Creating A Reserve Fund to Help Credit
Avoiding bad credit is something that is paid a lot of lip service. Unfortunately, the mechanics of it is less discussed. This is a real problem as this should be a required subject of study in school. Creating a reserve fund is a great way to help battle the ongoing threat of bad credit. Many people that have good personal financial habits get “painted into a corner” and become branded with the scarlet letter. The key is to set up contingencies that will reduce your overall need to use credit in the first place.
What Credit was Meant to Do
Borrowing was originally designed with the purpose to give more people the ability to leverage the money they have. This means one can wield the power of hundreds of thousands of dollars for a tiny amount of money on a monthly basis. So where one could not afford to buy a home in the past without saving for 20 years to buy it in cash, they now can in a couple of years (just enough time to save a reasonable down payment).
What Credit Has Become
Credit has now become a sociological problem. Some many have become comfortable living in overdraft or credit cards. This is a time bomb that has a high probability of exploding, and when it does it is never the right time.
Personal Financial Responsibility
The first step to debt freedom (not replying on debt to live day to day) is to realize that playing this game of debt is like gambling your financial future; you are always one spin away from bankruptcy. If this fear moves you to action then it can be a powerful useful motivator.
Another very important step is to look back at your last month and see where all the money is going. It can be really helpful to get an average by looking over a bunch of months. Once you have those numbers you can now plan the next few months. Total up all the expenses you need to cover and include a 20% (plus) fudge factor; start saving so you have 3 months (minimum) set aside.
The idea is to have enough to keep you financially solvent, and to correct whatever you immediate financial problem you are facing. It is often the loss of a job that is the most common factor. It is also worthy to note that planning is not enough, action is the key. And bottom line: everyone needs a reserve fund regardless of what stage of life you are in.
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