Thursday, January 07, 2010

Are You Afraid of a Budget?

Many people cringe or experience fear when they hear the word "budget". Many Americans feel the word is too restrictive and means they won't be able to enjoy life. Some Americans feel more at ease when the word "budget" is replaced with the word "spending plan", "financial plan" or some other term.

Many Americans today don't have a savings account. Many of us have good intentions and start out creating a budget but after a few weeks or a few months pick up the old habits and start spending and charging again. A budget is your friend. It is there to help you when you need it; it is not your enemy.

Having a budget is your safety net if you get sick or lose your job you can use your savings to hold you for a few months until you can find a new job. Your savings account should be separate from your checking, investment or money market accounts and should only be used for emergencies such as an unexpected expense, unemployment, medical bills, etc.

You can have multiple savings accounts, for example, if you want to save money to go on a vacation you can create a vacation savings account but you should always have at least one savings account dedicated for emergencies and unexpected expenses.

A savings should have enough money in it to pay your bills for at least 9 to 12 months. Your savings account money should be readily accessible and stored in an account, preferably a high interest savings account such as Emigrant Direct, HSBC, ING or a money market account where you can make money while saving money. Here are 9tips to help you overcome the fear of creating a budget.

1. Admit that you have a problem. The first step to changing your spending habits is to admit that something is wrong. Then develop a plan to improve your spending habits. Start off small.

2. Take accountability for your actions. Don't blame others for your financial situation.

3. You have to know where you are before you can get to where you want to go. You have to determine your SEO – what you spend, what you earn and what you owe. You can't improve your financial horizon or plan for the future until you know where you are at the present time.

4. Use pen and paper, use a software tool like Quicken or Microsoft Money or use the envelope method. Once you visually see where you are spending your money it will make it easier to reduce spending.

5. Write down a list of at least 5 financial goals. If you cannot achieve any or can only achieve 1 or 2 of your financial goals you need to make some changes in your spending habits. Write down a list of all of your debts. Develop an action plan and beside each debt write down steps on how you can pay the debt off: reduce spending, use coupons, use money savings tips, earn extra income, etc.

6. Pay off small bills first. Pay down any small bills and debt first. Once all your small bills have been paid off start tackling the larger bills. Setup payment plans for bills you cannot pay off in full. Be sure the account balances are updated on your credit report.

7. Surround yourself with at least three people who are doing better financially and gain financial advice from them.

8. Don't make the same mistakes. Insanity is making the same mistake over and over again and expecting a different result – don't be financially insane.

9. Seek professional help. Consult a financial coach, financial planner or advisor to help you create a budget or spending plan and provide recommendations to help you stay on track.

No comments: