If you reach for plastic to pay for many of your purchases, you may find yourself mired in debt -- like many Americans. But the truth is, you can arrange your finances to increase your own bottom line rather than the bottom line of creditors.
Sue, my barber, married a man with a ton of credit card debt -- which she didn't find out about until after they married. Using her barber shears, Sue cut the credit cards in half and put her new husband and herself on a two-meal-a-day diet until they paid off them all off. They got some benefit from the diet as well.
Sue quickly learned something that wealthy people learned long ago. Few people can get an interest rate on their investments that competes with the rate they pay for debts. That means that every dollar used to pay off high-interest debts is a better investment than putting that dollar into savings.
Here's a novel idea: Rather than
make monthly payments for years on items purchased
with a credit card, you can save for purchases
in advance. It's really not a new concept at all,
but one that many people have trouble putting
|Follow these steps to ensure you will have enough money saved when you're ready to draw it.
a replacement-planning goal
The first step is to establish financial goals.
These goals should include savings needed for
future retirement, but also savings to replace
things that will wear out. You've heard that you
should use a retirement-planning program for retirement
savings, but you seldom hear about replacement
To implement a replacement-planning
goal, you can adopt a time-proven method used
by competent condominium associations. These organizations
have reserves for the eventual replacement of
such items as the roof, road, carpeting, painting,
appliances, etc. In other words, they save before
they buy whenever possible, a strategy that avoids
incurring debts or tapping condo owners for whopping
assessments to make these repairs.
Calculate your goal
Let's use an example of a $1,000 water heater with a 10-year expected life. The amount you must save each year is $100, that is, $1,000 divided by the 10-year life. If the water heater is three years old, you should put three years times $100, or $300, this year in your reserves.