Sometimes, the most difficult part of turning the family finances around can be getting started. Catherine Scrivano, financial planner and president of CASCO Financial Group, recommends setting goals. “The absolute first thing we do is set goals. I am not interested in how much a client makes or how they spend it. I need to know their financial goals. This includes long term goals like educating their children, or short term goals like purchasing a new dishwasher. Money is just a means to an end. I’m interested in talking about the end and looking at what’s important.”
After prioritizing goals, the next step is to divide them into short, medium and long term goals. Only at that point does Scrivano dive in to the dollars and cents of making these dreams come true with the use of a spending plan. “I think of a budget and a diet as the same kind of thing—they both require denial. A spending plan is proactive. It is a way to make goals come true.”
A monthly spending plan can also help families keep expenses under control. The spending plan should cover anticipated expenses such as rent, utilities, telephone, gas and groceries and should also allow for special events such as birthdays and celebrations. Preparing the spending plan before the next month gives families time to make up additional finances if needed.
Steve and Annette Economides began budgeting from their first day of marriage 25 years ago. “We wanted to survive on Steve’s income and not accrue any debt. We decided we were going to figure out how to do this. When we started, we didn’t know much, but now we’re black belts!” shares Annette.
The couple began with the old-fashioned envelope method of budgeting. Cash is placed in envelopes and designated for fixed and non-fixed expenses. Families begin by documenting their fixed monthly and yearly expenses including rent or mortgage payments, while predicting non-fixed expenses such as automobile repair.
“Within six months, we had over $1,000 sitting in envelopes around the house. And that was on just $838 of take home pay,” explains Steve. The Economideses then decided to place their money into their checking account, which they “divided” into about eight envelopes. “We like this method because it helps us track and manage our money. Our account is now divided into about 22 envelopes and we save for everything in advance,” says Steve.
The envelope method is effective for controlling spending because it is a cash-only system. For example, when reviewing the food budget category it is easy to determine three things: how much cash is disbursed to the food budget category based on the amount of cash placed in the envelope; what the balance in the food budget category is by the amount of cash remaining in the envelope; that one of three choices has to be made when the envelope is empty—move money from another envelope, wait to buy food until cash is received, or borrow cash and put it in the envelope.
The Oprah Debt Diet is designed to help American families stop overcharging, over-leasing and face their debt denial. Oprah.com provides the steps, calculators and tools families need to follow this program. This online resource helps dollar dunces make sense of budgeting, saving and spending, in everyday terms.
Jean Chatzky, one of Oprah’s debt experts, says many people don’t know how much debt they really have. Phase one of the Oprah Debt Diet helps families assess and track their debt, in order to come up with an effective debt reduction strategy. Step two includes a helpful exercise developed by David Bach called the “Latte Factor.” By tracking unnecessary expenses such as fancy cups of coffee, families can find extra money each day to put toward their debt.
When playing the credit card game, knowledge truly is power. It is important for families to have the same rule book as their credit card companies. Beware of these four common practices by credit companies.
1. Interest Rates: Interest rates are not fixed—the bank can typically change a fixed interest rate with sufficient written notice, and families can claim the same power simply by asking for a lower rate. Web sites such as www.lowermybills.com and www.bankrate.com showcase competitive card offers that may help families lower their monthly payments and interest rates.
2. Late Fees: Late fees can range from $15 to $39 and can also trigger a hike in interest rates. It is reported that nearly one third of credit card revenue is generated from late fees alone! Families can avoid late fees by calling ahead and asking for a grace period.
3. Teaser Offers: Zero percent interest rate credit card offers flood mailboxes every day. The secret of these offers in the fine print. Often, a single late payment fee will cause a zero percent interest rate to increase dramatically. Transfer fees applied to balance transfers are also common in these teaser offers.
4. Annual Fees: Often, annual fees can be waived simply by calling and asking. While cards with frequent flyer programs or rebate offers won’t usually waive fees, regular cards may waive their annual fees for customers in good standing.