Where you have accounts that offer a discount for early payment you should also take advantage of those discounts by applying the budget surplus towards them.
Until you have cleared your debt you should not consider using the surplus for investing, or saving for a rainy day, as the money you will receive from your investment will, no doubt, be less than the amount you will save in paying interest on your debt.
You can read the post about how I paid my car off six months early for an example of exactly how this works.
Always look for the most benefits for each and every dollar spent and in almost all cases there is no better benefit than clearing debt.
Once you get to the stage where you have your finances in order and everything is under control, budget surpluses can be better spent on investing in appreciating assets such as a home, provided the housing market is stable rising, and only where you will be able to make more money from borrowing to buy the property than you would using the money elsewhere. Does this make sense?
“We can tell our values by looking at our checkbook stubs.”
– Gloria Steinem
That is something you can look forward to once you have managed your debt, and your budget. You will be able to calculate the ratio of income to expenses and determine whether it is a good investment that you will be able to handle comfortably before you make the investment.
It always seems to be much easier when our finances are comfortable to make big decisions; it just seems so much easier to make a clear-headed decision. But it shouldn’t because the decisions you make when finances are not comfortable are just as important. You should never make any kind of financial decision if you are not 100% clear-headed. Step back, take a day, or a few hours, to clear your head and do your research and crunch the numbers before you move forward. And just in case you falter on this one, here is a post about dealing with buyer’s remorse.
In the end, you will easily, and confidently, be able to make all of your financial decisions based on these simple steps that will ensure that you don’t get into financial difficulty again. And here is a post about how to stay out of debt once you have gained your footing.
Sometimes you only need to change a few factors in your life to go from a budget deficit to a budget surplus and that is what you will be working toward. The more of the budget surplus you apply to your debt, the bigger the surplus will become and this affect will accelerate over time.
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Disclaimer: I am not a financial professional and don’t play one on tv. The information provided on Single Mom on a Budget.com is my own opinion and should not be construed as fact or advice, and you follow it at your own risk. You are responsible for your own personal finances and should not rely on this site to make the final decision for you. This blog is my means of communicating my experiences to you and to prompt you to think and consider your own situation, but you are 100% responsible for any actions you take. Always consult an attorney or tax professional regarding your specific legal or tax situation.