Everyone knows what you need to do if you want to get out of debt and create a savings account; you have to make more money than you spend. So if we all know this, then why are so many of us still in debt? If you’re still spending more money than you’re earning then it’s probably because of one of the following reasons:

• You don’t know how much you spend. It is shocking how many people there are who don’t track their spending. If you don’t know what you spend, you can’t be sure you’re spending less than you’re earning. Tracking your spending is the best way to avoid this problem. In rare cases, people don’t even know what they earn; tracking your income is also necessary.
• You don’t budget. Some people know what they’re spending. They know it’s more than they can afford. But they don’t budget so they only see the problem after the fact. Create a budget that relies on spending less than you earn. Then learn how to stick to that budget.
• You justify “emergency” expenses. The problem is that there are “emergency” expenses every month. You justify over-spending because you “need” to take the cat to the vet, get your home cleaned since your parents are visiting, buy a birthday present for the party that your child was just invited to, etc. Stick to your budget unless there’s a true emergency.
• You expect instant gratification. You want what you want when you want it. You’re willing to spend money to get it. If you want more than your income allows for then you’re in trouble. Learning to delay gratification until you have the money in hand to pay for what you desire can go a long way towards getting you out of debt. It’s also a great sign of maturity!
• You don’t know what you really want from life. People who know what their goals are can live in a way that allows them to achieve those goals within their income. If you don’t know what you want then you may spend money willy-nilly to try to find happiness in life.
• You haven’t dealt with your money issues. People spend money for a lot of reasons. They want people to like them. They want to show off. They want to buy whatever the neighbors have. They feel an emotional high when they spend money. If you haven’t dealt with your emotions around money then you might be overspending because you don’t understand why you spend. Deal with the real issues and the debt may disappear.
• You don’t earn enough. This is the biggest excuse that people use to explain why they’re still in debt. The truth is that you need to adjust your spending to your income. However, there may be times that you face this problem anyway such as during a bout of unemployment. Creating passive income streams, taking on second jobs or earning extra money by consulting or teaching are ways that you can help combat this problem.
• You’re just used to it. You may complain about your debt but if you’re not doing anything to change your spending then it may be that you’re just used to being in debt. Ask yourself if you want to maintain this habit forever.

You already know what you need to do to get out of debt. What problem is causing you to still spend more than you earn?

Guest post by Kathryn Vercillo. Kathryn is a writer for Promotionalcodes.org.uk which gives away online codes (like this La Senza promotional code) and also publishes a save money blog.

Post from: Personal Finance And Investing

Why You Spend More Than You Make (and What To Do About It)

People get into debt in a variety of ways.  Some people have medical problems or other things that are largely beyond their control.  Others have simply traded their future earnings for current creature comforts.

While the ways in which people get into debt are varied, the ways out really aren’t.  A lot of people try to make debt reduction complicated.  It isn’t.  There are a few basic moves that will get you out of debt, but they’re predicated on being realistic, accepting that you’ve already had more fun than you’ve earned, and it’s time to redress the balance.  Even if your debt is the result of things beyond your control, here’s some basic advice for those who feel like it’s time to be realistic about how to get out.

Cut Your Expenses

So you have a certain standard of living you’d like to maintain?  Too bad.  When you’re in debt, every dollar you spend costs you that dollar, plus all the financing costs until all your debt is paid off.  Let’s take a simple example.  If you have a 20% APR credit card and it’s going to take you 3 years to pay down your debt, every dollar you spend is actually costing you over two dollars.  That’s without taking into account the fact that a penny saved is more valuable than a penny earned after taxes.  That five dollar burger is now going to cost you ten dollars.  While this ignores the effect of inflation, you get the point.  Putting that dollar towards debts was the better move.

Get a Second Job

Many people are very concerned about their free time.  If you have debt, you’ve already spent your future free time.  When you bought that flat screen TV on your credit card, you were trading your future free time for a TV.  Doesn’t seem like such a good trade now?  Imagine the impact of another twenty hours of work on your ability to pay off your debts.  Assuming you’re at least in the black and slowly paying down your debts, you can put every penny you make at your second job toward your debts.  While you’ll lose some free time, you’ll reduce the stress that all that debt is putting on you.

Sell Some Stuff

This never seems to occur to people.  They usually look at that $250 duvet cover and think if they sell it for $75 they’re losing $175.  The simple fact is that when you sell it, you’ll get $75 on which you don’t have to pay taxes, and which you can apply immediately to your debts.  In our example from before, with 20% APR and a 3 year pay off window, that $75 will have saved you another $75 by the time your debt is paid off.  That means you didn’t lose nearly as much as it seemed when you sold it.

Don’t Get Too Sold on Emergency Funds

This probably isn’t your fault.  Right now all the talking heads on TV are telling everyone to worry about having an emergency fund.  They advocate making sure your emergency fund is well stocked before you start paying down your debts.  I think there’s some merit to this, but there are a lot of other considerations:

Your credit card can be your emergency fund. Assuming you are below your credit limit every dollar you pay towards your credit card can be used to pay for things later on if necessary for an emergency.  If you can get a cash advance then you can even use it to pay things like rent or other things that require cash.  There’s a small risk that your credit card company will reduce your limit, but if you’re being wise that risk is diminished.

While I can empathize with the importance of an emergency fund, try to keep it as low as possible.  It’s a very questionable decision to be paying 20% APR on your debts, while you have cash earning 1% or less in a standard savings account.

Make More Money and Spend Less

Ultimately getting out of debt revolves around this one simple formula.  Spend less, earn more.  That can be daunting–and easier said than done.  At the end of the day however, that’s what you’re going to have to do; so it’s time to get out there and show some hustle.  Grit your teeth and get your debt paid off as quickly as possible, and then look at all the finance charges as an education expense, since you won’t let yourself get in that position again.

Post from: Personal Finance And Investing

Debt Reduction for the Willfully Stupid

Photo by: auntsmack4u

Budgeting can seem like a mystery to many people, when it’s really very simple.  While this may seem basic to some, these represent principles that I describe in many of my other more detailed posts.  These 8 tips to help you develop a successful and realistic budget, can also help you to start thinking about your finances more successfully:

A budget’s primary goal is to result in ideal allocation of capital for yourself or your family. Oftentimes when we don’t pay close attention to where our money is going we wind up spending money in places we don’t need to and go without in places where we do.  This is simply inefficient.  Imagine for example if you wind up spending $100 on a nice dinner but then deny yourself a $100 kayak, which you would have much rather had.  Ultimately a budget can help you make sure that your money winds up where you want it.

Get your expenses in front of you. To start the budgeting process, get everything you can in front of you:  Credit card statement, bank statements, all your bills and anything else that gives you a picture of your financial situation.  The more complete your picture is of your expenses, the more likely you are to draft a realistic budget.

Re-examine your bills. One great way to help improve your budget is to look again at all your monthly bills.  For example, you might be straining to save an additional $15 per week and you might find out that simply by making a bundling agreement, you can save that much on your phone and television.  These kinds of savings can often come at no cost, or even with an improvement in your lifestyle.  You also should look at your bills with a mind toward capital allocation.   While $30 per month may not seem like much for a game you enjoy playing, would you rather spend that $30 on something else?  If so, reallocate your capital.

Make sure everyone in the family buys into and is consulted on the budget.  One of the greatest strengths of budgeting is getting everyone pulling in the same direction.  Think of it as the cost component of your family’s business plan.

Remember that time is money.  Saving money is like earning money tax-free.  So a penny saved is actually better than a penny earned.  With that in mind however, think about how much you are getting paid for the time you are using to save money.  If you’re saving $5 per week by making your own lunches and it’s costing you 4 hours, you’re not being paid very well for your time.  While budgeting is about trying to allocate your capital well, don’t do it at the expense of valuable time.

Credit cards aren’t always the enemy. It is conventional wisdom that if you want to get your expenses under control, you should cut up your credit cards.  I do not subscribe to this point of view.  As long as you do not carry a balance, credit cards can be a great way to get perks and convenience.   More importantly however, if you funnel the majority of your expenses through your credit cards then you have an effortless record of your expenses that everyone in the family can see.  It can become much easier to monitor your budget, if you have easy access to all your expenses.

Revise your budget monthly. Oftentimes we start out with an overly optimistic picture of our budget.  If you are not hitting your budget each month, look at your expenses and figure out why.  Update your budget to reflect unexpected expenses and, if necessary, offset them with cuts in other expenses.

Don’t sabotage yourself or your family. Don’t “forget” expenses or hide new purchases.  If you make a mistake or splurge, fess up and move on.  Setting up a pattern of self-sabotage is a surefire way to failure.

Ultimately budgets aren’t a way to give you discipline, but a plan in which to exercise that discipline.  Don’t expect a budget to solve your finances if you haven’t committed to working at it.  If you are committed, a budget is a valuable tool in helping you get where you want to be.

Post from: Personal Finance And Investing

8 Big Picture Budgeting Tips