Self-help articles and educational publications from Myvesta US For several months, make lists of every outlay of cash or cash equivalent used to make purchases. Also, track all of your income for those months. When you are done tracking your expenses, make a list of each category of expenses, and write down the total amount you spent in that category per month (taking an average if you tracked expenses for two months). At the bottom of the list, write down your average monthly income.
With these figures, you can make a spending plan. Your list of expenses indicates how much you project spending each month. If the total exceeds your income or leaves you with little left over, you will have to cut back.
Once you have your spending plan, don't let it sit in your desk collecting dust or remain on the computer never to be revisited. You need to compare your actual expenses to your projected expenses in order to keep yourself heading in the right direction. One way to do this is to create 12 columns (corresponding to the months of the year) next to your projected expenses on your spending plan. Each day, record the amount of money you spend in the various categories for the current month. Keep a running subtotal so you know when you are approaching your total projected expenses for the month. Be sure not to exceed it and to leave yourself enough money to pay all necessary monthly expenses.
A spending plan gives you the flexibility to spend more than you anticipated in any given category or categories. Knowing the monthly "pot" of money you have to spend means that when you go over in one area, you simply cut back in others.
Shop Smart
Many people get into financial hot water because they fail to plan their shopping. Here are a few ideas to help you avoid this trap.
- Don't grocery shop
on an empty stomach. Most people spend as much as 50 percent more than they normally would when they grocery shop while they are hungry. Extra items purchased tend to be snack items and "junk food" associated with curing hunger pangs quickly. By shopping after you have eaten, you are more likely to buy only what you need.
- Don't impulse buy. When you see something you hadn't planned to buy, don't purchase it on the spot. Go home and think it over. It's unlikely you'll return to the store and buy it. This holds true just as much for a $15 book as it does for a $1,500 computer.
- Don't buy at a sale simply for the sake of it being a sale. Buying a $500 item on sale for $400 isn't a $100 savings if you didn't need the item to begin with. It's spending $400 unnecessarily.
Cut Your Expenses
Cutting your expenses is similar to shopping smart. Here are a few suggestions.
- Shrink food costs by buying what you need on sale, purchasing generic brands, buying in bulk and shopping at discount outlets.
- Improve your gas mileage by tuning your car, checking the air in the tires and driving less - carpool, work at home, ride your bicycle, walk, take the bus or train and combine trips. Using a credit card that offers a gas reward could also pay off.
- Discontinue cable, or at least the premium channels, and subscriptions to magazines and newspapers.
- Use your local library to borrow books, CDs and videos and to read magazines and newspapers.
- Make long-distance calls only when necessary and at off-peak hours. Compare long-distance carriers to make sure you are getting the best deal. Consider using alternative phone plans such as broadband phones/VOIP or internet phones
. If all long-distance carriers will charge you about the same, take advantage of checks (often around $50) sent to urge you to switch carriers. And finally, consider sending an email instead of calling long distance.
- Compare different wireless service plans, or consider using a pre-paid cell phone
.
- Put the money you are saving into a savings account
so you won't have to rely on credit when the next unexpected expense happens.
Many people who file for bankruptcy had no health insurance or were significantly underinsured. You can't avoid medical emergencies, but you may be able to avoid financial ruin. Call around. Many companies offer both group and individual policies. Even a stopgap policy with a large deductible can help if a medical crisis comes up. Federal law prohibits you from being denied medical insurance because of a pre-existing condition. Furthermore, if you anticipate leaving a job shortly, federal law requires that you be offered (and pay for) medical insurance through your former employer for up to 18 months after you leave. If you have trouble finding coverage on your own, contact a medical insurance broker to shop around for you.
- Need Health Insurance? FREE Instant Quotes!
- Shop and Compare multiple Health Insurance quotes for free.
- Quality Affordable Dental Care with 3 Additional Months FREE!
Don't Carry Credit Card Balances
For many people, dependence on credit is what got them into financial trouble. Credit cards can feel like a painless way to spend while nothing may be further from the truth.
The average American owes several thousands of dollars on their credit cards. While only five percent of people are behind in their payments, about half carry a balance each month, incurring finance charges somewhere around 18 percent a year. You don't have to live like that.
Consider tossing all of your credit cards in a drawer (or in the garbage) and to commit to living without credit. If you insist on using credit, only charge what you can pay for and pay off your balance in full when the bill arrives. Don't charge based on future income - sometimes future income doesn't materialize or it materializes but you need the money to pay for an emergency expense.
If you want to live without credit, it's time to close those unnecessary accounts. Just cutting up your card and tossing it in the trash does not close your credit card account. The safest way to close a credit card account is by sending a certified letter, return receipt requested to the customer service department of the card issuer. Ask the card issuer to close your account and to report your account to credit bureaus as "closed by consumer."
Avoid Large Rent or House Payments
Most people have a choice in how much to spend for housing. If you are a renter and your rent is unmanageable, explore other options. Consider moving to a different neighborhood or into smaller digs, or taking in a roommate. If you live in a "renter's market," where high vacancy rates mean that landlords are desperate for new tenants or to hang onto the ones they have, ask for a rent reduction. If you're a long-time tenant with a good relationship with your landlord, he may be willing to lower your rent so that you stay and he can avoid the hassle of looking for someone new.
If you are a homeowner, or are in the market to buy, be realistic about how much you can afford. Lenders have all kinds of mortgages available both to buyers and to owners looking to refinance
. Many mortgages start out low and gradually increase over time, hopefully to correspond to an increase in your income.
Don't take on something you can't handle. For example, a lender might offer you a bi-weekly mortgage, where you make a payment every other week, not once a month. The attraction is that you will pay off your mortgage faster than you would with a standard mortgage and save interest. But you are obligating yourself to make 26 payments a year, which equals 13 months of payments, not 12. As an alternative, you could take out a standard, once-a-month mortgage and add some extra money when you have it, rather than obligate yourself to make extra payments you might not have.
Similarly, if you are going through a divorce, think carefully before agreeing to keep the house. Money problems and divorce
are intertwined for many couples. You will have that much more difficult a time making the payments as a single person than you did while married.
The house may have sentimental value for you, but very few people hold onto their homes for more than seven years.
Your signature obligates you as if you were the primary borrower. You can never be sure that the other person will pay. The lender is not required to try and collect from the primary borrower before coming after you.
If you wind up paying the debt, you could go after the primary borrower for repayment, but good luck. If he or she didn't have the money to pay the lender, he or she probably won't have it to pay you. And if the primary borrower files for bankruptcy, you will be solely liable for the debt.
Another point many people over look is that co-signed loans can hurt your credit score. Why? Because the amount of debt you are obligated to pay will increase, which affects your debt to income ratio.
Someone Who Has Questionable Spending Habits
If you incur a joint debt, you are liable for all of it if the other person defaults. If you combine your incomes into one bank account, the other person can empty the account, leaving nothing there when the bills come due. This rule even applies for a spouse. Although most spouses don't keep their financial lives separate, it is worthwhile to do so if you can avoid financial disaster.
Don't Make Only Very High-Risk Investments
Invest conservatively, opting for certificates of deposit, money market funds and government bonds over riskier investments such as speculative real estate, penny stocks and junk bonds.