Thursday, December 27, 2007

Stop being a slave to debt

Okay, the last couple days, I posted some great deals that I thought might be of interest to quite a few of you. And I know some of you were wondering why I was encouraging you to spend money, when my blog is about saving money, right? Money is made to be spent and there is nothing wrong with that...our goal here is to help you do it wisely, and get the most out of each dollar you spend. My hope is that I can help you learn to master your money, and have it do what you want it to do and have the money work for you, not you slaving away for it. Whether it's getting that awesome deal or discount, or finding some way for the money to make more money for you, take control of it. In the relationship between man and money, ONE of them is going to be the master of the other...which do you want?

The easiest way to become a slave to money is through consumer credit. Yes, I understand that sometimes we need it (say to buy a house, or even a car, though we should aim for cash at least with our vehicles), but more often than not, we do not. We get trapped by it, because we want to have something now, and convince ourselves that we can afford the monthly payments. Then we promise ourselves, "we'll only use the card for emergencies", and pretty soon, that dvd rental and take out food is a dire emergency (I cringe every time I think of how much those pizzas I bought in college are still costing me). Then, when a REAL emergency arises, we are more often than not, stuck, because we're pretty much maxed out on our available credit. Barely able to make minimum payments, we soon find ourselves struggling to keep our financial heads above water.

So, how do we break these chains holding us a slave to debt? First, realize, it took you many years to get into debt, so it's gonna take some time to get out of debt...there is NO overnight, quick fix. You need to also make the commitment to stop buying on credit, so cut up your can't pay off debt, if you keep adding to it. The next step is to save...that's right, save. But, Steve, how is saving, going to get me out of debt? By helping to make sure you don't need to go back into debt. This is the part that often trips people up and discourages them. Save $1000 in a special account that is reserved for true emergencies - this way, when they do come (and emergencies will always happen), you've got the cash to pay for it, and you can start to break the cycle of going into debt. It seems like a lot of money (and it is), but you'll be amazed at how fast you can actually save it. My wife and I were able to save about $1500 in less than a year, when we started down our road to financial freedom, and we still made all our monthly payments on our credit cards, loans, etc. The trick is to pay the minimum payment on each line of credit, and put all your extra money into savings. We chose to put ours into a money market account (MMA) that we linked to our checking account. This way we could get to it in a day or two if we truly needed it, but it was hard enough to get to prevent impulsive spending of it...not to mention we were making a lot of interest on it, compared to a regular savings account (almost 5% compared to .5%). is an awesome website, that you can search, and find a list of really good MMA's, and what interest rate they are paying you on your money (this is the part where the money works for you). Just another way that SAVING MONEY is MAKING MONEY!

So to summarize, cut up the cards, and start saving some money. Does $1000 seem out of reach? Make your first goal saving $100 in an emergency account. The more you save, the more addictive it becomes...just develop the HABIT of saving. When you reach $100, make your goal another $100...cut it down in smaller steps, and have smaller victories to celebrate. Each goal reached will make it easier to reach the next goal. And remember, that light at the end of the tunnel, is no longer a freight train coming straight at you.


Adam said...

Great post! why $1000 dollars? Is any other number ok? Lookin forwardt o more posts.

Steve said...

Thank you for the comment, and thank you for taking the time to read my blog. To answer your question, there is no set amount...if you're lower income, you might want to make it $250-$500; if you're in a higher income bracket, you might want to make it $2000+. The goal is two get you into the habit of saving (and keeping it, not spending it unless absolutely necessary), and to have it when you do really need, so you don't have to go into further debt. When my wife and I first started changing our habits, we had about $300 saved up, and our washing machine died. We used the cash to buy a used one, so it lowered the amount saved, but we didn't have to go into debt to buy it. It also felt good spending it, because we knew we had it to spend...we weren't freaking out trying to figure out where to get the money or credit to buy another one - we had the cash in hand just for a situation like this. That is a big benefit as well, the peace of mind you have knowing you have some reserve to fall back on, if something unexpected happens - which it will. We just kept on saving, and eventually hit about $2000 in our reserve, before we started really hitting our debt, and paying it down (I'll cover that in an upcoming post).

Thanks again for spending some of your valuable time reading the blog, and I hope to continue to earn your readership.


Anonymous said...

Sound advice learned late in life. Savings is a great incentive and works to keep that monkey of debt off the back so to speak.

Steve said...

anonymous, please do not be shy...introduce yourself! :D Thank you for your comments! As for learning something late in life, all i can say is life is a learning experience, and the fact you learned it, means each day forward can be a richer one for you.