Are you paying interest or earning interest? This could very well draw the line between the rich and the poor. The poor pay interest to others. The rich earn interest on investments. Which camp are you in? The Bible says the borrower is servant to the lender. How much of your monthly income goes to debt payments? What interest rates are you paying? There are real consequences to paying interest. Money spent on paying interest is money that could be used to earn interest. If you find yourself paying more interest than you are earning, below are some tips to help you get on a better financial path.
- Have an Emergency Fund. Many people go into debt because they have no plan for life’s emergencies. Cars and appliances break down. Medical expenses can burst onto your financial radar. The unexpected will occur in your financial life. A $1000 emergency fund is a good start as a defense against going further in debt. Put it in a separate savings account that can be linked to your checking account. Not having an emergency fund will result in you borrowing money through credit cards or other loans. Take action today to start saving toward your emergency fund. Sell something. Take a second job. Just saving $50 a month is sufficient enough to get you moving toward the $1000 goal. It’s okay to start small. Use your income tax refund. This is step Number 1 in the war against acquiring new debt.
- Eradicate Debt. Your debt payments are consuming your opportunities to earn interest. List all of your debts, their balances and interest rates on a spreadsheet. List the debts smallest to largest. After this exercise you are to throw all your money paying off the smallest debt. This is a practice called snowballing that is encouraged by finance guru Dave Ramsey. Once you pay off the smallest debt you throw the payments you put toward that toward your second smallest debt. You continue this practice until all your debts are paid (except your house).
- Get On A Budget. To some people the word ‘budget’ sounds constraining. However, if you don’t tell your money where to go you will wonder where it went. There is a great free budgeting program available at EveryDollar. This program is very user friendly. You can set up your own budget in 15 minutes. All you need to register is an email address and a password.
- Start investing on a small scale. You can invest with as little as $50 a month. A good place to start for beginners is Betterment. You can choose how much to invest in stocks or bonds with just the click of a mouse. You can link the site to your checking account and choose what day of the month you want the money drafted out. Once you get to $3000 balance I would recommend selecting a mutual fund with Vanguard. I would recommend you get serious about educating yourself about investments because nobody should care more about your money than you. For more information on other options for beginning investors click here. Follow the above steps and see how well you can begin earning more interest and paying less! Good Luck!