DEBT is a four letter word…
But it doesn’t have to be!
If you’re like most people, all too often you find that you run out of money before you run out of month. When that happens, people sometimes turn to credit cards to make up the difference. And that’s okay, once in a while. But, when you rely on credit to make up the deficit each month, it’s time to look at your spending habits.
It’s easy to view credit as a means of increasing your income. However, it's really a means of increasing your debt. When you reach your limit on one card, it’s easy to start using another card until eventually, all the cards are overlimit. Now there is no way to deal with that monthly deficit, so people begin to accrue late charges and over limit fees. Past due notices arrive, creditors call demanding payment, and the situation appears hopeless. That’s when most people call us. And we can help.
We are ACCS - American Credit Counseling Service, Inc., a national, non-profit 501(c)(3) organization that was established in 1988. We help people regain control of their finances through our various programs and services. One of our most valuable services is budgeting. The “B” word that everyone knows exists but no one wants to talk about. A budget is one of the most important tools in helping clients who are experiencing financial difficulties. And, a budget is the best tool available to help our clients avoid financial trouble.
Why are budgets so unpopular? Primarily because they usually don’t work. And for most people, the word “budget” has negative connotations. They associate it with things like restrictions, denying themselves things, being deprived of what they enjoy and assume they will be doomed to merely existing, rather than enjoying life. Nothing could be further from the truth. Examine your budget now!
The reality is that while a budget usually requires changing your spending habits, it simply means that you will live differently, not necessarily worse, and maybe even better! Successful budgeting is the basis of financial security, a common goal. You can achieve it simply by making the best possible use of your resources with a budget as your guide.
To be effective, a budget must have three elements:
It must be based on your current situation. All too often, individuals tell us their budget doesn’t work. After reviewing it with them, we find that it was based on their previous income and expenses. Yet, they are attempting to make it fit their current situation. You should review your budget at least once a year. More often if you experience any major lifestyle changes, such as loss of a job, reduction in income or unanticipated increased expenses. If any of these events should occur, refer to our Payment Priorities section for guidance on how to manage your money and meet your obligations during the transition.
It must be accurate. Do not overestimate or underestimate your expenses; this will defeat the purpose. How often do you go to work with $20.00 in your pocket only to come home that night with no money and no idea where it went? Probably more often than most of us want to admit!
Recently we met with an unmarried man who needed help with his budget. He said he spent $600.00 a month for food, an unusually high amount for one person. When asked how he obtained that number, he replied “I just buy food as I need it so I guessed $20.00 a day times 30 days in a month which is $600.00 a month”.
Try this trick: carry a small notebook with you and write down every penny you spend. It’s amazing to see how much we really spend and discover all the expenses we overlook each day that can mount up and throw a budget out of sync.
It must be realistic. One of the biggest mistakes you can make is to cut expenses so drastically you cannot live with the reduction. Often people tell me they don’t budget for clothes since they wear uniforms to work and receive all their clothing as gifts. This is unrealistic since many items still need to be purchased: shoes, socks, underwear, etc. Items that are not usually received as gifts.
A few years ago, a man called after he heard us speak on a radio talk show.
He was 49, divorced and considering bankruptcy. He had a mortgage payment,
two car payments and over $50,000.00 in credit card debt. He was very interested
in our services and programs since he dreaded the stigma of a bankruptcy which
would remain on his credit report for ten years.
The first question he asked when we mentioned the “B” word was “ Will I have to give up dating?” followed by “And what about my cleaning lady? She comes once a month and only costs me $45.00. She’s really a bargain and I hate to clean bathrooms”! To both questions, our reply was “I don’t know, we’ll see what we can work out”. He was pleasantly surprised to find that, not only was he able to enter our debt management program, he could continue dating and keep his cleaning lady!
How was this possible? Because these two things were most important to him, he was willing to be flexible and reduce or eliminate his spending on other categories that mattered less to him. He was also willing to work part-time to supplement his income so he could continue to enjoy these items.
If you need help developing a current, accurate and realistic budget, ACCS can help. Call us toll free at 1-800-729-0551 for a free consultation. It could be the best call you’ll ever make!