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Hello and welcome to DrFrugal.com. If you've ever had the unfortunate experience of trying to find information online that has anything to do with money, you know most sites are worthless because they're trying to pawn something. Not here--there's nothing to buy. I've tried my best to only include pragmatic, realistic informtion to help you lead a simpler life by taking care of your personal finances.
The old cliché "knowing is half the battle" seems antiquated and outdated, something you'd hear on a G.I. Joe Saturday morning cartoon or a tremendously campy public service announcement of sorts.
But within that overused saying is an abundance of truth, especially when considering your budget and whether you should be concerned moving forward.
More often than not, the general consumer is plodding along, paying bills, working and managing their finances but is completely oblivious that they're headed down a path of financial ruin. Perhaps those people refuse to believe that their spending habits are harmful or assume that they've been adhering to this routine for so long that it simply should be viewed as commonplace.
But before long, they'll be in the midst of mind numbing debt and scrambling to end their struggles relatively soon. Before it gets to that point, you must be incredibly mindful of signs, both minute and obvious, that a change is needed sooner than later.
For starters, how does your savings account look? Or, furthermore, do you even have one? If the answer to the latter question is "no," then that is cause for concern. If you have a savings account and the balance could barely fill a piggy bank, that's not much better.
Not having a bit of a nest egg is putting you in a position to be incapable financially of handling a spur of the moment life event. If your roof starts leaking or a major car repair is on the horizon, you have no choice but to head to your credit cards as your last, and only, option.
And speaking of credit cards, ask yourself this question: how are you using the ones you have?
Credit cards theoretically are ideal for emergencies in conjunction with not having the money on hand to fix or repair the situation. If you find yourself using credit cards for day to day spending, that's a huge red flag that change is in order.
That means ditching the MasterCard at the grocery store or whipping out the Discover Card for that daily trip to Starbucks or to suffice as payment for lunch. Those incidental expenses should be cash only (or debit card) purchases without question.
Do you really want to spend 16% interest on celery or a pack of mints?
Probably not, nor do you want to extend those monthly payments any more than you already are committed to paying.
What's really alarming aside from the actual usage of credit cards are those consumers that don't really know how much debt they have. They're so entrenched in making that monthly payment that they truly don't understand how much they've amassed over the years.
Once again, the power of truly knowing your financial standing when it comes to debt and the direction you're headed proves to be the ultimate factor in climbing out of this mess.
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Who doesn't love a lavish spending spree, or the feeling of buying something really expensive that is more sumptuousness than necessity?
Those types of purchases probably should be reserved for those who have the expendable income to do so or if you're in the midst of a financial windfall that allows you to spend freely for a short period of time and hopefully using what's left to save and invest properly.
But for the rest of the population, most spending is tracked specifically, down to the last dollar and if a particular buy doesn't make sense, then you simply exact good judgment and pass accordingly. Most people, however, can't employ that type of restraint when it comes to spending, which leads to buying what you don't need and wasting money on products, items or services that you easily could live without.
Some of these so called wastes of money aren't necessarily a speed boat you've had your eye on or that sports car that beckons to you from the window of the dealership. These expenses deemed incredibly uneconomical could be a daily expense like overpriced coffee that tips the scale at $5 or $6 per cup or bottled water at $5 per case, when a filter system would suffice.
Big ticket items also aren't absolved of blame as far as being inefficient purchases, such as a new car or clothing that is deemed designer. The latter is often referred to as anything from ridiculous to a flat out scam. The word "designer" often is marketed as meaning better quality and remarkably fashionable in comparison to other clothing that doesn't carry that advertising tag line.
Most of the time, you can swap the higher priced, stylish clothing that carries a budget crushing price and find something suitable or identical for less at a department store. Taking the time to actually shop around, rather than buy off the rack, often is the difference between throwing money away and being able to have at least few bucks left over at the end of the day.
As for the car, that 2014 sticker price could easily be $5,000 or $10,000 more than the cost of a vehicle that is only a year or two older. The mark up on a new vehicle is highway robbery in some instances, and the consumer who doesn't need the latest and newest model is the one who carries a five or six year car payment that saves them roughly $6,000 in that time period.
Who says you can't have what you want, and still have money left over? If you simply take an honest and frugal approach to spending money wisely on the items you have deemed luxurious, you'll have the best of both words: money in the bank and products previously thought to be unattainable.
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Anyone who has pieced together a budget always has the best intentions, but those who would consider themselves novices when it comes to financial planning easily can overlook the not so obvious.
You make it a point to tally the bigger ticket items: cars, homes, utilities, credit cards and anything else that comes to you in the form of an email or paper statement.
But what about those incidental expenses, the ones that are fairly consistent with your spending habits but just fail to make the cut when it comes to budgeting.
Maybe you make it a point to buy a coffee three times a week, or decide on a whim that you want to add HBO to your cable package, thinking that it's only a few bucks. What about a stray sweater or pair of shorts that are purchased on a whim? Have you thought about if your budget is fully able to handle anything above and beyond what's written in black and white?
This isn't to suggest that you need to dedicate a line item for every piece of clothing or gift you're going to buy in the next year, but you'd be wise to whip up more generalized categories, and subsequently allot a certain dollar amount to them.
For example, let's say you have about $1,000 left after you've taken a look at your expenses. From there, you want to put aside money for other categories like clothing, entertainment or miscellaneous. The entertainment aspect is one that is equal parts tricky and troublesome for those budgeting, simply because eating at a restaurant, buying a quick sandwich for lunch or those must have summertime concert tickets often aren't factors when you're figuring out how much money you can spend.
As for clothing, those expenses often pop up at a moment's notice, whether you work outside in the cold and need new work boots or if your uniform for your job isn't provided, and you're short on tops or bottoms.
And everyone should have a chunk of change under a category that is absolutely paramount: emergencies. This could include but not be limited to medical expenses, hospital stays or if you're in the midst of changing jobs and have a few months ahead of you without income. This is easily the most missed when it comes to long range financial planning.
Then again, if you leave any of the aforementioned expenses off your budgeting list, you'll continue to scratch your head and wonder why you believe you have expendable income but actually consistently find yourself in the negative every month.
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Do you ever read the fine print on the back of your credit card application or page 2 of your bill?
Chances are, you don't. And, you're not alone.
That small typeface font might be fooling you to the point that the relationship between you and your credit card couldn't be better. You pay your bill, they send you the bill in the mail or via email, and all is right with the world of credit.
But beyond the simple charge, pay, charge, pay repeat process between you and your credit card, you may want to pay closer attention to your credit card terms, in the event you suddenly see a hike in your interest rate.
What some credit cards try to cleverly hide are incidental charges on your card when you pay late on your bill, transfer a balance or how they define their interest rate initially.
You'll always want to look for a fixed interest rate versus one that is described as "variable," which suggests that the credit card company can change the rate on you. And speaking of rate increase, make sure you pay your bill on time, because you'll get slapped silly with up to $35 or 40 for a late fee. And, if you're in the midst of a promotional rate or if it's just any, old month, the credit card company can change the rate because you're late.
Suddenly, you're realizing that these stipulations were conveniently stashed on the back of that application, much smaller than the "0% interest for 14 months" slogan that adorned the front of your envelope.
Interest rates also change after that promotional period, which most of you know before you decide to open the card and transfer higher interest rate balances to your new card. Not only should you check to see just what that rate is going to be after the introductory rate but also be mindful of transfer fees that typically carry a percentage with them. If you owe $10,000 in credit card debt, that 3% transfer fee is going to sting you for another $300 bucks.
Credit certainly is a wonderful thing when you you're in a pinch or an emergency that goes above and beyond what you have saved comes to fruition. But lurking behind that simplicity and salvation that can be credit cards are repercussions that could leave your financial future reeling.
And if you think you can call the credit card company and complain, they'll have four simple words as a response to your requisition: check in your agreement.
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Debt consolidation often is viewed by those struggling to make monthly payments and ultimately dig themselves out of their financial hole as the means to an end, a way to trim interest rates and pay off balances faster than the snail's pace they're following.
So is debt consolidation actually a smart move?
The answer to that question truthfully isn't yes or no, but rather can be looked upon as a simple "wash" when it comes to conquering your goal: getting out of debt.
Debt consolidation is the equivalent of moving your car from one parking space that is five miles away to one that is two. Your car is still parked, but maybe you've changed your outlook but not your overall standing.
Debt consolidation is the same in that you may lower your payment, pay less interest, but the debt still exists and is perfectly intact. Furthermore, that lower monthly payment might translate into essentially just paying on the loan or loans for a longer term.
That's one of the fancy ways debt consolidation companies waive their so called magic wand and tell you that you're paying $1,000 now and they can cut that chunk in half. Keep in mind that you're not actually losing the actual debt, and make sure this consolidation company isn't just stringing along your struggles for more years.
Debt is debilitating, and can wear on your psyche and physical wellbeing more than you think. Carrying around this burden might be keeping you from enjoying just about anything that's going on in your life, and ridding yourself of it is paramount on your list of things to do.
But you shouldn't make a lateral move financially in the process.
Debt only goes away by paying off what you owe by using your own money. That might not sound like the quick fix advice you want to hear but that's only sound sentiment moving forward. The same contingency that wants to lose weight but not exercise carry the same mentality as those who want to get out of debt but not change how they're spending money or budgeting.
It just doesn't work that way, no matter what the endeavor.
The simple art of sitting down and writing out your expenses versus your income, establishing how much, if any, you have left over and then cutting or saving accordingly is the only path that won't produce more headaches or leave you spinning in neutral from a budgeting standpoint.
There's nothing inherently wrong per say with debt consolidation, as long as you, the consumer, don't view it as racing through the finish when you're actually miles away from where you technically want to be.
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