Thursday, February 23, 2006

What Household Budget Percentage Breakdown Is Typical?

by: Brad Homer



The typical American household budget percentage breakdown looks like the list below. For most of the categories a range is shown. A range makes more sense to help you see where your personal budget fits (or doesn't fit.) If your budget doesn't fit the typical American household budget, rejoice! The average American household budget is jacked up - we carry too much debt and we just don't save enough. We're so worried about our neighbor's new pool, our co-worker's new car and our friend's new designer shoes that we spend more than we earn to try and keep up. But take heart! Review the percentages below, compare your household budget and then read on to find out how you can move yourself into the elite minority of Americans who have mastered where their money goes.

Typical Household Budget Percentages

33-38% Housing (59%-66% of this is on shelter - mortgage interest, property taxes, repairs, and rent, and other items)

15-19% Transportation (38-48 of this is vehicle purchase - 2 cars per household average)

13-14% Food Budget (55% at home, 45% away)

0-2% Alcohol

0-3% Tobacco and related products

0-2% Caffeine related products

4-5% On clothing and related services (drycleaning)

4.5 - 6% on out of pocket Health Care

9% Personal Insurance and Pensions (breakdown: 1% life and other personal insurance, 7.5% SS, .5% investment

5% Entertainment

2.5% Charitable Contributions

2% Reading and Education

1% Personal Care products and services

2% Miscellaneous

4% Credit Card, Consumer Loan Interest

If your budget closely matches the above, here's what you can do to fix that. Do these in order. Do not proceed to the next step until you've addressed the current step:

1. Stop using your @#!&*! credit cards!

2. Make a down and dirty budget right away! Don't worry about it being right at first...you can perfect it over time. Just do it!

3. Cut back on your easy to identify, frivolous spending habits (3 dollar lattes, magazines, 450 extra satellite channels, etc.) If you've got some expensive habits you've wanted to quit for some time, now's the time. For example, if you're a hard-drinkin', chain smokin', coffee drinkin' fool, you can reap a windfall of up to 7% or more of your income! Just cutting back to 2 drinks per day, only drinking coffee from home and quitting the cigarettes will net you a nice amount of extra cash and add years to your life! Refine your budget after eliminating what you can.

4. Reduce your 401K and other investment payments (if you have any) to the minimum allowable to keep your 401K and/or other investment accounts open. If your employer has a stock matching plan, keep that in addition to the minimum to keep your investments accounts open (but only up to the minimum you need to get all the matching money.) You're going to reap a whole lot more return on paying off your debts than you can ever hope to reasonably get from traditional investments. If you're paying into a college fund for your kids - keep doing that - if you're not and you really want to, hold off until step 6. Refine your budget to reflect the extra income available, if any.

5. Build an emergency fund equal to 2% of your gross annual income. It should be a little hard to get to (like a separate checking account or mutual fund), but not too difficult (Certificate of Deposit.) Work this into your budget - it's very important. You will not believe the amount of stress that will melt away when you do this.

6. Pay off your debts - everything except mortgages. And don't just move your revolving debt into a second or third mortgage - that's bad. Pay them off using a rapid debt paydown system like the Debt Hammer™. Pay off any student loans (for future reference, these are a bad idea.) Pay off your car(s) too. If you're not upside down on a car loan (your car is worth more than you owe) you can sell it and get a cheaper, paid for car. Throw a small (inexpensive but fun) party for yourself and your loved ones every time you pay off a debt.

7. Take all the money you WERE spending to pay off your non-mortgage debt and start putting it into those investment accounts you put on idle. Make sure you're investing at least 10% of your gross income. If you followed steps 1-4 exactly, you should have lots of breathing room in your budget now. If this is true and you want to invest more than 10%, go ahead, but be sure to reward yourself too and live a little. Grow your emergency fund to a level you're comfortable with (2 or more months of income is a good start.) If you have young kids and you want to send them to college, start putting money into a college fund of your choice for them, if you haven't already. Throw a bigger party than usual when this is done.

8. Pay off your mortgage and throw your biggest party yet! You can start towards this by refinancing to a single fixed rate mortgage (your credit should be in pretty good shape having paid off all your other debts.) If it's a 30 year mortage, pay more than your monthly payment to dramatically lower the amount of interest you give to the bank. If it's a 15 year fixed - wow! That's excellent!

9. When you're totally debt free, regularly give away whatever you think you can afford. It's good for the soul!

Easy? Not. Worth it? Doing the above will pay dividends in your life in many more ways than just dollars and cents. You will assure yourself a dignified and financially secure retirement. Do this well and you will also build a way for your kids and your grandkids to enjoy prosperous lives, and they will remember you with fondness and respect long after you've moved on to the other side. Now get started!

Millionaire 2020™ can help you cut through the nonsense and get you on the path quickly to good budgeting. Check it out at http://www.homerworks.com.

About The Author


Brad Homer is a software developer and personal success fanatic focused on helping people achieve their goals.

© 2006 Homerworks LLC. All rights reserved.


posted by Bryon Zirker @ 2:37 PM 0 comments

Which Debt Reduction Strategy Is Right For You?

Which Debt Reduction Strategy Is Right For You?
by: Kris Bickell

Getting into debt these days has become very easy. Credit card companies bombard us with offers in our mailbox, ads on TV, promotions in stores. If you can sign your name, it seems like you can get credit.

But what happens when you use so much credit that you can no longer pay your credit card bills every month?

And what happens when no matter how much you pay, your bills get bigger…and bigger…and bigger?

There are several strategies for getting out of debt.

All of them have their good points. And all of them have their bad points. Which one is right for you? Here is an overview of the different debt reduction options available to you:

Borrowing money from friends or relatives:

If you have a friend or relative who has enough money to help you get out of debt, consider yourself lucky. But think long and hard – and then think again – before choosing this option. While borrowing from a friend or relative can help you avoid the high cost of interest (if they are willing to give you the money without asking you to pay interest), borrowing money can hurt, or even ruin, your relationship. Everybody wants to pay back their “rich uncle” – but what happens if you don’t? Or you can’t? This can put both of you in an uncomfortable position. Even if the money is a gift, it can change your relationship entirely. So make sure to give this option a lot of thought before borrowing money from a friend or relative.

Credit counseling:

For many people, credit counseling is a good option. After all, inmost cases you can lower your interest rate, lower your monthly payment, and combine your credit card bills into a single payment. But be careful. There are LOTS of “non profit credit counseling” companies out there. And not all are created equal (and not all do what they say they will do). Before signing any paperwork, it is a good idea to ask lots of questions. And compares the fees and other program details. Just because a business is non-profit doesn’t mean there aren’t costs to you – and doesn’t mean you don’t need to shop around and compare programs!

Debt consolidation loan:

If you are fortunate enough to own a home (and you have enough equity to borrow money from your home’s value), a debt consolidation loan may be the way to go. In many cases, your interest may be tax deductible (but check with a tax professional first to make sure). And also think carefully about this option – because if you borrow “against” your home, and you cannot make the payments for whatever reason, you may risk losing your home! Fees, interest rates, and terms vary, so make sure to shop around for the best loan program for you!

Debt settlement:

If bankruptcy seems like the only option, then debt settlement (also called debt negotiation) may be a good alternative. The process of settling your credit card bills (paying them off for less than you owe) is a more aggressive approach to getting out of debt. But if you are behind in your payments, this can be a less drastic step than declaring bankruptcy. You will pay income taxes on the amount you save, but this amount is usually still much less than the amount you would have paid in interest. Before deciding on debt settlement, make sure you feel comfortable with such an aggressive strategy – and once again, shop around and compare terms and fees.

Bankruptcy:

Typically, bankruptcy is the last alternative. And with the new bankruptcy laws put into place in October 2005, you should consult with a bankruptcy attorney before considering this option. With good reason (for the most part), having your debts “written off” through bankruptcy has become more difficult. So, find a good lawyer, and discuss your options carefully.

Now, which of these debt reduction strategies is right for you?

There is no simple answer. The best advice is to check out all your options – very carefully – before deciding which strategy is best for you. Before signing up with any company:

• Ask lots of questions so you are comfortable with the company

• Learn how the process works, find out the fees, and get ALL agreements in writing

• Check with the Better Business Bureau to see if there are any unresolved complaints

And while being in debt is certainly very stressful, always remember that life is not entirely about money. Life is about making the most of each day, and being thankful for the things that you do have – while you are working on fixing the things you don’t!

About The Author

Kris Bickell is the owner of Debt-Tips.com, a site for consumers struggling with credit card debt. For more tips on getting out of debt faster, sign up for the free course “5 Simple Tips For Getting Out Of Debt Much Faster” at http://www.Debt-Tips.com.

posted by Bryon Zirker @ 1:07 PM 0 comments