The economy may be improving, but many people still face financial hurdles. From credit card debt to piling student loans and mortgage payments, consumers aren't out of the woods.
Springleaf Financial, one of the nation’s largest and most respected personal lenders, has compiled the “Eight Steps People Fail to Follow in Managing their Money:”
1. Gather the right tools. There are many free online tools (such as Mint.com, BudgetTracker and Level) to help people create budgets and make better saving and spending decisions. Take a look at what’s available to find the right tool for you.
2. Run the numbers. Use the available budgeting tools or make a simple list to illustrate where you are spending your money on things like groceries, gas, utilities, entertainment, housing, and debts.
3. Face the facts. Once you’ve taken a look at where your money goes, you have to focus on things you “need” (for example utilities, debt payments and rent) vs. things that would be “nice to have” (for example eating out). Consider credit card minimum payments and loan payments as fixed expenses in the “need” category, to avoid costly mistakes and missed payments. Subtract what you have to spend on "needs" from your monthly income to determine what you have left for "nice to haves."
4. “X” out the extras. Once you’ve identified how much you can spend on "nice to haves" look at what you'll need to cut. Going out to eat, clothes shopping and travel are items that can add up and may need to be reduced or eliminated as you set and maintain your budget. Take a look at how much you’re spending on these non-essentials each month…and how far you go over budget on average. The results may surprise you, and open your eyes to easy ways to cut back.
5. Look forward. Limit surprises. As you create your monthly budget, consider any long-term costs. Is your car getting old and requiring more trips to the repair shop? Are the holidays approaching? Are you planning your next vacation? Effective budgeting means looking at each month, as well as thinking big picture about financial needs. This will also help you avoid using credit cards to pay for one-time expenses.
6. Find a balance. Saving is a crucial part of effective budgeting – consider it as a “need.” Investigate available savings options, like a simple savings account or certificate of deposit (CD), or contributing to your company’s 401K or Roth IRA that can help your savings grow over time. Whichever way you choose, identify what you can save monthly and stay consistent. Try to pay yourself first by setting aside savings before spending on "nice to haves."
7. Expect the unexpected. The reality is that no matter how well you budget, life may throw the unexpected at you. It’s important to prepare for those difficult situations by understanding your options. If you don’t have enough savings to manage an unexpected expense, you may need to consider borrowing. Choose a type of loan or credit card that offers low interest rates and fees (APR), and establish a plan to pay it back as quickly as possible.
8. Stick with it. The most important part of budgeting is staying committed. You’ve identified the tools you need to monitor your spending, you’ve determined what expenses can be adjusted in order to stay within your income, you’ve made the necessary adjustments and even started saving. Now your job is to stay on track. At the end of each month, take time to prepare for the coming month and anticipate any large-scale future expenses so there are no surprises and no errors.