Tuesday, August 19, 2008

Back to Basics Post 4 What to do with Found Money

If you have been following along with this series you should have a good idea of where you money is going each week. Last week, we also talked about some ways to “find” money to help get you out of debt. Today we will talk about what to do with that money.

First, if you have not already done so you must pledge to STOP CREATING NEW DEBT. Until you have done this, you can go no further. You cannot fix your finances if you continue to add to your debt. End of story. Taking the plunge can be hard and it really is a mind set. However, once you do this things will only begin to get better.

Now, the first thing we are going to do with this “found” money is begin an emergency fund. You should aim to save $1000 because that will cover most things that can go wrong. Some examples might be an unexpected trip to the emergency room, a car problem, or needing to have an appliance repaired.

All extra money each month should go to this purpose and this purpose only. Here is why. Once you have an emergency fund you will no longer be forced to use credit in an emergency. The problem I always had was that I would pay off my $2000 credit card balance, then my car would need repairs and I would immediately add $1000 right back to it. So, for the time being, pay only the minimums on all debt and save up to $1000.

The next logical step for anyone who has heard of Dave Ramsey is to begin a Debt Snowball, but that is NOT what we will discuss next week. I think there is one more thing to do first…. To be continued!

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