When there is only so much income to go around, how do you take care of living expenses, debt payments and save for tomorrow? It is definitely a daunting task. The good part is that with a good plan, some smart financial goals and the determination to work through them, you can achieve financial freedom. This does not mean that you will never have debt, but it does mean that you will take back control of your income and stop living paycheck to paycheck.
Saving money is a great way to support future money emergencies. The down side to concentrating all your efforts on saving is that paying down debt would actually save you more. It may be a difficult concept to understand at first, but paying debt down is more important than creating your own emergency fund.
If you take all your excess cash each month and set it aside, you may avoid online cash advance applications or adding more debt to your credit cards, but you will have also lost money. Why is that? Simply put, a saving account holds money for future needs but a 1% earning from the bank brings no extra cash into your budget each month. In order to pay down your debt you will need to have extra cash to put towards monthly payments. Each time you pay extra towards the principle balance, you are saving. The following month, the balance payment is then smaller and the interest charges will have decreased as well. Whatever money you save from that particular payment can now be added to the next payment bringing the principle debt down even further. The more of your income you save, the more money you will have to use towards debt and building your own emergency fund.
Make some changes to your budget to cut back on unnecessary costs. This will give you more money to turn your finances around. Every little bit counts. Once your debt is paid down, focus on building that savings account. Pay attention to how you use your credit cards so the debt doesn’t regenerate. The good thing is that you will now be able support your emergencies with cash from your savings instead of using alternative money options and there will no longer be wasted money spent on interest payments.