By Mitchell D Weiss
Budgets are a necessity to keep personal finances in order, but they arent necessarily easy to keep. There are plenty of things that can quickly ruin a budget and ruin the best laid financial plans. Here are the top ten things that ruin budgets:
Shopping Hungry or without a Plan of Attack
This ones obvious dont go food shopping hungry and be sure to have a list in hand. Otherwise youll blow your budget. Also, carefully consider moving up to larger, economy sized products. Compare cost per volume or weight and also, focus on the shelf life because youre going to have it around for a while longer.
Frequent ATM Use
Most of my students hit the ATMs more than 2 or 3 times a week. They take out $20 per withdrawal because they dont like carrying around lots of cash either because theyre afraid of spending it or having it go missing. But frequent ATM use can lead to budget problems because you may lose track of the total amount youre withdrawing from week to week. You may also forget to record a withdrawal or two, which can lead to overdraft charges. And, frequent ATM use can also lead to ATM charges, when the machine you need to use to pay a restaurant check isnt your banks.
Moving in with Someone
When you move in with someone, there are a lot of things to take into consideration including how to split the rent, food bills and other living expenses. Should it be 50/50? What if one person earns more than the other? Should one party pay the bills and the other save the money? Who gets what if you end up apart? And what about preexisting debts? All of this needs to be discussed in an open, cards-on-the-table manner because, after all, one of the top 5 reasons for relationship failures is money issues.
Out-of-pocket Expenses (cash)
I like budgeting for the amount of money I carry around each week. In fact, my wife and I have been doing that for more 35 years! Its the only sure way to stay on target with a budget.
Unexpected or Unbudgeted Repairs and Maintenance
This is why its important to have a savings stash. Unhappy surprises like these can easily tank a month or two or three. Another strategy would be to have 2 credit cards one for routine expenses that fall within your budget, so that you avoid carrying a balance. The second card would then be for the unhappy surprises that need to be paid over time. That way, your credit card interest costs will only be limited to those charges and NOT for all of the others you make every month and typically pay in full.
Uninsured Losses and Unfunded Deductibles
Higher deductible limits help us to save money on our insurance premiums, which is a great strategy as long as you set aside the dollars youll need to cover those deductibles, just in case.
Borrowing without a Plan of Attack (student loans, credit card debt)
There are three things to say here. First, only borrow through the various government programs. The cost is less and the repayment flexibilities are superior. Second, dont borrow more than what you believe your first years salary will be after college. Thatll keep the monthly payments within reason. Third, roll the tape forward by estimating what those monthly payments are going to look like, so that you know what the consequences are going to be for you. There are plenty of online calculators that can help you to do that. In particular, check out the one on Finaid.org.
Fees that are Avoidable (late payment, overdraft)
Avoidable means just that dont let it happen! Late payment fees, overdraft fees, balance transfer fees, cash advance fees all DRAIN CASH. Whats more, they cause the true interest rate youre paying to spiral out of control. Check out the impact by playing with an online APR (Annual Percentage Rate) calculator.
ID Theft Crimes Involving Debit Cards and Paper Checks
I dont like debit cards for two reasons. First, while the Electronic Funds Transfer Act protects you from fraud, itll still take some time for the bank to feel confident that YOU arent the one perpetrating it. Consequently, youll have to find the cash you need from some other source in order to pay your monthly bills. Second, debit cards dont have what are known as chargeback rights that youre otherwise entitled to with credit cards. Should the merchandise you purchase not be as promised or, never end up being delivered in the first place, youll have to negotiate with the merchant for your refund. By contrast, credit card companies are required by law to set aside any charge that you contest until the dispute is resolved. The money wont leave your checking account until then.
As for paper checks, know that the banks hold YOU responsible for keeping them safe. If someone were to rip out a check in the middle of the book, write it to themselves and sign your name to it, your only recourse will be to take them to court. The bank wont refund your money.
Job Loss and Income Curtailment
When financial distress occurs, its very important that you deal with it promptly and in a straightforward manner. At the same time though, your lender is going to want to know that youre doing everything you can and should to deal with your problem. That includes ensuring that youve plugged every budgetary leak by curtailing the extra expenses while at the same time, maximizing your income. It also means selling the stuff you dont need which is why God invented Craigslist and using that cash to pay down the principle on your loans and NOT some of the monthly payments. Thats because each payment has an interest component attached to it. Instead, you want the most bang for you buck and a principle paydown is the way to get it.