There are lots of resources that will tell you that making a budget is important. There are even lots of tools to help you do it. Make no mistake, preparing a proper budget is crucial to anyone wanting to improve their finances. This is true whether they are looking to get out of debt or invest for the future.
Without a budget you are not in control of your finances and have no way of measuring your success or failure
But all of the information and tools about preparing budgets are missing the point. Do people get into debt because they don’t understand that they are spending more than they earn? I don’t think so.
Preparing a budget is the easy part. It is sticking to it that is difficult.
I can relate a story from my own slide into debt problems that illustrates the point. A long time ago I made the effort to total up all my expenses and income. I worked out how much my wife and I had to spend on “fun” things and decided to keep track of this by the extremely high tech method of keeping this money in an envelope each month. One day nearing the end of the month we were shopping and my wife wanted to buy lunch in a restaurant. I said we didn’t have the money (trusty envelope in hand!) and we had an argument about it. In the end I gave in and we bought lunch on our credit card. Our collective weakness was a sign of things to come.
There is a reason why lots of people give advice on making budgets but not so much on sticking to them. That’s because one is simple and the other is very hard and complicated.
No money management tool will solve your money problems for you
Sorting out an addiction to spending is like dealing with losing weight or a chemical dependency. The motivation for it needs to come from within. You need to spend time thinking about why you want to spend money – is it to make up for low self-esteem or is it the result of problems in your past or even the way your parents managed money? Understanding the reasons behind your desire to spend and addressing them is the real key to solving your debt problems. Once you have done this then you can use any method for calculating you budget – a spreadsheet, a web-based tool, the back of an envelope! It really doesn’t matter once you have discovered the motivation to sort out your money problems.
A lot of advice also ignores the uncomfortable fact that many people are not in debt because they spend on luxuries. They have problems because they cannot earn enough for essentials or because of medical emergencies.
Have you had money problems and overcome them? What was your motivation to do so?
Tags: budgeting, money advice
For the short period of time that I’ve got to know Neil, I have realized that he is against credit cards. Here is the US, there are also many advocates against credit cards. The most famous one being Dave Ramsey. I cannot blame anyone for having this view because many of the practices by credit card companies over the last few years have been disgraceful. In fact, it took a credit card bill of rights to potentially put right to many these shady practices. Here are a few examples.
Yet, despite all this, for some people, credit cards can be of help in building a credit history because of the following reasons:
Credit Scoring System – In the US, an individual’s ability of get loans or a mortgage depends a large part on one’s credit history. But to have a credit history, you need to have some credit. Without any credit, you can never have a “good” credit score or FICO score as they call it here. To get a very good credit score in the US, you’ll need to have a variety of credit under your belt. For example, having a mortgage, a car loan and a credit card would help. And if you payed your bills on time every month and you do not utilize all the available credit lines you have, you will achieve a good credit score very quickly.
A good credit score means you will get lower interest rate on your mortgage or loans.
Importance also extends to businesses – Most of the job growth in the US is in the so called “small business” area where an entrepreneur starts a business. To get a credit card for a business, a credit card company looks at the owners personal credit history (and not the business history). So if you are in the US and you have a business, and you need a credit card for yourself and your employees, you need a decent “personal credit score” to get a credit card. And if you business is not well established, your personal credit score can get you business loans you would never have access to if your score was no good.
Important to rebuild credit after bankruptcy – In the US, many people file for bankruptcy because of massive debt burden that can be due to medical bills, lost of jobs and too much debt etc. Prior to and once they emerge from bankruptcy, their credit score will be very low. If the person got out of bankruptcy still current on his mortgage, then he or she can rebuild their credit faster as long they make timely payment on their bills.
For those who do not own a home or a car, but intend to in the future (which is basically most people), then rebuilding one’s credit with a secured credit card may be a very wise financial decision.
Hotels require credit cards for advance booking – Many hotels require credit cards for advanced booking. They need your credit card so that they can charge you with a cancellation fee if you withdraw at the very last minute. Car rentals also require credit cards for advance bookings.
Sometimes Credit Cards Are Just Plain Dumb – Yes, sometimes credit cards offer deals that are too good to be true. Here are a few example of how credit cards have fallen over us consumers just to get us to sign up.
Tags: credit card advice, credit cards
I have just changed this site so that by default all approved comments provide live followed links back to your website once you have left 3 comments.
Usually sites based on WordPress add a “nofollow” tag to all comment links. This prevents search engines from counting the link for the purposes of ranking/relevance. I do not think that this is fair! If you have taken the time to write valid comments then I think that you deserve a live link!
Please remember that all comments have to be approved by me, and that comments unsympathetic to people with debt problems will never be approved.
Business Loan FAQs MerchantLoans.com provides all of the the information you need to obtain your merchant loan.
