As a result of continuously dropping home values, escalating healthcare costs, and widespread economic uncertainty plaguing the country more than before, it is the Americans who need to chart a new course with respect to their monthly household budget management.
So, if you are ready to stand up to these challenges, then you’ll have to act now and set a plan of action to meet all such financial realities with a brave heart.
A unique strategy to get your debts reduced
Here is a three step debt reduction stratagem to improve your cash flow, repay your debt and encourage yourself to build a more sturdier nest egg, thus enabling you to handle your monthly household expenses with great acumen that may have gotten you into debt troubles in the first place:
Step No. 1: Record all your monthly expenses.
As a first step to get your debts reduced, it is essential that you keep a record of all your expenditures for the past three months or so. This is to find out the avenues to where your money is going. Moreover, try to project out the total sudden expenses that you may have to bear for the year ahead.
Say for example, you’ll have to take emergency costs like auto/home repairs, vacations, gifts and so on into consideration to get the result. Divide the projected cost amount with 12 to have a rough estimate of a year’s total expenses. Compare your monthly income with that of your monthly outlay, keeping the overall yearly cost in mind.
Any surplus amount from there, will allow you to make debt repayments as well as contribute to your savings plan. However, if you encounter a cash crunch, then you’ll have to examine your expenses pretty closely and see if you can cut down on some unnecessary items to avoid that.
Step No. 2: Stop all sorts of credit card abuse.
In case you’ve piled up on a good amount of credit card debt, then you’ll have to stop all sorts of irresponsible spending habits in the first place. Repay the highest interest debt first, to avoid falling into the ‘minimum balance trap’.
You may consider consolidating your credit cards by transferring all the outstanding balances to lower-rate cards. However, if you want, then you can make your creditors oblige with rates that are being offered by his competitors. In addition to that, you can cancel all the cards barring the ones that carry the lowest rate of interests on themselves.
Step No. 3: Start raising your savings.
You need to make saving more enjoyable than spending. So, to do that you may have to open separate savings account with the same bank but for different purposes. Here are some of the accounts that you can open to build your nest egg:
• Household expense account – The funds here in this account will take care of your children’s educational expenses as well as for things like family vacations. This will be a lot helpful, even if you don’t have kids.
• Emergency expense account – Stay financially prepared to bear expenses that may arise out of unexpected life events. This account should, at the least, have three to six months of currently monthly income as savings. To achieve this target, all you need to do is contribute 5 percent out of your monthly income towards the account.
• Investment expense account – This account should be used for general or long-term saving objectives. Hopefully, you may have already been contributing towards a retirement savings account and along with that to a college savings plan.
Finally, the more adamant you are with your debt repayment resolutions, the sooner you’ll be able to save and even invest towards your future. Therefore, the key to slash your debt obligations is to control your spending, pay off your debt that’ll help you to begin gaining grounds through your savings.