Should You Have a Budget?

Should You Have a Budget?

Budgeting: Determine an approach that makes sense to you

 

Budgeting. You may have embraced the concept, or more likely, avoided it altogether, which is very common. Sometimes we feel obligated to complete a budget, but more often than not, we find it hard to implement and even tougher to maintain. So, should you budget? Is it worth your time to create one? What if you don’t complete one? How does having a budget help? This article will outline the benefits of creating a budget as well as provide a foundation to get started.

As wild as life can be at times, a financial budget can bring clarity to a household and help alleviate anxiety around spending. Quite frankly, that is exactly the point. Without a budget, spending can bring a level of stress that may overshadow the excitement of a given purchase. Having a budget in place allows you to know where your dollars are going and can provide the ultimate relief in terms of achieving guilt- free spending. This applies to those saving for retirement and those who have already shifted into retirement. Below are a couple types of common budgeting approaches. Keep in mind that no one size fits all, but there are options.

Types of Budgets:

 

Zero-based budget

Track specific income and expenses to understand exactly where all your hard-earned money is going. This is the most difficult budgeting style to start, but it will bring the most transparency to your finances. This method takes a lot of maintenance and is more suited for those who enjoy the process. Engineers and accounting professionals, I am talking to you. Microsoft Office offers several Budget Templates that can help jump-start the process.

General steps:

  • Gather data from bank accounts, credit card statements, investment accounts, etc.
  • Organize the data into categories, typically fixed versus variable inflows & outflows
  • Utilize software like Excel to accurately map out household cash flow
Reverse Budget

Start with savings amounts and/or debt payments and then proceed to allocate what is left over to general expenses. This is the easiest to start and focuses on prioritizing savings targets. The downside to this approach is that it can leave you shorthanded when it comes time for very real expenses like groceries or utilities.

Merriman’s own Geoff Curran wrote a great article a couple years ago that highlights this method in greater detail: Reverse Budgeting

50/30/20 budget

This method takes an alternative approach and categorizes spending into three main categories: Needs (50%) / Wants (30%) / Savings (20%). The percentage per category may change given the individual creating the budget, but the focus remains the same – categorizing what is essential versus what is deemed “extra”.

General steps:

  • “Needs” may consist of rent/mortgage payments, utilities, groceries, etc.
  • “Wants” generally include items like travel, entertainment, restaurant spending, etc.
  • “Savings” targets carving out money for near-term purchases and, most importantly, retirement savings.

  

There is no one correct method to use, and that is the part most people struggle with. A crucial element of budgeting is very similar to maintaining a sound financial plan: choose a method that works for your situation, one that can be maintained over the long run. If you have budgeting questions or want to explore the methods mentioned in this article, please reach out to Merriman. We would like to help you find an approach that works for you.

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.

How to Improve Your Credit Score

How to Improve Your Credit Score

 

 

 

Bad credit can haunt you for years. It can make it difficult to get a loan, rent an apartment, or even get a job. If you’re struggling with bad credit, it’s not the end—there is hope. Here are some useful pointers on how to give your credit score a much needed boost. Follow these steps to see a noticeable improvement in no time.

 

What Is a Credit Score?

A credit score is a critical indicator of one’s financial health and stability. This numeric value is determined based on several factors, including payment history, credit utilization, length of credit history, types of credit used, and recent inquiries on the report.

 

Because this single number encapsulates so much information about one’s financial behavior and habits, it is essential to monitor a credit score closely. You must take all necessary steps to maintain or improve it. A good credit score can be your ticket to financing significant purchases, such as a home or car. In contrast, a poor score can leave you in the hands of bad credit auto finance companies or other high-interest lenders.

 

Credit scores go from a low of 300 to a high of 850. Generally, a score above 650 is considered good, while anything below that is fair or poor. Therefore, it is of utmost importance to understand what goes into a credit score so that you can work to improve yours over time. Fortunately, consumers can take steps to improve their credit scores, regardless of where they fall on the credit spectrum.

 

Pointers to Help Boost Your Credit Score

Looking at your credit score right now may leave you feeling down in the dumps, but don’t despair. You can do plenty of things to improve your credit score over time. The following pointers will help get you on the right track:

 

1) Pay Your Bills on Time, Every Time

A good credit score is crucial for many reasons. That’s why it’s important to make sure you pay your bills on time, every time.

 

Unfortunately, things have a way of turning up to scuttle any timely payment plan. If that happens to you, don’t panic. There are steps you can take to minimize the damage to your score.

 

First, try to arrange a payment plan with your creditor. This shows them that you’re willing to work with them to resolve the situation. Second, cover the minimum payment if you cannot make a full payment. This shows creditors that you’re still trying to meet your obligations even if you can’t pay everything you owe right away.

 

Finally, keep track of your payments and ensure you don’t miss another one. Even one late payment can significantly impact your credit score, so it’s critical to stay on top of things. By following these steps, you can help ensure that your score stays strong, regardless of life’s challenges.

 

2) Don’t Apply for Too Many Accounts at Once

It can be tempting to open up many credit cards when you’re first starting. After all, one of the first steps to building good credit is to have a robust credit file. But while it’s essential to have a few lines of credit, you want to be careful about applying for too many at once.

 

Whenever you submit a new credit application, your credit score takes a minor hit. And if you’re constantly applying for new lines of credit, that can add up to a significant drop in your score. Additionally, you increase your identity theft risk every time you open a new account. So while it’s important to build your credit file, you want to be thoughtful about which accounts you open and how often you submit applications.

 

3) Regularly Check Your Credit Report

You must always stay on top of your credit report. Whether you’re applying for a mortgage, a car loan, or a new credit card, your credit score will be one of the factors that lenders look at when considering your application. That’s why it’s so important to review your credit report regularly.

 

By doing so, you can catch any errors or discrepancies and address them before they have a chance to impact your credit score. You can also identify any negative information that may be dragging down your score and take steps to improve your credit standing. Reviewing your credit report is one of the best ways to keep track of your financial health, so do it regularly.

 

4) Pay Your Bills Every Two Weeks

There are many strategies for improving your credit score quickly and effectively. One helpful method is to pay your bills every two weeks instead of once a month. This pacing enables you to make smaller payments more frequently, which can help reduce the effect of interest over time.

 

In addition, making frequent and consistent payments helps demonstrate that you are a dependable borrower in the eyes of lenders. Because this can be a powerful tool for increasing your credit score, it is well worth considering if you have the financial means. If you can set aside just a small amount each paycheck or biweekly period, it could make all the difference for your future borrowing prospects.

 

5) Don’t Close Unused Credit Card Accounts

Some people say it’s good to close any unused credit card accounts. After all, why keep them open if you’re not using them? However, closing these accounts can do more harm than good. One of the factors that creditors look at when considering a loan is your credit history. The longer your history, the better.

 

So, by closing down those old credit card accounts, you’re shortening your history and making it look like you’re not as reliable. It’s better to keep those old accounts open and pay the annual fee if there is one. That way, you can maintain a strong credit history and improve your chances of getting approved for future loans.

 

 

The Bottom Line

Building good credit takes time and effort. But by following these simple tips, you can improve your credit score and make it easier to get the things you want out of life. So don’t wait—start working on your credit today.

 

 

 

Written Exclusively for Merriman.com by Amy Marshall.

Amy Marshall is an automotive expert who loves to write about anything car-related.

 

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Merriman. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.

 

A Guide to Average Home Maintenance Costs

A Guide to Average Home Maintenance Costs

 

Purchasing a new home involves a great deal of money, especially if you remain in the same house for years. To keep your home systems and appliances functioning smoothly, you also need to spend money on maintenance. This blog will help you understand the average home maintenance costs and how you can reduce them significantly.

 

What Is the Average Home Maintenance Cost?

According to a survey by the National Association of Home Builders in 2019, the typical cost of minor repairs and regular maintenance is $950 per year. This amount is based on the average single-family house and is subject to change based on several factors. For instance, the cost does not include expensive repairs and maintenance of items like the roof, swimming pool, HVAC, and other significant home features. Additional factors that can swing the cost of maintenance include the location of your house, the area of your house (in square feet), and the size of your family.

 

How Much Should You Budget for Home Maintenance?

A general rule of thumb states that you should keep 1% of your house value as a fund for general maintenance. For instance, if your house costs $500,000, then you should be prepared to pay up to $5,000 for maintenance. However, recent trends indicate that a growing number of homeowners are keeping aside up to 4% of their house value in their maintenance fund.

Another method, the square footage rule, states that you should keep $1 per square foot of your house for maintenance. Thus, for a 3000-square-foot property, you can expect $3,000 for maintenance. However, this method does not factor in the age, location, or the condition of your house.

 

What Are the Activities Included in Maintenance Costs

At times, people get confused between repair costs and maintenance costs. Maintenance of your house includes activities to keep your house clean and maintained. It also includes activities that allow seamless functioning of your appliances and home systems. Wondering what these are? Here’s a list of few of them:

 

  1. Cleaning the home deck or patio
  2. Lawn services
  3. Sidewalk and driveway maintenance
  4. Cleaning the gutters and vents
  5. Servicing your HVAC
  6. Maintaining faucets and sinks
  7. Maintaining the central heating system
  8. Lubricating garage door springs
  9. Pest control and inspection
  10. Regular maintenance of kitchen appliances

 

These maintenance activities are not very costly and can be managed using maintenance savings. However, the house itself might need repairs. Repair costs for fixing roofs, HVAC, structural defects, water heater, and the like can quickly add up. The excess of your maintenance funds can be used for these emergency fixes.

You can also assess the repair costs and set aside some money for such unexpected expenses. Alternatively, you could purchase a home warranty plan that covers these repairs and replacements of home systems and appliances. Check out the best home warranty companies offering reliable services. Your home deserves the best!

 

 

Conclusion

When you buy a house, don’t just consider the down payment, taxes, and renovation costs. Also include the annual maintenance costs. These are recurring charges you need to pay along with your house. There is no definitive range or rule that can exactly anticipate how much you might have to spend, so do what you can to be as prepared as possible.

 

 

Written exclusively for Merriman.com by Sophie Williams.
Sophie Williams is a professional content marketer. She leverages analytical skills from a STEM degree to give an edge to her passion for writing. She is always thinking about how to produce engaging content for her readers. She enjoys finding ways to minimize her living costs and help other struggling homeowners with the same. She also loves writing long rants on books and movies.

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. All opinions expressed in this article constitute the judgment of the author(s) as of the date of this article and are subject to change with notice. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

How We Understand Financial Freedom, and How We Actually Should

How We Understand Financial Freedom, and How We Actually Should

 

Financial freedom is especially important for young people, particularly students. They frequently overspend on online courses, products, clothing, and even essay review services like Best Writers Online.

As a result, they feel a sense of financial deficiency. To avoid this problem in the future, it is critical to learn how to properly manage one’s budget.

 

What Exactly Do You Mean by Financial Freedom?

What prevents most people from following their dreams? Money, only money! This represents a specific stage of life. Some may object, saying, “But money does not make you happy!”

And it is true. The primary mission of money is to provide people with safety and freedom. Also, it provides us with the opportunity to live our lives the way we wish. Indeed, it is difficult to argue the point that it is easier to be happy with money than with an empty wallet.

Financial freedom allows you to kill two birds with one stone: have enough resources for living and be happy at any stage of your life.

 

What Is Financial Freedom?

Financial freedom is defined as a state in which a person’s income received without active participation (passive income) significantly exceeds his expenses for maintaining the desired lifestyle.

 

Why Is Financial Freedom Important?

Being financially free means that you have the freedom to:

  • Choose your lifestyle;
  • Buy the things you want regardless of your regular salary;
  • Spend money on entertainment;
  • Invest in projects and the property estate sector;
  • Avoid credit loans;
  • Have access to free money whenever you need it.

Both children and adults must learn the fundamentals of financial freedom—the sooner, the better. Adults can take a long time to learn something new, putting off all their business until later.

The most effective option, of course, is to teach students, who are more intellectually flexible than adults and who have a greater understanding of why this is important than schoolchildren.

Students usually spend most of their time writing essays or scientific papers. However, financial literacy is a much more valuable issue that they will face once they become self-sufficient. As a result, it can be wise to delegate written work to the professionals of an essay review service such as Writing Judge in order to have more time to focus on learning the basics of financial freedom.

 

How Do You Achieve Financial Freedom?

How many of us have wished to be financially independent but concluded that it was out of our reach? We frequently blame our circumstances, other people, or even our bad luck.

However, with proper planning, anything is possible. Here are some pointers to get you started:

#1 – Time Is More Important Than Money

A person who has achieved financial independence begins to see boring meetings and routine work in a new light. He understands that his time has a higher value, and it is better to spend it on important activities. Things that must be done but are of no interest can always be delegated to someone else.

#2 – Always Have Sources of Additional Income

To be financially independent, you must find a passive source of income. Do not refer to an additional source of income as a part-time job; it could simply be another job.

In most cases, one can do it for free or for a small amount of money at first until he improves his skills in a specific field. Over time, this source of passive income can be even more profitable than the main job.

#3 – Make It Possible for Your Money to Grow

The traditional methods of saving money under a pillow or in a home safe are already out of date. Inflation quickly depletes these savings.

Financial crises often leave you wondering whether you should invest. There are various ways to generate passive income from assets, including stocks, alternative investments, and real estate. Simply select what is best for you.

There have never been better strategies to develop equity in the past. The miracle of compound interest will dramatically improve your savings. It may appear complicated, but everything is straightforward: if you constantly contribute, you will receive a proportion of the growing amount each year.

Open a brokerage or an individual investment account and learn how to invest on your own. There are numerous competent materials and courses available on the Internet that can be mastered for free. Create a managed portfolio and replenish it once a month. Or determine if it’s time to hire a financial advisor for guidance.

#4 – Be Deliberate in Your Actions

A person seeking financial freedom does not believe in lotteries and does not invest large sums simply because “everyone does it.” Follow your instincts rather than trends and popular opinion.

#5 – Income Should Be Carefully Spread Out

Invest in various areas to avoid losing everything to the next “black swan.” Even if some assets depreciate, the rest will serve as insurance.

#6 – Read Books on Finance

Read books about financial freedom and ways to achieve it—not to impress others but to expand your knowledge. One devotes a significant amount of time to earning money.

Understanding how money works make sense if you want to dispose of it competently. The wise man researches customer reviews before purchasing household appliances. The same thing applies to money. Learn from the best in this field.

#7 – Plan Ahead of Time for Potential Crises

The world has experienced financial turmoil over the last few decades, including the financial crisis of 2008 and the pandemic-induced recession. It is worthwhile to keep an eye out for signs of impending crises to strengthen your investments’ financial situation. This will also aid in the proper management of available funds.

#8 – Do Not Spend Money on Things That Are Not Necessary at the Time

Goods on sale, incomprehensible investments, and other unnecessary categories of expenses do not contribute to financial freedom. Give up impulsive spending.

#9 – Use Your Money to Help Others

Not everyone is a philanthropist. A small donation, on the other hand, is accessible to nearly everyone. When we help the rest of the world, we benefit ourselves. And this alters our relationship with money.

#10 – Manage Your Monthly Budget

The best way to ensure that all bills are paid and savings are replenished is to create and stick to a monthly budget. This is a common routine that aids in the achievement of financial objectives while discouraging unplanned spending.

It is not difficult to live a simple life. Many wealthy people developed the habit of living within their means before becoming wealthy. To do so, you must analyze costs on a regular basis and find reasonable ways to save without sacrificing your quality of life. For example, when you go shopping, don’t go to the city center where prices are higher; instead, head to a remote quarter where the cost of the same goods is much lower.

#11 – Automate All Your Payments

On payday, distribute funds depending on monthly needs. If you pay a loan, send payment as soon as you receive it. The same is true for savings: it is preferable to set aside a specific amount at the beginning of the month and then spend the remainder.

This also applies to utility bills, mobile communications, and the Internet. All essential payments can be set up in your bank application so you do not even have to send them manually. There will be no incentive to put something off until later.

#12 – Invest in Your Health

Invest in your health by seeing doctors, particularly dentists, on a regular basis. Many difficulties can be avoided by simply altering one’s way of living.

Outdoor walks, healthy eating, and exercise therapy help to prevent several common ailments, such as hypertension, gastritis, diabetes, and obesity. Remember that poor health can compel you to retire earlier than expected and earn a smaller monthly income.

 

Conclusion

Control revenue and spending, investigate investment opportunities, and begin accumulating money as soon as possible. Financial freedom is more than just a certain level of wealth. This is an opportunity to live debt-free, think strategically, and understand how to manage finances for the benefit of your family and others.

 

 

 

Written exclusively for Merriman.com by Lafond Wanda
Lafond Wanda is a professional content writer, copywriter, content strategist, and communications consultant. She started young with her writing career from being a high school writer to a university editor, and now she is a writer in professional writing platforms— her years of expertise have honed her skills to create compelling and results-driven content every single time.

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and it is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

Start the New Year Right – Financial Mistakes to Avoid in 2021

Start the New Year Right – Financial Mistakes to Avoid in 2021

 

In a recent National Association for Business Economics survey, 72% of respondents expect a recession to hit our country by the end of 2021. The last major recession, from December 2007 to June 2009, brought with it a huge dive in the stock market.

While no one knows when the next recession will occur, you need to learn what not to do so that you can make yourself financially stable. With that in mind, Business Insider reached out to experts to analyze the mistakes which hurt you and to offer ideas for avoiding them. Here are some of the top mistakes along with some additional tips to make sure you’re prepared for anything!

 

Avoid excessive spending

People think that they earn in order to spend. But in reality, money has four jobs: spending, saving, investing, and donating.

Spending is one factor of money management. Most people make mistakes by spending excessively. They spend more and thus get into serious debt.

When you pick up that extra cheese pizza, stop for a latte, eat out, or pay for a movie, your spending seems small. However, it adds up to a larger amount once you consider how much you spend on these small items in a year.

If you’re enduring financial hardship, you need to monitor your expenses closely.

 

Not having a detailed idea of all expenses

Having only a rough idea of where your money goes can land you in a difficult situation. As the saying goes, you can’t manage what you don’t measure. When asked how much you will spend this month, a quick answer would no doubt include a few bills and other expenses. But when you start going through your bank and credit card bills, you will be surprised to see where a substantial amount of your paycheck is going. So, in order to avoid these errors, it is mandatory that you detail all these individual expenses, and there are many good tools to help with budgeting.

 

Living on borrowed money

Excessively borrowing or spending on credit is not financially healthy. Using a credit card for day-to-day purchases or for the airline miles or rewards programs is normal. But if you’re paying interest on gas, groceries, and other items, then you’re making a big mistake. Credit card interest rates make the price of the items a bit expensive. Purchasing on credit also has the tendency to allow you to lose track of exactly what you are spending, often resulting in spending more than you earn.

If you use credit cards to make purchases, make sure to repay the entire bill at the end of every billing cycle.

 

Making minimum payments on credit card debt

Paying extra on credit card debt is certainly better than paying the minimum amount. You can repay your debt faster by putting extra money toward the debt with the

highest interest rate and making just the minimum payments on the rest. As one balance is paid off, shift those payments toward the next card with the highest rate and so on until you’re debt-free.

 

Paying bills late

Paying bills late means extra money goes out of the pocket. Many people forget the due dates of bill payments. To avoid this, automatic bill payment is a great solution. In addition, you can use your phone’s calendar alert and easy-to-use apps to send you text alerts when bills are due.

 

Halting on regular savings and investing

The stock market was volatile in 2020. Many investors panicked as their investment portfolio temporarily went off track due to a sudden fall in the stock prices. The only way to deal with this is to reset your investment portfolio.

Watching the market drop doesn’t mean you should stop investing—in fact, you get the benefit from stocks being cheaper than they previously were.

Make a financial plan, choose an investment strategy that’s appropriate for your needs, and stick to the plan unless there’s a major change in your financial life.

 

Stopping retirement contributions

If you or your spouse lose your job when unexpected expenses arise, you might consider stopping your contributions to your retirement savings to cope with increased financial demand. However, once the situation comes under control, do not neglect your retirement fund.

 

Spending more to maintain a lifestyle

A sudden rise in your income can entice you to improve your lifestyle. Resisting this temptation is the smartest thing you can do, particularly if you have a large goal like buying a house, good education for the kids, etc.

You can splurge a bit but don’t spend beyond your budget. Rather, focus on saving the amount you need to attain a financial goal.

 

Using home equity like a piggy bank

Having a shelter over your head is the most essential thing. Your home is your palace. Taking out a loan from it gives the authority over your house to someone else. So, if you can’t repay the amount, you can lose your home. Think twice before doing so.

 

Spending too much on the house

Dreaming of a big house is good, but it is not a necessity. If you have a big family, you may need a larger house, but to go for a luxury home is something that hampers your spending. Choosing a more expensive or luxury home will only mean more taxes, maintenance, and utilities. After knowing this, do you still want to take a chance for a long-term dent in your budget?

 

Having the wrong life insurance policy

Life insurance is important if you have dependents. A general rule of thumb is to have term insurance equal to ten times your salary. Work with an insurance agent you trust, one who’s not going to try and sell you a more expensive policy than you need.

Gather knowledge and purchase a policy that fulfills the needed requirement.

 

Not having an emergency fund

You should set aside extra funds for emergencies. They can happen to anyone at any time. Unforeseen circumstances like a job loss, car repair bill, illness, etc., should be planned for as much as possible. An emergency fund can protect you from crippling debts. A good rule of thumb is to have at least 3 to 6 months of your spending set aside in an emergency fund.

Avoiding the mistakes and following the strategies shared above can help you have a healthier financial life in 2021.

 

 

Written by: Phil Bradford | Exclusively for Merriman.com

 Author Bio: Phil Bradford is a financial content writer and an enthusiast. He is not employed or associated with Merriman. He has expert knowledge about personal finance issues and he is a regular contributor to Debt Consolidation Care. His passion for helping people who are stuck in financial problems has earned him recognition and honor in the industry. Besides writing, he loves to travel and read books.

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

 

5 Ways You Can Rebuild Your Wealth in 2020

5 Ways You Can Rebuild Your Wealth in 2020

 

Everyone will agree that the COVID-19 pandemic has wreaked havoc on people’s budgets. Even financially disciplined individuals experienced a blow on their finances. You may have good plans and intentions for maintaining your wealth standards, but in the end there is nothing you can do when such an event happens. The catastrophe might have impacted your savings because of a decrease or loss of salary and income, or you may have had to overspend toward necessities during the pandemic when the prices of essential commodities shot up.

Sometimes low motivation and failure to hit the target can be the cause of wealth depreciation. However, as businesses reopen and people engage in their routine life activities, you might wonder what to do to regain your previous wealth status.

1. Cut on expenses

With low income due to the pandemic’s global impact, it is crucial to understand how you spend your money. Once you know where and how you spend your money, you can quickly determine what is essential spending and what is extra. You can sell or cut expenses with those things that you can survive without, like that other car, the vacation home, the RV—and even in a worst-case scenario, your home.

It might sound like an extreme tactic, but the benefits are immense. First, it will lower your necessary living expenses. Also, if one of these properties was attached to a loan, it will eliminate the debt. Lastly, when you sell—for example, that extra car or vacation home—you will have the much-needed cash to increase your savings.

What you need to understand is that selling or cutting expenses back will not happen forever. When you stabilize, it is easy to buy them back or even get better than what you sold. The aim here is to avoid going deep into financial depression by getting rid of expenses that are not essential.

2. Pay your debt in style

Be very strategic when it comes to paying off your debt, especially your credit card debt. Choose whatever model you think will work better for your situation, as no two financial cases are the same. In the first model, you can go the avalanche way. With this method, you focus on paying off the credit card with the highest interest rates first. Pay as much as you can toward that debt, but also pay at least the minimum amount toward the other accounts. This method will help you have the least interest in paying off your debt.

The snowball method, on the other hand, focuses on clearing the cards with the lowest debt first. In this method, once you clear one card, roll over to the next card with a minimal debt balance. Again, as before, as you clear the minimal debts first, pay at least the minimum amount toward the other cards, too. This will help you to have fewer loans to pay.

3. Continue saving despite the financial crisis

However hard it might be, especially when trying to pay off your debt, maintain a positive savings balance. With savings, the money can comfortably cushion you in case of an emergency. It can also help you achieve your financial freedom faster. Don’t strain too much, though; save as much as your budget allows to maintain a good saving habit.

4. If possible, take a side gig

If your current source of income does not generate enough wealth to return you to your previous state, consider adding another hustle. Is it possible to take up another job? Can you invest in a part-time business? A part-time business, dog walking, or freelance working will see your income grow faster.

5. Be patient

Though you are anxious to restore your finances, understand that this might not happen overnight. You should be prepared mentally and emotionally for the effort. Set up plans and specific goals to achieve, devoting time and focusing on effort toward achieving those goals. With sound steps and strategies, your financial situation will eventually get back to normal. Just remember that it will take some time.

 

Abby Drexler is a contributing writer and media specialist on behalf of Evolve Bank & Trust. She regularly produces content for a variety of finance blogs.