by Alan Olsen
The Average American spends a great deal more than they make every year. This results in a financial pitfall to them later in life. If you find yourself digging deeper into the empty wallet there are ten steps that you can use as a crutch to help free you of the overwhelming financial burden of debt.
Create and follow a budget - Creating a monthly budget will help you to track where your monthly income is going. In order to do this, you should add up how much your expenses will be for the month and then add up your monthly income. Once you have calculated how the money should be spent you should have some money left over for emergencies.
Stop spending what you don’t have - When you spend what you don’t have your debt is only climbing higher. If your monthly budget disables you from making a purchase, then the purchase should wait until the money is within your reach.
Learn to distinguish between wants and needs - In a world filled with televisions, computer games, luxury cars and other costly trinkets, our perspective on wants and needs at times becomes distorted. A need is something that is essential to your survival. Although sometimes we think that we will not be able to function without that big screen TV, waiting until the money is in the bank and paying cash for large purchases is a better option.
Spend less than you earn - After you have covered all of your monthly expenses there should be a little money left over. If not, adjust your monthly budget. You never know when an emergency may arise.
Track your spending - Many people who are in debt are unaware of where their money goes during the month. If you carry a notebook around and write down every penny that you spend when you make a purchase, you will be able to see where your money is going.
Pay yourself - Building up your savings monthly will only ensure that you do not fall into debt again. It is always good to have a little extra money stashed away.
Use a credit card responsibly - Credit cards are convenient for record keeping and budgeting, but can be dangerous if used improperly. You should not make purchases that you can not pay off at the end of the month.
Use a debit card - Debit cards will not allow you to spend more than you have in your account because it draws directly from your bank account. This way you cannot spend what you do not have.
Remember that the key to escaping debt is spending less than you earn.
About the Author
Alan Olsen is the managing partner at Greenstein Rogoff Olsen & Co., a top Bay Area CPA firm. He focuses on developing innovative strategies for business enterprises and individuals. A specialist in income tax planning, he frequently lectures and writes articles on tax issues for professional organizations and community groups. His website is ranked among the top in the nation for accounting firms, featuring tax tools and business leadership articles: http://www.groco.com
8 Steps for Getting Out of Debt
Should You Pay Off Your Mortgage?
A new look at the old fashioned concept of being debt free.
About five years ago we worked with some clients coming to Austin, Texas, from California. I was a little shocked by their choice of mortgage - a 100%, interest-only loan. At the risk of sounding a little backwater, I asked them, Why would you not want to pay off your loan? Their answer was, We both have MBA's. I assumed that meant that they were better informed than I. And, I am sure that was true. But, I still wonder (for non-MBA's), is it better to pay off your mortgage?
It is true that a home mortgage loan is still the best loan program available. It often referred to as good debt. But, does leveraging this loan to put cash into other investments make sense?
Certainly, the deflation in housing prices in many parts of the country makes clear that there is some risk in this strategy. As the real estate market heated up during the past few years, the expectation was that values would increase quickly, and buyers would be covered, if they needed to sell.
If people could put zero down to buy a real estate investment, and use their cash for other things, who would not want to play? If folks could expect 10% - 30% appreciation and get 6% interest rates, who would turn down the opportunity? A subtle change took place in how we bought homes. Home ownership became speculative. In many cases, buyers did not realize that speculation has a risk factor. No pain, no gain, as they say.
Regardless of the state of the real estate market, most of the expert advice that I have read suggests that, for most people, it is safer to pay off your mortgage as quickly as possible. The truth is, mortgage debt is a long term burden. There is really no good long term burden. Of course mortgage loans do not have the high rates of credit cards or payday loans. And, the federal government has favored mortgages by making the interest deductible. Nevertheless, a 15 year mortgage is worth considering. It has a lower interest rate, and pays off fast.
No matter how you look at it, debt free is a nice place to be. First of all, when you move into retirement, you will be in a much better position if you are debt free. You will be able to exercise more control over your savings. Second, when you have a fixed income, you will have less ability to make money to contribute toward paying down debts. And, third, most of us are not able to control the success of our other investments. The stock market has its ups and downs. But, paying down a mortgage offers a clear and predictable return.
Of course, if you have an investment that you are sure will offer a better rate than you are saving by paying off your mortgage, then that might be the best choice for you. Or, if you have high rate credit card loans, then these should take precedence over paying off your mortgage. Homeowners should look at their whole situation before making a decision to work on paying down their mortgage.
But for most of us non-MBA's, the security and peace of mind that comes from being debt free is well worth the effort.
About the Author
Roselind Hejl is a Realtor with Coldwell Banker United in Austin, Texas. Her website - Austin Texas Real Estate - http://www.weloveaustin.com - offers homes for sale, market trends, buyer and seller guides. Let Roselind help you make your move to Austin, Texas.
Paying Off Your Credit Cards
Credit card debt is a huge problem for many if not most Americans. We know that we need to get the cards paid down but it can be difficult. You might never seem to be able to make a dent in them. Read this article and get a few tips to help you pay your credit cards off for good.
The first tip and the one you have probably heard the most is that you must pay more than your monthly minimum to get your cards paid off. This is absolutely true. If you just pay the minimum payment on your card it will take decades to pay them off. Try to at least double the payment so that you are actually paying principal off instead of just interest.
Next, transfer balances to 0% interest cards. Many credit card companies will give you promotional rates of 0% interest when you transfer card balances over to them. This will save you a huge amount in interest payments. Be careful not to charge up the new card or the card you transferred the balance from. Cancel your old credit card or at least cut it up to keep from being tempted.
If you have a home and have equity, get a home equity loan to pay off debt. If you have equity in your home cash it out and pay off that debt. The interest you will pay on the home equity loan is much less than you will pay on your credit cards. This can save you hundreds of dollars a month, depending on your debt.
My last tip and the most important one is to not make nay new charges. Take all of your cards out of your wallet and leave them at home. If necessary, cut them up. This will keep you from making those impulse credit card purchases that will keep you from paying them off.
Overall the most important thing to have when trying to pay down credit cards is discipline and patience. make yourself a plan, follow these simple tips and have patience. Eventually you will get yourself out of debt.