Q: I need help in creating and staying on a budget so that I can build up my emergency funds. I have only $1,300 plus. I’m now putting $200 a week in savings. But sometimes I have to use that for utilities. My only debts are car note and credit card with just a small balance and a credit line of $300. My FICO score is very low, but I have good credit with my job’s credit union. I had a loan of $800 which is down to $500.
Clyde from Brunswick, GA
A: Well Happy April Fools’ Day.
Why did I start there?
Because I see so many fools, who have the money, not saving for a rainy day. And as we’ve seen of late, it does rain and sometimes it’s a downpour.
So Clyde, I commend you for not being a fool. (I use the word fool in a loving way, really). You are saving and that’s great. Now let’s see if I can help you keep that savings in your emergency fund ready to be used when you have a true emergency, such as a job loss.
You are right that you need to budget. That’s really your problem. You don’t have control over your finances. You don’t have a good plan. To me not having a budget is the same as taking a road trip to an unfamiliar city and not getting directions for your journey. You may get to where you are going but most likely you will get lost and waste a lot of gas.
After you finish reading my answer to your question stay on this site and check out the Monthly Spending Plan (pdf).
Don’t keep procrastinating about doing your budget. This is just too important. Filling out the monthly spending plan will take about an hour but set aside two hours just to make sure you fully complete it. The one thing I already suspect is that you aren’t budgeting enough for utilities. One suggestion I have is for you to get on something called “budget billing” for your utilities. Budget billing is a program that allows utility customers to even out their energy costs by paying the same amount each month. If at the end of the budget year, the amount you paid is less than what you used under your budgeted plan then you get a credit. If you’ve paid less than what you used throughout the year, you have to make up the difference. The benefit of budget billing is having a set amount for your utilities every month which keeps you from having to dip into your emergency money for months when your usage may be high.
I also want you to just get rid of those little debts. So for now, ease up on putting so much in your emergency fund. Perhaps just put $100 a week into savings and use the other $100 to pay off the credit card bill and small loans you have. Having all those little bills is like being outside during the summer and being pestered by gnats. It’s bothersome and distracting.
Make a list of all the little debts. List the debts starting with the one with the smallest balance. Pay that off first while still making the minimum payment on the other debts. Once you’ve paid off that debt, take that cash, and apply it to the debt with the next lowest balance and so on.
I always associate April Fools with spring and getting rid of all the foolish financial things I do. So make today the day you promise yourself to finally do a budget and stick to it.