Distinguish between Wants and Needs

You will save a ton of money if you don’t mistake wants for needs. Needs are pretty simple to identify – these items are necessary to sustain the family: shelter, food, clothing, transportation. Wants are those things that enhance or possibly improve our family life. A car is a need. A $40,000 Sport Utility Vehicle is a want, even if a lot of people don’t see it this way. Have you ever heard (or said) “I absolutely need …” when the actual meaning was “I really want”? This is not to suggest that you shouldn’t be able to have the things you want. But to delude yourself into believing that a want is a need and busting your budget in the process is a recipe for financial disaster.

Try before you buy: This goes a long way in helping to avoid the silly purchases of things you rarely or never use. Before you buy something, especially items with big price tags, borrow one, rent one or try one before you plunk down the cash. If you are bored with it, or determine that it truly is not something you need before you buy it you will definitely be bored with it, or find it not that necessary, after! Take this example: You feel that you absolutely must have a new Jet-Ski, at a cost of $4500 (and that is before financing and taxes). You go to the lake, rent one, and 45 minutes into a one hour rental you are saying: “Gees, this is a long hour!’ Saved: More than $4500 (a year of college fees for the kid!)

Don’t be surprised when (not if) extravagant purchases lose their glitter. Houses, cars and many other fancy purchases tend to lose much of their appeal eventually. After the “ohs” and “ahs” of the family and friends fade, the big payments, maintenance and repairs continue (and the ohers and ahers won’t be helping you with the payments). So the thing we must remember is: Do we really need this or do we just want it? And, if it is a want, can we afford it without harming either our short-term goals or long-term goals?

Pay Back Your Debt

Concentrate on a plan to reduce your debt exposure. If you are like millions of other Americans, your credit card debt is likely excessive and the biggest problem. First, cut up all but one of your cards to avoid additional debt. Next, if you are a homeowner, you may want to consider a small home equity loan1, which can consolidate your debt and allow a single payment at a generally lower interest rate. In addition, your interest on such a loan may be tax deductible (check with your financial advisor). Before you take a home equity loan, though, closely examine your financial situation and compare offers. Lending Tree is a resource that you can use to submit a single application and get up to four offers from competing lenders.

Concentrate on Your Investments

Budgeting only has a lasting effect when the money you save is working for you in suitable investments. A long-term investing program is the best plan for the future as well as a hedge against possible changes in your financial situation.

“The money runs out before the month does. Too little paycheck”

“The harder we work, the behinder we get.”

Have you heard these clichés? Have you ever said these clichés? But they don’t sound very clichéd if you are forced to deal with a budget crisis every month!

For a lot of families, the budget process is pretty simple. It looks something like this. The money comes in. The money gets spent. The scenario rarely varies much – the income generally is fixed, and the outflow only seems to increase. If too much money gets spent, the shortfall gets added to the debt load. As the debt load increases, more of the money coming in goes to paying the debt, which leaves less for spending, which increases the debt. Sounds like a vicious circle? It does, and many families can’t find their way out of the circle.

When asked “where does the money go?” most families will quickly respond “for necessities – food, clothes, things for the kids. Nothing is wasted.” Yet, if asked to produce their family budget, many cannot come up with a single scrap of paper indicating just where the money is going.

Keep Track of Your Credit Report

A strong and accurate credit report is one of your most important financial assets. Not only is it a clear picture of your indebtedness, it can reveal problems or discrepancies which could bar your access to further credit. Repairing a problem now is always easier than attempting to do it after you have applied for a mortgage or a car loan. However, without a definite plan of attack, our budget goals will probably be doomed.

Like diets, many of us have started on family budgets only to see them wither away with time. Yet, leaving finances “to chance,” as many families do is a sure-fire path to letting them get out of control. So, if your family is floundering financially, it may be time to put pen to paper (or fingers to keyboard) and make up a family financial plan. You will probably need a program which will not force you to turn your life inside out. Here are some tips you should keep in mind when developing your family budget.

- Your budget should be tailored to your needs, values and priorities.

- Be realistic when establishing goals and spending categories.

- Involve all members of the family when determining and prioritizing goals, and when allocating the amount of the family income for each goal.

- Weigh carefully all the pros and cons before you decide to pursue additional installment debt. Credit obligations must not exceed 15 % of your take-home pay.

- Develop a savings or investment plan. Saving 5 % or more of your take-home earnings is a necessary element of any budget. Remember, the unexpected can and usually does happen.

- Do not panic if your expenses exceed your income – it may be necessary to revise your budget and cut your current expenses as much as needed.

(compiled from http:// womentodaymagazine.com/money/familybudget.html)

EXERCISES