Wednesday, December 13, 2006

Financial Independence

After reading jamin's blog post with links to desperate measures to get out of debt, I had a discussion with one of my office mates about how one gets into that kind of trouble in the first place. It turns out it is really easy to make the mistakes that get you there. If you aren't there already, there are some things you can do to avoid it.

  • Pay off your credit cards in full every month. Making only the minimum payment will result in you paying for that geek gadget or shiny object long into the future.
  • Save for your big purchases. If you have been lusting over some new toy that you simply can't live without, set aside money every month until you can afford it. You've been living without it this far and will avoid interest charges when you do buy it. In fact if you put your savings in a high yield money market account such as ING Direct's (disclosure: I have been very happy with my account there.) you could actually make money on the deal.
  • Establish a safety cushion. Sock away at least 3 months worth of living expenses if you're single and more if you're not. If you have the cushion and hell breaks loose, you will be able to rely on savings instead of credit cards while you weather the storm.
There are plenty of more things you can do, but those are some of the biggies. Just remember that as the compound interest of the credit cards can work against you, if you have the money invested it can work for you.

1 comment:

Chris Parker said...

Everything that you say is true.