Moving Out of Parents House

Moving Out of Parents House & Dealing With Money

Guide to Moving Out of Parents House & Dealing With Money

People do not stay at home in the entire life. The life must go on. And to build up the career and to make success in life you people need to focus on moving out of parents house.  For education, job or business, they must have to face the reality of life. But, most of the people often get stuck or fixed in the times of managing the money.

Staying at home, actually keeps people tension free from the tense of money management and dealings.  Especially, when people stay with parents they don’t have to care for anything. The problem arises when they leave home. Leaving home leads people in huge problem as they will have to manage each and every financial aspect in their own way. And often they fail to manage that.

So, what they need to do is to know and learn to manage the money so that they can get out of financial problems. Here you get to know the ideas about the ways to manage the money and budget so that life can run smoothly.

Planning a budget:

This is actually the most important part of money management. People need to make a budget about the expenses in every month. They must know how much they earn and how much they can expense. With this assessment, they need to set up a budget.

One thing must be performed and that is you should not spend more than you earn. You should spend less than your earnings. This habit can save you from all odds in the management of the life after leaving home. In fact, people must maintain this and exceed the budget.

It may happen for some month that you need to spend exceeding the budget. If you will have to do that, make sure you can recover that in the next month. If you can manage to make some savings in every month, you may not have to face problems even if you have to exceed the budget in a month. You can manage to make that possible with using the saving account.

Avoiding taking loans:

After leaving home, most of the people make this mistake. They depend on payday loan no credit check. This habit can lead them to huge problems. The problems are associated with the default as they can not manage to repay the debts. This can harm the future financing as well. So, people should avoid taking loans.

Instead of taking bad credit loan, they can do an added job. Utilizing the vacation or weekends can make you generate some money so that you do not need to go for a loan. Whatever you do, you should not go for applying for a loan.

Avoiding using credit cards a lot:

If you have the habit to purchase everything with credit card, avoid that if you have left home for making career. This habit can lead you face credit card debts which can harm you a lot. So, use the credit card as less as you can. It would save you from many dangers.  Now you’re ready to start the process of moving out of parents house.

Using 401k For Down Payment On House

Using 401k For Down Payment – Is It Right For You?

After adding money to your 401k plan over several years, you may have built up a lot of money inside your 401k accounts. These accounts could be a desirable supply of funds for investing in a home. Nevertheless, there tend to be rules as well as restrictions upon withdrawals from the 401k accounts. Fortunately, there may be a way for you to make use of the money within your 401k plan. One great way is using 401k for down payment.

Some 401k programs allow participants to consider a loan from the funds inside the 401k. Usually, the 401k plan will limit the quantity of the loan to some certain percentage from the total balance. This implies that you cannot borrow all the money inside your plan, are just some of it. Nevertheless, this quantity may be significant enough to become useful for the long-term objectives.

Borrowing From 401k Plan

Using 401k For Down Payment Fidelity

Here’s a screenshot showing what loans you have available through your 401k plan if you’re using Fidelity.

When a person borrow money from the 401k plan, you borrow the cash from yourself. In additional words, the money is withdrawn out of your account as well as distributed for you.  That means there isn’t a credit check as well as your credit score doesn’t impact in your loan rate of interest.  This is because, there isn’t any risk in order to any lender.  You are repaying yourself. Actually, the curiosity you pay about the loan goes straight into your personal 401k accounts.  It does not go into any financial institution or loan provider.

Be Aware Of The Rules When Using 401k For Down Payment

However, it doesn’t mean you are able to control how so when you pay back the mortgage. The INTERNAL REVENUE SERVICE has requirements that must definitely be met concerning 401k financial loans. As this kind of, the plan may have a set rate of interest that you need to pay whenever you repay the actual loan. Additionally, you should make well-timed, regular obligations, just like every other loan. Usually, most 401k programs require that you simply make regular monthly obligations to be able to fulfill this particular requirement. Check out our 401k calculator to see the impact loans can have on future earnings.

When using 401k for down payment you need to be aware of possible negative situations that may arise.  It is necessary that a person make your own 401k program loan obligations. While you will find no lenders involved, and therefore there isn’t any damage for your credit score or credit history, there could be substantial taxes repercussions with regard to failing to settle the mortgage as decided. Any mortgage principal that isn’t repaid is recognized as a distribution through the IRS. Which means that the entire amount associated with any delinquent loan stability is taxable because ordinary earnings. Even worse, if you’re under grow older 59 1/2, then your distribution is going to be considered an earlier distribution and could be susceptible to a 10 % tax fee.

“Using 401k For Down Payment Does Have Its Advantages!”

I would advice against using 401k for down payment, if you already have the cash sitting around.  Otherwise, the advantages of using 401k for down payment to purchase a house are extremely advantageous to many people. Nevertheless, it is essential to realize that though it is financing to yourself, it continues to be an actual loan, also it must end up being repaid. If you’re able to do do that, then borrowing using 401k for down payment can be a smart method to finance your house purchase.

 

 

How to Fight Inflation

How To Combat Inflation? – 5 Strategies To Fight Inflation

Inflation – Rising Prices – Can Make It Difficult To Get Ahead

Inflation occurs when prices are steadily and noticeably on the rise.  Out of control inflation can wreak havoc on an economy, and for individuals even moderate inflation can make it challenging to get ahead.  The purpose of this article is to provide some concrete, practical strategies regular people can us

e to combat the effects of inflation.

How Inflation Affects Regular People

One of the positives of inflation is that wages generally rise.  Isn’t that great!  If only the story stopped there it would be.  The problem is that inflation causes costs rise as well.  For example, if you rent then each time your lease is up then your rent will noticeably increase, thus eroding the effects of your higher wages.  It’s not just rent.  Inflation causes the price for gas, groceries, electricity, mobile phone usage, movie tickets, clothing, and all kinds of things regular people need and want to rise as well, making it a struggle for regular people to keep their heads above water.

How To Combat Inflation? – Lock In Your Costs!

What if your income is $100 and your expenses are also $100.  Now, if your wages increase to $110 due to inflation but your expenses also go up to $110 then you would just be treading water financially.  However, if your wages went up to $110 but your expenses stayed at $100 THEN you would be getting somewhere.  One of the keys on how to fight inflation is to lock in your expenses.  But how can regular people do that?  Here are some strategies on how to combat inflation.

How To Combat Inflation Fixed RateStrategy #1 – Buy A Home With A Fixed Rate Mortgage

Housing is most people’s most significant monthly expense, so it follows that if you can lock in your housing costs then you really put a stake in the ground when we answer the question of how to combat inflation.  How does a regular person do that?  By buying a home with a fixed-rate mortgage.  Doing so locks in your housing costs, and as inflation increases then your purchasing power can actually increase as well (because your wages should continue to rise, yet your housing costs should remain the same).

Strategy #2 – Refinance Your Variable-rate Mortgage To A Fixed-rate Mortgage

As I stated above, on how to combat inflation, it’s not enough to just to own a home, you need to either own it outright (congratulations if you do!) or you need to refinance to a fixed-rate mortgage.  Why?  Because interest rates tend to rise with inflation, and if every time you get a raise your mortgage resets to a higher amount due to an increase in interest rates then you’ll always struggle to get ahead of the inflation curve.

Strategy #3 – Buy Your Cars Rather Than Lease

Cars are often regular people’s second most expensive monthly cost.  So if inflation strikes then you may have a decent lease today, but when it comes time to renew then the cost to do so will be significantly higher.  On the other hand, if you buy your car then you lock in the cost, and the more years you drive it the more effectively you’ll battle inflation.

Strategy #4 – Have Some Of Your Financial Reserves In A Money Market Account

The stock market struggles to do well during periods of inflation because borrowing costs are high for businesses (due to high interest rates).  Bonds do even worse because as interest rates  increase they take a hit in value.  So what can you use for a financial reserve?  A money market account is a good option because the interest it earns will rise with inflation, and money market accounts also have the advantages of being liquid and relatively safe.  If you want even more safety (at the cost of a lower interest rate) then put your money in an FDIC-backed savings account instead.

Strategy #5 – Avoid Variable-rate (Or Floating) Consumer Debt To The Extent Possible

Again, when inflation rises it takes interest rates along with it.  So if you have a substantial amount of consumer debt then it increases your exposure to the negative effects of inflation.  Credit card debt is one obvious example.  However, a less obvious example is a home equity line of credit with a variable interest rate.  If you’re caught with a high balance (through financing major home improvements or college tuition, for example) then try and lock in your rate if at all possible (check out borrowing against your 401k plan as an alternative).

An Inflationary Economy Unmasks Poor Financial Choices

The strategies above generally work well during most economic cycles, so what’s the big deal?  It’s important to keep in mind that a good (or even a stable) economy can mask less than ideal choices.  For example, if you got a variable-rate mortgage while interest rates are flat or declining you would notice little or no difference between your situation and someone who had a fixed rate.  On the other hand if inflation took off then it would take your monthly mortgage payment with it, and that could cause you to feel a strain on your finances in a very real way.

In summary, inflation has serious and far-ranging effects on both individuals and the broader economy.  While the strategies above may at first blush seem general and applicable to most any economy, they are particular well suited to deal with an inflationary environment.  Thus by taking steps on how to fight inflation you can not only weather it well, but you make it work for you.

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Debit Card Budgeting Methods

Budgeting Methods Using Debit Cards

Introduction Of Budgeting Methods Using Debit Cards

Check and debit card budgeting methods are refinements of the Budgeting Cash Envelope System.  When I say “refinements” in this case, I don’t mean that a cash based budgeting system cannot work or be an effective budgeting method for some people, because it absolutely can.  However, cash based budgeting systems do have some notable shortcomings which I discuss in more detail below, and the use of checks and/or a debit card is intended to shore up those weaknesses while still maintaining the integrity of the budget process.  As a means to illustrate how checking and debit card budgeting methods work, assume that your financial situation for the month is as follows.

What this illustration shows is that after you pay all of your bills, you have $1,000 left to cover your day-to-day living expenses for the month.  It’s important to clarify before going any further that there are distinct advantages and disadvantages of making payments with checks, debit cards, and cash, and to learn about that in more detail you can see the article, “Comparing Paying with Cash, Checks and Debit Cards.”  However, for purposes of this budget-related article, I am going to treat the use of checks and debit cards as essentially the same, because both payment methods draw funds directly from your checking account each time you make a purchase.

The Advantages Of A Debit Card Vs. Cash Based Budgeting Methods

Budgeting Methods Card SecurityThere are distinct advantages to managing your budget with checks and/or a debit card as opposed to cash.

  1. Convenience and flexibility – If all you have is cash and you’re out and about then you’re your spending is limited to the money you have in your purse or wallet.  However, if you’ve got a debit card or a checkbook then you have immediate access to all of the money in your budget (which is $1,000 in our example).
  2. Security – If your checkbook or debit card is lost or stolen there are steps you can take to limit your risk of loss, but if cash is lost or stolen then it’s likely gone forever.
  3. Better record keeping – When you make purchases with cash you only have your receipt from the transaction, and in some cases you may have no receipt at all (paying a babysitter, for example).  On the other hand, when you pay with a check or debit card you not only have the receipt from the transaction, but you have other records as well (entries on your bank statement or, in the case of checks, check carbons).

The Disadvantages Of A Debit Card Vs. Cash Based Budgeting Methods

While there are certainly advantages to managing your budget with checks and/or a debit card, there are drawbacks as well.

1. Discipline – While I don’t pretend to know all of the psychological reasons why, people tend to take spending cash more seriously than writing checks or handing over a debit card.  SomehowBudgeting Methods Debit Card Vs Cash spending cash “hurts” more, or makes the cost of a transaction more “real.”  As a result, some people have an easier time respecting and staying within their budget using a cash based budgeting method as opposed to a check/debit card based budgeting methods.

2. Math Errors – If you make a math error in tracking your budget while using a checking or debit card money budgeting method there is a real possibility you could overspend, thinking you have more money in your account than you actually do.  With a cash based system it’s unlikely you’ll go long thinking you have more money than you do.  For example, you might think you have $100 of cash left, but if you open your purse or wallet and you only have $60 then that’s it – you’ve only got $60.  Granted you may not be able to remember where the missing $40 went (which can be frustrating), but after counting the money in your hands there will be no doubt how much you have to work (which can provide a sense of certainty).

“Remember Time Is Money.  Simplifying Your Budget Will Give You A Better Chance Of Sticking With It!”

Debit Card Budgeting Methods Receipts3. Losing Receipts – When using debit cards in particular, it’s not difficult at all to lose track of a receipt, and thus forget to account for it in your budget.  For example, if you get gas with a debit card and fail to take the receipt then it’s very likely you’ll forget to deduct the purchase from your budget.  As with math errors, if you miss recording a transaction such as this then you’ll think you have more money to spend than you actually do, which will put you in danger of blowing your budget.

4. More Complex Record-Keeping – While it’s true that using checks and debit cards technically provides you with better record-keeping, it also makes your record-keeping more complex.  Think about it, if you convert the remaining $1,000 in your account for day-to-day living expenses into cash then you will have very few transactions to account for on your bank statement when you balance your checkbook.  On the other hand, each check and debit card transaction will hit your bank statement, and all of those transactions can be difficult to reconcile unless you’re diligent and organized.

Combining The Debit Card and Cash Based Budgeting Methods

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It’s important to note that the check/debit card method of budgeting and the use of cash basis budgeting are not mutually exclusive.  In fact, you can combine the two methods in a myriad of ways, and doing so can provide you with a lot of flexibility and can be tremendously effective.  To illustrate, in our example you have $1,000 to manage your day-to-day expenses for the month.  That being the case, you might elect to take $100 in cash to spend on miscellaneous things over the course of the month, leaving $900 in your account to cover checking and debit card transactions.  Thus, as you go through the month, you have the flexibility to pay for things with a check, debit card, or cash as you see fit.  Again, that’s just an example.

There are almost limitless ways you can combine checking and debit card based budgeting with cash based budgeting to manage your finances.  The important thing is to develop a system that meets your needs, that you’re comfortable with, and that best enables you to live within your means.

Related article “Cash Budgeting Method Explained

Budgeting Cash Envelope System Done Right

The Budgeting Cash Envelope System

How The Budgeting Cash Envelope System Works

The budgeting cash envelope budgeting system is a refinement of the All Cash Budgeting Method.  In other words, instead of paying for everything with cash, the basic philosophy of the budgeting cash envelope system is pay bills using a checking account, but to use cash to pay for everything else.  Here is an illustration of how it works.

What this illustration shows is that you used checks to pay all of your bills, and then you converted the remaining $1,000 of your paycheck in cash.  So what are you going to do with all of that cash?  How do you properly manage it?  That’s where the envelope system comes in.  What it means is splitting up your cash and putting it in separate envelopes, with each envelope representing the amount of money you can spend within a certain time period or on a certain category of expense.

Budgeting Cash Envelope System Split CashAnd how do you decide how to split up your cash?  Of course it should be according to your needs, preferences, goals and personality.  It’s also vitally important that you split up your cash in a way that works best for you, with “working best” being defined as the system you’re most likely to follow to live within your means (which in this example means not spending more than your $1,000 of cash until your next paycheck).  With that flexibility in mind, there are 4 main schools of thought on how to split up your cash when applying the budgeting cash envelope system.

Method #1 – Divide You Cash Into Time Periods “Weekly Method”

Assuming there were 4 weeks in a month, if you wanted to divide your cash into time periods then you would put $250 in 4 separate envelopes labeled “Week 1” through “Week 4”. This budgeting cash envelope system would then use the $250 for week 1 to make all of your day-to-day purchase: groceries, gas, entertainment, etc.  If you elect to use this “Weekly Method” then you need to understand that spending needs for different weeks could be quite different.  For example, one week might be heavy on groceries, and another might be heavy on gas or other expenses.  Either way, if you maintain your discipline then the idea is that the week-to-week highs and the lows should average out.

But what if you happen to have a week that requires heavy spending for one reason or another?  While not ideal, you would either drastically cut your spending or, if necessary, you would borrow cash from the next week’s envelope to make it through.  On the flip side, what if you had a week with exceptionally light spending?  Rather than go out and blow the money, I would suggest putting in an additional envelope marked “Extra.”  That way you’ll have an additional source of cash to draw from if another week’s spending runs high.  Finally, if you end the month with any cash remaining then you’re in the enviable position of having extra money that you can either save or spend.

Method #2 – Divide Your Cash Into Categories of Spending “Category Method”

Budgeting Cash Envelope SystemAnother budgeting cash envelope system is an alternative to the Weekly Method of organizing your cash envelopes, you could use the “Category Method.”  You do this by creating separate envelopes for groceries, gas, fun/entertainment, savings and any other categories that make sense to you.  As you go through the month you draw cash from the appropriate envelope depending on what you’re spending money on.  If run out of money in a particular envelope then ideally you shouldn’t spend any more money on that category.  However, if it’s urgent (you need gas so that you can get to work) then you can take some cash from another envelope where you might have some extra (such as groceries, but now you might have to forego the chips and ice cream you wanted).

The upside of the Category Method is that it’s easier to predict how much money you’ll spend on various categories of expenses than it is to figure out how much you’ll spend in a given week.  For example, it’s much easier to estimate how much cash you’ll need for gas in total than it is to determine how much cash you might need for week 3 as opposed to week 4.  On the other hand, the Category Method can be difficult to apply in practice.

“Using Cash Into Categories Of Spending Takes Time To Get Use To, But It Is A Great Budgeting Cash Envelope System!”

To illustrate, say you’re going to the movies, but you’ve got to get some gas on the way, and you’re going to pick up some milk on the way home.  How are you going to handle that in the context of the Category Method?  Are you going to take your “Gas,” “Groceries,” and “Fun” envelops with you, and then pay for each with separate money?  Or are you going to take what you estimate what you need from each envelope and carry a combined amount of cash.  Do you know what category the cash that might already in your purse or wallet belongs to?  In which envelope(s) will you put any change you might have left over, or will it just stay in your purse or wallet?

In summary, while the Category Method is conceptually sound, it can be difficult to develop and perfect a system that will keep your cash in various categories segregated.  If this budgeting cash envelope system doesn’t sound right for you we have the lump sum method.

Method #3 – The “Lump Sum” Method

Cash Envelope System Lump Sum MethodYou might not want all of cash to be henpecked into specific categories of spending or artificially short time-frames.  In other words, forget all this envelope stuff.  The philosophy behind the Lump Sum Method is that you just want to know flat out how much money you have $800, how long it needs to last 1 month, and then be left alone to manage it as needed.

The appeal of the Lump Sum Method is that it conveys a sense of freedom “Wow, I have $1,000 of cash to spend however I want.”.  On the other hand, the Lump Sum can convey a false sense of freedom that can get you into financial trouble.  For example, let’s say that even if you’re very, very careful with your cash, essentially $700 will be needed over the course of the month for the very basics, such as food and gas.

If you lose sight of that and go out and the beginning of the month and blow $400 on “fun” just because you started out the month with big wad of cash, you’ll end up running out of money before the end of the month…even if you do nothing else fun or that you want to do (because you’ll only have $600 left, or $1,000 less $400, when you really need $700 at a bare minimum to cover real necessities such as groceries and transportation)!

My Observations Of The Budgeting Cash Envelope System Called The “Lump Sum” Method

In summary, my observation is that the Lump Sum Method can work very well with people that are highly disciplined with their money.  By “highly disciplined” I mean “stand at attention for 3 hours in the rain without moving a muscle” type of disciplined.  This budgeting cash envelop system is by far the most discipline of all methods that have been covered. On the other hand, if you have a single impulsive bone in your body when it comes to purchases “Hey, I wasn’t really looking to buy anything, but that seems like a good deal!”, then I would proceed very carefully before adopting the Lump Sum Method.

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Method #4 – Combining The Budgeting Cash Envelope System Methods

In using the budgeting cash envelope system there’s no reason why you have to exclusively use any one of the above methods.  Instead, you can combine them any way you see fit according preferences, personality and goals.  For example, in thinking about how to split up your $1,000 you might decide to put $600 in an envelope marked “Groceries & Gas” and then divide the remaining $400 in 4 separate envelopes of $100 for weeks 1-4.  That way you have money set aside that’s dedicated to necessities, and you have an extra $100 each week to take care of everything else.  Again, that’s just an example; there’s no end to the combinations you can come up with in using the budgeting cash envelope system to meet your own customized needs and circumstances.

Cash Budgeting Method

Cash Budgeting Method Explained

How Does The All Cash Budgeting Method Work?

The all cash budgeting method is simple and straightforward.  Here’s essentially how it works.

  1. You get paid.
  2. You convert the entire amount of the check to cash.
  3. Pay all of your bills in cash.
  4. You set aside any cash that you want to save in a semi-safe place (the proverbial jar in the closet).
  5. With your remaining cash you cover your day-to-day living expenses.  If you run out of cash, you quit spending.

Who Is The All Cash Budgeting Method Best Suited For?

As appealing as the all cash budgeting method is in terms of its simplicity, it’s only a practical money management solution for a limited number of regular people.  Why? Cash Budgeting Method Best Suited For You For one thing, it’s a significant (not to mention stressful) issue to keep cash – especially large amounts of cash – safe and secure.  Also, while you might be able to walk down to the property manager’s office to pay your rent in cash, it’s much more of a pain to do so for things such as your utilities and phone bill.  Despite its drawbacks, the all cash budgeting method can be useful for the following categories of people.

  1. Young kids living at home.
  2. Students away from home whose primary expenses are largely covered for them (room, board, insurance, etc.).
  3. Those who are living with relatives or friends due to age or personal hardships.
  4. Those with a lack of understanding and/or a great fear of banks and the financial system in general.
  5. Those who have lost checking account privileges by doing things such as bouncing checks or continuously over-drafting.  It can also be from not settling up with the bank, either due to excess, abuse, mismanagement, or a lack of understanding.

The all cash budget method of budgeting is also used by the following categories of people, who I would not broadly characterize as “regular people!”

  • Illegal immigrants or others who do not want to provide the necessary identification to open a bank account.
  • Criminals who do not want their identity or whereabouts to be traced.
  • Anyone else who wants to remain anonymous for whatever reason.

Is the all cash budget right for you?   Check out our article on The Budgeting Cash Envelope System.

7 Effective Budgeting Strategies

7 Effective Budgeting Strategies

For effective budgeting strategies, it’s important to understand the difference between budgeting principles and budgeting methods.  When talking about budgeting principles I am referring to the underlying reasoning and rationale behind effective budgeting.  The principles aspect has to do with the “why” behind approaches to budgeting.  Effective principles of budgeting do not change over time, just as principles of mathematics do not change over time.  After all, no matter how much the technology around budgeting advances, $3 less $2 will always equal $1.

When talking about budgeting methods I am referred to the “how” in terms of the tools, systems, and resources one employs to apply budgeting principles.  But budgeting methods also has to do with various systems of budgeting one chooses to use to manage their money.  The budgeting methods are as follows: the all-cash budgeting method, the envelope system, as well as check, debit card, and credit card budgeting methods.  What this means is one person may track their budget using a pencil, paper, and their checkbook.  Another may do so using credit cards and the latest integrated cloud-based personal finance software.

You can also take advantage of our budget calculator, which will assist you in creating a monthly budget.  Yet despite the use of vastly different budgeting methods, each of these individuals could be equally proficient in applying principles of effective budgeting strategies.  And what are these budgeting principles I’m referring to?

7 Effective Budgeting Strategies

  1. A budget needs to tie to how much money you actually have in the bank.  It does no good if you’re budget says you have $100 to get through the month, but in reality your checking account is Effective Budgeting Strategies Monthly Budgetoverdrawn $200.
  2. A budget needs to be realistic.  Your estimated income and expenses need to be as close an approximation as possible to your actual income and planned spending.
  3. A budget should cover a specific period of time.  Monthly budgets are best in most cases, but other budget periods (such as annual budgets) can also work if they more logically track your income and expenses.
  4. You should be able to update your budget quickly and easily.  While this may sound like mere convenience, it’s important because if you find your budgeting method to be excessively cumbersome there is a danger you could stop doing it altogether.
  5. A budget is a vital communication tool, so it should be intuitive and easy to understand.  Specifically, you should be able to clearly tell where your money is coming from, and where it’s going.
  6. A budget’s format should be flexible.  This will allow you to easily modify it as your preferences and circumstances change over time.
  7. You have to be committed to and respect your budget.  If you’ve budgeted $40 for entertainment and you spend $400 then you’re wasting your time.

This is okay, because as long as you follow effective principles of budgeting there are many different budgeting methods to choose from. Having effective budgeting strategies will allow you to better manage your finance to meet you financial goals.  As long as you incorporate the principles outlined above, you can employ the budgeting method that best reflects your own personality, preferences, priorities, and circumstances.

Pay In Cash

Pay in Cash, Checks and Debit Cards Comparisons

Pay in cash, writing a check and using a debit card are three different ways to do the same thing: to transfer some of your money to someone else.  Let’s explore the advantages and disadvantages of each method of payment.

Pay In Cash

Stores (and people) are almost always happy if you pay them in cash.  Here are some disadvantages if you pay in cash.

  • Security – If you have a significant amount of cash on you there’s always a risk that it can be lost or stolen, and if that happens then it’s gone forever.  Businesses like when custom pay in cash, at a certain point even they can have security concerns as well.  For example, you generally can’t bring a suitcase full of $100 bills to a reputable car dealer to pay for a vehicle in cash.  Why?  Because that much cash is a pain for a business: they’ve got to count it, store it, guard it, transport it to the bank, etc.  In summary, while cash is good, too much cash is a problem.
  • Trans-portability – When you pay in cash you generally need to do so in person, because there are risks obvious involved in sending cash in the mail or in providing someone else with cash so that they can pay a financial obligation on your behalf.  In other words, while there’s no harm in putting a $5 bill in your nephew’s birthday card, it wouldn’t be wise to send your daughter to school with a sack full of cash so that she could pay her out-of-state college tuition.  No, in that case you would have to make the long, inconvenient trip to the tuition office.

“If You Pay In Cash While Traveling Be Extra Careful To Hold On Tightly To Your Cash!”

  • Record-keeping – When you pay in cash it can be very difficult to remember where it all went.  For example, let’s say that you recently got $100 in cash from an ATM, but now you have just $30.  Where did the other $70 go?  Hmmmm, let’s see.  You got some gas and you grabbed a bite to eat…but it seems like there was something else.  Was there?  Again, with cash it can be hard to remember.
  • Supply – If you underestimate how much cash you need then your purchasing options will be limited (unless you can easily obtain more cash).  On the other hand, if you overestimate how much you need then you’ll end up with too much, and that could create security and/or record-keeping issues discussed above (not to mention the temptation to just spend it).

Note that I’m not suggesting that you should never pay in cash.  In fact, I think it’s a good idea to have a certain amount of cash with you at all times, because sometimes there really is no substitute for it.  However, for the reasons listed above, I don’t believe that using cash is a safe, efficient or effective means for paying most of your financial obligations.

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Paying With A Debit Card Versus Writing A Check

You should be aware that if you pay in cash you know this isn’t the best way to pay for most things.  Now let’s explore the advantages and disadvantages of using a debit card versus a check.

Convenience

A debit card is a more convenient means of paying for things than a check for several reasons.

  • A debit card is more compact than a checkbook, which makes it easier to carry around with you.
  • When you pay with a check you have to take the time to write out who it’s to, the date, the amount, etc.  When you pay with a debit card all you have to do is swipe it though the payment processor and enter your PIN and, voila, the transactions is done (although waiting on the payment processor can sometimes take awhile).
  • You can run out of checks, but if you have a debit card then you can make as many purchases as you want as long as you still have money in your account.

Despite the convenience of debit cards, there are simply times when using one won’t work.  For example, try paying the babysitter with a debit card and see what kind of look you get.  No, if you’re out of cash in a situation like that then only a check will do.  Also, while practically all major stores have payment processors, some small businesses still don’t.  In any case, despite these examples to the contrary, more often than not debit cards are a more convenient means of payment than checks.

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Store Returns

A store return goes more smoothly if you made the purchase with a debit card rather than a check.  For example, let’s say that you bought something at a store and the next day you realize it’s defective.  Assuming that you choose to return it (as opposed to simply exchanging it for the same item), if you made the purchases with a debit card then you can immediately get a refund in 1 of 2 ways.

  1. The store will put a credit back on your debit card equal to the amount they charged you for the item or
  2. The store will give you a cash refund.

By contrast, if you paid for same item with a check then your experience would likely be much different.  That’s because many stores have a policy that they won’t issue refunds for check-related returns until 10-14 days after the purchase, primarily because they want to make sure that your.

Record-Keeping

Pay In Cash Record-KeepingAre you now sold on using a debit card?  Well, don’t toss away your checkbook just yet.  Knowing how much money you have to spend at any given time is a critical element of effective money management, and keeping complete and accurate records of your financial transactions is an important part of that.  For example, if you start out with $1,000 in your checking account then it’s pretty obvious that you have $1,000 to spend.  But how much money do you have left after a few days?  What about after a few weeks, or even a whole month?  The only way you can know for sure is to accurately update your checking account balance based on your records of deposits and withdrawals.

Now keeping your checkbook updated may sound pretty easy.  After all, it’s just a little addition and subtraction, right?  Yes, that’s true in theory, but in practice it can be very challenging to stay on top of how much money you have (or don’t have!), because financial transactions tend to generate piles of paper that you have to sort through: store receipts, ATM slips, billing statements, contracts, warranties, disclosures, bank statements, etc.  Thus, the more you can do to simplify your financial records, the easier it will be to maintain a handle on how much money you have at any given time.

Record-Keeping Benefits From Checks

Now, assuming that you have carbon checks, writing checks is one of the ways that you can improve your record-keeping.  What are carbon checks and how do they help? A carbon check consists of an actual check (meaning the check you give to someone for payment) that is affixed to a carbon copy of the check that you keep for your records.  Thus, whenever you write a check that has an associated carbon you end up with two records of a transaction.  The first is the store receipt, and the second is the carbon copy of the check. By contrast, if you pay for something with a debit card, the only record you have of the transaction is the store receipt.

Another thing that makes checks better than debit cards for record-keeping purposes is that they’re sequentially numbered.  This is useful because it makes it very easy to tell if you’ve missed accounting for a transaction.  For example, let’s say that you have carbons for checks 1000-1010 in front of you, but upon closer inspection you realize that the carbon for check 1006 is missing.  What does that tell you?  It means that you need to figure out what happened to that check, because until you account for it then you won’t know for sure how much money you actually have.  But what if you still can’t find the carbon for check 1006 after searching through your financial records?  How are you going to figure out who yo`u made it out to and how much it was for?  By accessing your bank account online you should be able to view a photographic image of any check that you’ve written.

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Summary Of Record-Keeping

In summary, if you’re able to keep perfect records of all of your financial transactions then, theoretically, it shouldn’t matter whether you pay for something by writing a check or using a debit card.  However, life is real, not theoretical, and it’s not uncommon to periodically (or even frequently!) lose track of some of your ATM or debit receipts over the course of a month.  As a result, paying for things with a check is a safer bet from a record-keeping point of view.

Security (Identity Theft)

Identity theft is when someone illegally uses the personal information of someone else to fraudulently obtain money, goods, or something else in the victim’s name.  For example, you would be a victim of identity theft if someone ordered a credit card in your name and then used it to make purchases.  While both checks and debit cards carry risks as far as identity theft is concerned, thousands of people use them every day without any problems.  If that’s true, to what extent should you use (or not use) checks and debit cards as a method of payment?

A full discussion of identity theft is beyond the scope of this article, but for now I will say that determining the degree of security you need for identity theft isn’t much different than determining how much security you need for your car.  For example, is it enough to lock your car doors when you go into the store, or do you need a full-blown security system?  The answer depends on many factors: how much your car is worth, its make and model (some cars are more prone to theft than others), the incidence of theft in your neighborhood, as well as (and probably most importantly) the degree of protection you feel that you need in order to have a reasonable degree of comfort/peace of mind.

So when it comes to identity theft, my recommendation is to educate yourself on how it can happen as well as the various strategies you can employ to minimize your risks.  That will enable you to make an informed decision on how to handle your finances in terms of security.

Summary of Pay in Cash, Checks and Debit Cards

While it can feel really good from a psychological point of view to “pay in cash” for everything using cash, checks or a debit card, there are significant advantages to making purchases with a credit card if you can pay off your balance in full and on time each month.

The important thing is to be aware of the strengths and weaknesses of the each payment method and to adopt the one that best suits your needs for a particular transaction.

Monthly Budget – How & Why To Create One

Creating a monthly budget really has to be one of the most useful things that you can do. Essentially, you need to really understand how much you earn, from where and when and where it all goes to! If you are careful and honest about your tracking of spending habits, it will be very revealing I’m sure!

Once you have created a monthly budget template, it will probably offer some useful insights into squeezing more from your monthly income. You’ll also be aware of all of your monthly expenses that you may have forgotten about.

Monthly Budget – Income

The first step to basic budget planning and debt management budgeting is to calculate your income. Personally, I would calculate this as a monthly figure, but you may prefer weekly, I shall leave that up to you.

How many sources of income do you have? Perhaps you have a regular salary, overtime payments or bonuses, maybe social security payments or a second job. What about your spouse? Does he or she work? How much does this partner bring in to the household finances?

Try to be as accurate as you can here. It is very important that the numbers are compiled carefully. Accurate numbers will enable accurate decisions later on. If you receive a variable amount (perhaps you earn commission or tips) can you try to calculate an average? Do you have old payslips or bank statements that you can work from?

Our goal here is simply to arrive at a number which you consider to be your usual monthly income. Total it all up. Obviously, use the net income figure since that is what you actually see in your pocket.

Monthly Budget – Outgoing Expenses

Monthly Budget TemplateHere comes the scary part! No matter how much you may earn, and how satisfied you may or may not be with that figure, we all wish that we were spending less.

The monthly spending calculation is going to take either a bit of guess work or a lot of hard work. This is because some of your outgoings are small and cash based. For example, your daily sandwiches at work, sweets for the kids, renting a video or DVD are all payments out that are potentially difficult to track. Try using our expense calculator to track your monthly budget expenses. The expense calculator will help you identify all your expenses you may have otherwise missed. In addition to an expense calculator, we also have an in-depth monthly budget template. This monthly budget template has a lot more features that allow you to track all of your expense quickly and efficiently.

However, the bulk of your spending will be on large, known and regular items. For example, your rent payments, household insurance and loan repayments would all fit into this category.

Ideally, you will work out your income and expenditure over the course of two or four weeks. This way, you will be able to see how you are spending money and understand the pattern. Accuracy in completing this debt management budgeting exercise will prove to be very valuable indeed. With this knowledge, you will be able to understand you finances completely.

Why Should You Use A Monthly Budget Template?

Expense Calculator For Monthly BudgetsYou may be reading this, thinking to yourself about the pathetic and basic things that I have started with. You might be right. However, I am constantly amazed at the number of people that have never actually tried to accurately calculate their monthly budget.

For example, I have been writing this over two days (an afternoon and the following morning) and on the evening of the first day I met a friend that wanted to discuss finance with me. She is in her mid twenties, a bi-lingual expatriate who works for a major international bank and someone I look up to as being really quite bright. She wanted to talk about making some monthly savings. Yet, as we chatted she realized that she had no idea about her spending patterns and whether or not she actually has any disposable income. Who would have guessed it? So even if this is too basic for you, give it a go to humor me.

Now that you have completed this little debt management budgeting exercise, you will hopefully be able to see areas where your spending can be controlled a little. You will also be able to see whether your income is actually covering your outgoings each month. If it doesn’t, you need to make some drastic changes to your lifestyle to get back on track!

If your debt management budgeting exercise has shown that you are overspending each month, it is vital to make changes. Without changes, you will never be able to become solvent unless you win a lottery. That should worry you.