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CREDIT SCORES LOANS & CREDIT HOW TO BUY BAD CREDIT BUDGETING |
Managing your moneythe basic principles of budgeting The love of money is the root of all evil but money is an essential commodity in a modern economiy. It determines how well we function in obtaining the basic human needs of food, shelter and clothing as well as achieving the greater needs of self-improvement such as a good education, our overall well-being and the finer things of life. So why is it that most of us never have enough money to even provide the basic needs? We work hard to earn our wages and yet at the end of the month we feverishly avoid the telephone calls from debt collectors and end up paying late charges on our credit cards, mortgage and/or rent. The marketplace we live in constantly bombards us with advertisements promising a multitude of products and gadgets that they say we need, with enticing payment plans, no interest for several years, and cash-back offers as well as those never ending sales and promotions. How can we escape this madness? How can we navigate through the forest of commercialization, unharmed and financially sound, with our credit report score intact and have money in the bank to provide for a rainy day? Wouldn’t it be fantastic if we all had the ability to pay our bills and have money left over for the finer things in life? The answer lies in two basic principles: self discipline and creating a budgeting plan and sticking to it. Both principles work hand in hand; they are not mutually exclusive. What is self-discipline? It is the act of consistently doing the things that will create a desired outcome until it becomes the normal behavior pattern. What is a budget? Budgeting and planning means creating a list of all anticipated income minus all anticipated expenditures. The desired result is to have the net effect being zero or greater than zero. Let’s explore what we would require as the desired outcome with respect to discipline. Perhaps the best way to consider this is to actually look at the consequences of not being disciplined when managing our hard-earned funds. Spending above and beyond our limited income causes several severe consequences:
For every purchase you make, ask these questions in the context of the 7 listed negative consequences: do I need or want this item?; can I afford this item?; am I budgeting and planning for this item? Unless it is an absolute emergency, you should avoid confusing wants and needs, especially if your intended purchase was never budgeted for. If these three questions become a part of your everyday purchase decision, then you will be well on your way to achieving financial discipline. Now that we have mastered the art of disciplining ourselves, then comes the next important step of creating a budget. Setting up the budget There are several factors that must be considered in creating a budget; they are:
Managing unexpected important expenses The most important thing to remember is that large, unexpected expenses should never interfere with your current budget. Use your credit card or seek a short-term loan to cover the expense and then set up the minimum payment or adjust your monthly credit card payment on your next month’s budget. In this way you are able to avoid major interruptions in your cash flow and will be able to satisfy all of your crucial bills. Be prepared to limit your credit card use only for emergencies or very important expenses that would otherwise limit your ability to function productively if those expenses were not paid. The sample budget Now let us put all the pieces together and look at a sample budget:
Please note the variable items shaded in yellow. These represent items that can be controlled by you, so if you need to adjust your expenditure to fit the overall budget, these are the items you should first consider reducing or eliminating altogether. Can you imagine trying to do all these calculations and adjustments in your head without losing sight of where the money is going? Having a written budget gives you a clear view of what needs to be done and allows you the flexibility to change and adjust as circumstances dictate. Credit cards 2 and 3 in the example both have exceeded the budgeted payout but I have tagged those as “GOOD” simply because the funds were used towards paying down a debt faster. A living, breathing budget Finally always remember that a budget is an interactive document
that you should look at daily or at the very least weekly; you must
update your expenditures regularly in order to be able to determine
if you are on track with your budget or if you need to take corrective
action. This means that you must get into the habit of saving all
your receipts and totaling them according to the categories in your
budget before you discard them. This can be done very easily if
you have your budget in a Microsoft Excel file. To achieve effective
budgeting and planning you must practice financial discipline. The
consequences of financial indiscipline can eventually lead to helplessness
and poverty. Remember the three question rule: do I need or want
this item?; can I afford this item?; did I budget for this item?
These questions combined with creating a written, workable and achievable
budget is the easiest way to effectively manage your money. |
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