Create and Maintain a Budget
The first step to avoiding the troubles of financial debt is to create and maintain a budget. It’s not as intimidating as it sounds, don’t worry.
First off, create a list of all your monthly income and also a list of your monthly expenses. When determining income, list all sources including alimony, child support, side jobs, etc. In calculating expenses, be sure to include housing, food, transportation, utilities, entertainment, etc. To gain an accurate reflection of actual expenses, sit down each night and write down expenses, just make sure to save receipts. Determine if your income covers all of your expenses. If the answer is no, then some expenses need to be reduced.
Adjust expenses. If it is a small discrepancy, it may mean reducing some minor expenses like entertainment or cell phone plan. If the deficit is larger, you may need to downsize your vehicle or living arrangements. If your income covers all of your expenses, you still may want to trim some of the excess fat off your spending habits. This can free up extra money for things such as vacations or college funds for your children.
Additionally, consider if you need to add new categories. Some areas that are often overlooked are debt reduction, emergency savings funds, and retirement savings. An emergency fund ensures there is an adequate amount available to cover unforeseen events (car emergency, etc), should it arise. This will eliminate the need for using credit which can quickly damage your budget.
There are several advantages to sticking to your budget. Firstly, most people have set financial goals that they would like to reach in the future. Sometimes it may be a trip, a brand new car, or a college education. A budget can help people save money to make these goals a reality. Additionally, many people are crushed under heavy consumer debt. Without a disciplined pattern of spending, it is virtually impossible to make much headway in reducing debt. A personal budget will provide the necessary framework to begin eliminating these inflated account balances.
If executed properly, a budget will allow a person to simultaneously meet their expenses, place money into savings, and pay back outstanding debts. Therefore, it is anyone’s best interest to create and implement a budget.
By Janet Bullard - She may be contacted at http://www.magnoliawalker.com/index.html webmaster@magnoliawalker.com Click here to view more of Janet's articles.
Janet, a homeschooling parent, balances teaching, internet marketing and computer programming. She promotes various products at http://www.magnoliawalker.com/index.html. As part of her service to Christ, she is the webmaster for her church's webpage at http://greenland.magnoliawalker.com. In her spare time she gardens, paints, quilts, and goes trail riding on her Tennessee Walker. Go check out her site and sign up for her weekly newsletter at: http://www.magnoliawalker.com/subscribe.html You may also view her latest newsletter: Christian Pen Pal Newsletter at http://www.penpalezine.com
Tuesday, February 21, 2006
Monday, January 30, 2006
Your Credit Card Payment Just Doubled!
Even if you didn’t charge anything last month, your next payment may have just gone up
If you haven’t received your credit card bill yet this month, you may be in for a big surprise, especially if you went a little overboard with your holiday spending. For the estimated 40-million Americans who carry a balance on their credit cards their minimum payment may be increasing anywhere from 40-100 percent. Here’s a look at why, and what to do about it.
Under pressure from federal regulators, credit card issuers are increasing the minimum monthly payment requirement on outstanding balances. The change should help consumers in the long run, but can be painful in the short-term.
Credit card minimum monthly payments have traditionally been set at an average of 2 percent of the outstanding balance. The entire 2 percent would often go towards interest, and cover little or none of the principal. According to Bankrate.com, a balance of $8,000 (the approximate credit card debt carried by the average American) would take almost 54 years, and cost an additional $22,931.52 in interest when paying only the minimum 2 percent each month.
Credit card companies are now required to set a minimum monthly payment that covers interest, plus at least 1 percent of the outstanding principal. Using those guidelines, that same $8,000 would take only 30 years to pay off and cut your interest in half to $11,789.08.
Obviously 30 years is still a long time to pay off credit card debt. Most people will pay off their home loans in less time than that.
All too often, I see people treating their credit cards as an additional source of income. The key is to pay-off your balance each month.
According to a recent study by the American Bankers Association, less than half of cardholders consistently pay-off their balance each month.
The problem usually starts when we have an irregular expense, such as car maintenance, holiday spending, or a vacation. We turn to the credit card to cover the difference, planning to pay it off next month. But when next month rolls around our budget is tight again, and even if we don’t add to the balance, we’re unable to pay it off in full.
The trick is to manage your daily, weekly and monthly spending. Set up a spending plan based on your income and include regular expenses like mortgage, groceries and car payments, but also irregular expenses such as holidays, birthdays, car maintenance and medical expenses. By planning ahead and setting aside a little each month for these irregular expenses, you’ll have enough to cover them when they arise and won’t have to turn to the credit card to cover the difference.
Most people can easily squeeze an additional 10 percent out of their paycheck by simply creating a spending plan and tracking their expenses. Use an online budgeting tool to make setting up your spending plan simple. Mvelopes Personal offers a free 30-day trial. A pen and paper will work, but you have to be disciplined to stick with it long-term.
Credit card spending can throw an extra wrench in a budget. When you make a purchase on a credit card, the money isn’t immediately taken out of your account, as it is with a debit card. By the time the bill comes, you may have already spent the money elsewhere. A program like Mvelopes Personal, which has a credit card tracking feature that automatically sets aside the money from your budget whenever a purchase is made with a credit card, can make credit card spending less abstract.
Even if all you can do is pay the minimum, make sure that you at least do that. Ignoring the problem won’t make it go away. It’s expensive and will take a long time, but by paying at least the minimum each month, you’ll keep the credit scoring folks happy, which can save you thousands of dollars later on.
Steven B. Smith is the author of Money for Life: Budgeting Success and Financial Fitness in Just 12 Weeks! and President and CEO of In2M Corp. www.in2m.com.
Friday, January 13, 2006
9 Financial Resolutions
Earlier this week I wrote about "Nine New Year’s Resolutions to Get Your Finances in Order". Today I would like to expand on some of those ideas. Have your personal finances been a bit of a challenge this past year? According to In2M Corporation’s financial fitness survey conducted this past fall, you aren’t alone!
1. Spend less than you make.
Just like you can’t loose weight if you take in more calories than you burn… you can’t save money if you spend more than you bring in. Spending less than you make on a consistent basis is the key to reaching financial fitness and financial stability. You can’t increase your savings, make investments, reduce debt or even make wise spending decisions if you’re consistently overspending your income each month. Forty nine percent of respondents, to In2M’s financial fitness survey, said they rarely, if ever, use a budget to manage household spending. No wonder they have so many challenges with overspending, increasing debt and lack of savings.
Put together a spending plan and make it one that works for you and your family!
For a step-by-step process of how to make an effective spending plan, look in the book Money for Life and its companion piece the Money for Life Success Planner. These books walk you through the process and explain the reason behind each step, in a way that anyone can understand. If you’d rather go the paperless route, Mvelopes Personal will help you create an online spending plan.
2. Save more… at least 10% of your income.
Ever hear of the theory of paying yourself first? That’s basically what this is. If you make it a habit to pull out 10% for savings and investments for retirement, before you pay any other bills, you are actively working towards a better financial future for yourself. This 10% can include your 401k account if you have one, but be sure you are maximizing that option! It’s also wise to put an additional amount into savings after your 401k investment is made. Put this money into a money market account, money market fund or CD if possible, so that you get a higher interest rate. According to In2M’s financial fitness survey conducted this past fall, 48 percent of respondents saved nothing in the past 6 months and 31 percent saved less than 10 percent of their income. Don’t be one of the statistics, take action today and start saving!
3. Calculate your net worth.
Do a reality check to ensure you are on the right track. Your net worth should be increasing each year, even if it is just by a small amount. The exercise of calculating your net worth can be very valuable as well… people often discover accounts, investments, etc that they have forgotten about, or need to update.
If your net worth has decreased from the year before, take an honest candid look at where you can make adjustments to improve these numbers. Consider accelerated debt reduction. Consider increased savings. Even consider canceling every credit card you have if it means that you stop overspending and start saving. Be proactive in your efforts to get financially fit!
4. Start an emergency fund.
If you don’t already have an emergency fund, start one today! Your emergency fund should have a minimum of 3 months worth of expenses in it. This is your emergency money for a job loss, emergency repair, medical expense, etc. Keep these funds in a money market account or other high interest, easily accessible account. If ever you have the misfortune of an unexpected job loss, unexpected car repair, unexpected appliance problem… you will be far more prepared to weather the storm if you know you have a little breathing room on your finances, thanks to your emergency fund! That peace of mind makes all the difference.
5. Reduce your debt.
Use the debt roll down principle to quickly reduce your debt. Make a list of all your debts and prioritize them in order of interest (highest to lowest) or in order of the number of payments till payoff (fewest payments at the top). Once your first debt is paid off, roll that payment amount into the next debt on your list. Follow the same procedure when the second debt is paid off. You will not only reduce the number of years you will have payments, but you will also save thousands in interest if you follow this principle until you are completely debt free.
6. Use credit cards for the benefits, not the penalties.
If you use a credit card, only do so when you know that you already have the funds set aside to pay the balance completely when the bill arrives. Do not carry a balance on your card! It wastes money and ends up costing you a fortune in interest and finance charges. Thirty Eight percent of respondents to In2m’s Financial Fitness Survey stated that they never pay off their balance, and 33% only do so part of the time. Are those airline miles really worth it? Not if you aren’t paying the card off every month!
7. Make sure you have adequate insurance.
We’re talking home, life, disability, health, property and even auto. Not too many other things will matter if you have no fire insurance and your house burns down. Thirty Five percent of respondents to In2M’s Financial Fitness Survey stated that they either knew they had too little insurance or that they weren’t sure what their coverage was. Make sure that you, and your family, are covered adequately!
8. Create or update your estate plan and/or your will.
Whether you are single, married, divorced, kids or no kids… you need to have the proper documents to make your wishes known.
If you have any 401k accounts from former employers, be sure you roll them over into an account that you control. Consolidation can also make your retirement accounts easier to manage, however, in doing so make sure you don’t jeopardize the diversification. Tools like Mportfolio, from the makers of Mvelopes Personal, can help you manage all your investment accounts from one spot, quickly and easily.
Take advantage of the New Year and get on the path to financial fitness!
- Nearly 90 percent of survey respondents are moderately to very concerned about their ability to meet future financial obligations for major items, such as education and retirement.
- Seventy-three percent of respondents said their financial situation is about the same as (40 percent) or worse than (23 percent) when compared to last year.
- Sixty-six percent stated their approach to financial management is either reactive or simply total avoidance. Only a small 34 percent follow a plan of action.
1. Spend less than you make.
Just like you can’t loose weight if you take in more calories than you burn… you can’t save money if you spend more than you bring in. Spending less than you make on a consistent basis is the key to reaching financial fitness and financial stability. You can’t increase your savings, make investments, reduce debt or even make wise spending decisions if you’re consistently overspending your income each month. Forty nine percent of respondents, to In2M’s financial fitness survey, said they rarely, if ever, use a budget to manage household spending. No wonder they have so many challenges with overspending, increasing debt and lack of savings.
Put together a spending plan and make it one that works for you and your family!
For a step-by-step process of how to make an effective spending plan, look in the book Money for Life and its companion piece the Money for Life Success Planner. These books walk you through the process and explain the reason behind each step, in a way that anyone can understand. If you’d rather go the paperless route, Mvelopes Personal will help you create an online spending plan.
2. Save more… at least 10% of your income.
Ever hear of the theory of paying yourself first? That’s basically what this is. If you make it a habit to pull out 10% for savings and investments for retirement, before you pay any other bills, you are actively working towards a better financial future for yourself. This 10% can include your 401k account if you have one, but be sure you are maximizing that option! It’s also wise to put an additional amount into savings after your 401k investment is made. Put this money into a money market account, money market fund or CD if possible, so that you get a higher interest rate. According to In2M’s financial fitness survey conducted this past fall, 48 percent of respondents saved nothing in the past 6 months and 31 percent saved less than 10 percent of their income. Don’t be one of the statistics, take action today and start saving!
3. Calculate your net worth.
Do a reality check to ensure you are on the right track. Your net worth should be increasing each year, even if it is just by a small amount. The exercise of calculating your net worth can be very valuable as well… people often discover accounts, investments, etc that they have forgotten about, or need to update.
If your net worth has decreased from the year before, take an honest candid look at where you can make adjustments to improve these numbers. Consider accelerated debt reduction. Consider increased savings. Even consider canceling every credit card you have if it means that you stop overspending and start saving. Be proactive in your efforts to get financially fit!
4. Start an emergency fund.
If you don’t already have an emergency fund, start one today! Your emergency fund should have a minimum of 3 months worth of expenses in it. This is your emergency money for a job loss, emergency repair, medical expense, etc. Keep these funds in a money market account or other high interest, easily accessible account. If ever you have the misfortune of an unexpected job loss, unexpected car repair, unexpected appliance problem… you will be far more prepared to weather the storm if you know you have a little breathing room on your finances, thanks to your emergency fund! That peace of mind makes all the difference.
5. Reduce your debt.
Use the debt roll down principle to quickly reduce your debt. Make a list of all your debts and prioritize them in order of interest (highest to lowest) or in order of the number of payments till payoff (fewest payments at the top). Once your first debt is paid off, roll that payment amount into the next debt on your list. Follow the same procedure when the second debt is paid off. You will not only reduce the number of years you will have payments, but you will also save thousands in interest if you follow this principle until you are completely debt free.
6. Use credit cards for the benefits, not the penalties.
If you use a credit card, only do so when you know that you already have the funds set aside to pay the balance completely when the bill arrives. Do not carry a balance on your card! It wastes money and ends up costing you a fortune in interest and finance charges. Thirty Eight percent of respondents to In2m’s Financial Fitness Survey stated that they never pay off their balance, and 33% only do so part of the time. Are those airline miles really worth it? Not if you aren’t paying the card off every month!
7. Make sure you have adequate insurance.
We’re talking home, life, disability, health, property and even auto. Not too many other things will matter if you have no fire insurance and your house burns down. Thirty Five percent of respondents to In2M’s Financial Fitness Survey stated that they either knew they had too little insurance or that they weren’t sure what their coverage was. Make sure that you, and your family, are covered adequately!
8. Create or update your estate plan and/or your will.
Whether you are single, married, divorced, kids or no kids… you need to have the proper documents to make your wishes known.
- Update your beneficiary info on your retirement accounts, insurance, etc.
- Specify money that you want to give to charity through a trust or gift exclusion.
- When preparing a will reference an addendum in the will where you list who will get your various assets and personal property.
- Make sure all language is clear and as specific as possible so that your wishes can be carried out.
If you have any 401k accounts from former employers, be sure you roll them over into an account that you control. Consolidation can also make your retirement accounts easier to manage, however, in doing so make sure you don’t jeopardize the diversification. Tools like Mportfolio, from the makers of Mvelopes Personal, can help you manage all your investment accounts from one spot, quickly and easily.
Take advantage of the New Year and get on the path to financial fitness!
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