An Overview of Good Debt

The word “debt” generally has negative connotations and understandably so. Debt’s adverse impacts are extremely well-documented; it can also take years or even decades before people are able to escape its clutches. Individuals who go into debt at very young ages can often face ruined financial futures ruined and poverty. For these reasons and more, debt is overwhelmingly viewed as something to be avoided at all costs.

What Qualifies as Good Debt?

The concept of “good debt” remains highly debatable. There are many people who view debt, in any form, as negative and something to steer clear of. However, various financial experts do believe that certain types of debt can, in fact, qualify as “good debt.”

Higher Education

First and foremost comes higher education which is generally associated with going to college or university. Many individuals also associate a degree with better job opportunities and a higher quality of living. Also, it’s often stated that degrees will pay for themselves and pay for the subsequent student loans which many young adults take out in order to pursue higher education.

However, good debt is not without its risks. While many people view higher education as a source of good debt, the “good” part is contingent upon several factors. The economy, field of study, and overall flexibility of the individual at hand each play a role in whether or not student loans truly turn out to be good debt or bad debt. A rough economy can make it difficult for college graduates to find jobs and start paying back their student loans. Likewise, a poor field of study can also complicate the process of making a good living. Finally, individuals fresh out of university may have to accept entry-level jobs and work their way up to more lucrative prospects.

Entrepreneurship

As the job market becomes more and more competitive, many people are opting into entrepreneurship and starting their own enterprises. However, starting a business requires money. While aspiring entrepreneurs can seek financial backing from angel investors, venture capitalists, or even family/friends, many choose to take out loans from various institutions.

The benefits of being in business for oneself are overwhelming. Autonomy, independence, and profit growth are just the tip of the iceberg. However, these benefits only come to fruition if the enterprise is successful. If a business fails, the borrower will not only have to pay back the debt they owed (in addition to any subsequent interest), but they may also incur serious financial hardships. Like higher education, good debt in the form of entrepreneurship is a double-edged sword.

A Forewarning

At the end of the day, debt is something which should be avoided, if at all possible. While certain types of debt do have the potential to yield benefits, there are never any guarantees. Borrowing capital to pursue ventures is a trap which countless individuals have fallen into. It has worked out for some and devastated others. Ultimately, everyone has to make their own financial decisions and determine whether or not they are willing to take on debt.

 

Authored by Gabrielle Renee Seunagal

How to Build a Business Without Going into Debt

One of the greatest hurdles in building a business is capital, or lack thereof. A lack of capital and financial resources subsequently prompts aspiring entrepreneurs to believe that borrowing money is their only option. Of course, this belief is inaccurate. The pitfalls of going into debt are well-documented, but thankfully other alternatives do exist.

Build Gradually

Many ambitious and aspiring entrepreneurs aim to open their businesses as soon as possible. There is a certain excitement which often comes along with building a brand and starting a company. However, gradually building a business is one of the best ways to avoid going into debt. In many cases, this may require not giving up one’s day job until the business venture yields profit.

The process of building a business while still maintaining a day job may be initially frustrating and time-consuming. However, with patience, dedication, and consistency, the business will eventually become profitable. Following the generation of profit, the entrepreneur can then quit his or her day job. Gradually building a business is vastly more effective and beneficial than taking out loans and attempting to do everything at one time. Rome was not built in a day.

Know the Ins and Outs

Believe it or not, there are many aspiring entrepreneurs who want to go into business for themselves, yet lack critical knowledge. There are so many factors involved in starting a business; a business plan, budget, legal paperwork, website, proper management of funds, and sales tests are only the tip of the iceberg. Knowing the ins and outs means having a solid plan and being fully informed. So many people who want to go into business for themselves believe that simply borrowing money and spending during times of apparent necessity will help them. This is a common error which often engenders the downfall of businesses.

Hopeful entrepreneurs need to have their budgets in place and know exactly how much financial capital is needed to start their business.

Fund Your Own Business

At the end of the day, those who wish to go into business for themselves without also going into debt will have to fund their own enterprises. Thankfully, there are a variety of ways in which aspiring entrepreneurs can go about self-funding. Simply saving money is an option, although it can be time-consuming depending on the individual’s income and the costs of starting their business. In some cases, funding an enterprise purely through one’s own funds can take months, if not years, although it can still be done. Each hopeful business owner will have to decide whether or not this particular avenue is right for them.

However, saving money to fund one’s business is not the only option. Hopeful entrepreneurs can also consider pitching to an angel investor. Angel investors can be incredible assets for aspiring business owners, however, there are certain stipulations. True passion for the business, a solid execution plan, and awareness of the market are things which angels will look for before investing their money into a business.

A Final Word

Starting a successful enterprise is a tough venture. Starting a successful enterprise without going into any debt is even more challenging. However, with the proper preparation, knowledge, and expertise, it can be done.

 

Authored by Gabrielle Renee Seunagal

Building an Emergency Fund on a Tight Budget

The existence of a healthy emergency fund is absolutely paramount for any adult. Unexpected expenses and occurrences happen all the time, often when people least expect them. A plentiful emergency fund can, and often does, determine whether or not an individual or family is ruined by financial hardship or able to foot the unexpected bill.

Despite the importance of an emergency fund, not everyone has one. One of the most common reasons is a tight budget. Of course, saving money is critical, but how does one go about doing so when they’re living on a tight budget. Thankfully, there are various strategies which can be used to create an emergency fund, regardless of one’s budget.

Build in Moderation

Many people believe that they can only build an emergency fund by putting aside large sums of money. However, this is not necessarily true. Emergency funds can be built slowly and moderately — and should be for individuals who are on a tight budget. Putting aside $20, $10, or even $5 per week may not seem like much money, but with time and consistency, it will add up fairly quickly.

Reduce Expenses, Increase Revenue

The creation of a healthy emergency fund will inevitably require changes in money management. These changes will involve the reduction of expenses and an increase in revenue. It goes without saying that the more money one has, the more they can put towards their emergency fund. Reducing expenses and increasing revenue will also gradually allow people to put aside larger amounts of funds. Many working individuals have a tendency to consume in greater amounts when their profits increase. However, discipline is certainly required in the process of building an emergency fund.

Set Specific Goals

Believe it or not, having a specific goal in mind can simplify the process of achievement. In the case of establishing an emergency fund, having a specific dollar amount in mind for one’s emergency fund can make a nice difference. Generally, experts advise people to have three to six months worth of living expenses in savings. The amount of time required to establish this amount will depend on a variety of factors. However, each bit of money which is placed towards the emergency fund will ultimately make a difference.

A Final Word

Timing is a huge factor in the creation of an emergency fund. In most cases, the earlier one starts, the better. Even young college students can begin creating their own savings by putting modest amounts of money aside. Building an emergency fund also requires discipline. The temptation to spend money is everywhere; those who constantly dig into their savings in order to fulfill their desire for instant gratification will inevitably find themselves out of funds when a true emergency arises.

 

Authored by Gabrielle Renee Seunagal

How to Repay Debt

In the best of worlds, nobody would incur any debts. Unfortunately, there are countless people who are up to their eyeballs in debt. Ideally, incurred debt is something which should be paid off as quickly as possible; yet, many individuals find themselves struggling to pay back the money they owe. The subsequent interest which often accompanies unpaid debt doesn’t make matters any less complicated. Thankfully, there are a variety of strategies which can be employed in order to effectively pay off debt.

Make Ongoing Payments

Indebted individuals have a tendency to avoid their debt. The avoidance is often motivated by dread and reluctance to face the large sums of owed money. However, avoiding the debt will never erase its existence. The only way to free oneself of debt is to make ongoing payments.

In this day and age, merely paying the minimum balance is not going to cut it. Payments should be made as frequently as possible. Each time an indebted individual receives a check, he or she should be putting aside a percentage of funds (or a specific dollar amount) to pay off what they owe. Initially, this can be uncomfortable and may even require some budget modifications. However, repaying debt in a timely manner is always wiser than idly wasting time and allowing interest to accumulate.

Increase Income and Profit

Despite the massive pitfalls of failing to repay debt, a lack of funds is a problem which many people struggle with. Therefore, individuals who literally cannot afford to pay down their debt should strive to increase their income. This can be done via asking for a raise, advancing one’s career, or even starting work in the gig economy or freelance market to create an additional stream of revenue.

Live Within Your Means

Countless people incur debt in their attempts to live above and beyond their means. While this type of money management is irresponsible and reckless, it’s particularly dangerous for individuals who have yet to repay owed funds. Anyone who is struggling with debt should proactively work to lower their expenses; this can almost always be done. Cutting back on unnecessary purchases, eating at home, and limiting entertainment fees are some prime examples of ways to reduce costs. Some people spend their entire lives in debt all because of poor money habits.

Avoiding Debt

Having to repay debt is no fun whatsoever. Debt holds people back from financial success, home ownership, the ability to live independently, and many other opportunities which life has to offer. Those who are able to take advantage of certain opportunities, even in spite of their debt, will not have the same quality of experience as their debt-free counterparts.

To make a long story short, debt should always be avoided. In the event that avoidance is not feasible, repayment should occur as quickly as possible.

 

Authored by Gabrielle Renee Seunagal

Comparing & Contrasting a Roth IRA vs. 401K

At some point, many individuals will become serious about saving money and putting aside funds for retirement. This often, in turn, prompts the opening of various retirement savings accounts. At this point, Roth IRAs and 401Ks are some of the most popular options. However, these two accounts are not the same, by any means, and should not be treated as such.

Some people are better suited for 401Ks while others do exceptionally well with putting money into a Roth IRA. Nevertheless, a critical and thorough understanding of the differences and features of the aforementioned accounts is absolutely paramount.

An Overview

One of the greatest distinctions between Roth IRAs and 401Ks is the functionalities of the two accounts. Investopedia explains that while Roth IRAs are started between an investment firm and the people which come to them, 401Ks are plans where workers permit their employers to put a percentage of their pay into the account. Each individual has their own ideas of which retirement savings account is best for them. Both Roth IRAs and 401Ks each come with their own upsides, guidelines, and stipulations.

The Benefits

Both Roth IRAs and 401Ks come with their own benefits which are designed to appeal to prospective customers. The Simple Dollar lists the following benefits which are associated with Roth IRA accounts:

  • Future tax-free withdrawals
  • Ability to withdraw contributions without facing penalties
  • Ability to select desired brokerage firm and choices pertaining to investments

401K retirement savings accounts also come with their own unique upsides, which read as follows:

  • Potential annual tax savings
  • Opportunities for monetary employer match
  • Options to set up automatic deposits
  • Gradual increase on allowed contributions

Which One is Best For You?

Ultimately, each individual will have to decide which retirement savings account is best for them. Believe it or not, choosing whether or not to set up a Roth IRA or 401K does not have to be an “either/or” decision. There are some people who have both accounts and others who employ alternative means to save money and invest in their retirement.

However, for individuals who are interested in setting up one (or both) of the aforementioned accounts, Fidelity has some helpful hints and advice:

  • 401Ks may prove to be slightly more beneficial for long-term savings.
  • Roth IRA accounts are usually better for individuals who see tax increases in their future.
  • People who wish to diversify funds put aside for retirement may find that setting up a 401K and Roth IRA accounts is advantageous.

 

Authored by Gabrielle Seunagal