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Budgeting
I don’t think there are many people who enjoy budgeting. As a matter of fact, for some people, budgeting is probably as much fun as doing your taxes. The good news is that budgeting, whilst not much fun is definitely worthwhile, leading to more savings, less debt and best of all less stress about your finances. People often do not budget because they find it to be an easy process. Where do you start? What tools do I use? What do I budget for? These are very common questions and when you sit down and don’t know the answers to these questions, the easiest thing to do is nothing. Then come the usual excuses, budgeting, it’s too hard or budgeting, I’ll get around to that another time. Let me tell you, if you get past the initial hurdles and understand how to budget, your finance fortunes will be better off. It would far to say, that people do not fully understand how much they spend until they understand how much they spend. That may sound a little strange but if you read it again and think about it, it does make sense. If you don’t sit down and complete a budget, how do you really know where your money is going every pay period? Do you really know how much you’re saving or more importantly whether you’re spending more than you earn? Nowadays, it is common place for people to live beyond their means because they have credit cards which allows it…..then the banks charge big interest rates for the privilege of letting you get deeper and deeper into debt. How many people get to the end of their pay period, “hanging out” for their next pay day – this is not a good way to live your life and will mean you will continue to be controlled by your finances instead of controlling your finances. People who are financially successful in life usually have strong control over their finances and understand how they spend their well earned money. People who are able to save are usually able to reduce their mortgages quicker, don’t have high credit cards debts and enjoy a higher level of disposable income and definitely less stress. Imagine reducing the time in takes to pay off your mortgage by 5 years – what would that mean to you? Here are a couple of examples to illustrate how you can reduce the term of your mortgage by 5 years and the amount of interest you’ll save in the process: Example 1
Loan amount $300,000
Interest rate 7.99%
Term of loan 25 years
Weekly repayment $533
Total interest payable $393,482 Additional weekly payment to reduce loan by 5 years $45
Interest payable on 20 year loan $301,165
Interest saved $92,317
Example 2
Loan amount $400,000
Interest rate 7.99%
Term of loan 25 years
Weekly repayment $711
Total interest payable $524,642 Additional weekly payment to reduce loan by 5 years $60
Interest payable on 20 year loan $401,554
Interest saved $123,088 Example 3
Loan amount $500,000
Interest rate 7.99%
Term of loan 25 years
Weekly repayment $889
Total interest payable $655,803 Additional weekly payment to reduce loan by 5 years $74
Interest payable on 20 year loan $501,942
Interest saved $153,861 If you sat down a made a budget, I’m sure you could find a way to reduce your spending on certain items by $45 or $60 or $74 to ensure you reduce your loan term by 5 years and save $92,317 or $123,088 or $153,861 in interest. Savings money each week doesn’t happen by itself and until you understand exactly what you spend your money on, you won’t have the opportunity to cut back. Listing all your income and expenses can actually be a scary process and something you may not entirely enjoy (it may indicate you are currently living outside your means!) but as you can see from the interest savings listed above, it is definitely worth it. If you’re struggling with budgeting and need some assistance, www.easy-budgeting.com has an easy to use budget planner available for downloading and provides tips, guidance on budgeting to assist with the budget process.
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This intel was contributed by rhyski
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May, 2012
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