Most people today are hopelessly mired in debt and find it hard to retrieve themselves and lead normal lives. Financial burdens can cripple a person and sap the life and energy out leaving you struggling to meet ends. More often than not, it is due to faulty financial planning or complete lack of planning, with haphazard spending habits, borrowing or using credit cards indiscriminately to allow debts to snowball and pile up. However, it’s not the end of the world, and you can still bring in a semblance of order and put your lives back in order. Here are a few ways to beat the system and lead a debt free life in the year 2013.
Save for a rainy day
Most people do not give a second thought to the idea of saving and creating an emergency fund that you can fall back on. Life can throw up some unexpected challenges that need to be handled deftly, and one cannot do anything unless a decent sum has been put away to take care of such contingencies. The first thing you should do is to create an emergency fund that will help tackle any such emergency that can arise unannounced. Forget borrowing more money and adding to the debt and start saving right away.
Make a detailed list of your payables
Budgeting never hurt anyone, and if you thought budgeting was only for governments and large corporations, think again. Even the smallest expenses one incurs can be neatly budgeted so that you know where your money goes every week. Make a list of the different people or agencies you owe money to and start making small payments towards every single debt you are tied down with. Especially if you have dues on your credit card, make sure you at least pay the minimum amount due to avoid further penalties by way of interest.
New expenses only for emergencies
Once you have implemented both the above, you are already on the right track. Now to in order to consolidate further, however tempting an offer may be, do not go for any new purchases or schemes as that will only defeat the purpose. Continue with the momentum you have created and maintain the payment schedules without burdening yourself with new commitments that will mean nothing but fresh debts. Spend that extra dollar only if you must and not for frivolous things.
Initiate the habit of investing
If you are not already doing it, start immediately. Invest at least 15 to 18% of your income in pre-tax retirement and Roth IRAs (a special Individual Retirement Arrangement) which is a good type of retirement plan, which is free of tax. Apart from the mortgage payments, if any towards your home, and the new emergency fund that you just created, this will be another major saving plan that will stand you in good stead in future. This saving is what will take care of you in your old age, to an extent.
Fund for the kids’ college education
Once you are already at the fourth step and initiated the retirement saving plan, it is now time to think of the fund you need to create to help junior get through college. If you haven’t started already, start now by putting away a fixed sum towards this important fund. Set yourself a goal and start saving, and the saving needs to be at least 10 to 12 percent of your income.