Set Your First Budget

When it comes to your money, setting a budget is probably one of the most important steps to keeping more of your money each and every month.  So, it’s time to sit back and get comfortable with your first budget!

Now, there are tons of different strategies out there for how to budget and how to make the most of your money.  Some of them are more hands-on than others, but the most important thing here is that you do not wait to have a lot of money in order to start budgeting.  If you only have ten dollars a month, then you need to account for every one of those ten dollars.  Where they’re coming from and where they’re going.  Then, what you want to do with them.  But first, let’s do a quick basic definition of a budget.  A budget is simply an estimate of your income (the amount of money you’re bringing in and have available to spend, save, or invest) and your expenses (all the things that you need to spend money on ).  It can be as simple as a piece of paper split into two columns where you jot down all of your paychecks gifts and so on in one column and all of your bills purchases grocery costs and so on in the other.  Or it can be  more complicated than that.  It can also automated through various apps and programs that help sort your budget for you.

Just as there are many different ways to track the nuts and bolts of a budget, there are also many different philosophical approaches to budgeting.  Some people approach budgeting with a straightforward pay yourself first strategy, where they set aside money first thing every month to be saved before sorting out all of the other money into different categories.  Others practice zero based budgeting, where every single dollar is assigned a category, with nothing left over at the end of the month.  These strategies are a bit more involved but they can easily be mastered once you’ve gotten used to the basics of understanding your budget.

If you aren’t sure of where to start with budgeting try keeping a money diary by writing down every purchase that you make for a given period of time.  This will help you start to understand your spending patterns so you can get an idea of how much money you want to dedicate to each category, as well as some of the things that you probably want to cut out  completely.  Regardless of your individual strategy, the most basic thing to keep in mind about a budget is that your expenses should not exceed your income.  You literally want to finish every month in the black, meaning that you have money left over to save or invest.

Now, if you’re spending more than you’re bringing in, that means you’re in the red for the month.  You’ve spent more than you’ve earned and you may still owe that money on a credit card or to someone you might have borrowed it from.   The most traditional budget there is is a simple list of the money coming in compared with a list of the money going out.  You record your income and assign it and your expenses in a category things like housing, utilities, student loans, paychecks, gifts, etc.

There are many ways to budget your income depending on how hands-on or hands off you want to be.  Some people swear by the old-school Google sheets method, of which there are plenty of examples, such as the financial diet.  But others prefer various apps which will help you to automate the categorization and analysis of all of your different spending and income.  Others still prefer to use a literal pen and paper because they find that actually writing these things out and doing the calculations themselves helps keep them accountable and very aware of every single line in their budget.  Again, no matter which method you picked you’ll generally have some basic categories of expenses that you’ll need to track, such as rent, internet or cell service, food, etc.  From there, you can drill it down even further if you’re trying to see exactly where your money goes.  These categories are then assigned an amount per month.  Your spending may vary month to month, but the idea is to never exceed the amount in any given category.  This helps keep you under budget overall.

Another strategy is called the envelope method, where you literally take a stack of envelopes labeled with your expense categories and put the money for each category in the envelope.  Then, whatever money you put in each of those envelopes is the only money you can use for that category that month.  The envelope method is obviously rather labor-intensive, but many people do find it very helpful to totally realign how they think about money and start fresh on a very accountable budget.  (Keep in mind that for big recurring expenses,  such as your rent or utilities, you may not want to keep them in envelopes.  You may want to just simply automate those bills, so the money comes out of your checking account and you don’t have as much cash on hand all the time.

Another popular budgeting method is the 50 30 20 rule.  The bare bones of this method is that 50% of your income should go to necessities, 30% goes to things that you want, and 20% goes to savings or paying off debt.  Some people do prefer to swap those last two so 20% is going to your wants and 30% to savings or debt payoff.  This is a very effective way for many people to budget because it’s a zero-sum budget, meaning that every single dollar is allocated.  It can be a bit inflexible because, for example, you may live in a place where it’s not realistic for your total necessary purchases each month to fall under 50% of your take-home pay.  In New York, for instance, you’d have to be earning quite a lot in order for that to be the case.

Perhaps the most difficult part of budgeting, especially if you’re someone who has a tendency to slip into that treat yourself mentality or confuse things that are nice to have with things that are necessary to have, is understanding the difference between necessary and unnecessary expenses.  The main thing is that you have to be super honest with yourself.  What are the basics that you need to get by each month?  There should be a basic minimum grocery bill, things like your rent or mortgage, basic utilities, internet, cell phone, etc.  Once you have identified in a very honest and clear way what your absolute necessary expenses are, those need to be taken out of your budget first and foremost by subtracting this amount from your monthly income.  This gives you a clear number of what you have left over for everything else and that everything else has to represent both your unnecessary expenses and your savings / debt repayment / investing.  Now, don’t get me wrong, unnecessary expenses doesn’t mean you will never buy or pay for these things.  It simply means that when push comes to shove, they do not absolutely need to be included in your monthly budget.  Things like going out to dinner with your friends, subscriptions and gym memberships, fitness classes, hobbies, coffees, and that kind of stuff can be categorized as unnecessary even if most months you end up paying for them anyway.

Again remember that whatever is left over in your budget after subtracting your absolute necessary expenses are going to be competing for space.  The more of those unnecessary expenses that you’re paying for each month, the less that you’ll have to go to savings, investments, or paying off bills, so make each dollar count.

Of course, the best way to get a really clear picture of what your actual necessary versus unnecessary expenses are is to get really good about tracking your own spending and getting a very clear picture of your lifestyle and what it costs to live it.  This is part of the reason why one of our first tips on this topic was to start with something like a money diary or writing down everything you spend on for a month or so.  Often when we’re setting out a budget for the first time, especially if we really want to cut back or save a lot, we have a tendency to wildly underestimate how much we realistically spend on certain categories each month.  It’s much better to make a realistic budget from which you can slowly start to chip away than to try to radically alter your spending in a way that doesn’t match up with your lifestyle.  If you do that, you’ll inevitably fail at the budget stop trying altogether.  Understanding how much you tend to spend at the grocery store every month, as well as doing a very clear inventory of which of your more regular bills you could probably cut back on versus the ones that need to remain the same, is extremely important for setting a realistic budget.  For example, you may be someone who uses your cell phone all the time for both work and personal use, so for you it’s much more important to just go ahead and pay for that more expensive unlimited monthly plan than to try and radically lower your monthly cell phone bill to a point where you constantly end up having to pay overages each month.

With a very clear record of your spending and analysis of your lifestyle, you will be able to paint a very clear portrait of unnecessary versus necessary and identify the places in which you can start to make meaningful changes without radically altering your lifestyle or setting yourself up for failure.  Remember, you don’t have to have an incredibly strict budget in order to get control over your money!  Sometimes you’re going to spend money on frivolous things or make mistakes or buy something that you might regret, but that’s okay.  What is important is having a very clear understanding of what is coming in and what is going out.

It’s also okay to experiment with different methods of budgeting so that you can get a feel for what works best for you and what’s more sustainable for you in the long run.  The power of a budget is in having control over your money and, at the very least, even if you’re currently spending more than you make, at least you have a very clear mental picture of what’s happening and what needs to happen in order for you to be in the black again.  Remember, no matter how little you may be taking in each month, it is never too early to start budgeting. Waiting until you’re rich to have a budget is like waiting until you’re married to start dating.

New Year / Fresh Start

There is perhaps no better time than the start of a new year to get a fresh start on your finances!  From your credit score to your credit cards to your retirement plan, now is the time to sit down, take stock of where you are, and make a plan to get to where you want to be by the end of 2021.
Not sure what your credit score is?  If you are not sure what your credit score is, then you know exactly where to start, don’t you?  You can get your credit score, and in most cases, your credit report for free online in any one of a dozen or more places.  From your bank to your credit cards, nearly every financial institution is offering free access these day.
Once you have that information in hand, sit down and review it completely.  Are all of the accounts listed on the report yours?  What is your credit score?  What can you do to improve your score?  Make a list. Then, move on to the next step.
Take a look at your credit cards.  Are the balances too high?  Experts recommend that you keep the balances on your credit cards below 33% in order to maintain your credit score.  If your credit card balances are above this threshold, paying them down should be a top priority.  Once you’ve looked at your balances, then it’s time to look at your interest rates.  Are you paying too much interest each month?  Perhaps your credit has improved over the past year, and you’ve gone from bad credit to fair credit, or fair to good.  If that’s the case, there may be better options than your current credit card providers, enabling you to save money on interest.  You may even qualify for a balance transfer card with a 0% introductory rate.  But you will never know unless you compare those credit cards to others that are out there.

Finally, take a look at your budget.  Where can you cut expenses?  Where can you save money?  How much more could you put into savings each week or month?  Even though 2020 was a really difficult year for all of us, getting a fresh start in 2021 may be easier than you think.  You just have to start somewhere.  Are you ready for a fresh start?

Should I Ask for a Credit Limit Increase on My Credit Card?

Asking for an increase to your credit limit on a credit card can sometimes help you through an emergency situation, provide you with a safety cushion of extra available credit, and even help improve your credit score, but should you ask for an increase?  That depends.  If you’ve only had the credit card for a short time, it’s far better to wait until you’ve established a pattern of responsible use, including maintaining a low credit limit and making your payments on time, every time.  Once you’ve proven that, you’re more likely to be approved for the increase to your credit limit.  However, if you have a pattern of missed payments, or you’ve maxed out your credit limit, it is unlikely that you will be approved  for a credit line increase.

Some lenders will automatically offer credit limit increases once you’ve proven that you’re a responsible customer.  Beware of the fine print, however, as some credit cards carry a fee of up to one third of the increase for this additional credit.  And, you’re not obligated to accept the increase, either.  The bottom line is, you know what you can afford, you know your spending habits, and you know the course of action you need to take to stay on the right financial track for you.

January’s Financial Challenge

It’s January!  Yep, Christmas is over and all those bills are arriving in the mail or in your inbox. That means that it’s time to figure out how you are going to pay all those monthly payments!  Don’t worry, you’re not alone.  Most of us spend way more than we plan to every December, and as a result, most of us are trying to figure out exactly how to pay them all off sooner rather than later.  Let’s start by taking a long hard look at your finances.

Personally, I have a worksheet that I use every month to track both my overall monthly income and my non-discretionary expenses.   The income section lists regular (normal) monthly income as well as any additional income that I earn from any outside sources.  For example, if I get a bonus at work, or if I earn a few extra dollars for selling something, or even if I just get an unexpected refund on a bill that I may have overpaid, it goes into the additional income line.  Then, I total all my income.

Dropping down a couple of lines, I have a section for my bills.  Not only do I list the payee, but I also list the starting balance for the year, then the monthly payment amount, along with the amount paid each month (in a separate monthly column).  Finally, I add a column to update the monthly balance and a column to show me the year to date change in the total amount owed.  And, here’s the hard part… I total up ALL of my indebtedness (including the house and the car) to get a true picture of everything that I owe.  Yes, when you add in both the house and the car, well, it seems insurmountable.  But it’s my financial truth.  And I am focusing on all of it.  (You may find it easier to just list your credit cards.  It depends on what you’re working toward.)

Then, at the bottom of each column, take your total income and subtract your total expenses.  This should give you an amount that will be your discretionary spending each month. (For me, discretionary spending includes my grocery bill because that’s something that I can change by shopping smart, but it doesn’t include utilities because that’s pretty much set in stone – I just use an average amount and put it in the non-discretionary column.)   The higher the amount of discretionary spending money that you have, the better your bottom line.  Pretty simple, isn’t it?

Now that you have an overall financial picture, you can look at ways that you might be able to reduce these costs.  For example, is there a better cell phone plan for you?  Perhaps you may decide to change your cable subscription?  (I dropped my cable company, then signed up for a couple of streaming services, and saved over $70.00 per month.)  And most importantly, you can look at how quickly you can pay off some of those interest bearing accounts!   For me, seeing the balances of credit card bills decreasing on a regular basis is the best motivation there is for sticking to my financial plan.  But, this is also about you…

What’s your motivation?  Find it.  And then, start saving money!

 

 

 

Fingerhut

With Black Friday looming, there are so many promotional offers, sales, and deals out there that it’s hard to know where to start shopping for Christmas, but here’s an idea that might just keep you home on Friday morning… why not order everything online this year?  You can save the time, skip the crowds, and get some deals that you just won’t find anywhere else.  And if you do it right, you’ll only have one bill that you have to pay after the holidays have come and gone… that’s right, just one bill.  (I don’t know about you, but one bill sounds far easier on the budget than multiple new credit card bills, doesn’t it!)

Not an Access Card

With your Fingerhut Credit Account issued by WebBank , you can shop literally THOUSANDS of name brand, competitively priced items, including clothing, shoes, computers, electronics, home appliances, furniture, toys, and so much more, all at the same place.  All you have to do is make your selections, place your order, and your shopping is done… and you know what’s even better than that?  Before you ever even submit your order, you’ll know upfront what your monthly payment is going to be.  No more January surprises in your mailbox – you can plan your spending around what you can afford, so you’re not broke once the holidays are gone!

What could be easier than doing all of your Christmas shopping with Fingerhut?

Did I mention that if you sign up for a new Fingerhut account now, you can start shopping right away?  That’s right – sign up today and start shopping today!

Here are the details on Fingerhut Credit Account issued by WebBank :

Budget Your Way to a Fresh Start

 The fastest way that I know of to get a real fresh start on your financial life is to build a realistic budget and then stick to it!

  • Housing (rent or mortgage)
  • Insurance premiums
  • Car payment
  • Utilities
  • Child care costs
  • Debt payments (credit cards, personal loans, etc.)
  • Car and home maintenance

Then, list the expenses that you have some control over, that may change from month to month:

  • Groceries
  • Savings
  • Medical costs
  • Monthly fees and subscriptions
  • Gifts  (Christmas, birthday, etc.)
  • Entertainment

For those expenses that fall outside your normal weekly or monthly budget, you’ll want to be sure to set some money aside so that you are able to pay them when the time comes.  For example, if you pay your homeowner’s insurance annually, you’ll need to save a certain amount of money each time that you get paid for your homeowner’s premium.  (Don’t make the mistake of thinking you’ll save for it later or that you’ll come up with it somewhere – you won’t!)

Now, you’ve listed your income and your expenses.  The difference between your income and your expenses is your net gain or loss.  If your income is greater than your expenses, then you can probably save a little more or have a little extra spending money.  But, if your expenses outweigh your income, then you need to be looking for ways to cut corners.  Clip coupons on groceries, cancel the upper tier cable channels, skip dinner out once or twice a month, or if you’re seriously in the hole, you may decide that you need to find a second job or an additional source of income.  Whatever your financial situation – you cannot do anything about it until you’re aware of it!

Don’t just stop with the budget!

Now that you’ve made a budget, and you’re well aware of your true financial situation, don’t just walk away from it.  Pay attention to your spending.  Sit down each and every month and study your receipts.  How does your actual spending compare to your budget?  Are there places where you can cut corners?  And are there places where you underestimated the expenses and need to readjust your numbers?  The more you begin to pay attention to your spending, the more that you’ll notice when you overspend, and you’ll find that you will subconsciously start to live within your means very quickly.

Fortunately, with so many free tools available today, you can easily keep track of your budget on your phone, your laptop, or even with an old fashioned pen and paper.  Whichever way you choose, just be consistent.  Sit down, study your income and your expenses, pay your bills, and start putting back any excess for that emergency fund.  You’ll be surprised by how quickly you can get your finances under control if you just work at it!

 

Breaking the Cycle of Living Paycheck-to-Paycheck

Do you make a decent living yet see yourself counting on that next paycheck to survive? A recent study (PDF document) conducted shows that 47 percent of Americans are living paycheck to paycheck. Whether it is due to poor budgeting skills, or perhaps not knowing how much to save a month, people are finding it hard to break out of that cycle.

If you are looking for ways to stretch your pay and break that cycle, here are some things to pay attention to.

Pay attention to where your money is going.

I’ve written about our family’s journey of overcoming debt. One thing I learned, absolutely nothing will change if you aren’t keeping track of where your money is going each payday. You should have a budget set as well as a method of tracking your spending. You will not be in control and break the cycle without both of these working together.

Pay attention to what your budget says.

Your budget shouldn’t be flexible; this mentality makes it awfully hard to save. Once you make your budget, you should not be changing it unless you have to add to it, or adjust the numbers based on the amount of the bill. This skill was also something me and my spouse had to learn. Also, don’t skip out on paying a bill one month so that you have a little extra spending cash. If you have no disposable income at the end of the month, what are some things you can do to fix this? Perhaps you can pick up some more hours at work, or a part time job? You can also get rid of unnecessary bills and spending, using the money saved, open a separate bank account. A great way to reduce the chances of using this money is to either not request a debit card, or never carrying it with you. This will help with the temptation of spending.

Pay attention to what your spending says.

Going back to what was said above; tracking your spending will be helpful in determining how much you are spending monthly on things that are not in your budget. Are there any areas where you can reduce spending? Perhaps you like to eat out frequently, or like to go to the movies. If you are seeing a frequent spending pattern, consider cutting down or going without completely until your spending is under control. This can be harder to do, but once you see the money saved at the end of the month, it will be a sacrifice well worth it.

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‎04-10-2017 07:10 AM

Content provided courtesy of USAA.

By Angela Caban

Creating a Realistic Budget

It’s February; shouldn’t we already have our 2017 budgets created? If you don’t, please don’t beat yourself up about it. It is never too late to start planning and budgeting for the year. If you already have your budget created, perhaps there is something that you missed or need to change?

How do you create a budget and keep it realistically flexible enough to meet the needs of you and your family?

I have seen my budget fail four times. Why? Because it wasn’t realistic. We all want to be in a place where we are saving as much as we can and have little to no debt. It’s easy to sit down and write numbers down, such as “I want to put $1,000 a month into savings”, but what if that isn’t realistic. What do you do?

Here are 3 Ways to Create a Realistic Budget

Analyze Your Spending

You need to know what you have coming in and going out each month. Step one is to review all bank accounts and credit cards statements for at least three months. This will give you a good picture of where you stand for the month.

Categorize

Using the Zero-based budgeting method (which is my favorite), list all your expenses for the month. Zero-based budgeting is a method in which you count all the money coming in, every single penny.

Once you have the amount of all the money coming in, you then make categories for all your expenses. By the time you add your budget for each expense, you should have a total of zero dollars at the end of the month. All the money is accounted for, but again, be realistic with what you are spending so that there are no surprises at the end of the month.

Track Your Spending

Even though you have your budget, you should always monitor what you spend. Because life happens and there will be moments when you may have to move some of the numbers around. Try to only do this during those emergency situations (car troubles, medical issues, etc.). Using an app on your phone may be helpful; I currently use Every Dollar and Money Manager.

Maintaining your budget is hard work, so reward yourself. If you stay well within or below your budget, treat yourself out for dinner or a movie. It is a nice reminder that while you are saving, you are also working hard and deserve a treat for a job well done.

 

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‎02-13-2017 07:20 AM

Content provided courtesy of USAA.

By Angela Caban