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Reasons Why Credit Unions May Be Better When Borrowing Money

financial establishmentA lot of people are borrowing money left and right for a number of reasons. With a lot of options on where to  take out a loan, this cycle seems never ending. According to, about 25% of American consumers do not have a savings account and these are probably where most of the borrowers are coming from.

The less income you have coming in and with all the expenses in life, there is a big chance that you would have to keep on borrowing from lenders just to make ends meet. There are also people who do not earn a lot due to underemployment but still face steep payments that includes living expenses to loans and other consumer debts.

Debt freedom seems to be a far away place for people who are in the red because they have to keep borrowing money to meet their expenses. It is a debt cycle that is truly difficult to get out of – unless they take drastic measures. Apart from people who do not have any savings and are earning less than what they need, there are also people trying to front a lifestyle they cannot afford. Some people want to project an affluent life for all the world to see but in truth, it is something that they obviously do not have the financial capabilities to support. Relying on debt to support this expensive lifestyle is recipe for financial disaster because the amount due just keeps getting bigger together with all the interest and fees added on to the loan.

The truth is, debt becomes a terrible financial choice once consumers abuse it. There are debts that can become a means to promote financial stability – if you know how to handle it properly. This seems to run contrary to what most financial experts would advise but it is possible that a loan can help further your finances. If you are looking to start a business, a loan is a great tool to get started with it. Or you can use it to invest in your knowledge and skills by getting a student loan to help you be qualified for a higher job compensation.

Why you are better off taking credit from credit unions shares that the student loan debt is already at $1.3 trillion and chances are it will get bigger. Some people borrow money to pay for school but the interest rate and the repayment terms are quite challenging. There are some who just needs the money to meet a high monthly payment for a bill. While some needs to make a big purchase for a given  month. Whatever the reason may be, there is another option to get the funds that you need to improve your financial situation. It is a legal option that is not as common as getting from private bank.

We are talking about a credit union. explains that credit unions are owned by the people that pooled in the money for the union. This is usually formed by big companies for their own employees. Here are a few reasons why borrowing money from a credit union is sometimes better that other large financial institutions as a lender.

  • Loan interest rate. When you are looking to take out a loan, one deal breaker would be the interest rate. The higher the rate, the more you will have to pay out over the course of the loan. There is a big chance that you will understand what debt hell means especially when you miss payments. But credit unions offer some of the lowest interest rates in the market. shows that credit union rates are sometimes half of what private lender offers.
  • Motive behind the union. The big banks and other similar financial institutions are created to turn a hefty profit for the shareholders. The credit union on the other hand also aims to make money but their priority are the members. It helps that credit unions adhere to a cooperative structure, the members comes first before the need to rake in profits at the end of the year.
  • Quality customer service. You cannot deny that when borrowing money, one of the things you will look for is the post-loan relationship with the lender. You can never predict the future so in case anything happens, you can quickly reach out at any given time and contact your lender. Credit unions may not rival the 24/7 customer service models of big banks but they are able to deliver quality service with the representative being able to call you by your first name.
  • Credit unions are fee-friendly. This means that they do not impose a lot of fees related to your financial transactions. One example is that most of the credit unions do not put fees in case you do not have money in your account. If that was the case in a regular bank, you would already be seeing fees being assessed on your account.
  • You get money. Yes you read that right, credit unions will give you money in the form of dividends. Borrowing money is one thing but getting some without asking for it is another. Of course, the amount may not measure up with what you need but free money is still great.

Here is a great video that differentiates credit unions from banks:

Important reminders before you borrow money

Taking out a loan or borrowing money from lenders is not as easy as it sounds because this is a great financial responsibility. It’s not like asking your parents money when you were still small and you did not have to worry much about repayment. When you are looking to borrow money for a business or for higher education, there are a couple of things you need to take note of.

  • Borrow only what you can afford to pay off. It is quite tempting to borrow more than what you need only because the opportunity presents itself to have quick money. But you need to remember that you are taking money that you will be paying interest on.  Try to keep the loan to the minimum to make sure that your repayment amount is manageable.
  • Use the loan for what it was intended for. Borrowing money should not be just a random thing you want to experience. You need to have a purpose for the loan because this will define how you use the money. If you are trying to pay for medical debt, then use the loan only for that and not buying a new car or a new piece of jewelry.
  • Know your payment plan before borrowing money. Even before diving head first and taking out a loan from either a credit union or a lender, you need to have a payment plan. You must revisit your budget and see where the payments will be coming from. It is a little easier if you have a big wiggle room in your budget but if you are running a tight ship, knowing how you will make the payments is very important.

Borrowing money is something that most of us will encounter in our life. It is important that you know your options so you can figure out which source of financial aid you will benefit from the most. Whether it is through a traditional bank or a credit union, you have to ensure that you can commit to the loan that you are making. Otherwise, you will be digging a debt pit so deep that it will be very hard for you to get out of.


2 Types Of Reserve Funds That You Should Save For

two piggy banksThere are several types of  financial instruments that can help you guard against unexpected problems. Having reserve funds is just part of that equation. These funds are meant to help you get over a financial crisis that would usually impact your main source of income. It can also help you guard your household budget against sudden unscheduled expense.

There are basically two types of this saving fund, an emergency fund and a rainy day fund. There are a lot of consumers who are confused between the two and usually mix up one with the other. For some, they believe they are actually one and the same.

But as important as reserve funds are, not all people are saving for the unexpected. As shares, there are only about 38% of American consumers with an emergency fund tucked away for the future. Some may have rainy day funds but with the confusion, they either refer to their emergency fund as their rainy day fund or think that their savings will work the same way as a rainy day money.

Apart from being responsible in using emergency fund, people need to know how to differentiate it from a rainy day fund. Both of these are necessary if you want to keep your financial life secure and protected against the unforeseen expenses. It is hard to control all aspects of your financial plans because there will always be external forces that can have a big effect on your planning efforts. What you can do is to just be prepared for whatever can happen.

Differentiating the two saving funds

An emergency fund and a rainy day fund are two types of reserve funds that you need to understand to prevent overlap of use.  Here are the main differentiators between the two.

  • Emergency fund. This is the more popular between the two types of saving funds. This is because a lot of financial experts have advised time and again that consumers need to have this to secure their budget and deal with financial emergency. Any unforeseen and unprepared financial crisis can topple down your budget in an instant and having an emergency fund is what keeps your finances from crumbling down. This is usually meant for big emergencies such as losing a job or an illness that sometimes entail a medical operation. As such, an emergency fund is measured by how much you spend in a given month. There are a lot of people suggesting that this should be about six months worth of expenses because this is the average amount of time people spend looking for a new job.
  • Rainy day fund. Apart from big emergencies, there are are small ones that can happen in between and using your emergency fund seems counter-productive. This is where the second type of reserve funds come in to the picture. It is supposed to tackle small financial emergencies to separate it and keep your emergency fund intact. This can be anywhere from a broken home equipment, minor home repairs and sometimes even a plane ticket to see a sick relative. With the nature of what it covers, a rainy day fund is usually smaller compared to an emergency fund. It usually anywhere from $1000 to a few week’s worth of expenses.

Why you want to have an emergency fund in your budget

Here is a short video on how to get started with an emergency fund.

Some people would be quick to point out that earning a lot is enough to offset any unexpected financial needs and they question the need to have reserve funds. Having a nice big income will surely help but the work does not end there. If you do have a big income but use them at your heart’s content, chances are you will be in debt after just a small crisis. Here are a few things to remember to convince you about the importance of this funds.

  • Preserves your money. shared that the average savings of a household is at $12,000 – at least for those headed by a 55-64 year old. The scary part is that if they do not have any type of reserve funds to speak of, their savings and probably even their retirement money would go down the drain just to cover an important expense. Having an emergency fund and a rainy day fund helps you keep your finances intact and prevents you from falling into debt.
  • Secures your emergency fund for real emergencies. This has to do with having both an emergency fund and rainy day fund. If you only have an emergency fund and you encounter small emergencies often, chances are your emergency fund will be depleted real easily. And as people have come to realize that emergencies come when you least expect them to, getting caught in a financial emergency with your fund depleted can be really challenging. Having a separate fund to address the smaller needs keeps your emergency fund in tact to address the bigger emergencies.
  • Helps you categorize the unexpected expenses. If you can’t stay on budget because you keep on mixing up the funds and what they need to be for, having two reserve funds will help. It can help you separate the money for trivial home repairs or even a blown out transmission from the more important ones like losing a job. It puts more structure with the way you lay out your monthly household budget.

Ways you can keep yourself from spending your savings unnecessarily

Having a fund for emergency situations is not the end of it but is actually just the beginning of maintaining your finances and keeping them in order. You need to make sure that they are used for their intended purpose. Here are two tips to help you with the proper way to use reserve funds.

  • Set clear restrictions and definitions to what an emergency is. An emergency can be encompassing as it can cover anywhere from a busted light bulb to getting laid off. One way to make sure that use the funds accordingly is to set clear parameters on your definition of an emergency. Understand what incidents would compel you to use your emergency fund and what would be categorized under your rainy day fund.
  • Make it harder to access your emergency fund. This is quite tricky because your reserve funds needs to be accessible and within arm’s reach in case emergency strikes. But it does not mean that you keep them in an envelope with rubber bands with one under your bed and the other under the couch. You can look at putting them in a  checking account or a savings account. This way, your reserve funds can earn a little interest while being accessible at a distance. This can help you think twice before you use the money in frivolous expenses. You can also invest them but make sure it is an investment that can be easily liquidated and will not take weeks to access.
  • Keep communication lines open. This applies specifically for couples who are sharing the same budget under one roof. This is another layer of security that can help consumers think twice before spending the reserve funds. They need to talk to their partner and it has to be a mutual decision when using either the emergency fund or the rainy day fund to address any financial need. This way, two sets of eyes are looking at details that lessens the margin of error and increases the chances of looking for alternatives before dipping into the reserve fund.

Reserve funds are great financial support to help you keep your budget in tact. You just need to understand the different types and how to use them accordingly.

Why Budgeting Should Not Be Likened To Dieting

money and measuring tapeBudgeting is said to be the first step towards financial independence. If that is the case, then why is it that a lot of Americans are finding it difficult to maintain a budget? In some cases, they even have difficulty in starting one.

This is probably caused by the lack of motivation to follow a budget plan. This is especially true if you think that a budget is a lot like a diet.

In truth, there are a lot of similarities between the two. An article on actually discussed various similarities between dieting and living on a budget. In fact, the author of the article mentioned that a diet is defined as restricting one’s food intake. The same is actually happening when you are budgeting. You restrict your spending on some things so you can keep yourself from running out of finances of the expenses that matters most. In general what you want to happen with your budget is to stop overspending your money.

However, there are people who have not been successful with their budgets because they associated it with dieting. That is because in terms of motivation, comparing a budget to a diet is not the best way you should go about it.

3 ways diet concepts can ruin your budget intentions

An article published on in 2011 is titled, “Why a budget is like a diet – ineffective.” In one part, the article discussed how humans are notorious for not being able to follow plans. While there are those who undoubtedly can, there are also people who are incapable of doing so. In fact, some consumers frown upon budgeting as they would a diet plan. The article said that it is because a budget feels so much like dieting – that is why it is met with so much distaste. People end up shying away from budget plans simply because it is associated with diets.

The reason why people are scared to budget in the same way that they are of dieting is because it is oftentimes associated with these three concepts.

You feel you have fewer options

When you are on a diet, you are oftentimes told to eat only healthy meals. That makes your options quite limited. You are not allowed to eat certain food and drinks in order to keep yourself in tip top shape. Unfortunately, a lot of the food that we are told not to eat are those that taste good!

The same is true for budgeting. When you create a budget plan, you are faced with the reality of how much you can really afford to spend. After you identify your net income, you need to divide it among the important expenses that you make each month – for the house, utilities, food, transportation, etc. Whatever is left will have to be put aside for your savings. There is not much room for splurges or unnecessary spending especially when you have debt payments to include in your budget.

However, you do not have to feel this way about budgeting if the few options are the most important expenses that you have in your life. Even if you had to cut back on a lot of things, if the vital expenses are met, then you should not feel that you have fewer options. You just gave up on the spending that you do not really need.

You feel deprived

Since you have fewer options when you are budgeting, you will naturally feel deprived. When you are on a diet and you love to eat junk food, greasy food and all the other fattening stuff, you will feel deprived after entering a diet plan. These are the big no-nos in dieting.

In the same way, following a budget would also mean you have to stop doing the habits that are bad for your finances. Things like impulsive buying or buying things without comparing prices. These practices can be harmful to your finances. Your budget plan will deviate you from these practices and this is why you are bound to feel deprived when you are budgeting.

But just like the first, you do not have to feel deprived if you also focus on your priorities. As long as the priorities in your life are satisfied, you should not feel deprived at all. We make budgets hard to follow because we keep our eyes on what we cannot do. But if you concentrate on what you can now achieve (e.g. bigger savings, room for investments, lower debt balance), then you should not feel the deprivation at all.

You feel the pain

Lastly, dieting is usually associated with a lot of pain. This is mostly caused by the exercise that you need to do while you are regulating your food intake.

In the same way, budgeting could bring you some sort of pain as well. First of all, a budget plan is not a one time effort. You need to constantly monitor it and revise it as your financial needs change. Not only that, if your budget reveals that your current income is not enough, you may be forced to look for a second job in order to make ends meet.

Some people may say that if a budget will force me to work 2 jobs, why would they want to create a budget plan in the first place? While the sentiment is understandable, you should realize that not acting on what your budget plan encourages you to do is only delaying the inevitable. If you are spending beyond your means, you are bound to accumulate a lot of debts. Your budget will save you from that but you need to deal with the sacrifices that come with it.

Tips to make budget plans more bearable

In the end, budgeting and dieting may have some negative things in common but the bottom line is, they are both necessary because they keep you from bigger problems in the future. But if associating one with the other will keep you from incorporating a budget plan in your life, then you do not have to treat them the same way.

A budget plan is still different because it involves your finances. You need to look at a budget in such a way that will liberate you from the threat of a financial disaster. A budget can really improve your finances because it helps you be in control of your money.

According to an infographic found on, more than half of Americans do not have a budget and that one-third is unable to pay their bills on time. There may be a lot of factors involved as to why consumers cannot pay their bills on time but you can bet that one of these reasons if a lack of a budget.

In case motivation is a problem, here are some tips that might help you set up a budget in your life.

  • Start with a goal. This is the best motivation that you can give yourself. It can be to get out of debt or save up for retirement.
  • Go slow. If you discover that you have a lot of expenses that are unnecessary and that you have decided should be cut off, try to do it one at a time. Do not go cold turkey to keep the pain from becoming too hard to bear.
  • Create a timeline for your goal. Keeping in mind that you need to go slow, create a reasonable and realistic timeline to achieve your goal. That way, you will not push yourself too hard or be too relaxed in reaching your goal.
  • Make your budget as accurate as possible. Wrong entries in your budget might lead to incorrect assumptions and thus the failure of your budget.
  • Get support. If things get really tough, you may want to get support from family and friends. Or if you can afford it, go and get professional help. In most cases, the first few steps are always the hardest. But once you get one foot in front of the other, you will find yourself effortlessly following your budget.

To learn how to set up a budget, here are some tips from National Debt Relief.

5 Tips When Your Income Is Not Enough

man looking stressedHave you ever felt that your income is not enough to supply for all of your needs? With the rising cost of living and the low wages, you must be feeling a lot of frustration as you face bills every month. You think that this is a sentiment that most people living in poverty have right?

That is where you are wrong. If you are looking to ways to increase your income to get out of the rut, then you might want to rethink this solution first. Believe it or not, sometimes, even earning more money is not the right way to solve the discrepancies in your budget.

Truth is, regardless of the income that you are taking home, there are instances when you still feel like your salary is really not enough. Even those who have 6 figure incomes sometimes admit that they feel like their paycheck falls short of their real needs. When payday comes, you hardly feel the money stay in the palm of your hand. In most cases, you have divided it into different expenses even before you have withdrawn. That can be quite discouraging if it happen month after month.

Increasing your income is not always the solution

If both low and high earners feel like their income is not enough, then you know that no matter how much you earn, it will not solve the problem that you face.

In a study done published on the site of the National Center for Biotechnology Information (, it is revealed that it is true that as income increases, the hardship decreases. However, it has to be noted that the decrease is not as significant compared to those in the highest income bracket. For those who come from low income households and sought to increase their income, the study observed that the amount of parent stress also increased.

While you may feel like adding more money in your monthly cash inflow will help, there are sacrifices along the way that you have to accept. Let us enumerate some of them.

  • You sacrifice your time. Unless you are able to effectively set up a passive income business, you need to take into consideration the time that you need to invest in that additional work. You will be sacrificing what limited time you have with your family and even yourself if you work longer hours.
  • You sacrifice your physical body. Work, regardless of what type it is will take its toll in your body. You may be solving the problem about your budget but it could increase your health expenses in the future.
  • You sacrifice your relationships. When you increase your income, another sacrifice that you have to make is on your relationships. Even if you provide for your family, your presence is needed in their lives. Failure to make that happen can lead to the destruction of your relationship with the ones you love.

These sacrifices can all lead to the stress that can ruin your life in other areas. You may be saving your financial life but end up losing in others.

When the income is not enough, there is evidently a problem with the current financial situation. It is not right that you go right ahead and increase the income. It is like pumping air in a flat tire that keeps on losing it. You need to find the hole and patch it up before you add more air into it.

We are not implying that increasing your monthly cash is not good. It is still good in a lot of ways because you are being proactive about building your wealth. However, we just want to point out that doing so is usually not enough. While there may be cases wherein earning more is the solution, it is oftentimes partnered with something else.

5 ways to change your mindset about your paycheck falling short

In most cases, the problems lies in the financial habits that you are implementing in your life. If you know that the problem is in the habit, then you should check certain mindsets that might be influencing you to act the way you do.

If you don’t believe in the power of the mind, you have to at least try it before you turn your back to it. There are scientific experiments that prove that your thoughts will manifest itself into the physical world. In an article published on, Dr. Masaru Emoto showed evidence that our thoughts can influence what is tangible around us. In a rice experiment, he placed cooked rice in two containers and had school children read out the labels on each of the containers every day. After a month, the rice in the container labeled with “you fool” became rotten. The one in the container labeled “thank you” barely changed after 30 days.

Having said that, you need to understand that if your income is not enough, you should focus on changing your mindset about money. That may be the reason why your financial situation is all rotten.

Here are 5 of the common mindsets that you need to change in order to improve your financial situation.

  1. Focusing on what you do not have. We are all consumed with the need to acquire something new. This is why retail therapy is real – albeit quite a dangerous stress buster. Although it feels good to know that we can buy anything that we want, it always makes us focus on what we do not have. That mentality will really impress on you that your income is not enough. So to change that, make sure that you keep your eyes on what you already have. That will make you more appreciative of what you have.
  2. Upgrading your lifestyle after a paycheck raise. Another mindset that you have to change is immediately upgrading your lifestyle once your income increases. The typical American spending habit is not just overspending. It is also the habit of raising the standard of living according to the income bracket. While there is nothing wrong with that, it removes the breathing space that should have been there to keep you from thinking that your income is not enough. In some cases, we even exceed the upgrade to go beyond the actual increase in income. That puts us in situation that can lead to debt accumulation.
  3. Failing to search for alternatives. When you go out shopping, do you keep your eyes on what is on your eye level or do you look below the racks to search for the low price items? If you are the former then you most likely fail to search for the cheaper alternative to your needs. There is always a cheaper way to do things. In some cases, it involves learning new skills. Think about it before you start increasing your income.
  4. Keeping our eyes onto our neighbors. In an article published on, they discussed that there is proof that your friends can hurt your finances. At least, if you constantly look at your neighbors and compare your life to them, you will never be satisfied with what you have. You will always look at what is new to them and it will keep you feeling like you are always lacking. Stop this mentality and just focus on what you need – not what your neighbors have.
  5. Cutting off the wrong expenses. Cutting back on your expenses can help but only if you cut back on the right ones. Some people think that completely removing entertainment expenses will help them but that only brings forth a feeling of deprivation. And when you are feeling deprived, you feel like your income is not enough. Be wise about what you will cut back on so that you will not feel miserable about your financial situation.

Obviously, it all boils down to how you will budget your money. You can actually live debt free on a $30,000 a year income but you have to make sure that you are implementing the right habits. That will keep you from doing wrong – regardless of how much money you are taking home every month.

When your income is not enough, you have to take a look at your budget to see where your expenses are going. This is how you begin to determine what you are doing wrong. Here is a video from National Debt Relief that will teach you how to create a budget.

Advice For Sticking To A Budget

How To Convince The Whole Family To SaveCreating a budget for yourself or your family isn’t really that tough. There are numerous smart phone apps and software programs that make this about as difficult as slipping on a sheet of ice. For example, the smart phone app Mint will track your spending then divide everything into categories. The software program You Need A Budget will not only help you create a budget but has four simple rules that could help you become debt free. Other smartphone apps that would help you develop a budget include Expensify and Easy Envelope Budget Aid.

The importance of having goals

Before you create your budget, it’s important that you estabish both short-and long-range goals. For example, a short-term goal could be to buy a new car, while a long-term goal might be your kids’ education. The reason why it’s important to have goals is because without them, it’s almost impossible to stay on a budget. But if you have written goals and can see you’re making progress towards achieving them, this can be a great motivator to help keep you on track.

Where to make cuts

Okay, you’ve tracked your expenses for the month, you’ve organized them into categories and presto! You have a budget. However, next comes part two – deciding where you can make cuts. Most people find the easiest categories to reduce spending are food, clothing, eating out and entertainment. However, if you put your mind to it there’s probably no category where you couldn’t make cuts. In fact, you should go over every category at least twice looking for places where you could cut your spending. You just might be surprised at how much money you could save if you put your mind to it. If you need help in cutting your budgeting here’s a video with 10 good tips for finances and budgeting.

Sticking to that budget

Many people learn that the even harder part is to stick to a budget. Here are some tips that could help you live according to your budget.

  • Post your budget in a visible place. Put it somewhere where everyone in your family can see it – maybe on your refrigerator or a bulletin board in your family room.
  • Make a note of every dollar you spend, every time you use your debit card, go to an ATM machine and every check you write. Get out your budget and refer to it regularly to make sure you’re staying on track. There will undoubtedly be times when you overspend in some area. Just relax and reduce your spending in another area to compensate for it.
  • When your kids ask for things that are not in the budget, remind them why your family is working to spend less. If your kids are teens, they might even be able to earn the money they need for the things they want.
  • Keep that smart phone app (or a notepad) with you at all times and continue to write down everything you spend money on. Keep all of your receipts, too. At the end of the month, you will need this information to evaluate how well you are doing in your budgeting.
  • Remind your family why you’re budgeting Get out that sheet of your short- and long-goals. Remind them why they’re saving money now – for their college educations or that new car.

If you’re overspendingIs A Frugal Budget Really Helpful

If you overspend of if your total spending was more than you had budgeted, try to figure out why this happened. The reasons for this could include:

  • When you developed your budget you over looked an important living expense or debt
  • Your budget isn’t realistic. If your budget is too Spartan, it may be impossible for you and your family to live on it.
  • You didn’t try hard enough to live according to your budget. If you want to make your budget work, it takes a 100% commitment from everyone in your family.
  • You had an unexpected expense that month. Maybe you had to work late at the office so that this increased your childcare expenses or maybe your car broke down.
  • There were expenses that increased through no fault of your own. For example, the cost of gas went up or maybe your insurance premium increased.
  • You saw a drop in your income. Maybe your sales commissions wasn’t what you thought it would be, you had to take a cut in your pay or a client failed to pay you that month.

Your budget should be a game plan

If you find that you’re overspending in some categories and under spending in others, don’t be afraid to make changes. Your budget should be more like a game plan than a restraint. It should change as your life and your finances change — we hope for the better. The good news is that if you do stick to that budget, you’ll get your debts paid off quicker. Plus, the day will come when you’ll be able to add some extras to that budget – such as things you had to give up for now. You may also be able to start saving more money so that you’ll have an emergency fund that would tide you over next time you have one of those unexpected expenses.

Don’t give up

The important thing is to never give up. Sticking to a budget isn’t easy, especially when you have a family that needs to buy into it. You may have to become something of a nag for the first few months – constantly reminding your family members how much you’ve budgeted in certain categories and why it’s important that they stay on budget. But if you don’t give up, you will succeed and your life will get much better.

Does The Word Budget Frighten You?

Hands of woman making a budgetWhen you hear that word budget, do you break out in a cold sweat? Do your palms get clammy? Do you want to run away and hide?

These are all common reactions to the word budget. However, they shouldn’t be. A budget can actually be your BFF.

Why budget?

The best way to determine whether or not you need a budget is to ask yourself questions such as, “are my finances out of control,” “do I always run out of money before I run out of month,” “do I know where my money’s going,” and “am I saving money or just running up debt?”
If you answered “yes” to any of these questions

If you answered “yes” to one or more of these questions, then you do need a budget. But don’t be terrified. Budgeting is not really that awful. It does take some time and self-discipline but once you have a budget in place, your life will be so much simpler you’ll wonder why you didn’t do this months or even years ago.

This article teaches the basics of budgeting and contains information on:

• Getting started
• The importance of goal setting
• Why it’s vital to track your spending
• Why use a spreadsheet program to create your budget
• Finding categories to make cuts
• How making sacrifices can feel good
• Why your budget should be a blueprint and not a straitjacket

Getting started

The first thing you need to do before creating a budget is determine where your money’s going. You do this by tracking your spending for about a month. You can do this the old-school way with a pencil and a notepad or if you have a smart phone, there is a wealth of apps available to help you do this. The nice thing about smart phone apps is that several of them will automatically categorize your spending for you. If not, you will have to go through and assign each of your expenditures to a specific category such as food, shelter, transportation, clothing, entertainment, insurance, and so forth.

Step two

Even after you’ve tracked your spending and divided everything into categories, you’re not ready to create a budget. The reason for this is that budgeting starts with goals. You need to sit down and have a long talk with yourself regarding your short- and long-term goals. You should even spreadsheet them so you can track your progress. For example, if one of your short-term goals is a weeklong vacation in Fiji, you should put that in your far left column, followed by the amount of money you will need to achieve it. Each month as you save money towards that goal you reduce the amount of money in the second column until it reaches zero. In the meantime, you will be able to see the progress you make each month towards achieving your goals, which can be a powerful motivator to stay on the budget you’re about to create.

Get a spreadsheet program

If you don’t already have a spreadsheet program, you need to get one. If you have Microsoft Office, you should have Excel as part of the package. If not, you can get free spreadsheets from or from Google documents. Once you get a spreadsheet program, you will use it to create your budget. You should have your spending categories in the far left column, followed by the amount of money you’ve budgeted for each and then 12 columns to the right – one for each month of the year.
For more information on doing a budget with a spreadsheet, check out this video. Note: This lesson is based on Excel but the information should work with any spreadsheet program.

Get out the scalpel

How do you determine how much money to budget for each category? You’ll need to review how much you’ve been spending by category and decide where you can make cuts. If you learned that you’ve been spending more than you earn, your first step should be to cut your total spending to less than your total earnings. Once you’ve done that, you need to then get to work finding areas where you can save money to start working on your goals.

The fruit that hangs low

If you’re a typical consumer, the places where you should find it easiest to make cuts – or the low hanging fruit – will be groceries, entertainment, eating out, vacations, utilities and, unfortunately, those nice, little extras such as a health club membership, tanning salons, cable TV and magazine subscriptions.

Yes, you will need to make sacrifices

As you may have guessed by now, you will need to make sacrifices in order to cut your spending. The good news is that you will be able to see how those sacrifices are worthwhile as you move closer and closer to achieving your life goals. In other words, giving up a health club membership or eating out just twice a month instead of five times a month won’t seem like so much of a sacrifice if you can see that you’re growing closer each month to that dream vacation.

lady justice statue

Think of it as a battle plan and not as a straitjacket

A good way to think of your budget is as a battle plan. As with a battle plan, you can make changes as you learn more about your spending and your priorities. Don’t beat yourself up if you find that you cannot successfully stay completely within your budget in each and every category. Look for areas where you’re spending more than you had budgeted and areas where you are spending less. You can then adjust your categories accordingly. For example, if you find that you simply can’t cut your grocery bill by as much as you budgeted, you might find you’re spending less on transportation than you thought. You could reduce it and then increase your grocery budget accordingly.

Who Needs A Budget? Maybe It’s You

Smiling couple with laptop
When you hear the word budget does it send cold chills running up and down your spine? Would you rather eat a plate of broken glass then make and stick to a budget? Then there’s good news. You may not need a budget.

Who needs a budget?

There are all kinds of articles and websites stressing the fact that you should have a budget. However, this may not be true. There are several types of people who basically don’t need a budget. First, there are people who have so much money there is no reason for them to track their spending and make a budget. Those fortunate souls can spend their money however they wish and with no regard for the consequences. A second group of people that may not need a budget are people in their late 30s, 40s and older who have been handling their finances successfully for 20 or more years. These folks know instinctually how to manage their finances, how to save money and how to stay out of debt.

People who need to budget

If you’re in your 20s or early 30s and just starting out in the real world, you may need a budget. You may also need a budget if you’re struggling with debt – regardless of your age.

What is a budget and why it’s important

What exactly is a budget? According to the online encyclopedia  Wikiepedia, a budget is  a finance plan that allocates future personal income towards expenses, savings and debt repayment. Why is budgeting so important? The short answer to this is that a budget is a plan for  how you will spend your money and how you will achieve your goals in life. If you don’t have a plan, you’ll most likely end up struggling to get through every month without running out of money or you could end up seriously in debt. Or as the famous baseball player Yogi Berra once commented,” If you don’t know where you are going, you might wind up someplace else.”

Tracking your expenses

The first thing you don’t want to do in creating a budget is to just sit down with a piece of paper and a pencil (or a spreadsheet) and start making guesses as to how much you’re spending by category, such as groceries, entertainment, insurance, dining out, and so forth. That would be a big mistake. What you want to do is actually track your spending for at least a month. You can do this with a notebook or you could use one of the several smart phone apps now available. Three of the most popular of these are PocketMoney Lite, Xpenser and Expense Tracking. The website also has an app that can be used on all three types of smart phones and that does much more than track your spending. In fact, it’s a kind of a Swiss Army knife of personal finances as it can be used to keep track of your checking and savings accounts, your investments and your credit cards. Once you use Mint to track your expenses, it will automatically categorize them for you and then send you an alert any time you exceed the amount you budgeted for a category.

Creating your budgetWoman with pen and pencil making budget

Once you have tracked your spending for 30 days, you need to divide it into categories. There is one list available that has more than 90 budget categories. But this could be serious overkill especially if you’re just beginning to budget. A better idea is to start with just major categories and then add others as you learn more about your spending habits. Here’s a “starter” list of budget categories.

o Homeowners/Renters Insurance (actual amount paid)

o Electricity
o Water and Sewer
o Natural Gas or Oil
o Telephone (Land Line, Cell)

o Groceries
o Eating Out, Lunches, Snacks

o Child Support/Alimony
o Day Care, Babysitting







You may want to eventually divide some of these general categories into more specific ones. For example, you might want to divide transportation into gas, repairs and auto insurance. But for most people, these categories would be a good place to start.

Where to make cuts

Of course, the purpose of budgeting  is not just to see where your money is going but where you can make cuts – to save money or to just get your spending under control. To do this you will need to carefully review all your categories to see where you can reduce your spending. If you find that you’re spending more than you earn, your first goal should be to reduce your spending to the point where your expenses are less than your earnings. To do this you will need to carefully review each category looking for linkages – places where you can make cuts. Most people find that the easiest categories to reduce spending are food, entertainment, clothing and eating out.

Sticking to that budget

Once you have created a budget, you’re halfway home. But now comes the part that might be even more difficult, which is sticking to it. You will need to continue tracking your spending to make sure you’re not exceeding any of your budget categories. Some people can do this by putting all of their spending on credit cards. However, this does require a fair amount of self-discipline. One alternative to this is to use what’s called the envelope system of budgeting. Here’s a short video that teaches the system.
The joy of budgeting

As you can see, budgeting takes time, effort and some amount of self-discipline. But don’t think of budgeting just as a straitjacket or a nasty task that you must perform over and over. Instead, keep focused on the benefits of budgeting. For example, if you’re struggling with debt budgeting can help you get it under control and ultimately paid off. You can also use budgeting to build up an emergency fund equivalent to six months’ earnings so that you’ll have enough money to weather just about any financial emergency without having to create debt. Plus, budgeting can help you fund your retirement. It’s become increasingly clear over the past few years that counting on Social Security to fund your golden years could be a big mistake. You need to be saving money for your retirement, which is almost impossible to do unless you’re budgeting.

In short, budgeting can be a great tool for improving your life now and even 30 years in the future.

Do You Really Need To Budget?

Hands of woman making a budgetI’ve written dozens of times, as have many others, about the importance of having a budget. But as they say at football games, “after further review,” I’ve changed my mind a bit.

The problem with budgeting

Budgeting has a bad rap and for good reason. It isn’t any fun. It’s time consuming. It’s hard to stay on a budget. And it can be depressing. These are the reasons why many people don’t budget. They start saving for retirement, concentrate on paying off debt or leap into the stock market without really understanding their financial situation.

How much is coming in, how much is going out

The basic fact is that it’s important to know how much money you have coming in and where it needs to go. This is really the only way to see how you could pay off debt, save money or invest, and it’s nearly impossible to know this without a budget.

Budgeting is more important for some people

Budgeting is a good idea for everyone. But there are some people who need it more than others. For example, if you’ve never created a budget before, you should do so now as it’s almost guaranteed to improve your finances. You’re likely to see stuff you spent money on that you never noticed – a lot of small “budget leaks.” It you create a budget, you’ll be able to spot these leaks and control them.

Do you know your net worth?

Do you know whether your net worth is increasing each month? If not, you definitely need a budget to track your finances. Your net worth should be growing each month and if it isn’t, a budget will help.

If you feel you’re not being paid enough

A budget can tell you if you’re being paid enough to cover your expenses and have money left over to invest or save. If you work in an industry where image is important, you may find you’ll need to make certain sacrifices to maintain that image. And only a budget can help you do that.

If you can’t predict your income

If you work on commission or some other job where there’s not a steady paycheck, you need a budget with a very conservative starting point. It could also help you put aside money during the boom times so you’ll be able to get through the times when things get lean.

When you’re changing careers

If you’re in the middle of changing careers you may not be able to count on the same salary. If you have a budget, you’ll know your required expenses and how much money you need after taxes to pay for them, which could help you do a better job of evaluating job opportunities.

If your life will be changing

Are you about to get married or have your first child? Or maybe you’re going through a divorce. In any of these cases, you’ll be faced with new financial realities. You may have more or fewer dependents and more or less income. A budget can help you make the necessary adjustments in your spending so that you avoid getting into financial trouble.

A fresh look

While these situations make it more important to have a budget, it’s really a good idea for everyone to budget. With today’s technology, you could use a mobile application, a software program or do it the old-fashioned way with pen and paper. But regardless of which of these methods you choose, having a budget will help you take a fresh look at your finances and plan your spending so you can become financially independent.

“What’s The Best Way To Set Up A Budget”

Where it starts

The way that setting up a budget starts isn’t with setting up a budget. It begins with tracking your expenses for three to four weeks so you can see where your money has been going and why it’s all gone by the time you get paid again. You can do this the old school way with a pen and notepad or with your smartphone and an expense tracking app. If you have an iPhone, there’s a fast and beautiful expense tracker called Next. Android phone users could choose Cashbook Expense Tracker or a similar app.smiling woman managing finances

Do a mash up

Step two in setting up a budget is to mash up your expenses into logical categories. This could be food, entertainment, medical costs, insurance, mortgage or rent, transportation and so forth. (Click here for a comprehensive list of budget categories and recommended percentages.)

Where, oh where to make cuts

Now that you know where your money is going you need to figure out where you could reduce your spending. Most people find that the easiest categories are food, clothing and entertainment. But you need to review all your categories, asking yourself the question how can I spend less. For example, if you use the list of budget categories I mentioned in the previous paragraph, you would find that you should probably be spending somewhere between 10% and 13% on food. If you find you’ve been spending 20%, this is a place where you might be able to make a cut. How about clothing? The recommended percentage for this category is 5%. Have you been spending more? Then this is an area where you might be able to save some money.

Don’t forget savings

Make sure your budget includes the category “Savings.” Your goal should be to save 10% of your take-home pay each pay period. You should put the money into a savings account and then maybe move it into a CD every quarter. That makes the money a bit more difficult to access, which reduces the temptation to dip into it.

Make goals

If you don’t create goals you may find it very difficult to stay on a budget. You should write down both short- and long-term goals. A good short-term goal might be to save money for a vacation. Long-term goals could be to get out of debt or buy a house. The point is to have attainable goals so that you can see you’re making progress. When you can see you’re moving towards realizing a goal, you should find it easier to stay on track.

Your budget shouldn’t be a straitjacket

Your budget shouldn’t be a straitjacket. It should be more like a blueprint. As you become more and more experienced with budgeting, you should be prepared to make adjustments. You might find that allocating 12% of your budget for food isn’t enough while 13% for transportation is too much. In this case, you could cut the 13% for transportation down a bit and use the money to increase your food budget.

Budgeting – The First Step Towards Financial Independence

How would you feel if you were to wake up tomorrow morning knowing that you were financially independent – that you had enough money in savings to weather any emergency, that you were building a nice retirement fund and that you had zero debts? My guess is that you would feel pretty darn good. None of this is impossible but it all starts with developing a budget.Hands of woman making a budget

Why a budget is critical

It’s easy to get spooked by the word budget because it has such a bad connotation. When you hear the word budget you may think “financial straitjacket”. Plus, sticking to a budget takes a lot of work. But you shouldn’t think of a budget as a negative. You should think of it as a plan for managing your finances and eventually becoming financially independent.

Every little penny

The first step in creating a budget is to track all of your spending right down to the penny. This should include both your fixed and variable expenses. Fixed expenses would be your mortgage or rental payment, your car payment and any other payment you are required to make every month. All your other expenses would be variable as they would change from week to week or month to month.

Divide your spending in the categories

Once you know where your money is going in general, you need to determine where it is going specifically. You do this by dividing it into categories. This could include transportation, food, entertainment, medical expenses, clothing, transportation, housing, and debt repayment and last but certainly not least, savings.

Start chopping

The next and probably most critical step is to carefully review each of your categories and start chopping. Of course, you won’t be able to do much about your fixed expenses because they are, well, fixed. However, every other category should be open to cuts. You should be able to easily cut the amount of money you’re spending on food, clothing and entertainment. I have seen examples of where families have been able to cut their spending on food by as much as 50% simply by using coupons and taking advantage of special store offers such as BOGOs (buy one, get one). You might be able to cut your entertainment costs simply by eating out less, by going to fewer movies or by staying away from those clubs. And, believe it or not, you should even be able to cut your transportation costs by ridesharing, carpooling or using public transportation several times a week.

Sticking to that budget

If you find you’re having a hard time sticking to your budget, there are several things you can do that could make it easier. Some families have found that they can turn budgeting into a game. They set goals for the week such as keeping their grocery spending to $100 and then have a celebration when they meet those goals. You could give prizes to family members for coming up with the best suggestions for cutting costs and staying on budget. And be sure to reward yourself periodically for staying on budget. This doesn’t have to be anything lavish. It could just be a family night at the movies or a new movie on DVD.

Dealing with debt

While you might think of your debt as a fixed expense, it is not. We could consolidate your debts through a program of debt settlement that would save you thousands of dollars. Once we have settled all your unsecured debts, we would provide you with an affordable payment plan that would be much less than the total of your current monthly payments. In fact, your monthly payment to us would probably be hundreds of dollars less than the total of your current monthly payments. Call us today or fill in the form you’ll find on this page to get more information about debt consolidation done through debt settlement.

Financial independence

Develop a budget, get your spending under control, reduce or eliminate your debts and before you know it you will be enjoying financial independence.

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