Discover Debt Freedom!

It is important to plan for the future when it comes to your finances because your finances can easily be affected by outside forces.  There is no predicting when a financial disaster will hit, but taking the time to plan for financial emergencies will limit the damage that these events can cause to your way of life and your comfort.  There are a number of actions that can be taken to help yourself prepare for the future and each of these actions will reduce the risk that a single financial disaster will wipe you out financially.

Reduce Your Debt Levels

The single best thing that you can do to prepare yourself financially for the future is to pay down your existing debt, especially high interest debt like credit cards or car payments.  Having a large debt load is one of the most common reasons that people find themselves unable to keep themselves afloat financially and find themselves facing bankruptcy.  People that have high debt levels are more susceptible to financial devastation due to a single adverse event because they do not have the finances available to weather the storm and their access to additional credit is limited. 

The best way to reduce your debt levels quickly is to dedicate a portion of your earnings every paycheck to paying off your debt.  It is important that more than the minimum payment be paid on your credit card to reduce the amount of interest you will be charged for carrying a balance on the card.  Until the credit cards are paid off, they should not be used for any purchases and should only be used for emergency situations after they have been paid off.

Budgeting Is Necessary

You will never be able to get control of your spending without creating a budget that details how much you should be spending and how much you should be saving each month.  This allows you to see where all of your money is going each month and identify areas of spending where spending could be cut without affecting the lifestyle that you enjoy.  This also allows you to dedicate more of your money towards savings as unnecessary purchases are eliminated from the amount that you are spending each month.

When creating a budget, it is important to track all of your expenses to ensure that you are not missing any purchases that could turn out to be budget busters.  Spending items as small as $2 per day in vending machine purchases quickly add up to nearly $500 per year for the average employee.  After the budget has been created, it is important that the spending in the budget be followed to ensure that you do not spend more than you intend on unnecessary items.

If you read any of the recent news about how well people are managing their bank accounts, you would think that it is nearly impossible to avoid overdrafting your bank account and paying hefty fees to your banking institution.  Experts estimate that 1 in 4 checking accounts are overdrawn at least once within the course of a year, so 25% of bank customers are paying the billions in fees associated with overdrafted bank accounts taken in by the banks each year.  Following these tips for avoiding overdrafts will keep you out of that 25% of banking customers paying overdraft charges.

Track Your Money

The easiest way to avoid overdraft charges from your bank is to track all of your deposits and withdrawals for the bank account.  This give you an accurate picture of your financial health at all times and will reduce the chances that you will spend more money than what the bank is showing available in your bank account.  Taking the time to perform this step every time money enters or leaves your bank account will save you hundreds of dollars in overdraft fees.

Pad Your Account

Another way to avoid overdrafts is to pad your bank account by $100 that is not reflected in your checkbook register.  This provides a cushion against overdrafts in the event you neglect to write down a small purchase in your checkbook or an unexpected fee reduces the balance of your bank account.  This can also be used as a savings method, with certain deposits into the bank account not written in the register to prevent the spending of the money.

Link Your Accounts

If you have a savings account or a line of credit with the bank that holds your checking account, you may want to consider linking your accounts together to reduce the cost of overdrafts.  In these cases, the banks charge a smaller fee, typically around $10, to transfer the amount needed to cover the shortfall in the checking account from one of the other accounts.  Of course, this method only works if there is enough money in the other account to bring the checking account balance out of the negative numbers.

Use The Alerts

Many banking institutions now have programs in place where their account holders can sign up online for email or text message alerts when the balance of the bank account is low.  Most of these programs allow the account holder to choose the balance amount that triggers the issuing of the alert so account holders that have large amounts of money regularly going into and out of the bank account can choose a higher balance alert limit to prevent overdrafts.

If you have a bank account with one of the major banking institutions, chances are that you have been contacted some time in the past month and asked about whether you would like to keep the Courtesy Overdraft Protection active on your account.  Major banking institutions are putting out a media blitz via television commercials and mailings to homes along with charging each of their employees to ask each customer that has not already signed up for the service to indicate their agreement that the service be extended on their accounts. 

Unfortunately, most consumers are not hearing the whole story from the people that are pushing this service.  There are a number of things that the banks do not want consumers to know about Courtesy Overdraft Protection.

Courtesy Overdraft Protection Earns Banks Billions Of Dollars Each Year

A few years ago, many banks realized that they could make tons more money approving debit card overdrafts and charging a fee than they could by turning those transactions down.  Many of the largest banking institutions quietly changed their policies to automatically enroll all of their account holders into this service and made it difficult, if not impossible, to opt out of the service.  As a result, the fees from overdraft charges resulted in a larger and larger percentage of bank profits year after year, fueling large raises and bonuses for those at the top of the management chain.

The Fee Is Typically Much Bigger Than The Transaction That Triggered It

The typical fee associated with Courtesy Overdraft Protection programs range from $27 to $35 per incident.  This fee is paid for each charge that has overdrafted the account, regardless of whether it is a $200 charge or a $5 charge.  As people began to use their debit cards for small, everyday purchases, the number of $35 fees charged for $5 debit card charges skyrocketed, resulting in many individuals unintentionally having to pay $40 for a $5 fast food meal.

Courtesy Overdraft Protection Fees Affect 25% Of Account Holders

In 2008, the Federal Deposit Insurance Corp. conducted a study to find out how many consumers were being affected by the automatic fees generated by Courtesy Overdraft Protection programs.  They found that nearly 1 in 4 checking accounts became overdrawn at least once during the course of the year, resulting in Courtesy Overdraft Protection fees being charged to the account.  Low income individuals, senior citizens, and college students paid the majority of these fees.

One of the hardest things for many people to do is get a handle on their financial situation.  This is true for individuals across the spectrum, regardless of age, sex, or income.  The key to getting your finances in order is to become organized enough that you can identify where your money is going and plug the leaks in your financial planning that is draining your cash.

The reason that so many people neglect to take control of their finances is because it seems like a time consuming and tedious thing to do, which doesn’t mesh with our “go at top speed constantly” culture.  It can be difficult to arrange your financial information so that what you need to know is easily accessible and simple to identify, but it can be done with time and dedication.  Here are some tips for getting your financial house in order.

Track All Expenses

You will never be able to take control of your finances if you do not know where your money is going.  Tracking all of your expenses is the first and most important step of getting your financial situation in order and is the easiest way to identify spending excesses.  Most people track the larger items that they consider important, like mortgage payments, utility costs, and credit card payments, but neglect to monitor their smaller spending categories, such as dining out and entertainment, that are the real budget busters.

Start A Budget

Once you have identified and tracked your expenses, it would be prudent to design a household budget that you can stick to.  This supplies you with a spending amount for each category that is manageable, a specific amount for saving each month, and a way to prevent overspending.  Depending on the household, this budget can be very simple and streamlined without many entries or be complex with numerous categories to track.

Use Financial Planning Software

If taking control of your finances is proving difficult, you may need the assistance of financial planning software.  There are a number of different financial planning software programs available online and in retail stores, ranging in price from $0 for the simplest solutions on the internet to over $300 for the more complex programs sold by independent developers and retailers.  It is very important for the person choosing the software program to review the details of the program carefully to ensure that they are getting the best financial planning software for their needs.

There are many different things that can affect our finances negatively, but there are a few actions that we can take to guarantee that we stay in debt forever.  Some of these things are easier to accomplish than you would think and many of these actions are things that we do unthinking, never realizing that are actions are causing financial devastation until it is too late.  If you really want to destroy your financial security, here are some good ways to do it.

Carrying A Credit Card Balance

Carrying a credit card balance is one of the best ways to guarantee that you will stay broke for the foreseeable future.  Credit card balances cost a fortune in interest payments, service fees and account fees, sucking up a great deal of your disposable income and putting you at the mercy of the credit card issuer.  Many people spend decades trying to pay off credit card debt, spending thousands of dollars in additional money to pay off purchases made long ago.

Paying Too Much For Your Largest Expenses

You are never going to come out ahead financially if you are paying too much for your largest expenses, such as your mortgage payment, your rental payment, or your car payment.  If you are consistently spending more than 30% of your take home pay on your housing or more than 10% of your pay on a vehicle, you will find yourself chronically short on cash and having difficulty saving.  In these cases, the only other option you have is downgrading to a place that is more affordable on your salary.

Confusing What You Want With What You Need

There are very few things that we as humans really need, like food, clothing, and shelter.  The problem comes in when we start confusing the things that we actually need with the things that we merely want, like cable television, multiple pairs of sneakers, or dinners that we don’t have to make.  Mistaking the things that you want for the things that you need is a surefire way to ensure that you continually spend more than you have to.

Focusing On The Short Term

Businesses are great at getting people to focus on the short term costs of a purchase instead of the long term costs and consequences.  For example, on a new car loan, the new payment may be lower than what you were paying for your old car, but you are not taking into consideration that you will be paying that new car loan for a longer period of time, resulting in a significant increase in expenditure.  Companies are experts at diverting you from looking at the total cost of the items that they are selling and not calculating the true cost of the items that you are buying is a good way to remain broke for the foreseeable future.

It is hard for experts to explain why so many people in the population resist creating a budget to manage their monthly finances.  Budgeting is a necessary evil for any person that has the potential to overspend or has a set amount of income that they can use each month.  The only way to truly tell how much money you are spending and what you are spending that money on is to create a budget and track your expenses to ensure that you are not spending more than you intend on certain spending categories.

Budget Creation

Creating a budget for tracking expenses will typically require three steps to be followed.  The first step is to find out what you are spending money on and how much you are spending on these items each month.  You cannot create an accurate budget if you do not know where your money is going or the amount that you are spending.  Tracking your spending in this way will also allow you to identify any areas where spending can be cut or eliminated.

The next step is to allocate spending to each category that is necessary, such as housing, transportation, and savings, and each category that is optional, such as entertainment.  This allocation should take into account any long term financial goals or short term plans that are being considered.  After the money has been allocated, it is very important that spending is tracked accurately to ensure that the spending is falling within the guidelines of the budget.

Simple Tips

You may want to use budgeting software to help you create an accurate budget and help you accurately track you expenses.  These software programs are designed to be user-friendly and simple to use, but may not provide the level of detail that you are looking for without editing the fields used by the program.  It is important that you not drive yourself crazy by fixating on all of the little details of the budgeting program, but can use the program to assist you in taking control of your finances.

When tracking your spending initially, it is important to include all transactions in your calculations, small and large.  Many people are astounded to learn how much they are spending each month in fast food, ATM fees, and vending machine snacks once they have actually identified their spending patterns.  Remember, spending over limits is how people get into debt and continuous overspending will eventually result in bankruptcy.

Many experts say that starting a budget is a must for anyone trying to take control of their finances, but they neglect to show all of the reasons why starting a budget is so beneficial.  Knowing the best reasons for starting a budget and sticking to it can help you understand why a budget is so important and increases the chance that you will be able to stick with the financial program that you have set for yourself.

Know Where Your Money Is Going

The very best reason for starting a budget is so that you will always know where your money is going.  Individuals that do not keep track of their finances are often bewildered at the end of the month when they have less money than they thought they would and they have no idea where that month went.  With a detailed budget, the mystery of what you are spending your money on ends and you will have a good idea of where you are spending the most and how much you are spending overall.

Reduce Unnecessary Expenses

Having a budget allows you to review your spending trends and shows you where you are spending more than you should.  This is good because you can eliminate excessive spending in areas that are non-essential so that you will have more money available for saving or other needs.  Many people are able to cut their overall monthly spending by 25% or more after identifying areas where they are spending more than they intended.

Prevent Overspending

Overspending can be a very expensive mistake.  Overdrawing your bank account can cost as much as $35 per occurrence and having to place a purchase on your credit card because you are out of money can quickly increase your debt with double digit interest rates.  Creating a budget will help you see how much you are spending each month and designate a specific portion of your income to each category in your budget to prevent overspending.

Increase Your Savings

Your budget should never spend all of the money that you make in a given month to allow to unexpected expenses and minor emergencies.  This means that sticking to your budget closely should result in you having more money left over at the end of every month.  Placing this money into a savings account will increase your financial security and provide the funds that you need for special occasions and long term monetary goals.

Purchasing a car is often the 2nd most expensive purchase that a person will make in their lifetime, behind purchasing a home.  So it stands to reason that you will want to get the most value possible out of that car payment.  There are some financial rules that you can follow to get the most value out of the money that you are spending for your car payment.

Buy Used
The highest rate of depreciation for a car occurs when a brand new car is purchased and driven off of the lot, typically around 20% of the value of the car  In order to avoid this immediate and dramatic drop in the value of your vehicle, you may want to consider purchasing a certified used car from the auto dealer.  These cars are generally lease returns from people that trade in their cars every couple of years and are inspected for major defects before the cars are resold by the dealer.  These vehicles are typically under warranty for the beginning of the payment turn and can be a great value for individuals that are not concerned about the car that they are driving being a status symbol.

Keep The Car As Long As Possible
The cars built today are built to last for much longer than their predecessors.  With regular maintenance and inspections, a car purchased today could last for 10 years or more with minimal repairs.  As most car payment terms are for 48 month intervals, a person can be free of a car payment and still have a great car to drive for 6 years before they would need to look for a replacement.  Training yourself to choose vehicles that you intend to keep for a long period of time can save you tens of thousands of dollars over your lifetime.

Limit Car Payments To 10% Of Income
Although cars are an expensive purchase, nearly everyone is able to find a car that they can afford if they limit the amount of the monthly car payment to 10% of their take home pay.  If the car that you are looking at will require a payment of more than 10% of your income, you should consider other options, such as an older model vehicle, a smaller vehicle, or a vehicle from a different manufacturer.  This allows you to have more of your pay available for other needs and reduces the chance that a hiccup in your finances will result in the vehicle being repossessed.

Unexpected financial emergencies are one of the most common reasons for the accumulation of unmanageable debt.  In many cases, the person was unprepared for any type of hiccup in their financial circumstances and did not have any resources available when a financial problem occurred.  In these cases, the only option available to many people is to borrow the amount of the cost of the financial emergency at double digit interest rates, such as with a credit card or payday loan.  If your options are limited and all of the options have high interest rates, it is very easy for a small financial issue to explode into substantial debt within a short period of time.

The most effective way to avoid these financial disasters is to prepare yourself in advance to be able to handle these issues when they arise.  Here are the best ways to be prepared for a financial emergency.

Start Saving For The Future
Many people get into financial trouble because they do not have any savings in reserve to handle the unexpected when it arises.  Neglecting to have savings available increases the risk that a single financial event can wipe you out completely for years into the future.  Using your savings to pay for any unexpected financial expenses instead of putting the cost on a credit card will end up costing you much less in the long run because you will not be paying interest on an amount that you borrowed.

Record Your Transactions
If you record where your money is going every time you make a payment using cash, checks, debit cards, or credit cards, you will be able to easily identify any problem areas in your spending before they become a larger issue and drain the money that you have.  If you notice large expenditures for frivolous items that are eating up a large portion of your disposable income, you can trim these areas of spending so that you are not wasting money and you have more cash to store in your savings account.

Create A Budget
One of the best things that you can do for financial security is to create a budget and stick to it as much as possible.  An accurate budget will contain the amounts of all of your monthly expenditures as well as budgeted amounts for incidental items such as fast food purchases or entertainment.  This way, you can make sure that your entire paycheck is not spent before you have received it.

The warning signs on the way to financial disaster are easy to recognize once you have learned to identify them and prompt course correction when these signs are spotted can help you avoid calamity.  Unexpected financial emergencies can occur at any time and the best defense against them is to try to be prepared for them.

One of the reasons that so many retail stores are making such high profits is that they are very good at convincing the average consumer to purchase items that they really do not need.  From convincing consumers that the brand name is better to offering deals to entice consumers into buying more than one of a product, retail marketing is designed to separate you from as much of your money as possible.  Learning how to resist these marketing techniques can save you from hundreds of dollars of unnecessary purchases each year.

Only Buy What You Came To Buy
Many stores depend on impulse purchases to double or even triple the total amount that you spend on each visit to their location.  From stacking attractive items at the end of aisles to locating particular products at the front of checkout lanes, stores have many little techniques that they use to make putting that additional item in your cart seem very attractive.  A simple way to resist this marketing technique is to make a list of the items that you intend to purchase at that store before you go and stick to that list while in the store so that you only purchase the items that you initially intended to purchase.

Avoid Signing Up For Store Credit Cards
One of the most common marketing methods used to get individuals to sign up for store credit cards is offering an attractive deal, such as a discount of a certain percentage off the total price of that day’s purchase or a percentage of the amount spent on the credit card returned as a cash back reward.  What many people do not realize is that retailers and credit card companies are not in the business of losing money and that store credit card will cost you much more in interest and fees than you will ever save using the credit card.  It is better to pay with cash or with a debit card and avoid having to pay interest on the purchase.

Introductory Interest Rate Expirations Can Be Costly
Some businesses offer financing for large purchases, such as appliances and furniture, with a 0% interest rate for a specific period of time, allowing the consumer to pay off the purchase without having to pay interest on the balance.  This is a great deal – as long as the items are paid off before the introductory interest rate expires.  If the introductory interest rate expires before the balance has been paid off, then the consumer is responsible for paying all of the interest that would have accrued if the item was financed at the interest rate now being charged to the account, which could add hundreds of dollars to the price eventually paid for the purchase.  It is best to just pay for a purchase outright if you have the money available, but if you choose to take advantage of one of these 0% interest deals, be sure that you can pay off the purchase before the introductory interest rate expires.