3 Steps to a Budget that Works

(Family Features) You may think that creating a household budget is as simple as adding all your income and subtracting all your expenses, but there is (or should be) quite a bit more to the equation.

When you only factor in your current earnings and current expenses, you’re not planning for the future. That means any financial goals can be easily deferred, and you may be overlooking the opportunity to shift your spending habits. These three steps can help put you on the path toward better finances and a budget that works for your lifestyle.

1. Take long-range goals and values into account. How you allocate your spending affects your ability to achieve goals months or years down the road. For example, if you’re planning to buy a house, your need to amass a sizable down payment puts greater emphasis on saving than if a major purchase isn’t on the horizon. Similarly, it’s important to understand whether the money you’re spending aligns with your personal values. In other words, it’s important to be sure that your expenses match the lifestyle you desire. If a substantial chunk of your income is going to lunch throughout the work week but you find yourself short on funds to enjoy more time with family or friends, it may be time to make adjustments.

2. Set your priorities. While covering your current bills is an obvious priority, determining which expenses are most important can help keep non-essential spending under control. One approach is to segment your monthly budget into thirds. In the first category, list all of your recurring monthly debts, or the money you owe other people for things like rent or mortgage payments and utilities, as your top payment priorities. The second category should include payments you need to make every month but have some latitude to vary the amount, such as paying more than the minimum balance due on a credit card or loan. Some people also consider groceries as another area where you have some discretion, as to some degree you can shift your purchases to fit your budget. In the last category, account for non-essential spending like entertainment, clothing and personal care, such as haircuts, massages and manicures.

3. Pay yourself. When you’re focused on the money leaving your bank account each month, it’s easy to overlook the importance of keeping some of that money for yourself. Whether you’re saving for a long-range goal, simply stockpiling reserves against unplanned events or working toward retirement (or even better, all three), setting aside money each month is an important step in creating a healthy budget. Having money set aside not only puts you in a better position to satisfy your goals, it can help you avoid unnecessary stress when life throws you a curveball. A healthy savings account also means you can recover more easily and keep your financial commitments on track when unexpected expenses arise.

Beyond simply adding and subtracting a list of income and expenses, taking into account your priorities and goals can help ensure you create a practical budget that works. Find more tips for creating an appropriate financial plan that fits your personal goals and lifestyle at eLivingToday.com.

Navigating a Financial Emergency
Your washing machine suddenly breaks down, a child requires a laptop for school or your car needs new tires. Sometimes surprise bills can be difficult to cover.

Life’s financial emergencies happen, but 6 in 10 Americans cannot cover an unexpected $500 bill without selling something or borrowing money, according to Bankrate.

“When you don’t have cash for something you need, there are many different financing options available. However, few realize that many of these options can lead to a debt spiral that can be difficult to pull out of,” said Richard Carrano, CEO of Purchasing Power, an employee purchase program offering consumer products and services through payroll deduction.

Understanding your financing options can help ensure you make the best choice to meet your short-term needs without compromising your long-term finances.

Credit cards: Chances are, even with a shaky financial history, you can find a creditor willing to offer you a line of credit, but you’ll likely have a steep annual percentage rate that accrues each month. Furthermore, if you’re unable to repay more than the monthly minimum, you could end up carrying that debt for years before it’s fully paid down.

Employee purchase programs: Research shows that financial stress at home regularly impacts employee productivity at work. This leads many employers to offer an employee purchase program such as Purchasing Power, which allows you to buy what you need through automatic paycheck deductions over a 12-month period. There’s no credit check, zero interest and no hidden fees. There’s also a free financial wellness platform to help with budgeting, credit reports and personal coaching. Learn more at PurchasingPower.com.

Rent to own: With rent-to-own products, you pay a monthly principal amount plus service fees and taxes for a period of time, up to completing the rental agreement and owning the item outright. While the monthly rate makes items like appliances and furniture immediately accessible, renters can end up paying as much as three times the retail value of an item.

Payday/Title loans: Essentially, these loans function as a loan against a future paycheck or your vehicle. They often come with high percentage rates and fees, as well as short repayment schedules. Rely on these loans only if you can cover the entire loan and associated fees by the designated due date.

Whatever option you choose for emergency financing, understanding the repercussions can help you long-term.

Photos courtesy of Getty Images

How to Navigate a Financial Emergency

(Family Features) Your washing machine suddenly breaks down, a child requires a laptop for school or your car needs new tires. Sometimes surprise bills can be difficult to cover.

Life’s financial emergencies happen to everyone, but 6 in 10 Americans cannot cover an unexpected $500 bill without selling something or borrowing money, according to Bankrate.

As many as 70 percent of U.S. families live paycheck to paycheck, according to Alok Deshpande, founder of SmartPath Financial Education. In fact, less than 30 percent of families today have anything left at the end of the month to put in savings. That reality is echoed by a recent GoBankingRates survey, which revealed that 69 percent of Americans have less than $1,000 in savings and 34 percent don’t have any savings at all.

“When you don’t have cash for something you need, there are many different financing options available. However, few realize that many of these options can lead to a debt spiral that can be difficult to pull out of,” said Richard Carrano, CEO of Purchasing Power, an employee purchase program offering consumer products and services through payroll deduction at the workplace.

“Regrettably, circumstances and bank accounts don’t always align. That’s why it’s so important to be ‘credit educated’ – to understand hidden costs and fees associated with high-risk credit options and avoid making financial mistakes that can hound you months, even years later.”

Buying items on sub-prime credit or through high-interest vehicles like payday or title loans can be risky propositions, particularly if you have a low credit score to begin with. Understanding your options can help ensure you make the best choice to meet your short-term needs without compromising your long-term finances. Consider the following:

Cash: Paying cash for a major purchase makes the most sense in terms of avoiding exorbitant fees and preventing credit dings from missed payments. However, cash may not always be readily available.

Credit cards: Chances are, even with a shaky financial history, you can find a creditor willing to offer you a line of credit, but you’ll likely have a steep annual percentage rate that accrues each month. Furthermore, if you’re unable to repay more than the monthly minimum, you could end up carrying that debt for years before it’s fully paid down.

Employee purchase programs: Research shows that financial stress at home regularly impacts employee productivity at work. This leads many employers to offer an employee purchase program such as Purchasing Power, which allows you to buy what you need through automatic paycheck deductions over a 12-month period. There’s no credit check, zero interest and no hidden fees. There’s also a free financial wellness platform to help with budgeting, credit reports and personal coaching. Learn more at PurchasingPower.com.

Rent to own: With rent-to-own products, you pay a monthly principal amount plus service fees and taxes for a period of time, up to completing the rental agreement and owning the item outright. While the monthly rate makes items like appliances and furniture immediately accessible, be wary of the long-term cost. Renters can end up paying as much as three times the retail value of an item before satisfying the terms for ownership.

Payday/Title loans: Essentially, these loans function as a loan against a future paycheck or your vehicle. They often come with high percentage rates and fees, as well as extremely short repayment schedules. Rely on these loans only if you are certain you can cover the entire loan and associated fees by the designated due date.

Whatever option you choose for emergency financing, understanding the repercussions can help you long-term.

Main image (couple budgeting) courtesy of Getty Images