8 Steps for Getting Out of Debt

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

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.

Do You Respect Yourself Financially?

There is always much talk about what the secrets for achieving financial dreams, whatever they be, are. It may seem like a mystery as to why some people seem to be able to make a lot of money, keep it and then go onto make more. The truth is these people follow some basic laws concerning money management. These laws are not difficult to understand, however they do require discipline. Money management and financial knowledge is important.

I am sure that there are some people who are reading this who feel ashamed about how they handle their money. The trouble with this is that shame or guilt about finances only creates a state of "poor" thinking and this type of thinking attracts more financial trouble. To turn this around you need to focus your energy and attention on new behaviors that will establish you to think wealthy thoughts. When you feel good about how you handle money, you can learn to trust yourself.

To improve your financial health you need to start out slowly and methodically in order to develop the good habits of fiscal management. Start by asking yourself this question: "What's the one thing you need to do in order to improve your financial well-being.?" Usually you will know immediately what it is because it is baggage that you carry around with you daily, baggage that weighs you down. Then again it may be that really have no idea. If this is the case it would be very useful to contact a financial planner. Experts with knowledge on specific tax laws and investment opportunities can assess your situation and advise or make suggestions about where you need to begin. Don’t underestimate the help they could provide you.

Once you have an answer, do something about it this week. The secret is in the doing. So, just how committed are you to paying careful attention to how you spend and invest, which is the key to making and supporting wealth? Do you want to develop high financial self-esteem when handling your money? Do you want to develop good money habits and maintain the discipline to live within your means? If so, you stand to benefit by increasing your level of financial self-respect and confidence. Last, but not least, your pockets could end up being a lot, lot fuller.

6 Little Spending Mistakes That Can Cost You Your Financial Freedom

Can't seem to get ahead financially? Debts piling up? Maybe you're making some of these mistake unknowingly. These mistakes listed below will help you understand where you may be going wrong and how to get back on track quickly. You can be debt free.

Mistake 1. Living Beyond Your Means

This is the real cause of your worry and stress. If you are spending more than you are earning, whose money are you spending? It's the credit card provider's or the bank's. The cost of this money is interest.

The way out - Make a Commitment to yourself only to spend within your income limits. Maybe you could increase your income (or cash in) by applying for more skilled positions, selling some of your unused articles or assets. Is the second car really a necessity? What about working out ways to make your hobby pay for itself?

Why not find ways to reduce your spending? How much would you save each year if you decided not to have the daily coffee shop coffee? Why not make your work lunch each day rather than buying it? Commit to only buying the necessities.

Mistake 2. Paying Off Less Than the Full Credit Card Balance Each Month

Get this debt under control and your life will be much easier. If you are like many others and only pay the minimum balance each month, the interest on the interest makes those purchases oh so expensive.

The way out - Find ways to put aside more money to apply to the credit cards. It will take time to reach this goal. However, if you don't make a start now you may never pay them off. This situation did not occur overnight and neither will the solution. But, by diligence and commitment you'll get there.

Mistake 3. Not Really Knowing Your Financial Situation

Before you can set meaningful goals and develop savings strategies you need to know your financial situation now. The best, proven and tested method by far, is by developing your own personal budget. This is not hard to do. Please don't give up now. Just follow these simple steps:

The way out -
a)Find your latest credit card statements. Write down all the unpaid balances.
b)Are there any other unpaid debts (not home or car) then include these balances as well.
c)List out your (or family) monthly income. Only the amounts "brought home". Include all types of income.
d) Work out your monthly spending. List out where all the money goes. Don't leave anything out.
e) Minus the monthly spending total from the monthly income total and review the answer.
This will give you an initial idea as to whether you are living within your means or on borrowed money.

Mistake 4. Continually Adding to Your Debt

If debt has got you into this situation it is critically important not to add to the state of affairs and thus make it worse.

The way out - cut up the credit cards, keeping only 1 for emergencies. Don't buy on impulse. Ask yourself twice or three times before you buy anything "Do I really need this?" before you hand over your hard-earned money. Don't buy at the height of the fashion or fad. Commit to never paying full retail for anything. Get it on sale or negotiate a lower price.

Mistake 5. Spending All Your Income

It may sound OK to spend any money you earn but there are risks attached to this strategy. How are you going to pay for emergency items? What about major car repairs. What about major electrical appliance replacement? Are you going to pay for these on credit? Bad idea! How are you going to save for a substantial deposit on the next car?

The way out - Once you've prepared your budget you will clearly see what you need to do to put some income aside for other needs such are emergencies and repairs.

Mistake 6. Spending Without Caring About Your Future

Unless you are planning for your future and financial security, you cannot be really happy. There are always worries lurking in your mind about how you would survive in a financial emergency if you have no savings. It can be very rewarding to see how quickly your savings multiply over time with only a small investment each payday.

The way out - Take stock of your life and realize that tomorrow won't look after itself. It needs your attention. Keep some funds aside to put away for your retirement, children's college costs, emergencies, holidays and major purchases.

Avoid these 6 spending mistakes and you'll be well on your way to financial freedom. Guaranteed.