Late bills are a little like thunder and lighting; you won’t get burned – unless you’re the 1 in 700,000 that gets hit – but your experience won’t be pleasant. Nonetheless, just as you can prepare for the physical storm, you can prepare for the financial one just as easily.
It starts with budgeting.
Many people simply don’t like thinking about a budget. Knowing exactly how much you make forces you to think critically about your spending. And that’s generally not how we buy. When we spend, we spend on impulse. We end up right in the middle of the mall, or shop because we love shopping. Then we see deals that tell us not to be suckers: “limited-time only, buy one get one free, everything is half off!” And we tell ourselves we’re smarter than that, so we assume we’re spending responsibly when in reality, we’ve already made the first mistake by pretending we’re savvy spenders. Psychologists call this the illusion of confidence.
So let’s start the new year by breaking down those barriers.
Know The Score (and this graph)
In the classic movie, Glengarry Glen Ross, Al Pacino tells his coworker “never open your mouth until you know what the shot is.”
In other words, if you don’t know something, listen first. Then talk. Budgeting is similar. If you want to be able to buy things, listen to your budget first. Then spend. Breaking these things down is relatively simple for those of us who remember the day when we couldn’t hyperlink sources but had to actually create a bibliography for research (I know, I’m just an old man yelling at clouds).
Here’s how the US Department of Labor breaks the average American spending down:
Source: Gawker via US Department of Labor
Here are all the typical percentages broken down for you. If you want to know whether you’re spending too much in any one thing, use the chart. If you’re spending 2% of your budget on alcohol, for example, that means you’re probably cutting into something a little more important, like transportation or possibly insurance.
Use the Homework Rule: Hardest to Easiest
If you’re using the cheat sheet above, you don’t even have to look at your bills to do this. Housing, transportation, food, insurance: these are expenses that typically carry with them more complicated charges. Take housing – not only do you have to figure out a specific mortgage, but you also have to think about interest rates, insurance, utilities, etc.
Believe it or not there are some excellent apps that help you do precisely this. With a 256-bit encryption that syncs safely with your bank account, Clarity Money helps track your spending, alerting you to anything potentially wasteful. While you never want an app to do all the tracking for you, it’s nonetheless helpful to know that there are quick, and straight forward ways to get you looking in all the right places.
Making More Requires Saving More
We’re always keen on reminding people that it only takes $500 to put people into debt. With tax season around the corner, it’s important to remember that your refund is useful in dealing with debt. Being able to budget effectively is not just about raw planning or identifying percentages. It’s about productivity; for example, if you have $500 set aside for an emergency, then you’ll never have to worry about a $500 emergency eating into your housing or transportation expenses. Remember that making sure your credit is up to snuff is a good way to ensure maximum savings. Thanks to big and small companies who like to drag a client’s feet, the perception of credit repair is that it takes a really long time. That’s simply not true. If it took you a long time to damage your credit, it may take awhile to repair it. But any credit repair company worth its weight in smiles and success should be able to show client results success within months. Speaking of:
The Credit Repairmen is happy to announce that all customers will be receiving a Financial Well-Being Packet of videos, and tutorials covering the topic of budgeting more extensively.
