KNS Financial

Personal Finance From a Biblical Perspective

5 Reasons Why You Need a Budget!

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If I asked you to tell me how much you spend eating out or buying gas each month, could you tell me? What about your household’s true cost of living?

This is the most basic reason you need a budget: To be able to plan and track where your money goes! Most people who I speak to about their finances have no clue how much they spend on a monthly basis. All they know is that by the end of the month, their bank accounts are nearly empty and they are waiting for their next paycheck.

Even if you don’t find yourself scraping together pennies at the end of the month, you still need to have a budget in place. In order to take control of your finances you need to come up with a plan. This means assigning a job to every dollar that you receive before you ever receive it.

How? You need to create and update a budget in order to plan and keep track of your spending. This goes both ways – if you don’t keep track of your spending, then creating a budget is pointless. You have to periodically evaluate your spending to ensure that you are staying on track.

Why You Need A Budget

Budgeting - You Need A Budget

You Need A Budget To Accomplish A Financial Goal

It will be nearly impossible to accomplish a financial goal without a budget – of course it can be done, but with a lot more hassle and waste. With a budget, you can allocate a specific amount toward your goal – whether it be savings or debt repayment – and ensure that it is reasonable.

It will also be easier to accelerate your plan by reducing spending in one or more areas and funneling that money into your “main goal”.

If you look at our 52-week savings challenge results, you’ll see an example of how budgeting can help you reach a financial goal.

You Need A Budget To Help Handle “Shocks” To Your Finances

If you find out today that your job will be cutting your salary, or implementing furloughs (mandatory, unpaid days off), how would you handle it? Would you be able to make the necessary adjustments?

If you keep track of your spending (which will be necessary to follow a budget), it will be easy for you to make these adjustments. You will be able to look at every area of spending and determine where you need to cut back – or even if it’s worth it to try to increase your income.

Learn how to set up a financial contingency plan (and no, it’s not as simple as having an emergency fund)!

You Need A Budget To Identify Areas Of Waste

Waste Money

Most people who make small daily purchases (like coffee, breakfast, or lunch), are shocked to see how much they’re really spending in these areas. It’s easy to spend $5 on a cup of coffee and a bagel in the morning, $3 on a candy bar and soda from the vending machine, and then spend $6-$10 on lunch without even thinking about it.

However, if you have established a budget, it will become increasingly difficult for these expenses to escape your attention.

The first month after you set up your budget will probably be a big eye-opener for you (it definitely was for me). Remember that coffee, candy and lunch from above? You would probably budget about $50 or $75 to that category. However, 22 days (the typical amount of work days in a month) of that type of spending will cost you nearly $400 every month!

Committing to (and adjusting when necessary) a budget will help you to evaluate this type of spending and decide if you should divert money from another category, or change your habits!

You Need A Budget To Ensure That Any Surplus Is Not Spent On Frivolous Items

Similar to looking for areas of waste, this will call for you to identify areas where you can reduce or eliminate spending. Once you allocate your income across living expenses, giving, debt repayment and savings, you may find that you have money left over (a problem that we all would love to have).

Instead of this money just being absorbed into your spending (something that usually happens without a budget), you will be able to give this surplus a new assignment. This, of course, depends on your exact situation and level of risk aversion.

You may choose to give more, accelerate your debt repayment, increase your savings, or master your investment strategy. The point is that having a budget will easily allow you to identify these opportunities.

You Need A Budget To Help Develop Discipline In Multiple Areas

Value of Time

This is accomplished in a few ways. First, you are forcing yourself to tightly control your spending, which will call for discipline – especially if this is the first time you have done this.

Secondly, by constantly monitoring your finances and having to make small adjustments, you are more aware of every financial decision you make.

By holding yourself accountable for every dollar that you spend, you will tend to evaluate your free time in the same manner. For instance, you will begin to consider the value of your time in terms of money and lost opportunity, which may cause you to re-evaluate your decisions.

These are just some of the reasons why you need to develop a budget. Over the next few days, we will look a few painless steps you can take to create a budget, and also to change your thinking about money!

Read The Rest Of The Series

Reader Questions

  1. What are some of the benefits that you see in having a budget?
  2. How often to you review your spending to ensure that you are within your budget?
  3. Have you ever discovered that your budget was unrealistic?

I look forward to your comments.

How To Pay All Your Bills On A Low Income

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[The following is a guest post, offering tips/advice on being able to pay your bills even when on a low income.]

If you are a low-income earner, you may be struggling to make ends meet as everyday living costs continue to rise. It may feel like you do not have enough money coming in to help pay for all your bills each month. This can leave you stressed and feeling like you will never overcome your debt.

The good news is that no matter how much money you earn, there are effective steps you can take to get control of your finances and cover all of your expenses. Below is a look at some basic steps you can follow to track you money and pay all of your bills each month.

How To Pay All Your Bills On A Low Income

Low Income Debt

Track Spending

The first step to taking control of your finances is to start tracking where you are spending your money. Keep receipts or utilize online banking transaction summaries to review how you are spending your money.

Determine how much money you are spending in different categories, such as food, housing, utilities, transport, entertainment and miscellaneous each week. You may be surprise at where you are spending your money. This can then be put into a budget.

Set-Up a Budget

Using the information from above, creating a household budget based on your current spending habits. Look over this budget carefully, and determine in what areas you can cut back and spend less money. Now create a new budget using this new information and amounts.

Be sure to create a realistic budget that you will be able to stick to in the upcoming months. Creating an impractical budget may look good on paper, but will be impossible to keep. A poorly created budget can easily fail, resulting back to old spending habits and further financial issues.

Get Your Benefits

If you find after creating a budget that you do not have enough money coming in to cover all of your expenses, it is a sign that you may need additional financial support. Visit the gov.uk website and see if you and your family qualify for income support or other benefits.

These benefits are designed to help low-income earner offset some of the household expenses, so do not be afraid or ashamed to use these services. This may be just the extra amount of support you need to pay all your bills at the end of the month.

Have a No Debt Policy

Obtaining a loan, may seem like the solution to all of your financial problems, but if you are already having a hard time paying your bills an additional loan will only increase this problem. Make a commitment to establish a no debt policy and instead look for alternatives to borrowing money.

You should start by talking to your lenders and try to make payment arrangements, maybe securing an additional part-time job, or seeking help from a local charity or church.

Start Saving

Once you get control of your budget and start keeping track of how you are spending your money, you will be able to start setting a little bit of savings aside each month. Even if you can only save a little bit out of each pay check, it will start to add up over time. This will give you a safety net if an unexpected expense occurs or you have a loss of wages due to an illness, injury or loss of job.

These tips will help you be more accountable to your spending habits and help you set the necessary funds aside to pay your bills. You may also be alerted to the fact that you need to seek out some financial support because you do not have enough income coming in to pay all your bills. Together these steps will help you get your finances back on track, pay all of your bills, and hopefully start a savings account to protect your future.

Secure a Healthy Financial Future: Start Planning Today

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In these times of economic uncertainty, it’s tempting to stuff your cash in a shoe box or mattress and forget about financial planning. However, planning is more important during monetarily unstable times than it is during those points when the money and credit are flowing easily.

To navigate the treacherous waters of today’s economic climate, you must be financially savvy, and the best place to start is with your own personal accounts. The money-motivated decisions you make today can and will affect your future stability and your ability to provide for your family.

Budgeting: The Basics

Household Budget

The most important thing you can do to improve your financial situation is to establish a realistic budget and follow it. Establishing a budget involves much more than figuring out how to spend less than you earn; it also involves setting aside money for savings, emergencies, and special occasions. Here’s how to establish a basic budget for your family:

  1. Track your income and expenditures for an entire month. Include everything you spend money on – even your morning coffee.
  2. Look for areas where you can reduce your spending. If you’re eating out excessively, this is a great place to start.
  3. Put it in writing. Write down the amount that you will spend each month on the following categories: housing, food, clothing, transportation, entertainment, and other bills. This is your basic budget.
  4. Don’t forget to factor in savings. You should tuck away a pre-determined amount each month without fail. Treat your savings account like another bill that must be paid. In fact, take the percentage set aside for savings right off the top.
  5. Monitor your budget and make adjustments where necessary.

4 Tips for Building a Sound Credit History

Credit Check

If you want the American dream – a house, a car, and a business – your life will be infinitely smoother if you have a solid credit rating. Your credit score not only determines whether or not you will get credit, it also determines how much you will pay in interest for credit extended to you. Following are four ways you can improve your credit history:

  1. Pay all of your bills on time. Paying your bills late or failing to pay them altogether dramatically lowers your credit rating. Be sure to always pay your bills regardless of how small or unimportant they may seem. Something as simple as forgetting to pay for your magazine subscription can have surprising consequences.
  2. Monitor your debt-to-income ratio. A good debt-to-income ratio is anything that falls under 36-percent. The lower your number, the higher your credit rating will be.
  3. Do not max out your credit lines. In fact, try to only use 10-percent of your credit limits. For example, a credit card with a limit of $1,000 should have a balance of $100 or less.
  4. Establish a mix of credit. Your credit report should show a mix of credit lines including home, auto, and revolving-credit accounts. Never rely too heavily on one type of credit. It’s also a good idea to keep older accounts open even if you’re not using them as older accounts carry more weight than newer accounts.

Now back to that car or house you’ve been eying; it doesn’t have to be entirely unobtainable if you don’t have the ideal credit history. For those situations that put you in a bind, there are companies that will help individuals in your situation, like Auto Credit Express. These sites will help you find the right loan that will fit your budget and credit status, though it is critical that you are realistic with what kind of loan you will be capable of paying.

How to Make Sound Investments

Investing Budget

If you want a secure financial future, you have to make sound investments. While stuffing your money in a lock box might keep it safe from thieves, it will not prevent you from losing money. You see, your money will never be worth as much as it is right now as it loses value over time due to inflation. To stay ahead of the game, you must make sound investments in order to help your money grow in value.

One of the best ways to keep your money safe and help it grow is to place your savings in interest-bearing bank accounts. While you may not get a high return on money placed in these types of accounts, you will not lose money. Put aside a smaller amount of money for investments. Place the bulk of the money into low-risk ventures like saving’s bonds and Unit Trusts. Once you have a solid foundation of secured savings and low-risk investments, you can start venturing into investments that pose higher risks and rewards such as the stock market.

Securing a healthy financial future doesn’t happen overnight. You must make sound decisions regarding your finances each and every day in order to live within your means, maintain your credit rating, and save for the future.

photo credit: Freedigitalphotos.net

When Luxuries Become Necessities

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The other day there was a woman in my office suite at work talking to a couple of her colleagues about the Keurig coffee machine. Besides talking about the convenience and speed of the coffeemaker, she also brought up what I think was a very interesting point about not only that one product, but also the direction consumerism as a whole.

She mentioned that just a few years ago these expensive coffee machines could only be found in fancy specialty coffee shop’s. Since I don’t drink coffee, and I had never seen one of these until my office purchased one a couple years ago, I have to take her word on it. She went on to talk about the fact that these machines , are now in many households across the country. I know that I have gone into the homes of people who I would not consider wealthy but who had this machine.

Necessities And Luxuries: Our Coffee Will Never Be The Same

Instead of getting a coffeemaker, which cost $20 and maybe a few dollars for the filters and add in a few more for the actual coffee, we now have people spending $100 – $175 (depending on the accessories) for these fancy Keurig machines and also paying about $.50 per cup the little refills. With this advance in machinery just to brew a cup of coffee, there is also a higher probability of having an expensive problem down the line.

If you spend 10 bucks on a coffeemaker from Amazon.com, you really don’t mind getting a new one every couple of years – the same can’t be said for this $100+ device!

Necessities And Luxuries In Other Areas

It’s not the with the coffeemaker, but you can see this phenomenon with many items that come out. There was a time when a PDA was something that only a business man would be carrying; the same things with smart phones (which were mainly made at that time by Research In Motion [blackberry] and Palm). They went from an item which was only popular in Silicon Valley or Wall Street, to being something that teenagers and housewives carry.

A small part of this can be attributed to the fact that technology has advanced and progressed to the point where it is relatively cheap to produce these items. However, you have to keep in mind that in the case of smart phones, many people are paying hundreds of dollars for one (every 1-2 years) and then also increasing their cell phone bill by $30 a month for each member of the household in some cases.

Of course, there are many other things that we can look at in our culture which was once a luxury and is now a household item, and in some cases actually considered a necessity. As I said earlier, teenagers are even seen carrying around smart phones and tablets; they have expensive computers and even more expensive (when all the costs are factored in) video games. It probably cost thousands of dollars a year to equip the average teenager in this country!

I see so many people crying about the fact that the middle class is disappearing, but they don’t consider the fact that the middle class is continually striving after things that were once only seen in with the hands of the wealthy. I’m sure that many of us can name devices, or types of clothing, or a myriad other things that have not only increased in complexity, cost, and size (or getting smaller in the case of technology), but also have increased in how common they have become.

This isn’t really about whether teenagers should have things that are considered advanced as far as technology is concerned. In fact, I think that they should be exposed to advances in technology and productivity, especially when it will help them with their development. What I am describing here, is the basic human condition which causes us to lust after something that captures our attention. We get to the point where we want it so badly, that we begin to convince ourselves that it is a necessity, and that our lives will not be complete without it.

Luxuries And Necessities

Is There Such A Thing As A Luxury Car?

I was in my mother’s car the other day and I noticed that the screen popped up with the camera display of what was behind. I’ve seen these things before in luxury cars, but I did not expect to find it in a compact vehicle, which retails for less than $20,000.

These cameras, GPS systems, Bluetooth systems, ways to integrate your MP3 player and smart phone into your car, were all considered luxuries just a few years ago, but I believe we are getting to a point where people expect them to be included in their vehicles. So they won’t mind paying a few thousand dollars more to buy a new car as long as they get these items that they now consider a necessity, rather than paying less for a car that excludes them.

Again, there is not a problem in wanting a luxury and seeing how it can benefit your life, my problem is with people who are willing to go into debt or otherwise ruin their finances because they have convinced themselves that these things are necessity.

There can be no complaining about the purposeful destruction of the middle class when the middle class is chasing after these things their credit cards. We all should take a little time to evaluate our spending, to make sure that we aren’t caught up in the trap of financing luxuries and ignoring necessities/priorities in the process!

Reader Questions

What are some items that you consider luxuries but many people around you consider them to be a necessity?

Have you ever found yourself being convinced that you need something even though your life was perfectly fine without it, and it was really just a minor enhancement?

photo credit: Philipp Lücke

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