Budgeting Tips to Stay in a Positive Direction

• Spending Wisely
• Am I in financial trouble?
• Monthly Budget Calculator

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There has been much debate about how consumers should use any extra money that comes their way as a result of the recently signed stimulus package. However, spending needs to be tempered with a strong dose of reality. In today’s economic environment, common sense practices must prevail or one runs the risk of finding themselves in even worse shape.

Spending Wisely

Keep your home-life stable. Make sure that you’re able to comfortably meet all of your monthly expenses. This is where it all starts. Your spending priorities begin with being able to pay your rent or mortgage on time; put food on the table; keep the utilities on; insurance premiums current; and not compromise on medicine. Next in line are any secured payments you may have, such as your vehicle payment or loans with significant collateral, followed by other debt obligations. Wondering how you’re going to meet your existing commitments puts stress on anyone and any relationship. Do what it takes to get these areas under control.
Prepare for an extended layoff. No one, regardless of industry or pay grade, can guarantee that they won’t find a pink slip in the mailbox. Experts have long advised that having between three and six months income set aside is a must. Now that figure is creeping up, with some recommending a full year’s income saved. Finding a new job may take longer than ever, so you need to prepare for an extended time without income. Yes, you’re saving money you hope you’ll never need, but you’ll not regret having it to fall back on if you are laid-off.
Have a rainy day fund. The economic weather forecast isn’t looking very good. In addition to the major savings suggested above, you also need money set aside for the everyday unexpected (and unbudgeted) things that happen in life. Without at least one month’s income in a separate, interest-bearing, liquid account, even the most minor emergency can catapult you over the edge and into financial distress. Remember, it’s not if the emergency is going to arise, but when. Be prepared by building your emergency fund.
Go to war with the enemy (aka your debt). First step: stop charging. Second step: pay off what you’ve already charged. Third step: pat yourself on the back. It only makes sense to put extra money toward the area that is doing you the most harm financially, and that is credit card debt. Whether you devote extra money to the card with the highest interest rate or choose to knock off small debts first, construct your battle plan and declare a war in debt.
Prepare for retirement. Time is money’s best friend. If you’re young and have a long time horizon before retirement, you’re in a wonderful place. It may not feel like it since you have other demands on your money, but with stock prices so depressed, you can land some real bargains. But, to do so you have to get in the game, and the best place to start is your retirement plan at work. Fully fund it if you can, but at least contribute the amount your employer matches or you’re giving up free money. Next, if you can also contribute to an IRA, either traditional or Roth, take advantage of that tax-saving vehicle, too.
Plan for known future expenses. Many people are caught off guard with major expenditures such as a college education, a family vacation, or replacing a vehicle, even though such costs should come as no surprise. Without saving for these items, you end up borrowing and paying interest. Look into the future and see what expenses you’ll need to deal with and start planning for them today. You might even want to categorize your savings so that you can track your progress in each area, as that can serve as a motivation to keep going.

  Practical Tips For Those Who Have Trouble Saving Money

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•The Basics of Saving
•Savings Calculator

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With budgets already tight, many people wonder where they can find the money to save. Many consumers are on the ropes financially. This situation is perhaps hardest for those who feel as though they’ve done everything right.

The 2008 National Foundation for Credit Counseling (NFCC) Financial Literacy Survey co-sponsored by MSN Money revealed that a majority of people do not have a sufficient emergency fund, defined as three to six months income saved. Further, more than one-third, or roughly 76 million adults, say they do not have any non-retirement savings. Although a majority is currently saving for their retirement, more than one-quarter are not.

The problem is that when money is tight, it’s very hard to think about saving, but it is critical that consumers find a way to build a rainy day fund, and then address the larger issue of saving three to six months income.

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The Basics of Saving

Money-saving tips to get started with saving:

Track your expenses. To find money available for savings, first determine where you are currently spending your money. You can’t know where you’re going until you know where you are. Tracking expenses will provide the answers. Write down every cent you spend. At the end of the month, take a look at where your hard-earned cash really goes. You just might be surprised.

Create a budget. Budget is not a four-letter word. A well-designed spending plan considers all sources of income, living expenses, debt obligations and savings. Be sure to incorporate all three expense categories: fixed expenses (e.g., mortgage, auto loans and rent), variable expenses (e.g., credit cards, groceries, entertainment, clothes and gasoline) and periodic expenses (e.g., property taxes, home repair, and car maintenance). Whether it’s saving for retirement, education or a vacation, the old adage remains true: pay yourself first. You can’t spend money you don’t have, so set aside your allotted savings right off the top.

Customize your budget to fit your lifestyle. When constructing your budget, be realistic when looking for opportunities to save money. People are more successful when they cut back, as opposed to cutting out. Don’t be too strict, or you won’t stick with your plan. Know, however, that small changes over time can indeed add up. For instance, instead of eating lunch out every day, brown bag it two days per week. Take a look at your cable package and cell phone plan to determine if you have the right fit for your lifestyle. Evaluate the necessity of having a land phone. Savings opportunities are available in each spending category.

Start small. The point is to get started. Put 10 percent of take-home from each paycheck into an interest-bearing account. At the end of a year, you’ll have a little more than one month’s salary as your emergency money, and it’s likely that you’ll never miss the money from your paycheck.
Have the designated amount automatically deposited into your savings account. You can’t spend what you don’t have, so remove temptation by deducting the money before you receive it.

Commit to leaving the money in the savings account. Many people regularly deposit money into savings only to pull it right back out. Define what constitutes an emergency, and don’t touch the money unless it meets the definition. Also, don’t keep your money in a checking account, as that makes it too easy to access.

Set a goal. Since you’re just getting started, make your initial goal very attainable. However, the simple act of setting a goal gives you something to shoot for. Once you reach that amount, see if you can dig a little deeper and keep going.

Examine all spending categories. If you could carve $10 out of 15 different spending categories, you’d have $150 each month to go into your savings account. That means that in 12 months you’d have built up a cushion of $1800 which should see you through most short-term emergencies.
Include all family members. A joint effort yields a greater result. You can make a game out of saving and have a prize for the person who saves the most each week. Or, set a family goal and reward everyone with a pizza party or another event that will serve as motivation to keep going.

Save for specific needs. Once you have your emergency fund in place, you may want to begin saving for upcoming needs such as a car, house or debt reduction. Some people even have different accounts for each purpose so they can see how close they’re getting to obtaining the item.

Involve the entire family. A joint effort yields a greater result. And, make it fun. See who can save the most each month, and have a special prize for them. Agree upon a savings goal that everyone can work toward (summer vacation, new car, etc.). Celebrate each success along the way. Before you know it, saving will be as much fun as spending.

Find the right savings vehicle(s) for you. There are many ways to optimize your savings. Consider splitting money between accounts that are liquid (such as a money market account) versus those intended for more long-term savings (such as certificates of deposit). Explore liquid money market accounts online, as these accounts can offer higher interest rates. Consider using automatic deposit, transfer, payment and withdrawal of money whenever possible to keep money out of your hands and in a safe place. Know that sometimes easy access to saved money is needed for emergencies, so don’t put all of your savings into vehicles where you’d be penalized for withdrawal.

Pretend it never happened. When you get a raise, birthday money, bonus or tax refund, quickly put this extra income toward your retirement plan or savings account. The longer the extra money is in your possession the easier it is to spend it. If you were anticipating using this extra money to buy something special, instead consider using the money to pay down credit card debt, give yourself a small treat, and deposit what’s left over into your rainy-day fund.

Take advantage of your employer’s retirement benefits. Gone are the days when Americans could rely on traditional defined benefit plans. Saving for retirement now rests more with individual Americans than ever. Regardless of your age, it is important to take an aggressive approach to saving. Contact your human resources department (HR) and research money-saving options, whether it’s through a traditional defined benefit plan that pays a set dollar amount each year of retirement or a defined contribution plan such as a 401(k) plan that allows contributions to be made with before-tax dollars. Also, ask HR if the company matches a portion of your contributions or allows catch-up payments. Changing jobs? Take your money with you – roll it over into an IRA or the new employer’s plan.

Ask for help from a professional. If you find yourself unable to save, know that certified credit counselors are experts at finding hidden money in budgets.

  There's a Right Way and a Wrong Way to Build a Positive Credit Record

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•Establishing & Rebuilding Credit
•Credit Calculator

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Whether you are a homebuyer or a homeowner, your credit is the single most important element in your financial success. 

As a homebuyer, your credit report and score will determine whether or not you will be approved for a mortgage and how much you will pay for your home over the life of your loan.  The higher your credit score, the lower your interest rate will be.

As a homeowner, your credit report and score will determine your ability to refinance your mortgage or to obtain the credit you need to maintain your home.
Why does your credit matter?

• An estimated 80% of credit reports contain errors that damage your credit rating
• Identity thieves can destroy a strong financial foundation—don’t be a victim!
• Save yourself time and money by knowing your credit status before applying for loans
• Don’t miss out—there are simple and foolproof ways to raise your credit score

Start improving your credit profile, now.

Meet with a Homeownership Advisor for a confidential one-on-one counseling session.

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Establishing & Rebuilding Credit

Establishing a good credit history has never been as important as it is today. There are multiple reasons why people may want to establish new credit. They may be new entrants into the world of credit, or are perhaps trying to reestablish credit after a financial hiccup. Either way, there are some do's and don'ts that consumers should follow that will make the road to credit much smoother.

It's not just that you'll need good credit to get decent rates when you're ready to buy a home. Your credit history can determine whether you get a good job, a decent apartment, a deal on your cell phone and reasonable rates on insurance. One seemingly minor misstep -- a late payment, maxing out your credit cards -- can haunt you for years.

*If you're just starting out, you have a once-in-a-lifetime opportunity to build a credit history the right way. Here's what to do and what to avoid.

Check your credit report
You'll first want to see what, if anything, lenders are saying about you. That kind of information is contained in your credit report at each of the three major bureaus: Equifax, Experian and Trans Union. You're entitled to a free annual look at your reports from AnnualCreditReport.com.

Credit reports are used to create your credit scores, the three-digit numbers that lenders typically use to gauge your creditworthiness. Can you have a credit report if you've never had credit? Maybe.  Somebody else's information could be mixed in with your report, either through a credit bureau mistake or because of identity theft; i.e. someone using your personal information to open bogus accounts.

*If that's happened to you, you'll need to clean up your credit report before trying to apply for new accounts. The Federal Trade Commission's identity-theft site has information that can help.

Understand the basics of credit scoring
You need to know that the two most important factors in your scores are:

1. Whether you pay your bills on time.
2. How much of your available credit you actually use.

It's essential that you pay all your bills on time, all the time. Set up automatic payments or reminder systems so that you're never, ever late. All it takes is a single missed payment to trash your credit scores -- and it can take seven years for the effects to completely disappear.
You also don't want to max out any of your credit cards, or even get close. Keeping your credit use to less than 30% of your credit limits (10% is better) will help you get the best possible credit scores -- and should help keep you from getting over your head in debt, as well. Finally, you don't need to carry a balance on a credit card to have good credit scores. Paying your bill in full each month is the best way to keep your finances in shape and build your credit at the same time.

Lenders are willing to take risks with you that they won't once you graduate, probably because they know that your parents' willingness to bail you out will end once you graduate.

"Even though it is possible to live on a cash basis, most will need a thick and positive credit file to purchase big-ticket items such as a house or a vehicle," said Gail Cunningham, spokesperson for the NFCC. "Whether building a credit history from scratch, or trying to improve a tarnished one, it's important that consumers recognize the impact that a positive credit file can have on their financial well-being."

The National Foundation for Credit Counseling (NFCC) suggests that consumers consider the following tips when applying for credit:

1. Do obtain a copy of your credit report from www.annualcreditreport.com. This is particularly useful if you are trying to rebuild your credit, as you'll want to review what existing debts you need to satisfy before moving forward.
2. Do open checking and savings accounts. Even though this activity is usually not reported to the credit bureaus, lenders may inquire about the presence of such accounts on credit applications, thus it can count in your favor.
3. Don't apply for too much credit at once. This can appear as though you're desperate for credit and perhaps make lenders less inclined to extend credit to you. Further, too many credit inquiries can have a negative impact on your credit score.
4. Do apply for a variety of credit types. Credit scoring models value having different types of credit. Therefore, having some revolving accounts (typically credit cards) and some installment fixed payment loans (such as a car payment) can improve your score.
5. Do research the type of card that is right for you. Each issuer has different lending standards (yes, a credit card is a loan), so you'll only want to apply for cards from those whose lending profile you fit. Familiarize yourself with the various standards by going to www.CreditCards.com or www.Bankrate.com.
6. Don't fall for a credit repair scheme. Why pay for something that you can do for yourself for free? If rebuilding credit, know that time is your friend, as the farther you move away from the financial distress, the less negative impact it has. Follow with responsible behavior with your new credit, and you'll soon have a solid credit file.
7. Don't pay to piggyback. Piggybacking is a legitimate way to build a credit history, but only if you use it as it was intended. This tool allows someone with existing credit to add an authorized user to their account. The credit activity is then reported in the primary cardholder's name as well as the authorized user's name. Examples are adding a young adult on the parent's card, or a spouse on the other spouse's card. The wrongful use of piggybacking would be when strangers utilize this method, typically for money.
8. Do consider a co-signer. Obtaining a loan in the absence of any credit history can be difficult, sometimes requiring a co-signer to guarantee payment. The loan is usually structured where the primary borrower is expected to make the payment, with the pay history reported in both names. If the borrower defaults, the lender will approach the co-signer, and missed payments will be reflected on both credit files. There is somewhat of a risk to the co-signer, but if handled responsibly, co-signing can be an effective way to help another person obtain and build credit
9. Do consider a secured credit card. This type of account is secured by a deposit made to the financial institution issuing the card. For example, if you wanted a card with a $500 limit, you would deposit that amount with the bank offering you the card. Know, however, that secured cards can have fees attached to them, and typically have a higher interest rate. The account activity is reported to the credit bureaus each month, and after responsibly making payments on a secured card, the issuer often offers the borrower an unsecured card.
10. Do take out a small loan. A personal loan from a bank or credit union can serve to establish credit. You may be asked to put up collateral, but it will be worth it in order to build your credit.
    

  Debt

• Fair Debt Collection Practices
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• Preventing Debt Paralysis
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