Tuesday, September 01, 2009

How To Become a Debt-Free Single Parent

Healthy finances are important for any family, especially those led by only one parent. Earlier today I came across this interesting article on Examiner.com explaining how single mother’s can work to become debt free, and I think that the tips are relevant to any one raising a child on their own. Checkout a snippet of the article below.

1. Save $1000 in an emergency fund: You should save this money as fast as possible by paying only minimum payments on all your debt, and putting every last penny into savings. The money should be kept in a liquid (easy to access) account such as a normal savings account. Additionally, the money should be used only in an emergency. That new purse or pair of shoes doesn't count, sorry!

2. Become debt-free using the debt snowball: Dave's debt snowball idea is a simple tool that means to list every single debt from smallest to largest, and attack the smallest one first. You don't have to include your house in this section. Again, you will pay minimum payments on every debt. Except this time, any extra money will go towards your smallest debt. Once that one is paid (Yay!), you move on to the next and so forth. This step requires that you create a written monthly budget ahead of time to track where your dollars will go.

3. Build your emergency fund to include 3-6 months of expenses: Now that you are debt free, where will all your money go? You need to return to your $1000 emergency fund and build it to cover you in case you lose your job or have another large emergency.

4. Invest 15% of your income into Roth IRA's & pre-tax retirement: Many financial planners advise you to save for retirement as soon as possible. Dave's view is that you'll only be able to invest a small amount if you're also paying off debt. In addition, he wants you to retire debt-free. Otherwise you'd have a big retirement account, and a lot of debt to pay off as well. By paying off your debt first, you are able to invest at least 15% of your income and build your retirement account faster.

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