Drip Your Way to Debt Prevention

One of the best ways to ensure that you never run into problems with debt is to establish appropriate levels of savings. Exactly what constitutes "appropriate levels" will vary among individuals but there are some common denominators. A good savings plan should address both the short term and the long term. An emergency fund should be established to cover any unforeseen expenses that arise. Typically this fund should be capable of covering all of an individual. s living expenses for a 3 to 6 month period. Long term savings are a bit more complex. The amount of funds that are needed will depend on many variable factors, such as: when an individual plans to retire, what activities he will be involved in, and additional sources of retirement income. One thing is for certain, although amounts will vary, some level of savings is necessary for all of us. A relatively new way to effectively help you in your savings efforts is through the use of a dividend reinvestment program.

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A dividend reinvestment program is a great way to take advantage of the power of compound interest through stock investments. For years people have known that stocks offered investors a wonderful opportunity to make a very healthy rate of return. In fact, over the course of the last 100 years the stock market has out performed most other savings vehicles. Needless to say the purchase of stocks (and stock based mutual funds) has become quite common among the general public. Many stocks offer their shareholders a portion of the company. s earnings. These payments are dispersed in the form of dividend checks. For a typical investor these checks are relatively small. Most people deposit this money into a checking account or spend it as pocket money without giving it a second thought. However, by doing so investors are missing out on a great savings opportunity. Many companies offer share holders the option to re-invest their dividends back into the stock.

• Compound interest. A $25 dividend check could be worth $251.57 in 30 years (8% interest). Imagine the possibilities if these dividends were regularly re-invested. The accumulated funds could be used to protect against emergencies, cover expenses, and prevent excessive amounts of debt.
• Optional Cash Purchase Plans. Allows an individual to purchase stocks with a very small investment. Under normal circumstances there are often large minimum investment requirements which preclude many people from participating.
• Discount rates. Plans will vary, however, some dividend reinvestment programs allow an individual to purchase stocks with their dividends at a discounted rate.

It is up to each individual to plan for his financial future. Those that do not take proactive measures often end up with high levels of debt and economic difficulty. A dividend reinvestment program is a great step to take now in order to help ensure a bright future.

Mark Cairney is a professional consultant with First American Debt Consolidation and Loans, a debt consolidation service specializing in financial education, credit counseling, and debt management services nationwide.