by Gerald Davis

Created on: September 23, 2008

Tough economic times. We are there. I hear it everywhere I go. People are worried and scrambling to stay afloat. Between higher energy prices and retail prices People have less extra money to spend. These cutback lead to companies having large inventories that are not being sold so they must lay off workers. These workers that are laid off in turn are losing their homes because of what I blogged about yesterday. They in turn have NO money to spend leading to more companies laying off workers, etc, etc. It's a vicious cycle.

In these tough times, it is important to sit down and examine our budgets and figure out what we need to have versus what we want to have. Those extra funds in the budget by cutting out the unnecessary items will then be used for two things. Building up a cash nest egg, and paying down debt. Most financial experts say that there should be a 6 month cash nest egg set aside for emergencies such as we may have to face in this tough economy.

If you smoke, quite and save between $120 and $250 dollars a month. Drink? Quit and save that much at least. Give up you caf latte every morning before work and save $60 to $100 a month. Buying generic instead of name brand at the grocery store adds up. Coupons for name brands may still not save as much as the generic products so pay attention. Also, are all of those cookies and snacks really needed? Do you HAVE to have cable TV? You can buy a new digital antenna and converter box if needed for $100 and save nearly $1200 or more in a year. Take those cell phones away from the kids and give them pay as you go phones on a strict budget and you could save $100 or more a month. You get the idea.

Now lets say you find $500 a month to cut out of your budget. We are going to take that money and split it in two. The first $250 will be put aside and saved. This is going to be your nest egg building. The other $250 is going to go to paying down your debt. We will start with the smallest ones first. Apply the whole $250 to that along with whatever the minimum payment is. By doing this you will save interest and pay off the debt faster. Say you smallest credit card has a $100 minimum payment. You will pay $350 on it for each month until it is paid. Then you take that $100 that is paid off and split it in half. $50 for the savings account, $50 dollars for the debts. Now you are saving $300 a month and paying an extra $300 on the next debt. Any increases in income will also be applied in the same fashion.

It is amazing how fast this can snowball once you get the first couple of debts paid off. If you are able to keep the discipline up, you could have all of your debts, including your mortgage paid off in about 10-15 years. Also during that time you could have 6 figures stuck away in that nest egg.

Now, this plan is not easy. It takes discipline to do this. It also means saying no to a number of things that you want right now. After the time it takes to pay off all of that debt, you will be free, free to get all of those things you want without having to go into debt to do it. There will no longer be those financial pressures weighing on those shoulders. No longer those financial worries about what if I lose my job, and much less of a worry about those unforeseen hospitalizations. As long as you hold debt, you are enslaved to those whom you owe. Without debt you are free and financially stable.

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