“Monica, if I have debt, how much do I pay off versus how much do I put into savings?”
I get this question all the time.
My suggestion is simple – here are the steps:
Know your necessity number. Your necessity number is the addition of all of your average monthly business expenses + your average monthly personal expenses.
Collect one month of necessity expenses. Pay all the minimums on your credit cards. And put any extra money into a savings account until you have at least one month of necessity expenses in that savings account.
Sleep better at night. I see many business owners go into a panic when unexpected expenses come up – taxes, car payments, medical bills. I also see them go into a panic if a client wants a refund or an event costs more than they thought it would. I don’t want this for you. If you always have one month’s of expenses as a cushion in your account – it will keep you from going into panic mode when expenses come up.
Keep the cushion. Always keep at least one month’s cushion in your bank account. So this means when you use it up, you must collect it again.
Start paying off your cards. Once you’ve built your one-month cushion, you can start to pay more towards your credit cards. In my Money School program, I have a whole class devoted to paying off debt as an entrepreneur – we will be launching again in September. For now, pick the card with the lowest amount of money on it and pay more than the minimum each month.
Build the six-month personal expenses cushion. While you are paying off your cards, pick a certain amount of money to contribute to savings each month. This can be small – even $25 is a good start. Your goal is to build up to 6 months of your personal expenses here.
Note on this one – you just need to save 6 months of personal expenses – not including your business expenses. This is to have just in case you need to take time off of your business – you’ll still have money to live on.
Build the three-month business expenses cushion. Ok, this one can wait a few years – so don’t panic about this one in the beginning. But you do want a cushion for your business as well. So once the debt and personal cushions are created, start to work on saving three month’s of business expenses as well.
How do you intend to pay off your debt?© Copyright 2014 TextOnly'Admin