Your credit rating is a very precious thing as is trust; it is hard to earn and easy to lose. So, if you are lucky enough to enjoy an R1 credit rating, you want to make sure to keep it. There are a few tricks to help you keep a stellar credit score. But before we start, here’s a quick definition of the different credit ratings (going from R1 to R9):

Credit Rating:

R1: This is revolving credit that has always been paid on time.

R2: A revolving credit account with a late payment of 30 days.

R3: A revolving credit account with a late payment of 60 days.

R4: A revolving credit account with a late payment of 90 days. You may also find credit accounts gone to collection agencies showing R4 rating. At that stage, chances are that the company sold your account to a collection agency for less than its actual value (what you owe).

R5, R6, R7, R8: It is an aggravation of an R4 rating. We rarely see them on the credit report. It usually jumps from R4 to R9.

R9: This is the worst credit rating an individual can have. This means that the account has been written off or closed by the grantor. However, the outstanding amount is still shown on the credit bureau.

Revolving credit includes credit cards and line of credits (it means that you can borrow on them without a new application). You may see the same rating but with a “I” in front instead of a “R”. This is for “instalment” and it is used for loans, leases or mortgages.

When you pull out your credit bureau, an R1 credit rating means that your “worst” credit mark is R1. This also means that if you have a single late payment of 30 days (i.e. R2), your credit rating at the top will be shown as R2. Unfortunately, it takes about 7 years to make an R2 disappear. As I told you, a credit rating is like trust .

How to keep an R1 credit rating

The very best trick I can give you is to set minimum payment transfers on all your debts from your bank account. This method is “stupid proof” as you can’t forget a credit card bill thinking you already paid it. While this won’t be much of a help to pay down your debt, setting automatic payments will at least preserve your R1 rating.

You can’t make a payment? Call!

If you can’t make a payment on a credit card, you don’t have many options to preserve your credit score. You can always try to transfer your card to a zero APR balance transfer credit card but this will only solve the problem temporarily. Your best bet is to call your credit card company and try to find a solution. If you call them up front instead of waiting until they come after you, they may show some compassion and try to find a payment solution. At least, you will keep your R1 for a few more weeks.

Writing NSF checks doesn’t affect your credit score

You will have fees and you may see access to your bank account reduced, but NSF checks are not reported on your credit bureau and as such, don’t affect your credit score.

Make sure your mail follows when you move

Another classic reason for a 30 day late payment is when an individual moves and forgets to advise his credit card company. There are services available that ensure your mail follows you to the new address for a small fee. This is a few bucks well invested!

Have a budget and track down your debt

By following a budget, you will know when your bills should hit your bank account. Therefore, it is easier to flag the missing payment only a few days after it’s due. If you are late less than 30 days, chances are that it will not be reported and you will keep your R1 credit rating. You can also use Google Calendar to set email alerts on the days your bills are due. This is probably a good alternative if you don’t have the assiduity to follow your budget.

As you can see, keeping an R1 credit rating is not that easy, you only need to forget once and your whole credit “reputation” will be tarnished. There are actually several advantages of maintaining a clean credit rating. But this will be for another post

Author: Mike.

Image source: ampamuka

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A fast is an ancient religious practice. Fasting typically involves the voluntary abstinence from food and/or water for a period of time. There are many reasons for fasting. Some individuals partake in fasts to please their god. Others use fasting as a part of their health routine; it is a way to cleanse the body of toxins. Still others use the fast to focus the mind or to exercise control over their bodies. Sometimes food becomes too large a part of our lives and a fast can help us practice self-discipline. From time to time we will hear about a prisoner or a celebrity going on a hunger strike in order to protest some injustice.

Used properly, a fast can be a good thing for the body, mind and spirit, but fasting from food is not the only type of fast that can be beneficial. I knew a couple in college who were committed to staying chaste until marriage. They held hands and kissed, but did not go further in their physical display of affection. One of the ways that they kept their desires in check was to go for a month without touching of any kind. It helped them learn to control their desires and also strengthened their relationship by bonding them in other ways. They were able to express affection through words and activities. This “touching fast” was a good thing for their dating relationship and their future marriage.

I am sure that a lot of us could use a television fast. The TV can be a conduit for all kinds of unwanted words, scenes and attitudes into ones home. It can also distract from the process of real family bonding. Blocking the constant noise and images might be a great thing for your marriage and family.

You might find it difficult to break a habit for life, but you could try to control that habit and experience some benefit from a temporary suspension of a particular luxury. What about spending fasts? There are many ways to apply this principle to our finances.

Credit Card Fast

Stop using your credit card for a month to help get caught up or to create extra money in your budget. Can you survive without plastic? If you can’t, you have a problem.

Restaurant Fast

A big part of frugal living is to cut out eating out, but maybe you are struggling to avoid going to restaurants altogether. Just try it for a month and see how it works.

Clothing Fast

This does not mean to walk around naked, but try going a month without a clothes purchase. Some of you might struggle to keep from purchasing a pair of shoes in a month’s time.

Bottom Line

Just employ your financial fast for a week or a month to start. Don’t try to change your life overnight – anyone can cut out some spending for a short period of time. You might be surprised to find that you do not really miss that particular habit after all, but a successful fast will help you make sure that you are in control of your life – instead of food, money or stuff.  - Article by Stew

Photo by alifayre

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Since completing my introduction post, I have received several questions about personal finance. This one is coming from Cindy who is asking when should you file for bankruptcy? This is a very important question as the consequences of bankruptcy will follow you for several years. Therfore, you might want to think twice before choosing this path.

First, understanding what filing for bankruptcy means

I guess that some feel that filing for bankruptcy is one way to get out of debt fast and start over again. Personally I think that one must honor his obligations no matter how dire the circumstances. Having debt means that someone trusted you (even though it may be a credit card company charging you astronomic rates). So beyond the debt, you must honor this trust in you.

I am talking about trust because credit is all about that. Trust takes years to build with friends, family and your spouse but it can be destroyed in a few seconds. It is exactly the same situation with credit. Financial institutions will grant a facility based on your credit history and your credit worthiness. If you fail to make a payment, they may become reluctant to do more business with you in the future as a portion of their trust in your ability to repay has been tarnished.  If you file for bankruptcy, you totally break the relationship. Think of it as cheating on your wife; do you think she will trust you the very next day (let’s just hope she won’t throw the vase of flowers you just offered her ).

A few things to do before filing for bankruptcy

#1 Consolidate your debt before it’s too late.

This is why it is so important to keep a budget. If you notice that you are slowing taking money from your line of credit or your credit card in order to pay for your daily expenses, your monthly budget doesn’t balance anymore. Seek for debt consolidation advice right away. Don’t wait until you start missing payments. I as said before, if you miss a payment (only one small payment of $10), financial institutions will become reluctant to do business with you. Consolidation can help you liberating a few bucks a month so you can pay down your debt faster and avoid bankruptcy.

#2 Consider having a second job temporarily

Working extra hours will never solve your personal finance problems. If you are seriously deep in debt and are considering bankruptcy, the root of your problems doesn’t lie with your income. That being said, having an additional revenue stream applied directly to your debts for a few months may make the difference between getting out of debt and filing for bankruptcy.

#3 Contact your creditors

Another way to avoid bankruptcy is to contact all your creditors and explain the situation to them. While they surely won’t let you get away without paying, they will most likely work with you in order to find a mutually beneficial agreement. Financial institutions prefer to find a solution rather than turning over your case to a collection agency. Running after unpaid balances represents a huge cost for them and they will be happy to collaborate. They can offer to skip a payment, extend your amortization resulting in smaller payments or consolidate your other debts as mentioned in my first piece of advice. However, make sure to call your creditors before any payments are late. They may not be so kind if you are already behind by 3 months!

#4 Have a meeting with your banker

When we are in the midst of a personal financial crisis, it clouds our vision. We are blinded and strangled by the weight of our debt and we can’t see solutions anymore. Speaking with a financial advisor will help to clarify your budget and balance sheet. He will look at your situation with a different perspective and might provide solutions other than bankruptcy.

#5 I would not use friends and family

It is one thing to lose material things; it is another to jeopardize friendship and/or great relationships with your family. If you are on the verge of bankruptcy, I would try to solve the situation myself and not borrow money from relatives. The relationship may get tense if you are not able to reimburse or worst, if you file for bankruptcy later on. Friends and family will always be there to support you. Talk to them and seek their advice, not money.

Remember, once you have avoided bankruptcy, and get out of debt, you are not done with personal finance. Once the major problem has been solved, one must find the root of it. If you don’t find why you were so closed to bankruptcy, the very same situation may happen again in the future. Avoid the common answers like “I lost my job” or “unexpected expenses occurred” as those issues could have be resolved through a strong emergency fund.

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This article is part of the series How to Get Your Finances Under Control

As some of you may have noticed, it has been about 2 weeks since I published, Step 6 Get Out of Debt of my How to Get Your Finances Under Control series. The reason for this to be honest is I have been struggling. Not so much as to what the steps are, as I have those and have had them since I first began the series. Nor has it been due to trying to determine what each step should contain, as I have that for a while as well. I have been struggling due to an integrity issue: Should I tell my readers how to do steps that I have not yet done?

I have read numerous books, read hundreds of blog and magazines articles on the topics, and have even discussed the topics with very experienced and financially knowledgeable people. The bottom line for me though, is I haven’t done these steps yet. In my financial journey, I am on Step 6 I’ll be on step 6 for a while.

The internal debate I have been with myself is whether to continue the series or not. If I were to continue, I would be telling you how to do things I haven’t yet done. While I would love to complete the series, I just don’t feel comfortable providing you with guidance on things I have not yet experienced first hand.

As a result of this decision and in the spirit of Harry Potter, this is Step 6 3/4 – To Be Continued. I am going to stop the series for now, and then once I get to each of the steps I will publish them.

Here’s the steps I plan to write and publish:

Step 7 – Build up your full emergency fund
Step 8 – Payoff your mortgage
Step 9 – Invest
Step 10 – Enjoy

My vision for this series in addition to providing sincere knowledge for those struggling to get their finances under control was to publish the series as a free e-book. I still intend to do this; however not as soon as I would have liked.

An e-Book is a great way to gain some free publicity and web traffic, but what is more important to me is maintaining my integrity and the trust I am trying so hard to build with you my readers. As with most things in life, this series is a journey, and I will finish it, but only once I get there and I can do so from real, first hand experience.

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Proverbs 22:7 – The rich rule over the poor,
and the borrower is servant to the lender.

This article is part of the series How to Get Your Finances Under Control

God’s word (The Bible) has nothing good to say about debt. While debt or borrowing money isn’t a sin, scripture is pretty clear that borrowing is bad. This is called a Biblical principle.

Debt is risk, debt is stress. Step back for a minute and think about what stresses you most about your finances. Is it that you don’t make enough, that you spend too much, or is it due to your debt? Chances are, it’s your debt.

Step 6: Get out of debt is about eliminating debt. Preferably all debt, but definitely all debt with the exception of your home. I say this because in most cases your home is worth more than you owe on it, so even in a worst case scenario you can sell your home and not be in debt. Don’t include paying off your house here though, we’ll address that in a later step.

Get Rid of ALL your Credit Cards

Now that you have an emergency fund and a budget you no longer need credit cards (not that you needed them before, you just thought you did). The emergency fund will handle your emergencies, and your budget will keep you from overspending. Keeping credit cards is just an unnecessary temptation that will do nothing more than have you reading this series all over again. Most likely, credit cards are what caused you to read this series in the first place. I say this from first hand experience, we’ve been through this process a few times, including cutting them up…we didn’t fix our behavior the first couple of times.

We actually had a ceremonial shredding. The whole family gathered around the shredder, and each of us (yes including our kids) put the cards into the shredder. Once shredded, we had a little celebration by going out to dinner. This was a major step for us, it was the turning point where we took one of the first steps to being debt free. Celebrate your achievements, it’s important.

At this point, many of you are saying, “But glblguy , what if something comes up and I need money…an emergency?”. You have an emergency fund, and if something bigger than your emergency fund comes up, you will figure it out. I have had no credit cards for 8 months now and haven’t needed one yet. Prior to 8 months ago, I needed one every month to just pay the bills. “But what about the rewards I get like cash back and points?”. My Dad always said, nothing is free. The cost of these rewards is risk. 4% just isn’t worth the risk or headache.

Get Current on your debt

The very next thing you must do to start down the path of getting out of debt is get current with any creditors and on any late bills. If you are current, all the better.

Not being current can cause legal action, excess fees and higher interest rates. If you aren’t current, get current now. Use your emergency fund if you have to. Get a second job, do whatever you need to do. Then you can proceed.

Start a Debt Snowball

The best way to pay-off your debt is to use a debt snowball. While a debt snowball isn’t something I invented nor is it something that is new, it is something that a surprising number of people don’t know about. It’s also something that you can search on a find a great deal of information about.

A debt snowball involves listing out your debt in one of two ways:

1. In order of least balance to great balance. This is the method recommended by Dave Ramsey.
2. In order of interest rate. You list your debt off in order of highest rate to lowest rate.

In both cases you list your debt and order it based on the method. You pay the minimum balance on everything but the first debt and pay as much as you can on the first debt.

Once the first debt is payed off, you take the amount you were paying on the first debt and add that to the minimum amount on the next debt and start paying that amount and so on down the line. So your payment slowly grows like a snowball rolling down a hill.

The two types of Debt Snowballs

Both of these methods each have their own benefit, and which one you choose is really a personal choice. I am using method #1. Method #1 focuses more on behavior and method #2 more on math. Let me explain.

Method 1 argues that debt is 80% behavior and 20% math. Given this, if debt is payed off in least balance order to highest balance order you get quick “wins” when you quickly payoff your debt with the lowest balance.

The argument is pretty solid for a couple of reasons. How often have you looked at your highest balance debt and said to yourself, “There is no way I’ll ever pay that off” or “It will take me forever to pay that off, why bother“. Both of these often lead to nothing being done, as it seems hopeless. As for math, well if we were good at math, we most likely wouldn’t be in debt in the first place.

We’ve been using method 1 for about 8 months and have paid off 4 credit cards and our RV. Paying off debt that quickly has given us hope and momentum. It has given us confidence that we can make progress and that it won’t take forever.

Method 2 will allow you to pay off your debt and save money by paying less interest. The math behind this is pretty obvious, in that if you pay off your debt with higher interest first you will pay less interest in the long term. I am not going to show you the math, but trust me it will save you some money. Not a significant amount, but some.

I personally use method #1, as I firmly believe debt is mostly about behavior.

An Example

Here is an example of a debt snowball using Method 1:

In this example, you would pay $1000.00 on Credit Card 1 until it was payed off and minimums on Credit Card 2 ($300.00) and Car Loan ($300.00). Once Credit Card 1 was paid off, you would begin paying $1300.00 on Credit Card 2 until it was paid off and minimums on the Car Loan, etc, etc.

Add these payments to your budget, don’t make the larger amount optional, make it a fixed line item in your budget. Stay focused, stay the course and make it your mission to get that debt payed off. Focus and determination will be your primary tools for making that snowball effective. Face that person in the mirror.

Where Do I Keep My Debt Snowball?

As with my other finance items, I keep mine in a spreadsheet, but a simple sheet of paper works just fine. I prefer the spreadsheet as I can quickly see my remaining balance, how long my snowball will take, and I can adjust the payments and see the immediate impact if I need to.

The important thing isn’t where you keep it, but that you do.

Tips for Getting Out of Debt Even Faster

The following are some tips for getting out of debt even faster:

• Call the credit card companies and get your rates reduced. If they refuse, call them back. I call Chase weekly.
• Make your minimum payments automatic. Use online billpay and make your minimum payments on all debts automatic. This will keep you from accidentally missing a payment. The additional amount you have from your snowball can either be made as a separate payment or added to the scheduled payment before it goes out.
• Do anything you can to get extra money to pay against your debt. Have a garage sale, save your change, get a side job, etc. Whenever you get extra income that’s not in your budget, pay against that first debt. I often make a payment weekly.
• Don’t spend your tax return or yearly bonus if you get one, pay against your debt. Sacrifice in the short term to gain in the long term.
• Move your debt to a lower rate card if you can. I know I get at least 5 0% interest rate offers each week. Be careful though, a lot of credit card companies charge a % on balance transfers, so try to find one that doesn’t.
• Eliminate unnecessary expenses and put the savings against your debt.

We currently put about 20-30% of our income towards paying debt, along with any additional funds we receive.

In Summary

Debt is like a dark cloud following you around. It keeps your money from growing, places strain on you finances and your life, and is highly disapproved of in God’s word. Make the decision today to Get Control of Your Finances by getting control of your debt. Eliminate it from your life, I doubt seriously you’ll ever look back and wish you hadn’t.

Continue to Step 6 3/4 – To Be Continued

Are you out of Debt? How did you get there? Disagree with anything I’ve said? I’d love to hear your perspective. How about additional tips for paying off your debt faster?

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Proverbs 27:12 – A prudent person foresees the danger ahead and takes precautions.
The simpleton goes blindly on and suffers the consequences.

This is part of the series How to Get Your Finances Under Control

Now that we have a budget in place, we need to start an emergency fund. Following a budget and having an emergency fund in place are the two most critical steps in getting your finances under control.

An emergency fund is the fund you will use to handle emergency or unplanned expenses. In step 4, we established a zero based budget, in that our income minus expenses equaled zero. Or in other words, every incoming dollar had an expense line item in the budget. Also remember, we did our budget on paper prior to the actual budget month. So how do you handle unplanned expenses such as the car breaking down, the dish washer breaking or the hot water heater unexpectedly going out? How do you handle your 10 year old coming home from school and asking for $20 to go on that field trip tomorrow that you didn’t budget for? The answer is the emergency fund.

If you’re like I used to be, whenever something like this happened, we used our credit card. An emergency fund allows you to fund these unexpected items without using a credit card.

Start out with an initial emergency fund of around $1000. There is no correct number here, as the amount needed will be driven by things such as how old your cars are, how many children you have, etc. I keep about $1500 as that is a number that makes me feel comfortable. Remember, we have 6 kids so our emergencies are sometimes a little more expensive. I wouldn’t go below $500, and more than $2000 is too much.

At this point many of you are asking, too much? I’ll explain later in this series, but part of getting your finances under control is going to be getting rid of your credit cards. For now though, just hang in there…I promise I’ll explain.

If you have you emergency fund already, great, if not start aggressively saving one today. We want to establish this emergency fund as quickly as possible.

Dave Ramsey in his Total Money Makeover Book recommends $1000 dollars initially as part of Baby Step #1 and then once you’re debt free, bump it to 3-6 months worth of expenses.

Your emergency fund should initially be kept in a separate account and not with your spending money. This reduces the temptation of spending it. I actually keep mine in two separate accounts. Half in a CapitalOne High Yield Money Market account and the other half in an INGDirect savings account. With the CapitalOne account, I have check writing privileges. This is very convenient when you have an emergency that you have to pay for now. Transferring your money from your INGDirect takes about 3 days. For an emergency fund, that is a too long for me. Both of these are high interest bearing accounts and both banks have great online banking and customer service. If you are interested in an INGDirect savings account, contact me, and I will send you a referral. You’ll get $25 and I’ll get $10 when you sign up.

It doesn’t matter where you store your emergency fund. Remember it’s not an investment, so you want it to be liquid and relatively easy to get to, but not too easy.

Defining what constitutes an emergency. I would recommend writing it down. For us it is simply any unplanned expense that can’t wait until the next budget month to address. If you don’t define what an emergency is and agree on it with your spouse, things like big screen TVs, iPhones, that cool new widget, etc will become emergencies.

A couple of months ago, I took my car (a 2001 Nissan Sentra) in for an oil change. Turns out, two of the tires where wore through to the steel and my front brake pads where worn to the metal. So a free oil change turned into a $600 expense. Was I happy, of course not, but I wasn’t worried. We used our emergency fund to pay for it. There was something really awesome about driving away from the dealership with new brakes and tires that I payed cash for. I didn’t go further into debt, it was a great feeling.

Life throws you curve balls everyday, sometimes they are little inconvenient ones and sometimes they are really expense and inconvenient ones. The emergency fund allows you to deal with these unexpected expenses without going further into debt and without blowing your budget.

In Step 6, we’ll begin the debt snowball and begin the process of obtaining true financial freedom, eliminating debt.

For those of you who already have emergency funds, where do you have yours? How much of an emergency fund do you have and why that amount?

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One of the most important steps on your journey to getting your finances under control is establishing a budget. While creating an effective budget takes time and a little number crunching, the freedom your budget will provide you is well worth your time.

People in general tend to make a budget more difficult and complex than it really is. A financial degree or expensive version of Quicken is not required. All you really need is a pen, a sheet of paper and the basic ability add and subtract.

The most difficult part of the budget is following it. We’ll discuss both as we jump in to creating a budget, but the focus will be on following it. After all, if you don’t follow it, than creating it is a waste of time.

What is a budget?

A budget is basically a plan that spends your money on paper before you actually receive it. It is simply writing down your income, and all of your expenses for the next month and looking at the difference. The difference will tell you what you need to do, and will allow you to control your spending.

When and how often should I create my budget?

Critically important is the concept of spending your money on paper before you receive it. I get paid twice a month, and we have our excel budget spreadsheet complete before the 1st day of the upcoming month. Sometimes a little earlier, sometimes on the very last day of the month. We aren’t perfect and as example for this month (July) we didn’t get it complete until the 9th. We just had a lot going on.

Your budget should be done monthly. It is far too complicated to try and create one budget that works for every month, as your required expenses will change. So create one monthly, and make it specific to that month.

Creating a budget

As I stated earlier, the basic tools for creating a budget are a pen and a pencil, and I would highly recommend that your first budget be done this way. There is something about writing your budget by hand that gives you more ownership of it and ownership inherently tends to make you more accountable.

If you are married like I am, you and your spouse should do the budget together. This is VERY important. Both of you should have equal input into the budget and in the end agree to it. If one person doesn’t participate or one person doesn’t agree the likelihood of the budget being followed by both parties is low.

Being a computer science major, I abhor writing and prefer to type everything. So our budget was and is done using a Microsoft Excel spreadsheet. Here is the excel budget spreadsheet template we use.  I also use You Need a Budget as well, as both offer different benefits.  If you haven’t tried You Need a Budget, check out my You Need a Budget review for all the details.  It’s a slick piece of software.  If you prefer to manage your finances online, you can check out my article that overviews online money management tools.

We keep our budget very simple. We list all expected income at the top. For us this is generally my paycheck, two company reimbursements I get for my cell phone and my internet access and my income from blogs and online stores. Sometimes this section will also list other misc income such as rebates, dividend checks, and other smaller items. Some people like to list interest income on their accounts here, I don’t as it isn’t significant, and I don’t like to spend it, so it doesn’t get listed. I also don’t include medical expenses or Flexible Spending Account income as they are a wash each month.

Once you have a line item for each of your expected incomes, total them up on the next line and call it Total Income.

Next, list all of your expected expenses for the upcoming month. This is done by determining your spending categories. Here is a list of the categories we use: Housing, Utilities, Food, Transportation, Clothing, Personal, Education, Recreation, Savings, Credit Cards.
Personally, I find it hard to track my expenses at this high of a level (note: I am a very detailed person), so I have additional categories under these like so:

Housing

Mortgage
Homeowners Insurance
Repairs/Maintenance
HOA Dues

Utilities

Water/Sewer/Electric
Gas
Phone
Cable/Internet

Food

Groceries
Eating Out

Transportation

Car Payment
Gas
Repairs and Tires
Car Insurance
Registration and Taxes
Inspections

Clothing

Kids
Mom and Dad

Personal

Term Life Insurance
Hair Care
Cell Phones
Blow Money

Education

School Supplies
Lunch

Recreation

Savings

Real-Estate Taxes
Christmas Fund
General Savings

Credit Cards

Card 1
Card 2

My wife and I then determine an amount to put next to each one of these categories. We determine the amount by looking at past expenses and by discussing how much we will need for the upcoming month. For example, clothing. Generally we don’t buy clothing each month, but in we before summer and before school we do. So May and July are usually big clothes budget months for us. Now that we have been on a budget for a while, the categories are much easier to do and generally very close to if not exactly the same as the previous month

We then total up the amounts for all expenses, and put a line item underneath that says Total Expenses and we put the total next to it.

Right below your Total Expenses, with maybe a little space in between put Net Balance and next to that put your Total Income minus Your Total Expenses and this will be the Net Balance for your budget.

If you have a positive amount, congratulations you have some extra money to put on your debt if you have debt, or if not you have extra money to save or give.

If you have a negative amount, you’ll need to trim your expenses as you budget is currently spending more than you make. Spending more than you make by the way is the primary reason people are in credit card debt. Our goal here is to spend LESS than we make so we can save and become wealthy.

Trimming Budgeted Expenses

Trimming expenses can be difficult and I’ll write a more comprehensive article on trimming expenses down the road, but if you spending more than you make, you have to start cutting.

Update: Since writing this article, I’ve started a new series called Money Saving Mondays where each Monday I share a money saving tip.  Check it out, it’s full of great ways to trim expenses and save money.

Generally our big culprit is eating out, and this should be a primary candidate for trimming. Other areas are cable television, entertainment, and cell phones. Another area to take a hard look at are personal luxuries. These are things like pedicures, massages, getting your hair cut at fancy hair places, spas, etc.

If you have cut all of these and you are still negative than you might have to begin making some hard choices, we did. How much are your car payments? Do you have too much house? Do you have recreational vehicle payments? These are items you might need to consider selling to get yourself back on track.

This was what we had to do. We enjoying RV camping, and we had a new Dodge truck and a 34 foot travel trailer. I sold my truck, payed cash for a 2001 Nissan Sentra and we sold our camper. We aren’t currently RVing, but plan to get back to it later.

In order for your budget to be complete, the Net Balance has to be zero. Remember, we are spending all of our income on paper BEFORE we get it, and we aren’t spending more than we earn. So a $0 Net Balance is the goal.

Pinky Shake

Once you have your budget and all of your money is spent for the upcoming month, it’s time to formal agree. This is a critical step in following your budget. If you are single, you are going to have an agreement with yourself, or you might even consider having a close friend or family member be your accountability partner. If you are married, than you spouse will be your accountability partner.

Once my wife and I both agree on our budget including the amounts in each category, we do a little pinky shake to agree on it. This is our little way of stating our agreement, and committing ourselves to following it. By doing this we also agree to hold each other accountable.

Funny, put there is something about that little pinky shake that really makes us commit to each other to follow the budget. I know for me, if I see something in the store I would love to have, that little shake always visualizes in my head and makes me think twice.

Following a budget

As I stated early on, the hard part is following your budget. Following it doesn’t require book knowledge, it requires you to manage yourself and your behavior. For a refresher on this read Step 1: Recognition again.

There is no magic step by step process to succeeding here, but here are a few things we do to stay on track:

• Have weekly budget meetings and review budget status and make adjustments if necessary
• Before spending money on anything questionable, my wife and I agree on it. If one of us doesn’t agree, we don’t buy it or spend the money
• If an unexpected expense occurs (i.e. your car breaks down) conduct an emergency budget meeting, and you AND your spouse or partner have to agree on what will be done and how you will pay for the expense. Generally in this situation, we use our emergency fund (more of that below).
• Track every expense, and subtract it from the budget amount so you know how much you have remaining. When you run out, you don’t spend anymore money OR you move money from another category that has money.  Using a tool like my spreadsheet or You Need a Budget will really help.

We generally have our weekly budget meeting on Monday nights after our younger children have gone to bed. I say generally as if we’ve had a hard day or we’re too tired, we’ll postpone it until another day when we are feeling up to it. We do this as we find our meetings much more effective when we aren’t tired, grumpy or stressed.

We agree on all expenses. So if I am out on Amazon.com and see some new shiny gadget that I want (note I said want not need), I don’t buy it without getting her approval first. Neither of us buy or spend money without the others approval. This makes us accountable to one another. The only exception to this is we sometimes allocate blow money to ourselves. Blow money is money we can choose to do whatever with.

An emergency fund, while not required to start your budget will certainly make following it much easier. An emergency fund is a stash of money that is set aside for emergencies only. Step 5 of the How to Get Your Finances Under Control will discuss establishing an initial emergency fund.

Each time you buy something, track the expense and put it in a category. I use Simple D Budget to track our budget. It’s a very simple and easy to use program that offers a number of various graphs that make reviewing your budget very easy. This is what we use to review our budget each week.

If an First You Don’t Succeed, Try Try Again

Don’t over manage the budget. The first few months we started, I would get all upset when we overspent a category. I ended up stress more about the budget than I did before we had one. Be willing to adjust and if you overspend a little, don’t get over react. You aren’t going to get it right out the door, and it will take you a few months to get used to budgeting and determine the right amounts to put in each category. So if you overspend, it’s not alright, but it isn’t the end of the world either. Just move money from another budget category or pull from your emergency fund (just put it back).

In my case, I was getting so upset about it that I was causing my wife to not feel empowered with our money and causing her to feel like she needed my approval every time to spent anything. Trust me, this is not what you want to do. After budgeting now for about six months we pretty much have it down and we get better at it every month.

Start your budget now!!

Don’t wait, start your budget today. I cannot encourage you to do this enough. You will feel less stressed, and the weirdest thing is you will all of the sudden find money that you didn’t know you had. There is nothing like the feeling of going through the money, knowing you have enough money to pay the bills and not having to worry that you will overdraw your checking account!

1 Corinthians 16:2 – On the first day of every week, each one of you should set aside a sum of money in keeping with his income, saving it up, so that when I come no collections will have to be made.

Proverbs 21:5 – The plans of the diligent lead to profit as surely as haste leads to poverty

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