One of the keys to paying off debt, growing your savings, and staying on track with your goals for the future is to review your budget and finances when you’re thinking logically, not emotionally. When you find yourself in a state of anxiety or feeling overwhelmed by high-pressure obligations, it might be challenging to make decisions clearly that are in your best financial interest. It’s best to make money decisions and create financial strategies when you’re free of fear, stress, and frustration.
Here are 3 tips to help you make emotion-free money decisions:
1. Find your low-emotion time.
Everyone has a few times during their day or week when they’re at their lowest stress level. When do you feel the most calm, cool, and collected? Do your finances then.
2. Don’t do it alone.
When making difficult decisions about debt, insurance, and saving for the future, identify and rely on your spouse, best friend, or financial professional. Having a trustworthy helper present can help neutralize your emotional state.
3. Review later.
After deciding upon significant financial courses of action, write down the decisions you think are best. Then, wait 24 hours and revisit your thoughts. Do you still accept the decisions you made earlier? Your fresh emotional and logical state may give you a new perspective worth considering. Use these tips to help prevent unreliable emotions from derailing your financial train of thought.
If you’re not in debt yourself, it’s likely you know someone who is. Sadly, the strategy many have taken is to ignore the problem. But debt doesn’t stay at bay forever. It usually gets worse over time.
After following the tips mentioned above you are now in a state to seriously review your situation. Consider these 3 calculations to help you put your debt into perspective:
Calculation 1: Total Debt Amount
People with high levels of debt often shift it around from one place to the next, never taking a true audit of the total amount owed. The first step is to calculate your total debt. Start by gathering your creditors’ names and phone numbers, the account numbers for each, and the total balances due.
Factor in everything.
Add them all up and circle the total. That’s what you’re dealing with. At least now you know -and knowing is half the battle!
Calculation 2: Total Interest Being Paid
Next, break out your consumer loans – houses, cars, credit cards, etc. Examine the last twelve months and write down the amount you paid just on interest. Call each loan holder if you must to get the interest payment breakout if you can’t find it on your statement.
Now you know how much money you’re helping other people make. If you’re like most people, realizing that the interest you’re paying on your debt is providing income to others while depleting your own will make you angry. Channel that anger to become single-minded in your determination to escape debt forever.
Calculation 3: Percentage of Income Paid as Interest
Now that you know how much interest you’re paying, calculate how much total interest you’re paying on a monthly basis. Divide your total monthly interest by your total monthly income and multiply it by 100. This gives you the percent of your monthly income you’re paying just toward interest. Not a fun number to look at!
But let’s look at it positively. If 25% of your monthly income is going toward interest, just imagine what would happen if you paid all your debts off. Since you’ve already been living on 75% of your income, that 25% could now go toward savings and retirement!
Escaping debt always starts by facing the facts. Start calculating your path to financial independence today.
Rich people stay rich by living like they’re broke. Broke people stay broke by living like they’re rich.” The quote above has been posted all over the internet this past year. Do you agree with it?