See how much A New Horizon Debt Consolidation Program Can Save You
*Individual results may vary depending on balances and rates
Budgeting and Money Management Tips
1. Start With Full Disclosure
Sit down with your spouse or partner and discuss the family budget, and investments. Find out what monthly expenses look like such as mortgage payments, car, insurance, health insurance, water, electricity, food, etc. A better understanding or your monthly expenses is the first step in helping you to decide how you'd like to manage your money. In addition, discussing money issues openly will help to lessen family conflicts over saving and spending. And now you can resolve to cut expenses and spend more wisely.
2. List your expenses
Expenses are separated into 3 categories: fixed, flexible, and discretionary. You will first have to start by keeping track of your income and writing down your fixed monthly expenses. A fixed expense is one that remains the same each month, such as a mortgage or rent, a loan payment, insurance premiums, etc. Total up all fixed expenses. Next, total up your credit card debt. Credit card debt is considered a fixed expense because it usually remains the same each month so add the total due to your fixed expense worksheet.
Then you want to make a list of flexible expenses. These include household and grocery items, clothing, utilities, gasoline, etc. Flexible expenses are items that you control the amount of money spent. Many times flexible expenses are necessary items, but what sets them apart is that you usually have control over how much money you spend on these items.
Then list discretionary expenses. Discretionary expenses are items that are not necessary for survival, such as entertainment, eating out, and clothes, etc. Make sure you are not leaving anything out. Include the coffee you buy every morning, newspapers, stamps, etc. Total up discretionary expenses.
3. What is left over?
When you are finished listing your expenses, add all of them up and compare it to the amount you are bringing home every month. 
Examine your spending habits to see if you are impulsively spending money or if you tend to consistently spend money on the same types of things. If your expenses are less, great! More money to save. If your expense to income ratio is out of balance and you are spending more than you earn you need to create a spending plan that permits you to diminish your debts and rethink some of your monthly expenses. Start by eliminating or cutting back with discretionary expenses.
4. Establish a Budget.
It's impossible to reach your money goals if you don't have a good financial plan. Living paycheck to paycheck, with no spending plan, no end of the month summary report, no savings plan, or no idea of when you would be out of debt is not the right way to plan for the future. People who account for their money are in control of their finances. A budget will allow you to stop the overspending and start saving and is a necessity for successful money management. Some people feel that a budget is restraining and limits their freedom. When in fact the opposite is true. A budget grants you more independence and freedom to achieve lifetime goals. Budgets are a spending plan that help you to:
- Understand your current expenses and plan and match your goals and priorities
- Live within your income
- Spend your money more wisely
- Flag financial problems and minimize them
- Reach financial goals
- Prepare for financial emergencies
- Develop wise money management habits
- Budgets do not need to be complicated. With a little discipline budgets are very simple. After a month or two it will become routine.
5. Track your spending
This will help you to see exactly where your money goes and places you can cut back. Keep a piece of paper and pencil stub in your wallet/purse where you can record cash expenditures for a few weeks. This will reveal budget leaks. The results may shock you into fiscal responsibility.
For example, too many small purchases, such as gum, candy and fact food can deplete your income - and you'll have nothing to show for them once they are consumed.
Fast Food 5 days/week averaging $4.50 costs $1,170 a year.
Lunch out 5 days a week averaging $8.00 cost $2,080 a year.
Dinner for 2 at $40.00 each week is almost $2,100.00 a year.
Evan a quick cup of coffee at Starbucks 5 days a week can add up to over $900.00 a year!
Get receipts for all purchases. Use them to track your purchases.
When making credit card purchases record and subtract them in your register. That way you'll already have deducted it from your checking account.
Monitor and track the money that comes from ATM's. Think about how often you withdraw $40.00 from the ATM and a few days later your 2 twenty dollar bills are fives and singles? Where did it go you wonder? (that money isn't called liquid for nothing.)
6. Look for obvious money saving opportunities.
Stop the spending. The bottom line is simple, if you spend more than you make you will accumulate debt.
- Pay bills promptly to avoid late charges.
- Make long distance calls in the evening when rates are cheaper.
- Limit the use of your mobile phone.
- Get rid of any unessential spending like eating out or expensive entertainment.
- Consider carpooling or taking public transportation.
- Always try to pay with cash rather than credit. Use checks or debit cards instead of credit cards. If the money is not in your pocket, don't buy it. When shopping with cash you usually spend less.
- Leave the credit cards at home. Close out unnecessary accounts. Just keep 2 cards.
- Clip coupons, buy generic products, and avoid impulse purchases.
- The most common areas where overspending occurs are entertainment and food.
- Much of our spending is attributable to spur of the moment spending, I don't feel like cooking lets eat out," It's on sale," "it's more than I wanted to spend but I love the extra options." The groceries you bought, the gas you put in the car and the meals you enjoyed are long forgotten before the bill even arrives.
- Add to Retirement Savings. Use payroll deductions or automatic transfers from a bank account. Those in sales with irregular paychecks should take a percentage off the top of every check (10% is nice). Save enough in 401(k) s to get the full company match. If you don't have a match save anyway.
- Don't borrow against your house to pay off consumer debts. That like putting Band-aids on bullet wounds. You have to stop the bleeding first and learn to live within your means. Unless you've learned to live within your means, you'll run up your credit cards again. You don't get out of debt by borrowing more. A home equity loan will offer lower interest rates and the interest is tax deductible if you itemize.
- Start an emergency fund. Keep petty cash on hand for emergencies.
Save money for college. Admit and accept it if you can't afford a "logo" private college. Don't wreck your retirement trying to pay for it. If any cards have small balances, repay those first and then cancel them.
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7. Pay yourself first
Pay yourself first. Each month enough saving should be set aside to cover fixed and some flexible expenses. This reserve method will save you from living paycheck to paycheck. Set-up a separate savings account once you get paid and immediately transfer a portion (start with 5% of you regular deposit amount) to the savings account in order to prevent unnecessary withdrawals. Only access the funds upon emergency. As you save, put aside 3-6 months worth of income to cover life's unexpected emergencies. This can be done by putting $10-$20 per week into a separate savings account. This adds up over time. You never know when life circumstances can create financial hardship, unemployment, illness, divorce, etc. Keep it liquid so you can access it quickly if you need to. When you have done this then move towards investing. Saving 10% is ultimate
Use some of your savings to pay off debts. Withdrawing savings from low-interest accounts to settle high-rate loans usually makes sense. But keep at least 3 months of monthly expenses in savings.
Savings or Debt Reduction First?
Neither side is right for anyone. Most of the time you will earn more for your money by paying off high interest rate debts (15%-18%) first rather than put money into savings earning 3%-5% or less. Okay, so you're doing well at reducing your debt. However, suppose your car breaks down since you have no savings you pull out that plastic to pay for repairs. So you won't be able to stick to the plan this month. Now say three months later the water heater breaks and you put that on the credit card.
Now lets flip the scenario. If you had some savings you could have covered that unexpected car expense and not have put that charge on credit. And although the savings is reduced you did not have to borrow credit. Your resolve any additional credit is intact.
So which way is right. That is up to you. Building up savings however, may help you to commit not to accumulate any new debt. It may take longer to repay the debt however.
As your spending track record evolves, refer back to your budget form to see actual spending.
8. Goal Setting
Set short and long term financial goals. Just like you can't plan a trip without knowing your destination. It is the same with your financial goals. You won't know how much to save unless you specifically know what you are saving for. So make a wish list. Be realistic. Put goals on paper and make them real.
List your goals; determine how much each will cost; then prioritize them to include short-term goals like a pair of jeans, and long term goals like a car, college tuition. Set a plan of action (i.e.: put $15.00 a week into savings)
9. Determine between needs and wants
You must begin to prioritize expenses. Keep track of when you use credit cards. Then ask yourself if you want to borrow every month for these expenses.
Wants are things that you'd like to have, but aren't necessary such as those $150 sneakers.
Needs are things that you must have to survive like food and shelter.
Determine the price tag. Prioritize your goals (and your spending) and then rank them.
Goals may change over time so it is important to revisit them from time to time.
10. Set your timeframe
How long will it take to reach my goal? Document your progress and post it somewhere in sight.
Review the spending plan each income period. At the end of each month, compare actual expenses against what you budgeted. For the first few months you use this management plan, think of it as a work in progress. Don't get discouraged and quit if things don't go like you wanted them to. You may have to tweak some of the dollar amounts or all of the above. Stick with it and you will get better at anticipating and planning monthly expenses.
11. Other money management tools:
- Money management or financial software.
- A wallet size notebook, file folders and an accordion file for bills.
12. This is also a great time to get organized!
File important documents: mortgage and loan documents, deeds, car titles, insurance policies, a copy of your will or trust, military records, etc. And show your family where these papers are stored so they find them in an emergency.
Important contacts: brokers, lawyers, and doctors. Include phone numbers and account numbers.
List investment and bank accounts and account numbers and file your year-end statements.
Credit Cards: Make a list of all the credit cards you carry in your wallet. Include card number and the toll-free number to report a lost card.
Finally, if you are keeping these things on your computer let people know how they can access it.
And remember, "A goal without a plan is just a dream."
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