Writer: D'Lyn Ford
LAS CRUCES -- Families can encounter financial trouble when the paycheck is always running out before the end of the month, said a New Mexico State University consumer education specialist.
"You can relieve a lot of financial difficulties and reduce the likelihood of ending the month in the hole, if you develop some sound financial strategies," said Susan Wright with NMSU's Cooperative Extension Service. "Your financial success cannot be guaranteed, but implementing some sound strategies can help you improve your financial situation."
Get a grip on spending and list priorities and goals for now and later, she advised. Make a written spending plan for take-home pay and make a commitment to stick to the plan. Keep a record of expenditures so the plan can be adjusted if needed.
Use the following as a rough guide for the plan: 5 percent savings, 50 percent living expenses, 25 percent mortgage or rent, 15 percent for other debts and 5 percent unexpected expenses or emergencies. Try to save more money and reduce debt even further, Wright added.
Build an emergency reserve by saving regularly. "Saving 5 to 10 percent of take-home pay every pay period would be great, but many New Mexico families may not be able to do this," Wright said. "So, whatever the amount, get into the habit of saving something each month."
Use automatic payroll deduction to a bank or credit union. Or, have the money automatically transferred from checking into savings, she said. Build this emergency reserve to help cover living expenses and debt payments for a period of two to six months.
Families also should try to pay off consumer debt. The cost of interest on the outstanding balance of credit card and personal loan debts are high for many people. "Always try to pay the current balance, but if that is not possible, pay as much as you can afford each month," Wright said. "Paying the minimum payment may seem like the easiest thing to do, but it will increase the actual cost of your debt considerably."
Using 20 percent or more of take-home pay for the minimum payments on credit cards and other debt could signal serious financial trouble, she said.
The first step to getting out of debt is to stop incurring new debt. "You may need to get financial counseling or limit your use of credit cards until debt is significantly reduced," Wright said. " The ideal strategy for using credit is to pay off the current balance each month."
Another good strategy is to review the family's insurance policies. List all insurance policies and read and summarize the coverage of each policy, she said. A call to the insurance agent for interpretation of terms and evaluation of coverage may be needed. Be sure to understand the terms of coverage in relation to the cost before choosing any insurance policy.
Finally, make wise investment choices. "Successful investing is a matter of minimizing losses and maximizing gains," Wright explained. Consider the family's tolerance for risk, objectives, amount of money available to invest, cost of making investments and the time required to make and monitor investments. Yield and how it is figured, effect on taxes, potential depreciation or appreciation, and liquidating potential also are important considerations.
© 2013 New Mexico State University Board of Regents
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