1. Keep all sales receipts and create notes to record payments made without receipts. Drop them into a coffee can or plastic jar or a space designated for receipts. Each time you get a paycheck (or once/month) add up your spending. Sort receipts and notes by expense category. Then regularly total amounts of what has been spent in a category to determine how much is needed in that category each week, or whether spending could or should be reduced.

2. Keep an account book by expense categories.

3. Use envelopes or folders for each category of expenses with an amount of money allocated for expenses for a set period of time, like a month. Record dollar amounts on the outside of the envelope or folder.

4. Pay all bills by check and keep running tallies of how much is left in the allocation for each category. This makes a record system in the checkbook. If it often seems that only particular categories of expenses are the problem, you could monitor only the categories that cause the problems.

5. “Sticky notes” can be posted on credit cards with a notation of the maximum amounts that can be charged on that card. Subtract amounts of expenditures added to the card as you make purchases.

6. An informal method used by some people is the checkbook balance, as a guide to patterns of expenses. If the balance drops below a particular amount, it is an alert to potential problems.

7. Use a budget partner for problems that seem to be spending addictions. Establish a household rule that the expense has to be verbally justified to the budget partner before any expenditure on those items can be made. The budget partner’s role is to ask questions to bring greater understanding of consequences of any expenditure rather than telling the person what to do.

8. Keep Log of “financial emergencies” to determine what they are, what triggers them, and then think of ways to avoid them.

9. Purchase inexpensive computer software designed for electronic record keeping. Be sure to back up your records frequently.

10. Carry a small notepad in your purse, car or pocket to jot down spending.

HOW TO LIVE WITHIN A BUDGET…

Controlling spending is one of the most important habits that a person must exercise in order to ensure not only future, but any kind of financial success. Sadly, today most people are convinced that they need much more to live on than they truly do.  The idea that we need more, in our never ending quest for happiness, drives us to make unplanned expenditures, and debt is the result.

The first thing that could be done to avoid overspending is to develop a budget. This budget should be put in writing, and strictly adhered to. It should be checked several times a week, in order to make sure that you are on track. There is something about having a written plan that makes it easier to consult as an authority than holding it in your head.  It also helps to work with a spouse, partner, or third party consultant that can serve as your “conscience”.

Most uncontrolled spending is the result of impulse buying and lack of planning. One must understand that retailers, restaurant owners, and other service providers are all aware of this. These companies actually count on emotional spending to keep their business profitable. Just because an item is on sale does not mean that it is a bargain, like the lady who started smoking while on holiday in Asia because the cigarettes were so much cheaper than in the US.  A bargain you don’t need is not a bargain at all.

Ask yourself, if what you already have will do the job properly or even well enough. If the answer is yes, then apart from the media induced lust for the newer, better shiny version, there is really no reason that you need to spend more on a new one. Often times people will buy the future, only to find than an item has become obsolete no sooner than it is bought, this is an unfortunate and unnecessary waste of money. As much as we all enjoy it, eating out is an added, unnecessary expense. Of course it is fine to treat yourself once in a while, but not every day. Bring a bagged lunch. Remember, this does not mean you have to eat a peanut butter and jelly sandwich for lunch every day. On the contrary, use last night’s left over dinner to create a spectacular and delicious lunch for the next day, which will so often be better for your health. Eat lunch at the office and then go for a walk. Your waist line and your check book will both thank you for it.

Turn off the lights, turn down the heat, and only purchase what you need today. Ask yourself “if I don’t pick up this item today, will I have to come back and get it tomorrow?” These are a few of the habits worth developing which help to control spending habits. Plus, if you have been previously undisciplined in using a credit card and chalked up plenty of debt, it may be time to locate the scissors and apply for a Pre-Paid Credit Card instead of the traditional “spend what you don’t have” type.

HAPPY CLIENT TESTIMONIALS…

Before I got married to my husband I was in a lot of debt. I had been on my own since I was 19 and had purchased things on my credit cards just to get by. When I got married my husband and I decided that we would both claim zero dependents on our W-4’s so that we could get a refund at the end of the year. When we get the refund each year we put it in an account that pays off something we may own on, like my new car payment (I had my old car for 10 years). This year we may put our tax refund toward helping to pay off our student loans. The best advice I can give is to live below your means, track every dime that goes out the door, and work together as a team.  It is too hard to do it alone.
_______________

My husband and I did not have much money saved up before the birth of our son 2 years ago. So, therefore, when I went on maternity leave, we racked up a lot of debt on our credit cards. Soon after, we refinanced our mortgage and used some of the equity to pay off the credit cards. However, not long after we refinanced, our credit cards were maxed out again and we both bought new vehicles both with $500 monthly payments. We were in a bind again, but I kinda had a wake up call in July 08.

I made a budget on an Excel spreadsheet and I decided to get our act together. We stopped our impulse buying and eating out. We started picking up side jobs and we sold unused and unneeded items on ebay and yardsales. I took up using coupons and watching sale ads for bargains. We tracked all of our spending and put all of our efforts into “fixing holes” and focused all our energy on one debt at a time. We had two of our credit cards paid off by the following December and we were able to pay for Christmas without using credit!! This year we have started a few savings accounts and we were able to remodel our bathroom and kitchen (on a tight budget & doing all the work ourselves, of course) with the money we have saved. I plan to have our two vehicles paid off in a year and a half by paying extra on them every month.
_________________

We are getting so close to being debt free (excluding our mortgage). We used our tax refund this year to pay of our line of credit and haven’t used it since! We just this month paid our credit card balance off in full. I’m so excited to get my bill next month and to see it say, “amount owed….$0”.  Whoo hoo! I haven’t had a zero balance on my credit card since I was 16 years old. Just to imagine the interest that I have paid makes me ill. I will never charge more than I can pay off at the end of the month again!  Big lesson learned. Now all the money that I was paying on those two bills are going toward finishing off our car payments. They should be gone by spring. So next years tax money won’t have to be earmarked toward paying off our bills. I can’t even imagine what that will feel like.

How did we do it?  We stopped looking at ads because we realized they were making us spend.  We worked together as a team.  We stopped eating out.  We tried to spend a month “on paper” before it actually started.  If our spending came in under our estimate, we rewarded ourselves with a treat (and we even budgeted for that).

I’m really excited (you probably couldn’t tell….lol).
______________

Before we were introduced to the principles you’re teaching, we didn’t think that our financial situation was that bad.  We had a little bit of credit card debt (from lack of an emergency fund), a car loan, and student loans.  No big deal right?  Until you add it up and realize that you have $23,000 of debt on a $39,000 yearly salary.  So we went crazy and paid it off… in 26 months.  Yes, that’s nearly $1000/month that totally went to extra principal.  How did we do it?

We decided that this was going to be our mission, and that we would not rest until it was done.  We estimated it would take us 3 years, but we did it in less.  It got to be a total passion of ours.  We figured there was no better way for us to invest than in becoming debt-free, so we even stopped retirement contributions to focus everything we had on the debt.

I can say that there is more than an economic benefit to being done with debt.  It just plan feels so good!

We got on a budget, and then my husband took on (a lot of) extra work while I kept things going on the home front. I am amazed and shocked that we could do it so fast!  It took a lot of sacrifice and doing without, but we rewarded ourselves when the credit card was paid, when the car was paid, and when the each of the 3 student loans came off.  I want to encourage others to keep it up and kick debt out for good! Now on to the emergency fund!

- – - – -

Hope you enjoyed the 2011 January No More Mortgage Newsletter.

Related posts:

1. November 2010 NO MORE Mortgage Newsletter
2. NO MORE Mortgage: Budgeting Tips for New Budgeters
3. Customer Reviews

Credit card companies are socking it to consumers left and right. They’re hiking interest rates to as much as 36% and doubling minimum monthly payments, frustrating customers who are already cash-strapped and credit-crunched. In an effort to curb these abusive practices, President Obama signed into law a credit card reform act in May that’s rolling out in three parts over 12 months. At the same time, credit card companies have been hard at work coming up with new ways to boost profits while sidestepping the reforms. “Card issuers are making sure they can make up the lost money in new ways,” said Bill Hardekopf of Lowcards.com, a research company funded by a commercial debt collector. The first part of the law, which took effect in August, requires banks to give customers more notice ahead of major changes to their accounts, like rate hikes. Starting in February, limits will be imposed on when issuers can raise rates on existing card balances, and on new cards. In August 2010 some credit card penalty fees will be will reined in. But no legislation can fully shield consumers from the credit card industry’s ongoing efforts to boost the bottom line. The worst part? “All of these hikes are taking place simply because they can,” Hardekopf said.

1) RATE HIKES: Interest rates are out of this world. “They’ve increased steadily over the past 5 years, and in general are higher than they’ve ever been,” said Josh Frank, senior researcher at the Center for Responsible Lending (CRL), who says he’s seen annual percentage rates as high as 36%. No current laws cap credit card interest rates, according to Pamela Banks of Consumers Union, the nonprofit publisher of Consumer Reports, so technically the sky’s the limit. But the CARD act will help curb abusive practices. As of February, issuers won’t be able to arbitrarily raise rates on existing balances. But cardholders will still be subject to interest hikes for late payments and various other infractions. And card companies will be able to raise their rates as high as they want, whenever they want, on future purchases even after the reform bill kicks in completely. The act will bring protections for new customers; issuers will no longer be able to hike rates on new accounts in the first 12 months, unless the borrower is delinquent by more than 60 days or the increase is stated in the contract. Keven Vallance recently saw the rate on his Sears card increase from 9.99% to 13.99% for no apparent reason. When Vallance called Sears Credit, which is owned by Citibank, a rep told him every cardholder’s rate is increasing by 4%. Citi spokesman Samuel Wang said in an email that the company has “adjusted pricing and card terms for some customers as part of our regular account reviews.” Consumer outrage is boiling over. Last month, a disgruntled Bank of America customer posted a YouTube video complaining her bank “jacked up my interest rate to a whopping 30% APR.” Her rant went viral, and BofA dropped her rate back to its original 12.99%.

2) NEW FEES: Fees aren’t just rising -they’re multiplying. Cardholders are getting slapped with fees they’ve never seen before. The hitch: New laws can address only existing fees and business practices; they can’t predict what credit card companies will do in the future. “Theoretically, they could create a fee for names that begin with ‘J,’” said Lowcards.com’s Hardekopf. In reality, customers are seeing new annual fees, inactivity charges and more. Not of these charges are unheard of, but many fees that were unusual are becoming commonplace. Earlier this month, for instance, some Bank of America customers were shocked to learn that their no-fee credit cards would be subject to a new annual fee. BofA spokeswoman Betty Riess said the fees are part of a company test that affects 0.5% of all consumer accounts, and that the fees range from $29$99. The charges will be levied in February, and Riess said customers were chosen “based on risk and profitability” but have the option to reject the fees by canceling their accounts. Fifth Third Bank recently introduced a $19 inactivity fee for customers who don’t charge anything for 12 months, and Citibank is hitting some consumers with a fee if they put less than $2,400 on their card annually. To address this problem, House Financial Services Committee Barney Frank (D-Mass.) has proposed a new regulatory body, the Consumer Financial Protection Agency, which would approve new credit card fees. While the House Financial Service Committee approved the agency, it remains to be seen whether legislation will pass; lawmakers are battling over this and other reform proposals floating around Washington.

3) HIGHER MINIMUM MONTHLY PAYMENTS: Banks are also demanding bigger and bigger minimum payments. Chase has bumped up the minimum payment for some consumers to 5% of the monthly balance from 2%. For someone who carries a $5,000 balance, that means the monthly payment of $100 skyrockets to $250 -a whopping 150% increase. Consumer Union’s Pamela Banks says her organization has compiled a wealth of anecdotal evidence that indicates such increases in minimum monthly payments are widespread. “This is making payments virtually impossible for some people,” she said. “It’s throwing people off when they were living on a tight budget anyway.” Some good news is on the way, however. After February, card companies won’t be able to increase monthly minimum payments by more than 100%. For example, a bank cannot increase a 2% minimum payment to any higher than 4%. And this so-called “doubling” will be allowed only once during the life of the card.

4) FEWER REWARDS: Say goodbye to beach vacations and new iPods just for swiping your card. Rewards programs have been enticing shoppers to charge a purchase rather than paying cash -but card issuers are cutting back those perks. “This is happening with a significant amount of cards,” Hardekopf said, adding that many consumers are now receiving 1% cash back instead of the 2% or 3% they once enjoyed. American Express recently cut its Blue Card’s cash back policy from 1.5% to 1.25%. And all AmEx customers who make a late payment will no longer accrue points on their purchases -however, those points can be reinstated with a $29 fee.

5) SLASHED CREDIT LIMITS AND CANCELED ACCOUNTS: Without so much as a call from the bank, some customers are learning their credit limits have been slashed by as much as 75%, or that their accounts have been closed altogether, according to the Center for Responsible Lending’s Josh Frank. Citibank recently closed what a spokesman called a “limited number” of MasterCard gas cards co-branded with Citgo, ExxonMobil, ConocoPhillips and Shell. “People go to make a purchase, and they find out about these huge changes only when they’re denied,” Frank said. “It’s a shock, and it’s been happening a lot.” Even cardholders who don’t charge anything might find their accounts abruptly closed, Frank said. With credit losses at a record high, companies see inactive cards as a red flag and close the accounts to avoid the worry of future writedowns. “Usually cardholders have this credit line available for an emergency, for this kind of current economic situation,” Frank said. “But now they’re turning to it when they need it, and it’s gone.”

What’s a cardholder to do? Consumers must pay close attention to the terms of their contracts, staying alert to any changes. “It’s boring reading, and it can be hard to understand, but that’s where everything is spelled out,” said Lowcards.com’s Hardekopf. Of course, while there are laws aimed at helping consumers, legislation can’t do it all. “As we close the loopholes on some things, they open up elsewhere,” said Consumer Union’s Banks. “Reform acts don’t cover everything, and cardholders have to watch out for their own accounts.” And if you don’t like your credit card’s new terms? “Shop around -you are not married to your card,” Hardekopf said. “It’s a partnership, not a lifelong contract.”

Related posts:

1. Right Way to Break Up With Your Credit Card
2. NO MORE Mortgage and Credit Cards
3. Reduce Use of Credit Cards

“I said to them, ‘You’re giving me the option to either shoot myself in the foot or shoot myself in the hand. That’s just unacceptable,’” said Skinner, from Greenville, S.C. She holds only two credit cards, so the hit to her credit score from closing one would be significant. “What am I supposed to do?” she wondered. It’s a frequent question for American consumers these days. Half of all account holders say they’ve been hit either with a higher rate or a lower limit in recent months. While consumers are customarily given the choice to decline the new terms and close the account, doing so flies in the face of all standard advice from personal finance experts because closing credit cards usually has a negative impact on credit scores. “Credit utilization” is one of five important factors used to determine a consumer’s score. Closing a card with a $10,000 limit means the consumer has $10,000 less in credit. If that consumer owes $5,000 on a second card with a $10,000 limit, their utilization just shot from 25 to 50 percent, a credit score killer.

So which bad choice is right for Skinner and other consumers facing the same conundrum? The answer is perhaps even more maddening than the question: “It depends” and “there’s no surefire way to know ahead of time.” But there are some clear guidelines that can help. For starters, closing an account will never help your credit score, despite persistent mythology to the contrary. The only time closing a credit card account is a good idea is when keeping it open will do even more damage than the lowered credit score. No one can say precisely how much closing a credit card account will hurt your credit score -too many other dynamic factors go into calculating the number. Fair Isaac, which owns the credit score formula, says the impact can range from zero points to “dozens of points,” according to spokesman Chris Groppa.

Dozens of points doesn’t sounds so bad, right? Wrong, says Credit.com’s John Ulzheimer, himself a former Fair Isaac employee. “The amount of their score drop isn’t as important as whether or not they cross the lines between approved and declined, and better rate or not as good of a rate,” he said. “Example: If my score goes from 685 to 675 then that’s only 10 points so no big deal, right? But what if (the consumer) applied for a car loan and the lender offered 7.9 percent above 680 and 9.9 percent for someone below 680. Then the 10 points become very meaningful. This isn’t unrealistic as all lenders use score-tiered decision tables.” In other words, if you are planning to buy a house or a car in the next month or two, closing a credit card is a terrible idea -even if your interest rate is about to skyrocket. But outside of that backed-into-a-corner situation, consumers should feel comfortable exercising their right to fire their credit card company and accept the consequences. “People shouldn’t let worry over FICO scores rule their lives,” Groppa said.

For starters, a higher rate will cost money today for anyone who doesn’t pay their balance in full. A credit score drop of 20 points or so might cost you money tomorrow. But you don’t know how much, and you don’t know how long the credit score hit will last. It’s smart to take the sure savings today and close the card. There are strategies for minimizing the negative impact once you do so. First, carrying a low balance or paying off your cards is the best insurance against the penalty of closing a card. If a consumer closes a card and loses $10,000 in available credit, but pays off $10,000 in debt on other cards, the available credit would remain equal and there would be no or minimal impact on a credit score, he said. Of course, that’s not always realistic. A second route to a similar result is to open new credit cards with limits that replace the lost credit.

Related posts:

1. NO MORE Mortgage and Credit Cards
2. Reduce Use of Credit Cards
3. New FICO credit scoring model