A Tough Balancing Act

A budget helps you organize your expenditures. It itemizes how much money comes in, how much money you spend, and where the money goes. A budget can also show where some changes might be needed. It will help identify expenses that aren’t as urgent to you so you can use and free up money for the important ones.

With a balanced budget, managing your money will be easier. Set up your financial goals and make a plan to forecast your expenses. Develop the discipline and good financial maneuvering. Know your limitations and top priorities. Be focused and keep your expenses within your budget. You can make it happen! Managing your money is possible. With this, you can achieve your financial goals.

Understanding Credit Card Charges

You love to shop for credit. You must understand how much you spend or the additional expenses that you incur when using that plastic. You must understand also that credit cards don’t give you money, they just give you the purchasing power even without cash in hand. To understand further, I have listed below the additional burdens of keeping and using that card.

1. Finance Charges- The most common monthly interest rate on credit cards is 3.5%, if you fail to pay the outstanding balance in full. To illustrate, suppose you have an outstanding balance of P10,000 on your last bill and you have paid only the minimum amount of 5% or P500.00. At 3.5% interest, out of the P500.00 payment, only P150.00 will be deducted on your credit card debt. That means, you have incurred an additional P350.00 for using that card.

The next month’s bill will reflect an outstanding amount of P9,850.00, and you will pay again another P500.00, suppose that is your monthly budget for card debts. It will take you 35 months or almost 3 long years to pay off that debt…

Balance    Interest   Payment   Forwarded Balance


10,000.00  350.00     500.00   9,850.00 FEB

9,850.00    344.75     500.00   9,694.75 MAR

9,694.75    339.32     500.00   9,534.07 APR

9,534.07    333.69     500.00   9,367.76 MAY

9,367.76    327.87     500.00   9,195.63 JUN

9,195.63   321.85     500.00   9,017.48 JUL

9,017.48   315.61     500.00   8,833.09 AUG

8,833.09   309.16     500.00   8,642.25 SEP

8,642.25   302.48     500.00   8,444.73 OCT

8,444.73   295.57     500.00   8,240.29 NOV

8,240.29   288.41     500.00   8,028.70 DEC

8,028.70   281.00     500.00   7,809.71 JAN

7,809.71   273.34     500.00   7,583.05 FEB

7,583.05   265.41     500.00   7,348.45 MAR

7,348.45   257.20     500.00   7,105.65 APR

7,105.65   248.70     500.00   6,854.35 MAY

6,854.35   239.90     500.00   6,594.25 JUN

6,594.25   230.80     500.00   6,325.05 JUL

6,325.05   221.38     500.00   6,046.42 AUG

6,046.42   211.62     500.00   5,758.05 SEP

5,758.05   201.53     500.00   5,459.58 OCT

5,459.58   191.09     500.00   5,150.66 NOV

5,150.66   180.27     500.00   4,830.94 DEC

4,830.94   169.08     500.00   4,500.02 JAN

4,500.02   157.50     500.00   4,157.52 FEB

4,157.52   145.51     500.00   3,803.03 MAR

3,803.03   133.11     500.00   3,436.14 APR

3,436.14   120.26     500.00   3,056.41 MAY

3,056.41   106.97     500.00   2,663.38 JUN

2,663.38    93.22      500.00   2,256.60 JUL

2,256.60    78.98     500.00   1,835.58 AUG

1,835.58    64.25     500.00   1,399.82 SEP

1,399.82    48.99     500.00   948.82 OCT

948.82       33.21     500.00   482.03 NOV

482.03       16.87     498.90   (0.00) DEC

 

At this rate, you have to pay almost twice as much as you have purchased or 175% of the original balance for three long years. Is it really worth it?

2. Late Payment Fee- If you think finance charges make you sick, the Late Payment Fee is even more sickening. This is an additional expense for not paying on or before the due date. So, in addition to that bothersome and burdensome finance charge, you will have to pay another 7.5% of the minimum payment due. In the illustration above at P10,000.00, you will pay an additional P37.50 for this, which further deducts your supposed payment of P500.00, bringing your outsanding balance to P9,887.50. Yes, it’s very disappointing, to say the least, that you have paid P500.00, but have lessened your debt by a measly P112.50. So be very cautious on your payment due date, your failure to pay on time will really hurt your pockets.

3. Annual Fee- Most credit card companies waive off the annual fee for the first year, but on the following year, they will automatically charge you with this fee, which ranges from P1,200/p.a. to P2,500/p.a.

This means that just by keeping the card, you will pay the card company for P100.00-P200.00 per month.

4. Overlimit Fee- You have an assigned credit limit for your card. If you use your card above that limit, you will be charged by P500.00 or more. How is this possible? Since most credit card companies have a system which blocks transactions above your credit limit, you may wonder how on earth can you exceed your spending limit.

This happens if you maximize your allowable limit on or before the cut-off date. Suppose you have a P20,000 assigned credit limit and your cut-off date is every 12th of the month. If you have used up your limit up to P20,000 on Feb.12, and you have a previous balance that you have not fully paid this will incur finance charges, which will add up on your outstanding balance. This will lead to overlimit, or over credit limit, which entails the overlimit fee.

5. Cash Advance- You need cash right away and you can’t withdraw from your ATM, you have the option to get cash using your credit card. You may have to think twice or thrice before availing this service, because for each withdrawal, you will be charged an additional P300-P500 on your bill. In addition to that, if you fail to settle the full amount, additional charges will apply. Unless you’re desperately in need of cash, this service is definitely not advisable.

There are other charges that card companies impose such as transaction retrieval fee, payment for lost/stolen card replacement fee and account maintenance fee. Check their website or call the customer service hotline numbers for details.

Cash and Credit Card Payments

When you write down your expenses, does it matter if you pay in cash or by credit card?

The answer is NO. Whether you pay in cash or by other means, the expense remains the same. For example, when you go to the supermarket to buy meat, vegetables, fruits and canned goods, and you use your credit card to pay, there is no cash outlay on your part, at the moment, but you carry the goods with you. You are now a debtor of the card company, which will bill you for the purchases you have made using their card, on a later date.

This means that credit card payments are not accounted entirely as expenses, only the portion of payment for finance charges are recorded. Finance charges are the expenses that you incur for using the credit card, and not paying the whole outstanding balance in full.

Writing down the entire payment to the credit card company as expense will double up the purchases which you have previously taken up before. The redundancy will result to bloating up of expenses and will definitely affect your prepared budget.

Accounting for Expenses

In order to prepare an efficient budget, you must first account your current expenses. List down all items paid for during the day, on a daily basis. A sample of which is shown above.

It’s easier if you’ll keep the receipts in a purse and jot down in your notebook or planner at the end of the day. Include all disbursements, even your personal allowance for the day. You may have some loose change to go with that, you can put that in your piggy bank, or simply placed in your coin purse for future use. It’s a tedious task to account for the minimal costs involved.

This goes on week after week after week, until the last week of the month. By the end of the month, we’ll have the full account of your expenses.

How to Prepare A Monthly Personal budget

After defining what budget is, we will now prepare your monthly budget. First of all, we will NOT prepare your budget for the current month. This will be your budget next month or the month after next. Confused?

This is the principle behind an effective and realistic budget. We must first gather receipts, list down payments to a notebook for one whole month. Then we will classify them accordingly. To make it easier to track down your expenses, you can use a planner instead of a notebook. If you can’t find one in your home, don’t buy! Just find an old notebook and label the pages per week. If you can attach the receipts, so much the better. This will be helpful in analyzing your expenses for groceries, shopping, school supplies, etc. There may be expenses incurred for the current month which may not recur the following month, like purchases of items with future use, such bath towels, pillow cases or a vase. You don’t buy these items on a monthly basis, but these are mimimal expenditures with little or nominal value in the future.

Can’t wait for another month? Okay then, if you can vividly recall all expenses last month, you may also write these down in your notebook, this time on a monthly basis, since you may not be able to recall the dates of payment but only the cost paid. Are you ready?