Budgets are hard to follow.
Or so says popular belief, but I disagree.
Budgets are not hard to follow if you have a good reason for following them. I know how much I struggled to stay on budget when I was doing it just for the sake of doing it. I was much better when I had a goal.
I will be honest, I am not the goals super woman. I can mercurial (look that up, it's a good word) about my finances -- intensely interested one week, then not at all the next. So, it takes me a while to set real goals that motivate me to save or stick to my budget.
Last week, I asked you to think about your priorities and come up with a financial mission statement. Your financial mission statement should help you make decisions about your money -- everything you do should be in step with your mission.
So, before you start with the budget, what would you like to accomplish?
If you're a debt hater like me and reading these posts, you probably want to pay off your consumer debt! Good! Of course! But, uh, how exactly do you do that? If you knew, you probably wouldn't be reading this.
You need to figure out EXACTLY how much you owe, to whom and what the interest rates are and add it all up. Now, how soon do you want to pay it off? Tomorrow? Yeah, nice try. Start with a debt repayment calculator (there are many online, just Google it).
A good calculator will take into account how much you owe and the interest rates, then show you how long it will take to pay off if you only pay the minimums. You should be able to change the variables. Say, you want to pay it off in six months, the calculator should tell you how much money you'd have to pay monthly to accomplish that. Or if you knew you could afford to pay a certain dollar amount monthly, the calculator will tell you how long it will take to erase the debt paying that amount.
An example: Let's say you have $10,000 in credit card debt at 12%. You are 28 and want to pay it off before you turn 30. You punch your numbers into the calculator and, just like that, you have a goal! If you pay $470 a month on your consumer debt, you'll pay it off in less than two years!
What makes a good financial goal?
A good goal, any goal, should be S.M.A.R.T.:
Specific: I want to completely pay off my consumer debt before my 30th birthday in 2012.
Measurable: I know I'll be done when I pay all $10,000.
Achievable: I can afford to pay off my debt if I manage my money properly.
Realistic: I have steady income and enough money available for bills, savings and spending money.
Timely: I can definitely do it in two years if I always pay $470 a month or more.
The same thing works for saving to buy something. What do you want and why? When do you want to buy it? How much money will you have to put aside each week or month to make that happen? Do you actually have that money available each week or month? What changes could you make to have that money available?
When you know what you're trying to accomplish, you plan your budget around it (which is why I still haven't gotten to the nuts and bolts of a budget). It'll keep you honest and make it easier to track your progress -- as you get closer to your goals, you're more motivated to stick with it (trust me! Watching my debt fall and my savings rise, as slowly as it happened, helped me suck it up when I just wanted to blow a wad a cash. I had a REASON to be good!).
Now, once you sit down and create a budget, you may realize that some of your goals are not realistic. That's ok! When you know what you're working with, you can fix them so that they are.
Each little bit, builds on the last. Next, week, I promise, we'll build your budget -- the budget that's going to lead you through 2010 and into 2011 with a clear financial picture and plan!
DH
Debt Hater is a personal finance blogger who paid off nearly $16,000 in credit card debt (not including a car loan!) in four years, just like she planned. You can visit her blog at www.debthatersblog.com.
Showing posts with label finances. Show all posts
Showing posts with label finances. Show all posts
Friday, October 22, 2010
Friday, September 10, 2010
Where Is Your Money Going?
You've tracked your spending for a week. Were you surprised by where your money was going? Random spending isn't the only place where we lose money. This week, we'll look at other places you may be bleeding money including account mistakes, overdraft fees, finance charges and impulse buying.
You kept all your receipts or wrote down what you spent, on what and when. You created a spreadsheet to help you add it up.
How do you feel?
You may have felt like it was a pointless exercise (no it wasn't, as I'll explain) or that you didn't learn anything new about your spending patterns or you were blown away by where your money goes in just a week.
Why are you doing this? Chances are, you've never done it before. You may be struggling with debt, or struggling to save for the things that you want or simply struggling to pay for anything at all. Maybe you aren't struggling with any of those things, but you're often hit with expensive surprises at the end of the month -- Not quite enough left in checking to cover the rent next week? Suddenly missing $100 that you don't remember spending, but it sure isn't in your account? Getting an e-mail about your account being overdrawn?
You track your spending to look for the obvious holes. Once you see the obvious holes, you can get better at spotting the less obvious ones, which we'll talk about in this post. The longer you track your spending, the more accurate a picture you have of your overall finances. The more accurate your picture, the better planning you can do for your finances. The better your financial plan, the LESS you'll have to do the tedious work of tracking every penny. If your plan is tight, there won't be any surprises! That's why this is not a pointless exercise.
But you also must walk before you can run.
Here are five places to look to save money that you may not normally look:
1. Bank and credit card statements. Banks are not infallible. Banks make mistakes with YOUR money. Check your statements and make sure you weren't charged any erroneous fees or that someone else hasn't gotten a hold of your information and is shopping on your dime. If you have a questions or suspicions, CALL YOUR BANK. You might be the one mistaken, but it's better to get it straight than to assume everything is fine. The same goes for any other bills including your cell phone, utilities, etc.
2. Monthly fees vs. annual costs. Why do you think car dealers ask you "How much are you looking to pay a month?" when you are looking to buy or lease?
The CORRECT question is "How much do you want to pay for this car and how long do you want to pay on it?"
Why do they ask the first question and not the second one?
Because by getting you to think only about the monthly fee for that car, they can get you to pay way more for it than it may be worth.
It's the same with any other monthly fee -- a low fee may seem like a bargain, but multiply by 12 and see how much money you may be losing on something in a year.
Look at your bills and bank statements and see what things you're charged for each month (besides your rent or mortgage). Multiply that monthly charge by 12 -- that's what it costs you each year. Do you really want to spend that much on whatever it is each year? Could you possibly spend less on that same service?
3. Your cell phone. Of course you need it, but could you potentially spend less on it each month? Are you using all those minutes? If not, can you roll them over? If not, can you get fewer minutes for a lower price? Are you paying per text message and frequently go over the limit?
Many cellular providers' websites allow you to "analyze" your bill. You punch in your information and then it lets you know if you're actually using everything you're paying for. If you aren't, you may want to cut back on your services or options and save some cash.
4. Your friends and family. Are you the one always covering somebody, helping a sistah out, bailing out a brother, or footing someone else's bills? Maybe it's just $20 here and there, but how often do here and there call you asking for money?
5. Your vices. Cigarettes. Alcohol. Ice cream, and lots of it. These are all things that may be hurting more than your wallet! Have you lost $100 and gained 10 pounds this month and don't quite know how? Look here. Your indulgence in these things may also be costing you indirectly -- does your company benefits plan charge additional fees if you're a smoker, drinker, or significantly overweight?
Right now, I'm not asking you to start or stop doing anything. I'm just asking you to take notice of these things that you probably never spend time thinking about.
Once you recognize your patterns, you can do something about them -- channeling that same brain power to help you instead of hurt you.
Spend this week checking on where you money goes and seeing if there are places where you can stop the bleeding. Once you identify those areas, close them up!
DH
Debt Hater is a personal finance blogger who paid off nearly $16,000 in credit card debt (not including a car loan!) in four years, just like she planned. You can visit her blog at www.debthatersblog.com.
You kept all your receipts or wrote down what you spent, on what and when. You created a spreadsheet to help you add it up.
How do you feel?
You may have felt like it was a pointless exercise (no it wasn't, as I'll explain) or that you didn't learn anything new about your spending patterns or you were blown away by where your money goes in just a week.
Why are you doing this? Chances are, you've never done it before. You may be struggling with debt, or struggling to save for the things that you want or simply struggling to pay for anything at all. Maybe you aren't struggling with any of those things, but you're often hit with expensive surprises at the end of the month -- Not quite enough left in checking to cover the rent next week? Suddenly missing $100 that you don't remember spending, but it sure isn't in your account? Getting an e-mail about your account being overdrawn?
You track your spending to look for the obvious holes. Once you see the obvious holes, you can get better at spotting the less obvious ones, which we'll talk about in this post. The longer you track your spending, the more accurate a picture you have of your overall finances. The more accurate your picture, the better planning you can do for your finances. The better your financial plan, the LESS you'll have to do the tedious work of tracking every penny. If your plan is tight, there won't be any surprises! That's why this is not a pointless exercise.
But you also must walk before you can run.
Here are five places to look to save money that you may not normally look:
1. Bank and credit card statements. Banks are not infallible. Banks make mistakes with YOUR money. Check your statements and make sure you weren't charged any erroneous fees or that someone else hasn't gotten a hold of your information and is shopping on your dime. If you have a questions or suspicions, CALL YOUR BANK. You might be the one mistaken, but it's better to get it straight than to assume everything is fine. The same goes for any other bills including your cell phone, utilities, etc.
2. Monthly fees vs. annual costs. Why do you think car dealers ask you "How much are you looking to pay a month?" when you are looking to buy or lease?
The CORRECT question is "How much do you want to pay for this car and how long do you want to pay on it?"
Why do they ask the first question and not the second one?
Because by getting you to think only about the monthly fee for that car, they can get you to pay way more for it than it may be worth.
It's the same with any other monthly fee -- a low fee may seem like a bargain, but multiply by 12 and see how much money you may be losing on something in a year.
Look at your bills and bank statements and see what things you're charged for each month (besides your rent or mortgage). Multiply that monthly charge by 12 -- that's what it costs you each year. Do you really want to spend that much on whatever it is each year? Could you possibly spend less on that same service?
3. Your cell phone. Of course you need it, but could you potentially spend less on it each month? Are you using all those minutes? If not, can you roll them over? If not, can you get fewer minutes for a lower price? Are you paying per text message and frequently go over the limit?
Many cellular providers' websites allow you to "analyze" your bill. You punch in your information and then it lets you know if you're actually using everything you're paying for. If you aren't, you may want to cut back on your services or options and save some cash.
4. Your friends and family. Are you the one always covering somebody, helping a sistah out, bailing out a brother, or footing someone else's bills? Maybe it's just $20 here and there, but how often do here and there call you asking for money?
5. Your vices. Cigarettes. Alcohol. Ice cream, and lots of it. These are all things that may be hurting more than your wallet! Have you lost $100 and gained 10 pounds this month and don't quite know how? Look here. Your indulgence in these things may also be costing you indirectly -- does your company benefits plan charge additional fees if you're a smoker, drinker, or significantly overweight?
Right now, I'm not asking you to start or stop doing anything. I'm just asking you to take notice of these things that you probably never spend time thinking about.
Once you recognize your patterns, you can do something about them -- channeling that same brain power to help you instead of hurt you.
Spend this week checking on where you money goes and seeing if there are places where you can stop the bleeding. Once you identify those areas, close them up!
DH
Debt Hater is a personal finance blogger who paid off nearly $16,000 in credit card debt (not including a car loan!) in four years, just like she planned. You can visit her blog at www.debthatersblog.com.
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