Making a Budget and Sticking to it

You need to make a practical and sensible budget in order to avoid lavishness.

Making a budget is a key factor to control your spending habits.  A budget gives you a framework on the flow of your money, how much and where it goes and the amount of money coming in.  When you have this simple information, you can have a better judgment regarding your expenditures.

Jot Down your Expenses

In the first step of budgeting, you must know first your expenditure that is where your money is supposed to go and where your money went.  In keeping track of these expenses, you have to record them.  You may want to make use of computer programs just to record your expenses.  This may seem a good way and an easy approach to keeping track of your expenses, however these programs have a limitation, it does not take into consideration you cash expenditures, only your check and credit card purchases or payments.

Instead of making use of computer programs, it would be best to make use of the pen and paper, which is a more comprehensive way of tracking your expenses.

1.  Have in hand eight sheets of paper.  One paper is equal to one week’s expenses, totaling to 8 weeks of tracking or two months.  Through this technique, you will steer clear of abnormal weekly expenditures consisting of high and low expenses.

2.  Pick one Sunday to start recording your expenses.

3.  On the uppermost portion of the paper, record the date of that chosen Sunday.

4.  You must bring that piece of paper with you at all time.

5.  As you make each payment you have to record it on that sheet of paper.  All expenditures must be accounted for either via cash, credit card, debit card or check.  You also need to note the items or services paid for.

6.  When the end of the week arrives, that will be by Saturday night, the next morning you have to bring with you a fresh new sheet of paper and repeat from step number 3.

7.  When the end of the 8 week period is up, you can add to your list annual, semi-annual, quarterly and seasonal expenses that you were not able to pay during your 8-week recording period.  Examples of these expenses could be any or all of the following: summer camp fees, holiday gifts, car registration, property tax, tax preparation fees, car maintenance, insurance and a lot many others.

The sum of your Income

Only half of your budgeting framework is accounted for by expenditures, the other half is by your income, so you need to tally up your total monthly income.

In another blank paper, you need to write down the jobs that you have, where you receive a salary.  The next on your list will be income from your other activities such as commissions, farm income and the like.  Lastly, you have to place incoming money like:  alimony or child support, public assistance, bonus pay, pension or retirement income and dividends and interests.

On each list of income you have, place next to it another column for the net income you are getting, less all the deductions.  If the amount you are receiving is not constant, you can average your last 12 months earnings.

Then in another column, right next to the net amount of earnings, place the length of period covered by that income, like it is on a weekly basis, quarterly, yearly or monthly.

Then on the last column right next to the length of period, place the sum of the income you will be receiving for that job or income in a year’s time.  So, if you are receiving the salary twice a month, then you need to multiply the net salary with 24, because you will be receiving that amount 24 times in a year.

When you are finished doing the summation, divide the total amount with 12 and whatever the value you have arrived at, this is your average monthly income.

Making your Budget

Once you finished tracking up your income and expenses in a two-month period, you are now ready to create your budget.   You have two goals in making your budget: (1) to control your urge to overspend; (2) to assist you in starting a savings.  Here are some steps you need to follow.

Establish under which categories you expenses fall under.   You can jot down your list of categories on the left side of a piece of paper, or better yet an excel spreadsheet.  These will be your budget sheets.  Below, you can check sample categories and the kind of expenses that can be considered as part of that category.  You can use it to your own advantage.

Home: gas & electric, rent/mortgage, homeowner’s insurance, homeowner’s association dues, telephone, maintenance & repairs, water & sewer, cable TV, Internet service, property taxes, household supplies, house wares, furniture & appliances, cleaning, yard or pool care, snow removal, garbage

Food: snacks, breakfast out, coffee/tea, lunch out, dinner out, groceries

Wearing Apparel: clothing & accessories, mending, laundry & dry cleaning

Self Care: massage, toiletries & cosmetics, donations, health club membership, haircuts

Health Care: therapy, insurance, vitamins, eye care, doctors, dentist, medications

Transportation: public transit & cabs,  insurance, road service club, parking tickets, gasoline, maintenance & repairs, car wash, parking & tolls, registration

Entertainment: theaters & ballet, music, movies & video rentals, film development, concerts, books & magazines, museums, sporting events, software, hobbies & lessons, club dues or membership, newspapers,

Dependent care: school expenses, child care, clothing, toys & entertainment, allowance, health care

Pet Care:  vet, grooming, toys & supplies, food

Education: books & supplies, tuition or loan payments

Gifts & Cards: weddings & showers, holidays, birthdays & anniversaries,

Personal Business:  postage, photocopying, supplies, lawyer, accountant, bank & credit card fees

Travel, Taxes, Insurance, Savings & Investments

1.  On your list of categories, make a set of 13 columns.  Label the first column as projected and the remaining columns with the months of the year. The second column should start on the next month, example if this month falls on a July, then your second column should be headed by the month of August.

2.  Based on the tracked expenses you have, project your monthly expenses by listing each expense on the appropriate category.  You have to take note of smaller expenses that are due for the month.  Example of this is magazine subscription, it would be more logical to slightly increase your budget for the month rather than setting aside $2 per month to cover that expense.

3.  In your projected column of your budget sheet, you will place there the projected monthly expenditure.

4.  You can total your expense on a monthly basis by placing the total expense for that month at the end of each monthly expense column.

5.  Under your projected monthly expenses, place your projected monthly income.

6.  Lastly, get the difference between your monthly projected incomes against your monthly projected expenditure.

When you already have the difference and you will find out that your expenses is more than your income, then you need to look for ways to cut down on your expenses or you need to look for more income.   Let’s just make a fictitious scenario where you cannot get a raise for your job, or simply saying you have no means to increase your income, that only leaves you with one option, to cut down on your expenses such that you would still be able to enjoy or buy your basic necessities.

Now, go over again your expenses, look for expenses that you can cut down on.  Think of cutting down first, rather than completely eliminating a whole category.  As an example, you have allotted $500 for your travel, and you feel you can cut down to $250 by travelling to neighboring areas.  So, you now have a savings of $250.

Try to weigh activities and things out, in order for you to assess which ones are important to you, before you start to cut down on your expenses.  An example of this is letting go of your news or magazine subscription in favor of not cutting down on you movie expenses, because you believe that you are much happier watching movies than glossing over magazines.  This way, you would have better chances of succeeding and sticking to your budget plan because you also ensure that a bit of your happiness is accommodated.

Keeping on the Right Path

Your budget is not an unbending stick, so if you have overspent on a certain category, do not feel frustrated.  What you should do is just to keep the budget as just a guide, and if you keep on overspending on the same particular category, then you need to cut down spending on other categories in order to follow your budget.  It is also a kind of trial and error.

Your budget plan was made to help you distinguish what you can meet, financially.  It is not just a form filled with numbers that you need to meet.  You also need to do cross checking periodically in order to track your progress.  If you feel that you never have enough money, and you are really trying to hard to make ends meet, then it’s time to cut down on your expenses.

After doing the above steps and you still find yourself destitute, then it is time to contemplate doing a much bigger change.  Like, you can sell your car and buy a used car, this way; you will have extra money from the proceeds, lesser mortgage or totally freeing yourself from car mortgage.  When you are doing these kinds of big changes, make sure to give it careful thought especially when prioritizing.  Each individual has different perceptions regarding luxury and prioritization.  The only thing here is you really have to be honest with yourself on the things you can give up and the things you just can’t.

There may be a little to a lot of sacrifice that you need to make, depending on your lifestyle.  But, the key thing here is not to let go of all the things that makes you happy and satisfied, because if you do, you will not succeed in sticking to your budget.  You have to be realistic!

The Things to Do and Avoid In Making a Budget Plan

Things to Do

Think of your budget plan as a tool for you to reach your goals, financially.

You really need to spend time analyzing and assessing your financial status, distinguishing your expenses in order to know where your money went and lastly sum up all of your income.  After doing your math and subtracting your expenses from your income, you will find yourself in one of these situations: (1) your expenditures and earnings are nearly the same or the same (2) your expenditures are more than your income, giving you a huge negative answer (3) your earnings are way higher than what you spend, meaning you have excess money.  You have to analyze your situation well after knowing in which financial situation you are in.

You need to make a balance sheet, where you have to compare and list your total liabilities and your net worth.

You have to set a personal goal.  Like you really want to own a home, or buy a car, or maybe enjoy a trip, then you really have to push yourself to set aside money in order to reach that goal.

Learn to prioritize.  You also need to prioritize your goals.  Example you want to own a home and at the same time you want to take that overseas vacation trip.  You have to prioritize between the two which is more important to you since your resources are limited.  Since a home is a basic need of a person then you should go for saving for your home first and next comes your vacation.

You have to learn to budget for the short term first, like for 2 months ahead and once you are experienced with this, it will be much easier to make projections for as far ahead as 6 to 12 months.

Things to Avoid

Avoid thinking of your budget as something that is unbendable, because you also have to identify factors that would affect your budget to change like an increased in market costs or a loss of income and others.  So, with these factors, you need to modify your budget appropriately.

Avoid making a very constricting budget.  Give yourself a bit of money to indulge on the little things that you deem necessary in your life to get relaxed or simply to be happy.

Avoid frustration just because you were not able to strictly adhere to your budget.  Almost always, during the first month, there may be expenditures that you were not able to account.  Thus, your budget is only there to guide you.  So, if you find yourself spending more in one category, then you need to curb your spending in other categories in order to offset that increase.

Never use somebody else’s budget plan because as we have said earlier, priorities differ in each person.  Thus, your budget should reflect the values, goals, hopes and priorities of you family.

Never give up adhering to your budget.  You may face challenges in the beginning but soon after you will also learn the tricks of realistic budgeting with a little bit of trial and error.

Manage Your Expenses with These Ten Steps

1.  You have to make a budget that is realistic and applicable to you.  Check and analyze your budget frequently and even needed, make some revisions on it.

2.  You have to stop your urge to buy, especially when you see something that you really like.  It is best to think it over first for at least overnight.  After that, you will be enlightened that you really don’t need or like that much the object anyway.

3.  You must control the amount of loan or debt you are applying for.  The rule of thumb when it comes to debt payment, your monthly debt payment should only amount to 20% of yur monthly net income, without including your home mortgage.

4.  With regards to credit card bill, only charge an amount that you know you can pay in full when the statement or pay time is due.

5.  As for home mortgages, only apply for something that you can afford to pay now.  Never encumber yourself with expensive housing costs or rents that are quite hefty.

6.  Make it a point to choose alternatives that will lessen your expenses like taking a walk in the park or by the beach or going on a picnic instead of dining at a 5 star restaurant.  You can also opt to borrow books at the library instead of buying one.

7.  When investing, do it prudently.  At the most avoid investing in investments that assures you of high returns because these deals are high risk that is why it has high yields too.

8.  Never accept to become a guarantor for someone else’s loan because if that person defaults on payment, you will be the one to pay for it.

9.  Make sure that you have a home insurance and car insurance in order to protect yourself from calamities.

10.  Always ensure that you have a medical insurance.

10 Tips to Help you Avoid Financial Difficulty

There are no hard and fast rules that will instantly solve a person’s financial difficulty.  However, these tips will help you not to fall into deep waters, financially.  So, if you belong to a family, all of you must pitch in, because you can’t solve or avoid this all by yourself.  Thus, you need to explain to your kids and spouse in order to get their help and together you will be able to take prudent steps to avoid and save your family from financial hot waters.

1.  It is essential to create a budget that is realistic, so that it will be easier to stick to it.  Aside from doing this, you also need to do frequent analysis and checking of your budget plan and readjust figures as necessary.

2.  Never listen to your urge.  When you have a strong urge to buy a thing that was not in your budget plan, don’t buy it at once.  You need to sleep on that urge and chances are nil that you are going back to the store just to buy that item.

3.  Steer clear of sales.  When you purchase an item for $300, because it used to be $500.  Thinking that you have saved up $200, but you are wrong.  Because you have spent $300 unnecessarily for something that you don’t need in the first place.

4.  If possible, protect your health by getting a medical insurance.  Getting a medical insurance is a need, because you never know when a health crisis would strike.  Usually this health crisis entails a huge amount of money to pay for medical bills.  Thus, living without a medical insurance is really risky, financially.

5.  Use your credit cards, only if you can pay for it right then and there.  If you are charging your purchase to your card because you are thinking of paying for it from future income –DON’T!  There are circumstances when future incomes do not materialize.

6.  Stay away from house rents that are too expensive.  Take on rent or home mortgage that you can afford now and only increase house payments when your income also increases.  Don’t bite more than you can chew, as the cliché goes.

7.  Never be a guarantor for someone else’s loans.  If you will sign as a guarantor, you will be obliged and legally liable to pay for the remaining balance if the other person defaults on payments.

8.  Never go into joint obligations with a person who has a history of bad spending habits, even if that person is your significant other.  When you gain a joint debt you are liable to pay for it.

9.  Never invest in high-yield stocks.  Investing in high-yield stocks like speculative real estate, junk bonds or penny stocks means that these are high risk investments that are why the yields are high because of the rockiness of the situation.

10.  Discover substitutes to money expenditure.  Take for example, instead of taking your family out to a weekend dinner, why not take them to a picnic which is much cheaper and would entail more bonding with your family.  You can also opt to download free e-books or audio books from the internet rather than buying the books.  Another option would be to borrow from the library.

How To Avoid Debt

How do you prevent yourself from getting into debt? If you want to avoid the pressure of having to pay your debts is to not let your bills become overdue or just to avoid getting yourself into debt to being with. The thing here is that even if you cannot avoid making debts from your credit card, mortgage and care payments, there is still a way to avoid being burdened by it and here are some important tips to use for you to avoid encountering trouble with your creditors.

Tips On Avoiding Debts

There are a lot of ways for you to pay debt. In fact, you can live your life without having one if you:

- Pay cash for all items that you purchase.

- Shop within your budget

- Avoid shopping out of impulse

- Stay away from different marketing schemes like “buy now, pay later”, “interest-free financing” and others which offer you to postpone your debt.

- Compare the prices of your purchase

- Leave your credit card with you and just bring cash

- Do not borrow money to buy the things that you want

- Use a lender that gives you the lowest possible interest rate if you cannot avoid borrowing money

- Check your bank balances and avoid a bank overdraft charges

- Keep track of all you credit card purchases

- Pay more than the minimum payment on your bill

- Do not apply for more than one credit card at a time

- Consider transferring your balance to a card that offers lower rates

- Avoid credit cards that charge  you interest with no grace period and those that charge you immediately  with interest on a cash advance

Avoid Credit Card Scams

On the other hand, it is important that you also avoid credit scams if you really  intend to stay out of debt. There are a lot of credit repair scams everywhere and a lot of companies appeal to their clients who have bad credit histories while promising them to tidy up their credit report so that clients can get a home mortgage, car loan and even a job. Unfortunately, as soon as the client pays several hundreds or thousands of dollars as fee to these companies, the companies do noting to help improve the credit report of their clients and they simply vanish into thin air taking with them the money that their clients have paid them. It is sad to note that the ones who are in an advantage with this scheme are no other than the credit repair companies while the consumers are left with a burgeoning financial set back thus here are some tips on how to avoid credit scams.

- Do not believe in promises even if they sound too tempting

- Only deal with an agency that has a good reputation. You can check them out with the local Better Business Bureau

- Choose non-profit credit counseling organizations

* Verify if a company that you want to seek help with gives counseling and education. Moreover, check too if they can do debt consolidation and has an efficient payment service

* Read on the agreement carefully that is offered to you by a credit counseling organization

- Do not pay their ridiculously high fees

- Beware paying contributions like monthly service charge and others that can add up to the total debt load that you have

- Confirm the payment with your creditors

How To Avoid Huge Debts From Credit Cards

Credit cards are very convenient and if you use it properly, you will be able to get a good credit and it can also prove to be handy during emergency situations. However, owning credit cards has its own disadvantages the fact that you can be charges more than you can usually afford. The high interest rate and the temptation to overspend is the reason why a lot of people end up having huge debts from their creditors. Thus if you want to avoid having huge debts with your credit card, then here are some tips on how to use your card wisely.

Do Not Pay Your Car Loan Using Your Credit Card

A credit can, as discussed earlier, can bring about good or bad results depending on how you are using it. If you carry a balance then it is not wise to use your credit card to pay your loans such as your car loan or mortgage payments. The thing here is to use your credit card as a cash substitute and not as a high interest loan which can kill you overtime.

Buy Only What You Can Afford

Of course if you own a credit card, you end up buying the things that you want even if you do not have money in your pockets. However, this is not advisable and in order to  avoid having huge debts in your credit card, then you need to dwell in the principle to only buy what you can afford. If you end up paying a balance that you cannot afford monthly, then that means that you are overspending.  Here are some guidelines what you should and should not charge using your credit card.

- If you have enough cash in your bank to buy a particular item, then you can charge it using your credit card.

- If you do not have enough cash to cover the purchase but you won’t need the item urgently, then do not buy it using your credit card. Save money instead until you will be able to save enough to buy your purchase.

- If you need the item right away, then you can use your card to charge it. However, you also need to have a plan on how you can pay the balance and also figure out how much you need to pay each month and for how long before the balance is paid completely.

- Do not charge your meals, groceries and movie tickets using your card the fact that these things won’t exist once the statement arrives.

Create Your Own Budget

If you cannot check how much you are spending using a credit card, then it is important that you create a budget. Make sure that you make each purchase work within the range of your budget. However, if you find it hard to stick to your budget, then do not bring your credit card with you all the time. Remember, your credit card is only good if you use it on emergencies only.

Pay Your Balance Monthly

The most important rule each credit card owner needs to know by heart is to pay off their balance monthly. If you carry a balance everyday and use it, then make sure that you can pay off the balance in your bill monthly. If you only pay the minimum payment monthly, then you r debt will just increase. Another way to help you is to stop using the credit card only until you have paid your entire balance off.

Never Delay your Payments

Most people like to buy using their credit cards is that they can forget about their bills later. However, it is important that you never delay your payments as the late fees and penalty payments usually add up to the current outstanding debt that you have. There are a lot of credit card companies that also jack up your interest rate if you delay your payments.  Moreover, delayed payments also damages your credit score or standing.

Apply For Only A Few Credit Cards

You really need one or two cards with you in your entire lifetime. Moreover, if you only have few cards, you will be able to keep track on the purchases that you have made and that you will also be able to pay your debts monthly and on time.  Do not go as far as using one credit card to pay off the balance of another.

Avoid Getting Cash Advances

Never, never use a credit card to get cash advances the fact that you have to spend a lot of money paying a high interest rate, transaction fee and also you do not get a grace period which means that you pay your interest starting from the purchase up until you have paid your balance in full. A good alternative to this is your ATM card.

Do Not Register For Special Services

There are a lot of credit card users who are bombarded with card holders containing ads for different products like credit card fraud protection, travel clubs and even life insurances. These products are overpriced and you really do not need it.

Keep Your Credit Standing Good

Keep track of your credit history by keeping track of all receipts of your credit card purchase and reconcile it with the statement that you get monthly. You also need to review your credit card statement as soon as you receive it. By doing so, you will be able to know that the purchase is within your limit.

Moreover, reviewing your statement is a good way to find out if there are mistakes or extra charges thus you can limit your liability and take necessary actions.