Savings It is a word that we all think about but that we don’t all care to do. When is it good to save and when is it good to indulge? How much should you save? How should you judge your ability to repay credit card debt? These are all very basic questions but are very important ones that this country and its people don’t ask themselves enough. If I took away all your credit cards; could you survive? Most people will tell you that they will, but the reality is that they are lying to themselves as they believe that they will always have these items available for them. What if this was all about to change? As we enter a global recession. Are you ready?

Think about these important factors when asking yourself:

- Do you have 2 years of your income saved?
- Do you have enough cash to pay for large bills or do you always charge your credit card?
- Do you have fears that you will lose your job and not be able to pay for your car/house?

If you answered yes, then you need a change in strategy around your savings and spending habits.

Let’s first discuss some tools that can help you get out of debt and be on your way to saving more. This way you can cut down and save more.

1)Pay off full credit cards one at a time (10% of your balance at a time.) – They say you shouldn’t take on credit card debt unless u can pay it off in 10 payments. This is a great way to check if you can afford to buy before swiping.
2) Lower your car payment if your rates are above market (when possible.) – Do not extend the term of your loan to lower payments, only the rate
3) Do not pay down your mortgage (tax deductions are the last cuts you make.)
4) Do not consolidate debt in one loan (unless it would take more than 5 years to pay off your debt) if so, then home line of credit works best (tax deductible.)
5) Use any excess cash to pay down your credit card. (bonus, commissions)
6) Do not charge gas, food and other daily needs on a credit card. Keep track of what you spend.

Set a Bi-Weekly budget and stick to it. For example, take 20% of your check and allocate that to daily needs and don’t spend over that amount. So if your budget is $200, then no dinners, lunches, gas and any unnecessary charges need to exceed that amount.

Once your budget is limited then you need to allocate the rest of your funds.

Allocate in the following order.
1) Housing (mortgage or rent)
2) Vehicle
3) Constant immediate necessary needs (insurance, gas, electric)
4) Savings (20%) is best, (10%) is good
5) Left over is your budgeted spending account

Once you allocate then you might need to adjust the spending portion and savings portion. Try to set a high standard for savings and a low standard.

Example: $400, but $250 untouchable. So you put $400 away and hope to save it but at the minimum you will keep $250 of that untouched.

With this method, you limit your spending and maximize your savings each pay period. If you like to save for larger items, like TVs and other entertainment items that are not required in life, then set a budget amount each pay period away for that item separate from the main savings account which is not to be touched for anything other than life supplies in rough times or extreme emergencies. Using this method might take longer to acquire your items but will not leave you feeling dry or have buyer’s remorse after your purchase.

Indulge but make sure you do it correctly and within your means.

Now, let’s look at how you can tell if you can afford your car.

When you go purchase a car, many financing options exist. Many of which are designed to make an unaffordable car look affordable in the form of payments.

If you are the type of person that looks at payments rather than full price paid by the end of loan, then do this calculation prior to obtaining your loan.

For cars under $25,000, calculate payment on 48 months. Can you afford it?
For cars above $25,000, calculate payments on 60 months.

This will give you an idea of what an affordable car is to your budget. Please do not fall for the 0% deal or the low payments of the 72 months and above deals.

Related posts:

1. Debt Consolidation
2. Home Equity 101
3. What is Credit?
4. Consumer Spending Is Up In March!
5. Credit Crunch – Wants vs Needs