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4 Benefits Of Budgeting That Goes Beyond Your Income And Expenses

budget on top of moneyIf you really understand budgeting, you will never need an explanation why you have to implement it in your life. Nobody took the time to budget their money and follow it strictly yet still ended up in a financial crisis. No foolproof budget plan will ever lead to your financial demise. If you really want to improve your finances situation, one of the things that you cannot live without is a budget.

Sadly, it seems like Americans are slipping back to our old ways. The effects of the Great Recession included a more cautious American spender that used a budget to keep themselves from overspending. That time seems to have passed.

According to the latest survey from the NFCC.org, majority of the respondents (3 out of 5), revealed that they are not budgeting and keeping track of where they are spending their money. This is one of the habits that got most of us in debt and in a lot of trouble in the mid 2007 to 2008. Those who claim that they are spending less is also declining – which indicates that consumers are increasing their purchases. While this may seem good for an economy that is 70% reliant on consumer spending, that does not really bode well for the average American household.

We are not saying that you should stop spending. We are in a consumerist society. Not spending will be very difficult to do even if that is what you really want to happen. What we really want you to do is to keep on spending but before you do that, you have to seriously implement budgeting in your life. That way, you can easily monitor where your money is really going.

4 ways your budget plan can help your finances

If you need some motivation to get started on your budget plan, you may want to focus on the benefits. There are many positive results to budgeting and it goes beyond just telling you what your income and expenses are. To get you excited, here are 4 ways that a budget plan can help improve your financial management efforts and ultimately, increase your personal net worth.

You can take care of your future self.

Although it might seem far off, you have to believe that every decision that you make today will dictate the life that you will live when you retire. If you have the habit of splurging your income in your youth, your older self will feel the effects of that. A credit card debt that accumulated since your 20s or 30s can haunt you for the next few decades – especially if you decided to pay only the minimum of what you owe. Based on a study done by the Employee Benefit Research Institute and published on EBRI.org, the retirement confidence in 2014 is slightly better compared to 2009 to 2013. But although that is true, there is still 24% of workers who are not confident about their finances when they retire. The study revealed that those who felt confident with retirement are usually those who had a plan in place. If this is your sentiment, then you should realize that budgeting will help you organize your income so you can ensure that your retirement contributions will always be met.

You can plan your spending splurges.

Some people have the wrong idea about budgeting. They think that when they plan their expenses, it will put them in a very restrictive and depriving way of living. This is not true. If you know how a budget works and you can implement it correctly, you will realize that you can splurge on the things that you want and not feel guilty even if it is unnecessary. That is because your budget plan will help you identify the priority expenses and shift other purchases so you can make smart splurges every now and then. That way, buying new clothes or that new camera will give you genuine pleasure because you know that your budget is allowing that purchase.

You can spot spending leaks.

Another benefit of budgeting is it will tell you where you are spending your money in places that you really should not. By seeing these leaks, you can move to seal that off or at least, schedule it so your other priority expenses will not be compromised. A budget plan is usually on a monthly basis. Those $1 or $5 purchases may not seem like much but if you total them, it will show you how it is eating up your finances and compromising your true spending capabilities. Once you have seen the leaks, it will be easier to make the sacrifices that will lead you to stop wasting money on them – like brown bagging your lunch or carpooling.

You can be one step closer to meeting your goals.

Any financial goal, big or small, requires a plan to achieve them. That is how you ensure that you will succeed in achieving the goal. If you want to make managing financial goals easier, that can be accomplished by a clear and foolproof budget plan. Of course, it has to be partnered by implementation but the planning by itself puts you one step forward in reaching your goals. A budget allows you to put aside the necessary contributions needed to make your goals into a reality. It will also help you determine your progress so you can gauge if you need to kick your saving efforts up a notch.

Common pitfalls your budget can save you from

As you are implementing your budgeting efforts, you also have to be aware of the pitfalls that can be averted by following a budget plan. There are three important financial mishaps that it can save you from.

  • Being late on payments. You will never be late again you input all of your debt payments into your budget plan. You do not have to worry about not having the money to pay off a financial obligation because your budget will make sure that you have put aside the contribution for that. But again implementation is the key to never be late on your due dates.
  • Foregoing saving because of too much expenses. NerdWallet.com revealed that one of the habits that helped selfmade millionaires is their ability to save. You may think that this has no room in your finances because of too much expenses. If you list everything down in a budget plan, you can identify the details that you can remove so you can make way for your savings.
  • Wrong assumption of your financial capabilities. This happens to most of us. We think that we can afford something when in truth, we cannot because there is a more important place for your money other than an impulse buy. Your budget will easily give you an idea about what you can afford to spend and what you cannot. Consult your budget at all times so you can stop overspending once and for all.

Budgeting can really work wonders in your financial life but, as mentioned several times, you have to be disciplined in following it. In case you feel like you budget is very difficult to implement, you might have created an unrealistic one. Do not be afraid to revise it if you have to. In fact, you need to keep on revising this budget plan so you can ensure that it is still aligned with your current financial priorities.

Why Spending Never Works Out The Way You Plan

frustrated looking womanThe lessons learned from the 2008 recession prompted most of us to seriously consider financial planning. One of the things that we kept a close eye on was our spending. In truth, those bad spending habits that we got used to became our financial undoing. We spent beyond our means by using credit cards recklessly and it cost us a lot of money. For some of us, it led to losing some of the assets that we hold dear. It meant letting our homes go into foreclosure, selling our cars and even skipping the usual entertainment expenses that made us really happy.

Thankfully, financial plans can help us curb the bad habits that led to our money’s demise. But be very careful. Even if you create the most promising plan there is, you need to be able to implement it. A lot of us started strong with our plans but unfortunately, not everyone was successful in applying it in their lives.

A plan is necessary to keep your finances under control and this article will try to analyze why your spending never worked out that way you planned it to.

Comparing your budget with your spending plan

In most cases, your spending plan is confused with a budget plan. Some articles actually refer to them as one and the same. But you need to know that they are two separate concepts. Budgeting is the first step towards financial independence and your spending plan will serve as your action plan to connect them.

Here are other concepts that will help you differentiate the two.

  • Spending plans will be more appealing to follow because it does not have the restricting image of a budget plan.

  • Budgets will tell you how much you are allowed to spend for a specific expense category. The spending plans will allow you to control that total amount to satisfy your actual needs.

  • Spending plans can help you detail your wants and needs. A budget plan is more concentrated on your expense categories.

  • Budget plans will help you define what is left for your discretionary income. Spending plans can map out where you discretionary income will go.

More importantly, your spending plan will help define the different patterns that you have in your life. You can see when your housing costs spike and when food prices go up. It can help make your future financial plans more accurate.

Reasons why your plan for monthly expenses is not working

Now that you know how to differentiate a budget from a spending plan, let us identify the possible reason why it can fail you.

It does not include everything. We’ve mentioned how this plan is actually more detailed than your budget. You have to make sure that it includes all the expenses that you usually make. This is how you ensure that it remains true to the restrictions of your budget. You do not want to end up spending more than what you are allowed to. Ideally, your purchase plans cover a period of one month. Make sure that you include your annual and seasonal expenses too.

It failed to indicate your priorities. Another reason why this plan can fail you is when you did not indicate your priorities. This is very important to keep your plan from concentrating too much on the mundane expenses that make you happy. The whole purpose of planning is to ensure that you will not miss out on all your expenses. Put the priorities high on the list and make sure you understand the factors affecting them. In fact, Moneyning.com published an article that indicates how every generation usually have different priorities. For instance, Baby Boomers lived after the second World War and it made them heavy spenders compared to other generations. Millennials witnessed how the 2008 recession crippled their parents and grandparents financially, that made them more cautious about credit – especially credit card spending.

It is not realistic. The third reason it is not working is because it is not realistic. You may want to spend a lot on entertainment expenses but when your needs dictate that more funds should be allotted for your debts, then you should reconsider your plan. Based on the data from the Bureau of Labor Statistics (BLS.gov) last March 27, 2013, the average expenses of households depend on the income. The highest 20% allott 30.2% of their income in housing costs while the lowest 20% spend 40% of their income on the same category. In terms of food, the highest 20% spend 11.4% as compared to the lowest that spend 15.8% of their income on this expense. For personal insurance, the lowest 20% spend only 2.1% – which is very low compared to the 16% of the high income earners. Obviously, the low income earners have to forego insurance to pay for more important expenses. Your spending plan should consider all of these to make it realistic and true to your needs.

It is not flexible. Lastly, your plan may not be flexible and that is the reason why it is not working for you. Most spending plans require changes from time to time – just like your budget. As mentioned, your priorities are influenced by a lot of things and this should be something that you consider carefully. As you age, your needs will change and that should prompt you to constantly look at your spending plan to see if it is still workable.

Tips to create a working plan for purchases that compliment your budget

To be a smart spender begins with a well crafted spending plan. Here are some important considerations when you are trying to make this.

  • Base your spending on your net income – not our gross. Nobody ever sees their gross income. If you base it on this amount, you will always fall short and some of your expenses will end up being unpaid.

  • Always analyze your current spending. What you are spending a few months ago may not be the same as what you need right now. Always check if your spending plan is still aligned with your goals.

  • Categorize your expenses to keep the revisions from being tedious. You can put the fixed expenses first as these are the regular payments that you constantly have to make. In most cases, the amount does not change. These include your rent, loan payments, etc. You also have the flexible expenses that are still necessities but vary in amount every month. Your food, groceries and transportation can be placed here. Lastly, you have the discretionary expenses that are the expenses that you do not need to spend on all the time. These can be your clothing, shoes, and entertainment expenses. When you have to revise your plan, you only have to look at the flexible and discretionary expenses.

  • Make sure your income is higher than your expenses. If not, you will always have to spend some credit to take care of everything. That defeats the purpose of using this financial plan. Trade off some of the expenses that you can live without so you can afford those that you need to spend on.

StatisticBrain.com shows that the average household income is at $43,000. With the rising cost of living, this is just enough for a family of 4 to live on. If you want to make your spending less restrictive, you should consider earning more or cutting back. The bottom line is to make sure that you can control where your money goes and the plan that will help you achieve that is something that you can follow consistently. If it is not working for you, review the plan to see if it requires you to make some changes.

Here is a video created by National Debt Relief to help you learn how to budget for your household.

5 Ways A Frugal Budget Can Help You

woman showing her handPeople have been trying to change into a frugal lifestyle but unfortunately, it is not always successful. A lot of them try to make it work but it is just something that they cannot accept. Changing from extravagance to frugality is not the easiest transition to make and you may find yourself fighting it all the way.

It is true that living on a frugal budget is tough, but there are circumstances when it proves to be very beneficial. Aside from helping you reach your financial goals, you can benefit from various lessons that it can teach you. It just takes a certain level of commitment and discipline to make the change bearable.

5 lessons you can learn from frugal living

It could help you accept this necessary change if you know and understand what you can get out of it. Sometimes, the sacrifices are easier to do if you know that the frugal budget can benefit you. Most of what you will learn can help you practice the right money management skills. Here are 5 specific lessons that you can get out of following a frugal budget.

  • It teaches you how to get through financial hardships. We all know that what you do not have will not be missed and this is the key to help you survive a financial crisis. Frugality will teach you to live without extravagance and when you get used to this, you do not have to change a lot when another financial difficulty strikes. You can continue living the way you used to and your life will not be as miserable as the others. It is different if you downgrade your lifestyle by choice than by force.

  • It prompts you to be wiser when it comes to your financial transactions. As you are implementing your frugal budget, you find more reason to think about every financial transaction that you have to make. People think that to be successful at frugality means depriving yourself. This is not true. You do not have to deprive yourself of anything. On the contrary, you simply have to decide which of the expenses you used to make are more important to you. That is where you should allot your limited resources.

  • It helps you get out of debt. Some people start on a frugal budget because they have a lot of credit obligations. Frugal living will help you increase your disposable income so that you can put more money into your debt payments. By prioritizing your expenses through your new budget, you get to identify those that you can eliminate to make way for your monthly debt contributions.

  • It encourages you to develop the right financial management skills. By being frugal, you are taught to be a smart spender and you know that you have to adapt a frugal budget. These are the skills that will help you stay out of debt. You will even learn how to save your money so that you can grow your investment abilities. That is what will lead you towards the growth of your finances.

  • It pushes you to be resourceful and creative. We have mentioned how frugality is not about deprivation. Instead of spending for something, you have to be resourceful to find another way to satisfy your needs while being economical about it. If your family loves bread, you can learn how to bake one. That comes out a lot cheaper. You can learn how to be patient to use coupons. These are the things that you need to learn.

How to make frugality more appealing

Admittedly, if your heart is not set on your frugal budget, it will be very difficult to implement. It takes some getting used to but there are some tasks that you can do to help make the lifestyle shift all the more smooth. So to help you adjust, here are 3 things that we want you to do.

  • Have a goal. A goal is necessary especially when you know that you have to make a couple of sacrifices. It is the psychological way of setting up for yourself a motivational tool. Whenever you feel like your frugal budget is too hard to follow, you simply have to look back on this goal to remind yourself why you decided to go through this in the first place.

  • Change your mindset. Like it or not, you have to change your mindset about frugality. We hope that the 5 lessons we mentioned above will help you. But beyond that, you need to read about success stories about those turning to frugal living to help them improve their way of life. It is not about being cheap. You have to get rid of your misconceptions so you can truly believe that frugality is the right lifestyle for you. If you believe it enough, you will adapt to it.

  • Know what is important to you. We’ve mentioned many times how deprivation is not what you should get with frugality. It is true that you have to lower your cost of living but that does not mean you have to let go of what is important to you. On the contrary, you have to identify what is important so you can prioritize it. That way, you can spend on them and still stick to your frugal budget.

You have to keep in mind that frugality does not have to eliminate the fun things from you life. You just have to learn how to manage your money well. Try it out with a frugal budget by looking at these templates from CoolToBeFrugal.com. In fact, the site has an interesting heading on it: plan, simplify, save and thrive. That pretty much sums how frugality is to be done.

Here is a video from National Debt Relief that tells you how you can make a budget.

5 Ways That Budgeting Can Limit Your Financial Growth

budget and scissorsAiming for financial growth is a common goal for all of us. Who dislikes wealth and success? Nobody. We all like to experience having a lot of money but unfortunately, we live in a society that encourages us to spend beyond our means. That’s consumerism for you.

When the nationwide financial crisis struck most of the American households, everyone looked unto budgeting to help them organize their out of control financial lives. This is one of the tips given by successful people about personal finance. You need to take control back and that requires you to create a budget plan. This will help you identify your income and the expenses that it pays off.

5 reasons your budget plan will not take your finances to the next level

But while budgeting is very helpful, your efforts should not end there. Some people make the mistake of focusing too much on their budget plan and when it fails to deliver, they end up feeling discouraged. A budget is the first step towards financial independence – it is not the only step. If you make it your only step, there are 5 reasons that it will not give you the financial growth that you are expecting.

  • Budgeting can be tedious. To tell you frankly, creating and monitoring a budget can get tedious. If you have to work hard on something, you want it produce results right? The sentiment is understandable. However, for the amount of time and effort that you will put in your budget, counting the monetary returns will not give you a satisfying result. It will point you to what you need to do but not how you should accomplish it. So focusing on your budget plan will fall short of what you expect. All of this will only end up frustrating you and discourage you from continuing with the budget.

  • Budgeting requires you to sacrifice a lot. This actually depends on how far you have fallen in terms of your financial crisis. But usually, your budget will show you the various sacrifices that you have to make in order to reach your goal. It can be expenses that you can no longer afford or entertainment expenses that are not allowed to be spent on. The reality that you will face in your budget can be discouraging – unless you see the fruits of your sacrifices. This, again, is not attainable by your mere budget plan.

  • Budgeting are wrongly thought to be consistent. This is actually a popular misconception about your budget plan. You need to think about your budget as a flexible plan. In case your money grows or decreases, you need to revise your budget to allow you to maximize the changes happening to your finances. While this is true, you have to be careful about being too quick to upgrade your lifestyle to suit the increase that you experience. When your money decreases, you need to change your budget immediately to make sure your expenses will not go beyond your new income. But when it increases, what you need to change is not your expenses – but your savings.

  • Budgeting primarily changes your behavior. When you want financial growth, you need more than a budget because it only modifies your behavior. As mentioned, it will not teach you how you will do something. It will just tell you where your money should go to. It will not teach you how to improve your cash flow – that is the main fault of your budget efforts.

  • Budgeting can give you a false sense of complacency. As you continue to use and implement your budget, you will realize that as soon as you are able to put your expenses within your income capabilities, you get complacent. But the thing is, that is not success. It leaves you stagnant. Your budget focuses more on keeping your spending beneath your earnings. It does not teach you to earn more. That is where it falls short and that is the reason why it is not a fitting tool for financial growth.

Do not get locked in your budget

The whole essence of this article is this: do not get locked in your budget that you lose sight of the other tools that you can use to get yourself out of a financial crisis and into growth. There are other important things that you need to learn to grow your money. While budgeting is integral as your first step, you need to take more than that to succeed.

You need to learn how to save, spend your money wisely and you need to learn how to invest. The last part is key to the financial growth that you wish to achieve. Both saving and investing are actually proactive ways to help you grow your money.

We encourage you to learn more about what you can do to grow your finances by educating yourself. There are other resource websites like this one that you can utilize to learn about personal finance. In fact, we found the ebizmba.com has a list of the personal finance websites that we can recommend for you. In the end, your knowledge will be the catalyst for the improvement of your financial well-being.

Dissecting The 50/20/30 Budgeting System

man stressed with papers and calculatorAny financial expert that you will come across will tell you to make a budget. Even if you came to them to get help for your debt, retirement plan or any other financial goal, one of the things that they will encourage you to do is a budget plan.

We all need a budget regardless of our financial condition. If you have no idea how to start, there is at least one budgeting system that can suit your requirements. A budgeting system will help you create a budget plan. The problem with a budget is it requires some work at the beginning. This is where a system will help you get started. You just have to know what your options are so you will know the tools that you will use to put some order in your financial life.

One of the systems that is commonly used is known as the 50/20/30 budget plan. It is one of the many options that you have and we will be focusing on it in this article.

What does the 50/20/30 budget plan mean?

Believe it or not, some people are frightened of budgeting. But if you think about it, the fear stems from the fact that they have no idea how to do it. Well you don’t have to be apprehensive because there is a budgeting technique that is perfect for your specific financial needs.

The 50/20/30 budgeting system simply refers to the three percentages that you need to follow when you plan your expenses. Here are the three important parts of your monthly expenses.

50% for the Basic Necessities

The first is the biggest part of your income. 50% of your net income will go to the basic necessities that you have to spend for every month. This includes your home, food, transportation and utilities. Anything that is not included in these four categories is not really a basic necessity. Argument can be made for things like clothing and shoes but these are expenses that you do not have to spend for every month.

20% for your Financial Goals

The next part of this budgeting system involves your financial goals. There are basically two main categories under this part: your savings and your debt payments. If you do not have any debts, then this can entirely be allotted for your savings. Your savings will involve a lot of sub categories like your retirement plan, emergency fund, college education, home repair/maintenance fund, etc. Any financial goal that you may have is included here.

30% for your Discretionary Expenses

The last part of your chosen budgeting system is 30% of your net income. These are also known as your lifestyle choices. These are discretionary expenses that you choose to spend on to support the type of life that you wish to lead. This is where your clothing and entertainment expenses are budgeted. It can also include gym memberships, Internet, cable, phone, childcare, pet care and other similar expenses.

As you allocate your net income, make sure that you follow the 50/20/30 priority. That means you need to spend on your basic necessities first before you spend on your financial goals. And only after the two are satisfied can you spend on your discretionary expenses.

Important rules about this type of budget program

There are various rules to follow in any type of budgeting system and these will help make your efforts as effective as possible. Here are the specific rules that you have to follow.

  • It is okay to be flexible. Feel free to go beyond the 50% and 20% as needed. If you have to sacrifice anything, prioritize in taking it from the 30% of your budget. If you have a lot of financial goals, you can sacrifice a portion of your 30% and possibly a part of the 50% – if it will not compromise the survival of your family.

  • Never go beyond the 100% total. Although you are encouraged to be flexible with the percentages, never go beyond 100%. That will be living beyond your means and it usually ends up putting you in debt.

  • Make sure that your goals are aligned with your life goals. You will be most motivated to follow your budget if it is aligned with the plans that you have for the future.

  • Use realistic figures. Your goals are important but try not to get carried away. Do not let your goals overrun the majority of your budget. Be careful when putting too much restriction in your spending just so you can reach your goals. It will only make your budget unrealistic and very difficult to follow. Use a budget calculator from sites like MappingYourFuture.org or Bankrate.com to make sure you are keeping your figures real.

  • Do not forget to budget for fun activities. The 30% for discretionary expenses are meant to be bigger because we all need the break sometimes. If you budget your entertainment activities properly, you will not be in danger of overspending and you still get to enjoy the things that you love to do.

A budgeting system is there to help make your budget effort more manageable if not tolerable. Here is a video from National Debt Relief that discusses tips on how you can create a budget for your household.

Use A Budget Plan To Choose The Right Debt Solution

get out of debt keyWhen you are in debt, you can get a lot of help from debt relief programs. You have debt consolidation loan, snowball method, debt management, debt settlement, and bankruptcy. There is no shortage of solutions that you can use. In fact, your dilemma is actually finding the right debt relief option that you will use to get yourself out of your credit situation.

There is no one formula to get out of debt so you can’t just make a pick. You have to consider carefully your financial capabilities. There are online calculators that you can use to help you determine which of the debt relief programs will suit your finances best. We have a debt calculator here in the National Debt Relief website and there is also another one that we would like to recommend on the IAPDA.org site. (IAPDA stands for International Association of Professional Debt Arbitrators)

There is another tool that you can use to help you choose the right debt solution. This will prove to be useful not just in helping you decide on your debt relief program, but it can also help you get and stay out of debt.

How budgeting helps you choose a debt relief program

Finding debt relief assistance is not difficult but it is not a process that you do not want to rush into. One of the tools that you can really utilize if your budget plan.

When you are in a financial crisis, that only means your finances are not organized. You make reckless spending choices because you have no idea how much money is coming in. Sometimes, people will get a better view of their debt problem when they start to organize their money. This is where budgeting will really help.

Not only will a budget plan help you organize you money, it also allows you to make a smart choice with your debt relief options. This is because budgeting will help you identify your disposable income. This is the money left of your income after you have removed your basic expenses. Anything left can be put into your savings or your debt payments.

In choosing a debt solution, you want to consider the following scenarios.

  • If you have more than enough money to pay off your debts comfortably, you can select the snowball method. This is simply restructuring your payment plan so you pay your priority accounts. Ideally, you want to experience an early success to it is best to prioritize the debts with the lowest balance. The idea is to pay the minimum for all your debts while putting more money into your priority debt. As you notice, there is no lowering of payments or debt reduction here. That means your disposable income must be able to afford the usual debt payments plus a little extra to make this solution work.

  • If you just have enough money to pay your debts and basic needs (or you only have a slight deficit), then you can opt for debt consolidation. This is the payment method that will help you get a lower monthly contribution. It also helps you combine your payments so that you will not have a hard time monitoring your payments. Although this is okay for people who have a slightly less disposable income than the first group, it will still require you to pay the full amount of your debts, albeit over a longer period.

  • If you just have enough money for basic needs and only a little left over for debt payments, you need a debt reduction. When you need to reduce your debts, the perfect debt solution for you is debt settlement. In this program, you will convince your creditor that you are in a financial crisis. If you just have enough for your basic needs, this may be true. You want to make your creditor agree to a settlement agreement wherein you will pay only a portion of your debts. Anything that is not paid will be forgiven. This is great for people who have a very small disposable income left after expenses.

  • If you do not have enough money for both basic needs and debt payments then your only option is bankruptcy. When you can barely spend for your expenses much less for your debts, then this is what you have to choose as your debt solution. You will either liquidate your assets in Chapter 7 so that the money generated will be used to pay off your debts or you will be subjected to a repayment plan in Chapter 13. Both of these will pay only a portion of your debts and the rest will be discharged.

How to determine the disposable income in your budget

All of these choices can be easily made as long as you know how much disposable income you have. The only thing that you have to do is to create a budget plan first. If you haven’t created one before, you can download the free budget planner worksheet that is available in this site.

There are two important factors that will give you an accurate disposable income.

  • Net income. It is important that you get the income after your taxes and other mandatory deductions. Use the average amount that you get in your bank account.

  • Complete list of expenses. You should also take time to really jot down the expenses that you spend for every month. Do not leave anything out.

Be careful with these two because it can affect your disposable income – most of the time, it could fall short. If you base your debt relief choice on an amount that falls short, you will encounter problems along the way. Usually this problem stems from your inability to commit to the payments that you promised at the beginning of the program.

If you find that you need to grow your disposable income, check your budget plan and see if there are expenses that you can let go of. If you have exhausted all possible cutbacks, you can look for ways to increase your income.

Financial Plans That You Can Use In Money Management

calculatorYou can never be too cautious in life. Whenever you make a financial decision, you have to know that it can really change your life. Whether that is for better or for worse will depend on the current situation that you are in and the consequences of that particular choice that you will make.

Since your financial decisions can alter your life, it is only right that you plan for it. No one ever got into trouble for planning. When you make this your first step in any endeavor, you get to think and foresee the results that you want to happen. It enables you to prepare for any event that could ruin your chances of reaching your goals. Not only that, it allows you to align it with all your other goals in life.

Different plans that can keep your financial life organized

Fortunately for you, there are different financial plans that you can use to help make your money organized. Even if you do not have any goals at the moment, keeping your financial life organized will still be beneficial for you. At the very least, it will help you prepare for any goals that you can come up with in the future.

Of all the plans, the most generic that you will need is a budget plan. This will give you a general overview of the money that comes into your pocket and the expenses that you use it on. The main purpose of your budget is to make sure that your expenses are not exceeding your income. In case your income is not enough, you can choose which expenses must be cut back on. That is because the budget plan shows the priority expenses that needs to be funded in order to keep yourself from financial trouble.

From this plan will emerge a couple of other financial plans.

  • Spending plan. This is the more detailed expenses list that is indicated in your budget. Having this plan will help simplify your budget because it only has to contain your spending categories. This spending plan will help you jot down the details – especially for your cash expenses. If you have a food category, this spending plan will show the number of eggs, bread, meat and other products that you bought. If anything, this will help you compare prices of past purchases.

  • Payment plan. When you are in debt, a payment plan will help you in prioritizing which debts must be paid first. It will also contain the due dates and the different accounts that you have to finance every month. The idea is to keep yourself from missing any payment because that can end up being costly. You will waste more money on penalty charges.

  • Saving plan. You can also create a saving plan for all the things that you want to build up funds for. It can be for the major events in your life like marriage, the children’s college education and retirement. It can also be big purchases that you want to make like a car, or your home. It can also be that business that you have always wanted to start.

  • Investment plan. When you want to grow your money even further, you can set up various investments to diversify your sources of income. You want to keep track of everything to see how much you are actually earning. It will show you if one investment is earning more than the other. That will help you make better decisions about where you will put your money so its growth can be maximized.

If you are unsure about the type of plans that you can use in your unique financial situation and goals, you could get help from a financial planner. It is advised that you get a professional that is duly certified by the Certified Financial Planner Board of Standards, Inc. You can learn more by visiting their website at CFP.net. You can also do your search through reputable associations like the FPA or Financial Planning Association.

Benefits of financial planning

Planning is always a good thing and there are various benefits to it. Your finances can really spiral out of control if you are not careful. Things have a way of going wrong and you want to be organized to keep that from happening. And even if something happens, you can easily find a way to put things under control.

Financial planning for your life decisions will keep you from making choices that will put you farther from your dream. Not only that, it will keep you vigilant about anything that you may be doing wrong.

Admittedly, all of these plans can be tedious. However, this small sacrifice can get you the following gains:

  • Allows you to monitor the condition of your finances.

  • Aids you in making the right financial decisions.

  • Tells you which expenses will support your life’s goals.

  • Instructs you on how you can achieve your goals.

These are only a few of the things that you will get for being organized. Most importantly, an existing plan will give you the convenience of identifying how to make revisions as your life situation changes.

How To Maximize The Benefits Of A Debt Payment Plan

monthly payment planIf you really want to get out of debt, there are a couple of tools that you can use to guarantee your success. But if you really want to reach your goals, you should have a plan in place to make it happen.

A debt payment plan is one of the key tools that will help you eliminate debt. It is defined by BusinessDictionary.com as the means to pay off your outstanding credit dues. It is most helpful for those who know that they are prone to give in to spending temptations. A payment plan will help you get a firmer grip on your impulses. If anything, it will help you put aside the money that you need for the monthly contributions you need to give to your creditors. That way, you will not spend it on unnecessary things.

Why do you need a plan to get out of debt?

There are many reasons why your debt payment plan will serve an important role in your debt freedom. It will help you with the following tasks involved in paying off debts.

  • Guides you on the amount you have to pay each month.

  • Keeps you from being late on your monthly obligations.

  • Helps you identify the debts that must be prioritized. In case your funds are suddenly compromised, you know which debts you must pay first.

  • Allows you to track the progress of your payments and to gauge how far you have to go.

  • Aids you when you are making financial decisions.

  • Motivates you by showing when your debts will be completely paid off.

In some debt relief endeavors, people get so confused and discouraged to the point that they give up on their efforts altogether. You do not want this to happen. If you can see your progress, this can be avoided.

There are certain debt relief programs that does not include a debt professional. If you want to skip the service fee, you may want to take some time and effort to create your debt payment plan. Here are three of the debt relief programs that will require this plan.

Snowball method. This debt relief option requires you to rank your debts according to priority. You will pay the minimum for all your debts while putting all extra money into the priority debt. When that is finished, you will placed the freed funds into the next priority debt and that will go on until you have paid all your debts. A debt payment plan will help you gauge how long you have left until each debt is paid off. It will also help you foresee how much money will be added to the next after a priority account is completely paid off.

Debt consolidation loan. The main process of this debt solution is to get a low interest master loan that is enough to pay your multiple credit accounts. The end result is one debt that you have to pay every month. Although there is only one debt to pay off, you need a debt payment plan that will ensure you can stick to your payments. Sometimes, the convenience of an easy single payment will make us too complacent that we stop paying attention to our spending. If we are not careful, we could end up being reckless once more and incur another set of debts that can bury us again.

Balance transfer. Just like in debt consolidation loan, this debt relief option will combine your debts under one account. But instead of a loan, you will use a new credit card and transfer your high interest card balance there. These balance transfer cards are usually offered with zero interest rates for the first 6 to 18 months of ownership. You want to create a debt payment plan for this zero interest promo period so that you can make better progress in decreasing the amount that you owe.

How to make an effective plan to help with debt payments

Of course, to benefit from a debt payment plan, you should be able to create an effective one first. If you have no idea how to do it, there are templates online that you can seek out. We suggest the one from Money.CNN.com to help you calculate your debt payments.

But if you want to do it from scratch, here are the steps that you have to follow.

  1. Create a budget plan before your payment plan. It is important that the latter is incorporated in your monthly budget to ensure that it is within what your income can afford.

  2. Once the budget is created, you can list all your debt obligations. Make sure they are ranked according to your priority.

  3. Include details like the monthly payment, due date, remaining balance and maturity date. The last refers to the time when your debt will be completely paid off.

  4. Determine the debt payment fund based on your budget plan.

  5. Allocate an amount towards each debt account. Make sure that you can pay at least the minimum amount. If not, follow the payment instructions based on the debt relief program that you have chosen to help with debt.

In case your extra money is not enough to cover your debts, you can determine the shortage and see if cutting back on expenses will suffice for the deficit. If not, you may have to get a second job that will help increase your payment fund.

The bottom line is this, with the debt payment plan, you are able to determine how you will tackle paying down your dues with the limited resources that you have. All your other financial decisions can be aligned easily with your debt relief program because you simply have to consult this plan to see the figures.

8 Important Budget Mistakes That You May Be Making

budget blocksA lot of people are willing to live on a budget but unfortunately, some of them are unable to do so. That is because they are unknowingly committing budget mistakes that keep them from being successful in organizing their finances.

Before we can identify what these mistakes are, let us define what budgeting is. Wikipedia.org defines this financial activity as planning the cash inflow and outflow in a household. This planning will help consumers keep their expenses from going beyond what they can afford. That simply means their income is lower than their expenses. A budget plan has the following elements: net income, fixed, variable and discretionary expenses, and savings.

8 common mistakes in budgeting

Now that you know what a real budget is, you are probably wondering why some people fail to be successful in it. Truth be told, sticking to a budget is hard – but in time, it should get better. If it is not improving for you, then you may be committing one or more of these budget mistakes.

Mistake 1: You do not have a goal in your budget.

Getting used to a budget is not an overnight thing. It will help you control the spending mistakes that got you into debt trouble but that means you have to make sacrifices. If you have a goal, all these sacrifices and changes can be manageable. Your goal will motivate you to strictly stick to your budget.

Mistake 2: You based it on unrealistic figures.

Most people start making a budget because they wanted to get out of debt. That is a goal. However, they want a fast relief and that prompts them to create a really frugal budget that cuts out a lot of expenses. They try to make it work but if the expense budget is not realistic and too small for their needs, they really cannot follow this budget.

Mistake 3: You have no self control.

Another reason why you may feel that your budget is not working is because you simply have no self control. This is a lot more tricky to correct because you are struggling with yourself. It could help to always remember why you are budgeting in the first place. You can enlist the help of family and friends to support you as you adjust in the new lifestyle that budgeting is dictating for you. Sometimes, all we really need is an encouraging word or two.

Mistake 4: You removed all the fun.

This is a common mistake by everyone. Even in a frugal budget, you do not remove your fun activities. It is better to budget a small amount to satisfy your urges than to completely cut it off and then go crazy in spending when things get too unbearable. When you budget for your fun activities, you can identify the expenses that you can remove to make way for that.

Mistake 5: You failed to prepare for the unexpected.

The miscellaneous part in your budget is there for a reason. There are unexpected expenses that crops up and you may want to make sure that you have prepared for this. In case one month goes by without you using this miscellaneous fund, just put it aside as your savings.

Mistake 6: You are using the wrong system.

Budgeting can admittedly be tedious but fortunately, there are systems that you can use to make it easier to implement. One of the biggest hurdles is tracking your expenses. If you dislike the tedious process, you can use the envelope budgeting system. Finding the right method will keep you from making too much budget mistakes.

Mistake 7: You quit too soon.

Just like getting used to a budget is not an overnight thing, reaching your budget goals will take some time. Fixing your finances, especially when you are in debt is not something that you can rush. Try not to focus on how long you have to go. Just take it one step at a time and you should be able to stick to the budget that you have created.

Mistake 8: You are not revising your budget.

We all change over time and that means our finances and needs do too. All of these changes must be incorporated in your budget. Otherwise, there will be necessary expenses that could be left without funds.

Make a budget that is easy to follow

You want to make sure that you are not committing all these budget mistakes to benefit from having an organized financial life. A budget can help you reach your life goals – but only if you follow it correctly.

To keep you from the budget mistakes above, here are the things that you must do.

  • Set a budgeting goal before you create a plan.

  • Take one month to plot your expenses so you can set a realistic amount on your spending budget.

  • Don’t be afraid to get the help of the people around you. They will give you valuable support as you try to follow your budget.

  • Budget for your entertainment activities.

  • Boost your savings to help pay for the unexpected expenses that you could encounter.

  • Make sure you select the right budgeting system that you can follow.

  • Try to stick to the budget even when you think that your progress in your financial goals is slow.

  • Revise your budget as your needs change.

Here is a video that we have created for you to help you create a budget for your household.

How Budgeting Converts Life Goals Into A Reality

budget and calculatorBudgeting is an important aspect of your finances that will help keep yourself from making a lot of mistakes in your life. We all have goals and dreams and when you know how to budget, you can plan your finances so that it can support their fulfillment.

All budgets must contain your income and your expenses to determine their activities over a specific period. However, you need to be careful about the type of budget that you will implement in your life. Investopedia.com provides three different types of budget.

  • Surplus budget – this is the budget that have enough left after all the priority expenses are satisfied.

  • Balanced budget – this implies that the income and expenses are equal – leaving you with no extra money at the end of the budget period.

  • Deficit budget – this is the type of budget wherein your expenses exceed your income. This type of financial condition usually result in debt.

Obviously, you want to have at least a balanced budget in order to keep your monetary activities from ruining your financial standing. However, if you want to ensure that you can reach your life goals, you need a surplus budget to have enough money to save for that goal.

Life goals you need to include in your budget

We all have various life goals and it varies depending on our priorities. Sometimes, we all have the same items on our list but in most cases, the ranking of priority is different. Here are three different life goals that most people usually have on our list of goals.

Debt freedom

When you are in debt, it becomes one of your priorities in life. Debt is one of the things that can really destroy your life and if you don’t do something about it, that can really compromise your future. Although there are various ways to get out of debt, a budget plan should be among one of them. It is the first that you will create in order to help choose the right debt relief program that will get you out of debt. It is important that you can define how much you can contribute towards your debts on a monthly basis. You need to choose based on what program you can afford. When you have your debt payments in your budget, you can ensure that it will always be funded.

Home

Another life goal that we usually want to reach is having our own home. Again, the main role of budgeting is to ensure that you can save up for your home. Just as this plan can help you put aside an amount that will grow your funds to afford at least the down payment of your home. Your budget will help you calculate how much you can afford to put aside for your monthly mortgage payment. That will help determine the value of the home that you can afford to pay for. You can shift your expenses and determine how much you can sacrifice in order to afford the home that you want buy.

Retirement

The last life goal that we will discuss is your retirement. This mostly involves growing your savings. Just like in your home goal, you can include in your budget the amount of money that you need to put aside for your retirement. The amount actually depends on the age that you want to retire and when you started to save up for your retirement. If you need a big retirement contribution because you started late, your budget will allow you to easily choose which expense you can let go to make room for this savings.

Tips to create a long term budget plan

The thing about this entry in your budget is it will be a long term budget plan. Although it will be part of your overall budget, it will be different from your daily expenses because the culmination of the goal will not come immediately. If you are confused about how you can do this, we suggest that you get an online budget planner that will serve as your template as you create your budget plan. We have a free budget planner worksheet on this site that will help you get started on budgeting.

To help you further, here are some of the things that you can do to make a long term budget plan.

  • Consider your short term goals. Your long term will be supported by the short term so make sure that they are aligned properly. Once you have an idea about what you spend daily, you will have a hard time determining the amount of money that you can afford to put aside for the long term.

  • Consider the lump sum payments that you make. Sometimes, we only focus on the monthly amount and forget about the annual or quarterly expenses. Do not ignore the once a year costs that you make like your property taxes or other things that you have to contribute on.

  • Include the daily and pro-rated annual expenses, add them and subtract the sum from your income. Whatever is left will be the amount that you can put aside for your life goals.

  • Plot all of these detail in your budget plan to ensure that all of them will be funded consistently and regularly.

Of course, you need to ensure that you are not forgetting your emergency fund. While your life goals are important, make room for the unexpected expenses. Otherwise, you will end up spending what you saved up for your life goals when an emergency strikes. If you do not have this, make sure you save up for it first before you really concentrate on your other goals. When you have saved up enough amount, that is when you can pool in your resources for your life goals.

Here is a video that we created to help you learn how to budget for your household.

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