Sticking To A Budget

Earlier this month we talked about how to make a budget. While budgeting can be an intimidating topic, the process of writing a budget is actually quite simple. The hard part is actually sticking to your budget and that’s what we want to talk about today.

Read your budget – Even the best planned budget does no good if you don’t read and follow it. If you’re feeling a desire to spend money, pull out your budget and see how you planned to spend your money. Then decide if that extra purchase is worth it.

Sleep on it – If it’s not something you need, sleep on it before you buy. Do you really need a room sized television? Would you still need it if it weren’t on sale? Give it a few days or a week and see if you still think it’s important to buy now.

Know your weaknesses – What are the budget busters that you encounter the most? What are the weaknesses that you wrestle with the most? For many it’s take-out after work because no one wants to leave a stressful job to go home and cook.

Be prepared – If you know your weakness is eating out on workdays, take time to meal plan or even keep some convenience foods in the freezer to make getting dinner on the table easier. A frozen pizza and a bagged salad are cheaper than fast food and could even be quicker than swinging by a drive-thru. If your weakness is shopping, plan other forms of entertainment than browsing your favorite store. A movie marathon, playground time with the kids or practicing a favorite hobby might be better options than shopping.

Make allowances – Having a budget doesn’t mean you can’t have the things you enjoy. If you don’t want to surrender that fast food habit or have a weakness for new shoes or video games, write those expenses into your budget. Give yourself an allowance for those fun purchases. Reduce your grocery budget and write in a dining out allowance if you know this is a priority.

Make a list – Planning is your friend when it comes to sticking to your budget. Keep a running list of things that you will need to buy and then work them into your budget. Better yet, time those purchases with sales if you can. Don’t discount the importance of taking a shopping list to help keep you on track at the grocery store too.

Reframe your thinking – Before you buy, ask yourself how much you have to work to afford that item. People rarely connect their purchases with their time and labor. How many hours will you have to work to pay for that gaming system, a night out on the town or that plane ticket? You work hard for your money. Is it worth the time you’ll invest to afford it?

Make it a game – Try a No Spend Challenge. You can set your own rules but the most common no spend challenge is to pay bills and buy necessities but nothing else for a month. It’s a manageable way to curb spending for a period of time and see how much money is left after the bills are paid when you aren’t eating out, shopping and making impulse buys.

Avoid temptation – If you know you don’t have extra money to spend, stop tempting yourself. Avoid store browsing, stop perusing all those marketing emails and take away your own credit card. You can’t spend if you don’t have access to money!

Be realistic – You’re going to make mistakes. However, slipping up and spending too much this weekend doesn’t give you license to go crazy and to throw out the entire budget. Just forgive yourself and get back on track. While you’re at it, take a look at how you’re spending your money. Are you spending a lot on wants while struggling to pay for needs? Is there room to trim things that you don’t care about in favor of retirement savings and expenses that are important? Having a realistic view of your money and your habits will go a long way toward sticking to your budget and knowing where your money is going.

It’s true. Sticking to a budget can be hard. It’s also stressful not knowing where your money goes. A little planning and mindful decision making can go a long way toward helping you stay on track. When you do make a mistake, try making better decisions and do better next time. Like anything else, it gets easier with time!

Not sure how to get make a budget? Read about that by clicking here and to find 31 ways to save money by clicking here. Are you a budgeting pro? What are your tips? Comment and share your ideas!

Budgeting 101

The hardest part of any budget is getting started. Gather your income and bills and just dive in!

Whether you are a spender or a saver, one of the scariest words in the English language is the word BUDGET. Where do you start? Is it hard to make one? What’s it really meant to accomplish? More importantly, how do you stick to a budget?

First, take a deep breath and know that there is nothing scarier than not knowing what happens to all your money. Your budget is just a tool to help you determine where your money goes. It’s that simple.  

The best way to get started is to work on one month at a time.

Before you begin

Choose your tools – You need to decide if you want your budget to be digital, say in a budgeting app or an Excel spreadsheet, or if you’re going old school with paper and pen. There’s no right answer to this. Some people prefer the pretty graphs and automated math features found in an app. Others find it grounding to sit down with a piece of paper and a calculator.

Gather documentation – To make an effective budget, you must know how much you make and how much you spend. So take the time to gather up all your bills including utilities, rent or mortgage, car payments, insurances, daycare bills, tuition payments, and anything else you pay. Do you have things that you pay less than monthly? You’ll need to plan for annual property taxes or quarterly car insurance too.

Getting Started

Make a list – Make a list of every bill you will pay this month, estimate the cost and add it all up. Now add up your income and take a long, hard look at how much money is left after you pay your bills.

Non-bills –  What else do you buy each month? You will need groceries and gas for the car. Do you have a gym membership? What about clothes, movies, eating out and other fun purchases?  Don’t forget about birthdays, vacations and holiday gifts. Make a list of everything you spend money on. Are there big purchases that you need to save for every month? Do you even know how much you spend on these things? Look back through your credit card and bank statements to get an honest feel for how much you’re really spending on these extras

Pay yourself –Saving money is important so don’t forget to save for retirement and emergencies. Most Americans are woefully unprepared for even a $500 emergency but tucking away a little each pay will help you be ready.

Add it up – Take a moment to add up all these bills, discretionary spending and saving. How does it look? Is your spending outpacing your income? Are you incurring credit card debt for clothes, dining out and vacations? This can be a sobering moment in the budgeting process and will determine your next steps.

The reckoning – How do you feel about what you’ve learned so far? Did you realize you were spending so much on food? Do you see room for cutting expenses? Are you pleased with where you are? For most first time budgeters, there is something shocking about this complete snapshot of their spending habits. Once you reach this point in the process, it may be time to go back and start making some edits.

Working the puzzle – Most Americans are living at or above their means. If this is the case for you, building an effective budget will be like working a puzzle. You may need to look at cutting some costs to make that puzzle fit together more easily.

Looking ahead – If you have large quarterly or annual expenses to plan for, it’s smart to look ahead and consider the best ways to do that. Often, the easiest thing is to budget a little every month and then use automatic transfers from your checking to savings so that you’re not bearing the burden all at once.

Every month – You will need a budget for every month. Eventually, you may find that it’s easy to simply copy last month’s budget with some small changes while other months require more work. It’s often most effective to budget an entire quarter at once so that you get a broader view of your needs.

The Hard Part

The hardest part to any budget is sticking to it. It’s easy to get carried away on vacation or to forget all about it when the kids need shoes. That’s why it’s important to check in with your budget before making purchases and to make needed adjustments. Remember, your budget isn’t carved in stone. It’s a living, breathing document that is most effective when it’s kept updated and when it’s used.

Are you ready to get started with a budget that will put your money to work for you? There’s no better time to start than today!

We also offer tips for sticking to a budget and ideas for saving money when you need to trim some costs.

Get Smart About Credit

Are you smart about credit? Read on for a simple explanation of credit scores and how to improve yours!

The American Bankers Association sponsors Get Smart About Credit Day every October to help consumers understand the role that credit plays in their life and how to smartly build good credit. Many people don’t realize that their credit score impacts their ability to rent an apartment, buy affordable car insurance and even find employment. Here’s a refresher on credit!

What is a credit score?
A credit score is a number that represents a person’s creditworthiness. The higher the score, the better a consumer looks to potential lenders.

Why is it important?
Your credit score and credit history affect a number of practical areas of your life. Credit worthiness determines what loans you qualify for and the interest rate you pay. Typically, the higher your credit score, the better your interest rate. It can also impact your ability to rent a home, qualify for a credit card, buy a car, get good car insurance rates or even get certain kinds of jobs. In other words, a good credit score can save you money and even improve your life!

What Factors Affect Your Credit Score?
– Payment history, including the number and severity of late payments.
– Your Credit utilization rate which is the amount of revolving credit you are using divided by
the total amount of revolving credit you have available. A lower credit utilization rate shows
you are using less credit than is available to you.
– Type, number and age of credit accounts.
– Total amount of debt.
– Bankruptcy.
– How many credit accounts you’ve recently opened.
– Number of inquiries for your credit report.

What is a good credit score?
Excellent              800-850
Very Good            740-799
Good                    670-739
Fair                       580-669
Very Poor            300-579

How is my credit reported?
Your credit is reported to three major credit reporting agencies: Experian, TransUnion and Equifax. Any time you apply for a credit card or loan, apply for each insurance, pay a bill late or on time, or pay off a line of credit, this information is reported to become part of your credit report. Visit a reputable site like http://www.annualreport.com to obtain your free annual credit report. Review your report for accuracy by making sure that you are familiar with every account listed and that the information is correct.

How do I improve my credit score if I have already made mistakes?
– Pay your bills on time.
– If you have missed payments, get current and stay current.
– Avoid being sent to collections because a collection account will stay on your credit report
for seven years.
– Keep balances low on credit cards.
– Make a budget and a plan to pay off your debt.

Having good credit is important but building good credit doesn’t have to be hard for the average person. Simply show that you can handle your debts responsibly and your score will naturally grow.

What to Do With Your New Raise

Did you get a raise in 2015? According to PayScale’s annual Compensation Best Practices survey, more than 85% of large and medium-size companies gave raises that year. In 2010, only 30% of companies gave their employees a pay boost, the lowest percentage since PayScale began its survey. So raises are on the rise.

If you got one or are expecting to get one this year, what will you do with it? Here are five smart moves for that additional money.

Pay off debts
Eliminating debt and reducing the money you pay in interest should be the first step. Say your raise was $5,000 and you’re paid twice a month. You’ll be earning an additional $200 before taxes each pay period. If you earmark $300 for your credit card debt each month, you’ll pay it off faster, save on interest, improve your debt-to-credit ratio and raise your credit score.

Build your emergency fund
Now that your credit card debt is paid off, it’s time to build up your emergency fund so that when stuff happens, such as major medical expenses or unexpected job loss, you don’t have to run up your credit card bill. Financial experts say a good emergency fund should cover between three and six months of living expenses. If you normally spend $2,500 a month, you would want build up about $15,000 for a six-month emergency fund.

Because an emergency can strike at any time, having quick access to your cash is crucial. Savings accounts are a good choice because they’re low-risk investments that allow you to withdraw your money without hassle. This emergency stash should be a separate account from one you use daily so that you’re not tempted to dip into your reserves.

Community banks, such as VCNB, offer several types of savings accounts that can suit consumers’ specific financial needs.

Invest for your retirement
Concern about having enough money for retirement is the No. 1 personal finance worry for Americans, according to Gallup’s annual Economy and Personal Finance survey. Don’t be part of that crowd. If the company you work for offers a 401(k) with an employer match, be sure that you’re contributing enough to get the maximum match that’s offered. The money you contribute will reduce your current tax burden, and the match that your employer provides is essentially free additional retirement income for you. Then, consider using the remainder of your salary increase to open an Individual Retirement Account for your future. Along with assuring you a more comfortable retirement, IRAs can also offer you tax benefits.

Give to charity
If you’ve ever thought, “I’d give more to charity if I had more money,” well, now you do. You could make a donation to a charity, your alma mater or a good cause. You’ll feel good about helping others and, as long as it’s a qualified charity, you’ll be able to deduct your donation from that year’s income tax.

Live a little
Treat yourself to something fun to celebrate your raise. After all, you earned it. Dinner at a special restaurant or a relaxing day at a spa won’t eat up all your new income. Just remember that your raise isn’t a lump-sum bonus: It’s coming paycheck by paycheck, and you should invest or spend it that way.

Ellen Cannon, NerdWallet

© Copyright 2016 NerdWallet, Inc. All Rights Reserved

 

 

 

Getting Married? Combining Finances 101

So you’re getting married. You have the church, a dress and a caterer. You know everything there is to know about your partner and you are in love. But do you know their credit score or how much they owe on student loans? This person you are about to marry may have a squeaky clean financial record or could be hiding a deep dark secret like bankruptcy or a fistful of maxed out credit cards.

Once you are married, your individual finances will also be united. Have you discussed what this really means for your relationship?  Every couple handles money matters differently so you need to consider how you will do it. It’s a good idea to have “The Talk” before you tie the knot but it’s never too late.

Rest assured, this will be the least romantic conversation of your relationship and that’s ok. Throughout your relationship you will find life is better when you have open communication about money. Here are some things to think about to get you started:

Combine or remain separate?
First consider how you will keep your money. The options are to have a joint account, individual accounts or some combination of the two. Most financial experts advise at least having a joint household account.  If you are keeping separate accounts, discuss who will pay each bill or how much you each will contribute to a joint account.

Agree on money tools
Will you use checks or only a debit card? Will you both have access to your online banking? Who will create the budget and be responsible for paying the bills? Discuss your preferences and reach a mutual agreement. Will you keep the credit cards you have or use just one joint card?

Yours, mine and ours 
Dump the “mine and yours” mentality. Ideally, assets (and liabilities) are shared and there is some balance in spending. If one spouse makes a lot and spends lavishly, it will wear on the relationship if the other partner is pinching pennies.

Create goals and a plan
What are your goals? Are you planning to buy a home in five years or have a baby soon? Maybe you want to take a vacation or pay off debt. If nothing else, you need an emergency fund. Put those goals on paper and develop a savings plan.

Be Flexible
Something will go wrong. We promise. There will be emergency purchases and your partner will make a bad decision or two. Agree to work together and make it work. Consult each other before major purchases and communicate as much as possible to avoid meltdowns.

Money is a major cause of arguments in most relationships. We wish you the best as you take this important step together and hope our advice will help you create a good financial foundation for your life together!