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Are you Maxed Out? An Approach to Financial Fitness

So, you've got credit card debt, a monster mortgage and an expensive auto lease. You're saving for retirement, but not nearly enough. If you have kids you are stressing about paying for clothes, dance lessons, sports and that college tuition.

The debt statistics are staggering! 

  • The Federal Reserve Board says that on average consumers owe more than 20% of their income, not counting their mortgages and home equity loans.
  • According to the American Banker's Association there's over $600 billion in bankcard and revolving credit outstanding.
  • And about 3% of the bankcard accounts are delinquent. That's about $18 billion owed on past due accounts.
  • U.S. consumers paid $65 billion in credit card interest
  • Personal bankruptcies reached a record 1.35 million, eight times the rate in the depression.
  • There are over 1.5 million persons using credit-counseling services. And the average age is 35-37 with $23,000 in debt with an average of 10 credit cards.

Debt can cause physical symptoms such as headaches, insomnia, stress, depression, as well as marital problems and divorce. There are however, ways to get out of debt and stay that way. Smart money management isn't about finding super investments or magical formulas. For most people it comes down to effective financial planning, setting achievable goals and following through on them. With careful financial planning, you can even put money away for vacations, household items like furniture or remodeling projects and your retirement, without starving or depriving yourself - or putting yourself deeper into credit card debt.  And the rewards of a debt free life are many. You'll have peace of mind, a few extra dollars in your pocket, no bill collectors and a clean credit report.

So Let's Begin our Path to Financial Fitness

  • First of all, face the real problem. Credit cards don't sneak out at night and go shopping. Stop the spending!
  • Create a filing system. File bank statements, tax documents, credit card bills, medical receipts, mortgage statements and any other records. Keep up with the due dates for bill payments.
  • Establish a Budget. A budget is necessary for successful money management.

 

Budgets are spending plans that help you to:

  • Understand your current expenses and plan and match your goals and priorities
  • Live within your income
  • Spend your money more wisely
  • Flag financial problems and minimize them
  • Reach financial goals
  • Prepare for financial emergencies
  • Develop wise money management habits

Step 1: Add up your monthly income
Besides earnings, also include other sources of income such as alimony, child support, rent, and interest.  If you are budgeting with unpredictable income - take your annual income and divide it by 12 to see how much you average per month.

Step 2: Estimate your expenses
If you are married start with full disclosure. Couples with separate bank accounts may have no idea what the other buys and their spending habits.

Step 3: Figure out the difference
This is what you need each month to cover expenses and debt.

Step 4: Maintain it Monthly - Track, Trim and Target
As you track it you may find it easier to trim expenses especially if you spend more in one area than another. Identify these extras then cut them back, then cut them out.

Step 5: What is left over?
At the end of the month place what is left over into savings don't carry it into the next month, you'll be more apt to spend it OR consider savings a fixed expense

 


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