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How To Be Responsible When Using Your Emergency Fund

hammer and piggy bankThere are many reasons why you need an emergency fund. It is not enough that you make the right spending choices. It is not enough that you spend within your means. You need to prepare for any unexpected situation because it can cause you to fall into debt so easily.

A lot of people have gone through life without debt. They have made the right choices when it came to spending and have used credit wisely. They have invested in their home and made smart choices about how much they can afford to borrow. However, these acts will not exempt these people from falling into a financial problem. One sickness that requires thousands of dollars in payment or one tragic accident or job loss can quickly pull you under. All because you do not have an emergency fund.

According to a survey done by Bankrate.com last June 2014, 50% of their survey respondents have less than 3 months worth of expenses in their reserve fund. More than half of that (or 26% of the respondents) do not have a single cent tucked away for emergencies. The survey revealed that some consumers failed to save for emergencies because they did not plan for it. They pay off the usual expenses like utilities, rent/mortgage, etc and will only save what is left after everything is paid off. But guess what? In most cases, there nothing left to save.

Some people say that they find it hard to save because they have other priority expenses. They put their emergency fund last on the list. For instance, some people choose to save up for a new car or the down payment of a new home instead of saving on their emergency fund. Some people choose to pay off debt first.

While these expenses are important, you have to know that preparing for emergencies is also very important. It should be comforting to know that although they are not the majority, 40% of the Bankrate survey participants, have three months worth of expenses or more in their emergency accounts. 23% said that they have 6 months or more in in case of emergencies.

3 ways to use your emergency savings

Although there is a lot of room for improvement when it comes to building our emergency finances, it is also important to consider how you will use the money you have saved. You may have the emergency fund all saved up but you need to commit to how that money should be used in the first place. Some people blow up their reserve fund because they did not clearly define what an emergency is. When the more devastating disaster strikes, they are left with nothing.

One of the emergency fund best practices that you should learn is how you can learn to use this fund correctly. To help you decide, here are 3 important uses for an emergency fund that you should not hesitate to push through.

After an unexpected job loss.

Obviously, this is an emergency. When you do not have any income to get your funds from, then you need to dip your hand into your emergency savings. The only other alternative is to rely on your credit cards – which will put you in debt. That is not really a good idea because you will just make your financial situation worse. Just use your emergency fund frugally while you are in the midst of looking for an alternative source of income.

After a natural disaster.

Another good reason to use your emergency resources is to help you survive a natural disaster. This is another one of the unexpected disasters that you are saving up for. According to an article published on FinalDaysSurvival.com, preparing for a natural disaster is not only about protecting what you have as the disaster is happening. It is also about recovering from the aftermath. And when it comes to recovery, we all know that it usually requires money. If your house was flooded or totally wrecked, there are government financial aids but you can act on rebuilding your life if you have your own emergency savings.

During a health emergency.

Lastly, you need to use your emergency fund for your health. This is one of the unexpected expenses that you should not hesitate to pay off – especially if it is a matter of life and death. With the high cost of getting health care, it is common for some people to deplete their reserve fund just to pay this off. This is okay as long as you make a plan to rebuild your emergency fund. Dave Ramsey, in one of his shows, encountered a caller who had this dilemma. His medical bill threatens to deplete their emergency savings and he was hesitating to do it. Watch the video to hear what Dave Ramsey had to say about it.

3 ways you need to think twice before using your reserve fund

Of course, the use of emergency funds go beyond the three that we have listed above. But the other uses of this reserve fund will have to be done carefully and smartly. While they are smart uses of your money, it does not always mean that you should use your emergency money on them. You need to analyze the situation first before you go ahead and use it.

Here are the three examples of the emergency fund uses that you need to think twice before spending on them.

When there is a financial opportunity.

There is an interesting article in Investopedia.com about emergency savings being a bad idea. The author said that putting your money in a savings account will restrict its growth. This is probably the reason why some people tend to use their emergency fund to help them fund a financial opportunity. While investing to grow your money is okay, make sure that you put your funds somewhere it can be easily liquidated. That way, if an emergency strikes, you can easily take the money and use it to survive a disaster.

When you have unexpected home and car repairs.

Most people will think it is okay to use your emergency fund for home and car repairs. But here’s the thing – these are not unexpected expenses. If you know that your car’s transmission needs replacement, this is something that you can monitor and prepare for. The same is true for any repair or maintenance expenses that your home requires.

When you need to buy basic necessities.

Unless you lost your job, never use your emergency fund to buy basic necessities. If you find yourself in a situation wherein your money cannot afford to spend on basic commodities, then you should know that there is something wrong with your budget. Buying your everyday needs should not be an emergency. It should be something that your finances can easily accommodate. There might be an area in your finances that requires you to spend more than you should. Or maybe your lifestyle is beyond what you can afford. This may be a sign that your finances is not being used correctly.

It is true that saving can literally save your life but only when it is available when you need it the most. Make sure you decide on what is the right way to use your emergency fund. Just because you run short of money, that is enough reason to tap into your emergency resources. Be strict and develop self control. That is how you can hope to have a secure financial future ahead.

8 Signs That You Need To Implement Financial Management

checklistFinancial management is a critical part of growing up. It dictates how well you are able to handle income and dispense the same for payments on your expenses and other loans. It restricts your purchases and tells you what is important and what can wait. It tells you as well what you can do to increase your income to meet financial targets. Financial management can also be a potent tool against debt.

This is important to share when there are about 20 million college students on an average at any given year according to Asa.org. That is a lot of college seniors entering the workforce where they will be earning on their own and experiencing life in full blast. The walls of their colleges and universities has now grown bigger to accommodate a lot more responsibilities. On top of these is developing financial management in running their money.

It starts with a desire to get their finances in order. There are still  a good number of Americans who are not able to balance a checkbook. The 410 (k) retirement fund, investments and emergency funds are alien to them. These are some of the foundations of financial management and college graduates and even some seasoned professionals needs to understand this to survive financially.

8 signs that you should start working on money management skills

As you go through life, there are pit stops where you need to make decisions and add some financial tools in your arsenal. Some of these can start as early as when you get your first job and for others, it could be as late as a few years before retirement. Whenever it happens, you should be able to discern these signs and know that it is time to work on your financial management skills.

When you start earning your own money

As soon as you leave university, the first order of business is not a vacation with your friends or a cruise with your partner. It should be to look for a job because your expenses and loan payments will not wait for your to finish a good time. If you have student loans, six months is a short time for a grace period and you need to start making payments after. Getting a place to stay, applying for utilities and others will require you to have a steady income.

When you get a job, income will not be too far behind. And when you start earning your own money, it is a clear sign that you need to implement proper financial management. This will put order in your finances and ensure that your monthly salary will not only last you until the next paycheck but will actually provide financial security for you in the long run.

When you already have a bank account

Forbes.com shared that there are about 7.7% of American households who still do not have their own bank account. That is approximately 1 in every 13 American families. There are mixed sentiments on how the banking system helps consumers but it cannot be denied that it is one of the safer ways to keep money and allow it to grow. When you open your own bank account, it is another step up  that needs proper management of your finances.

When you are saving for a goal (e.g. retirement, etc)

Having financial targets is another clear sign that it is high time for financial management skills. These can be in the form of emergency funds or retirement funds. In fact, there is only about 18% of Americans who are confident that they have enough funds for retirement according to Statisticbrain.com. Having financial goals is also a clear sign of financial maturity as you are already planning ahead and not just for the moment.

Here is a video explaining how saving for retirement might need to be done until 68 years old:

When you are responsible for paying monthly bills

Being able to pay for utilities such as water, electricity, phone, internet, and cable is another benchmark on the need to implement financial management. You need to be able to juggle your income with your expenses to avoid coming out short at the end of the month.

When you have started taking on credit

Taking on credit is another sign of financial maturity. Adding expenses on your card or taking out a payday loan to fix some part of the house needs proper management of finances. Without it, you might just end up in a store sale using up the loan you took out for another unnecessary expense.

When you start monitoring your credit

Monitoring your credit comes from the need to understand where you are putting your hard earned money. What items are you buying and where you can cut down on expenses. Financial management will help immensely at this point because it can provide a clear direction on how you can proceed after monitoring your credit.

When you  have started investing

Investment is a by-product of forward thinking and once you start delving into the world of investments, you will need financial management to guide you through your options. In fact, investing is one key to financial independence. It can help you plan for your future and hopefully retire at the time when you want to, not when you need to.

When you start paying your taxes

Making tax payments is a sign that you are already earning your own money. This calls for the need for financial management not only to monitor your income but to check as well if you are remitting the right amount for your taxes. Tax refund is a great surprise at the end of the year but it actually stems from wrong tax calculation. That would have been money you could have used for investment at the early part of the year. Instead of just giving the government an interest-free money, it could have earned a few dollars somewhere else.

4 important concepts of financial management

Financial management has four key pillars that consumers need to understand. It is beneficial to know these points in order to practice proper management of your finances.

  • Budgeting. Income has to be treated as the output of your hard work. You should put importance on how you use it and this is where budgeting comes in. Understand the important expenses and forego those that you can live without.
  • Saving. At this day and age, not a lot of people has an excuse not to save. Even technology has made saving easier. This is an important aspect of financial management because it allows the consumer to have funds for future use.
  • Smart spending. Similar to budgeting, spending smartly allows you to weed out your needs from your wants. It helps you identify and prioritize the important spending items in your budget.
  • Credit monitoring. It is important to be on top of your finances and monitoring your usage of credit can give you a great overview of your habits. Where you spend too much and where you can make improvements are just some of the advantages of checking your credit spending.

Financial management is an important tool in putting sense in your finances. Some people say that it is not how much you earn but how well you use what you have. This is where proper management of your finance kicks in. As long as you see the signs along the way, financial management can guide and steer you in the right direction.

Technology Makes Saving Easier

Man counting moneySaving up for a rainy day has always been a challenge to do. But there are a lot of tips in saving and plenty pieces of advice out there that should make it easier to undertake. Putting aside a part of our earnings so we have something to pull-out of our pockets in times of need is the basic idea. This serves as a safety cushion during emergencies.

It is a challenge for a lot of people mostly because of the attitude more than the amount. Putting aside savings could start with any amount just to get started. You should get used to the routine to be successful in saving. It also helps that you already have a goal in mind on why you are saving. It could be increasing your retirement fund, padding up your emergency fund or even saving for a mobile device.

Saving through technology

Aside from physically putting aside money in a bank, technology has allowed us to save up on a few areas as well. Advances in technology has paved the way for smarter use of the dollar. There are existing inventions and modern applications that can help us increase our savings.

Learnvest.com shared some ways to use technology for our advantage. There are opportunities out there to maximize technology in order for us to increase our savings.

Communication

It is the day and age of mobile devices. Gone are the days when we idly sit by the phone waiting for a phone call from a friend to know where to meet up. It also used to be a tedious task to tell 20 people where the party is if you had to make phone calls to each one of them.

Mobile phones has disconnected us from our landlines and gave us mobility. It served not only as a calling device but taken on the communication and socialization to a different level. It is no longer just a passive receiver and dispatcher of our calls. Technology has brought us smartphones.

Communicating with 20 people is easier now with just a text message. Talking to more than one people is easier as well with conference call. But all these are paid services. Whenever you send out an sms message or make a call, it reflects on your bill and they easily pile up because of the convenience of using the service.

There are Voice over Internet Protocol (VoIP) services we can use to lower down our monthly bill. Using internet connection with which most smartphones comes equip with, we can use skype or viber or other applications to call and send a message for free. As long as the receiving party has the same application, you can communicate for free.

Using internet enabled smartphone, you can freely talk and message your friends and it will not add up to your bill

Internet capability

As most devices are dependent on internet connection, you do not have to apply for a connection for each device. Let’s say you have a mobile phone, a tablet and a laptop – you do not need to have 3 internet connection for each device. You can tether the internet of one device to share the connection with the other gadgets. Tethering is the ability to convert the internet connection of one device and share it through a wifi connection for the others.

This saves you precious dollars in applying for a connection or even buying internet cards. Saving the money that was supposed to be used for internet connection can now be part of your savings account.

File storage

We used to have photo albums and cassette tapes of our precious photos and music interest. Now, there are digital files of all these saved up either in our mobile phones, tablets or desktops. As months go by, we add on to those files increasing the need for storage space. This is similar to having a lot of photo albums to store actual photos.

The problem sometimes is that one photo is in one device and another photo is in the other device. We then buy a hard disk to store all our files in one central location. This is useful as a back-up but bulky to carry. This is where online file storage and sharing comes in.

Dropbox is one perfect example of such technology that can help us in our saving endeavors. It virtually gives us a space where we can put in all our files without having to carry a hard disk around. What is even more better is that you can access the files with any of your devices saving you time and energy in saving, filing and locating the files.

CLF lightbulbs

Compact fluorescent lights or CLF is better than using a standard incandescent light bulb. It might seem like a small part but it is actually a thrifty money saving tip. The idea behind using CLFs is the fact that it can outlast a standard bulb ten times over and using about 30% less energy. This can be a significant amount in the future.

Saving to build wealth

Technological advances are making our lives easier by the minute. It is connecting us much faster and quicker than ever before. It allow us as well to find creative ways to save up and build up our wealth. As Businessinsider.com shares, there are some habits that will make wealth building a lot easier.

  • Anonymous Rich Person. As most people would associate the wealthy with big yachts and shiny cars, most millionaires live a frugal lifestyle. As much as saving can save your life down the line when you need the money the most, frugality is a nice option as well.
  • Pay Yourself First. Reverse the attitude of paying the bills first before saving up money. Reward yourself by putting money into the savings first before anything else. This forces you to save up on expenses rather than cutting down on your savings.
  • Goal Setting. Having a target makes your efforts quantifiable. This allows you to check your progress and see how far you have gone or how far along you still need to go. This is helpful in setting your eyes on the ball and making sure you succeed in your goal.
  • Increase Earnings. There are ways to maximize your current income to suit your lifestyle. But one approach to saving and building your wealth much faster is adding extra sources of income. Some would take on a second job while others explore a side business. The latter usually works when you venture into something you love doing. Think of a hobby you can turn into a business venture.
  • Tracking Money. Not a lot of people practices this attitude. As important as it is to increase your earnings, you need to track as well the expenses. You can be earning a lot but spending a lot more and this will get you in debt. Having a method to track your income and expenses will guide you in knowing where you can make adjustments to increase your savings.
  • Debt Payment. Though regular payment on debt shows a positive effect on your credit score, it is better to have more money for saving purposes rather than debt payments. Pay off your debt and use the money to put into your savings. One advantage of this is preventing the cycle of paying down debt so you can borrow for life emergencies resulting in paying more debt. This gets you deeper in a financial bind.

Combining the positive uses of technology and simple tips in building wealth proves beneficial in saving for the future. It is better to have money in the bank for your use in the future rather than borrowing money from the bank.

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.

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