Tag: effective spending plan

Healthy Financial Behaviors

As you can see, it makes a big difference to pay more than just the minimum due, in both the time it takes to pay off debt as well as how much you end up paying.  Of course, the optimum plan would be to pay the balance in full each month and avoid paying interest altogether, but the most important thing is to make sure your payments fit with your spending plan.  

Last month I posted an article titled “How Healthy is Your Financial Behavior?”.  In it, I discussed healthy financial behaviors and even gave you an assignment.  This month we want to talk more about healthy financial behaviors and what you can do or what healthy financial behavior you can employ to improve your financial health. 

Several financial behaviors may be draining your spending plan without you even realizing it, and leaks here and there can add up to spending money on things you did not intend.  Below are some financial behaviors you should consider.  Changing these behaviors may help you tighten up your spending plan.

When making payments on credit cards and loans, try to pay more than the minimum.  Paying more than the minimum can save you from incurring a significant amount of debt in the form of interest.  Here is an example:  If you have a credit card with a $1,000 balance, an 18% interest rate, and you pay only the minimum payments each month it would take almost three years to pay off the balance.  The total of payments would be about $1,304, meaning $304 is interest.    

On the other hand, using the same balance, interest rate, and minimum amount due, let’s say you pay more than the minimum due each month.  If you were to pay an additional $60 each month, or a total of $100, it would take just 1 year to pay off the balance, and the interest paid is reduced to $103, a significant saving. 

As you can see, it makes a big difference to pay more than just the minimum due, in both the time it takes to pay off debt as well as how much you end up paying.  Of course, the optimum plan would be to pay the balance in full each month and avoid paying interest altogether, but the most important thing is to make sure your payments fit with your spending plan.  

Pay your bills on time.  First, late fees can add up, so consider setting up automatic payments for your monthly bills, either through the company billing you or through your bank.  Some companies even offer a small discount for enrolling in automatic payments and paperless billing, so be sure to check. 

Another benefit of paying bills on time is that accounts, such as loans and credit cards, are reported to the credit bureaus and are reflected in your credit score.   Thirty-five percent of your credit score is based on how you pay your bills.  Therefore, on-time payments will help increase or maintain your score, while late payments will lower your score.

Read the fine print and look for fees or charges for certain actions or criteria.  Banks, credit cards, and loan companies will charge fees for certain transactions or services, so be sure to read your statements carefully and know the terms and conditions.  Banks may charge a fee for that “free” checking account and 0% credit cards aren’t always what they seem.  For example, while the idea of transferring a credit card balance from one that charges interest to an interest-free card be sure to look for balance-transfer fees or other charges that must be paid up-front, as they may outweigh the savings, you’d receive from a 0% interest offer.

Plan your shopping trips before you head to the store.  Take note of what you already have and make a list of what you need.  Do not shop for things you do not need.   How many times have you walked into a store for one item and you end up walking out with a full cart of merchandise totaling $100, or $200?  You did not go shopping for these items but once you saw them you had to have them.  Did you think about how this would affect your spending plan? 

Making a list beforehand, and sticking to it, will do two things.  First, it will help you from going over your spending plan category.  And second, it will help you from making unnecessary purchases.

These are just a few behaviors that can help you financially.  Can you add any?  Comment below and let me know what you think.     

Tips to help you Reduce Financial Stress

According to Peter Drucker, a management consultant, author, educator, and the described founder of modern management, “Doing the right thing is more important than doing things right.” Doing the right thing is effectiveness; doing things right is efficiency. 

Sometimes stress is caused by expectations not met.  We think things should go one way with our finances and they go the other.  When this happens, when financial reality does not line up with our expectations, we sometimes become disappointed, and stress results.  Use the following tips to help you avoid money stress and lower financial stressors. 

Plan to Spend your Money

Using time to think and plan is using time wisely.  In fact, if you fail to take time for planning, you are, in effect, planning to fail.

As I have written before, managing money is a job, and it takes time, so plan accordingly.

Set Financial Goals

Financial goals should provide direction to your life and determine how you spend your time and money.  When setting goals, decide what you want, where you want to be, and what you want your money to do.  Further, when you set goals, set goals that are SMART (specific, measurable, achievable, realistic, and have a time constraint.)   

The best goals are those that cause you to “stretch” as you do your best to reach them. 

Prioritize

Use the “80-20 Rule” originated by Italian economist Vilfredo Pareto.  The 80-20 rule says that “80 percent of the reward comes from 20 percent of the effort.” The key to prioritizing is to identify the valuable 20 percent. 

Once identified, prioritize your time to work on those items with the greatest reward.  If you value managing money better, prioritize the time it takes to manage it better.   

Be Flexible

According to Peter Drucker, a management consultant, author, educator, and the described founder of modern management, “Doing the right thing is more important than doing things right.” Doing the right thing is effectiveness; doing things right is efficiency. 

Be flexible when working your money, focus first on the urgent, effective task, then concentrate on the important, efficient task.

The tips above can help you eliminate or reduce money stress in your life.  Be careful with stress it can cause mental, emotional, and physical health issues. How do you reduce financial stress?  I would love to hear from you.

Plan to Spend Your Money

All the things we do with money can fit into these three categories.  So, it is okay to spend your hard-earned, worked for, money; all I am saying is to plan to spend your money.

One of the reasons why we fail at managing our money is because quite often we do not plan to spend money.  Now, to that you may say, it’s my money, and I will do what I want with it.  I worked hard for it and it’s okay to spend it.  And you are right; it is okay to spend your hard-earned money.  But before you spend that money, read the rest of this. 

If you really think about it, money is only good for three things, and we have all done them. 

Money is good for:  spending, saving, and giving, that’s it.  All the things we do with money can fit into these three categories.  So, it is okay to spend your hard-earned, worked for, money; all I am saying is to plan to spend your money.

So, what happens if you do not plan to spend your money?  You spend money at places and on things that you did not plan to spend money on.  It’s that simple.  Have you ever gone into a store and spent more money than you planned to spend? 

That’s it, it happens every day. 

When we do not plan to spend our money, we allow others to take control and spend our money.  You are not managing your money effectively because you are not planning to spend it.         

When you go to the grocery or the pharmacy and you get to the checkout, do you plan to buy that magazine or that candy bar?  We are visual beings and if we see something we like most of the time we will buy it. 

You may think that that is not a lot, but if you do this every day, that is buy something that you did not plan to, it adds up.  Let’s say that in an average month, you spend $5 a week on magazines and candy bars at the checkout.  It does not seem like much but over time it grows. 

Five dollars a week works out to be $20 a month and, in a year, you spent $240 on candy bars and magazines or whatever.     

So what happens if you plan to spend your money?  When you plan to spend your money, you have a spending plan or budget, and you know where you are spending your money.  You know how much money you are spending, and you are not haphazardly spending money on things and in places you did not plan on. 

When you plan to spend your money, through your spending plan, you are telling your money where to go and what to do.  You have complete control of your finances. 

We have already established that it is okay to spend your money, so it is okay to spend $20 on magazines and candy bars. I just want you to plan to spend that $20 on magazines and candy bars. 

It is important that you plan to spend your money.  When you do not, you give control of spending your money to others.  When you plan to spend your money, you take control of your financial situation.  The choice is yours – choose to plan to spend.       

Money Attitudes and the Family

People look to an increase in income as the way to solve their financial difficulties.   If there is one thing that poor money managers have in common, it is the idea that they do not earn enough.  Rarely does it occur to them that the real cause of their financial trouble is that they spend on things that do not fit with their financial goals and objectives if they have goals and objectives at all.

One of the major battlefields in families is the issue of handling finances.  Fully one-half of couples that seek professional counseling report severe money problems as a major issue.  Only a small percentage of these couples are in financial difficulty because of inadequate income or too little income.  Many are in financial difficulty because they have been immature and unrealistic in their attitudes about money. 

While we must recognize that money does constitute problems in many families, we must remember that for every problem there is a solution.  The following are some items that can help:

  • We must realize that money is a resource and not the source.  It is a tool to help you reach your financial goals. 
  • Track the expenses of everyone in the family.  Even the small expenses.  You cannot effectively manage money if you do not know where it is being spent.  Once you know where it is being spent, you will see where changes can be made in spending.   
  • Be realistic in making financial decisions.  Figures do not lie.  If the numbers do not support a new digital TV, why are you buying one? 
  • Set both long- and short-range goals for your families’ finances.  Write them down make them plain and refer to them often.  Make your goals SMART.  (Specific, Measurable, Attainable, Realistic, and within some designated Time frame)         
  • Keep in mind that the family income is our income, the families, and should be treated as such.
  • Discuss your attitudes and emotions about money and expenditures openly and honestly as a family.  Listen to your mate and children…communicate!
  • Both husband and wife should understand every intricate detail of the family finances.  We are all unique individuals and the attitudes we have about money can contribute to a solution to a financial problem.  All the spending plans in the world will not compensate for the ignorance of a partner in financial matters and communication. 
  • Credit buying should not result in payments of more than 15% of your income.  This means for everyone hundred dollars you earn, you should not have more than a fifteen-dollar dept payment excluding rent or mortgage and car.
  • Do not acquire new debt until you have paid off the old debt. 

Remember the amount of your income is considerably less important than the way you handle it. 

This is true on every economic level! 

People look to an increase in income as the way to solve their financial difficulties.   If there is one thing that poor money managers have in common, it is the idea that they do not earn enough.  Rarely does it occur to them that the real cause of their financial trouble is that they spend on things that do not fit with their financial goals and objectives if they have goals and objectives at all.

Many times, the relief is short-lived and the real cause of their financial difficulties, bad spending habits, failure to plan, lack of discipline, money attitudes, eventually catches up with them and they are right back in the same position they were in.     

When you make deliberate choices about money, with full awareness of the consequences and a willingness to accept them, you are acting in a mature way concerning money. 

Keep in mind that money is good for three things: spending, saving, and giving.  If you do this right, with your financial goals and plans in mind, you will have the right attitude about money and begin to win with your finances.         

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Tips for an Effective Spending Plan

Be Ready to Make Adjustments – Keep in mind that a spending plan is an estimate or plan of how you will spend or expend your money and plans change. 

Creating a spending plan or budget and then sticking to it can be quite difficult.  Even if it works on paper, for many it does not work well in practice and many people try and fail at budgeting.

And 38% of the population does not even try to create a spending plan. 

You can create a spending plan that works for you and your family.  Below are a few tips to help you create a better more effective spending plan.

Time is your Friend – Whenever you are working with a spending plan, you can choose to look at it daily, weekly, monthly, or within some other time constraint.  I recommend weekly, or monthly depending on when you get paid.

Reserve a specific time to sit down with your spending plan before you get paid and stick to that time.

For example, Sunday after church or Wednesday after work.

Use this time to get very familiar with your spending plan and expenses, and record when money goes out and when money comes in.  This time you spend working your money will get shorter the more you work it, but the key is to be consistent.

Set realistic spending limits – One reason why budgets fail is that there is not a realistic spending limit.  For example, you get ready to budget and plan to spend $400 this month on groceries.  Three weeks into the month, you realize you spent $420 with another week to go.

Some people will get frustrated and quit after they realize they went over their plan limit. 

It’s not the budget that is at fault it’s your unrealistic spending limit.  If you spent $500 on groceries last month, you are probably going to spend around $500 this month.  Be realistic with the limits you put on your spending.

Be Ready to Make Adjustments – Keep in mind that a spending plan is an estimate or plan of how you will spend or expend your money and plans change.

Be open and flexible to changes in the plan.  

When circumstances change such as when you get married or have a child or change jobs, your spending plan is going to need to change.  New spending categories and saving for college for the kids or retirement is going to possibly require changes to the plan.

What are your tips for an effective spending plan?  How do you manage your spending plan?  Subscribe to the GoldenRules Blog and learn how to create a winning spending plan for you and your family.

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