financial fitness Archives - NeighborWorks Columbus, GA

Creating a budget for crisis

We talk a lot around here about budgets. But what about unexpected financial hits? How do you plan for those?

While you can’t account for every potential scenario, there are ways to prepare for the unknown without knowing exactly what that is. This is what experts call a crisis budget.

Before we dive in, this advice really is for the person who has already gotten the hang of budgeting under normal circumstances. If you need help with those skills, you may find our Third Thursday financial courses a great start!

Think of a crisis budget like a fire drill–you want to know your escape route before the fire strikes. It’s not meant to be a doom-and-gloom outlook but rather just a way to be as prepared as you can be for something that hopefully won’t happen.

The first step of being prepared for disaster is to have an emergency fund. Experts recommend a savings for this of $1,000 to $3,000, but obviously, the higher this fund is the longer you could last on limited or no income. Here are some tips for building your savings if you don’t have this yet.

As part of basic budgeting, you have a list of your income and your expenses each month. As part of crisis budgeting, you really zero in on your priorities. If your income was drastically cut for whatever reason, what is essential to your budget?

Under normal circumstances, maybe you can afford streaming services and unlimited data on your phone plan. But in a crisis, perhaps those are things you can do without.

Perhaps your monthly budget allows for so much in groceries each month, but in a crisis, how could you simplify your meal planning to something more basic?

These are the things that are helpful to consider before you really need to. If you are really clear on your priorities, and have done the math to see that you will be able to financially float for a bit, that is one less thing to worry about if you do take a financial hit for some reason.

Managing Credit Cards

Credit cards can get a person into a lot of trouble and for good reason. When misused, credit cards can lead to unnecessary debt that can become a financial burden.

But in the right circumstances, credit cards can be a powerful tool to help establish credit.

In the NeighborWorks Columbus homeownership program, we walk with people through the processes of building a strong financial foundation. This includes creating and maintaining a budget, helping people manage their debts and rebuild their credit scores, and for some it includes establishing credit in the first place.

This is where credit cards come into play, but many people wonder where to start. Which credit card should you get? How should you use it? These are the questions we will walk through now.

Who should get a credit card?

If you are struggling to manage your budget, it is not the time to get a credit card. But, if you have successfully built a money management plan and stuck to it, a credit card could be beneficial for you to boost your credit score.

Which credit card should you get?

There are several credit cards that are known as starter cards. You will want to ensure you don’t get a credit card that comes with a fee. You also want to ensure your card has a relatively low spending limit to start out with so you don’t get into trouble. To get the most benefit from your cards, you also want to get one that reports to all three major credit bureaus.

How do you use your credit card for the most benefit?

Spending isn’t usually an issue for people, right? If anything we need to be careful to not overspend, whether you’re using a credit card or any form of money.

But, what we’re talking about here is how to use your credit card in a way that actually provides a benefit to your credit and doesn’t hinder it.

There are a few key things to make a credit card work for you and not against you. The first is to set a monthly spending limit that is well within your budget. Some people choose to use it to only pay for gas, for example.

You also want to make sure the spending cap you choose is not the one the credit card company gives you. The best way to use this card is to spend no more than 30% of what your limit is at any given time. So, if your credit card gives you a $1,000 limit, you will want to make sure you never have more than a $300 balance.

Finally, and most importantly, make sure you pay your entire balance on time, every time. Setting up automatic payments is the best way to ensure you don’t forget.

Is it better to save or pay off debt?

Tax season might be an exciting time for those who are getting a large refund. While it may be tempting to make a fun purchase, it not usually the best use of money.

But when it comes to making prudent spending choices, it can be hard to decide the best way to help you achieve your financial goals. Specifically, is it better to pay off debt or save money?

Let’s dive into some ways to help you navigate this decision!

First, consider what types of debt you have:

Generally speaking, getting rid of debt is a good thing! And most of the time, it makes good sense to pay off your debts.

However, there are some types of loans that are significantly more problematic than others. Loans with high interest rates, like credit cards or title loans, should be paid as soon as possible. Otherwise, they will end up costing way more in the long run.

It’s also especially a good idea to pay down debts if you have any loans in default. These need to be paid ASAP.

Paying off debt can also help improve your credit score and make it easier to save money and reach more financial goals in the long run.

Second, take a look at your financial situation.

It’s important to assess your current financial situation. For example, if you have little to no money saved away in an emergency fund, it is worth putting some aside for that. This of course would help ensure that you won’t find yourself in even further debt in the future.

You also may know you have some important necessary expenses coming up and need to take advantage of an opportunity to save. Perhaps your vehicle needs a big repair or you need to purchase another. Setting aside money for things like this can sometimes outweigh the benefits of paying off debt early.

You may find a happy medium is best.

Everyone’s situation is different, but after examining your debt and financial goals, you may be able to use your refund to both save and reduce debt.

That could look like putting aside money for emergencies and then paying toward some loans. Maybe you make a necessary repair to your vehicle and put the rest to tackle one of those high-interest loans.

We hope this gives you some things to consider!

Tips for Holiday Shopping on a Budget

For many winter holidays may be the “most wonderful time of the year,” but that doesn’t mean they don’t bring their share of stress. Among those list of stressors can be shopping for gifts, especially if your budget is already tight!

Don’t worry, we’ve compiled a list of tips to help make holiday shopping easier on your bank account this season.

1. Make a budget

Before you begin any shopping, it’s important to make a budget. Your budget should include how much income you are expecting to make, and all of your important expenses. Make sure all of your bills and other regular priorities are covered first. While it may be tempting, don’t shop for gifts you can’t afford by going into debt.

2. Plan your gifts to fit that budget

Once you know how much money you have to spend on gifts, it’s time to start planning. It’s important to prioritize who you plan to shop for and what you want to get. Also keep in mind that if your budget is tight, you can keep it simple. Save your spending for your closest family or friends. If you have a big family, maybe pitch the idea of secret Santa so you all only have to buy for one person. And don’t feel pressured to spend for every holiday party.

3. Shop early for deals

The earlier you start shopping, the easier it will be to shop for a deal. You will not feel rushed by the pressure of last minute to spend more than you budget, and you can have time to hunt for a bargain. Depending on what you are looking for, you may be able to find used items on Facebook Marketplace, eBay, Craigslist, or thrift stores. You also can check different bargain stores like Target, Walmart, Big Lots, and TJ Maxx, just to name a few. The more time you have, the more you’ll be able to compare prices and make sure you get the most bang for your buck.

4. Shop alone

While it’s fun to shop with friends, it can also lead to more careless spending, especially if they aren’t as budget conscious as you. Friends even with the best of intentions may make suggestions like “Oh this would really look good on you!” and before you know it you are buying yourself things you don’t need.

5. Pay in cash

If you bring cash to a story you’ll be less likely to overspend. This can be a really effective tool to keep you accountable to that budget you made.

6. DIY gifts

You don’t have to be super crafty to make a few gifts yourself. This can be a great option, especially for people you really want to give a gift to but don’t have a big budget, like teachers, coworkers, and other important people in your circles.

Creating a budget for crisis

Managing Credit Cards

Is it better to save or pay off debt?

Tips for Holiday Shopping on a Budget

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