3 Reasons Your Budget Isn’t Working

How you manage your money plays an integral part in your overall financial health. This is true whether you are rich or poor. Obviously if you have less money to work with, budgeting can be a challenge, however even those who have more money to work with can make mistakes managing their cash. The key to keeping your finances on the right track is creating and sticking to a budget that works. It is not enough to simply have a budget but rather one that reflects your current financial situation. Otherwise, you will likely find yourself frustrated when the numbers don’t match up each month. Here we look at three reasons many budgets don’t work and how you can avoid making common budget blunders.

• Budgets based on wishful thinking- If you create a budget based on how you hope to spend your money, you are doomed to be off the mark each month. The point of a budget is not to deprive yourself of all things that bring you pleasure but rather to organize your finances in a way that a specific amount of money is allocated toward specific categories each month. In order to get your budget on track or at least heading in the right direction you must be realistic in the amount of money available to pay bills and how much you need for living expenses. By convincing yourself you can live on $30 per week while allocating the rest of your income toward bills, expenses and savings you will likely find come up short. Avoid making an unrealistic budget or you will find yourself getting frustrated and giving up on the process all together.

• Budgets set in stone- A budget is not something you can “set and forget”. For most of us there are reoccurring bills that are the same or close to the same amount each month. This helps in creating a realistic budget but only if we allow room for changes. There are unexpected expenses that pop up and bills that are paid quarterly or semi-annually. Your income and expenses vary each month, therefore your budget must be tweaked or adjusted to accommodate these changes. You should also review your budget from the prior month to see how close you came to hitting the mark and what changes can be made to get closer to your desired numbers.

• Budgets that allow leftover money- It is not uncommon for people to create a budget to cover all bills and living expenses without allocating a place for “leftover” money. If you don’t have a plan for whatever cash is leftover after taking care of your responsibilities you are guaranteed to spend that money somewhere, often in places that are wasteful. Create a section of your budget to cover cash expenses for the week and then create a category for savings or investment contributions. By doing this you are less likely to simply spend leftover cash that could be of better use elsewhere in your budget.

By creating and sticking to a budget that has been designed to reflect your financial situation you are more likely to reach your financial goals. Without a working budget you take the chance of making mistakes that could end up costing you in the long run.

Don’t Forget Coins Are Money Too

Saving a few bucks here and there is easier than you think.  There are so many money saving tips out there, many are common sense ways to stretch a dollar.  Following a few of the tips long enough so they make an impact could result in quite a few extra dollars saved rather than spent.

Using cash for purchases is a good way to realistically see what you are purchasing and how quickly your cash disappears. Credit and debit cards disguise the impact of spending the use of cash has another benefit, it usually produces change; pennies, nickels, dimes and quarters.  We forget that the silver stuff is money too.  The change that you get back from routine purchases probably goes unused more times than not.  Change ends up in the furniture, in our coat pockets, the cup holder in the car or in a mug on your dresser.  Usually once it’s given back to us it never gets thought of again.  The good thing about change is that when we actually use it for our purchases it can save us money.

Think about how many times you have had to break a dollar bill for an item that costs $2.10?  In reality, that item just cost you $3.00, unless you actually use the change you got back in coins.   Once that $1.00 or $5.00 bill is broken it’s as good as gone.  The 90 cents in silver gets lost in the shuffle and we are on to spending the next dollar bill.  Making a habit of carrying change, and using it, can save you quite a few dollars a week.

Making an effort to use coins can be a very easy way to save a few bucks a week. We have all been behind those people who are digging into their purses for the exact change to pay for their item at the checkout.  Yes, being behind the change makers can be both frustrating and time consuming, but they just may be the smart ones.  We can all stand to learn a thing or two from the change makers.

If you’re really opposed to being the person who carries the coin purse you can still benefit from saving your change and putting it in one location.  Once you get a collection of coins you can cash it in for dollar bills. Believe it or not banks still do have change rollers and many credit unions have coin exchanges.  Your change can be money that’s once again back in your pocket.

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.

Starting a Budget for Your Family

Budgeting is no doubt one of the most efficient and effective means of controlling your money. Quite simply, if you don’t know how much money you have or how you are spending it, you’ll never be able to manage it. If you don’t manage your money, you will overspend and be susceptible to debt and credit  problems.

Creating a budget should be a first priority for anyone with financial obligations and will be a major step in the right direction if you are on a mission to get out of debt. Here are some useful tips for setting up the household budget from the start and the importance of sticking to it for the long haul:

Step One – The Tracking
Before you can sit down with pen and paper, you need to understand how you spend your cash. It will take a good month of constantly tracking each and every penny you spend. No matter how insignificant that pack of gum may seem to you, it is an expense. Keep a notebook with you at all times and write it all down.
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Dave Ramsey’s Baby Steps: Part One

Dave Ramsey, one of the most well-known money experts has been providing insightful and informative money information to consumers struggling with debt. After losing everything himself, he founded a company that helps other prevent following the same path towards debt.

One of Dave’s key strategies for helping people manage their finances is his “Baby Steps” regimen. There are 7 Baby Steps that are geared to help you begin your journey towards financial peace.

For this article, we will cover the first half of the Baby Steps and how you can use them to turn your financial life around. See our next article for Part Two.

1. Save $1000 to start an emergency fund.
Emergency funds are meant to be kept for emergency purposes only. Emergencies may include home repairs, unexpected medical expenses, and other things that pop up in an emergency. By establishing and contributing to this fund regularly, you will always have a source of quick cash without having to disrupt your regular budget.

2. Pay off all debts using the snowball method.
The snowball method is a simple concept that allows you to focus on one debt at a time in the beginning and end with the payment in full of all debts. You start by selecting one of your debts. Some people recommend choosing the bill with the highest interest payment, while others recommend paying off the smallest bills first. Whichever method you choose, you simply focus on paying as much money towards one balance while continuing to pay only minimums on all other bills. Once you pay off that bill, you take the payment your were making and roll it into paying the next debt. For instance, with bill #1 you make a monthly payment of $50. You pay $50 plus any additional funds you can manage until the balance is paid in full. Next, choose bill #2 pay the minimum on the bill plus the $50 from the first bill and dedicate all other “extra” funds to that balance is paid off. As time goes by, your payments will get larger, enabling you to pay off more debt in a faster time period.

3. Sock away 3-6 months of your expenses in a savings account.
Saving money is often thought impossible for those who are struggling with debt. However, to keep your finances afloat you should aim to sock away 3-6 months worth of expenses. This will help your survive through a job loss, serious medical situation, or any other unexpected situation that would otherwise rock your finances.

4. Invest 15% of household income into Roth IRA’s and pre-tax retirement funds.
Investing your money wisely will help you stay on track for easier retirement. Those who find it hard to save also are likely not preparing for the future by investing their money into safe places that make the most sense financially. Others don’t invest because they have no idea how to invest or how much money should be invested each month. The early you start investing your cash, the less time you have to drag out your retirement plans.

Debt Settlement Letter Sample: How To Settle Your Debts Yourself

When it comes to the tactics used for debt elimination, debt settlement is an option that can help you avoid the time and expense of bankruptcy. Debt settlement involves direct negotiations with your creditors where you essentially offer to pay a lump sum amount, lesser than the total balance due, but which will satisfy your debt as paid in full.

Debt settlement companies can often be fly-by-night organizations set up to scam you out of money or they might be perfectly reputable business that can help negotiate your debts but will charge you inflated fees to do so. Debt settlement may be a bit of a process requiring follow up and patience but it certainly can be done on your own, without costly third-party intervention.

Part of process of negotiating and settling your debts, involves written correspondence with your creditors. It can be difficult to know what to say or to ensure you have included all relevant information so we have crafted a sample letter, which can serve as your guide for crafting you own letter to your creditors. Be sure you don’t just copy and fill in the blanks without first reading it and editing it to make it is relevant to your debts with creditors.

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Improving Your Credit Score In 5 Easy Steps

In recent months, there has been a spotlight on the credit scores of Americans. What used to be a decent score is now no longer cutting it for most lenders, many of which are looking for a score of 720 or higher. More people are looking for ways to improve their credit scores before they buy or refinance a home or make other big ticket purchases. If your credit score isn’t as good as it could be, here are 5 easy steps you can take to up your score and benefit from better lending rates:

Get Your Payments in On Time – Every Time
Your history of payments is one of the most important parts of the good credit score equation. In fact, how well you make your payments makes up about 35% of your total credit score. If you are consistently late or even miss a payment one month, you can lower your credit score by 100 points or more. Stay organized about what you owe and when it is due and get your payments in on time. You may want to set up automatic payments if you are prone to forgetting.
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How To Tell When You Are In Financial Trouble

You may think it is pretty obvious when someone is in financial trouble, but too many times those who are in trouble can not easily recognize the symptoms. People will often live long in denial that there is a problem and only when it is too late, will they begin to see that indeed a problem exists. Finances can be a very touchy subject for many people, one that many who are in trouble will not always be willing to confront or talk about. As a family with financial problems, it is important to keep communication lines open for all members and make a commitment together to improve finances. If you or someone you know is having trouble with money issues, it is never too early or too late to do something about your debts.

There are some pretty tell-tale signs that you are either headed towards financial crisis or are already knee deep in money troubles. Here are just a few. See if any of these signs are occurring in your own life.

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