Understanding Budget and Credit Concerns

A budget is a way to set goals for saving and spending money. By setting a realistic budget, you can save more of your money and cut down on unnecessary spending. Setting a budget will also help you realize the differences between luxuries and necessities.
 
Creating a budget is not a one-time task. Your budget and credit situation will need to be monitored frequently, and adjusted as needed when income or necessary expenses increase or decrease.
 
Owning a credit card is an easy way to throw your budget off balance. Credit card spending will initially allow you to spend more, while only paying a fraction of your monthly credit card spending. However, within a short period of time you will be paying interest, and it will take years and years to pay down a high credit card balances.

Tips for Creating an Effective Personal or Family Budget and Credit Spending Plan

To create a budget, you will first need to do three things:
  1. List your mandatory bills and expenses (car payment, house payment, utility bill, insurance, etc.)
  2. Monitor and keep track of your spending records for a two month period.
  3. List your monthly income (salary, bonuses, commissions, state assistance, etc.).
Once you have an idea of what’s going out and what’s going in, it will be easier to create your monthly budget. If you have high interest or high balance credit cards to pay off, you’ll want to concentrate on paying off these balances before you start saving large amounts of money.
 
Once you have established the above three lists, you can begin creating your budget. There are two ways to do this: on your own or by using a computer program. While it is possible to effectively set your own goals, budget software is a useful tool in creating a budget.

Understanding Budget Software

Budget software is an excellent tool in monitoring your spending, as well as setting savings goals. Programs like Microsoft Money or Quicken will help you easily organize your finances on your computer. You can spot spending trends easily and see what areas of spending and saving you need to work on. These software programs are also excellent at tallying expenses and deductions when tax time rolls around.

Being an Effective Credit Card Manager

You are your own credit card manager and budget setter. Keep close tabs on your spending and consider cutting luxuries if you are not earning enough money. Aim to eliminate credit card debt completely. Consider the following questions:
  • Are you spending more at a certain time of the month (i.e., right after you get paid)?
  • Do you always save 10 percent of your income in a savings account?
  • Are you spending more money than you are earning?
  • Are you using credit cards for things you cannot afford to pay for with your checking account?

Budget Credit Counseling

When you set a budget, you need to set priorities about your current financial situation along with goals for a more stable financial future. Budget credit counseling programs will teach you to never spend more money than you earn. Some budget credit counseling programs will tell you to save 10 percent of your income, or to have a three-month emergency reserve. Generally, it is a good idea to have an emergency reserve and always save a portion of your income.

Understanding the Role of Debit Cards in Your Budget

Debit cards are linked directly to your checking account and usually have either a Visa or Mastercard symbol. They are different from credit cards because debit card purchases are immediately debited from your checking account. Essentially, debit cards are more like cash. Debit cards are convenient because they are accepted anywhere a credit card is accepted, including online or at gas stations.

Using A High Interest Savings Account in Your Budget

A savings account is an essential for every person committed to putting aside money for their future. Whether you are saving for a down payment on a home, college expenses, or simply building an emergency reserve, a high interest savings account will help you reach your savings goals faster.
 
With a high interest savings account, the bank will pay you more interest for keeping your money with them. Companies such as INGdirect will pay you high annual percentage yields with no minimum balance to get started. Other companies with high interest savings accounts are HSBC direct and Etrade.
 
Resources
 
Cable News Network (2008). Top Things To Know. Retrieved March 13, 2008, from the CNN Money Web site.
 
ING Direct (2008). Orange Savings Account. Retrieved March 13, 2008, from the ING Direct Web site.
 
Nolo (2008). How to Make a Budget and Stick to it. Retrieved March 13, 2008, from the Nolo Web site.