Downward dog, downward debt: Building your financial flexibility
By Georgie Miller
I love yoga, so when I think of the word flexible I tend to think of some of the asanas I can't do (but aspire to!). However, there's more to flexibility than limber muscles. Flexibility is also one of the key concepts in personal finance.
Ideally, your financial flexibility should allow you to handle any money-related issue that comes your way with a minimum of panic or missed payments. Just how can you accomplish this? Begin with these simple steps.
1. Start an emergency fund
No, a credit card is not an emergency fund. While zero percent credit card offers may be a good idea for balance transfers and debt payoff, adding to your debt load is never a good strategy. By starting an emergency fund while times are good, the money will be there when disaster strikes. You want the funds to be accessible in case you need them. However, you probably don't want them to be too accessible or you'll be tempted to spend the money on something frivolous. Many people set up online savings accounts for this purpose.
The recommended amount to keep in an emergency fund varies, though three to six months' worth of expenses is a common goal. However, if you don't have that much now, don't despair! Something is better than nothing. If all you can spare is $25 per month, then start with that and contribute more when you can.
2. Minimize the number of subscriptions you pay for
Pretty much anything that you pay a monthly fee for can be considered a subscription. Your land line, cell phone, Internet, cable, streaming service, gym membership and weight-loss program are all subscription-based. Unfortunately, even if you're not going into debt over them, the more products or services you subscribe to, the less financial flexibility you have.
Begin by canceling any subscriptions that you no longer use. Be ruthless, and be honest! Intentions and wishful thinking aside, paying for something you don't use, read, or do is money down the drain.
Another strategy is to downgrade or combine services for savings. Switch to a cheaper cell phone plan if you don't need all your minutes. Drop HBO or the sports package from your cable bill. Bundling your cable with your Internet may provide some savings. Or consider canceling cable entirely -- these days streaming services have tons of shows and movies available for a fraction of the price.
3. Examine your cash flow
The due dates for your monthly bills are probably the same each month. Similarly, your paychecks are probably issued on a specific schedule that you don't have control over. Depending on the relationship between your due dates and your paychecks, it is possible to find yourself coming up short at certain times -- even if you make enough money to cover all your expenses!
So plug all your income amounts and due dates into the calendar and see if you have any cash flow woes that need addressing. Focusing all your extra funds on one debt (sometimes called the debt snowball method) is one way to pursue freedom from debt. With this method, every debt you've paid off in full is one monthly obligation you no longer have.
Flexibility is important to both health and finances
One of the foundational beliefs of yoga is that flexibility is an important component of overall health. The more flexible your body is, the easier it is to complete daily tasks. Additionally, improving your flexibility may decrease the odds of injury, or enable you to heal more quickly if you do injure yourself.
Similarly, flexibility is an important component of your financial health. The more flexible your finances, the easier it is to meet your monthly obligations. Additionally, improving your financial flexibility may decrease your odds of going into debt, or enable you to get out of debt more quickly. So continue with your downward dog -- and your downward debt!
