What Everybody Ought to Know About Personal Finance Budgeting Part II

What Everybody Ought to Know About Personal Finance Budgeting Part II

Debt by itself can be a valuable instrument in investing, earning money and achieving financial goals. On the other hand, having too much debt is a recipe for disaster, making one vulnerable to the quicksand of interest payments. The simplest way to achieve debt relief is to avoid getting too far into debt to begin with.

What is a healthy level of debt?

A good debt to income ratio is to maintain an amount of debt below 20%. The lower the debt ratio, the more likely you are to get access to credit, have favorable credit terms and enjoy economic stability and build up your savings account. Following smart personal finance budgeting guidelines will help a person live in a natural state of debt relief.

If we fail to plan, we plan to fail. Management of debt is essential for the economic success of your household or small business and it starts with using the Debt to Income Ratio. The formula is easy to apply in order to take control and achieve debt relief.

Anybody can determine their debt to income ratio by dividing: Monthly Debt divided by Monthly Income

In summary, a few good things about maintaining a small debt to income ratio are:

Ability to build your savings

Financial Stability

Access to new credit

Good credit terms

Debt Relief

You want to restrict your debt to a maximum of 20% of your income, you should set aside 10% of your income to savings.

Savings are very important for various reasons. Growing your savings over time will give you the emergency cash required to survive a crisis, down payment for big-ticket items and also have the peace of mind in your retirement years. Be aware the opportunity cost of hoarding too much money in cash savings, particularly if the interest earned on cash does not exceed the interest paid on your debts.

Rules of thumb for budgeting savings:

4 months of normal expenses

10% per pay period, 5% to start

Secure investments, FDIC insured savings account, treasury bills

Keep your money liquid, and liquidity means easy access to your assets and money.

Make sure you build and maintain an appropriate balance between debt and savings. Budget ten percent of your income in savings and restrict your debt expenditures to below twenty percent of your net income.

By following these tips about savings and debt relief, one can have the ability to control their financial future. Visit my web site to learn other useful techniques for making money and also to discover how you can achieve financial freedom.

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