You Have Learned to Budget Your Money
1. You budget your money fiercely, whether it be monthly income, lump sum winnings, or inheritance.
For those who have a low level of financial experience, getting a windfall is more of a curse than a blessing. Ask some of the lottery winners, who recently hit the jackpot and five years later they have no money to speak of.
The main problem they had was they didn’t even possess beginning money management skills. It starts with learning to establish a budget for everything within the confines of your income.
If you can learn to create a budget when your income is small, you can successfully budget your money when your income is big. It never ceases to amaze me how many people don’t understand this concept, they seem to feel it is the lack of money that causes all financial problems. It is the lack of money management skills that cause most of their financial problems. Then they get a windfall and find they are out of money five years later due to mismanagement.
2. You balance your checkbook every single month, and therefore, budget your money, with your checkbook.
Balancing your checkbook gives you a lot of important information. First of all it tells you that all of the money you applied to bills has been paid, or is pending. It also tells you that the bank did not mix up your account information with another customer.
It gives you a snapshot of how you allocated your money to your budget. All of these things are important to balancing your checkbook, balancing your money and making sure you are on track to proper spending.
3. Your emergency fund is used for your emergencies only.
One of the most effective ways to budget your money, is to include an emergency fund in your budget planning. This means that you don’t loan your emergency fund money to anyone, including your kids. This is what happens to many folks who tell others of their fund.
Keep it secret and keep it for your emergencies. Don’t make yourself an emergency statistic by needing to borrow from others, after loaning out your rainy day fund. Borrowing for emergencies is just another way of creating unnecessary debt.
4. Your debt ratio is kept to a minimum or to zero.
Your debt ratio is low if your debts are low. The goal is to keep your debts low to avoid financial ruin when you have a catastrophic event in your life or if you need to borrow money for a home or car. The lower your debt ration the lower your interest rate on loans will be and the better your loan terms.
5. You carry only two credit cards, maximum.
Who needs mega-credit, no one. The more credit cards you carry, the higher the tendency to over spend. Credit cards are a necessary evil if you rent cars, travel and stay in hotels. Most car rental agencies and hotels will not do business with you without a credit card on file.
6. You allocate maximum dollar amounts to retirement and savings accounts.
This means you have a retirement account and a savings account. Treat them as they were a bill and its easy. If you have money auto deducted from your checking account or your payroll account, you won’t miss the money and it will appear to grow painlessly.
7. You don’t purchase major items based on gross income, but instead, base purchases on net take-home pay. (Ex. Car, home, furniture).
I have had a lot of folks tell me, “I bought this car or home based on my gross income, but now I am having trouble with payments”. The reason is that you can’t make payments from money you are not taking home.
Many companies take out employee tax, retirement, healthcare and miscellaneous items. Some finance companies base payments on gross income, this is confusing to an inexperienced buyer and creates a difficulty making payments. The best way to budget your money, is to know the money is there to budget.
8. You make extra payments (not minimum) to credit card companies monthly.
When you are billed for a credit card purchase, you are billed a minimum payment to stay in good standing with the company. This payment could stretch out to a balance of 20 years with added interest.
I suggest that, instead of paying the minimum payment due, you make that payment and then make an extra payment to principle to pay off the balance as quickly as possible.
9. You use your credit card only when necessary, and pay off the bill monthly, or as soon as humanely possible.
Don’t use credit cards for the sake of buying and accumulating “stuff” such as clothes, shoes and jewelry you don’t need. If you do, you will see your balance balloon out of control like you never imagined.
The balances grow exponentially when you are not “carefully” monitoring your purchases and if you don’t budget your money by paying off balances due.
10.You make sure that you are adequately insured in every category.
Many young people I talk to have gotten into trouble because they did not understand the devastation they could face without car insurance and health insurance, only to name a few.
A minimum of liability car insurance that protects the other driver is required in most states, and health insurance is the law, you can get coverage at healthcare.gov.
You can be billed for hundreds of thousands of dollars for a hospital stay if you are not insured. Due to the governments Affordable Care Act, most Americans can afford to be insured through The healthcare marketplace.
Summary: It doesn’t matter if you are low income or high income. You must budget your money, then saving money if you get a windfall will come to you automatically. It is crucial to understand budgeting and saving money before you get a windfall.