You can use five cool money tricks to take control of your debt: saving, budgeting, managing your wants and needs, paying off your bills, and investing.
Saving is the first and coolest money trick. Once you learn the importance of this cool money trick, you will never stop using it. Save at least 10% of what you make, no matter how much you make. A nice savings account builds up over time. First, make it a goal to save three months of your take come pay or salary. Slowly build up your savings account with six months, nine months, a year and then up to three years of your net salary.
Your next step is to start saving for unexpected expenses like the car breaking down or the air-conditioning unit going out. Next, save for items that you usually would finance through a financial institution. Lay-a-way your money for toys you want in the future. When you want to spend money, think about the security of saving.
Too many people today are trapped in jobs they absolutely hate because they only have a savings account with enough money to feed the dog. What’s really cool is being able to walk away from a job you hate to do something totally new and interesting or have the time to figure exactly what you want to do. A substantial savings account allows you that liberty and flexibility. With a large savings account, you can pay for large-high items like cars in cash or significantly reduce your monthly car note to an astronomically low fee. How cool is that?
The second cool money trick is budgeting. To make a budget, write down all unavoidable expenses. Unavoidable expenses cover saving, food, shelter, transportation, medical needs and basic living needs. After listing unavoidable expenses, next list other expense such as credit card debts, loans and other bills of this type. Look at all your expenses and figure out if there are any expenses you are willing to get rid immediately. A prime example would be the cable bill. Cable is a luxury some people can live without but for some people having cable is like drinking water in the desert.
Once you have a list of your expenses, list all your sources of income and determine if you have an income surplus or deficit each month. If your total bills are $1000 and your income is $500, you have an income deficit. You are spending more than you make. If you’re spending more that you make, you need to make a serious commitment to reduce all unnecessary expenses until your financial situation improves. You may even want to consider getting a second job. If your total bills are $1,000 and your income is $1,500, you are in good shape. You have $500 as an income surplus.
Managing your wants and needs is the third cool money trick, which makes you aware of your spending patterns. In implementing any financial plan, it’s important to identify a need, a want, and a legitimate want. Budgeting will help you manage your needs. Here’s a great trick to manage your wants. First, realize it is a want. You can live without it. Don’t just give into your wants. If you continue to want something over a long period of time, use the first and coolest money trick and save for what has become a legitimate want, a want that keeps hanging on month after month, and sometimes year after year.
The fourth cool money trick is paying off your bills. Let’s say you have three loans or credit card debts: A school loan of $500 at 3% interest (someone co-signed on this loan with you); a credit card with a $1,000 balance at 13% interest; and a credit card with a $2,000 balance at 28% interest. First, you need to determine if there is any way you can reduce your debt without paying any money. Call your creditors and ask for a reduced interest rate based on a good paying history or a long association with the company. Negotiate for a lower interest rate. Keep on bargaining until you get something, even if the company only agrees to reduce your interest rate for a year. Take that offer and negotiate for a better deal next year. Managing your debt by getting a lower interest rate is cool money trick most people fail to use.
After you have the best interest rate possible on all your bills, next decide what bills you want to pay off first. The prominent thinking for a long time was to pay off the debt with highest interest rate, especially if it has a high balance. However, there are exceptions. Because you do not like the idea of another person’s credit suffering if for some reason you could not pay off the school loan with the co-signer, you decide to pay off the school debt. Since you have a $500 income surplus, write a $500 for the first month. Now, you only have two debts left.
Next, you should pay off the $2,000 credit card. Guess what in four months, not counting interest, this debt will be paid off. It is important to point out that if the school loan was $48,000, it would be more prudent to pay off other debts first. The cool trick to paying off debt is to target the debt you want to pay off and put all available cash on that debt. You pay the minimum amount on all other bills. For example, if in your second month of debt reduction, you get an extra $200, you would use that extra income to pay the $2,000 debt off earlier.
The fifth cool money trick is investing. Investing covers personal and financial investments. To invest in yourself, take a course in an area of interest that might produce additional income or personal satisfaction. Take a well-deserved trip. Have fun. To invest in financial ventures, contact a financial planner for expert advice. Many financial companies offer financial planning as a free service to customers.
If you use these five cool money tricks, you can better manage your debt and do many other cool things.