Financial

9 Steps To Get Out Of Debt – Part 1

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Nowadays, debt has become a standard part of life. It comes in many forms including student loans, medical bills, auto loans, unpaid utilities, mortgages, money borrowed from friends and relatives, store credit and the most dreaded of them all, credit card debt. It’s a part of life for almost all of us, rich or poor, but it doesn’t have to be. In this nine-part series of articles you will learn the steps to take to become completely debt-free and stay debt-free.

Let me start off by saying not all debt is necessarily bad. It can be very beneficial to borrow money sometimes, if done for the right reason. For example, taking out a mortgage to buy even a modest home will most likely cost you several hundred thousands of dollars over the life of the loan, however you will gain equity and the house will usually appreciate in value, making it a better option in a lot of cases than living in an apartment. Other examples would be borrowing money for college in order to acquire a higher paying job, or borrowing money to start a business. Other times it is just un-avoidable such as a medical condition or loss of a job. They key is to borrow for the right reasons.

The problem is, we quite often borrow money for the wrong reasons. These include taking out auto loans for nicer cars than we really need, not saving money to cover minor emergencies that come up such as a major appliance breaking, and of course making purchases with credit cards when we don’t have the money to buy them.

The problem has really gotten out of control in the last few decades. The average American household owes about $19,000 in non-mortgage debt, including about $7,500 in credit card debt. When you compare that to the average household income of $43,500, you can see the average American household owes 43% of their annual salary in non-mortgage debt.

As you can see, if you’re in debt, you’re not alone. No matter what kind of debt you have, or how much, your life will be less stressful and more fruitful if you eliminate it. This nine-part series will walk you through each of the necessary steps to help you eliminate your debt. It definitely will take some work on your behalf, but if you stick with it, you can succeed and the benefits will be well worth the work.

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Mutual Fund Cons

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Just as there are many benefits to investing your hard-earned dollars in mutual funds there are a few drawbacks to this decision as well. In order to make a truly informed investment decision you need to be aware of both the pros and cons of mutual fund investing before you make the decision as to whether or not this style of investing is suitable to meet your financial needs now and in the future.

Keep reading for a little bit of enlightening information on the downside of investing in mutual funds.

1) Low return on investment. While you can make a comfortable retirement for yourself by investing in mutual funds you won’t find the swift and bold flips, turns, and swings that you might find in the sales of certain high yield stocks. In fact, mutual funds are more the slow and steady wins the race sorts of investment methods, which are effective in their own right but, while providing comfort, will not bring copious amounts of wealth.

2) Dubious management. While this isn’t true of all mutual funds you need to check the fund manager out thoroughly before buying into the fund. You never really know whom to trust in this day and age and many people have complained that they would have done better making the decisions on their own rather than relying on the fund manager in order to do so. Of course, when you are making your own decisions, you will have other worries on your mind at all times. So professional management can be a benefit or a downside depending on the manager you get for your fund.

3) Too much of a good thing isn’t really good. The problem with mutual funds is that the funds that are doing well and netting high returns for its investors are often quickly inundated with new investors wanting the same results and there is only so much the manager can do to make good on the money that has been invested. There is another issue in which the fact that funds purchase such a small portion of so many stocks that when one or a handful of the companies that the fund is invested in do extremely well, the pool sharing the profits is so large that the impact is often negligible.

4) The big killer for many investors is that the fund manager takes actions that are right for the fund and those actions may not be what is best for your individual situation. A broker or financial planner that you deal with personally is much more likely to make financial decisions for you that are geared towards your individual needs and not the needs of a much larger group. If you want individual advice and guidance then a mutual fund is definitely not the way to go. You should also avoid them if you are in a precarious situation when it comes to things such as capital gains taxes, which can significantly impact your actual profits.

5) Personal control. Are you a control freak? Many of us are and when you go with a mutual fund you are giving someone else control of something that is often very personal. No one likes the idea of being at another person’s mercy when it comes to retirement or planning for the future and you are essentially putting your retirement, your vacation home, or your child’s college education in someone else’s hands. This is a frightening situation for someone who is typically in control of these investment decisions/
It really doesn’t matter whether or not you ultimately decide to include mutual funds in your investment portfolio.

The important thing is that when the time to decide presents itself you are in a position to make an informed decision about whether or not you want them included and to act upon the decision you make for better or for worse.

Mutual Fund Pros

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Every investment type has its share of pros and cons, the same holds true when it comes to mutual funds. For many investors this is the only way to go while others are very wary or even contemptuous of those who elect to navigate the safer waters of mutual funds rather than taking the risks of the open seas of the stock market. Either way you should understand that there are many benefits to be found by working with mutual funds rather than stocks.

You will find a good many of these benefits listed here.

1) Safety in numbers. In a mutual fund you pool your money with a group of people in order to buy a certain set of stocks or bonds or some combination of the two. In this you share the risks among you. Some will argue that you also share the rewards but that is the price you must pay in order to have the security that comes with shared risk.

2) Diversity. You won’t need to worry about intentional diversification with mutual funds for the most part because they are already diversified for you. In most cases you have to purchase very specific mutual funds in order to get a group of stocks or bonds that are too similar in nature, as this would defeat the purpose for many mutual fund investors. It is possible to purchase an industry specific mutual fund though that does increase your risks to some degree. Having your investments spread out across industries and investment type helps minimize the impact should a catastrophic loss occur in one area the blow is softened because the fund encompasses more than one specific stock or bond.

3) Professional management. The average citizen would be hard pressed to afford the services of a financial advisor or stock broker and still have a significant amount of money left in which to invest. You are graced with the skills of a professional investor to guide your fund through the shark infested waters of the trading Bermuda triangle while you are allowed to put your mind to rest and focus on other things such as the places you will go when retirement strikes or the college educations your children will have courtesy of your investments today.

4) Lower transaction fees. This is a huge benefit to many investors who know without a doubt that those transaction fees can literally kill the profits you’d make on occasion. The reason the fees are often lower is that mutual funds are purchased in large lots because they use the collective monies of a large group of people to make a larger purchase rather than using a small amount of money from one person to do the job. Same fee, but more bang for the buck and it’s divided among others in the group rather than one person absorbing the entire transaction fee.

5) The ability to cash out at any time. This isn’t really different than stocks but for those who are considering all with no preconceived understanding you should understand that you can get your money out whenever you need to if emergencies arise. There are fees involved of course but you can recover your investment most of the time and bring home a bit of a profit on occasion.

6) Easy as pie. This is something that most people overlook when making investment decisions but should pay a little more attention to. It is easy to purchase a mutual fund and it can often be done for very little money, especially when compared to stock purchases.

There are a few downsides to dealing with mutual funds as well though for many the benefits far outweigh the potential for lower returns, which is the most commonly complained about detraction from mutual fund investing. It is still worth checking out the cons as well as the pros when it comes to investing in mutual funds compared to stocks, bonds, and other forms of investing.

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