Getting out Of Debt - Start Your Own Liquid Cash Reserve
As parents, we should be teaching our children from an early age about the importance of saving money. Many parents today just give their children whatever they ask for, without expecting them to save for it, and that really is the wrong thing to do if you expect them to be able to manage their finances well in the future as an adult. If your focus is getting out of debt, you have to start a savings fund, and contribute to it on a regular basis. Financial advisors suggest that people who want to get out of debt start their own liquid cash reserve by depositing at least 20% of their weekly income, after taxes and other deductions, into a savings fund.
If this is not feasible, then you can start out just depositing whatever you have left after paying your required minimum monthly payments and living expenses. As you make more money, or get one debt paid off, you can start to deposit more and more into your account, earning bonus interest the higher your balance goes. When you seriously set a goal to save money, and work hard towards achieving it, you may be surprised at just how much money you have been wasting each paycheck, on unnecessary, frivolous spending, that could have been saved, had you have just been taught about the importance of saving all along. Many companies will offer payroll deductions for savings as well, and for some, this is the best option, as long as they change their contribution as their financial situation improves.
Do not be tempted to take money back out of your savings, because once you start relying on this, you will quickly dwindle your savings, and be back at nothing again. Keep in mind that with each withdrawal, you are further and further from achieving your goal of becoming debt-free.
When your savings account balance is enough to payoff your debt with the highest interest rate, pull those funds out, and immediately send them to that lender. Then, continue building the account back up again, and do the same thing with all of your debts, until you are debt free.
If you have a decent cash reserve established, you will have money to fall back on in emergency situations, rather than allowing yourself to go back into debt for what you need. Since we have no way of knowing what the future holds for us, most advisors suggest that you have a cash reserve at least equal to your gross income for six months. If you were to lose your job, be laid off, or become sick or injured, you could rely on this reserve to see you through, protect your credit, and pay for your basic needs until you could return to work.
Your should have a savings account setup for getting out of debt, and then you should also work on building up a liquid cash reserve, in case of emergency. By having two separate funds, you can still accomplish your financial goals, in the event of something unexpected coming up.
By using this method, you will be gradually working on your goal of getting out of debt, while at the same time building financial security for the future!