10 Simple Tips To Help You Invest In The Stock Market

It usually turns out that doing things as simply as possible is better than allowing intricacy and details to complicate our lives. Simple strategies give us the opportunity to sort things at a basic level and know them from the inside out. Based on this easy principle, here are 10 very simple things that every investor needs to know about the stock market:

1. Moves and Counter Moves Determine Price Trends.

When a stock either goes up and remains there without going down for a period of time or goes down and remains there, it is considered to have made a move. After the move occurs, if the stock price moves in the opposite direction again but not as far as it moved the first time, that’s considered a counter move. Uptrends hook up with the bottoms of counter moves while downtrends are at the top edge of counter moves. A stock trend happens in a series of moves upward interspersed with smaller, shorter counter moves downward. While this trend is occurring, investors are able to draw a line between the lows created by the counter moves and still see the line slant upwards overall.

2. Inevitable Changes in Irrational Valuations

Stock prices that are much higher than the estimated earnings potential of the company are known as irrational valuations. What the market strives to do is determine what a company’s future worth will be. Therefore, rational stock prices are based on what the future earnings expected of a company are presently valued at. When stock prices are irrational, you can expect them to change as the behavior that caused them is modified.

3. Sometimes Irrational Behavior Lasts Longer Than You Can

Short term mistakes happen in the pricing of stocks. Although the market is usually very efficient in the method it uses to set prices, don’t take this to mean that prices will always be set correctly. Prices are often based on the emotions of the investors which are never rational as far as stock trading is concerned. If the market stays irrational for a longer period of time than expected, all of those who have invested in a stock stand to lose. The wisest course of action is to go with the flow of the market, because it will always be right.

4. Buyers Have Control with Rising Bottoms

Counter moves that rise left to right over time on the stock charts are indicative that buyers are controlling the market. If you wait until such times when the buyers are in control like this, you will have much better success with the stocks you invest in.

5. Sellers Have Control with Falling Tops

Whenever you see highs of counter moves falling from left to right over a period of time on the stock charts, you’ll know that the market is being controlled by the sellers. If you want to be successful when shorting stocks, wait for a time when the sellers are controlling the market.

6. Uptrends: Slow Starts and Quick Ends

It takes a while for a bull market to develop, due to the skepticism that is inherent amongst investors. Eventually people will start to gain the confidence they need to start investing, and the trend upwards will pick up. The end comes quickly, however, because when too many investors start buying a stock, the price will skyrocket to irrational levels that will force an immediate downward trend to correct the situation.

7. Downtrends: Quick Starts and Slow Ends

As stated above, downtrends start quickly as a way of correcting irrational prices. Luckily, however, the downtrend will moderate over a period of time as the trend flattens out and more rational pricing appears. What started as a deluge ends with a trickle.

8. Give Trends a Chance to Reverse Themselves

When the market starts showing irrational behavior, investors get nervous. They realize that something is going to change in order to correct the problem. It’s always wisest to give trends a chance to reverse themselves before selling. After all, it only takes a few seconds to sell when you execute a stop loss order, while trend reversals will take considerably longer to start.

9. Avoid Stock Information that is Already Public

Never forget that by the time a company makes an announcement that their business fundamentals have changed, the knowledge has already been acted upon by those in the know. Positive public information always results in a stock price surge as less-savvy investors rush to take advantage of it, but it’s really already too late to cash in big by that time.

10. Abnormal Activity Means Something is Taking Place

In order to score big in the stock market, you must trade on information that hasn’t yet been made public. Do your research and act on inside knowledge. Every company has people who know what’s going on prior to the information being announced publicly, and when they act on their knowledge, it shows up as abnormal trading activity which you can use to get in on the action.

Investing in Gold and Gold ETFs

Investing in Gold provides a sense of security as it is tangible unlike many other financial products which are intangible. Gold prices are purely determined by supply and demand and less likely to fluctuate wildly. There are many time tested advantages of having gold as an investment:

  • Safety: In volatile and uncertain times (as seen recently due to recession) Gold provides safe haven as there is no default risk. Gold has its own intrinsic value.
  • Brings diversification and stability to a portfolio: the forces acting on gold are different from those acting on other financial assets. Most of the time it is negatively correlated to stocks and bonds.
  • Highly liquid and portable: Gold can easily be converted to cash and vice versa, prices are internationally determined.
  • Tool against inflation: Irrespective of market cycles the purchasing power of Gold stays intact over a long period of time. It’s better to keep your cash in the form of gold.
  • Less regulatory intervention: you don’t have elaborate disclosure norms for gold as it is for many other asset classes. Gold can be a very private investment.

Diwali is an auspicious time for buying Gold and it should be used wisely to invest. But there are many ways to invest and it can be a daunting task. Let us see the pros and cons of  the options you have:

Jewelry:  It is one of the oldest forms of investment which also has some amount of pride and honor attached in Indian families. It is something you can use and enjoy but at the same time it keeps appreciating in value. But the price of jewelry is usually marked by anywhere between 20 to 200% depending on the complexity of design. This makes it unattractive as an investment.

Gold bars and coins: Gold coins and bars are increasingly becoming popular not only as investments but also as gifts. But they have to be physically stored which can be a security nightmare. You might have to incur extra cost in renting a bank locker or insuring your possession. Moreover you have to be careful about adulterated and fake ones. There can be a substantial difference between buy and sell rate of gold coins and bars.

Electronically traded Funds: More popularly known as ETFs are open-ended mutual fund schemes that invest the money collected from investors in standard gold bullion (0.995 purity). The investor’s holding is denoted in units, which is listed on the stock exchange just like a share. It is expressed as NAV (Net Asset Value) which represents the price of one unit (equivalent to 1 gram gold) on that particular day.

These are many advantages of ETFs vis-à-vis physical gold when seen from an investment perspective:

a. No need to worry about the security and storage
b. No need to worry about quality of the gold
c. No need to worry about resale as the exchange provides comfortable liquidity (just like shares)
d. No making charges
e. You can invest very small amount of money (minimum 1 unit) which is not possible in case of jewelry and coins/bars.
f. No wealth tax. Long Term capital gains just after 1 year whereas it is 3 years in case of physical gold.

ETF is a tax smart investment as well.

5 ways to make your children financially smart

1. Make your child understand the difference between needs and luxuries

Children need to understand that they can still go on without cool gadgets, designer accessories but not without essentials like ‘Roti, Kapda aur Makaan’. Hence they have to prioritise accordingly. Sit with your child and help him prioritize according to needs and luxury. Once this concept is clear your child will transform into a better decision maker.

2. Set a goal for your child and help him achieve this through a budget

Goal setting is easy enough in today’s materialistic word. Sports equipment, a gadget or an item of clothing, motivate your child by setting a goal and encourage him to earn this through household and other chores. Make him draw up a budget from what he earns every week and show him how to save from this. Definitely reward him with something extra (besides his goal) the first couple of times, so that he is geared up and excited about the next goal and starts planning – the secret mantra to financial happiness. This will also help your child become competitive in life and be focussed on goals.

3. Understand your child’s money personality

He could be a spender by nature. If so, you can guide him early on to curb this by encouraging him to not keep too much cash and ensuring that it is not easily accessible. If he keeps borrowing money from his friends then this could be a warning signal. Later on he could get into a debt trap. You can counsel him and also understand the source of his needs.

4. Involve your child in day to day financial activities

Entrust him with the responsibilities of paying bills i.e. going to the collection centres and paying the bills through cash or dropping a cheque. If he is not old enough than at least take him along when you are doing this exercise. It is a good way for him to learn that life is not just an ATM machine, you got to pay as well!

5. Open a bank account for your child and make him operate it

Buy your kid a piggy bank when he/she is very small and encourage saving for achieving his little goals. Open a bank account when he grows up. This the best way for him to understand how money grows, what interest is and how financial institution like banks work. You should opt for a joint account as it will give you the ability to oversee what your kid is doing. Step in whenever you think that he/she is going off track and try to rectify the situation by helping him with basic financial concepts mentioned above.

Use this Children’s Day as an opportunity to gift financial literacy to your child. In the long run this will be more valuable than anything else.

What is Financial Planning?

Financial planning is a process of setting goals (For example buying a house/car, child’s education/marriage, retirement corpus etc), assessing income, assets, investments, expenditure and liabilities, estimating future financial needs, and making plans to achieve them. There are many elements which are involved in financial planning, including budgeting, investments, Taxes, estates, retirement, insurance etc.

Financial planning plays a crucial role in helping individuals get the most out of their money. A good plan can help in creating long term wealth and provide considerable immunity against fluctuating economy. It also provides protection against the unexpected events like loss of income or major illness. Financial Planning is different for different people and depends highly on income level, age, risk appetite, responsibilities etc. What suits one person may not be suitable for another. However there are some components which remain common across plans.

Investment planning:

Planning, creating and managing capital accumulation to generate future capital and cash flows for achieving pre-determined goals and spending

Insurance Planning:

Managing cash flow risks through risk management and insurance products

Retirement Planning:

Planning to ensure financial independence at retirement including PPF,EPF and other pension plans

Tax Planning:

Planning for the reduction of tax liabilities and the freeing-up of cash flows for other purposes

Estate Planning:

Planning for the creation, accumulation, conservation and distribution of assets

Liability Management:

Maintaining and enhancing personal cash flows through debt and lifestyle management

Many individuals choose to use the services of financial planners to help them reach their goals. A qualified planner can help you navigate through the whole process by virtue of his training and experience. Before you use the services of a financial advisor go through this article: Do you have the right financial advisor. A basic financial plan can also be created by referring to self help books and online resources.

People often delay planning for the future. In good times the value of a plan is not realized but it seems so logical when some unfortunate event happens. Do not procrastinate something as important as this. Start with creating a budget. Prepare a budget and track your monthly expenditure. It will help you find ways to trim or even eliminate unnecessary or out-of-control expenditures.

Start now!

The Real Face of Company Fixed Deposits

These days, there has been a lot of talk around the street and every debt investor is considering company deposits as an investment option. There are reasons behind this rationality. Fixed deposits rates offered by various public sector banks is 6-6.5% per annum which is often called bank fixed deposits where as private companies are offering 8% per annum to its investors. Interest rate on fixed deposits mainly depends on the RBI policy rate actions and the riskiness of the sector to which the company is belonging

As a financial planning advice, one should not blindly get into fixed deposits offered by these companies . One must understand the various risk factors associated with this investment instrument.

What is fixed deposit offered by Companies

The companies offer fixed deposits products in order to build a capital for the company in long term when the company needs capital for its expansion plans that may be foraying into some other sector which may prove risky for the company and its investors. Generally, the interest rates of fixed deposits offered by companies are high as compared to bank fixed deposits interest rates.  The interest income is paid on a monthly/quarterly/half yearly/yearly basis or on the maturity of the fixed deposit. As interest incomes are paid on a monthly or on quarterly basis in most of the plans, which means there won’t be any capital or principal amount appreciation.

One school of thought says that fixed deposits are meant for conservative investors who have low risk profile but investing into company deposits requires some research and due diligence just like you need some research to be dome before buying a stock of any company.

Benefits of investing in Company Fixed Deposits

  • High Interest Rates as compared to other debt products
  • Lock in period of only 6 months for most of the companies
  • No TDS is deducted when interest income earned by an individual in a financial year is less than Rs 5000
  • Investor has the option to diversify his portfolio in fixed deposits offered by companied belonging to various sectors to diversify his risk

Are Company Fixed Deposits risky?

In simple words, unlike the bank fixed deposits, there is an element of risk attached with this instrument. Higher the rate of interest offered by the company fixed deposit, the higher would be the risk attached with this investment option. These company deposits have only got a reputation or public image which assures the investors of the future payments in terms of interest and the principal amount.

Tax Implications

Interest income earned by company fixed deposits is taxable. So it becomes lucrative option for investors who comes under 10% tax bracket as compared to individuals coming under 30% tax bracket.

Finally, Is it for you?

It all depends on the risk profile of any investor. But from the brief analysis which we have done, we can make out that one should not have more than 10% asset allocation to company fixed deposits for a individual who have high or moderate risk. There is also a need of diversification by spreading risk by investing fixed deposits under 4-5 companies. Secondly, one must check the Credit rating of the fixed deposit. It is a very important indicator which highlights the underlying risk of the company. It shows the ability and willingness of the company to pay its debt obligations in time in the form of principal and interest payments. CRISIL and ICRA are always one of the preferred rating agencies by institutional investors. AAA rated instrument shows highest level of safety followed by AA and A. Generally AAA rated instrument will have least rate of interest as compared to a instrument which is rated lower than that.

What is a mutual fund, a simple explanation

The most popular & simplest way to invest in equity market and earn returns more than 8% returns which is a normal PPF or Fixed Deposit rate is of course Mutual funds but a very few people know the purpose of this instruments or know how does it work. There are around 40-50 mutual fund companies offering around 1000 different types of fund, a retail investor becomes confused as to is he doing right by investing in mutual funds & he does not have an idea what should he choose.

What is a mutual fund?

Suppose there are 100 people who have little knowledge about investing want to invest in equity markets but they want to invest only Rs 1000. Now they have also learnt from media and by reading newspapers that one need to invest in different stocks and stocks from different sectors to diversify their risk and also maintain an asset allocation between debt and equity. They have also learnt that just like a doctor take care of a person’s physical health, they realised the need of fund manager to take care of their financial health, i.e their investment money. Now with Rs 1000 it is impossible for them to invest in shares of 15-20 companies and also invest in debt. Just to support with an example, they can’t buy Infosys of Rs 3000 with his investment amount of Rs 1000. Even all other 99 investors are also facing the same problem. So all 100 investors decided to pool in their money of Rs 1000 each and make it lump sum to Rs 100000 & gave it to a professional fund manager to manage their investments in different stocks and debt. And the fund manager decided to charge a nominal fee for his professional services. By this, the investors were able to diversify their portfolio and also get professional advice. Now, this fund managed by professional expert is known as mutual fund.

In all mutual funds schemes, there are units allotted to an investor unlike number of shares allotted to an investor in company. So if someone wants to invest Rs 10,000 in one of the schemes of a mutual fund and price for a unit is Rs. 20, he gets 500 units of that particular scheme of mutual fund, and as the equity market grow, the mutual fund investment grows and thus his per unit value grows which is called Net asset value (NAV) which you read in various financial dailies & on money control website.

Benefits of investing in Mutual Fund

Now talking about the benefits of mutual fund investment. The biggest advantage is the Diversification by which you are able to invest in various stocks across various sectors. He therefore minimizes his risk by dividing his investments in many shares of various sectors. There are also categories of fund, i.e balanced funds by which you are also able to diversify your portfolio in equity as well as debt.  Another advantage of investing in mutual funds is that the investor gets investment decisions from an expert and the cost of managing funds is minimal and one can liquidate his invest anytime apart from ELSS schemes where the lock in period is 3 years from the date of investment.

A fund manager can invest their corpus in different type of financial instruments ranging from shares, debentures, gold, FD, money market instruments and can maintain some cash also during bad economic times.There are two categories of mutual funds.

1. Open-ended: One can buy and sell mutual fund at any time

2. Close-Ended: Buy and selling points are restricted for some time.

What is NFO?

NFO stands for New Fund offer. Any new mutual fund which is offered to the public for investment is called NFO. Generally, NFO’s are more risky than the existing mutual funds as they don’t have any past record of performance or the track record of fund manager efficiency. One must avoid NFO even when they are highly publicised by the mutual fund companies and by the media.

8 Lessons Warren Buffet Did not Teach Me!

Today marks the 10th anniversary of the day when my portfolio had breached the negative 50% mark. In next 30 days it went further red to negative 77%.

What did I learn from this carnage in my portfolio:

1. Never invest in an IPO

I had “invested” in most of the IPO between 2005 to 2007. I lost money in almost all of them. I was in my first year of MBA. All the companies vanished from the placement season. I saw 23-24 year old people cry when they missed out on the 1-2 companies that did come. It gave me so much perspective in my life

Lesson: Invest in businesses and management who have a proven track record. Managing a company when it is private vs when it is public are 2 different things.

2. Always watch for beta

I caught Jai Corp before it hit 33 straight upper circuits. I had Unitech before it had split 3 times. I had SESA Goa at cheap valuations. I made a killing in RPL and RNRL. I lost everything in March of 2008 and then in Sep 2008.

Lesson: Today I follow the beta of my stock like it is a laxman rekha.

3. Return of capital is more important than return on the capital

I wanted returns and fast. Market gave me both. And then took away everything.

Lesson: Risk management is way more important than return management.

4. Equity is not everything

Every building must be built on a strong and rock solid foundation. I was 100% in equity because they told me young people should invest in equities (I was 23yrs old).

Lesson: Today my target is more to find a decent fixed income product over an exciting stock. PPF, Bank FD, and NCD – I want them to be my base.

5. PE sucks

High PE means the market is giving a premium to the future earning

Lesson: Never ever look at a PE ratio. It is for suckers.

6. Profit is the key. I want to see the bottom line

I always looked at the Year-on-Year Sales growth and profit growth. If this number beats the estimate, it is a buy.

Lesson: I bought the book by Damodaran. Learnt valuation. Learnt financial statement. And most importantly learnt how to read the notes. I attend almost all the analyst calls. I talk to store managers at grocery shops on sales. I talk to moms and cooks of what they like to use in kitchen and why (this is how I got into TTK in 2011). Never watch CNBC TV18.

7. What is the most important thing in a company?

Profit? Cash flow? Business model? Market share? Valuation? I was told it is something on these lines

Lesson: The most important thing is management. Ethical, honest, smart and hard working management beats every other metrics by a mile. Find a company with good management and you are set on your retirement.

8. The best trade advice will come from real people, not experts

Never underestimate the knowledge a simple store owner can give you. I was shopping for my underwears in Delhi. I asked the owner why Hanes stock is kept behind and jockey in front. He told me “sabko jockey hi chaiye”. I had no idea Jockey’s parent was listed. I bought page industries just because I had a chat with this shop owner in 2016.

Lesson: I prefer to shop from a small shop and not from big stores. Small shop owners open up to the ideas that are selling in the market.

Have these lessons helped me ace the markets?

No. I have under-performed the index for straight 3yrs now. I still buy garbage. My portfolio is not even close to perfection. But I now respect the market. I don’t ever think it will give me return because Indian economy is growing. I am an eternal student now.

Some books I recommend to those who have been in similar situations are listed below.

1.Principles: Life and Work8 lessons warren buffet did not teach me! 1
2. Zero to One: Note on Start Ups, or How to Build the Future8 lessons warren buffet did not teach me! 2
3. The Intelligent Investor (English) Paperback – 20138 lessons warren buffet did not teach me! 3

Mutual Fund Diversification: To Do or Not To Do?

Many a time people ask me why would you only recommend 3 to 4 funds when there are so many on the offer! Questions like are you mad? Why can’t I add further 4 to 5 funds after all I am trying to do is to diversify/ spread my risk? Well, diversification to say is good to have but diversification beyond a point is actually bad for your portfolio.

Let me narrate you a short incident that you will be able to relate well. Recently, I had been to my friends’ marriage ceremony. They are a business class people so the occasion was bound to be a grand one. When I approached the eating counter with one of my friend we were amazed to find around 50 plus different vegetarian menus on the block and a further 20 such delicacies in the non vegetarian section. I can’t even remember their names well and most of the dishes were quite alien to me since I had never tasted most of them. This triggered a sense of exploration for my friend. He got ecstatic and wanted to taste most of the dishes on the offer – so in the end he had around 10 to 15 such dishes on his plate. He tried hard to enjoy them all. But, all that my friend could do was he wasted most of the food items as all of them got so mixed up that he could not relish any of the dishes well.

Reason is simple –  he over-diversified his plate and therefore could not enjoy the food well. This is what most investors do. They try to buy most of the funds in order to get the most out of it. But hang on are you really doing it right. It is actually a matter of diversification. Adding multiple funds in the idea of diversification can actually dilute your performance and overall returns. Keeping things simple is really important – your tax calculation, your interest rate calculations etc. Plus having more funds like 8 to 10 in your kitty will be quite an uphill task for you to track and manage your portfolio performance well.

Would you be really interested to repeat such mistakes in your portfolio? In the end all we want is returns and an easy to manage portfolio just like a plate of few delightful foods that we can savor and enjoy to the maximum.

I have always been choosy so I just picked those dishes which could satiate my hunger buds and gleefully enjoyed the dishes to the most. The investor needs to understand that in order to derive the maximum returns from your portfolio all you need is simplicity. So the next time when you hear the story of a new fund launch or a fund that has recently started SIPs etc. Think about it for a second are you really buying it for the sake of spreading your risk or is it otherwise. So don’t go overboard in the name of diversification. Till then Happy Investing.

4 Easy Ways to Avoid Being Conned

Recently I drove past a couple of young men who were standing beside their car, which was parked in a right-turn lane near a gas station. They’d placed a red plastic gas can on the car’s roof, and they called out to passersby, asking for help.

Amazingly enough, those very same gentlemen were in the exact spot two days later. What an amazing streak of bad luck, hmmm?

Ahem.

I’m usually a fan of trusting your gut, but our guts are a little too naïve when it comes to con artists. “Con” is short for “confidence,” because these scamsters are experts at winning yours—at overcoming your suspicions, quieting your fears and giving you reasons to believe in them.

Here are four easy ways to avoid being their next victim:

1. Don’t click on links in emails. Emails purporting to be from your bank, your credit card company, PayPal, eBay, your best friend or any other source could be from con artists hoping to crack your computer—or your bank accounts. If you receive any kind of email alert that seems to require action on your part, open a new browser window and type in the address of the site yourself, or call the company on its toll-free line. Install, update and run antivirus and anti-spyware programs to prevent your computer from being taken over by others.

2. Don’t wire money to strangers. There are countless variations on counterfeit check scams, but they usually involve your depositing a legitimate-looking check and then wiring some of the money back to the scam artists. The bank will credit your deposit at first, before discovering it’s a fake, and then will take the money back out of your account—even if you’ve already spent it. Any transactions that bounce will be your responsibility; the bank owes you nothing.

3. Don’t open your door to a stranger. The risks to you are simply too great, and you could lose more than money. If there’s a true emergency, call 911 while the stranger waits outside. If they’re selling something, you’re not interested. (And by the way, if you don’t know them by sight, they’re strangers—even if they say they live in the neighborhood, or even next door.)

4. Don’t feel bad saying no. There’s no way for you to tell if a desperate stranger is just that, or a con artist. If you want to help people down on your luck, you can give money to legitimate charities.

Emergency Fund vs Credit Card Debt: What’s the Top Priority?

Is it better to start an emergency fund or pay off your debt as quickly as possible? If you are anything like most human beings, you want a definitive push in one direction or the other. Most financial advisors and ten-year-old kids can tell you which is better to go with by simply looking at the numbers. However, like all things in life, it is not quite so simple. This is a great example of people thinking the world is in black and white.

Paying Off Debt Saves You Money

It does not take a genius to tell you that paying off your debt as quickly as possible is the best numerical choice to go with. You get one to two percent interest a year from a dollar in a savings fund while the dollar in debt collects fourteen percent interest a year. Each year you don’t pay that dollar off you are losing by twelve percent. The smart thing to do would be to pay off the dollar and start building an emergency fund now that you are out of debt in order to avoid possibly falling into debt again. That is the whole argument made by those that advise it is better to pay off your debt before creating an emergency fund.

Real Life Has Emergencies

Unfortunately, most of us cannot start from scratch with nothing saved without ending up in debt again. It is an unpleasant fact that things go wrong. The emergency fund side of the issue is a bit more realistic. Basically, you want an emergency fund set up so that you can avoid going into more debt than you have already gotten into. The idea is that, even though the debt you currently have is creating interest and destroying your credit, you aren’t adding new debt on top of the old debt. This raises a good point. Using all your money to pay off debt only to end up penniless will lead you back into debt the second an unexpected expense puts a vice grip on your finances.

Finding Balance

So then, which should be top priority? Neither. One extreme or the other will only condemn you in this situation. If you ignore credit debt, it will be 20 years before it’s paid. Ignore emergencies and you may go into bankruptcy. That is why you have to take the eclectic approach and do a little of everything. Save money in an emergency fund in order to keep from ending up with new debt, but also pay as much of the debt you already have accumulated as quickly as possible. At the very least, keep yourself from being late on credit payments, amassing more expense.

Here’s how to calculate how much needs to go into your emergency fund to make sure your credit card doesn’t end up costing you more than it needs to. Unfortunately, this has to assume nothing else major goes wrong, like a job loss or the total loss of your uninsured car. (Hint – make sure your car insurance is paid!) In the beginning, there are only so many emergencies for which you can prepare.

Pay a Little Extra on Credit, Build Your Emergency Fund

So, you need to have enough money in your emergency account for the necessities for one month. That means gasoline to get to work, the bare minimum amount you need to get by for food, the monthly payment for your car insurance, and the total minimum payment on all of your credit cards. Most utility bills will let you slide for one month without a large penalty, so if there’s something that has to wait, let it be those…but no more than 30 days. Once you have this amount, you can first focus on getting that amount saved in your emergency fund while paying the minimum plus at least $10 extra on one of your credit cards.

Attack Your Debt Full Force Only After Emergencies Are Covered

Once you have your emergency fund covering the necessities, start throwing everything you’ve got at your credit cards. You can attack the biggest first or not, depending on which method motivates you best. You’ll save more money by paying high interest cards with bigger balances first, but some people need to see one card paid off quickly to feel like they are progressing. Those folks may be better off with snowflaking, or paying of the smallest debt first.

This simple solution will solve your debt issues in a slow yet manageable fashion that, honestly, will take longer than paying credit first, at least in a perfect world. In the real world, this might be faster. You will end up debt free, with a nice cushion should anything unexpected arise.