This past week I wrote two articles about how in the past I made horrible decisions with my money; I took out payday loans that took me 2 years to pay off that debt and I completely mucked up my credit by neglecting my credit accounts. I seriously needed financial guidance, but instead had to learn the hard way. I wouldn’t recommend following in my footsteps on either topic. However, I’ve realized, through my own experiences, that the number one reason most people get themselves into so much trouble is that they don’t have a budget. They have no idea how much money they bring in each month or how much goes out.

So how does one create a budget after a melt down?

Obviously the first step is to sit down and look at your expenses. Most of the advice I read mentions sorting through receipts. However, I know that if you’re messing up your finances and living life on the financial edge,  you probably haven’t saved any receipts. This just gives a person another excuse not to begin a budget.

So instead, my advice is to start with the basic categories: rent, utilities, groceries, car expenses. (I’ve included a link with a budgeting worksheet that I use as a guide.) Without having receipts on hand, most people can figure out how much they pay in each category. These items are also mostly necessities (with the exception of maybe the car expenses) so reducing these amounts will be more difficult.

Next, add up your debt total amounts. (You can use my debt worksheet as a guide.) Looking at the larger figure may be scary, but at least you’ll have an idea what you’re dealing with. Then, add up your minimum amounts due. Though the goal is to pay more than the minimum, you first need to figure out if what your budget will allow.

This is also a good time to analyze your habits. If you eat out everyday for lunch, add that to your budget. If you have a daily habit that costs money, such as smoking, add that up as well. These are the categories that can be adjusted if need be.

Finally, determine your total monthly income. Compare this amount to your monthly budget. You may be pleasantly surprised or realize that you’re spending too much on eating out.

What Next?

If your budget shows that you have money left over after basic necessities and minimum debt payments are covered, it’s time to decide how quickly you want to pay off your debt. You may have an additional $100 per month to apply towards one debt payment, or spread it out over a few while continuing to make the minimum payments on all the rest. (This amortization worksheet is a great tool to use.)

A category that should always be included in a budget is savings. Looking at what’s left over at the end of every month shows that you really do have money that could be funding a savings account. By adding savings into your budget, it won’t be something you overlook. Now is the time to allocate a set amount each month that is set aside in a savings account. Budgeting a saved portion of your income also means that amount will actually be saved at the beginning or middle of every month, instead of hoping to save what ever is left over.

However, if your income doesn’t cover your budget, it’s time to figure out how to reduce your basic expenses or increase your income.

In a follow up post, I’ll cover some strategies on how to reduce your expenses and increase your income.

Have you created a formal monthly budget? Or do you just wing it?

Wise Bread

I’m posting at Wise Bread today so be sure to check out my article about how I deep clean one room at a time instead of the entire house during spring cleaning.

This year my 2011 goal is to increase my savings. I’ve finally reduced most of my debt, minus my car and student loan debts, and now need to ramp up my savings and retirement planning. Since I’m dividing up my saved income into a few different accounts (3 to be exact), I’m using an excel spreadsheet to track the difference between what I started with on January 1st and what I will end with each quarter. My three savings accounts include a large purchase account, an ER fund, and a wealth building fund. My wealth building fund will be expanded upon later this year and split into yet another account, but for now I’m tracking our stock portfolio as the ‘Wealth Building’ fund.

You’ll notice in my side bar that I’m making excellent progress having saved 1/3 of my initial $9,000 goal. However, that figure is a bit inflated because I’m tracking our assumed profit on our stocks. This profit isn’t realized until I cash the stocks out which I don’t plan on doing, hence the title of the fund ‘Wealth Building’. If I didn’t include the growth of this account, I’d really be at around $2,500. I want to keep tracking this account since I do add additional funds that come out of our saved income, but I’m just not sure if I want to continue adding it to my over all progress through my Boost My Savings widget. What do you think? Should I include it in my progress each quarter?  Obviously there will be times when the growth stagnates or even decreases a bit. As the year progresses and I open another ‘Wealth Building’ account, I might decide to ditch it and not count it in my Boost My Savings Goal until the end of the year. I’m just glad I’m making progress!

Now some mid-week link love:

• Engineer Your Finances with Forget 2011, Go Back to 2010 Excellent points are made here about looking at your past spending and savings behavior and deciding what to improve on or patting yourself on the back for doing well.
• Invest it Wisely with Are Emergency Savings Necessary? This is a guest post from Crystal from Budgeting in the Fun Stuff and she makes some very good points using examples for reasons to have a nice little emergency fund.
• Yakezie post with You Might Be A Blogging Addict If… Hilarious list of true identifiers of blogger addicts. I’m pretty sure I fit this description.
• Buy Like Buffett with The Beginners Investing Guide.
• Consumerism Commentary with Three Aspects of Your Finances You Can Control. Flexo makes an excellent point about how it’s completely up to you to take control of your personal finances. I’d also add that it’s not enough to just state a goal, you need to have a plan to achieve that goal.
• Wandering Earl with A Typical Summer Week in Melbourne. I’m dreaming of summer and I don’t even live in a wintry area of the US. I just want it to be warmer!
• Prairie Eco-Thrifter with 5 Ways to Lower Your Monthly Bills. Great tips include brown bagging your lunch and canceling subscriptions and cable.

Happy Groundhog Day!

Many years ago, in what seems like another life-time, I royally screwed up my credit. At the time, I had three options; 1.) file for bankruptcy, 2.) apply for a debt consolidation loan, or 3.) ignore my credit problems until they went away.

At first, I thought about filing for bankruptcy. However, I didn’t like the fact that I’d have to wait at least 7 to 10 years before my credit improved. To me that sounded like an eternity. Though bankruptcy was definitely an option for me, having amassed a small fortune in credit card debt, I was just too stubborn to actually go through with it.

Next, I applied for a debt consolidation loan. But since I wasn’t ready to truly confront my budgeting issues and resolve my debts; this option turned out to be more of a headache than a solution. I eventually defaulted on the consolidation loan as well, continuing my pattern of irresponsibility.

Finally, what I decided to do, or not decided to do depending on how you look at it, was ignore my problems with the hopes that they’d magically disappear. Of course, this was an infantile way to resolve my problems. I avoided collectors’ calls, I discarded late-payment letters, eventually my debt was turned over to numerous collection agencies that made my credit report look like a complex flow-chart making it difficult for me to match up the original debt with the current collection agency.

To make a long story short, I ended up “waiting” 7 years to clean up my credit. Thankfully, during those 7 years I began to develop a basic understanding of budgeting and responsible credit usage. That allowed me to build a positive credit history while I waited to dispute my old negative credit items.

Since I didn’t own a house or a car in my name (meaning there was nothing to liquidate), ignoring my debt issues ended the same way a bankruptcy would have resolved my debt issues; which brings me to comparing and contrasting bankruptcy vs. debt consolidation.

Bankruptcy

There are two types of personal bankruptcy; Chapter 7 and Chapter 13. A Chapter 7 bankruptcy is a complete liquidation of all assets that are turned over to the courts to pay the debtors. In most cases, the remaining debt is written off. A Chapter 13 bankruptcy allows you to keep some of your assets, but sets up a payment plan with your debtors. Here is a quick summary of bankruptcy:

• Bankruptcy filings are not free – most filing fees range around $300
• Paper work is crucial – gathering all of the needed paperwork takes time and you need to know what to gather: a credit report, all of your debtor information, and your tax returns as an example.
• Credit score – a bankruptcy can stay on your report up to 10 years. Though you can rebuild your score during this time, you most likely won’t receive the best interest rates until the bankruptcy is completely removed.

Debt Consolidation

An alternative to filing for bankruptcy is to sign up for a debt consolidation loan. The loan company negotiates lower interest rates with your original debtors and creates one combined payment you make to them and they distribute the payments to your debtors. The key to successfully making this loan work is creating a reasonable budget making sure you can pay the monthly payment. Some key points about debt consolidation:

• One payment instead of multiple payments – this is one of the benefits of a consolidation loan; instead of keeping track of all of your payments, there is only one to make.
• Lower interest rates for a fee – most debt consolidation companies negotiate lower interest rates with your original debtors, but this normally isn’t free of charge. The fees are rolled into your monthly payment.
• Responsibility – without any budgeting or money management skills, the possibility of reverting back to skipping payments is greater than 50%.

I learned money management lessons through the school of hard knocks and can now say my credit is in the “excellent” range. Though for anyone in a similar situation, be sure to weigh all of your options and learn how to create a budget. Which is the lesser of two evils? I’ll let you decide.

This is a sponsored post brought to you by HomeServe, Britain’s home emergency repair service.

Many of us will be aware of some of the basics of avoiding a pest infestation.

Few people want to live in a dirty hovel, so most homes have at least a basic standard of hygiene – though obviously, the cleaner your house is, the less likely you are to get a visit from an unwelcome furry visitor.

Most of the best ways to keep your home rodent-free are based on simple common sense, including:

• Keeping areas such as kitchens clean and not allowing food debris to build up anywhere in the home.

• Making sure doors and cupboards are secure will help to make your home less easy to navigate if a rat does make its way into your house.

• Keeping your garden tidy is also essential – rats love feasting on bags of rubbish or sleeping in cosy, damp compost heaps, so these risk factors should be considered when looking at ways to avoid a pest infestation.

However, no matter how hard you work on keeping your house and grounds in good order, unfortunately you can’t account for the actions of your neighbours – or your local council’s rubbish collectors, for that matter.

This is something that residents of an area of Blackburn have learned the hard way recently after waiting weeks for bin men to come and collect their rubbish.

According to This Is Lancashire, the bins were left unemptied for six weeks over the Christmas, leading residents in homes on Park Lee Road and Lynthorpe Road fearing an infestation of rats.

Mother-of-three Judith Day called the scenes disgraceful, commenting: “The council need to organise themselves because we have bad weather every year and it is just ridiculous that every year they seem to drag their feet.”

Joanne Edmundson, another resident, added: “Things can’t just stop working because we have a little bad weather. It’s absolutely disgusting out the back and we are worried that about hygiene and rat infestations.”

Responding to the complaints, operations manager for Blackburn with Darwen Council Terry Trayler said that households had been given extra bags for their rubbish and said sending trucks to pick up rubbish on the designated days could have caused an accident.

“We have extra crews on this week dealing with the backlog and the bins will be emptied today,” he remarked.

Although the residents of Blackburn can look forward to cleaner streets now the snow and ice has thawed, there’s no reason why any rats attracted to the area will be leaving any time soon.

For this reason, the residents may be advised to look into pest extermination cover, a type of insurance that protects households against the effects that an infestation can cause.

Rather than hoping the problem will go away or buying dodgy traps from the internet, people who take out this type of cover can be sure that any unwelcome visitors to their home will be sent packing just as quickly as they arrived.