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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.

Reasons Why You Do Not Feel Any Financial Improvement

man shoutingAre you still wondering how to improve your finances? Despite the news coming from the government that the economy is getting better, some people are wondering why they are not feeling it. Their financial improvement has yet to be experienced and a lot of them are wondering if the economic news is real or not.

Even if 2013 was a bad year or so-so year for you, let go of the past and just keep moving forward. Of course, you want to make sure that you learn the reasons why you are not keeping pace with the economic growth of the country. It helps to know so you can create a plan that will eliminate the mistakes that you made in the past.

How did the economy improve in 2013?

But before we can look at your personal finances, let us check how the economy performed in 2013. This will help you gauge just how far you have fallen behind in terms of your personal financial improvement.

One of the best indicators of an improving economy is displayed in the employment conditions of the country. Based on the information taken from the Bureau of Labor Statistics (BLS.gov), the unemployment rate in the country is steadily improving. Here are the data to prove this: (average unemployment rate per year)

  • 2007: 4.6%

  • 2008: 5.8%

  • 2009: 9.2%

  • 2010: 9.6%

  • 2011: 8.9%

  • 2012: 8.0%

  • 2013: 7.3%

Although the unemployment rate has yet to reach the pre-recession level, it has steadily improved since it reached the peak in 2010. Hopefully, this will continue to improve so more and more people will get their jobs back – or be employed for the first time.

In terms of the average hourly earnings, the BLS.gov reports a steady increase even as the unemployment rate had been rising. There were months when it was going down but on an annual average, the statistics are steadily rising. Here are the data to prove this: (average hourly earning per year)

  • 2007: 20.9

  • 2008: 21.6

  • 2009: 22.2

  • 2010: 22.6

  • 2011: 23.0

  • 2012: 23.5

  • 2013: 23.9

These figures along indicate that the US economy is indeed in a better place than it was before. But how does the consumers feel about it?

A recent poll done by Gallup.com say that various economic indicators prove that the country is indeed on the mend in 2013. It was a good year for financial improvement in the country. The highlights of the report are as follows:

  • Economic Confidence Index: improved from -21 in 2012 to -16 in 2013. Overall, the change is a positive 5.

  • Job Creation Index: improved from 18 in 2012 to 20 in 2013. This accounted for a positive 2 change.

  • Average consumer spending: improved from $72 in 2012 to $88 in 2013. This accounted for a positive $16 improvement.

The same site also reports that in January 2014, the economic confidence went even higher at -14. This is a good sign of further growth for the economy. The question is, are you feeling all of these financial good news?

Reasons why you may not be improving financially

If the answer is no, then we need to start searching for the reasons why it is so. While the economic growth and recovery may not give you an immediate financial improvement it should at least provide you with some level of relief. In most cases, the reasons for your continues financial slump might be your own doing. Remember how the bad spending habits in the past got you into trouble? You never realized it until it was too late. If you do not check yourself right now, you might be losing out on the financial opportunities that are cropping up because of the economic growth in the country.

Here are some areas that you may want to look into.

  • Budget plan. Start with your budget plan. If you do not have one, that is probably one reason why you are not feeling any change in your financial situation. This plan is one of the most basic tools that you will need to improve your money management skills. Create one if you have not yet started on the habit. If you already have one, check if it is still aligned with your goals. Budgets need revision every now and then as our needs change.

  • Credit balance. One of the clear signs that you are not improving is when your debt continues to pile up. When it is decreasing, then you are on the right path. If not, then this is another reason why you are not feeling any financial improvement.

  • Spending habits. Ask yourself: are you living within your means or have you been failing your budget? If your answer is no, then this means you are still incurring debt and that will not improve your finances in any way. If you are living within your means, you need to step it up. You need to start living below your means. That will free up some money to improve your financial stability.

  • Savings account. If your savings are not increasing, then your financial security may be in danger. If you have no savings at all, then you are in trouble. One emergency situation is all it takes to ruin your financial life. Do not let this happen. Grow your emergency fund and continuously contribute to your retirement fund.

  • Investments. Lastly, how are your investments? This is the most proactive thing that you can do to reach a significant financial improvement this year. Learn how to invest and put your money where it will go. Your savings account will not be enough to keep up with the average inflation rate. Only investments can make this happen.

What to do to improve your finances this year

Obviously, if you really want to improve your finances in 2014, you have to stop making excuses for yourself. Here are the three common excuses that people usually make that hinder their financial growth.

  • I do not know how to invest. This is a lame excuse. There are so many articles, guides and informative materials online that you can use to help you learn how to invest. You will never learn if you do not read about them. Also, experience is the best teacher. You will never learn how to invest if you do not try it.

  • I have too much expenses to have enough to save. This may seem like a valid excuse but if you think about it, there are ways for you to try and lower your expenses to make room for saving. Even if it is just a small amount, you should still save it. Soon, that will grow.

  • I am earning too little to invest. This is another poor excuse. Investing will help you earn on the side. Sacrifice some of your expenses for a couple of months so you can use the money to invest.

Financial improvement will take time and effort on your part. If the economy is improving and your personal finances are not, then that is a clear sign that something has to change with the way that you are managing your money. Stop making excuses for the mistakes in the past. It is time to move on to pick up the pieces of your financial life. Just make sure that you will implement the right financial habits from now on.

3 Important Rules To Maintain Debt Freedom

man behind dollar signBecoming debt free is a great experience. You must have gone through a lot to reach this stage in your life. Looking back, you think about the sacrifices that you had to make and the various temptations that you had to overcome. But while you have gone through highs and lows just to become debt free, you need to know that your journey is far from over.

You know how people has to continue dieting and exercising to keep their ideal weight? The same is true to maintain debt freedom. It will not be as tough as losing weight but there is still effort to be exerted.

3 habits that will keep debt problems away

You must understand that staying debt free will entail some work. There is a conscious effort to correct the mistakes that you made in the past. Obviously, your old life is no longer something that you can follow. There are changes that you have to make in order to ensure that you will keep your debt freedom.

There may be any changes but there are 3 important personal finance rules that you need to follow to keep your new found financial freedom. These three are vital because they result in several other habits that will all contribute to making you a smarter manager of your personal finances.

Budgeting

First is budgeting. You want to make sure that you will live within or below your means and the best tool for this is a budget plan. This habit basically encourages you to consult your budget at all times. You have to know when a purchase is to be made or when it shouldn’t. This plan will identify your income and the various expenses that it finances. If you always consult your budget plan, you will never be in danger of overspending. That means you will not have to resort to credit for the important expenses that you have to make. In case you are unsure of how you can do this, you can always go to BudgetWorksheets.org to find the right template that you can follow. You can start with this and slowly revise your budget as you see fit. Take note that this is not something that you do only once. Your plan should continue to change as time goes by.

Smart spending

The next important rule to maintain debt freedom is smart spending. This can be easily done if you have a budget plan. You simply have to stick to your budget and decide which expenses must be prioritized. But beyond that, it is important for you to remember that smart spending is not just about saying no when you cannot afford a purchase. The real test is saying no when you can afford to buy something. Being smart is prioritizing savings before you purchase unnecessary expenses that you can live without.

Saving

Speaking of saving, that caps off the three rules that you have to follow while living a debt free life. It may surprise you but there are actually consumers who never spent more than their income but ended up in debt when an emergency struck. They were not prepared for the unexpected expenses and that pushed them to borrow money to help tide over that immediate cost. If you have your emergency fund, you can avoid this possibility. Another reason to save is for your financial goals. You want to retire in comfort and that means you have to save up for it. If you want to buy a home and you don’t want your mortgage payments to end up ruling your future finances, save up for a portion of home buying price.

All these three will help you reach the personal goals that you have for yourself and your family (or future family). Now that you have reached this stage in your life, it pays to take the effort to make sure you will experience it for a very long time.

Being debt free does not necessarily mean zero debt

There is a popular misconception about debt freedom that you also need to revise. Being debt free does not necessarily mean you will be completely out of debt. When you do not have any debt, you will keep your credit history thin. That will not bode well for your credit score. When the time comes for you to borrow money for your mortgage, you might be given a high interest simply because you have a low score on your credit rating.

Some people are quick to implement credit card debt elimination and while this is helpful, it does not solve the problem. What we suggest that you do is this: eliminate debt but not the credit card. You can continue using your card while keeping yourself free from debt. You just have to make sure that purchases made with your card are budgeted so you can pay for it immediately. Not only that, you want to make sure that you understand the features of your card. That means familiarizing yourself when it comes to finance charges, interest rates and grace periods. Knowing what these are all about will help you make better spending choices when it comes to your credit cards.

Going beyond credit card debt, you also have to identify the type of debts that are actually good for you. These are the debts that will help put money in your pocket like home loans, business loans and student loans. These all contribute to your personal wealth.

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.

How Budgeting Converts Life Goals Into A Reality

budget and calculatorBudgeting is an important aspect of your finances that will help keep yourself from making a lot of mistakes in your life. We all have goals and dreams and when you know how to budget, you can plan your finances so that it can support their fulfillment.

All budgets must contain your income and your expenses to determine their activities over a specific period. However, you need to be careful about the type of budget that you will implement in your life. Investopedia.com provides three different types of budget.

  • Surplus budget – this is the budget that have enough left after all the priority expenses are satisfied.

  • Balanced budget – this implies that the income and expenses are equal – leaving you with no extra money at the end of the budget period.

  • Deficit budget – this is the type of budget wherein your expenses exceed your income. This type of financial condition usually result in debt.

Obviously, you want to have at least a balanced budget in order to keep your monetary activities from ruining your financial standing. However, if you want to ensure that you can reach your life goals, you need a surplus budget to have enough money to save for that goal.

Life goals you need to include in your budget

We all have various life goals and it varies depending on our priorities. Sometimes, we all have the same items on our list but in most cases, the ranking of priority is different. Here are three different life goals that most people usually have on our list of goals.

Debt freedom

When you are in debt, it becomes one of your priorities in life. Debt is one of the things that can really destroy your life and if you don’t do something about it, that can really compromise your future. Although there are various ways to get out of debt, a budget plan should be among one of them. It is the first that you will create in order to help choose the right debt relief program that will get you out of debt. It is important that you can define how much you can contribute towards your debts on a monthly basis. You need to choose based on what program you can afford. When you have your debt payments in your budget, you can ensure that it will always be funded.

Home

Another life goal that we usually want to reach is having our own home. Again, the main role of budgeting is to ensure that you can save up for your home. Just as this plan can help you put aside an amount that will grow your funds to afford at least the down payment of your home. Your budget will help you calculate how much you can afford to put aside for your monthly mortgage payment. That will help determine the value of the home that you can afford to pay for. You can shift your expenses and determine how much you can sacrifice in order to afford the home that you want buy.

Retirement

The last life goal that we will discuss is your retirement. This mostly involves growing your savings. Just like in your home goal, you can include in your budget the amount of money that you need to put aside for your retirement. The amount actually depends on the age that you want to retire and when you started to save up for your retirement. If you need a big retirement contribution because you started late, your budget will allow you to easily choose which expense you can let go to make room for this savings.

Tips to create a long term budget plan

The thing about this entry in your budget is it will be a long term budget plan. Although it will be part of your overall budget, it will be different from your daily expenses because the culmination of the goal will not come immediately. If you are confused about how you can do this, we suggest that you get an online budget planner that will serve as your template as you create your budget plan. We have a free budget planner worksheet on this site that will help you get started on budgeting.

To help you further, here are some of the things that you can do to make a long term budget plan.

  • Consider your short term goals. Your long term will be supported by the short term so make sure that they are aligned properly. Once you have an idea about what you spend daily, you will have a hard time determining the amount of money that you can afford to put aside for the long term.

  • Consider the lump sum payments that you make. Sometimes, we only focus on the monthly amount and forget about the annual or quarterly expenses. Do not ignore the once a year costs that you make like your property taxes or other things that you have to contribute on.

  • Include the daily and pro-rated annual expenses, add them and subtract the sum from your income. Whatever is left will be the amount that you can put aside for your life goals.

  • Plot all of these detail in your budget plan to ensure that all of them will be funded consistently and regularly.

Of course, you need to ensure that you are not forgetting your emergency fund. While your life goals are important, make room for the unexpected expenses. Otherwise, you will end up spending what you saved up for your life goals when an emergency strikes. If you do not have this, make sure you save up for it first before you really concentrate on your other goals. When you have saved up enough amount, that is when you can pool in your resources for your life goals.

Here is a video that we created to help you learn how to budget for your household.

Planning For Major Financial Decisions

woman making financial decisionsThroughout our lifetime, we are bound to make various choices that will affect our future in both small and huge ways. Every choice, no matter how small will alter the course of our lifestyle. Since our finances are a major factors in giving us a comfortable way of living, you need to identify the different financial decisions that you have to make.

One of our major goals in life is to grow our personal wealth so we are able to provide for our needs as they grow. If we fail to make the right decisions, it could cost us, not only a comfortable way of living, but also a debt free lifestyle. Debt is one of the financial mistakes that cost us a lot of money – wasted on interest and other charges involved with borrowing money. If you want to keep the fruits of your labor to yourself, make sure that all your financial decisions are made in such a way that will keep you from incurring any form of debt.

What financial steps can affect your life dramatically

But what are the financial steps in your life that can have the most effect in your future way of life? Here are different major financial decisions that you will have to make in your lifetime.

Education

Some people will not immediately think about this as a financial decision. But if you think about it, you will realize that apart from your skill or talent, you will choose a degree based on its ability to make you earn. Some high school students have yet to decide on what they want to do for the rest of their lives. These are the ones who rely on the income possibilities to choose a career path.

When considering your education, think carefully if you really want to put yourself through student debt just to get an education. While it can be considered a good debt, make sure that you get a loan that will not take you forever to pay off. If possible, work on side so any financial aid that you will get will strictly be for your tuition and school fees. Your day to day expenses can be financed by a part time job that you will get while on campus.

Paying off your dues

As soon as you finish college and you have put yourself through student debt, you may want to consider how you plan to pay it off. This is one of the financial decisions that could affect your life for the next ten years – if you chose the wrong way of doing it. Make sure you select the option that will fit your debt problems well and your payment capabilities too. Paying off debts can take a few months to 5 years. However, its negative effects can ruin your credit history for the next 10 years. Consider your financial goals for the future to help you decide on the debt relief option that you will use for your debt problems.

Getting a job

Getting a new job or even shifting career can be quite tricky. While finances is also important, do not lose sight of how it will make you happy and fulfilled. If you have both, you can be at your most productive state and that will help you earn more money. If you are looking for a higher raise, start by looking within the company that you are working for. They may be able to promote you to a higher position with better benefits. Just be honest with your employer and be careful when making that leap. Do not make rash decisions so as not to lose your main source of income.

Marriage

Although paying for a wedding will cost quite a lot of money, we are not really concerned about that. Our concern lies in the fact that you will be combining your finances with your future spouse. Make sure that you are honest with each other about your current financial standing – especially your debts. You don’t want to ruin your future together by keeping those high credit card debts a secret. Start by discussing your financial goals together. That should be a good way to begin discussing how you will merge your finances.

Major purchases

This is also one of the financial decisions that could build up your personal wealth or ruin it. These major purchases include a home and a car – or anything that will cost you a huge sum of money. If you cannot avoid borrowing money to pay for it, make sure that you have the means to pay it back and you will create a payment plan to fulfill your payment commitment.

How to make financial plans for your future

Making financial plans for your future is a good idea because it will help you prepare for any expenses that they may incur. It will also give you time to come up with different ways to keep your costs minimal.

If you have no idea how to start a financial plan, you may want to hire a certified financial planner that will help you reach your goals. A great place to start is through the NAPFA or the National Association of Personal Financial Advisors. But if you want to save on the service fees that they will charge, here are some tips on how to start planning for future financial decisions.

  • Create a budget. A financial plan will always begin with budgeting. You need to know how much money you have, where it goes to and how you can shift it so you can reach your financial goals.

  • Get rid of your debts. Before you are maximize your potential for financial growth, you need to get rid of the things that are pulling you down. In your finances, that will be your debts.

  • Make sure you have adequate reserve funds. You need your emergency fund so that you can finance any unexpected situation. That way, you don’t have to incur more debt or sacrifice your current payments just to meet that emergency need.

  • Invest your money. If you have extra to spare, you may want to consider investing your money. This is a great way to grow your income.

  • Save for your future. Of course, you need to prepare for your retirement and the earlier you start, the better it will be for you.

How To Set Up Your Future Right Be Financially Stable

If you want to secure your future, you need to prepare for it as soon as possible. The uncertainty that you face should prompt you to take care of yourself and the means for you to have a good future. If you are married and with kids, it is all the more reason for you to ensure that you are financially capable of facing any emergency situation.

That is not really complicated to grasp but when you are burdened with debt, that is another story. Having to deal with debt put a couple of obstacles in your way. Given that idea, you know that your debt and a good future does not match.

What is financial stability

What you need right now is financial stability. But what exactly is it?

Financial stability is oftentimes confused with financial independence. In truth, they are quite similar except that stability requires more from you. When you are financially independent, you have the monetary means to buy what you need, when you need it. Being in this financial condition means you do not have to borrow money or ask it from someone else. The same is true for financial stability. However, as mentioned, the latter requires more. To be truly stable means even the unexpected expenses are taken cared of. You have prepared yourself so that you will not be ruined by any financial difficulty that is caused by external forces.

Usually, we get ourselves in debt because of our wrong decisions. However, there are also external factors to consider. These include:

  • an economy collapse

  • rising costs of living

  • a health condition

  • job loss

These are only a few of the things that could happen. This list could be longer if we make a survey of what the Americans experienced during the recession.

The bottomline is this, financial independence means you have the income to buy what you need to survive. When you are financially stable, you have the income and apart from that, you have the savings to finance any unexpected situations that require it.

How to be financially prepared for your future

Obviously, the better option between the two is financial stability. While financial independence may have been acceptable before, we all realized that after the recession, it is really not enough. If you really want to be financially prepared for your future, you know that you need to stabilize it.

Fortunately for you, being financially stable involves two simple concepts: paying off your debts and saving.

Paying off your debts

As mentioned earlier, a good future does not have room for your debt so this is one of the things that you must get rid of. It may seem like a daunting task but if you take it one step at a time, you should be able to accomplish your goal.

You have a lot of debt relief options to pay off your debt. Here are the most common.

  • Snowball method. This requires you to rank your debts according to priority. You pay the minimum for all the debts while putting all your extra money into the priority debt. That allows you to pay that off faster. When that first debt is done, you get the freed amount and you transfer it to the next priority debt while maintaining the minimum on the rest.

  • Debt consolidation. This type of debt relief option can come in two methods: debt consolidation loan and debt management. They will both provide you with a low single monthly payment scheme that is stretched over a longer payment period. The lower contribution is possible because of the longer term and a possible lowering of interest rate.

  • Debt settlement. This debt relief program focuses on debt reduction. You will convince the creditor that you are in a financial crisis so they will allow you to pay only a portion of your debt and have the rest forgiven.

  • Bankruptcy. This is usually advised as a last resort because of the credit score implications. It can go two ways. One is Chapter 7 wherein your assets will be liquidated and used to pay your creditors. Anything not paid will be discharged. The other is Chapter 13 wherein you will be subjected to a repayment plan by the bankruptcy court.

save money signGrowing your savings.

There are many benefits to having more than enough savings and financial stability encompasses all of them. When you have your savings, you can be assured of the following:

  • Medical funding in case someone gets sick.

  • Ability to pay for any home or car related repairs.

  • Protection for your debt payments and other basic necessity costs since emergency situations will not have to disrupt your usual budget.

  • Back up plan for your day to day expenses in case you lose your job.

  • Investment funds – in case you want to grow your money.

These are only a few of what you will get when you have enough savings. If none of these happen, you can always put your savings into your retirement fund. A lot of the pre-retirees are in a difficult financial situation because they did not give much thought to being financially stable. Come retirement, they had to delay it so they can continue working and thus have enough to pay what they owe. Be kind to your future self and see how much you need to retire comfortably. Although you will receive benefits like your social security, that may not be enough.

It pays to do your research and know what you can do to deter any financial crisis. Check out the Benefits.gov website to see the different grants and financial assistance that you can use. Anything that you cannot get here, must be prepared for through your savings. Grow your savings up to an amount that you are comfortable with. It pays to be prepared and nobody ever regretted planning for the future.

How To Use Financial Management As A Debt Solution

couple worrying about financesDebt is proof that you had been messing up your finances. If you really want to conquer this problem, you may want to pay attention to how your money is moving in your life.

Financial management is a key aspect in any debt relief program. Regardless of how small or grave your credit problem is, you need to improve your finances by making sure you are managing it properly. This is not only helps you with your payments, it will eventually give you the ability to keep yourself from landing in the same debt situation again.

How can your debts benefit from better money management?

There are many ways that your debt problem can be helped by proper financial management. Anything that you control and your manage wisely will always be organized and can easily be kept from any harm. And even if you encounter an external factor that can negatively affect your finances, you can easily ride it out because you know your money very well. You can devise a way to get out of a tight spot simply because you know how much you have and your capabilities to recover. If your finances cannot deal with the problem, you will know it immediately and you can act on it urgently.

Here are various scenarios on how money management can assist you while you get out of debt.

  • You keep yourself from incurring more debt. This can be done through a budget plan – which is a must in financial management. You can view how much money is coming in and how much of it is going out. That will help you define just how much you should be spending on various household costs.

  • You make sure your debts are always funded. This, again, can be achieved through a budget plan. You can set up your budget in such a way that when you get your monthly income, you can shave off the debt payment fund right from the start. That way you are assured of your contribution for that month. If you keep to your payments, you will never have to worry about late penalties.

  • You know if you need to earn more. Proper financial management requires you to always have a general idea of where your finances currently stand. That means you will know if you are lacking in anything. It will be easy for you to come up with a plan to earn more to compensate for any deficit in your budget and payments.

When you are in debt, that signifies that you need to make a conscious effort to put your finances in order. To do that, you need to learn how to manage it properly. At the very least, it will help you speed up payments for your existing debt.

Personal finance concepts that help you stay debt free

All of us need to learn how to manage our money not just properly, but also wisely. You should always consider the fact that the uncertainty of our future puts us at a disadvantage – but only if we are not prepared for it. Emergency situations can sometimes lead to debt but not if you prepared for it. This is where personal finance can play a role. Regardless of what milestone you are facing now, you need to consider your finances when making life decisions.

There are actually three important concepts that will help you stay debt free. The main objective is not just to live within your means, but to live below your means.

Budgeting. We have mentioned earlier how a budget plan can help you pay off your debts. It allows you to ensure that your debt payments are intact and will always be funded. Well that benefit is not just for getting out of debt but also for staying out of it. A budget plan will help you maximize your income so that you can live comfortably while meeting all your financial obligations. Not only that, budgeting teaches you positive financial habits. For instance, it allows you to shift funds around so that you can afford to buy the things that you normally would put yourself in debt for.

Smart spending. Another important concept that you need to learn is smart spending. This is not just about saying no to purchases when you cannot afford it. This is more targeted towards the things that you should not purchase even when you can afford it. That is the real challenge. You budget will tell you how much you can spend for every expense category but proper financial management will tell you if it is wise to buy it or not.

Saving. There is much to gain when you have the patience to save up for something. However, did you know that your savings can help you achieve not just debt freedom but financial security as well? When you have money put aside, you live with less stress because you know that you can face any obstacle and have the funds to finance it. All the uncertainties of your future does not have to bother you because you know that you have a back up plan to survive – which is your debt.

In the end, it all boils down to planning. If you notice, all three concepts involve analysis and planning. This is why you may want to start by setting up a financial plan for yourself. If you are uncertain as to where you can start practicing your money management efforts, start with a plan. If you do not know how, you can hire a financial planner to help you out. Get one plan from a Certified Financial Planner. Start your search from the website of the National Association of Personal Financial Advisors or NAPFA. You can also do a search online and download a template for financial planning.

5 Money Principles from MyMoney.gov (Part 1)

MyMoney.gov is a website created by the US federal government to help American consumers get the proper financial education that will keep them from making major money-related mistakes. This is one of the resource sites that you can go to if you want to take more active steps in putting your finances in order.

5 Money Principles from MyMoney.gov (Part 1)While exploring the site, we found some interesting financial principles that is called the MyMoney Five. It talks about five different money principles that consumer must learn and implement in order take better control of their financial life. These financial truths will keep people from going under in case another economic crisis hits the country or the world in general.

So to help you make that first step towards a better financial management, let us discuss them one by one. We will split them into two parts. In this article, we will discuss the first three money principles. The last two will be in another article (plus a bonus money principle that we will add).

Money truth 1: Understanding your earning potential

The first truth that the website promotes is what they refer to as Earn. This is not just about earning more money. While we encourage consumers to increase their income especially for debt payments, this particular principle goes beyond that. It more or less educates consumers about understanding their current earnings so that it can be maximized. At least, that is the conclusion that we got out of it.

Here are tips that we got out of the website and our own ideas so you can implement this money principle.

  • Know what benefits are included in your compensation package.

  • If your employer offers to match your 401(k) contribution, make sure you maximize your own to get more from them too.

  • Get the details of employee coverages like health and medical benefits, life insurance policies. If there are any lacking based on your personal needs, see how you can cover those holes.

  • In case you need to increase your income, check with your employer first to see if you can work longer hours. That will keep you from having to look for another means to earn more. But if you want to set up a supplemental income, go ahead and find income sources outside.

  • Work efficiently and within your working hours. If you do not qualify for overtime pay, finish your work on time.

Money truth 2: Growing your personal net worth through saving and investing

The second money truth that the site provides is called Save and Invest. This is simply paying yourself first and growing your personal net worth by increasing your wealth.

There are several ways that you can grow your net worth.

  • Save and do it as soon as possible. If you do not have savings right now, it is highly encouraged that you start immediately. It doesn’t have to be a big amount. It can be a few dollars a day – if that is what your budget can accommodate because of your debt payments. In the long run, that small amount is will grow as long as you consistently make contributions.

  • When you have enough savings (a.k.a. emergency fund), you can start investing. It may be hard to invest if you have limited funds but know that there are options to do so that will not put in too much strain on your other payment obligations. Just know that you should not put all your investments in one basket. And as you are getting the hang of it, invest only what you can afford to lose.

  • MyMoney.gov suggests that you try to get a professional financial adviser and we think this is not a bad idea – especially when you have a of debts to your name. There are non-profit credit counseling agencies that you can consult with about your debts. And if you are new to investing, you should also hire a separate manager for that – at least until you are certain that you know what you are doing.

Money truth 3: Protecting your money at all times

The third truth is known in the site as Protect. This is all about protecting your money from scammers and other people who intend to rob from you. Unfortunately, when it comes to money, you can expect that there are malicious minded people who wait and prey on the gullible and desperate. This is why a lot of illegitimate debt relief companies emerged during the tough economic times. People who found themselves drowning in debt are in a desperate situation that they will resort to a new idea so easily. This is was how scammers got to swindle them out of their money.

Well if you want to grow your money, you need to learn how to protect it. The more you have, the more you risk losing. Here are some tips that you can use to help protect yourself.

  • Always conduct proper due diligence before getting the service of any financial related company (e.g. debt relief, financial adviser, money manager, etc.)

  • Monitor your credit score always to see if you had been a victim of identity theft. This can also help you keep tabs on your debt.

  • Be organized and keep important documents in a safe place.

  • Make sure you are covered by the right insurance program.

  • Set up an emergency fund for you and your family.

  • Check any statement or bill that comes your way before paying it. Medical bills, for instance, are notorious for charging you services and materials that you did not use.

These are only a few of the things that you can do to protect yourself. The details will vary depending on your unique financial situation.

The fourth and fifth money principles will be discussed in another article. We will even provide you with a bonus principle that we believe is quite beneficial too – regardless of your financial condition in life.

How To Invest To Grow Your Personal Wealth

Some people are afraid of investing. Even if it has the ability to grow your personal wealth, there are risks involved and that is what scares some people. Although the economy seems to be holding up and steadily improving, people are still hesitant to part with their money – choosing to prioritize saving over spending.

How To Invest To Grow Your Personal WealthBut if you think about it, even with all the risks, investing will do you more good than harm – but only if you do it correctly. One of the things that you must do while paying off your debts is to increase your income so you are assured of a steady stream of debt payment fund. To secure that, you need to look for a supplemental source of income that will not get in the way of your current day job and will not remove too much time away from your family.

Beginners guide to investing for personal growth

Investing is simply putting your money where you know it will grow. This can really help you increase your debt payment fund. When you invest, it can come in any form – as long as whatever you use the money on will grow in value over time. For instance, buying a car is not really considered an investment because it decreases in value as soon as you drive off from the car dealer. Buying a home, on the other hand, will increase in value – more so when the surrounding area is being developed or modernized.

There are also investments that you can hold on to and earn from for a very long time and there are those that you only own for a short period then you sell it for profit.

Here are different types of investments that you can use to grow your personal wealth.

  • Stock. When you buy a stock, you get to own a part of the company that it represents. When you buy a stock for $5 per share and it increases to $10 the week after, you just doubled your investment. The value of stocks rise and fall and the technique is to know when to buy and sell your stocks for profit.

  • Mutual fund. This refers to a group of stocks that is managed for you by a money manager. you can buy shares in the mutual fund and the professional money manager will trade the stocks to grow the value of the whole fund. Usually, a mutual fund is traded in a specific sector only – for instance, the retail or energy sector.

  • Bond. A bond is the safest way that you can invest but it is not always the best in terms of payout. It is something that you buy for a set price and after a pre-defined term, you can redeem it along with the gain that comes with it’s maturity. There are types of bonds that earn interest periodically while there are those that only payout when it matures.

Most investments comes with a risk factor of losing value instead of gaining. It is no longer wise to assume otherwise so you need to exert extreme caution when choosing your investments. Bonds are the least risky while stocks are on the opposite of the scale because the market is very unpredictable. But know that the greater the risk, the more potential for wealth building.

Make sure you read thoroughly about what you are doing so you can manage your investments wisely. Visit authority sites like MarketWatch.com or Money.com for investing news. You can also look for investment tools that will help you stay on top of your finances like those from CNN Money.

When to save and when to invest for personal growth

It is very important that your investment be treated differently from your savings because the latter will not grow as much money as it should. Your reserve fund should remain intact because that is what you will use in times of emergency. By keeping it separate, you are also protecting your investment from being withdrawn before it can reach its maximum returns. Regardless of how their personal finances go or what their expenses will demand, they don’t have to sacrifice the momentum of their personal wealth because they have adequate savings for that.

This means you may have to grow your savings to 4-6 months worth before you can fully engage in investing. But that does not mean you have to postpone investing. Some people invest a little and whatever they get earn from  it will be invested in something else. That is how they keep the ball rolling and the monetary growth more significant.

Here are some tips that you can use to keep your investment and savings intact.

  • Create a budget plan to determine how you will pay off your bills and at the same time, put aside money for your savings and investment.

  • When investing with limited money, put in only what you can afford to lose.

  • Do not put everything in one basket. Buy stocks from different companies or invest in both mutual funds and bonds.

  • Take advantage of investments that you can make for your future like your 401(k) plan. This is beneficial because employers usually put in as much amount on this plan as you are giving every month.

  • Always use your logical sense when investing and do not use your emotions. Lower your stress by not watching the market news everyday. A bad interpretation of the news can lead to your selling of valuable stocks that could eliminate the potential to earn more.