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How to Avoid Debt:
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.
Cut Back on
Spending
At first it may seem difficult to limit spending and stick to a budget,
however there are a few practical changes that you can make everyday that
will cut your spending more than you expect.
Firstly, alter credit car behavior.
Start to pay cash whenever possible. This will help you avoid making a
purchase unless you actually have the money available. If you decide to
make a credit card purchase, be prepared to pay the balance off monthly.
This will save a lot of money through avoiding interest charges. If you
already have a credit card balance, then transfer to a card with a low
interest rate. Also, find a card that does not charge an annual fee.
Another tip is to pack your lunch
everyday. All of those lunch hours spent at restaurants will add up.
Bringing your own lunch can save you several dollars every day, which will
add up over time.
Use your cell phone during off peak
hours. Some people will spend a couple hundred dollars a month on phone
charges. Avoid this by making most calls during off peak times. Check
with your service and plan to find out when you have cheaper or unlimited
calls.
Stop throwing away the Sunday newspaper
before skimming through the advertisements. Clip some of those coupons
and check out the sales. This may seem tedious, but the savings are often
worth it. Many stores will double or triple the amount of the coupon.
This technique can save you up to 20 or 30 dollars each time you head to
the food store.
Additionally, refinance. Mortgage rates
have been extremely low over the past year. This has been a great
opportunity to reduce the monthly house payment significantly. If you are
planning to have your house paid off prior to retirement, then you may
want to factor this in before refinancing.
Finally, bundle your insurance. Many
insurance companies will offer their customers lower rates if they
purchase multiple policies. For instance, some people use the same agent
for multiple cars, and others combine their cars and house. Always keep
in mind that a dollar here and there really begins to add up. Avoid the
temptation of thinking that changing your spending habits wouldn’t save
that much money.
Start Saving!
So you are
loaded down with bills to pay each month and are wondering how you can
begin a savings account for emergencies and other high-expense endeavors.
In other words, where can you find that extra cash to put away for later?
Firstly, when
configuring your budge, plan for your savings first. You will grow richer
each month if you begin to pay yourself first. Before paying any bills,
decide on a set amount that you will pay yourself first—maybe five or ten
percent—or whatever you decide—of your paycheck. Then, deposit the amount
into a savings account before paying any bills.
When you do
this at the beginning of the month, your entire paycheck will not suddenly
slip through your fingers. If you wait until the end of the month, there
may be nothing left to save. Paying yourself first will give you a
systematic way to make your money grow. Regardless of your profession or
your income, this system will work if you stick to it.
Another
technique you may try for saving money is to empty your extra change into
a coffee can or a jar each day. At the end of the month, roll the coins
and put them into your savings account. You may be able to save 30 or 40
dollars each month just with your spare change.
Remember that
good money management is more than just a mathematical formula. It’s too
closely tied with the ups and downs of living to be just that. Your money
management plan is always subject to change if your life situation
changes. The object of a good budget is to make your money go the
farthest in helping you reach your goals, it is not there to force to you
to abide by rules.
Don’t get
discouraged if the budget plan doesn’t work perfectly right away. It may
involve some revising and editing until it fits your needs. Then, make
sure to review it often, and be sure it is making the best use of every
penny! Because we know how helpful those spare pennies can be!
Avoid Spending Pitfalls!
With all the
advantages that are evident from personal budgeting, it is no wonder that
more and more people are relying on them to reduce debts and increase
their savings. However, all ‘budgeters’ need to be careful to avoid some
common pitfalls that appear often.
Credit cards
may seem like small pieces of plastic, however they can cause a great deal
of trouble for the owners. It is common for people to make unwise
purchases, which they would have avoided otherwise, because they had the
credit card in their wallet. The best solution for many people is simply
to get rid of credit cards and begin paying only by cash, check, or debit
cards. You may want to keep one card handy for emergencies, but it is
probably best to keep it out of reach, and far away from your wallet.
Another
problem with budgeting is impatience. There are financial goals set, but
people do not have the patience to complete a savings program. For
instance, an individual begins setting aside money for a new car; however,
after a few months they discover the car of their dreams. Rather than
waiting, they make the purchase. This could pose some serious financial
strains. Discipline is a must to prevent impatience from breaking your
budget.
Once a person
makes a budget, they often fail to adjust it when necessary. A budget is
created using a set of expenses and income figures that are liable to
change. As these figures do change, it is important that the budget
changes to reflect the adjustments. There could be some major deficits if
this is not done appropriately and promptly.
Of course nobody forgets about Christmas
or Hanukkah, however many people do not consider budgeting for holidays
when creating a budget. Therefore, adequate funds have not been set aside
for presents, food, parties, etc. These items should be factored in and
saved for throughout the year.
Finally, many people factor in
transportation and accommodations for vacations in their budget, however
they underestimate money needed for food, entertainment, and spending
money. Keep in mind that all the resorts and tourists areas are double or
triple what you would normally pay.
With a little planning, you’ll be on your
way to saving more money than you ever thought possible!
Easy Money-Saving
Changes
One of the most obvious and easy ways to
save some extra cash is to change some of the way you use products and
items in your everyday life. The key is to make minor changes.
For instance, always buy the cheapest
hand soap you can find. The quality doesn’t necessarily go up with the
price and you can use it in place of ‘bath soap.’
Always use the whole product. Turn
bottles upside down and drain to get the last bit from them. Tear open
sugar and flour sacks to get everything; squeeze or cut open tubes to use
it all before running out to buy more. You’ll be surprised at how much
there really is left!
Also,
never use more than you need. Just because it says on the box that you
need a full cup, doesn’t mean that you really do it need it. Half a
measure of laundry detergent and a half teaspoon of dish soap are examples
of what are usually enough, rather than what the manufacturer says.
To save some cash, you can use some of
the things in your house in some unique ways. Instead of spending lots of
money on the fancy floor cleaners, try using ammonia. It does a great
job, and you can use plain water in between times. If your furniture
needs some polishing, mix equal parts of white vinegar and vegetable oil
and rub on the furniture. Buff with a cloth until it shines.
For a freezer bag, use empty chip bags
and close with masking taps. Also try a bowl with a lid, such as a
margarine tub.
If your skin is feeling a little dry,
there are several substitutes for expensive lotion. Petroleum jelly
rubbed into your hands at night after a warm water soak, mayonnaise (rinse
w/ cold water after), or any other oil based food. Just be sure to put it
on immediately after your hands have been in water.
To save some money on laundry, dissolve
a bar of handsoap in water to replace laundry detergent. Add three
gallons of hot water, mix thoroughly and add a cup of washing soda.
Sure, these are small changes, but added
up, they can put some extra change into your pocket throughout the year!