By Farm Bureau Financial Services on June 6, 2016
Myth: You can count on money from the future to pay off big purchases.
Maybe you really need a new tablet, or you’ve been driving the same car for 10 years and want to put a down payment on a new one. You don’t have the money right now, but last year you got a huge tax return or a hefty bonus at work. What could it hurt to throw it on a credit card now and pay it off in a few months?
It’s dangerous to count on tax returns or work bonuses to pay off debt. There may have been unique conditions last year that led to that large return, or you might find a change in either your situation or tax laws this year that will lower your return.
Your best bet is to hold off on that purchase until you have the money in hand so you’re not gambling with paying off debt.
Myth: You need very detailed spending categories in your budget sheet.
A million different categories on your budget sheet might make you feel super organized, but the fact is they make it more difficult to keep track of your spending habits. It will also make it harder to see small expenditures that add up to big amounts of money every month.
You should aim for having five to seven spending categories in your budget. The latte/ movie/dining out you did? They can all fall under a general “entertainment” category. Fixed household expenses like your mortgage, the water bill and
others can be a category, and car payments, insurance and fuel can be another. You’ll end up with several big buckets of money to pay your expenses from, and feel like your money is doing more.
Myth: A budget will immediately solve your money problems.
Once you’ve spent time making a spreadsheet or installing budgeting software, it can be easy to think your money problems are solved. You’ll know where money is going and pretty soon it’ll be going into savings, right? Wrong.
Think of a budget as a diet and exercise routine for your wallet. But unlike an exercise plan, your wallet will get lighter, not heavier, if you don’t stick to it.
Creating a budget helps you find places to cut spending and figure out where you can start to save. In the beginning, extra money might be limited, but as time goes on, it can be easier to find additional places to save. Even if you’re only saving a little at a time, you’ll notice the results at the end of the year.
Myth: The money in your primary checking/savings account should be able to support your family needs in a crisis.
If you get laid off, if there’s a family illness or if some other huge expense comes up, you’ll need to have a crisis fund. Since
your regular paycheck is usually eaten up by regular expenses, this fund needs to be quite a bit bigger than just one paycheck.
How big? Enough to live on for three to six months. You’ll want to keep this money separate from your regular checking account, to keep you from dipping into it for everyday expenses. When you get windfalls like a tax return or a bonus at work, tuck some of it away in this fund to further pad your cushion.
Myth: It’s going to be tough to keep track of this budget.
The thought of dealing with a spreadsheet during your free time might make your eyes glaze over, but there are several great apps that can help you make and stick to a household or personal budget. Options like Mint.com can sync with your bank accounts and even your 401(k) and IRAs to give you the big picture on your budget. GoodBudget makes it easy to create a budget based on your cash flow, and Expensify lets you scan in receipts with your phone and categorize them by the kind of expense and its frequency.
For more tips on securing your financial future, visit fbfs.com or contact your local Farm Bureau agent.