So I know it is a day earlier than Friday but this week it’s going to be debt-talk duo. 😉
Last week we talked about setting a budget. After that budget is in place it is time to start implementing a debt pay-down to see some results as quick as possible. I’ve talked previously about different debt pay-down methods and after you have decided what will work best in your situation – after making a list of all your debts and their associated interest rates – it is time to implement the next phase, which is depletion.
So I know this probably sounds counter-intuitive but I am sure you can tell the key word here is almost*.
The reason this can help you save more is because your interest rates – especially if you have credit cards – probably farrr exceed any “good” interest you have coming in from what is in your savings account.
So how do you determine how much to leave in savings? This answer varies but do keep in mind you will always want to keep something in savings. You never want to have to revert back to piling on credit card debt after you freed yourself from it. So how much? Some debt experts say just $1000 is all you really need to scrap by if things got ugly for a little bit. This is what I first heard when I started really researching this about a year or two ago but I just could not come to terms with that low number. Does this person not know what kind of world and economy we live in?! Do they not know that there are more graduates than jobs and things can change in a moments notice? Is this person unaware of my #teamparanoid status?! At any rate, your girl decided that I just could not be comfortable with that amount. Instead I decided I was comfortable with leaving $3000 behind and luckily, my husband could agree with that number.
The number you choose may have to do with things like: are you a two-income household but could get by on one? (if so you probably don’t need as much in savings) or do you have a job that is seasonal or temporary? (save save save)
At the end of the day, this number is highly personalized, as you are the one that has to be okay with it. If you are really struggling to pick a number and $1000 seems too low, perhaps calculate your expenses for a month and start with that number. After you set the amount you are comfortable with keeping in savings, everything over that number gets thrown at debt. If you haven’t reached that number – build it into your budget so that you can reach it and after it is reached, throw what would have gone towards the savings to the next line item on your debt list.
After you have made these decisions and it is time to move on to goal setting, which is the topic of tomorrow. Having clear goals about where you want to be and when you can realistically get there is crucial to financial freedom, stability and – for me – overall happiness. Stay tuned 😉