Wealthy Habits Now!

Owing money to others is a major reason that we can not accumulate wealth. It does not make any difference how much we make if all of our income goes out to pay for stuff we could not afford. Now is time to evaluate the amount of debt that you hold and see it for what it really is, a hindrance to your freedom. Imagine what your finacial situation would look like if you didn't have to give some many people your hard earned cash.

Paying down a large amount of debt requires the same commitment as deciding to lose a large amount of weight. You need to understand that it may require a long term lifestyle change to be successful. Your ultimate goal is to reduce your debt as quickly as possible so you can see the light at the end of the tunnel. Here are some tips that will help you on your road to being debt-free!

Steps to eliminate your credit card debt
Stop using credit cards completely. If you are using your card, chances are that you can not afford it!
Set aside extra money in your budget for payments to lower your debt.
Always pay more than the minimum
Pay off your smallest balance then use that money to attack the next largest balance and so forth.
Make a commitment to pay amount in full every month that are able.
Transfer balances to a lower interest credit card
Request a lower rate from your current company if you have not been late on your payments.
Use cash
Add up the total amount of payment you make towards your debts monthly,imagine the day when you will not have to make those monthly payments to your creditors. Use that feeling as the ultimate motivation to get you debt free!

"Your interest payments are killing you!"

I remember when I received my first credit card. It was a department store card I received after completing a very basic credit card application. I was coaxed into applying for the card by the friendly sales person who was giving out free knick-knacks to anyone who would apply. I had absolutely no credit at the time so I happily completed the application. In my mind, I knew that I would not be trusted with an actual credit card, because of my lack of credit history, so I secretly patted myself in the back for getting the free gift without any risk or loss to me.

Much to my surprise, I received a card in the mail shortly thereafter. After promising myself that I would not use the card, I soon found myself with a small balance from a purchase of a few things that I picked out while shopping one Saturday. The best part about the card was that my minimum payment was only $5.00. What a great deal! I could buy a $60.00 pair of jeans and only have to pay $5.00 a month later.

I consistently made my $5.00 monthly purchases month after month without a care in the world. I was completely content with this easy arrangement with my credit card company until I accidentally forgot to make my faithfully payment of $5.00 one month. The following month my bill included a $25.00 late fee as punishment for my absent-mindedness. I was so upset for having to pay $25.00 for paying one or two days late. After that episode I decided to review my bill more carefully. When I did, I realized something that changed my mind forever about the use of credit cards. I began tracking the amount I owed and the amount I paid every month.

I realized that my bill had an error. For instance, I owed $75.00 on my bill. I paid my $5.00 expecting my bill to be $70.00 the following month. On the contrary, my bill barely went down at all. What was happening to my money? My minimum payment was being applied mainly to principle. It was like the credit card company was pocketing my $5.00 and still expecting me to pay the full amount for the jeans. How would my jeans ever get paid off if they were not using the $5.00 to pay down my balance? I became furious and vowed to avoid high credit card interest with every fiber of my being. To this day, I pay all of my balances in full, no matter how large the balance. My money is much to valuable to give needlessly to the credit card companies.

Your ultimate goal should be to eliminate all the debt you have.

This will not be easy, but it can happen if you change the way you view of debt. Do not look at debt as a natural part of life. Look at debt as the blood-sucking leech that it is. By avoiding consumer debt, you create an atmosphere where you will have less bills to pay. If you have less bills to pay, you can save more. If you are able to save, you are able to invest. If you are able to invest, you can create wealth with incredible ease.

Do you spend your money or allocate it?
The greatest habit you can develop on your road to creating wealth is the habit of allocating your money. Wealthy people allocate their money, people with financial problems spend their money. The difference between the two habits is tremendous. Allocating your money gives it purpose. Allocating your money gives it power. You must chose, today, to allocate every dollar of income that comes into your possession. Allocating your income must begin before you receive it. If you do, you lessen the likelihood of spending money that can be allocated towards your financial goals. When you spend your money, you are giving away your money and possibly postponing your goals. For example, your goal may be to become debt-free. Yet when you receive your income, you eat out several times a week (spending money), you buy some neat items online(spending money) and the next thing you know, your debt amount has not budged. When you allocate your money with purpose, you can allocate a specified amount to reducing your debts while also allocating a portion of your income for food and entertainment.

How to make sure you stick to your budget

How many times has this happened to you? You realize your spending habits are a bit out of control and decide that using a written budget would be the best way to manage your income. So you start by listing your income and your monthly expenses. You are filled with excitement because you have finally moved in the right direction to improve your financial situation.

A while later you realize that you have slipped back into your old spending ways and become frustrated with the entire process. Developing a written budget is one of the first steps to improving your finances but a budget is of no use unless you are able to stick to it. Here are some tips on how you can stick to your budget.

Prepare yourself

Budgeting is the financial equivalent of going on a diet. This means you will have to make important lifestyle changes on how you allocate your money. You should have a conversation with yourself about the costs of going on a budget. Make sure you truly understand that you will not be able to make frivolous purchases on a whim like the good old days. Your money will now have purpose. You will have to make certain every dollar fulfills its intended purpose if you are to stick to your spending plan. Invest the time to mentally prepare yourself before your budget is created. By taking the time in the beginning to set your priorities, you will be more likely to stick to your budget even during the difficult moments.

Link your budget to your goals

Think long term when you create your budget. Why do you want to track your income? Is it because you want to eliminate debt? Do you want to save up for a special vacation getaway? If you want to stick to your spending plan, you must connect your budget to something meaningful for you. Set high priorities which you will use to keep you focused. When you have clear ideas as to why you are following a budget, you will more easily be able to maintain the motivation you need to keep going.

Be Realistic

The absolute worst thing that you can do to sabotage your budget is to restrict your spending so drastically that you set yourself up for failure. If you normally spend $300 a month on groceries, it would be absurd to allocate a budget $100 a month of groceries in hopes of saving money. Instead, look for non-essential areas such as eating out and entertainment where you can trim the fat. These are the things that you can most honestly do without. Take an honest look at your budget before finalizing it, make sure that you have created a realistic spending plan that you can stick to.

Budget for emergencies

The easiest way to blow your budget is by having to pay for an emergency expense that you had no idea was coming. You can not prepare for every emergency that comes your way, but you can set aside a certain amount monthly specifically for life’s little surprises. As you write down your budget, make certain that every dollar left over after paying expenses is allocated to a category including emergencies and other non-routine expenses. You can even create categories for once a year spending like Christmas gifts and birthdays. By doing this, you will not be faced with having to chose between sticking to your budget, or paying for an unplanned expense.

Review often

The absolute best way to stick to your budget is to make sure you review it often. Review your spending weekly, or better yet, daily to track your performance. If you review your budget often, you can catch minor slip ups early and have time to adjust your budget accordingly before the overspending becomes too great. When you constantly review your written budget against what was actually spent, you will have a tighter control on your spending. If you develop the habit of reviewing your budget often, you will not have to worry about asking yourself “what went wrong” if your budgeting plan does not turn out as expected.

Use Envelope Budgeting!
I learned of the envelope system of spending while I was attending a pre-marital couples counseling. The teachers were a husband wife team who spoke directly from their experiences. They were a young couple with several young children and the wife was a stay at home mom.

The envelope method helps you control your spending by clearly showing you how much money you have to spend in a certain category. Each time you receive pay you take out money for expenditures such as groceries, gas, clothes, tolls, etc. Place the money in each category in a specific envelope. As you spend on an item, only use the money that you budgeted from that item from its particular envelope. When you envelope is empty, you stop spending in that category.

AVOID dipping into other envelopes at all costs. My counselor told the class that when she would shop at a superstore, she would have the cashier ring up clothes separately from food. This way she would clearly know how well she was doing on her spending. The envelope system allows us to establish boundaries that help move us down the road of wealth at a much faster rate.

Envelope Budgeting without using cash
One main drawback to using the envelope budgeting system is the need for carrying cash at all times. Our society has become accustomed to cashless electronic purchases as a more convenient way to buy goods and services. For many of us, carrying around envelopes full of cash is not the ideal way to curb our spending.

Store cards, gift cards, and pre-paid credit cards are an ideal way of adapting the envelope budgeting system. If you shop at Walmart, for example, you can allocate a certain amount, once you have created your shopping budget, to place on a store gift card. Buy one gift card for groceries and one gift card for non-food expenses. This way you are not tempted to overspend on non grocery purchases and run out of money before your next paycheck.

Use these pre-paid cards for all of your purchases so that you can keep a close eye on all of your spending. When you use one debit card, you can not safely know if you have gone over-board in one category of spending until it is too late. With this system, you plan ahead of time for all of your upcoming expenses, and use pre-paid card as a tool to help maintain your sensible spending. If you use this method long-term, you will find that you are able to leave below your means without hassle.

The 10 Commandments of Successful Budgeting (Allocating)
Set aside money for savings (pay yourself first)
Look for any and all areas where you can eliminate spending
Write the budget before you receive the money
Incorporate goals into your planning
Review the budget often
Avoid making changes to the budget. Stick to it!
Budget only a small amount of money for entertainment
Be very cautious of spending small amounts of money on non essentials. It all adds up
Remember that it is up to you to make budgeting a consistent habit
Set up automatic pay drafting for saving and spending to make budgeting less complicated