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Financial Planning – Get a Savings Account started even when Your in Debt

March 20th, 2006

Financial Planning – Get a Savings Account started even when Your in Debt

Saving Money takes effort

In the United States this past year people on average had a negative savings account of .5 percent.  This statistic was only reached on time before during the Great Depression.  What has happened is that Americans are spending more money than their after-tax income.  Americans were not saving money but going into debt on average. 

The reality is that at some point financial issues need to be addressed.  Costs of living have gone up considerably as gas and heating cost have been on the rise.  There is also a general increase of goods across the line because of underlying fuel prices.  Shipping cost and transportation cost increase the costs of goods sold.  Health insurance rates continually go up in price and employers are giving more of the cost to the employee. 

 

So we realize that things are not great right now, but possibly there is room for improvement in our own financial situation.  The first goal with our finances should be to find a budget for your living expenses.  Find out were you can trim spending to come up with the extra cash to turn the situation around.

If you are in debt you need to address a plan to get out of debt.  The sooner you get out of debt the better off you are, as the debt increases the harder it is to recover.  As we have talked in previous articles find ways to lower the interest rates on credit cards and pay more than the minimum balance to pay off the debt sooner.

 

Next goal in turning your financial situation around is to build up a savings account.  You can start a savings account before you are debt free as part of the transition to living a debt free life.  But realize that you probably will clean out the savings account for the car repairs and unexpected expenses a few times.   Even though this will happen keep saving again, it will help to prevent the creation of new debt.  As you get better at budgeting you will factor in unexpected expenses into your budget.  Eventually you will start to build a savings account.

You still need to take care of the debt that you have lingering first, so don’t pile all the extra money into a savings.  Try to put around 10 percent of your income into a savings account if at all possible.  See if you can include this savings into your budget.  If not, try even for the smallest amount even if it is $10 or $20 a month.  By practicing the skill of saving you start to become conscience of your finances.  Put the money in the savings account right after you get your paycheck.  That way you are forced to save the money.

 

If you are not in debt any longer you should try to get more savings started.  Plan to save 40 percent of your income in the long run.  There should be 10 percent set aside each month for the unexpected expenses like repair bills, vacations, and purchasing appliances.  You should pay 10 percent into a savings for purchase of a new vehicle and for major home improvements.  You should put away 10 percent each month for retirement in an IRA account. Plan for 10 percent per month for mad money for a rainy day, that will help cover for those fun things, this one can be trimmed down if need be.

It sounds like a long way away when you are in the opposite end of being knee deep in debt to even imagine a savings account, let alone saving 40 percent of your income each month.  Not everybody will be able to achieve the 40 percent goal, but you should have some sort of savings and you need to work toward a goal of not counting on the credit cards and loans to spring you out of a tight situation.  To encourage you on your path to financial freedom calculate how much of your monthly expense goes to pay for debt you currently have, you will find that it is probably a considerable portion that could be turned to a savings account in the future when the debt is paid off.

The day you have enough to cover the purchase of the new appliance with cash that you have saved for will be a good feeling.  You also will more in control in a situation when you have to get your car repaired and you paid cash!

Making a plan with your finances is how you will achieve your financial freedom.  A savings account is one way to turn your financial situation around no matter how small the savings may be.

 
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By Nicole Wilson
Best Syndication Staff Writer

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Copyright 2005 Best Syndication                                            Last Updated Saturday, July 10, 2010 09:47 PM