Learn How to Budget

Posted on October 10, 2008
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Take the free financial challenge and learn how to buget your money!

Here at Keyblast.com, we have designed a 9 Step Free Financial course that teaches you how to budget, how to save money, and debt reduction strategies.   We have designed this course to be simple to use and should be completed in 30 days.  We call it the 30-day financial challenge!

Throughout this website, there are key strategies on how to budget, how to save more money, and how to reduce more debt. These strategies will save the average household $305 per month and could potentially save you MUCH more than that.

Here is an outline of the financial course:

We also provide a free budget calculator, net worth calculator, free mortgage calculator, and several other tools that will make managing your finances easier.  Of course, these tools are free to use.

These lessons are designed to be taken in order.  Therefore we urge you to start with the first one, Learn how to budget and build net worth, then move on from there.  However, you are free to learn from this financial course as needed.

That’s it!  Learn for free, save some money. Start now with the first lesson: How to budget

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How to Budget and Net Worth

Posted on October 1, 2008
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The goal of this lesson is to teach you how to budget your money and determine your net worth.  Understanding your current budget and net worth will give you a starting point to develop a personal financial plan for your future. To determine your financial situation (financial health), you will need to calculate your current monthly budget (and determine how your spending habits relate to that budget) and then you will need to calculate your current Net Worth.

These two measures (along with your credit score which will be discussed in the next article) will determine what you need to do to accomplish your financial goals in 30 days, a year from now, and 20 years from now!

So, let’s start building wealth!

First, what is wealth?

Everyone may have a different definition of what wealth is.  To some, it may mean a big house and a private jet; to others, it is the ability to put their children through college and own their home free of mortgages.

Take a minute and think what having wealth means to you.

Whatever your personal definition of wealth is, we want to help you achieve it.

Although our individual definitions of personal wealth may be different, general wealth is defined by your Net Worth.

Net worth is simply the worth of your assets (the things you own) minus the cost of your liabilities (the amount of debt you have).  In other words:

Net Worth = Assets - Liabilities

One way to look at net worth is to imagine you sold everything you owned today for its market value.  Would the money you make from selling these items be enough to pay off all of your debts with some left over?  If so, you have a positive Net Worth!

Eventually, you should want to increase your net worth enough so that this wealth can sustain you through your lifetime and retirement.

How is wealth created?

When you look at the formula for Net Worth (Net Worth = Assets – Liabilities), you will notice that your Net Worth will increase by increasing your assets and by decreasing your liabilities.  It is important that you understand how both assets and liabilities affect your net worth.  We will show you how to manage both parts of net worth.

First, let’s focus on assets.  Not all assets are of equal value in promoting long-term wealth. The real key to creating wealth is controlling wealth creating assets.  In other words, assets that will actually increase in value, and thereby increase your personal net worth over time.

Here are some examples of Wealth Creating Assets:

Now of course, there are other assets that will not help you create wealth, but that we may still purchase out of necessity, for entertainment, or other reasons.  Here are some examples of non-wealth building assets:

The important thing to get from this lesson is that the more money that is spent on Wealth-building Assets versus non-wealth building assets, the faster you will achieve a higher net-worth.

Good Debt vs. Bad Debt

Wealth Building assets also determine what debt is good and what debt is bad.  The best situation is to have NO DEBT!  Avoid debt if at all possible; treat debt like a bad disease.  However, in life, some debt may still be accumulated; despite your best efforts.  All debt is not equal; some debt is better than other forms of debt.  Good debt is used to purchase wealth-building assets and bad debt is used to purchase non-wealth building assets.

In other words, a loan to purchase a home can be good debt because the home will (usually) increase in value.  On the other hand, if you use your credit cards to purchase an iPod or other consumer goods, then this is bad debt because these items will not increase in value, and will often decrease in value (depreciate) over time.

Continue >>  Determine Your Net Worth

Determine Your Net Worth

Posted on September 25, 2008
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(This is a continuation of the lesson: How to Budget and Net Worth).

Now that we have discussed what net worth is and how it is calculated; we want you to determine your current net worth.

In order to accomplish your personal wealth dreams, you need to assess where you currently are.  Then we will develop a plan for you to accomplish your goals.

Computing your net worth begins by listing all of your assets and liabilities and their current market values.  We have created this basic Net worth calculator for you to determine your current net worth.

Follow the link and fill out your own Net Worth Spreadsheet.

Filling out a Net worth calculator, is an actionable item that you can do RIGHT NOW in order to save money, increase your net worth, or gain control of your financial situation.  Filling out a Net Worth Spreadsheet will allow you to see what kind of wealth you have accumulated in your life.

To gain the true value of the Net Worth Spreadsheet, you should analyze what kind of assets and liabilities you have and what you might be able to do to increase your assets and decrease your liabilities.  This will help determine your current situation and give you a starting point from which to set your financial goals.   Once completed, save or print a copy for your records.

Net Worth Calculator (Microsoft Excel Spreadsheet)

Once you have downloaded the Net Worth Calculator, continue on with .

Continue>>  How to Budget

How to Budget

Posted on September 21, 2008
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(This is a continuation of the lesson: How to Budget and Net Worth)

Learning how to budget can increase your savings, investments, and Net Worth.

Throughout all of our lessons we will be discussing ways to increase your personal net worth.  However, one of the most basic and most important ways is to save more money each month.  Increasing savings requires a budget.

A budget allows you to see where you are overspending and to take corrective action.  The most important part of a budget is constant review and discipline!  So, fill out a budget spreadsheet and review it each month.  In future lessons, we will discuss ways to reduce spending and save even more money.

Create a Budget

Now it’s your turn to determine your budget.  Please follow the link, where we have provided a blank free budget worksheet for you to fill out.  Once you have completed the budget spreadsheet return here and complete the lesson.

The spreadsheet includes a “Planned Budget” and “Actual Budget”.  As you consistently review your budget each month, you will discover ways to save even more money.

Here are some basic instructions for filling out the Budget Worksheet:

  1. Fill out the first column on the spreadsheet labeled “Planned Budget”.  This is your GOAL to achieve each month.  This column will represent the amount of money you hope to spend in each of the given categories.
  2. Fill out the “Actual Budget” as the month progresses.  This will help you see where you are overspending.
  3. Compare the Planned Budget to the Actual Budget at the end of each month.  As you focus on saving money, you will surprised at the many different areas in which you can cut back your spending!

Also, note on the Budget Spreadsheet that some of your expenses are labelled “Necessary” and others are labeled “Discretionary”.  Try to eliminate as many discretionary expenses FIRST, and then look to other categories to save more money.

Download: Free Budget Calculator

The important thing to get from this lesson is that the more money that is spent on wealth-building Assets versus non-wealth building assets, the faster you will achieve a higher net-worth.  This also defines good debt and bad debt.  You are encouraged to continue to use our Budget Calculator and Net Worth Calculator.  You should continually assess where your budget is each month and you will notice your net worth increasing.

Review items discussed:

In order to get the most out of these lessons; apply these items immediately!  As you do, you will be surprised how much money you will be able to save.

It is recommended that you take your time in completing these tasks in order to do it right.  Now that you know how to budget and calculate your net worth, move on to our next lesson: Improve Credit Score.

Improve Credit Score

Posted on September 20, 2008
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In the previous lesson you learned how to budget and how to calculate your personal net worth.  In this lesson, we will discuss how to improve your credit score.

In this lesson, we will cover what your credit score is, how to get your credit score (for free), and we will briefly discuss how you can improve your credit score.  How to improve your credit score will be covered in much more detail in lessons 4 and 5.

The assignment for this lesson is to obtain and review your credit report to understand where you are right now.  In six months, after you have implemented the steps outlined in the course, we encourage you to look at your credit report again, to see the positive changes!

What is a Credit Score?

Your credit score is an important factor in determining the interest rate you will pay when borrowing money to purchase a home, car, or any other item.  In general, the higher your credit score, the lower will be your interest rate.  Therefore, having a higher credit score will actually help improve your net worth.

Your credit score is calculated using a statistical model and reported on a FICO (Fair and Isaac Corporation) scale.  The  credit agencies use your “FICO score” to predict the likelihood that you will repay your debts.  Your FICO score is given on a credit report that banks, credit card companies, insurance companies, and many other agencies use to help them decide whether they will lend money to you or offer you their services.  Some of the factors used to determine your credit (FICO) score are:

Some of the factors that are NOT taken into consideration are:

The three credit reporting agencies in the US are Experian, Equifax, and TransUnion.  They each use their own formula to calculate your credit score; so each agency will give you slightly different scores.

Your personal credit report not only contains your credit score, but it also contains all of your current outstanding debt.  It will list if you have had any late payments, what the balance is, and much more.  Its important for you to know what’s on your credit report.

In fact, it is VERY possible that there are errors on your credit report.  These errors require your immediate attention.  Fixing these errors can often be very simple and could very well improve your credit score.  In addition, there may be old credit cards that you had forgotten about, that you may want to have closed.  Reducing the amount of debt you have “available” could also increase your credit score.

So, by simply reviewing your own credit report, fixing errors, and cleaning up old debts, you may be able to improve your credit score immediately!  Even a small increase in your credit score could translate into significant savings for you next time you get a loan or credit card because your interest rate will be lower!

That’s why pulling your own free credit report is encouraged.

Now it’s time to see your personal credit report.  If you go to Annual Credit Report, you can receive a copy of your credit report.  This is a government program that allows all citizens to receive a free copy of their credit report once per year.  However, this report will NOT include your credit score.

If you would like to receive both your report AND score go to Privacy Matters 1-2-3.  This service will allow you to get a free complete copy of your credit report AND score from all three agencies.  This service is 100% free, safe, and legitimate.  Most free services usually only provide your score or your report, not both.  This one not only does that, but provides both your score and report from ALL 3 agencies.

By law, the credit agencies will allow you to inquire about your own credit without affecting your credit score.  Once you have a copy of your free credit report, come back here and complete the lesson.

Continue>>  Improve Your Credit Score

Improve Your Credit Score

Posted on September 19, 2008
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(This is a continuation of the lesson: Improve Credit Score).

Now that you have a copy or your free credit report, you can assess where you are.  Your credit score can range anywhere from below 500 to above 800. Where are you in relation to the rest of the US?  The average credit score in the US is 675.  Lenders all have their own guidelines; however, most consider a score below 620 to be poor and a FICO score above 740 to be excellent.

State Average Consumer Credit Score Year 2004/2006
USA National Average YR2004 - 677 YR2006 - 675
South Dakota YR2004 - 710 YR2006 - 708
Minnesota YR2004 - 707 YR2006 - 706
North Dakota YR2004 - 706 YR2006 - 705
Vermont YR2004 - 706 YR2006 - 707
Massachusetts YR2004 - 703 YR2006 - 701
New Hampshire YR2004 - 703 YR2006 - 704
Montana YR2004 - 701 YR2006 - 703
Iowa YR2004 - 700 YR2006 - 697
Maine YR2004 - 699 YR2006 - 699
Wisconsin YR2004 - 699 YR2006 - 695
Pennsylvania YR2004 - 696 YR2006 - 692
Nebraska YR2004 - 695 YR2006 - 694
Connecticut YR2004 - 694 YR2006 - 695
New Jersey YR2004 - 693 YR2006 - 691
Rhode Island YR2004 - 692 YR2006 - 693
Washington YR2004 - 691 YR2006 - 685
Wyoming YR2004 - 690 YR2006 - 689
Virginia YR2004 - 689 YR2006 - 689
Hawaii YR2004 - 688 YR2006 - 690
Idaho YR2004 - 688 YR2006 - 684
Maryland YR2004 - 688 YR2006 - 684
New York YR2004 - 686 YR2006 - 685
Oregon YR2004 - 686 YR2006 - 686
Ohio YR2004 - 685 YR2006 - 681
Delaware YR2004 - 684 YR2006 - 679
Illinois YR2004 - 684 YR2006 - 682
Missouri YR2004 - 683 YR2006 - 678
Utah YR2004 - 683 YR2006 - 684
Kansas YR2004 - 682 YR2006 - 679
Michigan YR2004 - 679 YR2006 - 677
Tennessee YR2004 - 679 YR2006 - 674
West Virginia YR2004 - 679 YR2006 - 675
Kentucky YR2004 - 677 YR2006 - 675
Washington DC YR2004 - 677 YR2006 - 674
Alabama YR2004 - 676 YR2006 - 670
Indiana YR2004 - 676 YR2006 - 672
Alaska YR2004 - 674 YR2006 - 674
Colorado YR2004 - 674 YR2006 - 671
Florida YR2004 - 673 YR2006 - 672
California YR2004 - 672 YR2006 - 672
Arkansas YR2004 - 668 YR2006 - 666
Georgia YR2004 - 668 YR2006 - 662
Mississippi YR2004 - 668 YR2006 - 666
North Carolina YR2004 - 667 YR2006 - 663
Oklahoma YR2004 - 666 YR2006 - 664
South Carolina YR2004 - 665 YR2006 - 663
Louisiana YR2004 - 663 YR2006 - 662
New Mexico YR2004 - 663 YR2006 - 661
Arizona YR2004 - 659 YR2006 - 659
Nevada YR2004 - 655 YR2006 - 654
Texas YR2004 - 651 YR2006 - 647

Review Your Credit Report

Thoroughly read your credit report to determine how to improve your credit score.  As we go through these lessons, we will offer suggestions on how to improve your score.  In six months we encourage you to look at your credit report again to determine if your score has improved.  We are confident that it will.

If your credit score was higher than 720, congratulations!  You are doing an excellent job at managing your credit.  If your score is not where you would like it to be, you can take action to improve it.  We will cover some ways to improve your credit score in lessons 3 and 4.

An immediate action you can take is to review your report for errors.  If you notice an error on your report, contact the credit reporting agency and explain the nature of the problem.  The credit agency is required to research your problem within 30 days and get back with you.  If the issue remains unresolved, you have the right to add a statement of explanation on your credit report.

Congratulations, you have completed step 2 to improving your personal wealth!

Review:

Make sure to complete get a copy of your credit report, as we will be referring to it throughout these courses.

Once completed, contine to the next lesson:  How to Save Money.

How to Save Money

Posted on September 18, 2008
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If you have completed the previous lessons (how to budget, and how to improve your credit), you now have a budget that you developed using our budget spreadsheet.  You also have a snapshot of your current Net Worth.  Finally you have a copy of your credit report.  These three items give you an overall picture of where you are financially.

Now, we will teach you how to save money to make your financial dreams a reality.

In this lesson you will develop a savings plan to assist you in wealth building.  In addition, we will offer simple, day-to-day savings tips that will translate into real wealth over time.

Budgeting and saving are things that many people either never learn or do not have the discipline to do consistently.  We will provide you with knowledge; however, you must develop the discipline to consistently save more money.

Time Value of Money

In order to demonstrate how vitally important it is to constantly save money to obtain your financial dreams, we will first discuss the Time Value of Money.

Time Value of Money simply means that a dollar today is worth more than a dollar tomorrow.  What would you rather have; a million dollars right now, or a million dollars in 10 years?  The reason you should want it right now, is because you can invest the 1 million dollars and have MUCH more money in 10 years.

One example that many others have used to demonstrate the time value of money is the purchase of Manhattan island.   In 1629, Peter Minuit purchased Manhattan island from the Native Americans for about $24 in gold medallions and some trinkets.  Obviously the real estate and everything on Manhattan island is worth MUCH more; some estimate that today its worth about $70 billion.  What a steal!  Right?

Well, lets see if Peter Minuit really made a good deal.  If he had invested that $24 for the past 378 years at a very conservative rate of 8%, the value today might astound you.  This $24 invested until today would be worth $103,370,000,000,000!  That’s over $103 Trillion; much more than the $60 billion that its worth today.  Mr. Minuit made a bad investment!

Hopefully, this example helps you see the power behind the Time Value of Money.  The longer you are able to save and invest (and leave it alone), the faster it will grow.  Here’s another example that you might be able to relate with even better than the one above.

Let’s say that you have $10,000 that you have in the bank.  In addtion, by using your budget and constant improvement you are able to save $400 each month for the next 30 years.  The total amount that you would have accumulated is $154,000 in 30 years ($10,000 + ($400 x 360)).  Not bad.

However, let’s say that you understand the power of investing and the Time Value of Money.  Immediately you put your $10,000 in an account that is earning 12%, and you add the $400 each month for 30 years.  How much do you think it would be worth?

The answer: $1,757,482.07

Now that’s a much better nest egg that a measly $153,000!  This is very achievable; in fact, the 12% that I used, I used for a reason.  The average S&P 500 market return over the past 30 years is 12%.  So, not only is this achievable; its realistic as it is only the average: some will gain even more.

So, if your goal is to have $1 million, and you have NOTHING in the bank right now; you need to save $286.13 each month for the next 30 years, and invest it at a 12% return.  That’s it!  All of the sudden, it doesn’t seem so hard to become a millionaire after all.

So, as we begin to talk about how to save money in the lesson, remember the Time Value of Money.  When we talk about ways to save an extra $100 a month, we are not just talking about $100.  We are really talking about what that $100 each month can become in 30 years or $349,496.41!  So, for every 1 meager dollar you save in your monthly budget, you are really socking away about $3,500 towards your retirement.

If you can find a way to eliminate $286 of spending each month; congratulations, you just become a millionaire!  This theme of the Time Value of Money is SO important to always keep in the forefront of your mind.  As we talk about these so-called “little” ways to save money; remember, we are really talking about BIG money here.

Continue >> How to Save More Money

How to Save More Money

Posted on September 17, 2008
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Determine How Much You Can Save

(This is a continuation of the article: How to Save Money).  The first step in developing a plan is to determine how much money you can save or invest each month.  This amount was calculated in a previous lesson: How to budget.  Look at the budget spreadsheet that you completed.  Notice the amount at the bottom “Available to Save or Invest.”  The number may be positive or negative (hopefully positive).  We will discuss ways to improve the number in this lesson.

If positive, this amount (or a little less) should be your monthly savings goal.  So, if you have $200 available to save or invest each month, you may want to make $175 your monthly savings goal.  However, before you set a goal; we want to offer some tips for managing your budget.

Utilize the “Planned Budget” column (the first column) in the Keyblast Budget Spreadsheet in order to view how much you can save.  You may have already determined some ways to decrease your budget.  Below we provide a few suggestions on how to save money.  Once you have determined a few realistic ways to decrease your spending each month; you will set a savings goal.  This step is essential to building your personal wealth.

Here are several ways to save money each month.  We hope that you will review each one carefully and honestly as it could mean the difference between no retirement, and a nice one.  Even though, one item may only save $5 - $10; that $5 - $10 can add up very quickly over several different items.

We also tried to estimate the monthly savings that the average US Household could save by implementing some of the suggestions below.  So, if you make more than the average US household, you could actually be saving MORE money than the estimations below.  If you make less than the average US household in income, your savings may be less.  The average US Household income for 2006 was $48,201.

So, here are some suggestions on how to save money each month:

Eat out one less time each month (estimated savings - $35/month).

Bring your lunch to work or school (estimated savings - $20 per month).

Create a shopping list and stick to it when you get groceries, and use coupons (estimated savings - $40 per month).

Use generic brands

Lower your utility bills (estimated savings - $20 per month)

Other suggestions:

There are literally hundreds of other ways to save money.  However, the most important thing is to develop your budget and constantly monitor how you could save more.

Continue >> Ways to Save Money

Ways to Save Money

Posted on September 16, 2008
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(This is a continuation of: How to Save Money). 

Monitoring Spending - The Cash Method (estimated savings - $20)

One way to monitor your spending is to use only cash.  Determine how much cash you need during the week for groceries, gas, etc, and then put away your debit and credit cards.  Carry a notepad around with you and jot down where you are spending your money.  This will allow you to see where all your money is going.

By using cash for everything, you can easily monitor when you are running out of money.  Unfortunately, so many people only use debit or credit cards to purchase items; they simply do not know when they have spent too much.  This exercise will help you to further analyze your spending habits and where you will be able to save money each month.

Decrease Fixed Expenses

The cash method will not help you save on many of the fixed expenses that you have such as car insurance, rent or mortgage payments, homeowners insurance, life insurance, or other expenses.  However, with a little effort, you can lower these cost as well.  For example, you can often get a better car insurance rate or lower mortgage payment.

Reduce Car Insurance expenditures (estimated savings - $20 per month)

The one fixed payment that we highly recommend you take a look at reducing right away is your car insurance.  Many times we get a car insurance policy and never take a look at it again for a number of years.  This is not a good idea.  Insurance companies are always competing on price, and you may be able to decrease your cost by simply switching carriers.

When getting your insurance quote, you may also want to consider raising your deductible.  The higher you raise your deductible, the lower your monthly payments will be.  The deductible is the amount that you would have to pay out of pocket before your insurance coverage would kick it.  However, the amount of savings that you could accumulate by simply requesting a higher deductible could make it well worth it.

You can often save $50 per month or more just by switching insurance and/or increasing your deductible.  With the internet, you can get a quote in less than 15 minutes that will help you determine if this is a feasible option.  Many internet sites provide this service for free.

If you have not received a car insurance quote in the past six months, we recommend that you receive an online quote.  This is one of our Keyblast Bonuses that you can implement immediately and begin saving money right away.  Within a few minutes you could know if you will be able to save anywhere from $20-$50 per month.

Go to Net Quote for a car insurance quote.  This service will allow you to get the best rates available from all the major insurance carriers.


Once you have received a quote from this service, we also recommend that you contact your current insurance carrier to see if they can match the price, or can beat the quote when you increase your deductible.  In fact, when receiving an insurance quote it is always recommended that go to at least 2 sources.  This way you will be more likely to get a good deal on your insurance. Reducing Homeowners insurance payment Another, fixed expense that you may want to consider switching is your homeowners insurance.  Again, if you have not even looked at other insurance carriers since you purchased your home, you should at least see if you could be saving money.  In addition, if you are willing to increase your deductible your payments will be lower each month. In addition, it is also important to remember that you may be able to get a discount if both your Homeowner’s insurance and car insurance policies are with the same company.  This is another one of those Keyblast Bonuses that you can implement at this moment to start saving right away.To see if you can reduce your homeowners insurance each month, click right here (Net Quote).Or try this free comparison service to see if you could save on insurance.

Another Example: Mortgage Payments

You may also be paying too much on your mortgage payment.  We will discuss reducing mortgage and other debt payments in detail in lessons 4 and 5.Just from implementing the simple Keyblast Bonuses mentioned above, you may be able to save as much as $155 per month or even more.  These are very simple items that can be implemented right away; so we strongly suggest that you do so. In fact, $155 each month over 30 years is $541,719! (Using the average market return of 12%).  Not too bad for just a few minutes of work.  Some of you will be able to save MUCH more.  This $155 is a VERY conservative effort, and only applies to the average household income level of $48,201.  So, in other words, if you make more money than this, you should most certainly be able to save more.

Set a Savings Goal

Now that you have reviewed your budget and determined ways to reduce your spending each month; it’s time to set a savings goal.  Setting a goal is very important because it gives you a sense of control.  You will be able to see that you truly are on the path to achieving your financial dreams.  As you consistently save and invest, you will be able to grow your personal wealth.

For example, let’s say that you were able to reduce your car insurance, and you used the cash method to save a total of $150, $250, or $500 each month.  The calculations below show the growth of this money compounded monthly at an annual rate of 12% over 30 years.

The point is, if you are able to save even $150 per month, you can build up a nice little nest egg.  If you can save $500 per month you can retire with well over $1 million.  You may already be aware of this, but in order to make it work, you must establish a plan.

In lesson 6 we will talk in more detail about where to invest your money.  However, for now get into the habit of putting your money at least into a basic savings account at your local bank.

So, what is your savings goal per month?  Take 2 minutes and write down your goal.

Review

Overall, analyze your ENTIRE budget to find ways where you can save even more money.

If you implement these simple steps, the average household should be able to save at least $155 per month.

Continue on with the next lesson about: Debt Reduction.

Debt Reduction

Posted on September 15, 2008
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This lesson is all about debt reduction.  In the lesson How to Budget, we learned about how debt affects your net worth. Remember:

Net Worth = Assets – Liabilities

Liabilities are your debts. These debts reduce your net worth; especially “bad debt”. Good debt is used to purchase assets that increase in value, while bad debt is used on assets that decrease in value.

Although we have here classified debt as “good” and “bad”, all debt immediately decreases your net worth. And, you are also responsible for paying interest, which reduces the amount that you could be saving! This is a double whammy!

So, debt should not be used if at all possible.  A home loan is the only debt that you will probably NEED to have.  An education would also be an asset that would increase in value; however, debt should still be avoided if possible.  In extreme circumstances, debt should only be used to purchase assets that will increase in value.  The person, that pays good old cash for a car, education, furniture, electronics, and other items; will up with more peace of mind and usually more money in the bank.

Your credit cards and other debt should not be used to purchase groceries, gas, TVs, or other consumer goods.

However, in today’s world credit cards are so readily attainable and so convenient to use, it can be extremely easy to let your debts get out of control. The purpose of this lesson is to develop debt reduction plan and teach you how to pay off your debts as quickly as possible.

The Cause of Debt

In the days of our parents or grandparents, credit cards were rarely if ever used.  Now the use of credit cards for basic items such as food and utilities is commonplace.  Some other reasons that may be causing the high credit cards bills of America:

Nearly all debt problems fall into these categories.  Unfortunately, most debt problems are caused by the last 3 and not the first 3.

Debt Reduction Solution

The first solution to debt is to stop accumulating more of it.  Stop using your credit cards and start paying with cash or a debit card.  This will allow you to stop the bleeding of money and begin to heal the debt wounds that you may have.  Here are a few tips to help eliminate credit card debt and spending:

Most importantly, now that you have a budget (use our free budget calculator)…stick to it!  Frequently review how much you are spending and make sure not to buy anything on credit.  Credit cards not only make you spend more (because of interest) on everything you purchase; it also prevents you from investing that money elsewhere.

For example, let’s take a look at Joe and Tammy.  Both Joe and Tammy purchased the exact same TV for $1,500.  However, Tammy had saved up for the purchase and paid cash, while Joe bought it the first time he saw it and used the store credit card he was offered at 22% annual interest rate.  At $50 a month, it took Joe 4 years to pay for his TV.

While Tammy paid $1,500 for her TV, Joe paid a total of $2,200 ($1,500 plus interest over 4 years).  So, Joe not only paid $700 more for his TV than Tammy, he also lost the opportunity to invest the $700 that he would have saved had he planned ahead.

Unfortunately, impulsive buyers do this over and over again and they end up paying thousands and thousands of dollars more for the same items that their neighbors saved up and bought.

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