Did you know that April is financial awareness month? And in light of this we are dedicating this blog post to a few very important questions. How do you save for a rainy day when it is raining right now? And is it more important to pay off debt or to build up savings?
There are any people who do not have this problem. These people make more money than they spend and they save what is left over. Those people are blessed because the majority of the world today is struggling and does not have enough left over at the end of the week or the month to pay all the bills much less save and pay down debt. They are trying to figure out how to save and invest for future needs while enjoying their lives today and paying down debt that they have accumulated over the years.
The answer to the first question is you just do it. You may not save thousands at first but you have to save something so create the habit now no matter how small. Even if you are only putting $100 a month in your savings do it to create the habit. I recommend having your savings account at a different bank than your checking account to make it difficult for you to get to it. Try using an online bank like Ally, INGdirect or HSBC. When you need to get money from these accounts it will take 2-3 days to transfer it into your account which will make it harder for you to spend it. Do not have a debit card connected to your savings account. Pretend as if the saving account does not exist until you hit your goal. PNC bank has a virtual wallet tool that helps you track your savings and helps you figure out when you will get there.
Once you hit your goal reward yourself. Not necessarily by spending a lot of money but by doing something that really makes you feel good. Building a savings account is a big deal and if you accomplish it you should be proud of yourself. The import thing to remember is it will take some sacrifice. Sometimes you will have to tell yourself, your children, your friends and your family “NO”. You may not go to the old school concert or out to eat every weekend but you will be prepared when you need new tires or when the hot water heater busts.
Answering the second question is a bit more complicated. The Financial Advisor in me wants to lean toward my left brain and say pay down the debt because the interest is eating away at your money and you will never get 28% interest on any saving or investment vehicle. However, if you do not save more you will always have credit card and loan debt. You have to find a balance between saving and paying off debt. Focus on one loan at a time. Pay just over the minimum on all your other debts. Double or triple the minimum on the loan you will focus on first and put the rest toward savings. This way you are paying down debt while saving. Set a goal for the savings account and once you reach it adjust your plan by getting more aggressive with the debt you have left but continue to add to your saving.
Once you pay off the first debt go to the next one and do the same thing. Also, as you pay debt off take that amount and put it toward the next loan. For example, if you were paying $100 a month to HSBC once you pay them off take that $100 and add it to payment of the next debt you will focus on paying off. Stop using your credit cards all together. You should not close the accounts but if you need discipline I suggest you cut the cards up.
When you think about a comprehensive financial plan there are still other things to consider like paying for children to go to college, starting your own business, purchasing a bigger home and retirement. Juggling all of your life desires is daunting. How many ways can you split a pay check right? When you understand that almost every decision is a financial decision you understand that you have to be thoughtful and practical about the decision you make on a daily bases so that you can live the life you desire. It may not happen today but it can happen if you take your time, live within your means, refrain from using credit and create the habit of saving.
Of course all this is easier said than done when you want the Presidential Lifestyle but you have to do it or you will never truly have the Presidential Lifestyle. Remember Presidential is not about spending all the money you earn, keeping up with the Joneses or impressing anyone. It’s about living a peaceful and enjoyable lifestyle in the most time and cost effective manner.
Creating financial solutions…Now That’s Presidential!