I need to save my house. I am currently over $3,000.00 in arrears on my house payments, I just started a new job, and I have yet to get my first paycheck. My goal: to save my house.
How do we reach goals? By planning. Therefore, I am sitting down and coming up with a budget plan. Thankfully, my husband works and he has taken care of all of our bills for a while. I need to be able to pay just a few small bills and keep gas in my car in order to get to and from work.
So, lets see what information and or tips I can find.
Budgeting
You need to know where your money is going if you want to control your finances. Budgeting isn't all about restricting what you spend money on and cutting out all the fun in your life. It’s really about understanding how much money you have, where it goes, and then planning how to best use those funds. Here’s everything you need to help you create and maintain a budget.
The first step in creating a budget is to determine how much income you have. This is quite easy and typically only requires you to take a look at your pay stub. In addition to your regular pay, you’ll want to also include any other sources of income you may have, such as child support, alimony, dividends, interest, a side business, and so on.
Now it’s time to take a look at your expenses. Start with your fixed payments, such as your mortgage, car payments, insurance, debt and taxes. Then it's time to dig deeper to find out where the rest of your money goes. Take out your checkbook or pull your latest bank statement to help you with this step. Jot down how much you spend on things like utilities, groceries, entertainment, subscriptions, and so on. This handy worksheet can help you with keeping track of expenses.
You should now have all of the information needed to help you create your budget. So, go ahead and total up your monthly income and all of your monthly expenses. Subtract your expense total from your income total and you’ll have either a positive or negative number. If you have a positive number, congratulations, you are spending less than you earn. Don’t worry if you have a negative number. The whole reason for creating a budget is to identify deficiencies and find out how to address them.
Now that you can see how much you fall short, you can adjust your spending or saving in certain areas to improve the situation. Typically, just saving a few dollars here and there can be enough to make sure you spend less than you earn.
Baby Step Number One:
Start a $1,000.00 Emergency Fund
This beginning emergency fund will keep life’s little surprises from turning into new debt while you work off the old debt. If a real emergency happens, you can handle it with your emergency fund. No more borrowing.
Baby Step Number Two:
Pay off all debt using the Debt Snowball
List your debts, excluding the house, in order. The smallest balance should be your number one priority.
The point of the debt snowball is simply this: You need some quick wins in order to stay pumped up about getting out of debt! Paying off debt is not always about math. It’s about motivation. Personal finance is 20% head knowledge and 80% behavior. When you start knocking off the easier debts, you will see results and you will stay motivated to dump your debt.
Baby Step Number Three:
Put Three to Six Months of Expenses in Savings
Once you complete the first two steps, you will have built momentum. Now it’s time to build your full emergency fund. Ask yourself, “What would it take for me to live for three to six months if I lost my income?” Your answer to that question is how much you should save.
Use this money for emergencies only: incidents that would have a major impact on you and your family. Keep these savings in a money market account. Remember, this stash of money is not an investment; it is insurance you’re paying to yourself, a buffer between you and life.
Baby Step Number Four:
Invest 15% of Household Income into Roth IRAs and Pre-tax Retirement
When you reach this step, you’ll have no payments—except the house—and a fully funded emergency fund. Now it’s time to get serious about building wealth.
Dave suggests investing 15% of your household income into Roth IRAs and pre-tax retirement plans. Don’t invest more than that because the extra money will help you complete the next two steps: college savings and paying off your home early.
Baby Step Number Five:
College Funding for Children
By this point, you should have already started Baby Step 4—investing 15% of your income—before saving for college. Whether you are saving for you or your child to go to college, you need to start now.
In order to have enough money saved for college, you need to have a goal. Determine how much per month you should be saving at 12% interest in order to have enough for college. If you save at 12% and inflation is at 4%, then you are moving ahead of inflation at a net of 8% per year!
Never save for college using:
Insurance
Savings bonds (only 5-6% growth)
Zero-coupon bonds. (only 6-8% growth)
Pre-paid college tuition (only 7% inflation rate)
The best way to save for college is with Education Savings Accounts (ESAs) and 529 plans. Remember, college is possible without loans!
Baby Step Number 6
Pay Off Your House Early
Now it’s time to begin putting all of your extra money toward the mortgage. You are getting closer to realizing the dream of a life with no house payments.
As you attack this last debt, you will gain momentum much like you did back in the second step of the debt snowball. Remember, having absolutely no payments is totally within your reach!
Baby Step Number 7
Build Wealth and Give
It’s time to build wealth and give like never before. Leave an inheritance for future generations, and bless others now with your excess. It's really the only way to live!
Vow to never hold your money so tightly that you never give any away. Hoarding money is not the way to wealth. Save for yourself, save for your family’s future, and be gracious enough to bless others. You can do all three at the same time.
Once you’ve taken the time to create a budget, now it’s time to make sure you follow it. Budgeting can be like going on a diet—you start with good intentions, but after a few weeks or months you drift away from your plan. Don’t let that happen to you. Stick with the budget snowball and build your momentum!
Additional tips:
Strategy: Go on a spending fast
Advice: This means no spending on anything except absolute necessities -- like my mortgage, utilities, car payments. Luckily, we have no car payments and my husband pays the utilities. All I have to worry about is the mortgage.
Going on a fast, you can't buy clothes, no coffee out, and no eating out. You need to really took a look at what you need and only spending money on those things. Instead of eating out, invite friends to "eat-in." Grow a garden and purchase produce from co-op programs.
Advice: Start collecting all the change you can find and put it in a jar. Every month, use whatever money is in the jar to make payments on a credit card or other loan.
Strategy: Track your expenses
Advice: Start out by keeping track of everything....how much you spend on lunch, how much on gas, everything. Do that for a couple months, and then come up with a payment plan.
Feel free to readjust your allowance until it worked with your lifestyle. You can start bringing lunch to work, shop for groceries only once a week, and learn how to cook foods that you can use in multiple meals so you don't have to waste anything.
I hope that some of this information can come in handy for others of you out there. I am mostly debt free, but really need to have a budget to stay that way.
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