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Tightening the Budget - The Smart Way
When you consider your family budget, you need to consider all the income coming in and the expenses going out as well as what real cash you have leftover. Most of us, in these tough economic times, live from paycheck to paycheck so before you go out and purchase a new car, consider these not so smart money moves:
Retirement Plans - You make think it's a good idea to withdrawal money from your 401(k) or retirement plan to pay off a big debt, but that's not always the case. Even though the debt is paid off, including interest you may owe, your retirement funds will be depleted and have less funds that can grow for your future. In addition, always check with your financial advisor, accountant or retirement plan administrator. If you do withdrawal funds early, you could incur taxes at tax time.
Opening a Line of Credit - Even if you qualify for a line of credit based on home equity or some other source of equity, the money given in your line of credit is too easy to spend. Because banks and lenders only require you to make interest payments on line of credit loans, you can find yourself with high loan principal payoffs in the long run. Additionally, depending on the financial institution, if you never make a principal payment and just make interest payments, a bank could call in the loan leaving you in a spot where you need to renegotiate terms or find another way to payoff the line of credit loan.
Stocks and Mutual Funds - Before you decide if you should invest safely or at a higher risk, consider your age. A safe investment with a guaranteed return is best for people nearing retirement age. If you are younger, consider being a little risky. If you need more help, do some research or talk to your financial investor.
Being Debt-Free - Some experts on the radio and television preach about becoming debt-free. While this may make you feel good, it doesn't help your credit score or your future. Taking out a mortgage and owning your home will bring you interest tax deductions at tax time and a way to build equity. Consider a student loan if you want to re-train; this will look like you are investing in yourself.
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Change Your Spending Habits
Credit Cards - Don't apply for new credit cards just because a company has a gimmick they are offering. Instead, gather your credit cards and find out the interest rates for all of your cards. Next try to consolidate them into one lower interest rate card. Often, credit card companies will offer zero balance transfers. If you have too many credit cards and are only making the minimum payment, this can lower your credit score.
Be Realistic About Variable Expenses - When you prepare your monthly budget and decide you don't need entertainment, outside meals, or other joys you spend your excess income on, consider this thought again. By cutting all of your variable (or enjoyment expenses) you can make your family's life tougher. Instead of cutting out variable (or fun) expenses, consider limiting them each month.
Lump Sum Payments - That student loan you took out is still due and now that you've worked a few years, you may have the money to pay if off in full, including interest. Instead of doing that, consider investing some of that cold hard cash into another venue that can make you more money.
In today's economy, companies try and entice you by entering into new credit or by offering unique ways to spend your cash. Before you say yes, consider some of these not so smart money moves.
Photo Credit: Debt Free by Mene Tekel