The average student loan balance is $29,400*. Over 77% of Americans live paycheck to paycheck. Over 89% of Americans buy things they can’t afford. These are just a few of the many statistics regarding debt in America. The good news, however, is that you don’t have to be a statistic.
Financial advice comes in all shapes and sizes. While there isn’t necessarily a “one-size-fits-all” road map to financial success, there are basic principles that can be applied towards getting out of debt and managing your finances. These include:
- Making a budget and sticking to it. Use apps/websites such as Mint, or your own bank’s software, to automatically track and budget every expense.
- When your income increases, don’t raise your standard of living by the same dollar amount Instead, save and invest a portion of your new income.
- Related to #2: Live within your means. Keeping up with the Jones is almost always a guaranteed path to debt.
- Eliminate credit card interest (never carry a balance).
- If at all possible, always use cash rather than credit or financing to make a purchase.
Dave Ramsey is one individual who speaks about debt and how to escape it, and much of his knowledge comes from his own experiences. Dave had generated a million-dollar real estate business by age 26 but then lost it all due to debt and bad financial practices. Since recovering, he has sought to teach others how to responsibly handle their own finances. While his book Financial Peace goes into greater detail, he freely shares the basics of his road map plan for escaping debt:
- Get $1,000 into a beginner emergency fund.
- Use the “debt snowball system” to pay off all debt but your mortgage.
- Pay off your debts in order of smallest to largest, rolling the money that had been used to pay off the previous debt onto the next, creating a snowball.
- Increase your emergency fund to where it can pay for 3-6 months’ worth of expenses.
- Invest 15% of your household income into retirement.
- Start saving for your children’s college.
- Pay off your home early.
- Build wealth and give generously.
Acknowledging again that financial advice differs, not all financial advisors agree entirely with Dave’s road map. For example, if you debt interest is low (say, a 2.5% car loan), and you have the option of investing in a 401k which is averaging 8% returns, some advisors will tell you to take advantage of the 401k. As another example, Dave argues that you should not have a single credit card due to the temptation it can create, whereas other advisors will say that it is okay to take advantage of credit card rewards as long as you are responsible and never carry a balance (by following this practice, I have personally paid for airlines tickets for vacation via credit card points, all without ever paying a single dollar in interest).
The bottom line is this: whatever your financial situation, you need a financial plan. What do you want your life to look life financially in one, five, ten, twenty, and fifty years? What do you want to do in life? How much will it cost to do those things, and what do you need to do now in ensure that you will be able to afford to do so? These are questions that should often be on your mind, as they will help guide you in your daily financial decisions.
If you are a PEAK member and would like to learn more about jumpstarting your financial future, please RSVP and attend the “Saving for Retirement” seminar on Tuesday May 16th, led by Kevin White and sponsored by Regions Bank & Regions Investment Solutions. More information regarding the event can be found below. We look forward to seeing you!
*Statistics taken from the Dave Ramsey website. The author of this article is not affiliated with Dave Ramsey and was not compensated in any way for discussing Dave Ramsey’s products within this article. **The author of this article is not a financial representative or financial advisor.
Jeremiah Clark, M.A., is a healthcare IT consultant with six Epic Systems certifications. He is also
a partner at Appalachian Digital, a local web development agency, and a founding partner of
MHQC LLC Real Estate Development. He and his wife Erin are natives of Kingsport, TN.