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Hello and welcome to DrFrugal.com. If you've ever had the unfortunate experience of trying to find information online that has anything to do with money, you know most sites are worthless because they're trying to pawn something. Not here--there's nothing to buy. I've tried my best to only include pragmatic, realistic informtion to help you lead a simpler life by taking care of your personal finances.
We just can't seem to get it right, can we·
The "we" in that sentiment is the general public, the masses and just about everyone who collects a paycheck every week or two.
The "it" focuses on saving money, specifically having a budget and spending accordingly with the ability to put an emergency fund together so that you can save for unexpected expenses, that rainy day or something as important as retirement.
So why is it we can't save money·
Before answering that question, the cold, hard stats should be equally addressed. Less than half of the population in the United States is saving between five and seven percent of their income, money that should be used for a savings account. The general rule of thumb is that you should be saving about 10 to 15 percent of your salary with every paycheck.
And sadly, we're not even close to that number or the total percentage of people actually able to save anything at all.
Financial experts can bat around this theory about saving money and budgeting all they want but two key contributors are what drive our ability to save: automatic deductions and the economy.
If you want to save money, you should make it a point to put aside that 10 or 15 percent automatically with each paycheck and then stop thinking about that money altogether. You have to act as though you don't have it whatsoever, almost as if paying yourself that percentage is like paying another bill. You wouldn't ask Verizon for their cell phone bill back so why should this be any different·
Economically speaking, the better the economy is the more we tend to spend, so the minute you start feeling overconfident about your financial situation, you have to reign in that propensity and penchant to want to forget about counting pennies and instead start spending and charging at a moment's notice.
The lack of a savings account or emergency fund only adds to the plight put forth by those who are trying to save. The proverbial "catch 22" is that if you don't have money to put aside because you have to pay bills, then you can't even think about having a savings account and thus the struggle continues.
The only way to have money to put aside is to rethink and retool your budget so that you can cut expenses and start having money leftover to save. The budgeting part of this equation has to be recognized as the real catalyst to catch up what time you've lost living at or beyond your means.
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As much as we opine about money, we agonize over saving it and wonder aloud why we don't have more of it, all of our financial goals and dreams are at our fingertips if we actually come to one very important money saving realization.
It really isn't that hard to stay out of debt. Now, I realize we're saddled with plenty of cliches and jargon as far as debt goes, such as "you have to spend money to make money," but this isn't about a rich investor or a home buyer that has gone into business purchasing property but rather the individual, the couple, the family that is trying desperately to save money and live comfortably, versus the alliterative and that is going from paycheck to paycheck and hoping to make rent or mortgage and keep the bills afloat from one month to the next.
The fact remains that staying out of debt is more about understanding two elements of saving money: budgeting and subsequently living within the means of your income.
Debt truly surfaces because you want more than you can actually afford (i.e. keeping up with others) or you have no idea what you're spending and then when it comes time to pay bills or look for money for emergencies, you realize that you don't have anything saved due to the lack of a budget and spending too much, and thus you start to dip into credit cards, lines of credit or borrow money, when all the while you could have been saving your own.
The budgeting part is quite easy, although it is truly remarkable just how bad we are at it, as a whole on average. Budgeting is the simple act of knowing what you spend versus what you make but just having an idea of it isn't good enough. You have to write this information out, have plan and know down to the very last dollar what you are earning and if you can afford a certain amount for a mortgage, car payment and other expenses that might be out of your pay grade at the moment. A budget also allows you to cut expenses that are either too high and don't justify their value (i.e. cable television) or figure out areas of it that you can cut back and alter slightly to save.
Debt is everywhere and with that comes temptation to spend, or in this case overspend. When you realize that budgeting and smart decisions aren't difficult and yet are the backbone of saving money, all the financial freedom in the world will be kindly waiting at you doorstep.
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As much as anyone from financial advisors to friends will tell you their method of managing and paying off debt, there really is no right answer.
Think of it like a math problem from school, and how some teachers would dock you points for getting the right answer but the way you got there (the infamous showing your work) wasn't how you were taught to do it by said teacher.
At the end of the day, as an adult who is trying to manage debt and budget properly, the most important element of credit cards and unsecured debt is paying it down and eventually off. How you get there really doesn't have the proverbial right answer.
But there are, in fact, some strategies that are universally lauded as being fairly spot on for how to manage debt. Of course, budgeting will always reign supreme as far as debt is concerned because the two go hand in hand.
Those who aren't afraid to tackle debt, and that simply means writing it out to see the big picture, know that their budgeting and going without and managing expenses versus your income, so that you can focus on paying more than the minimum payments, is key.
The best method of debt control and paying it off starts with the reverse pyramid effect. You start with the balance that is the one with the highest interest rate, and then you begin paying on that first, over and above the minimum. As far as the other debt is concerned, you pay the minimum on that until that first balance is paid off, then move on to the next highest interest rate in terms of credit.
Another way of looking at debt is focusing on smaller balances with high to medium interest rates and paying them off first with the most money leftover after you budget. This allows you to see progress being made, which goes a long way to help that feeling you have that you'll never see the light at the end of the tunnel. For some, they can't continue to pay and not see any results, so this method of debt repayment shows that there is hope.
No matter which path you take, know this: the budget has to run parallel with your debt repayment goals. You can't have a budget that is even, meaning your expenses are covered just barely by your income. That simply means you're allowing yourself to make nothing more than minimum payments on your credit, even though you're missing out on how to maximize your repayment plan altogether.
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What's the first thing that comes to your mind when you talk about borrowing money·
For starters, you're probably start to think about the idea of asking a friend or family member for money more so than actually borrowing in the traditional sense, such as a car, home or another purchase that requires you to ask a bank or financial institution or lender.
Borrowing money can be a good thing, as in the case of the aforementioned examples, when you have transportation needs or want to invest in a house. Most of us don't have $30,000 lying around for a car or another few hundred thousand for that home.
So, borrowing always is the necessary choice.
But sometimes, borrowing can be bad and extremely ill advised.
Most of that centers on two major points: unsecured borrowing and borrowing for something that wouldn't be deemed a necessity.
As for the former, unsecured borrowing means you have nothing as far as collateral for the loan (i.e. you can't tie it back to something like a car or home). This mostly is credit card debt, but borrowing in this fashion is even more atrocious if you are using that borrowed money for day to day expenses or paying bills. That is more of a red flag that you need to budget differently or rethink how you're spending.
Besides never borrowing money to pay bills, you might want to consider against borrowing for something like a wedding or to go on vacation, which fits into the latter representation of borrowing when you really don't need to.
Weddings are often a place where young couples begin their foray into debt rather quickly with nuptials that cost in upward of $40,000 or $50,000, a large number and one that isn't going to be easy to pay back. That sort of debt seems more fitting for a down payment on a house or putting it in a savings account for just such an emergency. Even using that kind of cash would be better served as student loan debt in order to go back to school, get a Masters degree or something of that ilk versus having one day, albeit an important one, responsible for that lump sum of money counting against you and your new spouse so quickly after you get married.
Vacations are another unsecured pratfall for the majority of people, mostly because you argue that you can either afford it or you need it, so going into debt or borrowing money to go on a trip is justify the stress relief it provides. That can't be argued but when you come home that first payment or credit card bill is going to find you at some point, so the stress factor is a moot one.
Borrowing money often can't be avoided but can be prevented as far as doing it too much and without the right reason behind the move.
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