Create a Budget (Continued)

Create a Budget
and Ways To Benefit From It

2) Control:
A budget is the key to enabling you to take charge of your
finances. With a budget, you have the tools to decide exactly what
is going to happen to your hard-earned money-and when. You can be
in control of your money, instead of having your money limit what
you do. This bears repeating: you can be in control of your money,
instead of letting it control you!

3) Organization:
Even in its simplest form, a budget systemizes, or divides, funds
into categories of expenditures and savings. Beyond that, however,
budgets can provide further organization by automatically
providing records of all your monetary transactions. They can also
provide the foundation for a simple filing system to organize
bills, receipts, and financial statements.

4) Communication:
If you are married, have a family, or share money with anyone,
having a budget that you both (or all) create together is a key to
resolving personal differences about money handling. The budget is
a communication tool to discuss the priorities for where your
money should be spent, as well as enabling all involved parties to
"run" the system.

5) Take advantage of opportunities:
Knowing the exact state of your personal monetary affairs, and
being in control of them, allows you to take advantage of
opportunities that you might otherwise miss. Have you ever
wondered if you could afford something? With a budget, you will
never have to wonder again-you will know.

6) Extra time:
All your financial transactions are automatically organized for
tax time, for creditor questions, in fact, for any query which may
come up regarding how and when you spent money. Being armed with
such information sure saves time digging through old records.

7) Extra money:
This might well be everyone’s favorite benefit. A budget will
almost certainly produce extra money for you to do with as you
wish. Hidden fees and lost interest paid to outsiders can be
eliminated forever. Unnecessary expenditures, once identified, can
be stripped out. Savings, even small ones, can be accumulated and
made to work for you.


Create a Budget

Create a Budget
and Ways To Benefit From It

Budgeting is not the torture
mechanism we’ve been trained to think it is, but rather a powerful
method of gaining control, planning, communicating, and fulfilling
your dreams. At the very least, a budget will allow you to find
extra spending money in your paycheck every month! You can
actually get money by budgeting (unfortunately, most people think
of it as a way to deprive yourself).

So Why Budget?

A budget is the most fundamental and most effective financial
management tool available to anyone.

Yes, anyone – whether you are earning thousands of dollars a year,
or hundreds of thousands of dollars. It is extremely important to
know how much money you have to spend, and where you are spending
it. Yes, some of your "spending" might be for
investments, but there is an important distinction between
creating a personal budget and deciding where to invest your extra
income. A budget is the first and most important step towards
maximizing the power of your money.

What’s in it for you?

Just about everything. A carpenter would never start work on a new
house without a blueprint. An aerospace firm would never begin
construction on a new rocket booster without a detailed set of
design specifications. Yet many of us find ourselves in the
circumstance of getting out on our own and making, spending, and
investing money without a plan to guide us. Budgeting is about
planning. And planning is crucial to produce a desired result.

What is a budget?

A budget is a money plan. With it, you can organize and control
your financial resources, set and realize goals, and decide in
advance how your money will work for you. A budget can be as
simple as it is powerful. The basic idea behind budgeting is to
save money up front for both known and unknown expenses.

Benefits of Budgeting

1) Know what is going on:
Personal budgeting allows you to know exactly how much money you
have-even down to the penny, if you so desire. Furthermore, a
budget is a self-education tool that shows you how your funds are
allocated, how they are working for you, what your plans are for
them, and how far along you are toward reaching your goals.
"Knowledge is power," as the oft-quoted saying of George
Eliot goes, and knowing about your money is the first step toward
controlling it. That leads us to our next benefit:

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Financial Terms

Terms To Know

ATM Card:
A card used in an automated teller machine (ATM) which may access a
credit or a debit account to complete banking inquiries and fund
transfers between accounts.

Affinity Card:
A credit card endorsed by groups such as colleges, sports teams,
professional organizations, or special interest groups that are
offered to their alumni, fans or members. Typically, use of the credit
card gives financial benefit to the endorsing organization.

Annual Percentage Rate:
Often referred as the "APR", this shows how much credit will
cost you on a yearly basis.
Annual Fee: The annual cost of membership to a particular credit card
account. Most banks now have products without annual fees.

The status of being legally declared unable to pay your debts as they
become due. Federal bankruptcy laws have been enacted which allow a
person or organization to liquidate their assets to pay a reduced
amount to their creditors or which allow the rehabilitation of the
debtor by requiring creditors to accept reduced payments from future
earnings of the debtor. A declaration of bankruptcy will remain on a
person’s credit report for at least 10 years and in some cases
indefinitely. Declaring bankruptcy is generally considered a last

Balance Computation Methods:
Credit card issuers assess finance charges by applying the APR to a
balance. There are several methods for determining your balance. Two
of the most frequently used balance methods are as follows:
*Average Daily Balance Method – This balance is figured by
adding the outstanding balance and deducting payments and credits for
each day in the billing cycle, and then dividing by the number of days
in the billing cycle. Some credit card issuers include new
transactions in this calculation while others exclude new
*Two-Cycle (or Double-Cycle) Average Daily Balance Method – This
balance is calculated by taking the sum of the average daily balances
for two billing cycles. The first balance is for the current billing
cycle and the second balance is for the previous billing cycle.

Billing Cycle:
The length of time between billing statements. A billing cycle is
typically 30 days but because of weekends, holidays, and the variance
in the number of days in a month, a billing cycle may be as short as
27 days and as long as 33 days.

Business Card (Business Credit Card):
A bookkeeping and tax preparation tool for many businesses, these
credit cards are generally issued to corporate executives or business
owners. They make it easy to keep business expenses separate from
personal charges.

Charge Card:
Unlike revolving credit cards, charge cards must be paid in full every
month. The American Express card is an example of a charge card.

Chip Card:
There are various types of Chip Cards, sometimes called Smart Cards.
Electronic chips allow these cards to function in different ways: as
credit cards, debit cards, frequent buyer or rewards program cards,
I.D. cards, or any combination. Many college I.D. cards are chip
cards. These may or may not be credit cards.

Co-Branded Card:
A credit card sponsored by both the issuing bank and a retail
organization such as a department store or an airline. Cardholders
benefit through account enhancements that allow discounts or free
merchandise from the sponsoring merchant based on account usage.
Consumer Credit Counseling Service (CCCS): This is a non-profit
organization that has helped thousands of people get out of debt. CCCS
counselors can advise you on how to develop a budget you can live
with, and can be invaluable in helping you negotiate repayment plans
with your creditors. This service is confidential. To contact the CCCS,
call 1-800-388-2227.

Credit Bureau:
Credit Bureaus collect and report vital facts about your financial
habits; for instance, whether or not you pay your bills on time. These
facts are then compiled into a "credit report," which can be
accessed by potential creditors, employers, etc. The three major
credit reporting agencies are Equifax, Experian and TransUnion You can
contact them at the addresses below.

Equifax Information Service Center
P.O. Box 740241
Atlanta, GA 30374-0241

Trans Union LLC
Consumer Disclosure Center
P.O. Box 390
Springfield, PA 19064-0390

P.O. Box 2104
Allen, TX 75013-2140
1-888 EXPERIAN (888 397 3742)

Credit Card:
Unlike charge cards, these cards allow you to "revolve" your
charges; that is, carry over portions of your balance from month to
month. However, if you do not pay your balance in full, you’ll be
assessed finance charges. To protect your credit rating, be sure to
pay at least the minimum amount due by the payment due date.

Credit Card Insurance:
This insurance protects you if you are unable to pay your credit card
bills because of illness, unemployment, or other severe conditions.
Under these circumstances, the insurance provider will pay your
minimum payments.

Credit Line:
When you receive a new credit card, you’re usually issued a set
"credit line." That amount is the most you can charge on
your account. Under some circumstances, your card issuer may increase
or decrease your credit line.

Credit Report:
This is record of your credit history. It shows whether you pay your
bills on time, how much debt you have, etc. Your report is compiled by
credit bureaus and released to lenders and others.

Debit Card:
A convenient way to "pay as you go," this enhanced card
subtracts money from your account when you use it to make a purchase
or get cash.

Equal Credit Opportunity Act
(Implemented by
Federal Reserve Regulation B):

This federal law protects your rights against being denied credit
because of sex, race, color, age, national origin, or religion. It
also guarantees your right to have credit in your given name or your
married name, the right to know why if your credit application is
rejected and the right to have someone other than your spouse co-sign
for you.

Fair Credit Billing Act:
This federal act protects many important credit rights, including your
rights to dispute billing errors, unauthorized use of your account,
and charges for unsatisfactory goods and services.

Finance Charge:
The total cost of credit including service fees, late fees,
transaction fees, and other charges.

Fixed APR:
Unlike a "Variable APR," this type of APR does not change
based on changes in an index.

Grace Period:
If you have a credit card, a "grace period" means the period
of time your issuer doesn’t charge you interest on purchases. Be sure
to read the fine print, though. Some credit card issuers give you a
grace period only if your account is paid up and doesn’t have a
balance carried over from the previous month.

Interest Rate:
Credit is not free! When you use money provided by a bank or financial
institution, the interest rate reflects the amount they charge you for
that service.

Introductory APR:
This is a temporary, usually low, interest rate (expressed as a yearly
rate) offered by providers to "introduce" you to their
services. It will usually go up after a certain amount of time.

(London interbank offered rates):

Five major London banks daily determine these fixed rates for specific
maturities. What does this mean to you? LIBOR may be used by some
banks instead of the Prime Rate to set Annual Percentage Rates.

Minimum Payment:
You’ll see this on your credit card statement. It’s the lowest amount
you can pay every month, based on that month’s balance at the time of

Performance (or Risk Based) APR:
A performance APR is similar to a variable APR but it is based on your
payment performance. There is a standard APR when you open the account
but that APR will increase if you are late making a payment. If you
are late making a payment more than once within a specified time
period (usually between 6 and 12 months) the APR may increase again.
If the APR has gone up because of a late payment or late payments it
may go back to the standard APR if you are not late on your payments
for a certain period of time (typically one year).

Previous Balance:
How much you owed your card issuer at the end of your last billing

Prime Rate:
"Prime" means "best," and this rate is what banks
charge their best commercial customers for loans. The Prime changes
often, is reported daily in the Wall Street Journal, and is used as a
reference point for many businesses. For instance, the Prime Rate is
used by some financial institutions to set the APR for credit cards.

Unlike interest or fees, the "principal" reflects the actual
dollar amount of the purchases you made, or the balance that remains
on your loan or credit card account.

Purchasing Card:
A real convenience for businesses, this card eliminates the need for
time-consuming purchase orders. A company simply places orders
directly with suppliers and charges them to the card. Usually used for
purchases of $5,000 or less.

Secured Card:
A great "first credit card" or way to re-establish your
credit rating, this kind of card is "secured" by money you
deposit in a designated savings account. For instance, if you deposit
$500, your credit card limit generally will be for that amount. If for
some reason you cannot pay your credit card bills, your credit card
issuer will be paid from the savings account.

Smart Card:
see Chip Card.

Transaction Fees:
Fees which are charged when you make certain types of transactions.
Transaction fees are typically assessed on cash advances and cash-like
transactions such as money orders, wire transfers, and casino gaming

Truth in Lending Act
(Implemented by Federal Reserve Regulation Z):

This federal law protects you by making sure lenders tell you about
the costs, terms, and conditions at the time they offer you a loan or
credit card.

Variable APR:
The Variable Annual Percentage Rate (expressed in yearly terms)
fluctuates based on an index such as the Prime Rate or LIBOR.