Outlaw FinanceEverything You Never Learned In School

Like many out there you probably spent more than you though while shopping back in December (I know I did).  It is now time to face those credit card bills and get yourself out of the hole.  Here are some steps you can take:

1. Develop a Budget

Start tracking your expenses, line by line, to see exactly where your money’s going each month. Cut back on your discretionary spending and apply those funds to your credit cards.

2. Set Realistic Goals

You can’t expect to lose 50 lbs in a month so don’t expect to pay off thousands of dollars of debt by the end of next month.  Instead make a realistic goal (an extra $50 a month to bill A) that you can stick with.

3. Plan Strategically

If you have more than one credit card , focus your biggest payments on the card with the highest interest rate. Once you have paid off this debt roll that payment (snowball) it onto the card with the next highest interest rate.  Keep doing this until you have paid off all your credit cards.

4. Transfer balances with Care

Consider transferring your balance  to a new card with a lower annual percentage rate as long as you can pay it off before the rate resets or it will reset at a rate equal to or lower than what you have now. Many cards offer extremely low rates for an introductory period, but make it up through high fees and a sky-high interest rates after a few months.

5. Save for Next Year

Once you pay off all those holiday debts start saving for next year.  There are many ways to do this.  Set a small amount aside from every paycheck into a special savings account.  Another way that I save is by putting all my extra change and cash it all in in early December.

Ask 100 people for money advice or advice on personal finance and you will get 100 different answers I can almost guarantee that.  Although you get hundreds of different answers many of them will contain at least one of the 7 items below.  If you follow the 7 rules below you will keep yourself out of financial trouble.

1.  Don’t carrying a balance on your credit card. Credit cards are great tools if used properly.  They are great for tracking your spending habits.  You can earn cash back or other rewards with rewards cards.  If you lose them you aren’t liable for purchases made (as long as you report them).  Carrying a balance means you are paying interest and when you pay interest in excess or $200 a month (as I am now) you realize that you are just throwing away your money.  Pay your credit card in full each month and take your cash rewards or points and use them.

2.  Start saving now. Compound Interest is the most powerful force in the world.  The sooner you start saving the longer your money has to grow.  $1000 invested for 40 years at 8% interest grows to $21,724 years.  If you wait 10 years you need to invest $2150 and then you are still have $90 less.  So start saving now and let interest work for you.

3.  Don’t miss out on free money. Most companies that offer a 401(k) offer a company match.  Now I have seen some matches that aren’t that great and others that are outstanding.  My friend worked for a company that matched 1/4% for every 1% he put in up to 2%.  Basically he had to commit 8% of his salary and they commited another 2% for a total of 10%.  On the other hand McDonald’s has a generous 401(k) that alows some managers to recieve 16% from the company for investing as little as 5%.  Whether you match is dismal like my friends or great like the McDonald’s one it is still FREE MONEY.

4.  Pay yourself first. Don’t wait til the end of the pay period or month see how much you have left and then commit that to savings.  Instead set up an automatic savings plan.  Set aside a set amount each time you get paid and have that transferred into a savings account.

5.  Don’t trust friends or family if the bank doesn’t. If a bank is asking for a cosigner on a loan it means that the person asking for the loan either has shotty credit or doesn’t make enough to get the loan themselves.  If this person doesn’t pay the loan the bank comes after you.

6.  Driving upside down/rolling cars into each other. Vehicles are an asset that do not appreciate.  In fact they depriciate at an incredible rate.  Always try to put down at least 20%.  Also if you are upside down on your car don’t trade it in on a new car.  Why would you add 1000s of dollars to a loan on something that won’t even be worth what the “sticker price” was once you drive it off the lot.

7.  Ensure to Insure. Make sure that you carry enough insurance not only on your car but also on your homeowner’s/renter’s policy.  God forbid you get in an accident or something terrible happens at home and you don’t have enough insurance to replace/fix everything that was damaged.  Also make sure that you are properly insured both life insurance and medical insurance.  You don’t want something to happen to you and your family be loaded with hospital bills or left high and dry if you don’t have life insurance.

These simple steps will get you on the road to financial freedom.

While creating a budget is not my idea of a fun Saturday night budgets are an integral part in getting your finances in order.  Before you do anything you need to know how much money you have coming in every month.  All you need for this is your pay stubs.  Also if there is any other monies coming in make sure you account for them as well ( IE child support, alimony, settlement payments, and interest).

Next we need to figure out where our money is going.  To determine where your money is going gather up as much information as you can: bank statements, utility bills, credit card statements, Etc.  You want to gather as much information as possible so that you can get an average of what expenses you are paying out each month.

Make two list of expenditures fixed and variable.  Fixed includes things like mortgage or rent, car payment, minimum credit card payments, utilities etc.  These payments are payments that you have to make every month.  Variable expenses include gas, groceries, entertainment etc.  Variable expenditures are important as this is where your “extra” cash is going to come from.

You have now created a budget and know where your money is coming from and going out.  Hopefully your income is greater than your expenditures this will make getting yourself out of debt a little easier.  If you are spending more than you have coming in you are going to need to drastically change your spending habits if you want to get out of debt.