1. Give away 10% of
you total income each month. In the church, this 10% is called a “tithe”;
but you can call it “contributions,” “gifts,” “donations,” or whatever you like.
The reality is that giving sets in motion a plan for looking at your entire
financial, social, and spiritual life. Most people “waste” 10% or more of their
income already on frivolous, superficial, and unnecessary things. When you give
away the first 10% of your income, you are better prepared to eliminate the
superfluous expenditures and will more carefully utilize the 90% you have as
operational funds.
2. Establish a small
“splurge fund” as part of your budget. Pull out no more than 5% of your
income at the beginning of each month and stash these funds in a coin purse.
Use these funds in any way that you wish during the month; but when the splurge
fund is depleted, cut off all unbudgeted expenditures for the remainder of the
month.
3. Pay all of your
ongoing and regular expenses at the time of purchase or immediately when
billed. This is a hard rule for most people to follow, but it provides the
initial discipline necessary to get your finances in order. Interest rates,
late-payment penalties, and other extra charges take large portions out of your
operating income and end up reducing your buying power. If you cannot pay these
ongoing and regular expenses each month, you are living beyond your means. You
will need to develop a budget that focuses on necessities and reduces your
other expenses.
4. Pay down your debt
as quickly as you can. Every dollar that
you borrow costs you that dollar plus the interest that you have to pay—and the
interest costs are applied every single month until the debt is paid. Every
dollar that you pay against your debts reduces your future interest payments
and allows you to pay off your debts more quickly. Generally you should focus
on paying off the debts with the highest interest rates first. Your goal should
be DEBT FREE! Another way of
eliminating debt is to focus on your smallest debts first. Pay extra each month
on that small debt until you have eliminated that debt. After one debt is
eliminated, take what you had been paying on the eliminated debt and add that
amount as an extra payment on the next smallest debt. Continue to use the
eliminated debt payments on remaining debts until you are debt free.
5. If you can’t pay for it now, maybe you can’t
afford it. Most of us have “things” that we feel like we must have or we
can’t be happy. We have a difficult time separating our “needs” from our
“wants.” It’s the “wants” that give us the most problems financially. You
should never borrow or over-extend your budget for “wants.”
6. Borrow wisely and
only when absolutely necessary. Most people will have to borrow to pay for large
purchases like a home or a car, but everything else that you buy should be paid
in full at the time of purchase. If you use a credit card, you should pay the
full amount due every month. Interest rates on credit card debt are very high.
If you can’t pay off your credit card balance each month, shred your credit
cards (or removed them from your wallet or purse) and operate on a “cash only”
plan. Your goal should be to pay-as-you-go
for all your ordinary expenses.
7. Plan for the
long-term. The biggest problem in most people’s financial planning is the
failure to plan ahead. Major expenditures like buying a car or home or paying
college tuition for your children require long-term consideration. Preparing
for retirement is important as well. If you postpone planning for these kinds
of expenses, you will have to go deeper in debt somewhere down the road. On the
other hand, if you save money in a savings account, invest in stocks or mutual
funds, or add to your retirement plan, you will be better prepared when major
expenses come along. Even just a little bit put in savings or investments
regularly over a long period of time will create a resource that will help you
over the big humps in life and will sustain you in good times and bad.
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