Saving & Investing Tip #4: A No-brainer!

This post is the forth in a series of 9 posts under the category of “Save” and this one is really a “No-brainer”!

Well, maybe a “no-brainer” but good advice and worth repeating here. It’s simply, “Pay Off High Interest Debt First”. Yep, it’s that simple.

This series of posts is essentially be reprints of 9 articles from Investor.gov, a Securities and Exchange Commission  web site. The 9 articles present a roadmap to sound saving and investing. You are invited to visit Investor.gov to view the original articles.

The 9 steps to the Savings and Investing Roadmap are:

Define Your goals (previous post)
Figure Out Your Finances (previous post)
Small Savings Add Up to Big Money (previous post)
Pay Off Credit Cards or Other High Interest Debt (this post)
Save for a Rainy Day
Understand What It Means to Invest
Diversify Your Investments
Gauge Your Risk Tolerance
Learn About Investment Options

Here’s the advice with a few good rules for controlling high interest debt from investor.gov.

“Pay Off Credit Cards or Other High Interest Debt

No investment strategy pays off as well as, or with less risk than, eliminating high interest debt. Most credit cards charge high interest rates — as much as 18% or more – if you don’t pay off your balance in full each month. If you owe money on your credit cards, the wisest thing you can do is pay off the balance in full as quickly as possible. Virtually no investment will give you returns to match an 18% interest rate on your credit card. That’s why you’re better off eliminating all credit card debt before investing. Once you’ve paid off your credit cards, you can budget your money and begin to save and invest.

Here are some tips for avoiding credit card debt:

Put Away the Plastic

  • Don’t use a credit card unless you know you’ll have the money to pay the bill when it arrives.

Know What You Owe

  • It’s easy to forget how much you’ve charged on your credit card. Every time you use a credit card, track how much you have spent and figure out how much you’ll have to pay that month. If you know you won’t be able to pay your balance in full, try to figure out how much you can pay each month and how long it’ll take to pay the balance in full. (see the editor’s note below)

Pay Off the Card with the Highest Rate

  • If you’ve got unpaid balances on several credit cards, you should first pay down the card that charges the highest rate. Pay as much as you can toward that debt each month until your balance is once again zero, while still paying the minimum on your other cards. The same advice goes for any other high-interest debt (about 8% or above), which does not offer any tax advantages

(editor’s note: If you are looking for a good tool to consolidate credit card balances and other debt, consider MoneyDesktop, a personal financial management tool offered by Tri-Town Teachers Credit Union free to members.)

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Small Savings Add Up to Big Money

How much does a daily candy bar cost? Would you believe $465.84? Or more?

If that number, $465.84, seems a bit high, then read on!

This post is the third in a series of 9 posts under the category of “Save”. The posts will essentially be reprints of 9 articles from Investor.gov, a Securities and Exchange Commission  web site. The 9 articles present a roadmap to sound saving and investing. You are invited to visit Investor.gov to view the original articles.

The 9 steps to the Savings and Investing Roadmap are:

Define Your goals (previous post)
Figure Out Your Finances (previous post)
Small Savings Add Up to Big Money (this post)
Pay Off Credit Cards or Other High Interest Debt
Save for a Rainy Day
Understand What It Means to Invest
Diversify Your Investments
Gauge Your Risk Tolerance
Learn About Investment Options

OK, let’s see about this $465 candy bar.

“If you buy a candy bar every day for $1, it adds up to $365 a year. If you saved that $365 and put it into an investment that earns 5% a year, it would grow to $465.84 by the end of five years, and by the end of 30 years, to $1,577.50. That’s the power of “compounding.”

With compound interest, you earn interest on the money you save and on the interest that money earns. Over time, even a small amount saved can add up to big money.

If you buy on impulse, make a rule that you’ll always wait 24 hours before buying anything. You may lose your desire to buy it after a day. Also, try emptying your pockets at the end of each day and putting spare change aside. You’ll be surprised how quickly those nickels and dimes add up.”

Sounds simple doesn’t it? Like most of the main points of this roadmap, it is an idea we’ve heard before, probably many times. Yet, many of us look at a small expenditure like a candy bar and say, “It’s only $1, that can’t affect my financial plan, and besides, I want it!”

There is a difference between knowing what is best course of action, and doing it. Hopefully simple reminders, like this one, will help you make better decisions more often  and take a courses of action that help your financial future.

Was this post helpful? Let us know. We really want to hear from you. Just make a comment. We’ll see it and respond. You can BANK on it!

Saving: Define Your Goals

With this post Tri-Town Apple is initiating a series of 9 posts under the category of “Save”. The posts will essentially be reprints of 9 articles from Investor.gov, a Securities and Exchange Commission  web site. The 9 articles present a roadmap to sound saving and investing. You are invited to visit Investor.gov to view the original articles.

The 9 steps to the Savings and Investing Roadmap are:

Define Your goals (this post)
Figure Out Your Finances
Small Savings Add Up to Big Money
Pay Off Credit Cards or Other High Interest Debt
Save for a Rainy Day
Understand What It Means to Invest
Diversify Your Investments
Gauge Your Risk Tolerance
Learn About Investment Options

“Roadmap to Saving and Investing

Define Your Goals

Knowing how to secure your financial well-being is one of the most important things you can do for yourself. You don’t have to be a genius to do it. You just just need to know a few basics, form a plan, and be ready to stick to it.

To end up where you want to be, you need a financial plan. Ask yourself what you want. List your most important goals first. Decide how many years you have to meet each specific goal, because when you save or invest, you’ll need to find an option that fits your time frame. Here are some tools to help you decide how much you’ll need to save for various needs.

  • The Ballpark Estimate, created by the American Savings Education Council, can help you calculate what you’ll need to save each year for retirement.
  • The Financial Industry Regulatory Authority (FINRA) has a college savings calculator.”

The Trick Is Taking Action and Following Through

Many of us look at advice like this and say something like, “Everybody knows that”. And that’s more or less true. We hope by repeating this sage advice our members and other visitors will get the following message:

“Knowing the way to financial security and taking the steps to achieve it are very different.”

(editor’s note) Tri-Town Teachers Credit Union offers the use of MoneyDesktop, online software that assists with the organization, tracking, and presentation of financial information critical to the successful implementation of a strategy such as depicted here. There is no charge for this service to members of the Credit Union. Visit our web site or call the office, 203.227.8511.

Let Us Know

Let us know if this kind of information is useful. Leave a comment, we’d love to hear from you.