Money Quiz: Answers to Keep You Debt Free

Starting out on the right financial foot is a great way to make headway into a solvent economic future.  Take the following quiz to see if you are on the right track to financial success.

1. Do you have a budget set up?
Creating a monthly budget and sticking to it is a great way to track your spending.  Keeping a monthly tally of your expenditures will outline where you spend and where you can trim your spending.

Track your spending including all monthly expenses such as mortgage, electrical bill, insurance, and other incidentals such as morning coffee and other special treats.  Keeping systematic record of expenses and budgeting your income, will prevent overspending and collapse into debt.

2. Do you use credit cards  because you have no cash?
Having a credit card for emergency purposes and major necessities is a great way to get out of a bind but for daily regular expenses try using cash.  Using cash prevents over spending and cuts down on discretionary spending such as dining out, entertainment or other unnecessary expenses.

Using a credit card can cause card balances to be ‘run up’ unnecessarily.  Their convenience is proportional to the card holders overspending.  Avoid over spending, cut up the cards and pay with cash.

3. Do you pay off the card with the highest rate first?
Reduce your monthly payments by paying off the card with the greatest interest rate.  Once it is paid off, close it out and cut up the card.  Continue to do this with the card with the next highest monthly interest until you have only one card with a favorable rate.

Also, pay down cards to 50 percent of the card limit.  Balances higher than 50 percent of the limit will reduce your credit score.

4. Are you considering taking on a second job?
Part time work for short term gain may provide some respite to your debt woes.  Taking on a second job to pay off outstanding bills will provide a sense of control and will increase your income.

Getting out of debt and staying out of debt is as simple as spending less than you make.  Spending less can be done with discipline and control.  Create a budget and stick to it and you will be on track to stay out of debt.

Tracking Your Personal Finances with the Envelope-Cash Method

Monitoring spending habits by using the envelope-cash method is a smart and easy way to manage your personal finances.  According to a survey conducted by the National Retail Federation, one fourth of US shoppers reported they would use cash this November and December.  That is a 9% increase from the same time one year ago.  Using the envelope cash method helps consumers track their spending, make sometimes difficult spending choices, avoid credit card debt, and live within or below their means.

How Much Are You Really Spending?
The envelope-cash method requires you to get a realistic picture of your personal finance situation. This method works best for day to day spending such as food, gas, and clothing.  Start by determining how much money you spend each month.  Take an estimate of how much you spend on groceries, entertainment, household supplies (toilet paper, batteries ECT…), pet food, work or school expenses such as dry cleaning or school field trips.  You might want to have a miscellaneous category in case something totally unexpected comes up.  If you want to know the exact amount, take a month to write everything down that you spend. You may need to look ahead to estimate upcoming events.  Figure out what works best for your personal finance situation.

Divvy Up the Cash
Once you have figured out how much a typical month costs including the unknowable and unexpected, purchase some paper envelopes and a plastic envelope holder.  These are easily found at a discount or office supply store.  Date and label the envelopes by week and category. Put the appropriate amount of cash inside each envelope.  Put each envelope in the plastic envelope holder and don’t touch it until you need it for a particular purchase.  When it is time to use the money for a purchase, take it out and spend it…wisely.  When it’s gone, it’s gone.  This helps get a sober view of where the money is going, how fast it’s leaving, and what you can do without.

Spend Less with Cash Only
There are several benefits to using the cash-envelope method for personal finances. Many consumers who use credit cards end up spending more than they would have if they had used cash.  A study of consumers using credit cards at McDonalds’ fast food restaurants found people spent 47% more when using their credit cards.  The danger of using this cash only method is that if you lose your money or it is stolen, it cannot be replaced.   So when working on your personal finances, try the envelope cash method, but keep an eye on the dollars so you don’t lose everything you have gained.       

What is the Envelope Budget Method?

The envelope budgeting system is becoming a very popular method for people to budget their income in a very visual way. Essentially, the envelope method is as simple as it sounds. Back in the old days, people used to dedicate separate envelopes for different reasons they wanted to save money, such as vacations, groceries, utilities, gifts, etc… Each time a paycheck would come into the house, the cash money would be divided up into each envelope. What’s in each envelope is money now dedicated for that purpose. For instance, a trip to the grocery store would only allow the amount of money in that envelope to be spent for that purpose.

So how do you get started with the envelope method?

Budget Your Income
The envelope system works best for people who have the same steady pay from check to check. Variable incomes do not work as well with this method. Take your income amount and start tracking your expenses for at least 30 days. Then work out how much you are spending versus how much your are bringing in each month. A budget must be created to get a very clear picture of what you earn, what you spend, and how you can change your habits to save more cash.

Divide The Spending Categories
This step essentially means you need to create and label your envelopes. Use any category you can think of and refer to your expense tracking sheet you did in the previous month for category ideas. Make sure to include one for emergency expenses to help cover those bills you are not able to account for on a daily basis that doesn’t really adhere to a certain category.

Start Stuffing
When you have your budget in place and your categories set up, you need to start filling the envelopes with your cash. If, according to your budget, you have alloted $200 to your monthly grocery bill and you get paid bi-weekly, you know you will need to put $100 each paycheck into your grocery envelope.

Say Goodbye
When the money in the envelope is gone, consider it gone for good. Once you have spent the alloted cash, you’ll need to wait for the next refill before you can buy again. You can not go to the ATM for extra cash or steal from other envelopes. Don’t use credit cards or borrow money from others. This really helps people to learn how to control their spending and helps create a clearer line between wants and needs.

Stay Strong
The envelope system will not magically begin working overnight. It will take time and commitment in order for you to get on track and really see the benefits of the envelope money management system. Once you start ingraining the method into your daily life, it will get easier. You will also gain confidence as you see your money and your savings grow over time.