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A Basic Financial Planning Tip

By Edited Nov 13, 2013 1 1

The simplest yet one of the best rules about financial planning has actually helped a lot of people to deal with the effects of this economic recession. Perhaps these people lost some of the value of their assets but they didn't have to lose everything like some of the people who did. This basic rule in financial planning can help you weather these types of storms. More and more people have been going down the financial tube over the past few years because of being too hardheaded to follow this rule. You can call this the 10% rule. What it says is that you should always save or invest 10% of your actual income. Just keep in mind that you are going to spend 90% of your actual net income and live within that amount while you are trying to build up a reserve with the remaining 10% portion.

This is a good practice that was done by past generations who had to live during harder times. They would keep their money for savings until they already had to purchase what they wanted instead of getting loans with interest rate charges to buy something that they didn't really need at all at that moment. Failure to follow this rule became obvious with auto credit. It is a common and acceptable practice for people to purchase cars on the spot instead of saving up the needed amount to purchase the vehicle. In fact, there is a significant number of applications for car financing because car companies want to move their units fast in any way possible. If a buyer can't afford to make a down payment for the car, it means it will be hard for them to make the monthly dues and they probably will end up in a bad financial situation. The moment you drive the car from the lot you are in a losing situation because you can only resell the car at a lower price since it is now a used car. So, if there is a need for you to sell it, you are still stuck with the car loan balance that you have to pay monthly.

Why fall for these tempting offers of no money down? You will be much better off if you will be faithful in saving 10% of your income every month until you save enough money to make a reasonable down payment. It also lessens the chance that you go upside down or under water.

It is a sad fact that most of us are living beyond what we can actually afford so we often end up borrowing just to finance the life style we want but can't support. Millions of people are already trapped in this financial dilemma because they uncontrollably borrowed more money than they can afford to pay back. That's why a lot of people are attempting to buy cars with bad credit since they realized the desire to own a brand new car. The best way to counter this problem is to follow the basic rule of saving where you save a specific amount every pay period and wait patiently until you can afford to pay in cash or at least provide a big down payment. Who knows, you might realize that you actually don't need such an expensive toy at all.


Sep 1, 2013 7:40pm
Yes - if you are saving 10% then you are not spending more than you make.
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