CrackedWorld

In this installment I want to touch on ways of staying ahead once you start to gain traction in your budget, and build a saftey net. Staying ahead is important once you have some room to move. By staying ahead of the game I mean don’t let debt catch you once you’ve broken free.

Stay out of Debt!

Stay out of debt, don’t spend money that you don’t have! If you want that new Ipod you need to save the money and buy it with cash not credit.

Do not scratch the plastic, budget for it. Use your budget to buy the things you want as well as the things you need. The budget should never go away. Just because your out of debt doesn’t mean you don’t need a budget, you still have to control your money or it will run wild.

• There are some things that you have to barrow money for such as a house. No one has that kind of money on hand to buy a house with. But you should however have a considerable down payment. If you can’t save the down payment than you probably can’t afford the house anyway.
• The same would go for a new car. Have a down Payment and make sure your minimum payment is small enough for you to pay extra principal on each payment. This ensures that you will owe less on your car than it is worth. This is important if you were to need to sell the car for any reason (i.e. you can no longer afford to make payments), maybe you get injured and cannot work for an extended period, or drive. Now wouldn’t that be ironic? Making a car payment on a car you can’t even drive; now that’s cracked.

Keeping ahead of the game is easier once your out of debt, because you have more money to work (and PLAY) with. This phase of the game is really hard with debt because your budget depends on it. If you don’t stay ahead of the game, you’ll fall behind. This is where you can fall deeper in debt.

Keeping ahead of the game is the anti-meltdown.  In the event of one of lifes’ little setbacks, your better suited to handle it without hurting your debt dumping efforts. I have been so far ahead on car payments and-once upon a time-credit card payments that the payee didn’t require a payment for a month or two. When you’re in that situation you can say, “fix the car” and not have to worry about the car payment.  Just remember, you have to go right back to staying ahead on these things once the car is fixed. Stayng ahead of your debts does not stop until your debts are gone.

In the next installment of this series, “Winning the Game” I will cover Dumping Debt which will be Part 5

Tags: Debt, Money
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Your ability to prevent a meltdown can make or break your financial plans. Suffering a financial meltdown can not only be a major setback against your budget, but it can potentially drive you further into debt.

What is a Meltdown?

A meltdown is one of those unexpected minor disasters that life hands you at the most inopportune moments.

Though there is NEVER a good time for your car to break down; or for your roof to leak; or for that old tree in your backyard to crash down on your fence, it hurts even more when it ruins your budget you’ve worked so hard to conform to. Obviously no one plans for things like these to happen but when they do if you have a bit of a safety net in place you can protect yourself from a great deal of different potential meltdowns.

That safety net comes in the form of a savings plan. Save in your budget for meltdowns. These minor disasters won’t phase you as much if your sitting on $500 or $600 in savings to cover such meltdowns.

Not having a safety net for these little disasters can leave you with no other choice but to go to the bank for a loan, or even worse, scratch the plastic. The other alternative is to do without; most of the time that is out of the question, you can’t just not fix the roof; you can’t just not drive your car because you have to get to work and back. Have a safety net. Its as important to winning the game as your budget is.

Of course too many meltdowns will deplete your safety net so you then have to replenish your savings after a meltdown occurs.

The best way to fund your safety net is the same way you fund your regular savings, your vacation savings, or your car savings. Open a separate savings account and fund it in your budget. You will want to focus more on your safety net at first until you save the appropriate amount to bail yourself out of any meltdowns that occur. Once your comfortable with that fund, stop funding it and focus on your debts listed in your budget plan.

I constantly hear people at work complain that they had to pay for this and fix that and now their credit card is maxed and they can’t put anything else on it until its paid down. This is just plain stupidity. If they bothered to save that money in the first place they wouldn’t have to, “scratch the plastic”, they could be earning interest on their savings instead of paying interest on their credit cards.

How much quicker can you payoff your debts? How much more money will you have for the things you want and need? How much are the credit cards actually getting after you pay all the interest and other fees? Your supposed to be doing all this to get out of debt not further into debt.

Measure up the Pros and Cons. I fail to see a down side. If you find one I’d love to hear it!

The fourth installment of this series will be Keeping Ahead of the Game.

A wise man once said “Common sense isn’t very common” - especially true in a cracked world.

Tags: Debt, Money
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By now you’ve probably played the money game from Part 1 of this series. I’ll just assume that if your reading the second installment that you were unhappy with the results. The first time I played it I was down right scared!

Now its time to do some thing about it! First you need to get determined about this; you need to have a fire in your guts every time you think about all that debt you’ve accumulated. I’d say your on your way just because your reading this. Your already further in the process than all your friends that just don’t care enough yet. Trust me when you succeed they will notice and the will care.

The single most important thing to know when it comes to getting out of debt is; where’s all the money going?

The solution is simple but hard. You need to keep track of every nickel you spend. You need a budget. So whats a budget? A budget is a list of all your income and expenses. At the bottom of your budget sheet your income minus your expenses should equal ZERO.  That’s right zero.

• Your budgets income should include your monthly wages/salary, bonuses, gift money, Alimony, child support, and any other money you receive or earn for the month.

• Your budgets expenses should include all of your monthly expenses: Rent/Mortgage, utilities, groceries, insurance, gasoline money, etc. These are mandatory expenses.

• Also under expenses you should list money going into savings including, Christmas clubs, 401(k)s, IRAs or any other savings plan. Your paying every one else out of expenses. Paying yourself is an expense as well.

• Next record all of your debts. Doctor bills, car payments, student loans, home equity loans, credit cards, and any other payment that is from debts you owe.

• Last but certainly not least all of your discretionary spending. These are categories of money spent that aren’t a necessary expense; eating out is discretionary, as is going to the movies, or shopping for clothes. This shouldn’t imply that you can not spend money on these discretionary items. Just that you should use more “discretion”.

Once you have compiled your lists the Income items all need to be totaled up, as do your mandatory expenses, savings items, debt items and discretionary expense items. Total up each group separately, then add up the four kinds of expenses: 1) savings 2) mandatory expenses 3)debt expenses 4) discretionary items. This expense total now gets subtracted from your total income.

Your remainder should be zero. If you have money left over (a positive balance) allocate that money to an appropriate category or categories until your balance is zero. Place additional funds on debts or savings.

If your remainder is a negative number (a negative balance) you don’t have enough income to cover everything on your expense list, you’ll have to reduce the amount of payment on some categories until you have a zero balance again.

A budget doesn’t have to be bad news; it can be good news. Once you see where your money is all going you can control where your money is going and you can win The Game!  Once you control your money you’ll have more of it.

The key is control. Control your money, when you have extra money left over (a positive balance), use it to build savings, or to pay off debts. I’ll cover this with more depth at a later date.

Remember once you settle on a budget plan you must stick to it or it wont work and you wont have control.

Keeping track of this budget can be a daunting task but it doesn’t have to be. There are plenty of great software packages out there that will pick up much of the load for you.

Quicken is one of the most popular personal finance software programs available today. Quicken does many of the financial calculations that make dealing with your finances easy. It’ll balance your checkbook for you track your expenses, your income, and your investments. You can buy the latest Quicken software for around $40.

The program I use is called My Budget Planner. I would strongly reccomend it, its simple to use with out all the bells and whistles of  other programs it specializes in budgets. It therefore handles them with greater depth and flexability; and at $20 to download it fits that new budget of yours much easier than the others. My Budget Planner also offers free software upgrades for new versions and improvments. My Budget Planner gives greater control and more options than the budget portion of Quickens software package.

The next post in this series will cover the next critical phase of Winning the Game - Preventing  meltdowns.

The Money Game - Saving to Win Preventing a Meltdown - 3

Tags: Debt, Money
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Save Money!

Dollar in the Box

That’s the name of the game in a tough and hardening economy.  Saving money is probably the most important thing you can do in the current economic climate. So many Americans today waste their entire income on frivolous things. Do you really need a big screen TV? How about that 16GB Ipod? Or that new gas hog of a truck sitting in your driveway? If your honest with yourself the answer is probably NO. The purchase of such luxuries is great-at the time. But are they really that important? Neglecting your bank account may lead to a horrible financial death and the only ones to mourn your loss will be Visa and Mastercard.

Your financial health depends on saving at least some of your money. Not doing so will will result in greater debts down the road.

• When the car needs repairs
• When that filling comes loose and you need to see a dentist
• The gas bill is larger than expected

All of these occurrences and any number of others similar to them will often result in the use of credit cards to cover them if you don’t have cash available in savings. This results in going further into debt. It can be a vicious cycle.

After getting beaten up by Credit Card purchases many years ago I said no more to Visa and Mastercard and at this point in my life I do not own  a credit card of any sort. I paid off my remaining balances, cut up the cards and threw their remains in the trash. As a result I no longer give all my money away to monthly credit card bills. The money I used to spend on paying for my debts now goes in savings or checking and in the event of a minor household meltdown I have the cash to cover it.

Now when the car breaks down, and they always do, I just write the check and forget about it. You can do the same, because if you have no payments you’ll have this thing called money.

Lets play a game:

1. Make a list of all of your monthly payments.
2. Now subtract utilities, and other living expenses such as groceries.
3. Take the payments list and total them up.

How much are your monthly debt payments? I guess I forgot to tell you this isn’t a fun game. Chances are your results are a little disheartening. If they are, GOOD, you’ve made the first step toward fixing the mess you’ve made. Now you can start to change what causes this problem, control your money. Your at the wheel, you can either put on the brakes or step on the gas. Its up to you my friend its up to you. It takes time and a good deal of work but its not impossible.

To really put your best foot forward will take several deliberate steps on your part. Again its up to you. No one else can do it for you. In the coming days I will show you which direction is forward. So for now play the GAME a few more times and let it sink in.

If your confused now you will feel enlightened when we’re done. Stick with it and don’t give up and we’ll go through this together.

Now check out Saving to Win - Part 2

What are your game results?              Post them below!

And remember - Its a Cracked World!

Tags: Debt, Money
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