As part of our Consumers ConnectU financial education series, Tim Kosak, our Consumer Lending Manager, will be hosting monthly “Ask Tim Anything” chats on our Facebook page. In January, he took your budget questions. In case you missed it, here’s the play by play.
Q: How would you make it fun?
A: Great question! I recommend building in rewards. As you see your progress, reward yourself with something that doesn’t break the bank, like a dinner out or a movie. And keep the ultimate goal in view. What will this budget mean for your family? Is it a better house? College tuition? Use short term rewards and long term rewards like the bigger goals you’re working towards. Make it personal—use pictures and reminders to motivate yourself.
Q: Tim, where do I even begin with this whole budgeting thing?
A: First, get your team together. Who are the stakeholders? Make sure to include the whole family. Everyone affected by the budget needs to be in on the budget. Once the team has decided its goals, share them with friends and family to help you stay accountable.
We’re often asked what the best way to organize your budget is. The trick is to find the way that’s best for you. First, do you like Excel? Is pen and paper your thing? Or the tried and true envelope method? Find a daily process that works for you and stick with it. Don’t be afraid to adapt and ask your friends what’s worked for them.
A couple tips for setting your goals: We like SMART goals—Specific, Measurable, Attainable, Realistic, Timely. Attainable goals are especially important. It’s difficult to go from a very loose budget to a very tight budget overnight. Take it one step at a time. Increase your budgeting a little at a time.
Q: Tim, it’s tax time. If a family receives tax money back, what do you think are the top actions they should take?
A: Moment of pause…no seriously, a moment of pause should be the first thing on your mind. A cash windfall can be very exciting. It’s natural to think of ways to spend it. Building in 30 days—if you don’t have any pending emergencies—can help you avoid impulse purchases. Before putting the money to use, remember that cash is king. The power of having cash on hand is freedom from taking on additional debt. Nothing can replace the stability that an emergency fund can provide. Now that you have your foundation, you can refocus on your long term goals.
Q: I get paid monthly, but my wife gets paid biweekly. Some bills are paid semiannually. How do you manage the books with such sporadic periods?
A: Great question. Your situation is going to require a few extra minutes of planning. A trick to that kind of budget can be using a year end bonus or cash windfall to establish a minimum savings balance that allows you to ride the highs and lows. The powerful thing about budgeting is it allows you to think in longer time periods instead of paycheck to paycheck. Without a baseline savings fund, budgeting becomes a cash flow management challenge. You can also build up this fund over time by setting aside smaller amounts regularly.
Q: What’s the best way to pay off credit card debt? And should I be making an emergency fund or paying off credit cards first and then saving?
A: Save, save, save. Cash is king. A baseline savings fund helps prevent you from having to borrow for the next emergency. That should be your first priority. There are many different strategies for paying down debt. The two most common are the snowball effect or targeting the debt with the highest rate. The snowball effect targets the loan with the lowest balance first and “snowballs” each payment into the next payment. It’s popular because it helps you cross debts off your list so you see your progress. Targeting unsecured debt like credit card debt first is generally regarded as a great priority. This can get into areas more specific to your situation. We recommend talking to one of our financial experts or our partners at Accel for a specific plan that meets your needs. Accel’s services are free to all Consumers members.
We’re blessed to be part of our members’ lives. Budgeting is personal and brings us very close to our members. We’re so fortunate to have you as part of our Consumers family and get to share ideas with you! Please don’t hesitate to lean on us to help you get started. We’re here as a resource. Great luck with your New Year’s budgeting resolutions!
Recommended by Tim for Additional Information on Budgeting
Accel – Consumers Credit Union members have free access to our partners at Accel. These professionals lead our members through budgeting tips, credit reviews, preparing for home ownership, and more. They’re an excellent resource for your specific questions.
Be sure to join us next month for our Ask Tim Anything ConnectU Facebook Chat on Savings! Watch our Facebook page for more information.