Dos and Donts of Personal Finance

Personal finance can be a daunting thing that can be intimidating. If you have the right information, the power over your finances can be yours, not the debt collectors. There are a few simple dos and don’ts that can lead you to financial freedom.

Docreate a debt “snowball.” What is that? Simply put, it is arranging your debt so that you can get them paid off in an accelerated timeframe. As an example, take a look at the following:

Mortgage: $850 Due 1st

Visa Card: $200 Due 15th

MasterCard: $150 Due 15th

Car Loan: $300 Due 20th

Truck Loan: $350 Due 25th

Personal Loan: $100 Due 30th

These debts are arranged in the order that they are due to be paid during the month. To create a debt “snowball,” you list them in the order they will be paid off the quickest. Then, as the first one is paid off, you put that amount of money toward the next one on the list until the amount you paid out each month is put to the longest balance and cuts years off of your overall debt. An example of this would be:

Car Loan: $300 (6 months)

Personal Loan: $100 (1 year)

Truck Loan: $350 (3 years)

MasterCard: $150 (10 years)

Visa Card: $200 (11 years)

Mortgage: $850 (20 years)

By putting the $300 you spent on the car loan on the personal loan, it gets paid off sooner. Then, you add the $100 to the $300 and put that amount toward paying off the truck loan until it is paid off. If you follow this down the list, you will have cut the outstanding debt nearly in half.

Don’t pay only the minimums on your credit card balances. Credit cards have by nature a revolving interest charge. This puts them at the bottom of that list above. Interest is calculated differently, and keeps you in debt longer than you might think. A $5,000 balance takes 30 years if only the minimum balance is paid monthly.

Dosave. In today’s economy, it is a critical thing to have an emergency fund for the chance that you might get laid off or lose your job. A good place to start is to have three to six months worth of funds. This means you should have enough to cover basic expenses only. This includes debt payments and simple living expenses. This does not include that Starbucks or takeout dinner.

Don’tcreate a budget and ignore it. If you are going to go thru the trouble of creating a plan to follow, don’t stray from it. It may get tough at times when money is tight, but by getting out of debt and saving for your future, you can create a life that you are proud of and most people only dream of having.

Also, beware of mortgages that do not are not truly fixed, life insurance policies that promise investments, investments that are not diversified, or credit cards as a whole. If you manage the debt you do have and avoid snares in your future, you will truly take back the power to control your own life instead of letting those you owe dictate how you spend your money.