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Pay Down Your Debt Fast: The Snowball Effect

Pay Down Your Debt Fast: The Snowball Effect

    Paying for school sucks.

    You end up getting a decent education (maybe), but come to quickly find out that most of what you learned is not exactly everything you need in the real world. In fact, you may find that you learn more in the first six months at your new job than you did during your entire time at school!

    What hurts worse is that most people, at least in the US, are paying more every year for school. This means larger and larger amounts of education debt as well as consumer debt. Think of all that pizza!

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    But, the size of your debt doesn’t have to scare you. Trust me; it scared the hell out of me for a while. This is how I dealt and continue to deal with it.

    Budget

    A debt snowball doesn’t work without a good budget in place. I know that this may be the last thing that you want to hear about getting rid of your debt, but seriously, it won’t work without a budget. I didn’t realize the strength of budgeting until I got on the You Need a Budget bandwagon and followed that “system.” This helped me see my life in the form of item buckets and a “Buffer” so I could get close to being a month ahead on all my bills.

    Having this leeway in your money is the first step to trying to find the little extra each month to pay down your debt fast. When you have the month buffer sitting in front of you, you can more realistically and with less fear, approach paying down your debts.

    Make the list

    Next, you need to know the exact amount of each of your debts as well as their interest rates and minimum payments. After you get this information you can make the list in either two forms:

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    1. In order from lowest to highest amount.
    2. In order from highest to lowest interest rate.

    To be honest, most people will tell you to pay the highest interest rate debts first. That makes sense for the most part, especially if you want to save money with some debts with ridiculously high interest rates. But, I chose to pick my lowest amount first.

    Why?

    Because I could get satisfaction of paying off one of my debts and see the effects of the debt snowball faster. That’s all.

    You should take it by a case to case basis though. Try to weigh how much you owe against the interest rate to see which method is better. You may even need to approach it a different way, like if you have a very low debt amount with a super high interest rate and a huge debt amount with a mediocre interest rate. You have to see which way you are paying more money in the long run, then avoid that way.

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    The law of three

    After you know your minimums and add them and everything else you need in your life to your budget, you should have some shillings left. If you don’t, this isn’t the post to tell you how to make more money. Instead, try to stick to the absolute essentials in your budget. If you have entertainment money; cut it. We will create some of that shortly.

    Now that you have some extra money un-budgeted for the month, you have to split it into three equal pieces for:

    1. Savings
    2. Debt
    3. Fun money

    Some debt gurus will say that you shouldn’t have any fun money, you should strictly concentrate on paying down debt and saving. I say, “screw that,” that is unless you are in dire straights and need out of debt in a hurry.

    This extra money you have for debt, that is the money that you will put on top of your minimum payment to your first debt in the list you made above. Once that first debt is payed off then you will move the minimum plus the extra money for debt to the next debt payment and so one.

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    See it? A snowball!

    Here is what is awesome. None of this accounts for you making more money during the month. As soon as you start pulling in any more money, you can throw it towards you debt, or use it as more play money, or buy some pizza. It doesn’t necessarily matter.

    Now calculate

    You can do this on paper, if you are like a crazy mathematics ninja, but I prefer the digital way because it is easier to keep track of and idiot proof. One of the best ways that I have found that works on Mac and PC is with the trusty ol’ Vertex42 Debt Reduction Calculator Spreadsheet. I first saw this thing mentioned on Get Rich Slowly in 2006, but it still holds true today. Since then I have migrated to an iPhone app called DebtPayoff Pro that is great. There are many more out there, but these are the ones that have worked well for me in the past and present.

    Now that you have a tool you can enter all your debt information, how much money you are going to throw extra toward your debt, and the starting balance date. Then you can get an idea of when certain debts will be paid off as well as when the total debt will be paid off. If you are putting away a decent amount of money extra toward debt, you are going to be very surprised at just how fast your debt diminishes.

    Now party

    Paying down your debt fast can feel like the biggest burden in your life, especially if you have a lot of it. The truth of the matter is, if you can cover your minimum payments right now and have a little money extra every month, you can put a serious hurtin’ on your debt.

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    Published on June 12, 2018

    How Much Money Do I Need to Retire? Find Your Answer Here

    How Much Money Do I Need to Retire? Find Your Answer Here

    It is never too early nor is it ever too late to start planning for retirement. It ultimately depends on your way of life, where are you living, and whether you need to let go of anything. A successful retirement strategy is to have enough pay to cover your expenses with a little cash going into a savings account for sudden financial needs.

    With regards to retirement, we all have an alternate vision in mind. In fact, some think about traveling throughout the world, while some think of a peaceful life with their grandchildren. Whether we get ready for it or not, we will one day turn to retirement age and so, we should be prepared for it. I’m going to tell you how in this article.

    Benefits of early ventures for retirement

    The way this works is you figure out where you need to live, the amount it will cost you to live there (rent/food/transportation), and the various expenses you will need to account for, like travel/insurance/medical bills and taxes. Many people are struggling to put aside money for their future savings and some haven’t started yet. Think you can put off thinking about retirement? The reality is that you need to start thinking about it right now, and putting aside some money from today.

    There are a lot of benefits of taking early steps towards retirement. Utilize the power of compounding, low investment for targeted corpus and you can create more corpus investing the same money:

    • If someone saves $100 every month and starts investing for 30 years at 10% return, initially you will see that within 5-10 years, your investments will not multiply. However, after that period, the corpus will increase immensely with the impact of compounding. The investment period expands the extent of profits increments in the corpus.
    • Suppose there are two people, one aged 30, and the other 40. Both need to resign at 60 with the same retirement objectives of $300,000 USD each. Both will put resources into an investment with 10% of the return. Thus, to accomplish their retirement objective, the younger one needs to save $100 USD / month and the older one needs to collect $300 USD / month. Since the older one has started investing ten years later than the younger one, he will pay more than double what the younger one will pay.
    • If someone saves $100 USD every month and starts investing at 30 years old till 60 and gets 10% annual return, his corpus becomes around $170,000. Otherwise, if he starts the same amount spending at 40 years of age with the same 10% return, he will have around $57,000 USD. He can profit by just investing ten years early.

    You can’t invest too much money in retirement during the early stage of your career since you may have different objectives. However, you can increase the investment gradually if you start investing just a small amount.

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    Average retirement age

    For many people who are nearing retirement age or recently resigned, one of their most significant financial regrets is that they did not focus on saving for their golden years. As per the Consumer Reports study, it demonstrates that only 28% of investors with the age of 55 years or older are pleased with the way they have saved for retirement.

    As per the report, The Economic Policy Institute breaks down how much Americans have put away.[1] Since you know that when the majority of people retire, you can subtract your age from that more significant number and check down what number of more years you need to work.

    But many retirees go back to work. Some of them do part time job while others do seek for a second career. Some even come back to full-time work and then retire again in a couple of years. So deciding their retirement age could be tricky.

    Average retirement savings

    To get retirement started, saving is pretty easy, though it can seem complicated. These simple five steps will make you go on retirement now. So, you don’t need to stress over having the same regrets as today’s retirees.

    1. Invest 15% for your retirement

    Your initial step is to save 15% of your income. This will depend on your gross income and does not include any coordinating assets you get through your employer’s retirement plan.

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    It’s sufficient to enable you to achieve your retirement investment funds objectives, but not too much to keep you from enjoying your income today.

    2. Utilize tax-advantaged retirement plan

    Yes, we utilized the T-word; however, don’t daydream! Split your 15% retirement contributing budget between charge conceded retirement plans like your 401(k) or after-tax plans like a Roth IRA.

    3. Invest your money around

    To put it all in one place is the most significant risk that you can take with your retirement money. With mutual funds, however, you can invest in the biggest and most recognizable brands as well as that new organizations you’ve never known about but has a lot of growth potential.

    Opt a growth-stock mutual fund with background marked by solid returns for both your 401(k) and Roth IRA speculations.

    4. Stay with it

    Since mutual fund investing is less risky than investing in single stocks, it is not risk-free. You can see your savings grow in the long term as long as you can leave your money where it is and keep adding to it.

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    5. Work with an investing professional

    It is essential to look for an investment professional, as you must have a lot of queries concerning your retirement plan during 30 or more years of investing,

    Never make due with an investment professional who recommends or patronizes you to turn over all your investment choices to them. Since this is your retirement, nobody will think or care about it more than you do!

    You might analyze or compare your savings against the average retirement savings for your age group to check whether you’re falling behind or getting towards of the curve. On the other hand, it might be conceivable to hang up the work boots and hit the shoreline with fewer savings if you live easily or below your means.

    How to achieve your financial goals?

    An ideal approach to achieve your financial goals is to stay focused on what you need for your future, ignore everything (and everyone) else that may divert you. There’s a significant business culture out there that requires you to stay in debt, live for the occasion and stress over your future later on.

    You need to start planning for your future from now, not when you have more time or money to invest. You can even talk to a financial advisor for any help. Cooperate to set your money goals and make an action plan to reach them. You can retire younger than you thought you could if you create a project and follow up on it.

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    Start planning for your retirement

    A lot has changed in the last 30 years; our previous generation had an career goal and they would join either a large private company or a government organization immediately after school or college. Then they would spend the next 38 years in the same organization and the form of provident fund and gratuity. They would retire with a decent corpus and they would later spend the remaining time with their pension benefits. It’s a bit different now, but with the above information, you’ll be well prepared.

    Whether you can afford to retire now or not, you need not bother with a retirement calculator to get a rough estimate. You should have the capacity to closely approximate your daily spending habits to figure out how much money goes out the door every year.

    Featured photo credit: Pexels via pexels.com

    Reference

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