An accountant will tell you paying off credit card debt will do wonders for your financial health. Let’s face it, it can do wonders for your actual health too. And for many people, completing a debt-relief program is the jumping off point to finally, at long last, getting a handle on their finances. However, that means you need to “sit down and make a budget.” Ugh. We all know it’s the prudent thing to do. So is getting that cavity filled, but we still have to deal with it. But it doesn’t have to be this way.
The following is a list of simple ways to organize your money, create a budget and stick to it. No spreadsheets, no calculator, no long Sunday afternoon required:
Let an app do the hard work
Thanks to modern, connected banking, we are well past the days of balancing our checkbook at the end of the month. If you’ve got a smartphone, you already have the means to keep tabs on your entire financial life. Most every bank offers a mobile or desktop application that lets you pay bills, deposit checks, and transfer money. Yet, there are many apps out there that can do so much more. These apps can be found in the app store or through your bank website under the category of “budgeting or personal finance” apps. These apps can monitor all your accounts at once. Some can even help you set up a budget and alert you when you do (or don’t) stick to it.
To get started, we recommend doing some online research to choose an app you like. Mint, Acorns, PocketGuard are a few of the well-known choices, but there’s plenty of others and many of them are free! Next, you should connect the app to all your money accounts: checking, savings, credit cards, loans, investments, retirement accounts, etc. After that, you’ve done most of the hard work. From this point, the app can see where your money is coming from, and where it’s going in a single glance. You can generate custom reports, and even see your entire finances displayed on a graph like you’re on the Fortune 500.
You might wonder, can you use the app to pay your bills for you? That depends on the app you choose. Most apps will only display your finances. That is to say, they do not allow you to manage your money or any transactions. However, if you’d prefer there are apps, such as Prism, that will track your money and also pay your bills. Finally, if you have all of your financial accounts with one organization (such as your bank), you can view and make transactions all in one place.
Try the 50/30/20 rule
An app can do the math for you, but it’s up to you to put your money to work or play. How much should you devote to savings, to expenses, that next vacation? If mapping out your entire financial agenda is overwhelming, fear not. The 50/30/20 budgeting simplifies planning and investing for those of us who are financial planners. In simple terms it maps out needs vs. wants vs. saving for the future. The basics are this:
- 50 percent of your income should be devoted to towards “needs”: This includes food, housing, utilities, i.e. the necessities.
- 30 percent towards “wants”: hobbies, vacations, things you can live without, but don’t want to.
- 20 percent for “savings”: This includes saving for retirement fund, paying off debt, and emergency funds.
Certainly, not every expense fits neatly into one category. The “rule” is actually a set of rules that is up to you to apply, but pretty much any scenario is covered. For example, let’s say you need your winter coat, but it has holes in it. If you pick out a no-frills coat from the discount clothing store, you can pay for it from the “needs” budget. However, say you splurge on a top-of-the-line parka. The amount you spent above and beyond the no-frills coat is going to have come from your “wants” budget. Another example: credit card payments. The minimum payment would come from the “need” budget. Anything beyond the minimum comes from the “savings” budget.
In short, the 50/30/20 rule can be invaluable if you’re looking for a simple, responsible way to organize your money. But to be sure, there’s more you need to know that we can cover here, so think of this as an introduction. You’ll want to read further before you apply this approach to your finances.
Stay Organized, Easily
You’ll save a ton of headache later if you do a little organizing now. One easy way to deal with financial statements is to not receive them at all. Switching to online statements reduces clutter and keeps you from throwing out that bill “you swore you held on to.” If there’s a physical document you need to keep, consider scanning it. Smartphones can make great document scanners. Just find a scanning app you like and scan away. (Microsoft Office Lens is a great, free app to consider). Next, take a minute to create an organized finance folder on your computer and make sure it’s backed up regularly. Hunting all through your computer for the document you saved (how many years ago?) is an absolute drag and unnecessary. Finally, for those super-important documents you cannot toss away, invest in a file box with folders and labels. You’ll never have to dig through the bottom of a drawer again.
Start saving money
It’s understandable that when you’re to getting out from under credit card debt, it doesn’t leave much to put way for retirement or emergencies. But, the adage “every little bit helps” is never spot on when dealing with saving funds. Perhaps above all, a rainy day-fund is the best insurance against turning to your credit card to cover unforeseen expenses…and you know how that story ends.
Even if you can’t spare much from each paycheck, you will benefit in the long run by putting whatever funds you can into savings. If it helps, create a separate “rainy day” account so it doesn’t blur together with your budget for your needs and wants (see 50/30/20 rule above). Also, consider contributing to an IRA (individual retirement account) or a 401k plan offered by your employer. Your retirement plan administrator can put your money to work better than a under a typical bank account. If you’re the type who’s tempted to dip into saving, these come with a major fee dis-incentive, since you can’t access the funds until a certain age without a major penalty.
Staying on top of your finances is a crucial part of the debt-relief process. And Vantage Acceptance is here to help with any questions that come up. Feel free to speak with one of our expert Debt Specialists at (800) 725-0214.