How to Build Savings While Paying Off Debt

Limiting your bills and paying yourself first help you find the right balance.

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Most of us would like to have a hefty bank account and would love to put a lot of money from our salaries into savings. However, when the bills start to pile up, our savings accounts tend to be the last things we pay attention to. For those of us who are struggling financially, we may find that we are able to pay our bills, yet our savings and high-yield CD accounts barely get a handful of funds; in fact, they may even suffer.

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A good number of Americans are deep in debt. The financial crisis only served to make things worse for everyone. Most people who are in the process of debt repayment are usually seized by the desire to quickly pay off what they owe, their mindset being that it's okay for 50 percent of their income to go to paying their debts in a hurry to slash the total amount of what they owe.

However, there are financial experts who encourage saving along with debt repayment. Some of them encourage that one's debt repayment allotment shouldn't eat up more than 25 percent of one's income. These experts also admonish us to make sure that an allotment for savings is not only a mainstay of our budgets; our savings have to be an immovable component of our monthly or daily budget. Here are our tips to ensure that we can all work towards fattening up our savings while simultaneously lowering, and gradually eliminating, our debts.

1. Pay yourself first. Most of us pay ourselves last, which causes our savings accounts to stagnate, even if we're making headway on debt payments. Turn this practice upside down and never allow the habit of paying yourself first to drop into the sea of forgetfulness or lack of practice. Being vigilant about paying yourself first will not only allow you to grow your savings and investments, but may also propel your finances further and make you a millionaire. To start with, set up an online savings account like FNBO Direct, which returns a higher yield than most other savings accounts today.

2. Limit your bills and daily expenses to 50 percent and debt payment to a maximum of 25 percent of your monthly budget. Yes, your rent needs to be paid, and the credit card debts are piling up. So maybe it's time for a lifestyle readjustment. Maybe you need to move to a house with lower rent requirements. Stop using your cards until you repay your debts. If worse comes to worst, you might have to file for bankruptcy. Sometimes, taking a calculated dive such as this may help you in the long run. For one, though the state of bankruptcy will surely deal a fatal blow to your credit score, at the very most, the growth of interest will halt until you can get back on your feet.

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3. Adopt an investment mentality. Start thinking in terms of, "Will this let me save or earn more? Or will this only deplete my bank account?" Ask yourself: "Will putting my money in CDs be better than putting it into a mutual fund? Or will it fare better with an investment portfolio at an online broker like Zecco?" Do this not only with your investments and savings, but also with your expenses as well. Sometimes, it's just not worth it to get a $100 haircut when you can get it for $50.

Being able to grow wealth is not an easy exercise, but it's very doable. Just get rid of the "I can't do it" mentality and encourage yourself to persevere in life, especially in the financial aspect. If things look pretty bleak for you financially at the moment, realize that there are ways out of your situation, and the experience should empower you to have financial discipline, leading you to financial freedom. With guts, gumption, resoluteness, perseverance and willpower, you can do it!