John Meloni Comments:
We all accumulate debt at some point in our life. There is really no way around it. Especially when we consider the two greatest costs we will face – buying a home and funding our childrens education. Thus, it is good to accept the fact that debt is not a complete negative and if used wisely can be a great asset.
First of all let’s consider what we should or should not use debt for. As mentioned earlier using debt to purchase a home (a mortgage) and fund your education is always recommended. The reason it is recommended is because both of these expenditures are actually investments. Hopefully, what you invest in your education will pay dividends later in terms of higher salary and increased job prospects. Buying a house is usually one of the most stable and beneficial investments you can make considering that real estate is pretty stationary and the other alternative is to rent and build no equity. Therefore these two investments are the first two to consider when acquiring debt.
There are other positive times in which to incur debt. One such time is to invest in a business or some other income producing activity. The key in determining whether it is a good decision is to look at the income potential or what effect it will have on your long-term financial picture. If the money you are spending is likely to make you more money in the long term then it is probably a wise investment.
Of course it is not the positive debt that most of us incur. Usually it is of the negative variety. Negative debt is any debt used to buy short-term consumer goods such as clothing, entertainment, electronics, etc. All of these items have a very short life span and usually have no value when we decide to sell them. Therefore the money we spend on them is really money that we can never get back. But the fact is most people end up financing purchases for televisions, stereos and computers. It would be best to make these purchases in cash.
A vehicle is another thing that many people accumulate debt for. Though it is something that you will probably lose money on, it is also something that most people cannot afford to pay cash for. Therefore this is a debt that most of us have to incur. It does help to take a look at the resale value of the car you are looking to buy to determine how much money you are likely to get back when you decide to sell the vehicle. This can be the difference between a poor investment and one that allows you to recoup some of your money spent.
One important aspect of debt that most people neglect is simple record keeping. You should have a file created in which you keep careful track of all debt you accumulate along with an idealized payoff plan. If you can simply do this you will have more control over your debt than the average consumer. Record keeping is the first step toward controlling your finances and it applies to debt as well as it does to investments.
“Creating a Personal Budget Plan”
Since you are here, you probably discovered that you need to start tracking your expenses, and learn to spend less, and save more. That’s great! Creating a budget is an important first step to building sound money management skills.
Tracking Your Expenses
The first step to create a budget is to determine how much money you spend, and to whom you are paying that money. To do this, you will need to track your expenses, or spending, for at least a month, and the longer the better. We suggest that you track your spending for three months or more to get an even better estimate of your spending habits.
What Is A Budget?
A budget is a plan for managing your money. It is an estimate of income and expenses over a period of time. With a personal budget, you can get a better idea of where you spend your money, to whom you owe money, and how much.
Expenses
Expenses are anything you spend your money on. To track your expenses, you will need to write down every penny you spend.
Keep your receipts, and write on your budget tracking worksheet all your expenses. Don’t forget to also track all purchases made with cash, including small items. These will be more difficult to track (if you don’t get a receipt), but try to write down as much as you can with a paper and pencil. You may want to keep a little notebook with you to write down expenses as they occur.
Also, at the end of the week, you should try to estimate any payments with cash that you made, that you did not write down that week. If you are not good at tracking your cash expenses, at least keep track of how much cash you put in your wallet, so you know how much you are spending. Then add that amount to your budget tracking worksheet.
Types Of Expenses
As you start to track your expenses, it is helpful to break your spending into different categories. There are two main categories of expenses: essential and non-essential expenses. Essential expenses are expenses that are required for living. Non-essential expenses are the extra things you spend your money on. In addition, essential expenses may be broken down into fixed expenses and variable expenses.
Fixed Epenses
Fixed expenses are expenses that are the same each month. Examples include rent or mortgage, car payments, car insurance, property taxes, home insurance, and school loans.
Variable Expenses
Variable expenses are expenses that vary each month. Examples include car maintenance, gasoline, food, electricity, heating gas, phone, etc.
Non-Essential Expenses
Non-essential expenses include most of the things we don’t need, and most often includes many items where we waste money the most. It includes spending on clothing, books, movies, magazines, video games, dining out, gifts, snacks, candy, shoes, etc.
While clothing may be considered an essential expense, how much of it that we buy do we really need? If you want, create two separate categories for non-essential expenses. Place some of your clothing money into essential expenses, and the remainder into non-essential expenses.
Again, track your expenses for at least one month. This will give you insight into where your money is going, and also help you determine where you might be able to spend less and save more. By tracking your expenses, you will be able to better plan for your future needs.
After tracking your expenses, you will be able to set up an estimate of your budget, based on the expenses information you have been tracking.
For Debt Management Advice
Call: 0800 052 1082
Email: admin@mssmortgages.co.uk
Tags: Buying a Home, Creating a Personal Budget Plan, Credit, Credit Card Debt, Debt, Debt Consolidation, Debt Management, Debt Reduction, Essential Expenses, Funding Our Childrens Education, Higher Salary, Income Potential, Increased Job Prospects, Increased Job rospects, Loan Repayment, Managing Your Money, Negative Debt, Non-Essential Expenses, Positive Times, Tracking Your Expenses, Your Long-Term Financial Picture
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