Young adults, read and learn: many Baby Boomers, (e.g. your parents) don’t have enough retirement savings. An Employee Benefit Research Institute poll showed that 57% of US workers surveyed had less than $25,000 in savings and investments (excluding their homes). The younger you start, the better. But even if you’re over 50, setting aside money starting right now can make a difference. When creating a budget, always include money for retirement, even if it’s only a few dollars a week.
It’s OK to Start Small – Just Start
Creating a budget with retirement in mind doesn’t mean foregoing every last bit of pleasure. Life is happening now, and soul-crushing deprivation can lead to spending binges and a bad attitude. However, simple changes like brown-bagging your lunch three days a week can free up $20 or so you can put toward retirement, and you’ll probably eat healthier too.
Look for other little savings opportunities too. When the baby is finally out of diapers, it’s almost like getting a pay raise. Put the money you used to spend on diapers toward retirement. These small amounts add up, particularly if you start when you’re in your 20s or 30s. Commit to increasing the amount you set aside each year, even by a little.
Fixed Costs Help You Budget More Simply
The more fixed costs you have in your budget, the easier creating a budget will be. If you regularly spend $80 to $90 per week on groceries, budget a flat $100 per week for simplicity. If your utility company allows monthly budget billing so you pay the same every month, look into doing this. After Halloween, determine a reasonable amount to budget for holiday presents and stick with it. The more predictable your expenses, the easier it is to discover where you’re wasting money.
Compare Periodically and Save
Consider installing a budget app on your laptop or phone. The best ones help you think of everything, and offer convenient extras like text alert bill reminders, so you won’t waste money on late fees. Some budget apps link with your bank account and credit cards and can recommend cheaper bank accounts and credit cards with lower interest rates that you are likely to qualify for.
Periodically evaluating terms on car loans, credit cards, and even mortgages can free up money you can put toward retirement and not even miss. (Keep in mind, however, that closing old credit card accounts can ding your credit history, because it lowers your average account length. The longer you keep a credit account open and healthy, the better it is for your credit score.)
Consider the Merits of “Going Green”
When you give yourself a weekly cash allowance for daily expenses, you’ll learn to spend less. For many people, the psychological impact of parting with cold, hard cash makes it easier to pause and think, “Do I really need this?” Creating a budget for your weekly incidentals can help you spend more wisely on everyday expenses, and it feels great to make it to the end of the week with a little left over (which you can also put in your retirement nest egg).
Where to Put Retirement Money
If you have an employer 401K plan, this may be your best way of saving for retirement, particularly if your company matches some of your contributions. 401K contributions come out of your paycheck before taxes, making it nearly painless to save, and helping you keep a lid on your tax rate. Strive to save 1% more in your 401K each year, and eventually you’ll be maxing out contributions.
If a 401K isn’t an option, you can open your own retirement account. Not all banks and brokerages require minimum initial contributions, and others waive initial deposit requirements when you sign up for monthly direct deposit. Find out how much you’re allowed to contribute to your IRA each year, and work toward reaching that maximum. If you’re not sure how much you can put into an IRA, there are online calculators to help you.
Creating a budget is the first step toward financial flexibility and reaching your goals. Creating a budget that includes planning for retirement is even better. If you’re young it can make a significant impact, and even if you’re older it’s far better than nothing. Saving for retirement doesn’t mean you can’t have any fun now; it just means understanding your spending and shifting priorities.
When you arrive at the day you’re finally ready to take steps toward improving your financial situation, it’s a big deal, and the last thing you want to do is start using budget software that doesn’t fit your needs or your lifestyle. Mint is designed with maximum flexibility so that whatever your spending, saving, or investing style, you can make use of financial tools that will improve your financial situation.
Mint does the work of organizing and categorizing your spending, so you can see where every dime goes and make the best possible financial decisions. Signing up for Mint takes only seconds, and securely connects to your accounts, including bank accounts, credit cards, investment accounts, and retirement accounts. But rest assured that Mint only reads your information, and neither you nor anyone else can move money in Mint. Mint is designed to help you make better money decisions and to track them once they’re made. Here’s what you should know about Mint.
Easy Budgeting and Tracking of Spending
As soon as you’re signed up for Mint and link your accounts, Mint starts tracking your spending – a much easier technique than writing down everything by hand. Mint also categorizes your spending so you can see at a glance how much you’re spending on groceries, fast food, hotel stays, and any number of other categories. Mint tracks and categorizes spending because you’re more likely to stick to a budget designed especially for you. Not all spending categories work for all people, so Mint tailors your budget for you, keeping you on track with bill alerts, mobile reminders, and many other terrific features.
Next step: Sign up for Mint and learn how powerful and easy budget software can be.
Setting Goals and Tracking Progress Toward Them
Everyone’s goals are different. You may be saving toward replacing your old car while your sister or best friend is determined to eliminate credit card debt. Mint lets you set goals that matter to you and tracks your progress toward those goals. Whether you’re saving up a down payment on a home or putting away money for a fantastic vacation, Mint can keep you on track and maximize your potential for reaching your financial goals.
Personalized Recommendations on Saving Money
One of the great advantages of having Mint track your spending is that by doing so, Mint can make specific suggestions that can save you money. Mint analyzes thousands of savings, checking, brokerage, credit card, and investment offers, and can then recommend ones that will save you the most money based on your spending habits, lifestyle, and goals. You can even filter these offers based on the features you’re most interested in, like bank accounts that refund ATM fees, or credit cards with cash back offers.
Wherever you are on your investment journey, Mint can help you see your progress. Mint’s investment tracking lets you compare your portfolio to market benchmarks, or instantly see your asset allocations across all your investments. You can track your 401K, mutual fund account, brokerage account, or IRA so that you don’t have to wait for monthly or quarterly statements to get a snapshot of your investments and how they’re performing.
Take Mint With You
When your budget stays home on your personal computer, it isn’t much use to you if you’re shopping and want to know if your bank account balance is sufficient for a purchase. That’s why Mint offers free apps for Android, iOS, and Windows 8 mobile devices. These apps link to your Mint account, so wherever you go, you take your budget with you. When you can see instantly how close you are to reaching a financial goal you’re much less likely to give in to temptation and make a purchase you’ll regret.
Extras That Take Your Experience to Another Level
If visual information is your thing, you’ll find Mint’s graphs and charts to be super helpful in tracking your spending, income, account balances, and net worth. You can get graphs and charts that compare spending month-over-month, or year-over year, or visual representations of your progress toward financial goals. Another great extra is bill reminders. Have your PC or mobile device alert you before bills are due and avoid late fees and other hassles of paying bills late.
Nodiv spends, saves, and invests precisely like you do, and your budget software shouldn’t force you into a budget that isn’t suitable for your life. Mint is designed to be flexible enough to personalize just for you, and powerful enough to keep your motivation high and show you your progress. Best of all, you can get started right now.
Next step: Sign up for Mint and learn how powerful and easy budget software can be.
This post may contain affiliate links. Please read my disclosure for more information.
Today I’m excited to share with you Sarah Wilson, aka Budget Girl’s debt free story! She’s an awesome millennial woman who paid off over $32K of debt on her own in three years. And along the way has built a community of 59,000 subscribers on YouTube!
Sarah started her journey in 2014 making $26K as a journalist. Over three years she side hustled, lived frugally and made moves in her career to pay off her debt faster.
Sarah’s story will empower you in whatever situation you’re in to suit up and attack your debt. Her YouTube channel is also a wealth of tips and resources on saving, meal planning, frugality and of course, budgeting.
And if after hearing Sarah’s story you want some ways you can live a more budget conscious life, check out my list of 90 ways to live a more frugal life!
Without further ado, here’s Budget Girl!
Can you tell a little about yourself for people who aren’t familiar with you and your YouTube channel?
I’m Sarah Wilson, also known as Budget Girl on YouTube, where I talk about living a frugal and fun life on a budget. I documented paying off my student loans on a low income over the past three years and am now living debt-free, but still frugally, while pursuing my financial goals.
How much debt did you pay off and how long did it take you?
I started off with $32,640ish dollars in debt and paid thousands of dollars in additional interest as I was working the original number down. It took 3 years and two months.
You’re a writer and editor, why start a video channel?
Because I write and edit writing all day, I did not want to spend more time doing that when I got home – hence the vlog over a blog!
Why the name Budget Girl?
I wanted to commit fully to budgeting my income and getting out of debt. (The former really is the secret to the latter.) It wasn’t the first name I thought of, but it was the best that wasn’t taken already!
Logistics aside, it would be very hard to maintain the moniker if I wasn’t doing the best I could at budgeting, so I thought it would also hold me accountable.
How many videos have you done?
Just over 450. 🙂 It’s crazy to think I’ve done that many.
Update: Sarah has way more videos now with over 5.6 million views!
How do you budget?
I use an Excel-type spreadsheet that I created in Google Drive. It’s very basic and doesn’t require a lot of formulas or spreadsheet acumen. Anyone with a Gmail account has access to drive and it can be accessed from any computer or phone – so my budget is always with me.
How can someone else set up a budget in Google Drive?
I have a copy of one of my budgets available in this video, where I also describe how I budget. Anyone can copy the budget to their drive and use it or change it to meet their needs.
What were some of your side gigs that helped you in paying off debt?
I delivered pizzas for a while on the 10 p.m. to 4 a.m. shift at Hungry Howies. I did secret shopping through SecondtoNone and Marketforce. I bought items at yard sales and sold them online or at consignment.
I also ruthlessly purged my belongings and sold anything I didn’t need. I’ve babysat, dog-sat, dog- trained and helped people organize their spaces.
I have made the most money Youtubing though. My channel currently makes me about $1,000 per month through monetizing the videos with Google. It has been a slowly growing thing.
I didn’t make any money during the first year I was making videos, but it really took off during the final year of debt and I was able to put all my YouTube earnings toward my loans.
What was your biggest setback during the last three years?
Being intentional with your money and having to log every dollar you spend has a wonderful side effect of really coming to understand what life costs.
So if an unexpected expense came up, I dealt with it and made a plan to never have to stress out over that same thing again. So when my car needed sudden work, I started a car repair/replace sinking fund and after that always had at least some money set aside to deal with costly car issues.
The same with medical expenses. So after budgeting for about a year, I was never shocked when a rainy day came and I had umbrellas a-plenty. This allowed me to transform potential setbacks into minor aggravations.
I was aggravated that I couldn’t put as much money to debt that month, but planning for inevitable expenses allowed me to never have to walk backwards.
Instead, I would say that for all three years, I never was set back, but occasionally moved forward more slowly or even had to stand still for a moment.
During this time I sinking funded two cross-state moves and paid cash for a new-to-me used car. But I never went into more debt. I anticipated the storm and slowed my debt payoff temporarily to save up and pay for it.
What are some of the things you’re going to do now that you’re debt free?
I plan to save about $10,000 as a fully funded emergency fund, as per the Dave Ramsey Plan. This will allow me to pay for most issues that may arise with cash on hand. If God forbid, I was to fall ill or lose my job, I would have a healthy nest egg to ease or deal with the situation.
I do also plan on traveling some and generally enjoying life a little more than I allowed myself to when I was on a scorched earth budget and trying to get rid of my debt.
I’ve already started buying the good cheese, chocolate, and coffee at the grocery store instead of the cheap stuff. 🙂 I also plan to save for retirement, invest and generally make smart future-oriented money decisions.
What advice would you give to someone starting their debt-free journey?
It’s not going to be easy, but it will absolutely be worth it. Sacrificing now to live better later will be the best decision you’ve ever made, and looking back you won’t care about the times you had to say no to eating out or the home decor you didn’t buy, because you’ll be free from debt and will have so many more options.
Don’t put this off. You can do it. Keep trying. Definitely, get plugged into a group of like-minded people that will keep you accountable.
There is the financial YouTube community, which I can’t recommend enough, but also financial websites and Dave Ramsey groups online that are encouraging and inspiring (Dave Ramsey Baby Steppers with Compassion and Dave Ramsey’s YouTube Crazies are two very good groups).
If you’re looking for ways to get started cutting your budget like Sarah then try out some of these things I do to save money:
Groupon and LivingSocial for deals on activities.
Shopping through Ebates when making any purchases online will get you cash-back from virtually any retailer.
Apps like ibotta and Checkout51 to save at grocery stores and other big box retailers.
ThredUp for nice secondhand clothing at steep discounts from retail.
Use Blink to save on prescriptions.
EyeBuyDirect to save on prescription eyewear.
Energy saving methods like low-flow showerheads to reduce our utility bill.
Sites like Restaurant.com for dining deals.
I take advantage of free trials at gyms.
Use healthcare sharing to save big time on health insurance.
Jen Smith is a personal finance expert, founder of Modern Frugality and co-host of the Frugal Friends Podcast. Her work has been featured in the Wall Street Journal, Lifehacker, Money Magazine, U.S. News and World Report, Business Insider, and more. She’s passionate about helping people gain control of their spending.
Whether you’re considering adopting a cat, dog, rabbit, hamster, or guinea pig, you must be committed to caring for your new pet for its lifetime. Adding a pet as a new family member is exciting, sometimes frustrating, and extremely rewarding. But you have to make sure you understand up front what kind of commitment you’re making. Pets thrive on love, but they also require tangibles like food, shelter and bedding. And you have to be prepared to give your new pet the veterinary care necessary for a long, healthy, happy life.
In 2011, there were approximately 218 million pets in the US, according to the Bureau of Labor Statistics. Pet ownership crosses almost all demographic boundaries, and pet owners spend substantial amounts of money caring for their companion animals. On average, US households spend over $500 per year on their pets. Budgeting for your new family member helps ensure the best possible experience for both you and your pet. Here’s what budgeting for your new pet should include.
Puppies chew, kittens climb, and dogs have a tendency to get into food storage and trash cans. Before you bring your new best friend home, lock up any hazards like antifreeze or pest control products. Consider rearranging to keep “attractive nuisances” out of your pet’s territory. You may need to invest in storage products to items away from your pet that could become impromptu chew toys.
Choosing a Veterinarian
Many pet adoption agencies require you to list your veterinarian on the adoption application, so be prepared. Word-of-mouth referrals are great for finding a good vet, and you should visit, or at least telephone your new vet’s office to let them know you’ll be adopting an animal. Learn what your vet’s hours are and how after hours emergencies are handled.
Dogs generally require the most in the way of supplies. Here are the typical supplies you’ll need to consider when budgeting for your new pet:
•Food •Food and water dishes •Collar and leash •ID tags (or implanted ID microchip) •Dog bed •Baby gates if you’re keeping your dog within certain parts of the house •Crate •Treats and toys
If you’re adopting a cat, you’ll need a litter box and litter, and ideally you should have a climbable “kitty condo” to keep him entertained and allow him to climb and use his claws. Small pets will require a safe, properly-sized cage, bedding, and specialized food.
Adoption costs vary widely, but pet adoption is rarely free. Some shelters will refund part or all of the cost of spaying or neutering your dog or cat, and some animals receive their initial vaccinations before they’re put up for adoption.
Budgeting for pet food will need to become a habit, and you’ll have to include cat litter for your cat, or bedding for your smaller pets when budgeting. If you use budgeting software like mint.com, you can easily add line items for regular pet expenses that will make budgeting for your new family member easier.
Dog training may seem like an unnecessary expense, particularly if you’re adopting a small dog, but budgeting for training is smart for any dog you adopt, even if he comes to you already trained. Basic classes cost around $100, and help you establish your household “chain of command.” Training classes are well worth the investment, particularly if you live in an apartment complex or other environment where your dog will regularly encounter other people and pets.
Budgeting for an initial veterinary evaluation is essential for your new pet. Your vet can alert you to any potential health problems, ensure your pet is properly vaccinated, help you with flea and parasite control, and arrange spaying or neutering – procedures that help pets have healthier, and often longer lives. Vaccinations will need to be updated yearly, and your budgeting should include money set aside for unforeseen veterinary expenses.
Adopting a pet can be one of the happiest and most rewarding of family events. Budgeting for your pet ensures that he will receive all the care he needs and deserves for a happy, healthy life. You may be surprised at how much of a financial investment adopting a pet is, but when you budget properly and make a solid commitment to provide a safe, healthy, happy home for a pet, the rewards are priceless.
Traditional budget software involves downloading or installing software on your laptop or computer. This differs from using online budget software like Mint.com, which runs in a browser, and can be accessed from anywhere. Let’s look at the pros and cons of each.
Traditional Budget Software:
You pay for the software up front, before you download or install it.
You input each transaction as it occurs — either manually, or imported from your financial institution.
There are thousands of financial institutions linked to traditional budget software, so you have access to most banks.
All financial information is stored on your computer.
You can run reports regarding your spending history, and create a budget based upon that data.
You typically must use the computer on which you installed the software.
Online budget software can be accessed via your mobile device.
Online Budget Software:
Signup is usually free.
There is no need to download software to your computer; it runs in a standard web browser.
The same access to thousands of financial institutions is generally available, so you can download transactions from most banks.
All financial information you input into your account is stored in the cloud.
You’re able to create a budget, work with financial planning worksheets, calculate spending patterns, and determine when funds should be rolled into another account.
You have access to your account no matter where you are, and no matter what computer or device you’re using.
Storing your data securely in the cloud means you can access it anywhere, anytime.
The Bottom Line:
Traditional budget software is typically more expensive, requiring an initial purchase plus regular updates. Those who are working with tighter budgets will usually benefit from working with free online personal budget software. Not only will you be able to perform all your budgeting and financial planning without having to pay another bill, you can do so from any computer.
In addition, you can use any computer or device to access your account, and you can even enter transactions via your smartphone or tablet. This is helpful for keeping track of your spending, even while on the go.
Mint.com is a great online budgeting solution, with a full suite of tools that you can use to create your budget and achieve your financial goals. Click here to try it for free.
It’s no secret that kids can be expensive, so here are some simple ways to save a little extra.
It’s no secret that raising kids is one of life’s most expensive undertakings. According to CNNMoney, it can cost nearly a quarter of a million dollars on average to raise a child born in 2013 to the age of 18—not including college tuition. The good news is there are ways to ease the strain on your bank account by reducing both daily expenses, such as food, and also larger ones, like housing.
These tips can help you save money while raising your family.
1. Cook at home
For the first time last year, Americans spent more money dining out than buying groceries. Takeout and restaurants are convenient for tired families, but the costs of prepared food can pile up quickly. Eating more home-cooked meals is one surefire way to limit food costs. Cook in bulk so you can lean on leftovers on busy nights.
2. Shop secondhand
Kids outgrow clothing and toys quickly, but you can stop the cycle of constantly buying new items. Arrange a clothing and toy swap with other parents, accept hand-me-downs from friends with older kids, buy clothing from consignment shops, and keep an eye out for local, online yard sales on social media. You may be surprised at how easy it is to find a pre-owned version of what you need—at a fraction of the price.
3. Set limits on extracurricular activities
Extracurricular activities like sports leagues and art and music lessons can do wonders to enhance a child’s skill set and social circle. However, out-of-school activities tend to be costly. While it’s typical for parents to cover these expenses, it’s not unreasonable to set limits. For example, offer to enroll your child in piano or guitar lessons, but not both.
4. Keep housing costs within your means
Housing is likely the biggest expense in your family’s budget. The trick is making sure your housing costs are not consuming an outsized portion of your income. Many financial experts recommend spending no more than 30% of your after-tax income on housing. As your family grows, it may seem like you need more square footage, but that may not be the most practical resolution. Rearranging furniture and clearing out clutter can do wonders to unlock new space in your existing setup.
5. Look for alternatives to your existing childcare
If housing isn’t your biggest budget item, childcare likely is. The Economic Policy Institute reports that most families live in areas where childcare is unaffordable, or the cost exceeds 10% of the average family’s budget. To find the best option for your family, compare the cost of a few choices—daycare, nanny or nanny share, or even having one parent stay at home full time—to see what makes the most sense. Find out if your employer offers a Dependent Care FSA PDF Opens in new window., which allows you to contribute pre-tax dollars toward daycare costs, and ask your accountant whether you qualify for the Child and Dependent Care Credit.
There are a number of ways to cut the cost of raising a family, but even so, you will likely find that those costs only rise as your kids get older. One way to get ahead of future expenses may be to make regular deposits into a savings account. When a large expense rolls around, you’ll thank yourself for having extra money on hand.
Napkin Finance by Tina Hay uses visual infographics to make topics such as budgeting, debt, retirement, investing, entreprenerhip and cryptocurrency more digestible. Chris Zuppa/The Penny Hoarder
As a bookworm and a personal finance nerd, I love reading a good book about money. That’s why I was so excited when The Penny Hoarder launched a virtual book club in January to read and discuss personal finance books.
Our first book club pick was “Napkin Finance: Build Your Wealth in 30 Seconds or Less” by Tina Hay.
This book uses visual infographics to break down a wide range of subject matter, including budgeting, debt, retirement, investing, entrepreneurship and cryptocurrency. Hay refers to “Napkin Finance” as a “visual guide to money and finance.”
Here are a few of my major takeaways from reading the book.
4 Things I Learned From ‘Napkin Finance’
“Napkin Finance” stood apart from other personal finance books I’ve read because of the way the material was packaged. In addition to learning more about topics like retirement and taxes, here are four things that resonated with me.
1. Visuals Aid In Comprehension
As I mentioned earlier, “Napkin Finance” is full of colorful infographics, which are drawn up as though they were doodled on the back of a napkin (hence the name).
Hay came up with the concept while attending Harvard Business School. She would sketch out different financial concepts to better understand them.
“Visual learning is a classic concept,” she said. “Mozart, DaVinci [and] Freud all used visual images and graphics to solve their biggest problems.”
Hay worked with a team of designers to create unique Napkin infographics for every chapter. She said the use of visuals helps make financial topics less intimidating and leads to higher comprehension and better retention of the subject matter.
If your eyes glaze over reading dense blocks of text about the stock market or macroeconomics, you might find the pictures and charts in “Napkin Finance” more enjoyable.
2. Repetition Helps Retain Information
One thing I quickly picked up on when reading “Napkin Finance” is the use of repetition.
Each chapter is broken into multiple sections, and each section leads with a Napkin infographic explaining a different financial concept. After the Napkin, there’s additional text expanding on the topic. At the end of each section are key takeaways — the most important things you should know. Then, each chapter concludes with a quiz to test your knowledge.
Reading — or viewing — something once isn’t always enough for it to stick in your head. When that material is presented over and over again, however, there’s a better chance you’ll retain the information.
3. It’s Okay to Be Lighthearted About Money
Too often, financial information is presented in a way that feels stuffy and boring. “Napkin Finance” deviates from that by incorporating humor and lightheartedness into the material.
“We actually have comedians that write for us and help us come up with these one-liners … kind of like fun sayings,” Hay said. “They just add some humor and lightness to a topic.”
The section on debt ends with the one-liner: “Not all debt is bad. Some is just misunderstood.”
The chapter on retirement includes this quote from author Jonathan Clements: “Retirement is like a long vacation in Las Vegas. The goal is to enjoy it to the fullest but not so fully that you run out of money.”
4. Learning a Little About a Lot Highlights Your Knowledge Gaps
“Napkin Finance” isn’t a book that hones in on one specific topic, like getting out of debt or paying for college. It covers those subjects but also touches on how to start a business, how to file taxes if you’re a gig worker, the difference between mutual funds and exchange-traded funds and so much more.
There are 12 chapters, and each is further broken up into four or more sections. You’ll get an introduction to a lot of different core concepts, but those introductions are pretty brief.
The benefit of knowing a little bit about a lot of things is that you’ll discover where you want to take a deeper dive. For example, reading “Napkin Finance” helped me realize I ought to do more research when it comes to cryptocurrency. Had the book stuck to topics I’m already very familiar with — like budgeting and saving money — I may not have come to that understanding.
Why I Recommend Reading ‘Napkin Finance’
If you’re a visual learner or someone looking for a fun approach to learning about money, “Napkin Finance” is a book you should check out.
It doesn’t take financial literacy too seriously but after reading the book, you’re likely to have learned a few new money concepts and come away with some topics you want to explore further.
“Napkin Finance” is an easy read. It’s a good coffee table book that you can pick up and flip to different sections. You don’t have to start from the very beginning and read it in chapter order. The book is an extension of NapkinFinance.com, which includes even more infographics simplifying various financial topics.
If you’ve read “Napkin Finance,” please chime in your thoughts in The Penny Hoarder Community’s book club forum. We’d love to hear from you.
Nicole Dow is a senior writer at The Penny Hoarder.
Do Your Debit and Credit Cards Encourage Budget Mistakes
Do you ever wonder how your co-workers, neighbors, or friends manage to own the latest mobile devices, drive late-model cars, and have dinner out several times a week? Some of them may be wizards of financial management, have different household situations (no kids), or a source of income you don’t know about. But there’s a good chance they have those nice things because they’re eyebrow-deep in debt.
The Federal Reserve’s Household Debt and Credit Report for the last quarter of 2013 shows just how much debt Americans have. Outstanding household debt increased $241 billion from the previous quarter – the biggest jump since the third quarter of 2007. Mortgages are the largest component of household debt, but during the fourth quarter of 2013, Americans took on $18 billion in car loan balances and $11 billion in credit card balances. Most people need a car, but the “need” for credit cards is largely based on convenience.
How Credit Cards Make it Easier to Spend
No one denies how convenient credit cards are. And it’s nice to track purchases on one monthly statement, so theoretically, using credit cards exclusively lets you see where you’re spending money. But although your credit card statement shows you spent $67.43 at Target, it doesn’t tell you what items you purchased, and if you don’t have your receipt, you’ve probably forgotten.
People tend to spend more when they use credit cards. Swiping a card is psychologically easier than handing over cash. One study found that spending differences between frugal and non-frugal spenders were smaller when they were required to make purchases with credit cards rather than cash, so even tightwads loosen up when they pay with plastic.
Furthermore, research has shown that credit cards’ mere presence stimulates the desire to spend. One study found that willingness to pay was significantly higher when credit card logos were visible during shopping. This 1980s experiment was replicated two decades later, indicating that credit card logos stimulate consumption, similarly to how the smell of baking bread stimulates visiting the supermarket’s bakery section.
Start now: Get budgeting software from Mint and start tracking spending right now. Click to get started.
Debit cards are safer than credit cards, because they immediately deduct money from your bank account. But even debit cards anesthetize the pain of paying to some degree. The truth is, there’s nothing like handing over cold, hard cash for helping you examine your spending. And when you only carry cash on shopping trips, you’re forced to stick within limits.
Here’s What Happens When You Start Using Cash
When you pay cash, you are forced to consider the purchase price as well as sales taxes, and you have to compare that to your immediate resources – the cash in your wallet. With credit, you may fully intend to pay off your monthly balance (and some people have the discipline to do this), but you still have that option of paying over time if you need to.
The sting of paying cash can help even more with big ticket items. That gorgeous stainless steel refrigerator is less seductive when you know you’ll be handing over $2,000 in cash for it. You might decide your current model will do just fine until it wears out. At worst, when you pay cash for a big ticket item, you may remember that sting of purchase when you use the item, but that can help you appreciate it and your hard-earned money.
The best thing about paying in cash, however, is that it helps you stay out of debt. Debt can snowball easily, and carrying credit cards helps you overspend with little forethought. It’s hard to pass up that flat screen television that’s on sale for a great price, but when you do, you have more money for your mortgage, your children’s educational funds, and consumer debt (like credit card bills) hanging over your head. There’s no substitute for the great feeling of making that final car payment, or paying off a credit card at long last.
Tracking Your Spending
If you want to try using cash for your day-to-day spending, track spending for a month and determine a reasonable weekly “allowance.” Tracking spending is easy with a budgeting app like Mint, which links your accounts to your home computer and your smartphone, so you take your budget with you wherever you are.
You may have to adjust your weekly allowance at first, but once you’re used to paying cash, it almost becomes a game of seeing how much you can have left over at the end of the week. And that money can be put toward debt, or rolled over for next week. Either way, you’ll be chipping away at debt and making your financial future brighter.
Start now: Get budgeting software from Mint and start tracking spending right now. Click to get started.
Ready for April 15th? Here are some tips to get all the deductions you deserve.
It’s tax season and April 15th is fast approaching, which usually means you’re thinking a lot about your tax return. Preparing your taxes isn’t easy, but half the fun is figuring out what deductions you need to itemize to maximize the money you get back. We want you to get the most out of your tax return, so in case you missed these deductions, here are some tax write-offs that may apply to you.
At Mint, we’re interested in helping you create a budget that actually works. We want you to stay on track for the long haul, well after the initial excitement of creating a budget has worn off. Here are some of our recommended budgeting tools to help you achieve your financial goals.
Financial Tracking Software
The first step to making a budget is to figure out what you’re earning and what you’re spending. Financial tracking software like Mint.com helps you do that by organizing and categorizing your spending, then helping you set up your financial goals.
A Spending System
Develop a system so that whenever you spend money, you can record the amount going out, and the budget category. Websites like Mint let you easily enter each transaction, allowing you to see where your money is going, what’s in your accounts, and what you owe. Payment Reminders
Whether you use a service like Mint (which offers e-mail and text reminders), or your own calendar system, develop a way to remind yourself when bills are due, so you can avoid late fees and unnecessary interest payments.
If you own a smartphone or tablet, it helps to have access to your budget from your device, so you can keep your accounts up to date, no matter where you are. Not only does this help you stay on top of your budget, it also prevents a collection of receipts from building up in your wallet.
A Time to Review
A budget is not a “set it and forget it” exercise. You need to review your budget frequently, comparing it to what you’ve actually spent. You can set up a calendar reminder to review at the same time each month, or you can use a tool like Mint to keep you constantly in sync.
No matter whether your household is filled with financial gurus or first-time budgeters, the tools outlined here will help. If you can measure it, you can manage it — and the tools listed above will help you do both.
Mint.com comes with a full suite of budgeting tools that you can use to create your budget and achieve your financial goals. Click here to sign up!