Saving is an integral part of our life. Whether you are debt free or not, this is something that you constantly must do. It is not really about restricting yourself but more of deciding that there is a much better use for your money in the future than what you can spend on today.
People in debt have a particular approach when it comes to saving. Since the interest on debt is higher than those that can be incurred through a savings account, they usually prioritize debt payments over savings. While the logic may be sound, you need to know that growing your savings is crucial in ensuring the completion of your debt relief program.
Why your savings is crucial in debt relief
Regardless of the debt relief program that you have chosen for yourself, you need to understand that your reserve fund can support your debt payments in ways that your income cannot. Here are four reasons why you want to grow your savings even as you labor to make contributions toward your debts.
Ensures that you complete your debt relief program.
Simply put, your savings will keep you from skipping your monthly contributions. There are several negative consequences to defaulting on your debt payments that you should think very carefully before you do so. If you have your savings, this will not be necessary. There are many situations that could force you to skip your payments. It can be a sudden illness that you have to spend on or the AC unit breaking down. It could even be a broken pipe or an appliance that needs to be replaced. These are emergency expenses that could lead you to
Keeps you from borrowing money to finance an emergency need.
Another reason why your savings can prove to be useful is it will keep you from borrowing money. If you do not like to compromise your debt payments or your basic expenses, your natural act would be to borrow the money that will get you out of that tight spot. That could grow your debt amount and keep you a lot longer in debt.
Supports your basic needs or debt payments in case your main source of income is compromised.
When you suddenly lose your main source of income, this is another emergency situation wherein your savings can prove to be very useful. You can think of it as your safety net so that when something happens to your job, you and your family can still survive. You may also have enough to keep on paying your debts.
Teaches you the right financial management skills
Lastly, making the conscious effort to save will teach you a lot of things about proper financial management. You need to start thinking about where you put your money because you will always be debating within yourself if that is better off put in your savings. Unless you have pulled yourself out of the debt pit, this is something that you need to do. Budgeting and frugal living may also be concepts that you have to start learning.
How to save and pay your debts at the same time
The tug of war between saving and paying debts grows old but it will never be gone. Instead of choosing between the two, financial experts are actually suggesting that you split your disposable income so you can satisfy both.
Here are some suggestions that can help you accomplish this.
- Choose the right debt relief program. Try to avoid wasting money on a program that you cannot commit to. Use a debt relief calculator that will help decide which program is best for your unique financial need. You can use the IAPDA Consumer Debt Relief Options Calculator that will compare debt settlement, debt consolidation consumer credit counseling, bankruptcy and sticking to the minimum of your debts. By using these tools, you should be able to check how much you will save on each debt solution.
- Make a budget. You will never go wrong when you have a budget and you have disciplined yourself to follow it. At the very least, your budget will let you plot where your limited income will go. You can put high on the expenses list your savings and debt payments so you are sure to put aside money for both.
- Create saving goals. When you are trying to accomplish something, focusing on that goal will give you the motivation to put in money into your account. It can point you towards the right direction when temptations start to make you think twice about saving.
- Make smart spending choices. In this consumerist society, you cannot avoid not to spend. To counter that, you just have to make smarter purchase decisions so you can save. Try to avoid wasting money on unnecessary things. Even if you can afford it, think about what you can do with that money when an opportunity comes knocking on your door.
- Live below your means. As you struggle to pay off your debts and save at the same time, it will do you well to get used to living below your means. A frugal lifestyle may be a good idea at this point. Try not to make your life too miserable but at the same time, you have to think of more cost efficient ways to enjoy the things that you used to.
Some people are discouraged by the seemingly small amount that they can put aside. Regardless of how much you can put away, being consistent with it will soon grow your money into a respectable fund. Try not to think about the monthly amount but focus your eye on your goal and your growing reserve fund.