Beating Broke

Personal Finance from the Broke Perspective

Beating Broke Rules: Budget

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If you’ve ever been involved with a company’s financials or been an investor researching a company, you likely know that they all have budgets.  In fact, they would have a pretty big problem if they didn’t have budgets.  And even with budgets, they still have problems when those budgets are unbalanced at the end of the quarter.  An unbalanced budget that is in the red can cause a paper loss of millions (or billions) in stock price.  That makes for a lot of unhappy investors (read owners).

Why shouldn’t those same rules apply for your personal finances?

Beating Broke Rule: A budget is a must.

Let’s face it.  Only the Government gets away with an unbalanced budget.  If you or I were to take up similar fiscal actions, we’d be declaring bankruptcy every year.  The bottom line is this; If you want to be fiscally responsible and be in control of your finances, you’ve got to have a budget.  And it must balance.  Must!

Let me finish by finishing the analogy.  Think of your personal finance situation as a “business”.  You and your Wife (or partner and any children you may have) are the shareholders.  When the “business” does poorly (i.e. runs in the red) the shareholders lose value.  Only, instead of being able to sell the stock and find a better performing “business”, you have preferred stock that is non-saleable.  What’s more, you’re the CEO, CFO, CIO, and mail room attendant.  There is nobody you can fire for poor performance and you can’t trim your labor costs with layoffs.

The only way for your “business” to perform well is to have a budget that balances.  If you really want to make your “shareholders” happy, you’ll find a line item in there for savings as well.

Analogies aside, a budget can really help you see where your money goes and helps you get in control of your money.  Instead of trying to find a few dollars at the end of the month to pay bills, you might just find a few extra for an ice cream cone or two.  If you’re curious how to create a budget, read my article on building a simple budget to learn how we created our first budget.

Where We Began

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I’ll spare you the pre-story except to say that my wife and I both did a lot of things wrong financially in our college years.  Lots of college loans, credit card debt, and little to no savings to speak of.  We got married, and still we continued on our merry way.  We bought a house long before we really could afford to and even added a dog.  Then we got pregnant and our financial inproprieties caught up with us.  We struggled and struggled and eventually, just months before the birth of our son, we saw the light.

Total Money MakeoverThat light, courtesy of a book called Total Money Makeover by Dave Ramsey, may have saved our financial lives.  Maybe we would have continued to barely make it, but we would have never made it to where we are now.  It’s been a little over a year since we started our makeover and we’ve seen some pretty amazing results so far.

When we started the plan, we were struggling financially.  Our debt to income ratio was well over 40% and the best we could do was to pay the minimum on everything and hope that there was still money in the bank when the checks came through.  All told, we had debt of over $100,000 and total income of less than $50,000.  We may have been on the verge of bankruptcy.  Our net worth was a horrible -$85000.  But we turned it around.

We started with a budget and built up a $1000 emergency fund.  We still have that $1000 in the bank earning interest at etrade.  We still use a budget every month.  We’ve paid off one of our cars, several credit cards and have moved a couple credit cards to 0% intro rates.  We’re nowhere near being out of the fire yet, but we are getting there.  Our one year review shows a net worth of -$58000.  An impressive increase.  It was helped by a nearly $10,000 increase in the value of our home, but still reflects the work we’ve put into our finances.

We’re on our way to financial independence and a debt free lifestyle.

Beating Broke Rules: Payday Loans

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This one is simple.  Or should be in any case.  And yet, the industry keeps getting stronger and more prolific.  But let me be clear on this one.  Do not touch Payday Loans!

Payday loans are something that I and other financial folks like to call Parasitic Lending.  They tout their convenience and ease all the while (like a parasite) putting you further and further behind with their high fees.  That money that you thought you needed so badly becomes about 25% lighter before you even leave the office and if by some chance the check you wrote them is bad?  You could easily rack up enough fees for that to exceed over 50% of the “loan”.

I cannot say this enough.  Debt is BAD!  And Payday loans are the worst of the bunch.  The only thing that I can think of that is worse would be bookies that take broken fingers and knees as fees rather than money.  Yes, they are that bad.

Do yourself the favor.  If you’re even thinking about using a payday loan service, don’t.  Things will be tight for a while, but if you truly work at it, you can get by without them and you will be much more financially sound without them.

Beating Broke Rule: Don’t touch PayDay Loans

There are plenty of alternatives around.  You can get a pretty good rate on a shorter term loan through a peer-to-peer lender like Lending Club.  You can sell off some of the junk you don’t need for some quick cash.  You can ask your bank or credit union.  You might be surprised by what they say.  Especially if you’ve got a relationship with them.