Money and Your Debt Elimination

by : Andrew Van Valer



If you are running a home based business or just transitioning to one there are a few items that we have learned over time that might help you so you don't make some mistakes. If you can't manage your home and finances when you have limited money - YOU NEVER will when you do have money. The first thing my parents taught me was the best way to save money is not to spend it! Most people don't think that way these days. In a business the question should be what would I make from my investment? Here are some thoughts to consider -

Money is Important, but It Isn't Everything. Health and happiness are more important! That doesn't mean that you should be foolish with your money. Fighting and worrying about money aren't going to solve any problems and could, in fact, destroy your health and happiness. A bit of planning, a common goal and some serious focus will help lay the building blocks for a strong and sturdy financial future.

Spend Less than You Earn. This may seem like a bit of common sense to many, but it really is an issue when it comes to trying to save money. The term "Champagne Taste on a Beer Budget" comes from this area of finances, as there are hundreds of thousands of people that just spend way more money than they bring in, with the help of credit cards, car payments and other personal loans from financial institutions that see you as nothing more than great cash flow - for them! Currently the average American spends 101% of their income.

Negotiate

Everything is negotiable. How do you get the best deal? Well you need to shop and evaluate. Is the best deal always the lowest? Maybe and maybe not? Depends on the value you receive. When purchasing a house ask two brokers for bids and have them explain why one is different from the other and ask them what they can reduce further.

Get Pre-Approved for a Mortgage before You Begin House Hunting. When you put in a bid on a house, the seller looks at more than the amount you are willing to pay. The seller will give more consideration to a lower bid amount that is already pre-approved by the bank than a higher bid without definite financial backing.

Pay Your Mortgage First. Sure, your credit can go through the ringer, but you'll at least have a roof over your head. Many first-time buyer programs require you to attend classes taught by financial experts, and this is one of the first things they will tell you.

Always Try to Pay More than the Minimum Mortgage Payment. By paying one additional principle and interest payment (mortgage payment minus any escrow payments) onto your mortgage balance each year, you will knock 7 years off the life of your note.

Don't Try to Keep Up with the Joneses. Yes, the Joneses next door might have a colossal house, landscaped backyard with a kidney-shaped, in ground pool and two 9-series BMW's parked in the driveway, but they also might have $40,000 in credit card debt and owe on their three cars. Giving into social pressures or compulsions as an excuse to buy elaborate items is nothing short of silly. We have met many people who look great on the outside but are living on the edge of financial disaster.

Pay Off Credit Cards Before Other Debts. The world of compounded interest is alive and well within the credit card industries. While these companies love it when you only pay the minimum, paying a more than the minimum, no matter how much, is better than nothing at all. Debt is the opposite of cash flow! The more debt you carry - they richer they become!

Know that Credit Scores Affect More Than Interest Rates. If your score is less than 620, not only will you pay significantly more money for mortgages and other types of loans, but also more for your insurances. Your car, life and auto policy premiums will all reflect your credit. An adverse score may also keep you from leasing an apartment, or getting your dream job. Wont stop you from getting your dream home business!

Keep Credit Card Balances Below Half of the Credit Limit. Credit cards below the 50% mark create higher marks on credit reports than those past the half waypoint of the limit. Continuously "maxing-out" your credit card is considered to be almost as bad as a few late payments.

Always Pay Credit Card Bills on Time. Not only will you have to pay a late fee (as much as $35) for not making your credit card payment on time, but that new fee could put you over your credit limit, which would, in turn, warrant another fee added to your balance. And don't forget that your interest rate will most likely increase after all of these tiny instances, which will take it even harder for you to get rid of the balance. (Remember, balance transfer cards are only a temporary solution.)

General Spending

Avoid the 20% "Fool's Tax"- Don't Buy a Brand New Vehicle. As soon as you drive a brand new vehicle off the lot, it's value drops 10-15%. Depending on the make and model of the car, the depreciation will continue to drop an additional 10% by year's end and each year after for the next two years. By purchasing a previously owned or leased vehicle either a year or two old, you'll still have a quality auto with available warranty while letting someone else take the major financial hit.

Buy Certain Everyday Items Used. DVD's, CD's, books and sports equipment can each cost significantly less bought used than if purchased new. Isn't that how eBay got started on the Internet?

Shop Off-Season. When you want a new patio set, buy it towards the end of the summer (after the 4th of July) and you'll pay roughly half of what you would have at the beginning of the season. The same goes for clothes and shoes, including for the kids. By stocking up during clearance time, you can save yourself a bundle of cash over purchases at peak times.

Don't Skimp on Healthcare. Of all the ways to save money on monthly expenses, cutting your healthcare is the worst idea. Saving a few hundred dollars a year is hardly worth having to pay $50,000 in medical bills a few years down the road.

Prescription Coverage Is a Must. Even if your doctor has given you a clean bill of health, you just don't know what could happen- and with the rising costs of medicine, you very well be stuck with $200 of necessary meds at any given moment.

Ask for Insurance Discounts. Many insurers won't volunteer discounts like multi-policy, safe driver and good-grade deductions on your premium, but will be "reminded" when you mention it, so don't be afraid to ask.

Don't File Small Claims on your Homeowners or Auto Insurance Policy. Too many small claims on a policy (at or slightly above the deductible) will send up a red flag to your insurer- when renewal time comes around, you might just get a cancellation notice in the mail.

Higher Deductibles on Home and Auto Policies are Usually a Good Idea. You want to try to save these types of insurance for the "big stuff" like a fire (on either), not a smashed window that will cost less to repair than your deductible (see previous entry). You can figure on about a 25% savings when raising your deductible from $500 to $1,000.

Shop Around for New Auto and Homeowner Insurance Every 3 Years. Your car is getting older, so the cost to replace it is dropping. Ergo, some parts of your insurance premium should be dropping to coincide. However, some insurers don't look at it this way and insist on increasing your premium. Shopping around for a new insurance company and policy from a fresh-eyed agent might just yield a lower payment for you.

Shop Around for the Best Interest Rates and Terms. Not all financial institutions are created equal, and no two offer the same rates and terms on similar loans.

Never, Ever, Under Any Circumstances Take a Cash Advance on a Credit Card. Not only will you pay a ridiculous interest rate on the cash you withdraw, you'll pay fees- and interest on those fees- for the remaining years on your new, giant-sized, credit card balance.

Stay Away from Cash Advances/Payday Loans. At a national average fee of $18 per $100 borrowed for each 2 week period , the annual interest rate calculates well into the triple digits. To put it another way: it's cheaper to borrow money from the Mafia.

Don't Count on Social Security. By the time the tail-end of the baby-boomers retire in about 25 years (the last of this generation was born in 1968), there isn't a very good chance that social security will be paying out as much as we have paid in. A solid back-up plan, like a tax-deferred IRA or 401K will help to keep you from living in a shelter.

If Your Employer Matches 401K Invesments, Absolutely Get the Entire Match. This is FREE money that your employer is giving to you towards your retirement, but they won't give a dime out until they see you putting money in it, too. Plus, 401K paycheck deductions are usually pre-tax, so you're getting even more free money. And you can raid this money before retirement, without penalty, when you buy your first house. In some cases the penalties are less then the matches over time.

Starting a Home Business for Retirement Helps More than Your Finances. Besides the fact that you can make up to $17,000 per year without having your Social Security check docked, getting out and earning an income, seeing people each day and basically being a money-making member of society will help your health, happiness and well being (in addition to your wallet!)

Don't Cash Out Your 401K When You Change Jobs. No matter how tempting it may be to pay off that credit card balance or car loan, you need to pretend that your hard-earned, 401K-money was never yours to begin with. Otherwise, be prepared to pay heavy taxes and penalties, and work until your dying day.

The Feds Give Tax-Breaks for Retirement Savers. The amount that you put away for retirement in an IRA is tax deferred up to a certain amount each year. This means that your money is "hidden" from taxes on your annual income-for now, anyways. You pay the taxes on any money withdrawn from the account only when you retire- and by then your tax rate will probably be minimal, anyway.

Saving Money is a Positive Habit, not a Negative Burden. Parents who save money have children who save money, as long as the parents make a positive impression when it comes to the savings part. A habit can also be considered an addiction-and an addiction to watching your hard-earned money grow is not a bad one, either ;-)

Always have an Emergency Fund Available Equal to 3 Months Pay. Just in case of illness, auto accident or you're the victim of corporate downsizing, the 3 month rule should be enough for you to get through without having to dip into any long-term investments.

Get Receipts for All Charitable Donations. Tax deductions come in many shapes and sizes, but none quite as comforting as the one you get for charitable donations. When you head out to donate your used clothing, furniture and knick-knacks, bring them inside of the building and ask for a receipt. Keep all donation receipts together, make sure they total over $500- (anything under that doesn't require receipts) and come April, you'll have an extra tax deduction.

Keep a Travel Log of All Work-Related Miles Driven in Your Car. Any mileage traveled for work-related purposes above and beyond what you normally travel is eligible for a tax deduction. If you normally travel 30 miles each way to work, and a meeting takes you 50 miles away from home, you can deduct the difference in mileage, or 50 miles-30 miles= 20 miles.