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Financial
Planning – Get a Savings Account started even when Your in Debt
March 20th, 2006
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Saving Money
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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.
By
Nicole Wilson
Best Syndication Staff Writer
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