Are you looking for a way to eliminate debt and start saving but dealing with interest rates and amortisation schedules is way more in-depth than you'd like? Try the 20 per cent payment plan, where 20 per cent of your monthly income goes to pay off debts, 10 per cent goes to savings and the remaining 70 per cent goes toward everything else.
Photo by Jay Tamboli.
Homesteading weblog Off the Grid News suggests that if 20 per cent of your monthly net income is less than the payments on your non-mortgage debt you may need to look into restructuring your debt, taking on additional work or radically changing your spending patterns to get your household balance sheet back on track.
Here's an example to put the plan into practice. Let's say you have a $48,000 annual salary (not including super), which means you take home around $3280 each month, after tax. According to the 20 per cent plan you should immediately sock $328 away in long-term savings and use $656 to reduce your debt, leaving $2296 for everything else. That $656 would include your car and credit card payments, but not your mortgage.
The 20 per cent payment plan was originally suggested by businessman and writer George Samuel Clason who is mostly known for having many of his sayings posthumously compiled into the book The Richest Man in Babylon. Even though the advice is a century old, it can still be a good way to reduce debt and save for lean times without spending hours pouring over financial data. If other plans have failed for you in the past you may want to give it a try.
A 20 per cent Payment Plan For Debt Control [Off The Grid News]