Frugal Intuition

Sorry I missed posting yesterday.  I was away at a staff retreat for work.

If you’re just tuning in, please check out Part 1 and Part 2 of my Write A Better Budget series.

So we’ve talked about the absolute necessitites.  For the most part you don’t have too much control over these.  Well, you can work to reduce your energy and water consumption to lower utility bills, and/or move to a lower rent place, but for the purposes of our discussion here, let’s leave those alone.

I’m betting that in your absolute necessty list, you forgot to write down things like groceries/household and gas.  This is where your Part 1 homework is going to come in handy.  You’ve spent a month charting all your expenses.  Add up both of those categories to see how much you spend monthly on groceries and on gas.  These are both unavoidable expenditures.  You have to eat and you have to get to work.  Have you added those into your absolutely necessary column and deducted it from your monthly income?  Okay good.

Now what’s left?   Your credit card bills and discretionary purchases.  Now in an ideal world, you would pay off your credit card balance monthly and never carry what’s called a revolving balance (that is, you balance fluctuates from month to month, based on interest rates, purchases, and payments).  The credit card companies would never get a dime off you in interest.  But as the credit card companies are sitting like fat kitties who got the canary, lots of people don’t do this.  You’re going to get to that point.  For now, we’re talking about budgeting.  You have a limited amount of income and a big chunk of it is designated to stuff you can’t avoid.  How much do you have to put toward debt?

I want you to take all your credit card bills and lay them out in order of interest rate–highest to lowest.  If you’ve got some balances that are substantially bigger than others, then it may be more beneficial to lay them out in order of lowest to highest balance.   With luck you can afford to pay minimums on all of them and put some extra toward that card with the lowest balance.  Once you get that one paid off and closed, you’re going to take the amount you were paying per month toward that card on the card with the next highest balance and so on in a snowball effect.  If you don’t have enough to cover all the minimums, check out this post about being your own credit counselor . (FYI, if you do go the route of credit counseling, be sure to pick one that is accredited by the National Federation of Credit Counselors–NFCC.org ).  Anyway, figure out what your total of minimum payments are and how much you are able to devote to payment above and beyond that.  That’s your budget for credit card payments.  This does, of course, assume that you cease to use those credit cards.

Tune in tomorrow for the other things you should remember to budget for.

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