Periodic spending is usually what gets people in trouble.
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Draper, Utah (Vocus) June 29, 2010
As many of us know, using a credit card for purchases or emergencies is just too easy, especially when periodic expenses sneak up on you. Perhaps it’s the water heater going out or even unexpected medical expenses, but either way, coming up with an extra $1000 can be very tricky. Figuring out how to quickly eliminate that debt is what will make the difference, especially in today’s economy.
“Periodic spending is usually what gets people in trouble. For example, let’s say there is an unexpected car repair. Since they didn’t have money set aside they put it on the credit card. Same thing with the summer vacation or birthday presents,” said Steven B. Smith, President and CEO of Finicity, the developers of Mvelopes. “The principles of envelope budgeting and debt roll-down will help to get them out of trouble and improve their financial future.”
Below are a few tips that anyone can use to help improve their financial future, including the debt roll-down principle:
- Spend less than you make on a consistent basis * Create a balanced spending plan based on your income, as well as, your spending requirements. Once you’ve done that, fund your envelopes accordingly and focus on living within your envelope balances, and therefore within your balanced spending plan.
- Stop accumulating debt – If you focus on spending within your envelope balances, you should not be incurring any new debt. Living within your income is the key to not increasing your debt. You can even use your credit cards, just make sure you pay off your new purchases at the end of the month.
- Save for periodic expenses – Make sure that you are including all areas of periodic spending within your balanced spending plan (i.e. car registration, home repairs, medical expenses, vacation and holidays). Setting aside money for these expenses in smaller increments throughout the year is easier to manage than trying to come up with it all at once.
- Save for emergencies – Avoid being reliant on credit card debt in the future by saving for emergencies now. Build up a 90-day emergency fund so that if you have a loss in income or a true emergency, you have the cash on hand to take care of your expenses.
- Use the debt roll-down principle to eliminate your debt quickly - The Debt Roll-Down principle is simple, yet very effective. First you create a list of your debt obligations and prioritize them in order of highest interest rate. Second you will allocate money for your monthly payments in your balanced spending plan. Once you eliminate the 1st priority debt, you will roll that first payment amount over into the payment of the 2nd priority debt.
- Sweep money from discretionary categories to savings or debt reduction – At the end of the month, if there is money left in your monthly discretionary envelopes (i.e. groceries, dining out, fuel, etc.) why not use that money to reduce your debt more quickly or increase your savings? Transfer that money from your discretionary envelopes into your credit card repayment envelopes or into savings and reach your goals more quickly.
Finicity specializes in online money management tools and resources for personal budget and business use. Finicity's flagship product, Mvelopes Personal, was named one of PC World's 100 Best Products of 2006, as well as, a finalist in the 2008 IQ Awards for innovation in consumer products. Recently, Finicity was identified as one of the top ten fastest-growing companies in Utah, ranking ninth on the MountainWest Capital Network's Utah 100 List. Founded in 1999 and headquartered in Draper, Utah, Finicity is a privately held company.