Budget Basics
Does Your Financial Situation Scare You?
Are you having trouble making ends meet each month? Do you find that your spending often spins out of control? Is it nearly impossible to save or invest money? The secret to financial well-being is not always in black and white.
You know that the credit card bills will be arriving in the mail and that you will have to find a way to pay them. But problems arise each month – you either incurred more debt or have run out of money before you could make the proper payments. Plans for saving or investing extra money have, once again, disappeared as fast as your pay check. This is a frightening situation and all too common for many families. The following are tips on how to brighten your financial future.
ISo you don't think you have enough money to invest or make ends meet each month? It’s time to get real about spending and saving money. Almost everyone has something they can give up without much pain or sacrifice. How about that pricey, specialty coffee most people treat themselves to every day? At $4 a cup, you could save close to $120 a month. Investing that money every month for ten years into an account earning 10% annually would net you nearly $25,000. Maintain that until retirement, and you'd have more than $765,000 in 40 years. In his book, The Automatic Millionaire, David Bach calls this the "latte factor." But it really isn't about coffee at all. Rather, he says, it's about identifying those small purchases that dribble your money away -- whatever they may be -- so you can save big over the long term. Use a calculator to see how quickly small investments can add up.
When you're trying to reduce your credit card debt, you'll be more successful if you avoid charging in the meantime. To resist the temptation, think of creative ways to fool yourself into thinking your credit cards are not available.
Remove them from your wallet. Hide them in the bottom of your sock drawer, or entrust them to a friend or relative for safekeeping. You could even place them in a bag of water and throw it in the freezer -- you'd have to wait for it to melt before you could use it, which would hopefully be long enough for your impulse to pass.
Looking for a foolproof way to keep your spending under control? Try putting cash away in envelopes in categories so you can see how much you're actually spending. For example, use one envelope for groceries, another envelope for gas and transportation, another envelope for eating out or entertainment. Then when you run out of money in each envelope, you simply don't spend any more until next month. Be tough on yourself and disciplined – it will pay off in the end when you discover how to maintain your spending.
Sometimes you forget to write a check or you run out of stamps so you couldn’t mail your payment on time. These things do happen. There are numerous reasons for forgetting to make a payment or paying a bill late, but the consequences are a black mark on your credit rating. Thankfully, many banks will allow you to sign up to have all your bills taken directly out of your checking account, including your credit card, cell phone, utility and cable bills. Some banks may charge a monthly fee for the service.
Or, you can probably make individual arrangements with each one to take the money directly out of your checking account. This requires some work on your part, but once you set it up, you can forget about it. Using an automatic bill pay service for your credit cards specifically is also a good way to reduce your balance quicker.
Get tough with your credit card representative and ask for a reduced interest rate. If you have a good credit score and history of on-time payment, this may work. A five-minute call to your lender could save you hundreds of dollars on interest charges and help you pay off your debts sooner. The U.S. Public Interest Research Group asked 50 consumers of varying credit backgrounds to call their lenders and ask for lower rates. The strategy worked for more than half the group, with the average rate reduction going from 16% to 10.5%. The interest rate reduction on a $2,000 balance would save you nearly $200 over 2 1/2 years. Credit card companies spend hundreds of dollars trying to acquire new customers, so they may be willing to negotiate to keep your business, says Howard Dvorkin, founder of Consolidated Credit Counseling Services, Inc. It certainly doesn't hurt to ask.
Not many things feel as good as having enough money to put into your savings and investments and, perhaps eventually, retiring a millionaire. It could happen. All you need to do is sign up to have a fixed amount automatically taken out of your paycheck to go directly into savings or investments. When you pay yourself first, you won't even miss the money after it's gone.
An employer-sponsored 401(k) is a great choice, especially if your company offers a free match on the money you put in. You also could arrange with a broker or mutual fund company to have a set dollar amount transferred from your checking account each month into a Roth IRA. There will be no checks to mail, no stamps to buy, and no more “things” to pile on your already busy schedule. It’s automatic. Forget it and save! All it would take for a 25-year-old to retire a millionaire is $158 per month invested in an account earning 10% annually.
