Beating Broke

Personal Finance from the Broke Perspective

Sometimes Saving is Wrong

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Invariably, every few months, we get a wave of posts talking about “what would you do if you won $x,xxx,xxx?”  Or, what you would do with a smaller windfall.  And invariably, a majority of the people talk about how they would save the money.  And in some cases they are right.  But, most of the time, they are wrong.

Why are they wrong?  Because they’re looking at saving from the wrong direction.  I wouldn’t save a dime of it.  I would use every last cent of it to pay off debt.  And until I have no more debt, that’s what I would do every time.  Sure, maybe I’d by a few things that I needed, but the rest goes to debt.  Saving in a savings account doesn’t do you damn bit of good if you have debt.

If you have any debt at all, you really should think twice about having any savings at all except for an emergency fund.  Why?  Because, there is no savings account in the world that will guarantee you more interest than what you are paying on your debt.   If you pay off $100 of your credit card debt, you’ve just earned the 19% interest that you would have paid.  You “saved” more with that $100 than you would have in years if you had put it into a savings account.

Don’t fool yourself into thinking you need to have anything more than an emergency fund in the bank.  All the rest is just money that could be making you 19% interest instead of the paltry 1.30% that you’ll get at that high-yield online savings.  When you get rid of your debt, then is the time to start building your savings!

Some of you will likely ask “what about retirement savings?”  That’s a gray area.  There are some that would argue that if you don’t get that debt paid off, you’ll end up taking that money out early anyways.  Others would argue that due to the tax benefits of retirements accounts, and the magic of compound interest, you really should be putting money into your retirement too.  My current opinion is stuck somewhere in between.  I think that you should be putting a little into retirement, just so you have something going.  But, I also think that you should keep in minimal until your debt is gone and then ramp it up like gangbusters.

So, what would you do if you won $x,xxx?

8 Smart and effective debt reduction tips

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It has been observed that an increasing number of people have incurred debt in the past 2 years. If you’re one of those unfortunate people who have piled up huge amount of debt, then you must take some necessary steps to curb it or your credit score will go down. If you don’t know how to reduce your outstanding balances, then go through this article to know about 8 effective debt reduction tips.

Debt reduction tips

The 8 smart and easy debt reduction tips are given below:

1. Know about your debt: The first tip will be to collect all of your bills and calculate the total debt amount. You should also figure out the interest rate of the loans. Check whether you can afford to make the required monthly payments.

2. Make a strict budget: It is essential to make a strict budget when you’re suffering from debt problems. Budgeting will let you know where your hard earned money goes each month. Write down your income and expenses in a sheet of paper. If you don’t have the expertise to make an effective budget, then take help of personal budgeting software.

3. Live frugally: One of the smartest debt reduction tips will be to live frugally. You can’t imagine the amount of money you can save by living economically. Carry your own lunch box to office, cook your own meals, don’t purchase cold drinks as they are quite expensive, watch movies in your own TV, borrow books and videos from library, and use public transport. If you’re planning for a holiday, then go camping. This will help you save on hotel bills.

4. Keep your card at house: Leave your credit cards at home. If you wish to purchase something, then make payments in cash. This way you’ll be compelled to control your overspending habits.

5. Make money: Find out various ways to make money. In short try to increase your income. Do part-time jobs, give tuitions to students, find a well paid job, etc. If you have a good writing skill, then try writing web articles. Various companies give good money for quality articles. So, this is a great way to earn money.

6. Save money: Making money will not help unless you save it. Save as much money as possible and utilize them towards payments of debts. The more you save, the faster you get rid of debt.

7. Call your creditors: Call your creditors once you’ve saved a reasonable amount of money. Explain your present financial situation to them. Request them to lower the payoff amount.

8. Make payments: Start making payments to the creditors as soon as possible. You should make the minimum monthly payments by all means. If possible, then make some extra payments on the loans with highest interest rates. This will help you eliminate highest interest debts quickly. After eliminating the highest interest debt, you should apply the same tactic to the second highest interest debt.

The last debt reduction tip will be to not borrow money. This is because if you keep increasing your debt, then your problem will increase rather than decreasing.

You Are Your Own Worst Enemy

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When it comes down to setting your budget, saving your money, spending your money, and acting responsibly with money overall, you are your own worst enemy.  You and only you are responsible for keeping your self-made goals.  There are tools that you can use to help yourself, but the only enemy that you need to worry about is yourself.

Your spouse is not responsible.  Let’s assume for a minute that you don’t have a spouse that is running around buying up all the $700 pairs of shoes in town.  Stop blaming your spouse.  He/She is not responsible for the debt that your in, your blown budget, and your lack of an emergency fund.  Your spouse, however, is an excellent tool to use to overcome all of those problems.  Get on the same team as your spouse.  Your spouse can keep you accountable better than anyone else.  Discussing the finances with your spouse is a good thing.  Get them on your side.

The Credit Card companies are not responsible for your debt and the lack of paying it off.  They may hold the note on that debt and encourage you to use your “credit”, but ultimately, it is you that uses it.  And it’s you that chooses to sign the receipt.  And it’s you who chooses to continue to carry that plastic in your wallet. If  you can’t use credit cards responsibly as a tool, get rid of them.  No Excuses.  Everytime you sign the slip, you accept responsibility for the damage you’re doing.

You have taken responsibility for so many of the things in your life from feeding yourself (I assume) to cleaning yourself (assuming again) and even to dressing yourself (yep, assuming.).  Why, then, do you blame everyone else for your financial woes?  Would you blame them if you fed yourself cardboard?  If you tried to bathe with sewer water?  Or if you forgot to put your shoes on and walked on sharp stones?  No, you wouldn’t.  Stop trying to pass the blame for your monetary faults to someone/something else.  Your actions are directly responsible for where you are.  The moment you take responsibility for those actions and their results is the moment you are free of their bindings.  It’s the moment you can begin to feel free of them and can begin to correct them.  And once they are corrected and you have broken those old habits, you will be free to develop new habits that will set you free from that old life.

Take responsibility.  Change yourself for the better.