Budgeting and the Cost of Convenience

Posted on January 24 2007

Coming up with a budget can be one of the best ways to save money. A budget is a financial statement of estimated income and expenses over a selected period of time. I recommend writing up a budget each and every month, this will help stretch your dollars and track your spending. We see that roughly 15% of spending can be reduced or eliminated without any noticeable lifestyle change.

Many people are surprised when they put together a budget and find out where there money is going. You may not realize that you spend $80.00 a month on coffee or lattés, or $50.00 a week eating out for lunch. For many of us, writing something down can be much more effective than just trying to remember. To actually visualize a certain issue helps us not only to remember, but also to take action. This is why budgeting can be one of the best tools for financial freedom.

Working out a budget is simple. Gather the family and set up a reasonable budget that everyone can live within. A budget can be useless if it isn’t implemented. Make a list of all expenses: Rent, mortgage, car payment, groceries, utility bills, gas, credit card bills, etc. Once you have down all of your monthly expenses, take your income and do some quick math. Is extra income needed? Are you living within your budget? Do you see some expenses that can be reduced or eliminated? These are just a few questions that will go through your mind immediately following the setup of your monthly budget.

Essentials versus non-essentials. The difference between what I want and what I need. There is a huge difference. Obviously, there are expenses that we all need. The big three: Food, shelter, and clothing (within reason). Other essentials may include education costs, medications, or childcare costs. Non-essentials are those items that can be adjusted or eliminated all together. These would include entertainment, travel, eating out, impulse buying (great clothing deals), or anything that is a convenience.

Convenience is a very big seller in the USA. Everyone is looking for the easiest and quickest way to get things done. Convenience stores and fast food restaurants are a couple of examples. Cell phones are another convenience that’s sweeping our nation. Unless the cell phone is work related it’s just another convenient piece of equipment that many feel they can’t live without. But the number one convenience running ramped throughout this world is credit cards.

Talk about convenient. You can go almost anywhere without a penny on you these days and buy whatever you want as long as you have a credit card. Did you know that the average annual percentage rate, or APR, these days is roughly 18%?

Let me give you an example of how convenience may cost you money. If you were to walk into a grocery store and buy $100.00 worth of food and pay with $100.00 using cash/debit card, you would have paid $100.00 for $100.00 worth of groceries. Seems simple however if you decided to pull out your credit card and charge those same $100.00 worth of groceries it may cost much more if you are a typical American.
The typical American carries a balance on their credit card with an interest rate of 18%. This $100.00 grocery purchase has now turned into a $118.00 purchase if it was not paid off within a year. Think about all the times you use your credit cards each month. Now think about all the money you would save if you decided to leave the credit cards at home and pay with cash, debit cards or checks.

The most common reason we see people needing to use their credit cards for regular expenses is due to their lack of knowing their budget. This is one reason why we urge everyone to set-up and review their budget regularly.

The benefits of a reasonable well thought out budget far outweigh the negatives. The budget will show you where your money is going, how you can stretch those dollars further, why you are coming up short every month on your bills, and what you can reduce or eliminate from your life. Put together a budget tonight and find out how much you spend on lunch, entertainment, or convenience in a month. It may surprise you.

-Jeral Croaker FLCS Certified Credit Counselor