Building A Budget That Makes Cents

If you are looking for the get rich quick blog then this is not your stop. However, if you are looking for practical tips for getting out and staying out of debt then I can help you with that because that is where I am but if I ever do get rich quick I’ll let you know how I did it.

Let’s be honest the reason we are in debt is because we have made bad spending choices. Not knowing when and where we should spend our money results in piling debt. The solution is simple but like everything else in the debt retirement process a working budget requires discipline.

Notice I said “working budget.” It doesn’t do any good to have one if you aren’t going to live by it. Most people are afraid to live by a budget because they think that it means that they can’t go out and buy what they want any longer. That’s not necessarily true. Living by a budget will tell you when you can go out and buy what you want without going into debt.

Getting started is easy. Just make a list of all your monthly bills. The big ones are easy (mortgage, rent, utilities, etc…) but make sure you don’t forget the smaller ones like groceries, credit cards and gas. It’s important that you list all the bills that you have to pay first before moving to the things you want (cable television).

After you have completed your list you will want to sort them by the date they are due and then assign each bill to a designated pay period that allows you to get it sent off in time.

The next thing you will want to do is designate a specific amount for savings. Remember building an emergency savings account is crucial and can help prevent you from going further in debt.

The final step to building your budget is to add in the things you want. This is where your cable television comes in as well as eating out, going to the movies and other entertainment and luxury expenses. It is also beneficial to budget an allotted amount of money each month to go towards your vacation but that’ll be the next post.

Now you know exactly what you can and can’t afford each month and how you can save for the big things without going into debt. Living by a budget has allowed me to not only quit using my credit cards but also pay more than the minimum amount due each month.

Building an Emergency Savings Account

An unfortunate fact of life is that emergencies tend to pop up. A loved one passes away and we suddenly have the need to travel. We have the sudden need for repairs to our vehicle or to a major house hold appliance or to the house itself. It doesn’t matter the emergency it’s bound to happen and it will cost money.

Another unfortunate trend is that people amass large sums of debt for such emergencies because they view credit cards as the quick fix. This poses a huge problem for people like me who are trying to work there way out of debt. However, there is a solution and it can be filed under preventative maintenance. It’s called an emergency savings account!

Building one takes time but will be well worth it when the time comes to actually use it. The key is to set a minimum amount that you want to build to and then never allow your account to go below that. For example, I have built my account to $1,000.00 and that will be my minimum. In other words I don’t want my account to go below that amount.

The key to building an emergency account is budgeting to do so. You know that you will need it so discipline yourself to build it up. Choose an interest bearing account and let your money set and grow. Remember interest is free money (that’s why credit card companies love it so much) so shop around to find yourself the best rate then plant your money and watch it grow.

Make deposits into your savings account as often as possible and never withdrawal until you have reached your minimum. Remember the larger your balance the more you will gain in interest so after you have reached your minimum withdrawal as little as possible and never go below your minimum. When tempted remember that your money sitting unused gaining interest is always better than a credit card balance gaining interest.

To help prevent misuse I opened my account at a bank separate from the one I do my normal banking at. I have no debit card or checks for the account. The only way I can get money from the account is to actually walk into the bank and withdrawal the money.

The best way to retire your debt is to never go into it. The best way to never go into debt is be prepared for a financial emergency.

Give Yourself a Raise!

Anytime you are facing a debt with the desire to pay it off its good to find a little extra cash. It’s that cash that’s left over each week after the bills are paid that allows us to eat out, buy something we want or even pay extra towards the debt.

What happens when you don’t have extra cash after the bills? Here are a few quick tips that might lead you to some.

• Mind your utilities. Don’t leave water running, flip the lights out when you exit the room, adjust you thermostat for when you are not going to be home and keep the front door closed as much as possible.

These are all minor adjustments that take just seconds but could lead lower utilities and extra cash.

• Take your lunch to work with you. I know we aren’t talking elementary school anymore but taking your lunch with you will not only save you money but could also help you eat healthier.

• Buy your groceries for the month. We spend so much money on impulse buys at the grocery store. Buying a month’s worth of groceries will result in fewer trips to the store and less impulse buys.

• Shop your insurance. This is a huge one! There is a lot of money to be saved or lost in your insurance. Never renew your auto insurance policy unless you have compared it to at least three other quotes. Most auto insurers provide additional discounts for taking a 12 month policy. The same principles apply for your home owners or renters insurance as well.

Your medical insurance needs to be check and compared annually as well. If you are paying for insurance through work or privately you need to shop around once a year. Sometimes you will find better deals for comparable insurance and sometimes you will find that you already have the best deal but you’ll never know until you check. Between my auto, homeowners and medical insurance I will save $174.00 per month beginning in January.

We all like to get pay raises because it means we have additional income coming in. I’m due for a raise in July but thanks to a little extra research and effort I’ll start receiving extra income long before that by the process of savings.

Credit Cards are the Devil!

The worst part about my credit card debt is that I have never used them to purchase anything really big. Several years ago I was facing unemployment and had to use the cards to pay some bills and to get by.

The Problem
The mistake I made was sitting on the interest while making the minimum payments. Couple that with the use on a few vacations to pay for accommodations and gas and my credit card debt is around $20,000 on four different cards.

The Solution
My first task in becoming debt free is to remove that credit card debt. I have a 403(b) annuity account that I will be able to borrow against in a few months. The advantage to this is that I will be able to borrow from myself and pay myself back with interest.

Generally you don’t want to go into debt to erase debt but in this case borrowing against myself will be beneficial for three reasons. First, even though I will be repaying my annuity with interest it will be at a much lower rate than the credit cards. Secondly, my monthly payment back to the annuity will be less than a payment to a credit card. Thirdly, the interest paid back to my annuity will eliminate any interest lost by not having that lump sum in my account.

In essence what I am doing is eliminating a high interest debt for a lower interest loan against myself and increasing my monthly cash flow by not making such a great payment each month.

My goal is to attack my credit card debt one card at a time beginning with the lowest balance and working up to the highest. My commitment is to pay off the annuity loan as quickly as possible in order borrow again. I’ve also stopped the use of credit cards.