Chill Maadi

Is there a more worser feeling than the feeling of being lodged under a tantamount of debt? We have to admit that we made this debt mainly because of our bad spending habits although there are other times it is due to some circumstances, which is beyond our control. Nevertheless, whatever the reason, the main concern is just how to get out of debt. Moreover, once you learn some methods, you will later be able to cut debt.

1. List down all debts you have – You cannot get out of debt without even knowing how much you owed. Start listing all bills with balances, credit cards, personal loans, auto loans, etc and get the total. Organize them along with corresponding interest rates; then set a payment order.
2. Hide credit cards away – If you can, cut up your credit cards, or hide them in a safe place avoiding your wallet, phone or even computer. And after your debt has been paid off, you can consider using them again — sparingly.
3. Hold on spending – Now’s the time to make the “budget”. Start tracking down your spending. Identify things you don’t actually and other frills that you can eliminate. If a particular item isn’t essential, eliminate it immediately. Make a spending plan that only covers essential items, and direct any savings you identified towards paying off your debt.
4. Learn to use cash – Use cash in all of your spending habits; receipts so it will help you track what you’re spending. You can also make use of debit cards. These cards are always wearing bankcard logos and mostly welcome in stores that accepts credit cards. A convenient way to pay cash without actually carrying it.
5. Learn the do it yourself program – Early generations are capable of “do-it-yourself” repairs. If there is no need to employ help for doing some repairs or services; then do so yourself. If this option works for you, you might save a gracious amount of money.
6. Plan shopping in advance – Impulsive buying is the main culprit in debt accumulation. Start doing some centralized list of necessities; mark off what is not necessary. And if you have some, use coupons and discounts. Always utilize discounts and coupon codes in saving money in overall purchase price.

The overall take, after you get out of debt, is to never restart the problem. After the slate comes clean, avoid unnecessary spending again and start saving.

Getting out of debt involves composing a clear picture of the debts you want to get rid of, any assets you are willing to liquidate to make debt payments, and your monthly cash flow. You will want to have copies of your most recent credit card and loan statements, bank or investment statements, and a pay stub. A calculator and pen and paper will also be helpful. Ready?

Prioritize your debts
Begin by writing down the most recent balances of each of your debts. Next to that balance write the annual percentage rate (APR) you are paying on that account, and, if applicable, the minimum monthly payment. (Not sure where to find your APR? Look at the bottom of your credit card statements where it says “finance charges”. You should see a column that says “corresponding annual percentage rate”.

There are myriad ways to prioritize your debts. Some people recommend simply paying the balances with the highest interest rates first. This will save you the most money. Others, like Dave Ramsey, recommend starting with the smallest balance first, because paying that off first will provide some motivation to keep going. If either of these methods seems right for you, then go with it.

As an alternative, here’s a simple method that directs you to pay-off the card with the highest balance to minimum payment ratio first. It’s like the best of both worlds.

To calculate this ratio divide each account’s balance by the minimum payment. You will then pay the card with the highest ratio first. For example, with the following three credit cards you would want to dedicate additional money to pay off the MasterCard first, followed by the Discover and Visa cards. If two cards have very similar ratios, pay the card with the higher interest rate first.

Debt One $4,832 balance / $65 min. payment = 74.3
Debt Two: $2,191 balance / $40 min. payment = 54.7
Debt Three: $8,392 balance / $165 min. payment = 50.8

In this example, you would want to pay off debt one first, then debt two and debt three.

Apply existing assets to your debt
Now that you have your debts prioritized, take a look at your assets. If you have any cash in savings accounts or under the mattress, you should immediately consider using all of it to pay off some debt. Likewise, if you have valuable items that you aren’t using, sell them on eBay or hold a garage sale and put the cash towards your debt. You will want to save up money later, but right now the enormous interest rates you paying on your debt is far more devastating to your long-term finances than cashing out a savings account.

Calculate your budget
After you have put any cash-on-hand towards your debt, it’s time to determine your monthly expenses.

If you haven’t tracked your monthly spending before, estimate the best you can, leaving enough padding for unexpected expenses without inflating categories that are not necessary. For example, if you currently spend $50 a month on coffee, enter $30 and resolve to cut back in the future. In the debt payment fields, enter only the minimum payments. When you are done the calculator will tell you how much money you have left over each month after your minimum obligations are met.

Snowball
This is the additional amount that you will send to your top priority debt each month, in addition to the existing minimum payment. Each month you will continue to make minimum payments to your other creditors. Once you begin your plan you will use what is called the snowball technique to decrease both the time it will take you to get out of debt and the overall interest you will pay.

Each month going forward, the minimum payments on your non-priority debts will go down, usually by a dollar or two. You will take these few dollars (trust me, they add up over time), and put them on top of the total amount you are sending to your top priority account. When that debt is paid you will shift the entire monthly payment to the next debt on your list, until each and everyone is paid off!

Faced with debt it is tempting to spend sleepless nights aimlessly crunching numbers, as if the right few calculator taps will make that red ink disappear. Sadly we both know that won’t happen—wading through your bills unnecessarily will only exasperate you, and tomorrow you could end up charging three lattes just to perk up for work. But don’t take debt off your mind just yet; ignoring those bills is another fast way further into the hole.

Write down why you are in debt, why you want out, and where you want to go financially.

No, this  doesn’t involve a single calculation or even the need to write any ugly numbers defining what you owe. This simply affirms for yourself (and anybody you choose to share it with) that you will get out of debt.

Why write down financial goals?
There are two reasons to do this.

First, psychologists agree that a critical key to personal change is visualizing the “changed you” (in this case, becoming debt-free). Personal development gurus fold this principle into the practice of goal-writing, arguing that the simple act of putting your desires in writing has affects your subconscious and increases the chance they will happen. Writing down your intention to become debt-free cements in your mind your wish to get out of debt, which will be important when the temptation to spend pops up.

The second reason for this step is to evaluate why you got into debt. Did unexpected medical bills pile up or did you use credit cards to spend beyond your means? If you had control over the accumulation of your debt, you will need to deal with the cause of the debt before you can hope to get out of it. If you are like me, you may have brought the overspending that got you into debt under control, but certain situations may cause you to lose sight of your goals and spend a few dollars “just this once”. In situations like this your debt free plan should include steps you will take to combat these bad habits.

How to write down your financial goals
Writing this part of your plan is simple. Basically, answer the following questions briefly but honestly. For question five, put in your (semi-realistic) ideal date to be free of debt. No need to calculate anything yet. In fact, be optimistic with this date, and you can adjust it in future steps. Following the questions is an example from my plan.

1. I am in debt because:
2. I will now live below my means by:
3. If I am tempted to overspend I will:
4. I want to get out of debt because:
5. I will be out of debt on or before:

Example: My debt free plan
1. I am in debt because I used credit cards to live beyond my means for more than five years.

2. I will now live below my means by budgeting and not buying anything I don’t absolutely need. I will cook instead of eating out whenever possible, and I will work a second job as long as is necessary to pay down my debt.

3. If I am tempted to overspend I will take out my mission statement and remind myself how a few mistakes could defeat my debt-free plan.

4. I want to get out of debt because debt is inhibiting my ability to save for my future, buy a home, and have financial peace of mind. I am tired of wasting hundreds of dollars each month on finance charges alone. I will be wealthier and happier when I am out of debt.

5. I will be out of debt on or before July 31, 2008.

Wrapping up
Now that you have the first part of your debt plan, I suggest printing it on bright paper and posting it somewhere you will see it daily: on the bathroom mirror, a kitchen cabinet, or your dashboard. Also, write your response to question four on a business card and put it in your wallet where your credit cards are or used to be. It should be the first thing you see anytime you open your wallet to spend money!

Retirement plans aside, not everybody is fortunate enough to begin investing in their twenties. Paying back credit card debt, establishing an emergency fund, and saving for home ownership all take priority over building a stock portfolio.

But if you can start investing, you certainly should. So how do you know when to start? Here is run-down of what the financial priorities in your twenties should look like.

Start with Retirement

Even if you haven’t tackled all of your other financial priorities, think about saving for retirement right away either through your employer-sponsored retirement plan (401k / NPS / EPF) or an individual retirement account (IRA / PPF).

Even if it’s just $200 a year into an IRA, it’s important to get in the habit of setting aside part of your income for the distant future and you won’t have to pay federal income taxes on your contributions.

If you haven’t already, start saving for retirement now, and if you can, contribute the maximum up to IRA contribution limits.

Pay Off Credit Card Debt

Even in its best years, you won’t earn a return in the stock market that can surpass credit card interest rates. So tally up what you owe, take a deep breath, and knock out that ugly debt.

Get an Emergency Fund

Unlike cash in short-term savings accounts, investments aren’t always liquid, meaning you might not be able to use the assets you have invested in emergencies like if you lose your job or face medical expenses.

Once your debts are paid off, concentrate on building an emergency fund equal to at least three months of your income. In time you will want to grow this to about six months, but three months is a good start.

Keep Saving, Start Investing

Once you have an emergency fund established it’s time to start investing!

At first you won’t want to be quite as aggressive with how much you invest as you have been with paying off debt and saving.

Keep saving for upcoming expenses like your home, vacations, cars, even weddings.

Your investing priority should be retirement, and you’ll want to exhaust the ways you can save for retirement before turning to the general stock market.

If reach your retirement contribution maximums and are rearing to keep going, congratulations! Then it’s time to start considering buying some securities with an online brokerage.

What About Student Loans?

In most cases, it’s wise to start investing even if your student loans aren’t fully paid-off. Student loans generally have long terms but at fairly reasonable interest rates thanks to federal subsidies. With some aggressive investing you make more than you’re paying on student loans.

Last week I read an article about the fact that nearly half of the Indian investors don’t know what they’re paying in mutual fund management fees.  My concern is that if they don’t know what they are paying, what else are they unsure about.

1- Investment Objective

The most important point to consider is the investment objective, first yours then that of the fund you are considering buying.  Are you looking for fixed income, growth, assets in the country, perhaps a balanced fund of global assets?  The possibilities are endless.  It is imperative that you start here.

2- Investment Strategy

Does the fund manager use a passive or active management technique?  Are transactions based on the security of capital or growth potential?  Perhaps the fund manager has restrictions or timing constraints that dictate his actions.

3- Fund Company

Do you have a preference for a certain fund company?  Personally, I believe that certain fund companies are better at managing certain assets.  Sometimes it’s the portfolio manager, at other times it is the company’s doing.  When looking at the fund company, you are looking for one whose net long-term assets are on the rise.  As long as the fund manager has more cash deposited that being withdrawn, he’ll be able to implement his magic.

4- Portfolio Manager

When evaluating a portfolio manager, go with independent assessments such as those provided by ValueResearchOnline.  What is the manager’s performance considering the risk associated with its holdings?  Does the fund manager take excessive risk, when compared to the index or similar funds, to generate the fund’s results.  How long have they been there, what other funds does he manage?  What are the assets under management?

5- Principal Risks

What are the inherent risks involved in the fund?  Is it the currency in which the fund is denominated?  Geography, sector, market, interest rate or diversification risk.

6- Performance Information

When looking at performance information, look for a fund that has consistently produced above average results over 1, 3, 5 and 10 year time periods.  How is this possible?  It is possible because funds are compared against their peers, other funds with like comparisons.

7- Fees & Management Expense Ratio

It is not a fluke that I left this towards the ends of the points to consider.  This is so because sometimes the most successful strategy and/or the best portfolio manager costs a little more.  Also important to know, the performance of a fund is net of fees, so performance rules!  This having been said, the lower the fees, the better the fund will do during difficult market conditions.

I am hoping that this article has served to answer some questions investors have about their investments, especially Mutual Funds.

What is it you were told about money when you were a child? Something about money not growing on trees or it’s the root of evil?

Well, how will you plan to succeed monetarily if you believe this?

Firstly, thinking money doesn’t grow is an illustration of what is called scarcity thinking. Our parents told us there wasn’t enough money to round, and that it was scarce. But really, our universe is very plentiful, and there’s lots of money for us all.

The key is to think you deserve to have cash, and that there’s a lot of it for you. Then you can begin to put it into life. That’s abundance thinking, and is a much better outlook than scarcity thinking.

What about believing “money is the mother of all evil”? Do you expect to be successful if you think money is bad? Unless you want to be evil, your subconscious won’t allow you to have money if you truly think it is the root of evil.

And also, that quote has changed over the years. It’s originally known as “the love of money is the root of all evil”. So it’s isn’t anything to do with actual money.

Now you understand, you can begin thinking money is actually good. You’re able to help out other people with money. You could help the economy with money. Even the most spiritual person, that believes they don’t have a need for money, must admit they could do their part to make our world a better place by using money rather than not.

And how about “all the rich folk are greedy”? This starts the “us against them” way of thinking, where you label all “them” greedy. You, then again, believe yourself to be very generous. That is why you have no cash, because you’re the opposite of greedy.

Of course, there are rich people who are greedy. However, there are greedy poor people as well. There are poor and rich who are very generous as well. The amount of cash you own has no bearing on these traits.

Actually, many rich people get success by being giving. If you have a giving mentality you’ll open a stream of money that brings more. You’ll find the same thing, give a little money happily, and see it come back to you in a different form. We needs its own balance of giving and taking, and being happy giving, and receiving will make sure that you go with the flow.

Changing your mentality from the teachings when you were younger to an improved outlook on money will let you achieve the financial success you’re worthy of.

Have you ever stopped to wonder why rich people get richer? Many believe it’s because of the greater leverage they hold on wealth with every new generation. An equally impressive number feel it due to rich parents passing on the financial skills they’ve learned to their children. These enhanced skills are then utilized with the new generation to create an ongoing snowballing increase in riches.

This article is dedicated to three major wealth concepts that you should consider passing on to your kids at an early age.

Concept 1 – Good and Bad Debt

These days thousands of people are drowning in bad debt, thousands more on the other hand manage to steer clear of its clutches. Debt is an important facet of our economy because it helps fund large complex projects. Therefore, the key here is to learn to differentiate between good and bad debt.

Concept 2 – Capital Appreciation and Cash Flow

For many these concepts are confusing. Generally, there are two kinds of financial instrument with varying hybrids between. The vast majority of financial instruments belong to the capital appreciation category of instruments. This means you sell an item when the price increases which makes money. Therefore the capital has increased hence the name “Capital Appreciation”.

There are instruments that give a cash flow, otherwise known as a share of profits. A few examples would be real estate investment and alternative mineral rights trusts such as oil trusts whereby you receive a share of the trust’s monthly income. These are fantastic instruments for making a large sum of money from your capital appreciation instruments when you leave a portion of your money in them. Teaching this to children at an early age gives them an excellent insight on how the free economy functions.

Concept 3 – Take Control of your money

Analysts and fund managers love to blow their own trumpets by telling you how they constantly over perform the market. Actually, they earn their money from managing your own money. For example they’ll charge management fees or selling charges whether your portfolio is profitable or not. Yes, that’s right they can manage your money poorly and still be paid handsomely for their services.

Recent studies have indicated that most fund managers may fare no better fortune in effective stock selection. Many have stated that some are in fact akin and achieve less than a team of monkeys throwing darts at random stock on a metaphorical dart board. It’s important that you instruct your children to learn about investing and to take charge of their own finances.

Summing up

In conclusion, the act of teaching your children about finances is vitally important. Some of the brightest and most successful fund managers of today speak of parents who would analyze stock in their presence as children. Teach your children about managing their own money and the workings of the modern economy and you’ll see them grow into better more able young adults who’re positioned to deal with the financial world.

We don’t have abilities to see the future or guess the hurdles ahead. This makes saving up an emergency fund vital for you financial security, this is because you’re never given a warning of an impending setback such as an accident that keeps you from working or a catastrophic vehicle failure. It also serves as the safety net with the ability to save you from bankruptcy.

Saving up a small rainy day balance should be the vital part of your financial goal. This is incredibly important if you don’t have funds readily available for covering and dealing with unanticipated occurrences. This will provide financial security since it gives you money fall back to when you’re struck down by illness, your partner loses a job or you incur the onset of an enormous medical bill. You don’t want to find yourself in the situation where you’ll have to buy necessities with a credit card and end up paying inflated interest rates of up to 18%.

Saving money in a small account for emergency purposes is the best alternative. If you open a loan account you’re faced with the added burden of paying large amounts of interest. Cashing your investments before maturity means you’ll lose the interest and also a portion of your original investment. This will no doubt set back your financial plans.

To successfully build emergency funds you’ll need to save money regularly and resist dipping into it for non emergencies. The best bet is to keep the money separate from your general saving account. You should invest a substantial percentage of this fund into low risk funding. This will ensure that the money is very liquid and that your investment will not lose value. You’ll be able to access it quickly if you desperately need to.

The size of this special account will ultimately depend on your situation. Many people like to keep a full 6 months of their salary in reserve. The best thing to do is decide the amount based on factors like the number of dependants you have and your fixed monthly outgoings.

If you’re single and have zero obligations with a reliable group of friends who could assist in an unforeseen financial crisis it’s possible you don’t need to stash such a substantial figure in the fund. The more people who rely on you for support though, the more important it is that you have a bigger reserve fund.

When you decide your emergency fund, you must take the difficulty you’d face when looking for new work into account. If you live in a two income household, the contributions of both people should be calculated into the fund.

You might not have the ability to get the emergency fund money at once. Just treat it like a financial goal, one that you add to over time. Should you receive a tax refund, place it in your fund account.