In every financial transaction, there is a master and a slave. Choose wisely.
Because most of us enter the adult world without the basics of money management, a huge percentage of us are now heading “Back to the Basics” of simple banking, borrowing, and investing. Our basic tip for borrowing, with special emphasis on “Spend Less than you Earn,” is if you can live without it, DON’T Charge it!From the time you begin receiving that paycheck, accountability sets in for how to responsibly distribute that money.
Before you even have these things in place, you may already be over-extended in an auto loan. That brings us to our first major lesson:
Borrowing Basics
As you may have already learned from your auto loan, no one is going to simply give you money because you WANT something you do not have cash to purchase. Our Money Smart webinar suggests the Four C’s that Lenders consider before lending you money.
- Capacity: Your ability to meet payments
- Capital: Value of your assets and net worth
- Character: How you paid your bills or loans in the past
- Collateral: Property/assets used to secure the loan
We can see quickly how critical our work history sets us up for financial acceptance or failure. Creditors advertise a very easy path, but they privately examine documented details of:
- Job performance (school or at work)
- Consistent payment history (student loans and rentals)
- Responsible investment of previous income
- Checking and savings accounts.
Hopefully, you understand the initial requirements for responsible borrowing practices. Your best practice to protect your Credit-Ability, or Borrowing Power is to guard your use of your money inside the rules. Your rule must be: “If I can live without it, DON’T Charge IT!” Follow your Financial GPS for Goal-Powered-Spending!
Here is a general guide for wise distribution of income. Use a detailed Spending Plan sheet (we have them available FREE) to record “Every Dollar On Purpose.”
Borrowing Practice Sheet
Using this standard percentage guide for monthly expense/income ratio, calculate your own percentages and what you hope to improve this coming year.
| 34% | Housing |
| 18% | Transportation |
| 13% | Meals/Groceries |
| 10% | Insurance, Retirement funds |
| 6% | Health Care |
| 5% | Entertainment/Vacations |
| 4% | Clothing |
| 10% | Contributions, Savings, Pets, Misc. |
Monthly Net Spendable Income $______________
Monthly Expenses $ – ____________
Total Cash Flow available $______________
Expense Percentage Amounts
Housing (34%) _______________
Transportation (18%) _______________
Meals/Groceries (13%) _______________
Insurance (10%) _______________
Healthcare (6%) _______________
Entertainment (5%) _______________
Clothing (4%) _______________
Contributions (10%) _______________
Total: (No more than 100%) _______________ CashFlow/Borrowing Power