The Important Of Planning a Monthly Budget

Planning a monthly budget allows you to live a comfortable lifestyle without accumulating debt. If you are already in debt, a simple monthly budget is the most important step to regaining financial security.

Calculate Your Monthly Income

The first step in developing a monthly budget is calculating your monthly income. Start with the money that you earn each month after taxes are deducted. Next, add any other sources of income you may have, such as alimony, child support, etc. Add these numbers together. The result is your monthly income.

Determine Monthly Expenses

The next step in planning a budget is to make a list of all your monthly expenses. You will not know the exact amount that you spend on each item. Don't worry, you have all month to calculate it.

The easiest way to list expenses is by breaking them into categories. Some examples of categories might be housing, food, transportation (if you drive a car include gas, car insurance and maintenance), utilities (electric, water, gas, etc.), credit card payments, clothing, entertainment (movies, eating out) and other (personal care products, books, insurance, health care, education). Feel free to break these into small categories. For example, you may want to list your car insurance separately from your other transportation expenses, since it is a fixed amount.

Make the categories as small or large as you like. You may consider any subcategory in the "other", as a category of its own. For example, insurance could be listed separately.

Now that you are aware of the items you are spending money on, you can begin to keep track of how much money you actually spend. Take one month to record the amount of all your expenses. Although expenses in many categories will vary month-to-month, recording your expenses for one month will give you a good idea of how much you spend in each category.

Remember, your expenses are not limited to bills you pay by check. Don't forget to take a pad and pencil with you to the restaurant. Also, remember to record trips to the ATM or the bank in your notebook. Records of all the cash you withdraw provides a safety net in case you forget to jot down a meal out or an extra beer. If you have a record of the cash you withdrew, you can estimate which category it was spent under.

Remember: If you pay a bill early (or late), record it as an expense for the month that the bill was due, not as an expense for the date that you paid the bill.

Create A Monthly Budget

After you have logged all your expenses for the month, you can begin calculating your monthly budget. A simple way of looking at your budget is to add up all your monthly expenses, and subtract this number from your monthly income. You should have enough money left to deal with an emergency. If you do not have enough extra money left over, find a way to cut corners. Start by cutting back on nonessentials, such as entertainment and clothes. Next, look for bargains at the grocery store, buy generic personal items, and start car-pooling to save on gas.

Remember: Even if you do not feel that you are overspending, everyone can afford to save extra money. Therefore, cutting corners is never a bad idea.

Interpreting a Budget

In order to understand exactly where you are overspending, you may want to figure the percent of your expenditures that fall into each category. If you make $1,000 a month, and spend $400 on rent, divide 400 by 1000. The resulting .40 is the percentage of income going to housing (40%). This formula can be used for each category. Just divide the amount that you spend for the category by your monthly income. After you find each percent, make a chart showing your entire budget. This will give you an idea of the areas where you are overspending, and where to cut corners.

A typical monthly budget may be similar to the following:

Housing 40% - $400

Food 15% -$150

Transportation 16% - $160

Bills 12% -$120

Clothing 4% -$40

Entertainment 5% -$50

Other 8% -$80

Percentages will vary according to households. There are no absolute right or wrong answers when it comes to your household budget, only what works best for you. At the end of the exercise, you need to have enough cash left over to provide an adequate safety net.

Caution: Beware of debt counselors. While in some situations they may be necessary or helpful, counselors may also overcharge and add to your already existing money problems. By paying attention to spending, using simple math, and cutting corners, you may be able to solve your debt problems without a counselor. This will save money in the long run.

Additional Tips

• Plan to have enough money for an emergency
• Allow room for last minute extras, such as gifts or late charges on videos
• Put the money saved by using a budget into a savings account, money market, or stock.

Buying an Automobile with Shaky Credit

Getting a fair financial deal is a daunting task for those without a good credit rating. There are many potential traps. Let’s start by pointing out the number one trap:

Never accept delivery of an automobile before the financing is complete. Dealers are notorious for completing the sale while the finance company is still reviewing the transaction. If the finance company comes back and will only approve the consumer at a higher interest rate, guess who is stuck.

THE PROCESS IN APPLYING FOR FINANCING

When applying for a loan, you will complete an application, which will be processed through computer analysis. Once the analysis is complete, you will receive a credit rating that will influence the interest rate offered by the dealer. The finance company charges higher interest rates for deals they determine to be credit risks.

Be aware that you do not have to finance through the dealership. Dealer financing often has hidden costs. Consumers are more in control with financing arranged through their bank.

When applying for a loan, you will complete an application, which will be processed through computer analysis. Once the analysis is complete, you will receive a credit rating that will influence the interest rate offered by the dealer. The finance company charges higher interest rates for deals they determine to be credit risks.

Be aware that you do not have to finance through the dealership. Dealer financing often has hidden costs. Consumers are more in control with financing arranged through their bank.

SUB-PRIME RATES

Car dealerships tout "no money down, no payment until a certain date." This is a slogan to get you in the door. If your credit rating is deemed risky, your credit application is sent to a sub-prime rate financing company. The interest rate for these companies can go higher than 25%.

• Even major dealerships such as Ford and GMC have sub-prime lenders.
• The dealership refers "poor credit risks" to these lenders.
• Experts advise paying such exorbitant interest rates only when there is no reasonable alternative - and then do not overextend - stay with an inexpensive model.
• Having a financially stable cosigner reduces the interest rates.

BUY HERE / PAY HERE

Another situation to be aware of is a "Buy Here / Pay Here" car lot. The terms may appear attractive. A typical deal is "$100 down, $30 a week for 3 years." The car lot owners encourage the weekly payment and enforce penalties when the payment is late.

Many of the cars on such a lot are cars unloaded by reputable dealers because of the "lemon law." If a new car has multiple problems that are not resolved within specified time limits, lemon laws force dealers to retake possession of the automobile. Many of these cars end up on "Buy Here / Pay Here" lots.

A consumer may think that they can simply quit paying the $30 a week. However, these companies prosper by turning over the loan to a collection agency. Collection agencies are very forceful and use threats of further financial difficulties to achieve their goals.

• Experts discourage purchasing from these lots.
• These lots prey upon people who have difficulty with the English language and who are unaware of their rights under the law.

OPTIONS

• Utilize mass transit if your area is urbanized and this is available.
• When obtaining any loan, always check fees and charges associated with the loan.
• Shop around for the best interest rates. Do not forget to check credit unions.
• If the interest rate is high, hesitate to buy the car in the hope to receive a better deal.
• Always check with the Better Business Bureau to know the reputation of the company.

Consider purchasing a car from an individual. Check the newspaper listings to find an affordable used car. One benefit is not paying sales tax. Two negatives are: 1. there is no recourse if the car has mechanical problems and 2. you must arrange your own financing.

Know the value of a used car. A guide to knowing the value an automobile is the Kelley Blue Book (http://www.kelleybluebook.com/).

• Driving an older, reliable automobile is much preferable to paying high interest rates or purchasing a "problem" car.
• Go to a bank or credit union to know the amount of financing you can obtain to purchase a car. Be sure to carry two forms of identification and any documentation to indicate you are not a credit risk (steady employment as well as paying rent and utilities on time). Once again, a financially stronger cosigner may reduce interest rates and make a loan easier to close on favorable terms.
• Consider delaying the purchase of a car until your credit improves, if possible.

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