Tuesday, May 15, 2007

How Online Banking Can Help Freelancers Become Debt Free

Getting out of debt is more than a dream for me - it's a mission. I want to have the option of retirement at 50, be free of all debts except for my mortgage within the next 12-18 months, and pay off my mortgage -- in full -- within 10 years.

Aggressive, yes. Impossible, no. IF you take control of your finances. And, online banking has been a big part of helping me to control my finances and reach my financial goals - and on a freelance salary, no less. Here's how:

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1. Organization: I know it sounds old and redundant, but before you can accomplish anything, you must get organized.

Paying bills online keeps me organized because I can see, at a glance, what's going out and coming in. This eliminates missed payments, guesstimates as to what's due when, and how much money is left over at the end of the month, which leads me to my next point -- free money.

2. Free Money: As in, money that's left over after all the bills are paid. I use the "bill pay" feature of my online bank account to schedule bills for payment. For example, when I receive my electric bill, I immediately log into my account and schedule it for payment.

This way, week in and week out I know exactly what's coming due; hence, what's going to be paid. As I deposit a certain amount* each week, I know exactly what's going to be left over after everything is paid.

*If you are a freelancer, your deposits may be irregular. To combat this, put yourself on a "paycheck schedule." What do I mean? Pay yourself the same amount every week/month -- no matter what your income is. This will achieve two things: i) force you to budget your money; and ii) get you in the habit of treating your freelance career as a business.

You will also be more ambitious in reaching income goals because if you know that "pay day" is coming, but you don't have enough money to pay yourself, you will start to look for ways to make more money.

"Paycheck" Tip: To find out how much you can/should pay yourself each week/month, go back over last year's income and see how much you brought in, on average, each week/month. Pay yourself a percentage of this (75%-80%). Why only a percentage?

Until you get used to paying yourself this way, you may be short of funds, and/or have a hard time allotting yourself money this way. So, for the first 3-6 months, pay yourself less than what you actually average each week.

This does not mean you should spend/blow the extra, though. Let it sit there. Then, once you are used to getting a "paycheck" every week/month, you can up what you pay yourself. Right now, you just want to make paying yourself like this a habit.

3. Track Income & Expenditures: Piggybacking on the above point, online banking forces me to keep track of my money. How?

With online banking, you have payment history at your fingertips. Want to know how much you've paid Visa the last six months? How much, on average, you spend on electricity? Ho w much you deposited last month?

Instead of digging through paper statements and receipts, you can pull up account history information going back months - in most cases, up to a year's worth of information. This has helped me tremendously.

For example, I recently switched to a level payment plan* for my electric. I did this because it allows me to create a more effective budget. So, for example, instead of paying $100 one month for electricity and $168 the next, my payments are the same every month - this is huge if you're trying to effectively track expenditures.

*A level payment plan is one where you pay the same amount each month for 12 months. It's re-evaluated every 12 months and your payments are adjusted up or down based on the amount of electricity used over the previous 12-month period.

Getting out of debt is like any other goal - you have to take control of it, instead of letting it control you. Online banking puts my finances under my control - with one simple click of the mouse.

Whatever your financial goals - online banking can help you achieve them - quicker than you ever imagined.
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1 comment:

lpom said...