Posts Tagged ‘paydayloan debt’

Alternative To Paydayloan Debt – 14 Strategies To Create A Healthy Emergency Fund – Part 2

In , I discussed the first three steps on how to create a healthy emergency fund and use it as a great alternative to paydayloan debt. An emergency fund acts like your personal short-term cash advance program, which is completely interest-free. Following are the remaining steps.

Step 4 – Do Not Let Your Debt Problems Stop You From Creating Your Emergency Fund

If you are already in debts, repayment of the debts might become your first priority. Here, it is very important for you to keep in mind that there can be two types of emergency fund – a long-term savings account and a short-term savings account. Though it is quite okay to use your long-term savings (such as your retirement fund) to (this strategy is in fact recommended), it is not wise at all to use your short-term savings for this purpose. After all, when you do not have any savings at all, how are you going to deal with financial emergencies that may include periodic expenses like car repair, medical bill, or other such things? If the payday is still a couple of weeks ahead and you have no cash to pay for these expenses, you are likely to end up borrowing an “easy” payday loan, which will eventually ruin your finances and push you into a serious paydayloan debt trap. Therefore, if you must use your short-term savings to pay off your debts, you can do this but as long as you maintain a minimum balance in your emergency fund. For example, if you have to pay off a debt of $200 and the minimum balance you want to keep in your savings account is $500, you must wait until the total balance on this account reaches $700.

Step 5 – Cut Down The Fat From Your List Of Expenses

Do a thorough analysis of your spending patterns. Review how you spent your heard-earned money in the last few months. The idea is to find out those holes your money is leaking from. In short, cut back your expenses as much as you can, but again, it does not mean cutting back on fun and entertainment; you must always have at least 10% of your gross monthly income as your entertainment quota. Lack of fun will soon de-motivate you and you may not be able to continue with your saving strategies. The important thing is that whenever you cut down a particular expense by a certain amount, you must put the same amount of money into your emergency fund. Always remember, spending more than what you earn is very much likely to push you toward paydayloan debt.

Step 6 – Eat At Home But Do Not Forget To Tip Yourself

As part of your saving strategies, you must consider cutting down the number of trips you make to restaurants. But even if you are cooking and eating at home, do not forget to give yourself a tip (the amount of money you otherwise have given to a waiter in a restaurant). It can be as small as $2 and as big as $10. Though in writing, an idea like this sounds exciting, you may find it difficult to implement it practically unless you have a very positive attitude. So, make sure you have it.

Step 7 – Even If A Debt Is Paid Off, Keep Paying The Installments (But This Time To Yourself)

If you have paid off a particular debt in full (such as a credit card or a car payment), you should continue deducting the regular monthly installments from your budget but this time the money should go directly into your emergency fund. This way, you will not be working against your budget and you will not even have to make big changes into your budget plan just because you have paid off a particular debt in full.

Step 8 – Save On Groceries By Having A Bigger Budget For It

This strategy really works – having a bigger budget for groceries but spending the same amount of money you normally spend. It means if you normally spend around $300 for groceries, you should consider having a budget of $350 for it. But you still have to spend $300 only (what you normally spend); the remaining $50 should go directly into savings account. When you see that $50 saving on your budgeting spreadsheet, you will definitely feel motivated, which is crucial because motivation plays a key role in the success of any budgeting plan.

Step 9 – Quit Your Unhealthy Expensive Habits

If you have implemented the above strategies thoroughly, you will definitely be motivated to do more. Use this motivation as an opportunity to quit your unhealthy and expensive habits, such as smoking or drinking. If you spend $5 a day on it, you can save a whopping $150 per month. These habits if you do not quit now can result in serious health problems at a later stage (if not now) and then you will have some big “unexpected” medical bills. This way, if you quit these habits now, you will not end up having some quick savings but you will also be able to avoid those “unexpected” medical bills in future. An emergency fund built on such serious efforts will definitely keep you away from paydayloan debt forever.

Continued: “Step 10 – ”

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