F.A.R.E. Debt Education
F.A.R.E.’s mission is to provide exceptional debt education, to ensure financial independence, foster financial responsibility and to improve the quality of life for the betterment of society
Upon completion of this module you will:
- Understand the mentality of spending
- Recognized poor or destructive spending habits.
- Be able to create a budget
Before we discuss budgeting we need to take a look at our spending habits and how they impact how we budget.
- Why am I buying this?
- Wait a week
- “Biggie Size” it ?
Where Does the Money Go?
- Where is my money really going?
- Are these items I can do without?
- What is this costing me annually?
Learn from your experiences
- “Experience is the worst teacher, it gives you the test before giving you the lesson.”- Vernon Law
A Spender’s Mentality
Where does it come from?
- The forces in our society that are so successful at getting us to spend money are also financially powerful, and their advertising messages so seemingly irresistible, that millions of Americans, young and old, routinely take on expensive short term debt in addition to wasting 20 to 30 percent of their money just because of poor spending habits and practices.
- Consider the extent to which some merchants and credit card issuers will go in order to entice people to spend beyond their incomes: no fee and low fee credit cards, instant credit approvals, first time buyer programs, sweepstakes and contests where chances of winning are increased with each credit-based purchase, extended manufacturers warranty programs, replacement insurance programs and, of course, “cash-back with every purchase.”
- Some bankers encourage consumers with poor or no credit worthiness to deposit money ($500 – $2500) into their bank in order to secure a credit card with a 21.99 percent interest rate. In essence, people who do are borrowing their own money back at an interest rate of $21.99 per $100 per year.
- It is not just credit-based spending decisions that get people into trouble. Some people who have either exhausted credit or ruined their credit rating have no trouble over-spending at all. Cash slips through their fingers so fast that at the end of the day, if they started out with $50, they often have less than $5 remaining and will have great difficulty determining just where it was all spent.
What is a budget?
A budget or spending plan is a spreadsheet that shows the flow of money in your everyday life. It can help you determine where you are over spending as well as help you adjust bad spending habits.
A budget should include:
- Net Income
- Living Expenses
- A budget should be realistic and flexible enough to allow for changes in the family’s financial situation and still be achievable.
Remember – Creating a household budget should involve the entire household, everyone will benefit from setting and achieving financial goals.
Why Budget ?
Here are ten good reasons:
- A budget is a guide that tells you whether you’re going in the direction you want to be headed in financially.
- A budget lets you control your money instead of your money controlling you.
- A budget will tell you if you’re living within your means.
- A budget helps your entire family focus on common goals.
- A budget helps you prepare for emergencies or large or unanticipated expenses that might otherwise knock you for a loop financially.
- A budget can improve your marriage. A good budget is not just a spending plan; it’s a communication tool.
- A budget reveals areas where you’re spending too much money so you can refocus on your most important goals.
- A budget can keep you out of debt or help you get out of debt.
- A budget actually creates extra money for you to use on things that matter to you.
- A budget helps you sleep better at night because you don’t lie awake worrying about how you’re going to make ends meet.
Essential steps for maintaining a Budget
Going hand and hand with an effective household budget is saving money on those things that you truly need. To start saving, take an inventory of your needs to see where you can shave the dollars. Begin with the biggest items first, where the most potential for savings is, and move down the scale to the less expensive items. A moderate savings on one of the big items (houses and cars) combined with savings on the smaller items (food, clothes, etc.) can reap a large reward in your total budget. The following are some thought starters:
- 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 “those items that are necessary to sustain: Shelter, food, clothing, transportation”. Wants are those things that enhance or possibly improve our family life. A car is a need.
- Is less better?
Perhaps it is due to the booming economy, perhaps “keeping up with the Jonesis”, maybe its ego, but for many of us, we often seem to insist on the biggest and the best, no matter what the cost. When a $15,000 new car may be more than acceptable, we stretch the seams of our budget to afford a $25,000 vehicle. We buy $25 shirts with $35 designer labels attached. We opt for the $100 dinner at the trendy restaurant when a $20 meal would have been just as delicious. Think about where you are spending the family money–and how–to see if there couldn’t be savings found with minor changes in habits.
- 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 out 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 (and you will be on a certain percentage of items) you will definitely be bored with it, or find it not that necessary, after all!