How to Budget Better in 2021 and Why You Need to Start Now

Budgeting may seem like an archaic skill in a world of well-designed banking websites and smartphone apps with convenient notifications alerting you of new charges the moment you buy something. 

However, knowing how to budget will not only help you to live within your means today, but also give you a view into your long-term finances. 

Learning how to budget will show you the potential to grow your savings while giving you something to look forward to, like spending big on vacations and new tech. Here’s how to make a monthly budget:

Start Now

It’s never the wrong time to start learning how to budget or to budget better. Whether you’re living paycheck to paycheck or have a steady stream of discretionary income, there are budgeting tips that can help you spend your money more effectively, start saving (or save more) and pay off your debt to achieve financial well-being. 

List Your Monthly Income and Debt

The genesis of good budgeting is knowing and writing down your monthly take-home pay and your recurring outgoing payments. Take-home pay is the amount of money you receive from your work, Social Security payment, and any investment income that arrives in your bank account on a regular basis. Outgoing money usually involves more than just your housing, car, cell phone and utility bills. 

To budget as effectively as possible, you should also include monthly estimates for things like:

  • Grocery shopping
  • Haircuts
  • Gas/mass transit costs
  • Pizza nights
  • Takeout lunches
  • Credit card payments 
  • Other normal expenses you incur throughout the course of a month

Calculate Your Quarterly and Yearly Expenses

Not all bills are monthly. For homeowners, there can be things like real estate taxes and sewer bills. However, we all have expenses that crop up outside of our normal, month-to-month spending. 

Some examples of quarterly and yearly expenses include:

  • Holiday and birthday gifts
  • Car maintenance (regularly scheduled and the unexpected)
  • Vacations
  • Back-to-school shopping
  • Taxes
  • Utility bills

Spend time thinking about these types of bills as they relate to you, estimate and total them, and divide by 12. With that new figure, make an additional line item on your monthly budget to set money aside (in a separate savings account) for these non-monthly expenses so that you’re financially prepared when they come due. 

Budget Three Months at a Time

Whether you use a spreadsheet or a paper notebook, setting a budget three months at a time will give you more visibility into your money situation. And as they say, knowledge is power. 

Here’s why budgeting three months out can make an impact on your spending habits and, ultimately, your ability to save for the future: 

The Bigger the Picture, The More You Will See

Seeing the bigger picture of your financial life will help you determine whether you have the extra income next month to pay for that big ticket item you’d like to buy or to cover the monthly cost of that new streaming service you want to subscribe to.

Curb Your Spending to Supercharge Your Savings

Knowing you’ll have money to save each month will help to curb your spending. This is because every dollar spent outside your normal, budgeted-for purchases means a dollar less toward that vacation, new flat screen TV, charitable giving or whatever else it is you’re saving for. 

Look for Ways to Trim Spending

In addition to budgeting three months at a time, take a critical look at your budget and ask yourself:

  • Do I spend too much on takeout or delivery? If so, consider eating breakfast at home and packing lunch more often.
  • Am I using all the groceries I purchase? If not, which foods are being wasted and how much are they costing you every time you shop?
  • Are there opportunities to take advantage of coupons, repeat delivery discounts or other savings to reduce my monthly expenses? If so, you know what to do!

Control Your Inbox

Finally, to avoid unnecessary spending, consider stopping the temptation at the source. If you have an email address and if you’ve ever shopped online, you likely have a steady stream of promotional pitches landing in your inbox. There’s no problem treating yourself every once in a while or making thoughtful purchases when it makes sense for your budget, but sometimes these offers can be budget-busters. Consider unsubscribing to some of the store emails that could present unnecessary temptation.

Read more: Finding Balance Between Spending Money and Savings Time

How to Manage Credit Card Debt Wisely in 9 Steps

According to Experian’s 2019 Consumer Credit Review, 75% of American consumers with credit cards carry an average balance of over $6,000. And the impacts can be financially devastating. 

Credit cards can be enticing, offering not only the ability to buy now and pay later, but also a bevy of rewards like cashback and airline miles. However, there are downsides. Credit card offers often come with high interest rates, a variety of fees and the potential to damage your credit score, if mismanaged. 

Learning how to manage credit card debt today can help improve and keep your credit score high. In return, a high credit score will help your borrowing power should you someday need to get a mortgage, open up a HELOC or take out a personal loan

Here are 9 steps to help you manage credit cards to minimize interest payments, avoid fees and take full advantage of the benefits many credit cards offer:

1. Live Within Your Means

The number one key to learning how to manage credit card debt (and your entire financial life) is to live within your means. In short, this means identifying the difference between your net income from paychecks (plus other sources like Social Security or investment income) and your consistent monthly debt obligations. 

To calculate your monthly debt obligations, list your rent or mortgage payment then any car or loan payments, as well as the money you need for gas, groceries, streaming services and cell phone bills, plus other expenses you incur on a month-to-month basis. This figure should not be larger than your take-home pay each month. If it is, it’s time to reevaluate not only your spending but your employment situation to see about earning more income, possibly from a second job or side hustle. 

2. Set Up Autopay

According to a survey from May 2020, seven of the country’s top 16 credit card issuers now charge customers up to a $40 late fee, even if you miss your due date by a single day. The easiest way to avoid late fees is to enroll in autopay. You can typically set this up for the minimum payment due, the full statement balance or any amount in between to be paid automatically from your checking or savings account each month, on the due date or any date before. By taking advantage of autopay, you’ll never forget to make your payment or have to pay a late fee.

3. Pay More Than the Minimum

You should always pay at least the minimum payment due each month. However, paying only the minimum will leave you in debt longer and could mean paying thousands of dollars in interest. 

As an example, let’s say you’re carrying a $6,000 balance on a credit card that charges a 14.99% interest rate, and you make only the minimum payments. In doing so, you may eventually pay upward of $4,000 in interest before you even pay off your original $6,000 balance! 

4. Pay in Full

The opposite of paying the minimum is paying in full. When you pay your entire statement balance in full before the due date each month, you’ll pay no interest. If you’re using a rewards credit card and have learned how to manage credit cards effectively in this way, you’ll get all of the benefits (cashback, airlines miles, hotel points, etc.) while paying the credit card issuer nothing for these rewards. This is the pinnacle of wise credit card management.

5. Pay Your Bill Only After Your Statement Period Ends

Speaking of those rewards… It’s great to pay down your balance or pay your credit cards in full as soon as you have the money to do so. But there’s a caveat… If you pay current charges before the statement period ends, you could be missing out on the rewards for those charges. This is because rewards are often calculated based on the charges posted and due at the end of each statement period. If you pay off or pay down this balance before the monthly statement period closes, that’s less you’ll earn rewards on. The sweet spot to pay your credit card is anytime after the statement period closes but before the due date.

6. Track Your Spending

You can either track your spending habits on your own or use a free credit card spending tracker app. Some of these apps even offer color-coded summaries to easily identify how and where you typically spend your money. 

For example, are you spending hundreds on groceries each month yet still ordering a lot of takeout? Tracking your credit card spending will illuminate trends and point you toward ways you might improve your financial life. No matter how you keep tabs on your spending, it’s a key step toward learning how to manage credit cards successfully. 

7. Find a Credit Card with No Annual Fee

While many rewards credit cards carry an annual fee (although some may be waived for the first year), some credit cards offer no annual fees. Choosing a card without annual fees could save you upward of $99 each year while still allowing you to build your credit history and improve your credit score.

8. Manage Your Credit Utilization Rate

This tip is all about managing your credit score. One of the factors that goes into calculating your credit score is your credit utilization rate. This is the amount of your credit card’s spending limit you regularly use. 

For example, if you have $6,000 in credit card debt but a credit limit of $20,000, your utilization rate is 30%. The lower your credit utilization percentage, the better, because it means your credit cards aren’t maxed out. A low percentage also shows potential lenders that you know how to manage credit card debt.

9. Consolidate Your Debt

If your past credit card usage has become a heavy burden, debt consolidation may help you get a handle on your credit card debt. Learning how to use home equity to consolidate debt or applying for a debt consolidation loan through Prosper may help get your financial life in order and improve your emotional well-being. 

Read more: 5 Tips to Manage Holiday Shopping Debt

Is Student Loan Consolidation Smart?

It may be smart to consider a student loan consolidation if your student debt picture from college is more of a collage than a still life painting. With different lenders often being responsible for federal loan programs every semester, it’s entirely possible that you’re currently responsible for repaying a number of different loans, both private and federal. With all the other complexities, confusions, fears, and headaches of modern life, juggling such debt from your college years may not only be dizzying, it may also be, with a student loan refinance, thoroughly avoidable. 

Student loan consolidation may be a smart way to make repaying student loans more manageable, both during the pandemic and going forward. It’s also possible that a student loan consolidation may result in a less expensive way to pay off your student loan debt. 

What is a Student Loan Consolidation?

Student loan consolidation is the method of combining all your individual outstanding student loan amounts, taking one lump sum loan, and using those funds to pay off every one of those college student loans. Once consolidated, you will be left with a single loan payment due monthly to a single lender. And you may begin to breathe easier each and every month.

Why You Should Consider Consolidating Your Student Loans

A single payment

The single greatest benefit of student loan consolidation is the corralling of all your college debt down into one manageable payment to a single lender. There could be no more payments spread around to a myriad of different lenders, because after you consolidate your student loan debt, you will have the peace of mind that comes from one solitary loan payment to make each month. 

A Lower Payment

That new single loan payment from a student loan consolidation may result in an easing of the month-to-month financial burden on you. Tally up the total of your student loan payments before starting to research whether consolidating is the best option for you, so that you will know immediately if the new single loan payment each month will be lower than the total of your current monthly student loan payments.

Take Advantage of Your Good Credit

You’re a college graduate — congrats! — and have been working hard, making payments on time and possibly have a good credit score. You may be able to use that good credit to your advantage when going forward with a student loan consolidation at a more friendly interest rate than your current student loan(s).

Lower interest rate

While not guaranteed, it is possible that by consolidating your private student loans, you may end up with a lower interest rate on your college debt. Before making the decision to proceed with a consolidation, be sure to know the interest rate(s) of your current private and/or federal student loan(s). 

Avoid Default

According to the Department of Education, over 10% of borrowers have defaulted on their federal student loans. By consolidating your private and federal college-era debt, you may help yourself stay in the 90% of the population!

One More Thing To Consider Before Consolidating Your Student Loans

If some or all of your college tuition debt is in the form of federal student loans, be sure to consider the possible benefits you may be missing out on, just as a deferment or forbearance to temporarily suspend your payments as COVID-19 assistance as well as during other hardships you may face, should you consolidate into a single private loan. 

Read More: 6 Tips That Could Improve Your Credit Score

COVID-19 Financial Health Calculator: Extending Your Quarantine Budget

You don’t need to enter data into a Financial Health Calculator to know that saying the COVID-19 crisis has been a challenge would be a significant understatement. Even if you’ve been fortunate enough to stay healthy, not lose your job, and didn’t have the virus take a loved one away from you, the emotional and economic impact has likely been severe. While it may seem strange to search for silver linings from Coronavirus quarantine life, there may be personal finance lessons learned that could, if we reflect upon them, help improve our financial future. 

It’s said that necessity breeds invention and as such, many Americans learned to occupy their time at home with puzzles instead of heading out for live concerts, enjoy streaming movie marathons while cinemas were shuttered, and baked bread and learned to cook at home because favorite restaurants and cafes had to be closed for public safety. The result, or silver lining, for many Americans is a more frugal life. Now, let’s look at how to use a financial health calculator to start extending your quarantine budget as we head into the ‘new normal’.

Use A Financial Health Calculator to See Your Quarantine Savings

Your exact household budget, spending and potential savings will differ, but to get a big-picture snapshot of how much less you’ve been spending during quarantine life, use this clever financial health calculator. You’ll enter:

  • How many miles you typically drive to and from work,
  • The number of times you get take-out for dinner each week,
  • Nights spent at the local pub,
  • and the total number of kids who under normal circumstances would need childcare.

What you’ll get back is a dollar amount representing the approximate amount you have (or could have been) saving each month during quarantine life, while at home doing puzzles, binging TV shows, and baking (and eating) too many muffins. Sure, your online shopping habits may have increased, as probably did your home’s energy and water bills, but overall you likely have been spending far less money than before COVID-19 struck the U.S.

Three Easy Ways To Earn and Save Money

No one is saying to never go to the movie theater again or skip the concert of your favorite band once it is safe enough to hold and attend live events, but maybe we have been spreading ourselves and our budget too thin for too long. And maybe we’ve not been taking advantage of the various ways we can earn and save money.

More Shirts, Less Pants

Working from home, having meetings on Zoom and leaving the house less has meant more shirt-only sales and less pants being purchased, which literally cuts wardrobe costs in half. Pocket those savings, even if you aren’t wearing bottoms to work now!

Sell Your Clutter

You likely have extra stuff lying about — DVDs you haven’t watched in years, an old set of golf clubs, the dehumidifier that never did help clear up your stuffy nose, that trendy kitchen appliance you barely ever used. Now’s a great time to check the value of all that on eBay and Craigslist, then sell your clutter. You’ll clean up your space and pocket a few dollars in the process. 

Close Accounts That Are Charging You Fees

Now is the perfect opportunity to micromanage your financial life and keep more of the money you earn. Take a fine-tooth comb to your life and discover if you’re paying bank account monthly maintenance fees, credit card annual fees, ATM fees to use your debit card, and any miscellaneous wireless phone or home internet access fees. There are too many high quality online banks, no-fee credit cards, other home services with no fees to continue spending your money on accounts and services dinging you with fees each month. 

Extending Your Quarantine Budget

You’ve used the financial health calculator and you’ve seen, clear as day on the screen, how much excess money you’ve been spending instead of saving during pre-COVID times. Now, as businesses reopen, COVID-19 relief programs end, and some semblance of normal life returns, keep thinking critically about the ‘wants’ that you haven’t needed for much of this year. This could mean:

  • Extending that newfound passion for baking your own bread instead of paying up to $5 for a crusty loaf at the market,
  • Making more use of the crockpot for meals at your own in-home BYOB versus pricey dinners at restaurants,
  • Walking, hiking or running outside and doing pilates for free with an instructor on YouTube in front of your Smart TV instead of paying monthly gym membership fees,
  • Watching more sports at home on your big, flatscreen TV with fairly-priced food and drink in hand…and no exorbitant parking costs to pay,
  • Shopping less overall but when you do making it secondhand and/or local to save money and continue supporting your community,
  • And putting the money you save doing all of the above into a rainy day fund just in case there’s a second wave of COVID-19 or another unforeseen emergency.

There’s no telling what the future holds as we continue to battle public safety and the need to get back to work and normal life, but you have the opportunity to put some of the lessons learned and financial changes made out of necessity to work for you for the long haul, and be better prepared to handle whatever comes next.

Read more: Managing Finances During A Work Furlough

What Debt to Pay Off First: How to Prioritize Debt on a Limited Budget

As the pandemic takes its toll on our economy, our unemployment rate and your personal financial wellness, there is no better time to figure out what debt to pay off first, especially if you are already on a limited budget. As we prepare for what is being called “the coronavirus recession”, there are steps you can take to stay on top of your bills and keep your credit in check.

We’ve shared with you loan and debt relief options available during COVID-19. Now, we’re sharing a 3-step approach to figuring out how to prioritize debt.

How to Prioritize Debt in 3 Steps

According to the National Consumer Law Center’s (NCLC) online resource, Surviving Debt, determining what debt to pay off first starts with one rule: “Prioritize debts whose non-payment immediately harms your family.”

Here are the 3 steps the NCLC recommends for how to prioritize debt.

1. High-Priority Debt

Step one of determining what debt to pay off first is to figure out your high-priority debt. Not sure how to do that? Ask yourself –  what payments could harm you most if you skipped a payment? Hint: your answer cannot be, all of them. While it can feel that way, it’s important to really think about what can harm you and your family. For example, not paying a criminal justice debt you owe could land you in jail. That is high-priority. 

What other debt examples fall under this category? Here are a few outlined by the NCLC:

  • Auto loans: If you don’t pay this, you can lose your car which limits travel and can potentially cost you a job.
  • Child support payments: This is a legal obligation that can lead to prison if payment is avoided.
  • Rent: If you don’t pay rent, you could get evicted.
  • Utility bills: You want to keep the water running and the lights on as this is an essential for your family’s wellness. So utility bills can’t be put off. 

2. Medium-Priority Debt

Next step in how to prioritize debt is to determine which payments you should consider medium priorities. Medium-priority debt includes monthly payments that are important BUT you’re able to delay them without serious penalties. Why are they considered medium priority? Because these bills could end up being high-priority debt down the road, but the severe impact is not immediate. This would include debt like:

  • Your mortgage
  • Property taxes
  • Federal student loans
  • Federal tax payment

If you’re struggling financially during the pandemic, there are federal programs and other relief options that may help you defer these payments until you’re in a better place.

3. Low-Priority Debt

Now that you know what debt to pay off first and second, the third, and final category is low priority debt. Again, low-priority debt is important to pay off, but the penalties you face are far less than high or medium-priority debt. So what kind of debt does low-priority include? According the NCLC, the following bills are considered low-priority debt:

  • Medical debt
  • Credit card debt
  • Private student loans
  • Personal debt owed to friends and family
  • Debts owed with a co-signer

Like any debt, if put off long enough, low-priority debt can climb the ranks to become high priority, so you don’t want to avoid paying these bills for too long.

What Debt to Pay Off First: The Bottom Line

While there are ways to prioritize your debt, it’s important to note that no matter the level — low, medium or high — there are consequences to skipping  monthly payments. If you have the finances to cover your monthly bills, do it.  

If you’re struggling to make ends meet, in addition to prioritizing what debt to pay first, there are relief options available for certain loans and bills. Also, it never hurts to call your service provider or lender and see if there’s a special payment plan or short-term arrangement that can be made to accommodate your limited budget. 

Read more: Managing Finances During a Work Furlough

Emergency Loans With No Job: Options for the Unemployed

While the unemployment rate in June showed a decline to 11.1%, that rate is still extremely high. Add to that the possibility of future declines as we continue to grapple with coronavirus, and it’s easy to see why the need for emergency loans has increased. 

But what if you’re among the millions of unemployed workers? We’ll explore the options you have when it comes to applying for emergency loans with no job.

Can I qualify for a loan if I’m unemployed?

The simple answer: it depends. There are two factors that can help your chances of being approved for a personal loan, even if you don’t have a job: alternative income and your credit.

1. Alternative Income Options

If you have no proof of employment due to a layoff or furlough, you can provide your lender with alternative income options to show you’re able to pay back what you borrow. Unemployment benefits can be used to represent your income, as well as the following: 

If you already have money in your savings account, or have freelance work or a pending job offer, those can also count as income for some lenders.  

2. Your credit

Your credit can be a huge factor in whether you can get approved for an emergency loan with no job. Lenders will want to look at your credit history and credit score to see how reliable you are when it comes to managing your debt and paying back what you borrow. 

The higher your score, the better for lenders. Typically, a good credit score is 670 or above. In the end, it depends on the scoring model used: FICO or VantageScore.  

Credit scores are calculated using data from your credit reports, which you can check free every 12 months. If your history is in good shape, odds are so is your score. It’s important to check your credit and fix any inaccuracies immediately to get your score up where it needs to be. 

Important note: Every past-due account that is more than 30 days old can cost you at least 100 points on your credit score. Make sure to stay on top of your bills and correct any wrong information ASAP.

Options If You Don’t Qualify for a Personal Loan.

If you just don’t have the income to make a personal loan happen, there are alternatives for emergency loans if you don’t have a job. Here are three.

1. Apply with a co-signer

If your credit score is keeping you from being approved for a personal loan while unemployed, using a co-signer may help. A co-signer can be a friend or family member who has a good credit score. The advantages to using a co-signer include a higher probability for approval, better potential for a lower interest rate and possible access to a higher amount.

Just remember: Both you and your co-signer are responsible for payments, so if you miss or skip one, you’re both on the hook financially.

2. Get a joint personal loan

Like a co-signer, a joint personal loan allows you to apply with someone who has financial security and good credit. The difference? Both applicants own the loan, whereas the co-signer in the scenario above only shares the responsibility, not the ownership. This can benefit friends, families and couples in which one person is unemployed while the other has steady income. 

3. Apply for a home equity line of credit (HELOC)

If the above options don’t fit your current situation and you’re a homeowner, a home equity line of credit, or HELOC, may be able to provide you with the emergency cash you need while you search for a job. A HELOC allows you to borrow against the equity in your home, so it‘s not based on your income. It’s a revolving line of credit from which you can borrow as much or little as you need.

While a HELOC isn’t backed by your income, it does use your home as collateral. If you cannot keep up with payments, be very careful and consider choosing another route for financial assistance.

Additional Help For The Unemployed.

Sometimes circumstances don’t allow for emergency loans with no job. You may not have a cosigner, or home, or additional income. It’s important to know what financial relief is available at this time, from temporary assistance with your bills to federal aid specifically set up for COVID-19. 

Do your research and do what you can to keep your financial wellness in check. Remember, you have options, relief and alternatives available. Be sure to reach out to lenders to learn more.

Read more: Emergency Funds That Offer You Financial Assistance During COVID-19

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