Investment Strategies Part 2
Reducing your debt load
Before we can even begin speaking about investments and retirement funds, we first have to get ride of the debt. That is obviously easier to write about than to put into action, some of us who are starting out in life, find it difficult to make ends meet especially when we have children to take care of. It seems that kids are a like a black hole for money, new shoes, clothes, outings, daycare etc. As new parents some of us are not at the pay level we need to be at in order to live a comfortable life, studies have shown that by the time we reach 50 years of age, we are at the highest income level that can be attained. So basically in our 20's, we are just barely getting by, in our 30's we are establishing our careers, but have not reach our full earning potential, in our 40's we are now closer into our goals and by our 50's we should be earning a good wage to supplement our retirement needs.
The question now remains, what to do now, how do I save and reduce debt at an early age? If we are not earning our full potential, how do we reduce debt and begin saving for our future. I have some suggestions, but as usual speaking to a professional will give you a clear road map and fine tune your investments to reach your goals.
1. Identify needs and wants : When I was sitting with people and helping them with their debts and investments, I always wrote down their expenses and broke it down as follows.
Living Expenses:
Mortgage or Rent
Home expenses gas, water, hydro
Insurance car, home etc
Car payments
Car expenses gas, oil changes
Food
Clothing
Daycare costs
Cell phone
House phone
Credit card
Total Monthly=
Optional Expenses
Cable TV
Internet
Eating out
Gifts
Donations
Travel
Total Monthly=
The first part of the debt reduction strategy is to find out what is needed to live on. What is the basic amount you need in order to have a home, a car to go to work and anything else that is needed. The second part is a list of things that are not needed to live, cable tv is not needed, so is eating out. Get the total amount of your take home pay and then deduct the total amount from the needed expenses. This is your monthly living costs, what you have left over is your potential to reducing your debt. (Most people are shocked at what is left over, when you remove cable tv, internet etc)
Once you identify the not needed expenses, you can start using the extra money per month to paying down your debt. You can use the snowball strategy or simply add more to your payments to reduce what you owe. Research different strategies and simply stick with it, the quicker you start, the faster you can start investing.
My wife and I speak about our expenses and strategies at least once a week, we use Mint to see what is going out and what is eating up our money. Whatever strategy you use, stick with it and let us all reach our retirement goals.