Many would-be entrepreneurs in the Boston Metro are held back from their business plans by a simple barrier: consumer debt. For many of us, student loan debt, car loans and credit cards are a fact of life. Finding a way to improve your personal financial picture is important, not just for your business goals, but for your financial security.
To help you, we’re sharing personal finance tips from Entrepreneur magazine, along with suggestions of our own!
Create a monthly budget. You can’t improve your situation until you have a clear understanding of it. List your income, your rent or mortgage, your utilities, insurance premiums, and your debt payments and balances. How much is left for disposable income? Are there any monthly obligations that you can eliminate or reduce?
Set specific financial goals. Whether you need to save $10,000 to start your small business, or you wish to save money for an emergency fund, it’s helpful to articulate your goal and put it in writing. In effect, you’re making a commitment to your goal. Then, put a plan behind it, and track your progress. Modify your plan as needed, but don’t allow yourself to give up!
Cultivate a positive attitude about money. If you feel bad about money because you feel broke, it’s hard to see light at the end of the tunnel. Find ways to improve your attitude about money. Get a small amount of cash back when you make a purchase, and put the extra cash in a clear jar. Watch it accumulate over a few weeks. Let yourself feel good about saving money. Give a little to charity, and feel good about your ability to help others in need.
Seek ways to improve your income. Think about getting a part-time job for two or three nights a week. If you’re the creative type, you can sell arts and crafts online through Etsy. Sell excess belongings on ebay. Offer to do odd jobs for friends and family.
Eradicate debt. Make your payments online for better tracking and monitoring. If monthly credit card payments are hard to swallow, break them up into bi-weekly or weekly payments. Making payments more frequently will help contain the damage from interest accrual.
There are opposing schools of thought on the “smartest” way to tackle consumer debt. Some advisors suggest attacking your highest-balance and highest-rate credit cards first, devoting any extra amounts to this priority, while making minimum payments on the rest of your balances.
However, there’s something to be said for freeing up monthly cash flow by paying smaller balances off first. This gives you a sense of accomplishment and momentum. You can then take the cash flow you’ve freed up from the eliminated payment, and apply it as extra payments to your next lowest balance, and so on. The snowball effect of these smaller account payoffs could improve your monthly cash flow significantly, eventually allowing you to tackle your larger debts with more ease.
Another option is to pay installment loans or secured debts (other than mortgages) off first. For example, if you pay off your car loan early, that gives you a good improvement in your monthly cash flow, plus removes a lien from the asset. You might also opt, depending on your car’s value, age and condition, to reduce your insurance coverage, or increase your deductible, which would reduce premiums and further improve your cash flow.
Automate your savings. Make the amount realistic and consistent. Assign a direct deposit to your savings account from every paycheck. Save the maximum that you can afford towards your 401k. Not only will this reduce your taxable income for IRS purposes, but every penny of matching employer contribution is free money. The one-two punch is a powerful advantage.
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