Resources

Budgeting

52 Week Money Saving Challenge [2021]

Saving money can be a challenge. Every time it seems as if you are caught up, an abrupt change of events occurs and your wallet is drained yet again. Life happens, and we’ve all been there. From the unexpected car maintenance, to the medical bills, to all the other unavoidable obstacles life throws your way. 

Unfortunately, while your expenses may increase, the chances are your paychecks stay the same. That said, there are ways to save a bit more by making a few, simple lifestyle changes. Join our 15-day savings challenge and rack up some extra change! The sooner you start, the more you’ll save.

Downloadable 52 Week Money Saving Challenge Spreadsheet

If you’d prefer to track your Money Saving Challenge progress in a spreadsheet, Credit & Debt is providing a free template you can use:

Instructions for Google Sheets – Money Saving Challenge Template

If you haven’t done so already, click here to open the spreadsheet template. You’ll need to make a copy of your own, so click File > Make a Copy and save it to a folder of your choice in your Google Drive:

Now that you have your own copy, you can edit the template each week. In the ‘Recommended Deposit’ Column, you’ll see our recommended weekly challenge dollar amount to help you save $1,170 in just 52 weeks!

Each week, note how much you saved in the ‘Actual Deposit’ Column. The first cell is filled in for you ($15,) and the ‘Total Balance Saved’ Column will update with each additional entry.

Instructions for Microsoft Excel – Money Saving Challenge Template

To use the Microsoft Excel spreadsheet, first click here to open the template and click the download icon in the top right corner:

Save your copy to a location you’ll remember. Once you have your own copy, you can edit the template every week. In the ‘Recommended Deposit’ Column, you’ll see our recommended weekly challenge dollar amount to help you save $1,170 in just 52 weeks!

Each week, note how much you saved in the ‘Actual Deposit’ Column. The first cell is filled in for you ($15,) and the ‘Total Balance Saved’ Column will update with each additional entry.

Printable 52 Week Money Saving Challenge Chart

You can print this chart to help you track your savings each week:

We’d recommend putting it somewhere where it’s hard to miss, perhaps in an area where you sit down to go through your monthly finances.

How to Save $1,170 in Just 52 Weeks

So now that you have the template saved or chart printed, how can you start saving money each week? Here are 10 ways you can cut back on spending and save some extra cash:

1. Avoid Unnecessary Shopping

This is one of the most important rules to set if you want to save that extra cash. It’s easy to get caught up when we have credit cards and don’t always have to pay cash right upfront. However, this also leads to unnecessary shopping and purchases that might not be fundamental to your daily needs. We’ve all made purchases we look back on and regret, so sometimes being more strategic in your buying habits can actually make you feel better–allowing you to avoid clutter and save money. 

You can still allow room to reward yourself every now and then! We all deserve it. But do be thoughtful in your daily purchasing habits to avoid spending cash in unneeded places. Make lists to stick to when grocery shopping, ditch the weekend mall browsing, and make a budget that leaves no room for avoidable purchases. Making these small changes can help save you big bucks at the end of each month.

2. No Eating Out

We all love a good meal, but eating good doesn’t have to mean eating out. Sometimes stopping for fast food seems like the easiest thing to do, but those cheap meals add up! Refraining from spending money at fast food and dine in restaurants can easily save you hundreds of dollars a month. Instead, use the money you would typically spend on eating out towards your monthly groceries! Your money will go much farther–and who knows you might even find a new hobby!

Pro Tip: To save even more money on food, begin learning how to coupon. Pay attention to the weekly sales in your local grocer, and download your store’s app that offers digital coupons as well. Seeing your savings on the receipt at the end of each grocery store run can be rewarding and inspire you to start saving other ways. It’s simple, free and can even be fun. Saving money on things you are already going to buy will help you towards having a larger amount to save each month!

3. Cut The Drinks

Perhaps you’ve heard of –or even participated in–  “Sober October”, “No Drink November” or “Dry December”. The idea of this trendy challenge, which has really taken hold in the past few years, is to avoid drinking any alcohol for the whole month. Alcohol can get expensive, and cutting it out for a bit may help you grow your savings more than you think!

Not only does this help save money, but it also improves your health in many ways. Whether you enjoy a glass of wine in the evening or a couple of beers with dinner on the weekend, cut it out for a week and see how it positively impacts your wallet, and your health! Take it a step further and try it for the whole month. 

4. Hold The Phone!

In today’s world, convenience is a huge determining factor in most of our daily decisions. We have companies that bring you whatever we want all with the simple push of a button. While these services bring convenience and ease to our everyday life, they come with a pretty price tag. If you’re notorious for ordering food on UberEats, using Favor to have your midnight snack cravings delivered to you, or paying to have your groceries brought to your doorstep–stop for a week and see how you save by not racking up these extra fees.

5. No Online Shopping

Just like with using convenience apps, online shopping can seem like a good idea in the moment but later prove to be a wallet drainer. It’s easy to get distracted by all the promotional emails in our inboxes, the online sales, and free 2 day shipping provided by huge names like Amazon Prime. However, online shopping can lead to debts that you wouldn’t have accumulated otherwise. Go a week without logging in to your favorite online retailer and save the money towards something more rewarding than a quick impulse buy.

6. Check Your Subscriptions

Are you drowning in subscriptions? Do you NEED the subscriptions? Can you remember what all you are even subscribed to? Use this week to go through and clean out all the products and services you are subscribed to. Since most subscriptions are set up on autopay and come directly out of your bank account each month, they are easy to overlook and forget about. Having 5 different streaming services is probably not necessary and cancelling some that you can do without could be a great way to save monthly. 

Pro Tip: Talk to your friends and family and see what services they are subscribed to. You can all team up and get a different one and share accounts so that each of you is only paying for one, but can enjoy multiple! You pay for Netflix and your friend can pay for Hulu!

7. Sell Clothes or Home Items to Consignment Stores

Get a kick-start on spring cleaning and make some extra cash this holiday season by cleaning out your closets. There are plenty of consignment stores that buy clothes on the spot. 

Some require the items to be seasonal or trendy in order to hand over any cash. Other stores will pay you after your items sell. Dig through your drawers and see if you have any trendy items that don’t fit your lifestyle anymore! This is an awesome way to declutter, give back, and get some extra cash while doing it!

8. Become a Homebody

We all enjoy going out and spending time with friends. But if you are one to hit the town every weekend, your eventful Saturday nights might be catching up with you. Start hosting dinner parties, game nights, and get togethers at home instead. Everyone can bring a different dish, bottle of wine, etc., taking the weight off of you to provide it all and allowing you to still enjoy company and a drink all in the comfort of your own home. In just one weekend of staying in vs. going out, you could be saving well over a hundred dollars just by eliminating the need for Ubers, valets, expensive drinks and much more.

9. Carpool

Gas is expensive, and if you live in places like LA, you know just how expensive it can get. If you commute to work everyday, try getting a friend and carpooling instead. You can alternate weeks and save a ton on gas money. If you’re all going to the same place anyways, might as well utilize the opportunity! Think about it: if you spend $45 a week to fill up your tank for your work commute, you could carpool with 3 colleagues and each vow to drive one week. You just saved 3 weeks worth of gas money, equalling $135 a month! That could be a total of $1,620 savings or more each year.

10. Reward Yourself

Budgeting is hard and can make you feel like you’re a prisoner in your own home. Saving money doesn’t always have to be bad though. After you make a strategic budget for yourself and make simple changes in your everyday life, vow to reward yourself at the end of it all with a bit of the money you have saved. Don’t go overboard, as that will defeat the purpose, but do be sure to give yourself a nice treat for sticking to it. You will feel like your efforts were worthwhile and satisfied with saying no to certain decisions leading up. If you’ve stuck to our 10 week, you have most likely saved hundreds of dollars. So reward yourself for doing great, stick the rest in savings, and continue to find other creative ways to save!

Resources

Ask Abby

What should you do with your finances during a pandemic?

Resources

Ask Abby

What to do when your stimulus check runs out

Resources

Ask Abby

5 ways to get your cash flow problems in check

Welcome back to Ask Abby, our show where we discuss everything you need to know about finances, whether you’re thinking about retirement or trying to get through a recent job layoff, we have a show just for you. Today we are talking about cash flow. 5 ways to get your cash flow problems in check. We aren’t talking about skipping the Starbucks line today, we are talking about real-deal problems that many people have – and don’t realize they have – with their cash flow. So, stick around for a deep dive on some tips and tricks for cash flow. Plus, we have a sneak peak of a new tool on our website that breaks down your cash flow into a super simple way. You won’t want to miss that. 

1. You’re spending most of your money on rent 

It’s not uncommon to hear that  30% of your income should go to rent. ⅓ of your monthly income. So if you make $2400 a month, spend $800 per month on rent. Is that true? The answer is, I don’t know. Why? Because there are so many other variables that play into your rent payment:

  • Where you live
  • Where you work
  • Your other bills and debt
  • Etc

Generally, 30% is a good place to start. Break down your income and current expenses, and see If you’re spending more than 30%. If you’re spending 50% of your income on your rent, it’s probably pretty tight every month and you should look, if possible to move. Right now, property managers are looking for reliable tenants that can pay rent. So, start looking and see if you have an option to save a couple hundred dollars. 

If you’re having trouble paying your rent payment, we are talking about that in an upcoming Ask Abby episode so make sure to follow our page and sign up to get notifications when we go live! 

2. Your car payment is $$$$ 

Before we dive into that, I was to just remind everyone about our shows the last couple of weeks. We talked a lot about $$$ and cars. So, 

If you have a car, watch this video about refinancing:

If you have a car and can’t make your payments because of COVID-19, watch this video:

If you don’t have a car but would like to buy one someday, watch this video:

How much should you spend on your car? ~10% of your income is the general rule of thumb. This includes the expense of car insurance. If you don’t drive much, which right now, most of us don’t, ask yourself if the car you have is adequate for what you use it for. What’s your interest rate? Is the car reliable and is it worth more than what you owe? 

After you answer these questions, decide if you can find a car that will save you a bit of $ and still get the job done. If you sell your car and buy something less expensive, but equally reliable, you might be able to lower your car payment. Also look into your insurance. You might be able to save there as well, at least that’s what all insurance commercials have us believing, right? 

3. You have a lot of debt

I like to consider our coaches debt experts. So rather than diving into the nitty gritty details of your debt and how much you owe and what to do next, just call our coaches. It’s free and we don’t try to SELL you anything. The goal is to analyze your finances, your various debts and we provide you with options and let you take it from there. 

Got debt? Go to: creditanddebt.org 

Those three major categories, auto home and debt are usually the problem causers when it comes to issues with cash flow. I want to know, are those the costs that are burdening you lately? Do you agree or disagree with me? I want to know, especially if you disagree with something. 

So, before we go any further, I want to show you that SNEAK PEAK I was talking about. 

Share screen with cash flow breakdown tool

These aren’t anyone’s real finances, just an example of how they might work, so if your finances don’t look like this, don’t be concerned. Just as an overview of the tool, once you sync your bank account, this all populates for you. So no manual budgeting breakdown needs to be done, which is a great way to simplify it. Plus, we customize your recommendations and you can just call a coach right from the page to chat through any question you might have. 

The tool tries to line up your 7 or 8 major expense categories relative to income and look at the problem 

33% for rent

10-11 for car 

Credit card 

If your rent is 40% of your income and all of your major expenses are 70% and you haven’t eaten, does your Starbucks trip really matter? 

4. You don’t pay yourself first. 

This isn’t always possible, especially the common recommendation to save 20% of your income. But, make a reasonable goal. even if it’s $20 per month, always set up some sort of auto-payment to a savings account. Start somewhere. This is where we talk about Starbucks. If you have problems 1-3, skipping the Starbucks line won’t make much of a difference. But, if you’re comfortable with your cash flow breakdown and are ready to make some smaller changes, this can actually be helpful. 

Stop right here, look at that number for food/dining, and dive in a little deeper. If you’re bank statement charges look something like line item restaurant, restaurant, coffee, ice cream, restaurant, coffee, coffee, (tag your friend, you know who your are.) and grocery store is nowhere to be found or you spent $20 on laundry detergent and called it grocery shopping, you can probably save some money here and start paying yourself first. 

5. Having too many open accounts. 

We talked about debt potentially being a problem so what’s the difference between debt and too many accounts? Why is this a problem? Because you can’t keep track of everything. Store cards, various credit cards and travel cards, gym memberships, streaming subscriptions, all take away from the big and essential line items that we’ve talked about like car payments, insurance, rent, student loans, retirement, and existing debt payments. 

SIMPLIFY your finances.
We did a video on this. Watch this video to simplify your finances: https://www.facebook.com/creditanddebt.org/videos/703394243797791/

Before you know it, if you have too much going on, you’re spending more on your subscriptions than you are on your car insurance or you don’t even know how much all this is costing you – that’s a definite cash flow problem.  

That’s our show today guys, we talked about 5 major cash flow problems, 1. Pay too much for rent 2. Your car payment is too high 3. You have a lot of debt 4. You don’t have savings 5. You have too much going on to track it all. 

If you have questions or thoughts on all this. You agree or disagree with anything I said, I want to know. Especially if you disagree, we want to hear from you. So, you can comment on this post, please hit that like button. If you like and share our stuff, we benefit because more people see it and you benefit because if you really do like it, you’ll see it more often. You can also email me at askabby@creditanddebt.org, go follow my FB page, ASK ABBY, subscribe to our YouTube Channel and opt to get notifications on FB when we go live at 12:30 pacific on wednesdays! As always, thank you so much for tuning in and we will see you next week on Ask Abby. 

Resources

Basic Finance

How to Budget – the Basics

Resources

Budgeting

The Ultimate Guide to Money Management

We’ve been helping people be more financially responsible for over 40 years now. We’ve boiled some of our most common advice down to some essential rules that will be your ultimate guide to money management.

PLAN YOUR FUTURE 

Planning for the future is key to money management because major purchases and periodic expenses come up along the way, and when they do you want to be prepared. If you are spending all of your extra money after each paycheck on nonessentials rather than saving, when an emergency happens you likely will not be ready to financially address it. Instead, saving a little from each paycheck to plan for the future allows you to handle these emergency situations as they come without having to go into debt. It’s best to assume that you will always need savings for emergency situations, even if you end up not actually needing it. You might have a year where your car needs a lot of maintenance, new tires, and you had to take a pay cut. While all of these situations are unpredictable, saving for them will prevent you from turning to credit cards. Saving for the future and what might be to come is a great first step to arrive at financial freedom. It will teach you to budget and save each month and to secure your financial standing in the present and future. 

SET FINANCIAL GOALS 

Setting financial goals is another great way to manage your money properly. Determine short, mid and long range financial goals for yourself or your family. Continue to nurture and adjust your goals monthly. Writing your goals down and how you are working on reaching them will allow you to evaluate your shortcomings. Being able to visually see what methods are working and which are not in regards to reaching the financial goal you have set will teach you self discipline and will give you motivation to further reach your goals. Try setting financial goals for you to achieve each month, for the end of the year, and in 5 years. Then, celebrate your achievements! Reward yourself after each milestone–you are learning how to manage your money!

SAVE YOUR MONEY

This goes without saying, but saving your money is a surefire way to help you manage your money. Save for periodic expenses, such as a car and home maintenance. Save 5%-10% of your net income each month. Accumulate at least 3 to 6 months salary in an emergency fund. Saving for the unpredictable and inevitable will ensure you don’t go into debt or rely on credit cards when you need extra money for emergencies or larger expenses. 

Check out our 10 Week Money Saving Challenge to help you cut some expenses each month to help you save for your future. 

KNOW YOUR FINANCIAL SITUATION 

Determine your monthly living expenses, periodic expenses and monthly debt payments. Compare outgo to monthly net income. Be aware of your total indebtedness. Living outside of your means indicates that you are not managing your money properly. Make adjustments in your day to day life to fit your financial situation to ensure that you are not spending more than you make each month. Being more aware of where your money goes and how it is spent is key in money management.

DEVELOP A REALISTIC BUDGET

Learn to budget, and follow your spending plan as closely as possible. Evaluate your budget and make adjustments in your spending habits accordingly. Compare actual expenses to planned expenses. Allocate where your money is going and leave room to save. By planning out a monthly budget for yourself according to your income and needs, you are protecting your money and yourself. Hold yourself accountable and budgeting will be a great way to achieve financial freedom and manage your money.

KEEP A RECORD OF DAILY EXPENDITURES 

Be aware of where your money is going. Use a spending diary to assist you in identifying where adjustments need to be made. If you find that you are short on cash at the end of each month or don’t have enough to cover your expenses–it’s time to sit down and evaluate exactly where the money is going.

DISTINGUISHING THE DIFFERENCE BETWEEN WANTS AND NEEDS 

Take care of your needs first. Money should be spent for wants only after needs have been met. 

DON’T ALLOW EXPENSES TO EXCEED INCOME 

Avoid paying only the minimum on your charge cards. Don’t charge more every month than you are paying to your creditors. Try to only use credit cards if you can pay the balance off each month. Getting yourself into debt means you are not managing your money properly.

USE CREDIT WISELY 

Use credit for safety, convenience and planned purchases. Determine the amount that you can comfortably afford to purchase on credit. Don’t allow your credit payments to exceed 20% of your net income. Avoid borrowing from one creditor to pay another.

PAY YOUR BILLS ON TIME 

Maintain a good credit rating. If you are unable to pay your bills as agreed, contact your creditors and explain the situation. Contact credit.org for professional credit and debt advice, and inquire about our credit counseling service. It’s easy to set sensible rules like these, but sometimes living by them is harder than it sounds. We’ve got counselors standing by to help you make sense of your budget, plan to pay off your debts, and answer any questions you have about your credit or personal finances. Call us today for free counseling or get started online. Look for more free tips and budgeting advice in our FIT Academy.

Resources

Budgeting

Financial Goals Examples and Tips

When it comes to personal finance, everyone’s situation is unique. No one has the same bills, rent, debts, or lifestyle. When you’re ready to take control of your financial lifestyle, you need a plan that will answer your specific problems, not your neighbor’s.

At Credit & Debt, our trained coaches are ready to review your unique situation and help you plan your path to financial freedom. The first step to tackling these problems is to define your financial goals.

What Is a Financial Goal?

A financial goal is a target to aim for when managing your money. It can involve saving, spending, earning or even investing.

Creating a list of financial goals is vital to creating a budget. When you have a clear picture of what you’re aiming for, working towards your target is easy. That means that your goals should be measurable, specific and time oriented.

Types of Financial Goals

There are several types of financial goals:

  • Short-term goals
  • Mid-term goals
  • Long-term goals

Short term financial goals

These are smaller financial targets that can be reached within a year. This includes things like a new television, computer, or family vacation.

Mid-term financial goals

Typically, mid term goals take about five years to achieve. A little more expensive than an everyday goal, they are still achievable with discipline and hard work. Paying off a credit card balance, a loan or saving for a down payment on a car are all mid-term goals.

Long-term financial goals 

This type of goal usually takes much more than 5 years to achieve. Some examples of long term goals are saving for a college education or a new home.

7 Examples of Personal Finance Goals

Still not sure what to aim for? Here are some personal financial goal examples to help get you started.

1. Start an Emergency Fund

Life is unpredictable, and it’s important to be prepared. Saving for emergencies is one of the only goals that is a necessity. It should be the first one you should set, regardless of your situation.

It’s up to you to decide what qualifies as an emergency. There are a lot of different situations that can fall into this category, including:

  • Medical expenses
  • Job loss
  • Accidents
  • Broken appliances
  • Car repair

When something unexpected and expensive occurs, emergency funds are there to keep you from suffering the financial blow.

How much you save toward an emergency will vary. Statistically, it takes 9 months on average to find a new job after a layoff. With this in mind, it is in your best interest to save roughly 9 months’ worth of income for emergencies.

2. Pay Off Debt

Paying off debts is one of the most common financial goals. No one feels comfortable knowing that they owe large sums of money. And because the amount you owe is already a specific number, paying off debt can easily be translated into a financial goal.

In addition to making every monthly payment, the best way to make real progress is to stop borrowing. Adding to your debt will only push you away from your goal, so it’s important to stay strong and diligent. In some cases, this goal is probably a mid-term goal, but there are ways to get out of debt fast

3. Save for Retirement

Saving for retirement is a goal you may be working towards your entire life. It is the perfect example of a long term investment.

It is important to consider exactly what your retirement needs are. Setting up a 401(k) or another retirement plan is the most lucrative way to save for your future. Remember, the earlier you start, the better off you’ll be in the end. 

4. Strive for Homeownership

Buying a home is a common long-term financial goal. Whether you’re saving for a down payment or working to pay off a mortgage, homeownership is one of the largest financial targets to aim for.

Saving up a sizable down payment is the best way to get a reasonable home loan. And if you save enough, you can avoid the cost of Private Mortgage Insurance, which will save you even more money.

5. Pay Off the Car

Having a monthly car payment is not a staple in life. A great example of a mid-term goal is paying off a car loan. Somewhat sizable, paying off the balance should only take a few years.

Once you’ve completed paying off your auto loan, don’t run straight back to the dealership. It’s a signal that you should use those loan payments for other bills or savings. You’ve already finished one debt – there’s no reason to hop into another loan right away. It’s important to know the best time to sell or trade in your car to make the most of your investment. 

Instead, continue to drive your old car until you have a sizable down payment for the next one. Make it your goal to pay for your next car in full, without borrowing at all.

6. Invest in a College Education

Unfortunately, due to the increasing cost of college, paying off student loans has become a modern long-term goal. Whether you’re a student paying off your own balance or a parent saving for your child’s education, college tuition is easily a substantial goal to base your budget on.

7. Plan for Fun

While most financial goals are oriented around being responsible, you should always try to aim for one “fun” goal. This could be a vacation, a big-screen TV, a boat or any other thing that you want that isn’t necessarily essential.

If you work hard and save diligently, you deserve to reward yourself with fun savings goals. Plus, working towards something you truly want is a great way to practice self-discipline and goal setting.

Need Help Defining Your Financial Goals?

No matter what your financial situation is, our expert coaches are ready to help you reach your goals. Contact us today and start your path to financial freedom.

Resources

Budgeting

Spending Habits Can be Changed

Many people will agree that working to improve their financial situation, repay debt, and better manage their money can be exhausting. A lot of people tend to start out enthusiastically, ready to tackle whatever problem they may be facing. But as time goes on they gradually gain feelings of uncertainty and hopelessness. We want to help you look at the bigger picture and change your habits for the better.

It’s not enough to want to improve your financial situation. You also need to change habits that are preventing you from being successful and nurture better habits that will make it possible to affect permanent change.

We’d like to encourage everyone to think about bad spending habits that can be changed, and new habits that can help improve your financial standing.

Bad Spending Habits to Break

Failing to budget.

Effectively managing your personal finances means planning. It’s simply not possible to truly control your money if you aren’t budgeting. When you budget, you’ll give every dollar a purpose—you shouldn’t spend anything you haven’t budgeted for in advance.

  • Part of the budgeting process is calculating your income and writing out a spending plan for that money. But equally important is the act of tracking your spending.
  • If you don’t track every dollar you spend, you’ll never know if your budget is working, or where to make smart adjustments to make your budget more effective.
  • To get started, check out our free online budgeting course. You’ll also find educational guides and downloads to help you create a personal budget you can live with.

Paying too much for things.

Impulse spending is often a challenge, but the number one form of overspending is paying too much for something.

  • Many forms of overpaying are obvious; if you buy something at a convenience store that you could get much cheaper at the grocery store, you’re overpaying. Convenience costs extra, and if you’re resolving to change your spending habits, it’s time to eschew convenience and be more frugal.
  • There are other, less intuitive ways to overspend. If you’re driving all over town to save a few cents on sale items, are you really saving money? The costs of your time, gas and mileage on your car might just make it a loss. Part of having a spending plan is doing some homework about where to go to get the best deals without having to drive all over town chasing after a few cents.
  • Buying cheaper items instead of quality might also cost you more in the long-term. For example, if you buy cheap goods, like shoes and clothing, you may end up spending more replacing them than if you’d spent more on better goods in the first place. Buying an inexpensive car that needs constant maintenance might cost you more in the long run than paying more up front for something reliable.
  • This is why tracking your spending is so crucial. If you see that your attempts to save money are actually costing you more over time, you should make a different choice.

Using debt to finance purchases.

If you want to use credit, you must plan carefully to be able to pay off your balance in full at the end of the month. There are advantages to using credit cards—convenience, security, efficient record-keeping, reward programs, etc. But using credit doesn’t have to mean carrying debt. If you don’t pay off those balances, the negatives to using credit outweigh the positives.

  • A big contributor to a financial crisis is spending money you don’t have. If you are prone to spending more than you have, then your best bet is to destroy your credit cards, or freeze them in a block of ice for an emergency.  Also, remove the credit card information you’ve stored at online retail sites; it makes it too easy to place items in your shopping cart and check out before you’ve really thought about the purchases.

Expensive personal habits.

Not all of the things you spend money on are worthy. If you have personal habits that are costing you a lot of money, you might need to make some changes in that area as you take control of your finances.

That said, don’t go limiting your lifestyle more than necessary. If socializing is crucial to your well-being, then you have to be able to plan and budget for it ahead of time. Another common habit is dining out. It’s always more expensive to dine out than to prepare your own meals.

Ignoring your spending problem.

Unfortunately, ignoring your debts won’t make them go away and will eventually lead to a full-blown crisis.

  • When creditors call, you need to speak to them (debt collectors are a different matter). When you get bills every month, open them! If you’re leaving credit card bills unread, you’re almost certainly heading for trouble. If you confront your issues as they come up, you’re less likely to keep spending and making them worse. Get in the habit of addressing your debt every time you’re faced with it. Never put off sending debt payments or communicating with your creditors.
  • More Resources: What to do if a Debt Collector Calls You
  • Halting your bad spending habits is half of the equation. To achieve financial freedom, you’ll also need to develop new, better habits to ensure your long-term success.

New Spending Habits to Practice

  • Plan your spending. Remember, the essence of budgeting is planning. Have a plan for every dollar. Don’t give yourself permission to buy anything you didn’t plan for as part of your regular budgeting process.
    • Even if you want to create a small discretionary spending category, you’re still planning for that money. So, if you can afford to have 5% of your budget go toward any unplanned purchases, you’re still creating a plan for that 5%, and you need to stay below that amount.
    • Track as you go, and adjust as necessary. If you decide you’re spending too much in one area, find ways to tighten up and change your budget from month to month. Your budget shouldn’t be static—it should change often as your circumstances change.
  • Communicate. Talk to everyone in your household about the family finances, and what you can all afford. Everyone has to help if you’re going to stick to better spending habits in the new year.
    • Don’t hide anything—this will lead to greater conflicts and bigger financial problems later. Your partner might be spending without thinking about it, while you’re struggling to balance the budget.  You might both be buying the same things unnecessarily. Part of the spending plan should include a plan for who’s buying what, so you don’t buy extra things you don’t need.
    • You should also communicate with your creditors if they contact you. Be careful what you say to third party debt collectors. Communicate with them only in writing and start with a debt validation letter—but don’t ignore communication from your original creditors. You can head off a lot of problems by communicating with them when you’re in financial trouble.
  • Make it harder to spend. Try to avoid using credit cards and use cash wherever you can.
    • When banking, consider keeping your money in savings accounts that aren’t easy to withdraw from. CDs or IRAs that lock in your funds over time will ensure that money doesn’t get spent impulsively.
  • Plan and cook your own meals. If you have a habit of stopping for fast food on the way home, dining out multiple times a week, or ordering from apps like Uber Eats, cooking your own meals can be a great new habit to get on board with. Cooking your own meals will save you tons of money, and is likely healthier as well!
    • On average, it’s five times more expensive to dine out than to cook meals for yourself at home. Every dollar you spend dining out includes 80 cents you could have saved by cooking your own meal.
    • Include meal planning in your budgeting process. It’s easier to control food spending if you are doing all of your own cooking, so getting into the habit of regular meal prep will make your budgeting process easier.
  • Use “bonus” money wisely. Any extra money that comes along, whether a bonus from work, a gift, or tax refund, should be saved or used to pay down debt. Too many people treat their tax refunds like “found” money and spend it on indulgences. Any money you get, no matter the source, should be treated as income. Include this money in your written budget, and spend it just like you spend the rest of your paycheck—carefully.
    • Related Article: Why Tax Refund Anticipation Loans Are Bad For Credit
    • Even things like credit card rewards points can be used for everyday purchases. If you have the opportunity to cash in rewards on a shopping site like Amazon, then use that credit for regular, planned purchases. Don’t use your rewards for “extra” things you don’t need.
  • Get help if you need it. If you find you’re struggling to keep or to develop better spending habits, get help. Professional debt coaching is available free of charge to help you create a workable budget and address your debt situation. Before you give up on your goals, talk through your situation in a personalized, confidential setting and get help coming up with a plan for success in the New Year.

Resources

Budgeting

Savings Accounts

The Basics

Besides paying off credit card debt, it’s crucial when setting up your finances to prevent the need to rely on credit cards in the future. That means the first financial goal you should set is to start a savings account. There are also different types of savings accounts you can have for different purposes. Some prime things you should consider saving for are emergencies and job loss.

One of the ways credit card debt builds and becomes unmanageable is through unexpected expenses. There are some genuine emergencies where a person simply can’t go without spending money—like when you have to repair your car unexpectedly, or a broken plumbing line threatens to flood your home. In these kinds of situations, we pull out our plastic and borrow to pay off the mechanic, plumber, or other unavoidable expenses. These kinds of emergency expenses tend to be large and because they are unpredictable, most people don’t have the funds set aside to deal with them. That’s why we stress the need to start an emergency savings fund, so credit cards won’t be necessary to get through future crises.

This situation can be magnified in the unfortunate event of a job loss. The standard advice is to save up 3 to 9 months’ income in your emergency savings fund to weather a job loss or other loss of income. This is based on the statistic that the average period of unemployment is 9 months. So, assume it will take that long to find a new job and build up enough savings to get through that many months. Now, if you are a two-income family, or you have a second source of income, then 6 or even 3 months’ income might be sufficient for your emergency fund.

Even if you think you don’t have a reason to save, you never know when the time will come when you wish  you could go back and change your mind. It’s never too late to begin saving, so here are some tips for creating a savings account to prevent future credit card debt.

Save Consistently

You have to have a steady deposit into your savings account. It doesn’t have to be large at first. The important thing is to save something. When we help people pay off their credit card debt, our advice is to start taking the money they were sending to the credit card companies and start putting it into savings.

As long as you don’t get back into debt, you’ve got a monthly amount that you’re used to paying that can start building up every month.

Related Article: How to Effectively Manage Your Savings Account

Make it Automatic

The best way to ensure your monthly savings deposit is consistent is to make it automatic. If you get direct deposit of your paychecks, see if a percentage can be deposited directly into a second account.

Otherwise, set up an automatic transfer every month so that a percentage of your income goes from your checking straight to savings. The idea is to move that money to the right place before you even notice it’s there, so you won’t be tempted to spend it and won’t miss it.

Don’t Put off Saving

If you’re still working on paying off credit cards or other debt, it’s tempting to wait to save until you’ve knocked out your debt. That said, try to set aside some small amount, even while you’re still making debt payments. Treat saving like a muscle you have to develop—make it consistent, automatic, and turn it into a habit that you’re not likely to break. Once you start paying off debts, then you can increase the amount you’re putting toward your savings.

More Resources: Which Debt Should You Pay Off First?

Create a Budget 

Most people feel like there’s no room financially to set aside money for savings. By creating a budget, there’s always a way to set aside extra cash for crucial goals.

By tracking spending for a month, you’ll see where the money is going, and immediately see some obvious places to cut back. Remember, if you’re just starting out, the goal is to save something, any amount you can. Then you can increase your savings contribution over time as you get better at budgeting and pay off debts.

Take our free Budgeting 101 Course!

Figure Out How Much You Need

As you’re saving, you’ll want to set a few target amounts. First, your initial savings target should be manageable. A good idea is to look at your insurance deductibles. If your homeowners or renter’s insurance has a $1000 deductible, then that’s a good initial goal. Once you have that much money in savings, you’re ready for the kinds of emergencies that insurance covers.

Then, look at your monthly income. The biggest emergency that devastates people without a savings fund is loss of income. What if you lost your job, or were injured and unable to work? In these situations, the worst thing you can do is use credit cards to get by. Never use credit as a substitute for income. As stated before, the standard advice is to save up to 3 to 9 months’ income in an emergency savings account in case of a loss of income.

Keep Debts Paid Off

If you don’t have credit card bills to pay, then it’s going to be much easier to get by on your emergency fund during a period of unemployment or other lost income. If you’re having to dip into your savings to keep the creditors at bay, it will feel like all that time and effort that went into saving didn’t amount to much. Make your finances as easy to manage as you can to be ready for an emergency.

Put Extra Funds into Savings

If extra money comes your way—whether it’s from a tax refund, yard sale, gift, etc.—don’t spend it, save it. Too many people treat extra, unexpected income as a license to spend. But if you save that kind of windfall, no matter how small, then you’ll have an easier time building to your savings goals.

Learn More: Why Tax Refund Anticipation Loans are Bad for Credit

Don’t Touch the Savings Account

When is it appropriate to delve into your savings? We say a bona fide emergency is a circumstance that prevents your ability to earn an income, or is absolutely necessary to your life, like medical expenses. Remember, emergencies should be unexpected.

One smart tactic here might be to put your emergency savings in an account that is accessible, but not too convenient. A credit union that doesn’t have too many branches might be a good place. Try to avoid putting your emergency fund into an account that you could access with a simple online funds transfer. But on the flip side, don’t lock it down into a 5-year CD or other accounts you can’t access if you need it.

Keep Saving

Even after you reach your goal and have 3 to 9 months’ income in savings, keep saving. Now you can start setting “fun” savings’ goals. Plan for a family vacation, your next car, or any other thing you might want. You can also build toward a down payment for a home or a college fund for your kids… once you’ve established your emergency savings, then use the saving habit you’ve developed to work toward all of the things you want without having to rely on credit card debt to get them.

If you’re feeling overwhelmed by debt and don’t feel like you can start saving for emergencies, talk to a debt coach and put together a budget you can live with.

For tips and encouragement toward saving, check out America Saves, and consider taking the pledge to save.

No matter what your financial situation, creating a sufficient emergency savings fund is absolutely essential to your financial health. It will help you become a better saver, avoid future credit card debt, and achieve true financial freedom.

Resources

Budgeting

Essential Household Budgeting Tips

This article outlines some essential household budgeting tips and guidelines for you to follow.

We’ve seen countless different household budgeting strategies.

Here are our best recommendations for managing your household budget.

With the economy in turmoil, more experts are proposing different ideas about how to set up a budget. The trend seems to be toward simple advice. We’ve seen it suggested that you should adopt a simple 20/80 budget: save and invest 20% of your income, and live on the other 80%. On a basic level, this is sound advice, but it’s easier said than done in a lot of cases. We prefer to give more comprehensive advice.

Another suggestion is to put 20% of your income to savings, 50% towards necessary living expenses, and 30% towards discretionary spending. We strongly urge people to avoid this system, which for most people will be unrealistic.

This household budget guideline has 5 categories:

  1. Housing 35%
  2. Debt 15%
  3. Transportation 15%
  4. Expenses 25%
  5. Savings 10%

The “Expenses” category that makes up 25% of one’s budget includes groceries, cell phone, entertainment, charitable donations, and other things that don’t fit into the other categories. This means that one’s discretionary spending or “wants” are only one part of the 25% of one’s budget set aside for expenses.

These guidelines are more realistic and appropriate than the 20/50/30 budget plans, and they are useful for quick budgeting seminars, because the percentages add up to an even 100%, avoiding potential confusion.

We also offer a set of more comprehensive, flexible guidelines.

This household budget guideline has 9 categories:

  1. Housing – 35-45%
  2. Utilities – 8-15%
  3. Food – 10-20%
  4. Auto & Transportation – 15-25%
  5. Medical – 8-15%
  6. Clothing – 3-5%
  7. Personal & Miscellaneous – 5-10%
  8. Savings & Investment – 5-10%
  9. Monthly Installments – 10-20%

You’ll notice the percentages are presented as ranges, not fixed amounts. Each person needs to work with his/her own finances to create a budget that adds up to 100% That means if you spend the full 10% on personal & miscellaneous spending, you’ll need to make cuts somewhere else. Perhaps you get full medical coverage through your employer, and your medical expenses are below the 8-15% guideline; that means you will have more money to divvy up among the remaining categories. That doesn’t mean you should exceed any of them. We think it would be irresponsible to put 30% of one’s income toward personal and miscellaneous spending like the 50/30/10 budget mentioned above.

We feel these guidelines help each consumer craft a budget that matches their personal situation and doesn’t try to force them into a simplistic one-size-fits-all budget that only offers 3 categories. At the same time, it demands discipline from the consumer; it’s difficult for most people to get discretionary spending under 10%. We know that’s a big reason we’ve been necessary for the past 35 years; too many people have accepted the message that they should spend as much as 30% of their income on wants, and when the numbers didn’t add up, they turned to credit cards to keep up with all of their spending.

Speaking of credit cards, #9 is a category that’s designed to help the people who seek us out; people with credit cards and other debts they are struggling to repay. Say you put 10% aside for savings, as we suggest, and another 10% goes toward credit card bills. Once the credit cards are paid off, the smart thing to do is destroy the cards, and put that 10% of your income that was going toward debts into savings. Then you’ll be consistent with the 20/80 budget; save 20%, live on the other 80%.

As for savings, you’ll want to set 10% of your income aside for retirement. If you’re saving 20%, that means half will go toward retirement savings (like a 401[k]) and the other half will go toward other savings goals. Your first goal should be to save 3 to 4 months’ income or more in an emergency savings fund. Once you have that savings fund in place, you can use this part of your budget to save for specific goals like college, down payment on a home, etc. If you’re really doing a good job saving this portion of your income every month, you may even want to use some of that money to pay down your home’s mortgage faster; owning your home by the time you retire is an important goal, and not having a house payment will go a long way toward helping you afford a comfortable retirement.

If you want more detailed information on tracking your expenses and creating a budget, visit our website and download our free Power of Paycheck Planning materials.