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Step 1: Automate essential reoccurring living expenses.
Let’s start with the basics. Add up all monthly household income and make a list of all necessary monthly expenses like house utilities and groceries. Since these are non-negotiable expenses, take time to set up automatic payments to cover as many of these items as you can.
Step 2: Automate savings.
Generally you’ll like to get your personal savings rate to 50% of your gross income. If you’re saving for a big-ticket item like a home or college education in addition to retirement you may need to save more. Everyone’s situation is different and everyone is at a different point in their lives but if you have available cash you should be saving each month.
Step 3: Establish a debt reduction plan.
Debt and credit are vital aspects of our financial system and allow individuals to accomplish their dreams by owning a home or paying for college but high levels of consumer debt can stunt your ability to save and can negatively affect your borrowing ability. One common benchmark is to limit your consumer debt repayment to 20% or less of your net monthly income. If you’re struggling to come up with a workable repayment plan check out PowerPay.org which offers a free tool that you can use to run various payback scenarios that can illustrate how to best utilize any extra funds you have to pay off your debt.
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