An Emergency Plan, Do you have one?
Do you have liquid assets that can be tapped to cover interruptions in your income? Interruptions caused by loss of employment or a prolonged illness can destroy your financial future in short order. Statistically, most people will experience at least one period of debilitating illness or injury lasting 90 days or more at some point in their life. Medical expense aside, could your budget tolerate a 3 month gap in income? Mine sure didn't! In 2007, I experienced a medical problem that prevented me from working for two months. That really hurt my financial well being. I had saved up a few thousand dollars but that was soon consumed by my ongoing expenses. Bills don't take a time out while you get back on your feet!
These days, the standard wisdom of having three months income as an emergency fund may not be enough! Consider making that six months of expenses rather than income. Most families operate on a deficit spending plan and use credit to fill the gap. This is not only foolish but is a "head in the sand" viewpoint that will quickly lay you low if something unexpected happens. Sit down right now and really look at your spending patterns. There are hundreds of tools available on the Net, mostly free, that can help you analyze your budget and spot areas that can be trimmed or eliminated to bring your spending more in line with your income. Even a simple $.50 notebook will do. Just write down EVERY penny you spend for one month. It will blow your mind! I'm sure there are items that you spend hundreds of dollars a month on, a few dollars at a time, that could be reduced or eliminated. They get "masked" as "mad money" or "just pocket change" but they quickly add up to a significant amount if you stop to look. Quitting smoking can equal a nice car payment for example or can build a nice nest egg emergency fund. Do you absolutely "have to have" that $3-$5 cup of coffee from that trendy coffee shop every day or you can't function? Get real! It's a "status" thing and it is taking money away from your family that could be better used to get out of debt. You can get a decent cup of coffee from your local quick stop market for less that a dollar if you bring your own cup. I've been getting a 24 oz cup every day for years for $.89, including all the fancy creamer I can stuff in the cup.
The Credit Card Trap
Credit cards are the worst game in town. Credit Cards are the "New Slavery." Sure, you can "afford" those minimum payments now. What happens if you are out of work for an extended period? Do you know how long they "own you" if you make just the minimum payments? The average is 17 years! And, you will end up paying 2-3 times the original price for those things you could not live without. Now tell me slavery is dead!
It's about "following a plan."
There are a number of techniques that can be used to eliminate credit card debt. One I like is to look at all your credit card debt and start a log or spreadsheet to track them. Lay it out so that you can see: Who, Outstanding balance, minimum payment, interest rate and amount paid each month. Total the overall payments you make every month for all the cards. Now total only the amount needed to make minimum payments to keep them current and avoid charges. Subtract the total minimum payments from the total you pay each month. Is there a difference? If so, target the highest interest rate card and throw that difference on that card. Keep doing that until is goes to zero. Now cancel that account and destroy the card. I know this doesn't seem to make a lot of difference at first but hang in there, it gains momentum if you follow through. The next step is where it really starts to come together! DO NOT "blow the money" on other spending but instead take the money you were putting on that card and add it to the next highest interest card and pound it out of existence! This will happen much faster since you are "doubling up" on the payments. Keep doing this until you have eliminated all the credit card debt. It does not effect your overall budget since you are still paying the same amount in total each month. You are just doing it "smarter" than you were and eliminating debt faster. You are paying off your debts quickly and putting some order in your financial life. This process can have you out of debt from high interest credit cards in just a couple of years as opposed to their plans for you of "financial servitude" for the next 15-20 years.
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