed. Adjust things accordingly. And while you’re at it, check to see how well you’ve been sticking to your budget. If you find you’ve been spending too much time tweaking it throughout the month, simplify things by creating fewer, broader categories. You’ll still be keeping your spending under control but your budget won’t take up so much of your time.

Be reasonable. Don’t try to keep a budget that is simply not doable. You need to be realistic about your budgeting just as you would with an exercise plan. If you’ve always had a problem sticking to a savings plan or are a compulsive spender, don’t expect that you will change overnight. Begin by setting some small goals so you can build the confidence to tackle bigger issues down the road. Keep in mind that budgeting is not a sprint. It’s a marathon. And above and beyond everything, understand that this doesn’t have to be about deprivation. If you follow these tips you should be able to easily have a budget you can live with and that will help you achieve financial peace of mind and without a great deal of self-sacrifice.

2. Wipe out old accounts

If you’re typical you have old unused bank accounts and dusty old checks or bank statements just sitting around somewhere. If so, now would be an excellent time to rid yourself of those checks and bank statements and close any accounts you’re not really using. If you’ve been unhappy with your bank for some reason, this would be a good time to switch. While you’re checking out those accounts, make sure to review your retirement accounts. You might find a 401(k) from a previous employer you had just forgotten about. If so, consider rolling it into your current 401(k) account so that you have only the one to deal with and can streamline your retirement savings.

3. Review your W-4

It might feel great to get a big tax return but if you got one earlier this year what you’re also doing is giving your Uncle Sam an interest free loan out of your paychecks. Get out your W-4 and take a close look at how much money you’re having withheld. You might be better off changing your withholding so that you would have more money every month instead of giving Uncle Sam that free loan. In fact, as revealed in this short video, your goal should be to end up paying  no taxes and getting no refund.

 

4. Let go of all that paper

Whether it’s your utility bill, checking account or a student loan account, almost all of them have paperless billing options. You can cut back on those stacks of paper spilling all over your desk by choosing to get these bills electronically. This works especially well if you’re paying your bills online anyway. So, choose paperless billing wherever possible. Those piles of clutter on your desk or kitchen counter – and the environment – will all thank you.

5. Do some comparison shopping

How long has it been since you comparison shopped to see if you could get a better deal on your cable, car insurance, cell phone plan or any other monthly items? If it’s been awhile, now would be a good time to do this. It’s best to shop for better rates at least annually but even better to do it semi-annually. This will help ensure that you’re not paying too much for those services.

6. Review your insurance coverage

Has it been like forever since you reviewed your life insurance or homeowners policies? If this is the case, take some time to give them a check up. Review all of your policies to make sure that you have an adequate amount of coverage. For example, if you’ve recently had a baby or got a big raise you might want to upgrade your life insurance. The cost of building houses has risen fairly dramatically over the past five years so you might want to increase your homeowner’s insurance policy to make sure you could rebuild your house in case you suffered a total loss.

7. Make an inventory

If you have either renters or homeowner insurance you need to have an inventory of all your possessions. Then if you suffer a disaster, it will be much easier for you to replace everything. If you don’t already have a home inventory, take time to make one. The simplest thing is to take photos of your stuff, especially those big-ticket items such as your big screen HDTV and furniture. Then write down approximately what you paid for each item and be sure to start saving receipts for any new items you bring into your home.

8. Sort out your paperwork

You’ve probably managed to accumulate a whole bunch of documents that you don’t really need any more. Go through everything, find the documents you don’t really require any more and shred them. As an example of this, the federal government says that you really only need to keep your bank statements for a year. You can also get rid of your tax documents and their supporting records after seven years. So if you’re like us and have bank statements dating back to 2009, just get rid of them.

In summary

Doing all of these things might seem like a terrible chore but in fact they will probably only take you only about a day total. And just think how much simpler your life will be when you complete them. You’ll have gotten rid of all those stacks of paper that have been taking up space on your desk, you’ll be spending less on reoccurring items such as cable or your phone bill, you’ll be creating an emergency fund and will have better insurance coverage. Wouldn’t this be worth investing a Saturday?

11 Financial Things To Do Before Turning 30

young woman thinkingTurning 30 is a kind of watershed moment in most people’s lives. It sort of marks the end of young adulthood and the real coming into your own as a person. You will likely have new responsibilities including maybe even marriage and children but regardless of this the number one thing on your list should be your finances. This is especially important if you’re married, as conflict over money is the number two reason why couples end up divorcing.

What do you need to achieve financially by the time you turn 30? Here are 11 financial things you should have done or be working on. As you might imagine these goals are not for everyone and all eleven may not be feasible for you. But it’s important to keep them in mind at least as general guidelines.

Be prepared for large expenditures

Big expenditures will be coming your way and you should be saving up, anticipating and preparing for them. As an example of this, you may soon be buying a house, having children and other comparable major expenses. If necessary you will need to alter your lifestyle to be prepared for these expenses so that you will be able to pay for them without having to go into debt.

Have an emergency fund

In the event you don’t now have an emergency fund you need to start building one so you will have money available to pay for unanticipated expenses such as a serious illness, an auto accident or if you were to lose your job. Experts generally say you should have the equivalent of six months worth of living expenses banked and, of course, a year would be even better. If six months seems out of reach try for the equivalent of at least three months of your living expenses.

Live within your means

By the time you hit 30 you should know how to live within your means but be able to also enjoy life. You should know your priorities or what it’s worth spending money on and how to save in other areas to pay for those guilty little pleasures like your morning latte. It’s acceptable to splurge on yourself periodically so long as you’re cutting costs aggressively on other items. And understand that what other people are skipping on may not be anything you would want to give up.

Automate your finances

By now, you should know about automating your finances. For example, you should be sending a part of your paycheck automatically to your savings account every month so that you’re paying yourself first. If you’ve already built up a fairly nice emergency fund, you might send the money to your broker for investing. The simple fact is that most people don’t miss the money when it’s taken out of their paycheck before they ever see it. This just makes saving money a lot easier.

Max out your 401(k)

You should now be maxing out or at least meeting your employer’s match for your 401(k). When your employer matches your contribution to your 401(k) this is like free money and many financial experts say it’s the average person’s best friend. The money you put into a 401(k) is pretax meaning that it doesn’t count against your income. If times get tough you could borrow against your 401(k) and when you pay back the money, you’re basically paying interest to yourself. Be aware that if you do borrow from your 401(k) you need to start paying back the money within six months or it will be treated as ordinary income and taxed accordingly. And of course, you will have to pay taxes when you begin withdrawing the money at age 70 ½. In the event your employer does not offer a 401(k) you should be putting money into a conventional IRA

Have a Roth IRA

The money you put into a conventional IRA is also pretax like a 401(k). But it’s good to also have a Roth IRA. The reason for this is that the money you put into it is treated as taxable income but it’s tax free when you begin withdrawing it.

Make a will

I understand that its tough to think about your death when you’re only 30 years old but accidents and illnesses do happen. Even if you’re single you need to have a will so that you will have control over what happens to your money and physical possessions. Of course, this is even more critical if you’re married and have children.

Prioritize and pay off your high-interest debt

If you still have high-interest debt you need to get to work paying it off. Most experts say that the best way to pay off high-interest credit card debt is by using a technique called snowballing. It’s where you prioritize your debts from the one with the lowest balance down to the one with the highest. You then focus on paying off the one with the lowest balance. When you get it paid off you will have “new” money available to begin paying off the card with the second lowest balance and so on. This is called snowballing your debt because as you get each one paid off, you should pick up momentum to pay off the next one just as a snowball picks up momentum as it rolls downhill. If you think this technique might help you, watch this video from Dave Ramsey for more information.

If you have federal student loan debt you can’t snowball it but you could change repayment programs so that you would have better terms and lower monthly payments.

You were probably put in 10-Year Standard Repayment after you graduated from school. This means you have a fixed term of 10 years and fixed monthly payments. Another program such as Graduated Repayment or Pay As You Earn Repayment could be a better option. If you would like to know more about these options go to the website https://studentaid.ed.gov/repay-loans/understand/plans.

Improve your credit score

Like it or not, that little three-digit credit score is what rules your credit life. It was invented by a company that was then known as Fair Isaac Corporation but is now simply FICO. If you don’t know your FICO score you can get it on the website www.myfico.com. You can also get it from any of the three credit reporting bureaus – Experian, Equifax and TransUnion or from an independent source such as CreditKarma.com. If you find that you have a low credit score of, say, less than 600 you need to get to work to improve it. One of the components that make up your score is your debt-to-credit ratio. This is calculated by dividing your debt by the total amount of credit you have available. For example, if you have total credit card limits of $10,000 and have charged $2000, your debt-to-credit ratio would be 20%, which would be very good. If you find your ratio is above 40%, you will need to either pay down some of your debts or get your credit limits increased. Do this and your credit score should improve at least somewhat. Beyond this, you need to check your credit reports to see what’s dragging down your score. If you have missed payments, skipped payments or defaulted on payments, you will need to get to work to correct these issues.

Know something about negotiating

It’s important to be able to negotiate successfully over things such as salary and with service providers. By now you should at least understand the elements of how to negotiate successfully.

Have read a few books

Finally, by the time you reach age 30 you should have read a couple of books about personal finance. Two of the best of these are Your Money Or Your Life and Dave Ramsey’s Total Money Makeover.

How To Keep Student Debt From Ruining Your Life

graduate chained to student debtIt is estimated that some 20 million students are going to college this fall and that unfortunately some 12 million of them will be required to take out student loans to pay for their educations. Unless you’ve been hiding under a rock, you probably already know that student debt stands above $1 trillion making it even larger than our national credit card debt. Colleges and universities are not making things any easier either. The average tuition has increased 27% at public universities and 14% at private schools in the past five years, which would help explain why people are graduating owing an average of $25,000 or more.

But regardless of whether you’re just starting college or are already in school, there are things you can do to keep student debt from ruining your life.

Choose the most affordable school you can

In the event you’ve already started college this advice may come too late. But if you’re still a high school senior you should try to choose the most affordable school you can. This may not be the most prestigious of colleges but what many people have found is the secret is to go to an affordable school for four years and then get their graduate degrees at a more prestigious college or university.

Another way to keep from piling on so much debt it would ruin your life is to go to a community college for two years and then transfer to a more prestigious school. Whether you start at a two- or four-year college you’ll probably be required to take basically the same courses for the first two years so you really have nothing to lose by starting at a local community college. As an example of what this can mean, the cost to attend one of our local community colleges for a year is $6832 while the cost for an in-state student to attend our state university is $26,933. Do the math and you’ll see you would save approximately $40,000 by doing your first two years at the community college.

Choose your major carefully

Even if you’re already in college it’s not too late to consider changing majors if you’ve chosen one that would doom you to being a low earner for years. Recent studies have shown that if you get a degree in child and family studies, elementary education, exercise science, broadcast journalism or animal science you will be a low earner for life. For example, even the mid-career salary for a person with a major in child and family studies is just $37,200 and for elementary education it’s $45,300. The starting salary for a person with a major in exercise science is $32,600 with an estimated mid-career salary of $51,000 while the mid-career salary for a broadcast journalism major is just $68,800. Now compare this with the $100,000 or so that you will spend on your education and ask yourself the question would one of these majors be a good investment.

Also be careful about the college you choose

Believe it or not there are colleges that offer better values just as there are automobiles that are better values and the names of some of the schools might astonish you. For example, Harvard University is considered to be a good value because nearly 60% of its students receive need-based grants so that the average cost to them is just $15,486 a year. Brigham Young University is also considered to be a good value because the average cost of attending there for a year if you receive need-based grants is just $12,367. And the cost to attend the Massachusetts Institute of Technology for a year averages just $19,957 assuming you qualify for need-based grants. Now compare this to the cost of attending our state university for a year of $26,933 with little or no opportunity to get grants and you should be able to see why it’s important to be careful about which school you choose.

Score some scholarships

Fortunately, scholarship money being handed out by foundations, corporations and other private-sector benefactors has also risen as has tuition at universities and colleges. There are websites available that can help you and your family find scholarships for which you might qualify. However, it’s important to search early. If you’re a student your parents should check with their employers to see if maybe they offer its employees’ children scholarships. Don’t be afraid to aim high. Even though the competition for big scholarships can be very tough, you should give it a shot. They payoff can make it worth the effort. This is also an area where choosing a private school could be better than a public university. While it’s very difficult to score a scholarship from a public school it should be easier to get one from a private institution – just as it’s easier to get needs-based grants. As an example of this, the small private college I attended now costs – at least theoretically – a little more than $37,000 a year. However, 100% of its students receive scholarships or grants so that the true cost of attending it is clearly much less than the $37,000.

What to do if you’re already deep in student loan debt

If you owe $20,000, $30,000 or more in student debt you can still keep this from ruining your life. For one thing, you could get a federal Direct Consolidation loan, which could lower your monthly payments dramatically by giving you more time to pay off your debt. The other advantage of this is that you would have just one monthly payment to make a month versus the multiple payments you’re currently making. The interest rate on these loans is computed as the weighted average of the loans you’re consolidating rounded up to the nearest 1/8th of a percent. The simplest way to think of this is that if you get a Direct Consolidation loan, your interest rate will be higher than the lowest interest rate you’re currently paying but lower than the loan with the highest interest rate.

Choose a different repayment program

You might also be able to make your life easier by changing repayment plans. There are six available in addition to the 10-Year Standard Repayment program. Three of these are income-based meaning that your monthly payments would be based on your income and family size. One of these is Pay As You Earn, which would cap your monthly payments at 10% of your discretionary income. Pres. Obama recently signed an executive order that makes about 1.6 million more people eligible for this program and you might be one of them – if you got your first federal student loan after October 1, 2007 and it was a Direct Loan or a Direct Consolidation loan you received after October 1 of 2011. The eligibility requirements for Pay As You Earn can be a bit confusing so be sure to watch this short video to learn more about them,

Other repayment options

In the event you aren’t eligible for Pay As View Earn, there are other options that could keep your student debt from ruining your life. The Income-based Repayment program would cap your monthly payments at 15% of your discretionary income or if you just recently graduated you might choose Graduated Repayment. This is where the payments start smaller but then gradually increase every two years.

The long and short of it is that you can get a good college education without it ruining your life. However, you will need to make some smart decisions when it comes to choosing a school and choosing a major. There are also options available that can make things easier in the event you have a considerable amount of student debt. As the old saying goes, “you don’t need to know a lot about money to be good with money.” The important thing is to think things through and make decisions that will enhance your life and not ruin it.

20 Financial Terms You Should Definitely Understand

Two smiling girls have coffee timeWhen you hear or read terms such as AIM, net worth or AGI does it make you go “huh”? If so, you’re certainly not alone. There are a lot of financial terms kicking around out there that many people don’t understand. Financial gurus are especially fond of tossing around terms such as asset allocation or amortization without providing any sort of explanation – with the assumption that you’ll just know what they’re talking about. Here to make matters a bit simpler are explanations of 20 terms associated with money that you definitely should understand.

FICO score

Your FICA score is a three-digit representation of your credit history. Banks and other lenders use your score to measure how creditworthy you are. If you’re wondering what FICO means it’s an acronym for the company that used to be Fair Isaac Corporation and that developed the methodology for calculating credit scores. FICO scores go from a low of 300 to a high of 850 and, of course, the higher your score the better the terms you’ll get on your next credit card or loan.

Compound interest

This is the interest that you earn on whatever amount you deposit when you’re investing or saving plus any interest you’ve accumulated over time. On the other hand, if you’re borrowing money it’s the interest that’s charged on the original amount you borrowed as well as any interest charges that are added to your outstanding balance over time. As you might guess, it’s much better to earn compound interest on your savings then to pay it on the money you borrow.

Net worth

This is the difference between your liabilities and your assets. The way you calculate yours is by adding up all of the money or investments you have such as the current market value of your house and car as well as any balances you have in checking, savings, retirement or other investment accounts and then subtract your debts. This will need to include your credit card balances, mortgage balance and any other obligations or loans. The net worth number you get will help you understand how financially healthy you are.

Asset allocation

This is the process you use to choose what percentage of your portfolio that you’d like to invest in various asset classes. It’s based on your personal risk tolerances, time horizon and your goals. Bonds, stocks and cash or the equivalent of cash (think CDs) are the three major types of asset classes.

Bonds

These are essentially investments in debt. In other words, when you purchase a bond you are lending money to a government or corporation for a specific amount of time at a fixed interest rate. When you do this you receive interest payments periodically over time. When the bond matures, you get the loan amount back.

Rebalancing

When you buy or sell securities over time in order to maintain your desired allocation of assets it is called rebalancing. As an example of this if you’re allocating 60% stocks, 20% cash and 20% bonds and the stock market has done well over the past year, you might rebalance your allocation to 70% stocks, 20% cash and 10% bonds.

Capital gains

Capital gains is the amount that an asset or investment increases in value over its original purchase price. However, this gain is just a paper gain until you actually sell the asset. In contrast, a capital loss is when your asset or investment decreases in value. When you sell an investment, you pay taxes on both short-term capital gains and long-term capital gains. On the other hand, if you suffer a capital loss this could help reduce your taxes.

Amortization

This is when you pay off your debt in fixed payments over a specific amount of time. As an example of this your mortgage is amortized with monthly payments that are computed based on the amount of money you borrowed, plus the interest you will be required to pay over the life of the loan.

ARM

This is short for adjustable rate mortgage. It’s the kind of mortgage where the interest you pay increases or decreases based on a particular benchmark. These mortgages generally start out with a fixed rate for three to five years and the interest rate then resets every year thereafter based on some benchmark, plus an additional amount. As an example of this, if you have a five-year ARM your interest rate will be set for the first five years after which it will increase or decrease based on your mortgage’s terms.

Escrow

This is an account that is kept by an independent third party on behalf of two other parties to a transaction. For example, if you are buying a house, you will deposit money into an escrow account that the seller can’t withdraw until the contract’s terms have been fulfilled and the sale completed.

Defined-benefit plan

This is a retirement plan sponsored by an employer such as a pension where you get a specific retirement benefit based on some formula. This formula may include your earnings history, age and length of employment. You as the employee may or may not be obligated to contribute anything to the plan. Many companies no longer offer these plans due to their high costs.

Defined-contribution plan

Many companies now offer these retirement plans as a benefit to their workers. This is where the employee or maybe both the employee and employer make contributions on a regular basis. The most common example of this type of plan are 401(k)s and 403(b)s. One of the biggest advantage of these plans is that you don’t pay taxes on the amount you put in every year.

Stock options

This is an employee benefit where the owners of the option have the right to buy their employer’s stock at a preset price and within a specific period or on a specified date. These are often used by companies as management incentives. For example, if an executive helps boost the company’s stock value above the price of his or her option, the manager could then buy the stock at the lower price and pocket the gain when she or he sells it.

Permanent life insurance

Permanent life insurance is a kind of policy that provides coverage over the insured’s lifetime and also has an investment component called cash value. After a certain period of time, the policyholder will be able to borrow or withdraw against the cash value of the policy. As a rule, the premiums paid for a permanent life insurance policy will be more expensive than for term life.

Term life insurance

Term life is a policy that covers you over a set period which can be anywhere from five to 30 years. If you die during that set period of time, your beneficiaries get a payout. If you don’t, the policy will expire with no value. Of course, you can always decide to renew coverage after your term is over. Plus you can cancel at any time without penalty

Private mortgage insurance

If you want to buy a house and have a down payment of less than 20%, the mortgage lender will require you to get this type of insurance. It is also often call PMI. Its purpose is to protect lenders against a loss if you default on your payments. If you are required to get private mortgage insurance this will increase the premiums that you will pay every month.

Umbrella insurance

Umbrella insurance is a type of policy that offers extra liability coverage beyond what is provided by yoVideo thumbnail for youtube video 10 Signs That Your Financial Management Skills Suck!ur home, boat or auto insurance. If you feel you’re at risk for being sued for other people’s injuries or property damage you might consider buying this type of insurance.

AGI

AGI is an acronym for adjusted gross income. It is calculated as your gross income minus certain IRS-specified deductions. When you file your taxes you fill out your AGI at the bottom of page 1 of Form 1040. It is used to determine your taxable income minus any IRS-qualified deductions.

Itemized deductions

These are expenses that the IRS lets you subtract from your adjusted gross income, which reduces your taxable income even further. This can include mortgage interest you paid, dental and medical costs or gifts to charity.

Standard deduction

If you decide not to itemize your deductions this is a standard amount you can use to reduce your taxable income. It will be based on your tax-filing status and it’s the federal government’s way of ensuring that at least some part of your income is not taxed.

4 Ways You Can Stop Living Paycheck To Paycheck

walking paycheck to paycheckDo you want to quit living paycheck to paycheck? Of course you do! Who wants to live a life wherein your income just passes through your hands? This is the life of a person who lives from paycheck to paycheck. These are the people who always have to stretch their salaries to the last penny. They have budgeted their money so that everything goes to a particular expense.

While this seems organized, it is highly stressful. People who just get by on their salaries are those who do not have the extra money to contribute towards their savings. The most scary fact is, these are the households that are usually one emergency away from a financial crisis.

An article published on CNN.com revealed that 25 million household belonging to the middle-class are living paycheck to paycheck. These are the families that are not unemployed. They have stable jobs, own their homes and drive a car. But why are they living this way?

The article mentioned that one-third of American households spend all of their salaries at the end of the month. 66% of these come from the middle-class. These are the families that have $41,000 as their median income. The data came from a study conducted by Brookings Institution.

This is a scary data to look into and it further shows how the middle class is really losing ground in our society. While they may appear to be more affluent, their financial situation is not much different compared to poor households – those with an annual income of $21,000 (and no assets). This means that having a higher income does not really guarantee that you can move on to a better financial position.

4 tips that can help you stretch your limited resources

So what can you do to stretch your limited resources and get out of a life of living paycheck to paycheck? Here are 4 tips that we have for you. Most of these moves should give you the extra money in your budget to help you save or invest – two of the most proactive ways you can improve your financial situation.

  1. Opt for a cheaper home. One of the biggest expense in a household is spent on their home. Regardless if you own your home or you are renting, this is the biggest percentage that eats into your income. Sometimes, owning your own home makes it even more stressful. Some homeowner regrets emerged once their home loan payments start getting compromised. And the housing expenses does not end with the monthly mortgage or the rental cost. It also includes the utilities, home repairs and even the occasional purchases for broken furniture, appliances and equipments. One of the ways that you can effectively get out of living paycheck to paycheck is to lower this biggest expense in your budget. Rent in a smaller home if you have to. Sell your home and buy a smaller one. This will lower your monthly payments on the home. Not only that, you will have lower utility bills too. After all, maintaining, heating and cooling a smaller unit is cheaper.
  2. Seek out financial aid. Analyze your financial situation and see if you can qualify for any government aid. It may be food stamps, a health care coverage, or even a straight out cash assistance. You can also explore the benefits that your employer is offering. You might be eligible to receive some benefit from them. You can even look into your tax refund. Maybe you are allowed to get a higher refund on your taxes. These will help you get extra money.
  3. Lower your grocery expenses. While this is not your biggest expense each month, this is the biggest discretionary expense that you can cut back on. It may be a bit tough considering the fact that food prices are going up nowadays. USAToday.com reported some statistics from the Bureau of Labor Statistics that revealed a 0.4% increase in food prices in February this year. Although you are battling with the rising commodity prices, you can find ways to still cut back on your grocery expenses. If your weekly budget is $50, try to slash it down to $30. Use coupons, utilize leftovers, grow your own herbs, make your own cleaning products, shop in bulk – there are so many things that you can do. It will take a bit of getting used to but this is possible if you really want to stop living paycheck to paycheck.
  4. Increase your cashflow. Lastly, you want to think about how you can increase your monthly income. If that means getting another job or putting up a freelancing side gig, it all depends on what you think you can accommodate in your busy schedule. It will involve sacrifices – both on your physical body and your time for yourself and your family. But you do not have to do this for a long time. You can give yourself a few months or even just a year – just enough time for you to build up your savings. We suggest that you look for a passive income business that will not eat up most of your time and yet can provide you with continuous income.

These four tips should be able to help you move away from living paycheck to paycheck.

Reason why your income is never more than enough

Apart from increasing your extra money so you can build up your savings and invest your money, you might want to identify why you are using up your salary the way you do.

Well we have one solid guess: you base your spending on your income.

We have this habit of upgrading our lifestyle whenever we get an increase. When you get a promotion, you buy a house. When another promotion comes in, you scout for a second home. When yet another promotion is lined up, you buy a luxury car. While this may seem normal, how we buy these things lead to our destruction. Instead of saving the money from the salary increase that comes with the promotion, we dedicate it to pay off mortgages and car loans.

It is apparent that there is something wrong with how we spend our money. According to an article published on BusinessInsider.com, 20% of Americans admitted to spending more on their cellphones than their groceries. While having a cellphone is convenient, it is not a necessity – at least the expensive ones are not.

Basing your spending on your income is what keep you living paycheck to paycheck. It is true that it can help us be sure we will not be spending more than we should.  But you should keep yourself from basing your expenses from it.

That simply means if you earn $40,000 a year, you will also set up a lifestyle that requires that much money to support. So what should you do instead?

You have to learn how to base your spending on a comfortable lifestyle – not necessarily your dream lifestyle. At least, not yet. Most of our dream lifestyles involve really extravagant spending. Given that you want to get out of living paycheck to paycheck, you may want to establish a lifestyle budget that is just right. That means you are provided with everything that you need to survive comfortably. It is not affluent or extravagant – but just right.

Once you have done this, you can live debt free on a $30,000 a year income – easy! If you have decided on living at $30,000 a year (that is $2,500 a month), you can earn $40,000 and put aside any extra into your savings. You can also invest that money so it can earn you money even while you are doing nothing.

That is how you really stop living paycheck to paycheck.

Patience Can Teach You Two Things About Personal Finance

woman thinkingThere are many virtues that you need to implement to say that you have mastered personal finance. When we say mastered, we mean you know that you are on top of your financial situation and you are in complete control of where your money goes.

Of all the virtues that is applicable in your financial life, none of them is as important as patience. If you think about it, this particular virtue will lead to a lot of financial habits that will allow you to improve your personal finances.

The role of patience in our financial behavior

Among the things that you will be encouraged to do is planning for major financial decisions. If you think about it, every decision, big or small should be part of a greater plan in your life. This is the only way that you can align all your decisions and make sure that everything that goes on in your life is leading you to a future that you want to have. But when it comes to planning, that means you have to exercise some patience. You need to think about every little detail of what you want to happen in your life so you can plan them realistically.

If you are impatient, you will exhibit impulsiveness that is fueled by your need for instant gratification. That is never a good thing when it comes to personal finance. Nobody excels in their finances with these traits. You need to take make the necessary plans that will take you to your goals and implement it one step at a time. That is how you can achieve what you set out to do.

According to a survey done and published on Gallup.com, American consumers are noted to be more careful in their spending but there is still a huge percentage that leaves a lot of room for improvement.

The survey revealed that 38% of the participants still make impulse purchases and 27% admitted to spending a week’s worth of pay for a major expense. Not only that 16% of the respondents said that they agree to the notion that when they get money, they should spend it immediately. Almost 3 out of 10 also believed that their lifestyle convenience is more important than saving.

While we deserve to spend our money for our convenience, it should not be done at the expense of our future self. If we fail to be patient enough to save for tomorrow, what will happen to us if the economy collapses again?

Our impatience is the one trait that puts our future in danger. that is because it is impatience that leads us to think that using credit to finance our purchases is always okay. This is not always the case and it is one aspect of personal finance that we need to tread carefully.

2 lessons about finances that you will learn from being patient

When you are patient, that are two important lessons that you will learn. These will prove to be very useful in your attempt to improve your personal finances.

It is not possible to have it all immediately.

We all want the American Dream and we want it immediately. There is no such thing as a quick get rich scheme that lasted long. Think about the lottery winners. Most of them splurged their money and ended up poorer than when they started. Being handed everything a once will make you irresponsible. But if you are patient enough to accept that you can only take one step at a time, then that is something that will make you more cautious of whatever personal finance achievement you will make.

One of the best illustrations that we are suckers for that quick acquisition of wealth is our gambling statistics. According to data found on an article published on Mint.com, Americans spent $60 billion on lottery tickets back in 2010. Casinos in the country had revenues of over $125 billion. Although some of these gamblers won, you can bet that they quickly went through these winnings and lost them all again in gambling.

You have to accept that being financially successful requires hard work and most of all, patience. You want to be aggressive, that is true. But it has to be done under the right context and with the right plans in place.

Building up your savings will take time.

The other lesson that you will get from being patience is that savings will take time to grow. We cannot save a big amount at once because our limited income is bound by a lot of financial obligations. We are lucky to have anything to save at all. We need to keep ourselves from feeling frustrated when our savings seem to be slow going. Remember that a dollar a day will eventually grow. Just be consistent about it and it will grow. It will just take time so you need to be patient.

According to statistics from Mintel.com, only 10% of Americans save their extra money. The rest will spend it and will not think twice about saving. This percentage is for 2014 – it used to be double in 2013.

To say that we need to improve is not enough. There is a need to improve and that need has to be acted on immediately. We cannot wait any longer because opportunities that we are getting right now might not last.

Results of applying patience in your financial life

If you are unsure about how you can start, then begin by practicing the virtue of patience. You can start with another aspect of your life until you reach the personal finance side.

Do not be blinded into thinking that what you need to focus on right now is increasing your income. This will never be the right solution. You have to understand that you can be debt free on a $30,000 a year income. It is not the amount that comes in but your behavior when it comes to using that money. When it comes to behavior, you should know that patience is among the top virtues that you need to work on.

Here are three results that will emerge from your financial patience.

  • You will have no debt. This is a dream for a lot of us – having no debt that can compromise our limited financial resources. When you are patient, you will not feel the need to use credit for purchases that you want to make. You can find it in you to wait so you can save up for certain expenses that can be availed in the future.
  • You will always have well planned purchases. Since you are taking your time, you will have well planned purchases. You do not have to rush through your spending. You will feel at ease in finding the time to plan when you can afford to make payments for what you want to buy. That way, you can set up your personal finances so that you are working for future expenses, and not slaving away to pay for past expenses. If you did not know, that is the scenario when you are in debt.
  • You can achieve your financial goals faster. Managing financial goals is no easy feat. But if you are patient enough to manage your finances wisely to avoid debt and to make smart purchases, then you will have more extra money to invest and grow your wealth.

Patience may seem like a farfetched virtue to be effective in improving your personal finance. But it will help you develop a lot of habits that will be beneficial to your pursuit of wealth.

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