Saturday, May 22, 2010

Simple Ways To Manage Debt And Save For A Home

Managing your finances is an important step towards owning a home. Whether this your first home, or you are looking to move-up, managing your families debt is important.

One of the most important fundamentals of debt management is being accountable. Just exactly what does that mean? Being accountable means taking an honest look at your families budget and spending. The trip to Starbucks every morning on the way to work, cash withdrawals without any record, or even desert with dinner adds up to money spent.

One way to increase your families accountability is to use debit cards for all of your purchases. Debit cards are offered by nearly every banking institution, and allows you to purchase most items. Now you'll have a record to show what you are spending each month and where. This helps determine what are essentials and where some extra unnecessary spending might be happening.

Another step in accountability is to create a monthly budget. Using a computer spredsheet or even just a plain sheet of paper write down each of your monthly expenses. Expenses include: rent or house payment, car payments, insurance, phone bills, cable TV, Internet, alimony, child support, and student loans. This helps you determine what you think you are spending versus what your real expenditures are. Also don't forget to include how much you spend on extras such as entertainment, books, and household items.

The next step is to cut and adjust your spending. In our current economy we all can take note of this tip, even if we don't have huge debt or expenses. This step is to determine where expenses can be adjusted to help meet your families financial goals. One of the areas Americans spend a lot of unnecessary money is eating out. According to recent statistics Americans now spend roughly half their food budget dining out. That's more than double what it was just 20 years ago. At most restaurants the cost of food is 35-40 percent of the menu price.

Ways to save. Consider making your morning coffee at home and take it in a travel mug to work. Rent movies through Netflicks instead of paying $10 a ticket for each member of the family to go see a new release. By spending what you don't have, increasing debt, or both, will only hurt your efforts towards home-ownership. Understand the difference between wants and needs, and re-evaluate how you define them.

Once cash is freed up by excessive or unnecessary spending you can start working on paying down debt and building up savings. It is a good idea develop a savings schedule. After a monthly budget is set you will know how much can be allocated for savings each pay period. Setting up automatic deposits each month into a savings account is another way to create the discipline of not spending extra income.

Your first step past meeting liabilities is to have an emergency fund. Review your budget and see how much you need each month to get by. Multiply that number by at least 6 because that is the number of months you should be prepared to survive without income. If you need $2,000 a month to pay all of your bills, then should have $12,000 in your emergency fund. The latest statistics indicate that most Americans are not saving more than 5% of their income all while carring debt on credit cards.

When it comes to credit cards, just say no! It's really as simple as that. Avoid carrying a balance on credit card. We live in a society of margins and according to recent statistics 40% of all Americans are living beyond their means. If you already owe on a credit card then consider budgeting more than the minimum payment each month. Minimum payments set you up for possible interest rate and fee increases which adds to the cost.

Consider this. If you owe $10,000 on a card with an 18 percent interest rate and you make only minimum payments, it will take you 28 years, to be rid of that debt. In that time, you will pay over $14,000 in interest alone. Your $10,000. cost you $24,000!! Yet using the same balance and adding an extra $25 dollars to your monthly payment it would take 4 years to be rid of the debt. In that time you will pay $4,500. in interest. This is a 67% savings!

By taking a little time to consider your finances and making the necessary adjustments you can reach your financial goals in a shorter amount of time.

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