This is a guest post by Holly Miller, who writes for Coupon Croc.

If you do not keep tabs on your spending habits, they can easily get out of control. When starting a family on a limited income, budgeting is especially important. Families with limited resources face additional pressure when it comes to keeping spending in check. Raising a family comes with many expenses, from food and clothing to school and sports. Creating a budget allows you to plan your monthly expenditures in advance, and to more easily make choices for necessary adjustments. Budgeting allows your family to be financially prepared for minor setbacks and helps when starting a plan for savings.

The first step in budgeting is to review your spending history. A period of six months gives a realistic overview of your average monthly expenditures. Examine your spending, and be realistic about areas in which you can save money. Reduce your food budget by planning to cook, if your family eats meals out of the home often. Reserve one night per week for a family restaurant outing, rather than making it a routine.

Next, create a budget. This is a written plan that details how money will be spent each month. Begin with your monthly bills. Rent, utilities, debt payments should be subtracted to the monthly net income to determine just how much your family can afford to distribute among other expenses. Factor in groceries, clothing and seasonal expenses, such as school supplies or summer daycare.

Make an additional plan for any leftover money. If your family is fortunate enough to have money after making all of its payments, start saving it. Any unexpected expenses, such as a broken appliance or a medical emergency, can be paid for out of savings without harming the established budget. This prevents from creating additional debt by using credit cards. Create several savings accounts to portion extra funds, if desired. A separate college savings account will keep money saved for your child’s education from being spent on a family vacation, for instance.

If your family does not have any extra money after the bills, it may be time to formulate ways to cut spending. Scale back on unnecessary expenses to create a little leeway in your budget. This will allow you to start a savings account. Move into a less expensive dwelling, or trade in your gas-guzzling vehicle for a fuel-efficient model. Shop at discount grocery stores or join a carpool to save gas money. Avoid paying retail prices for items. Use coupons, follow sales and select store-brand products to save money on groceries. Consider buying used products, when possible. Used clothing, shoes, books and toys save new families a lot of money. Sell your own gently used products to other families after you no longer need them.

This was a guest post by Holly Miller, who writes for Coupon Croc. Protect your family, and car, with sufficient insurance coverage; use Prudential car insurance discount codes and save on your policies.

I’ve heard it said that wealth is a state of mind. There may indeed be some truth behind that saying, but when you go by the book being wealthy means having money or other monetarily valuable possessions. I’m going to discount something from this equation because I want to emphasize that wealth isn’t about having stuff; it’s about being well-off and financially secure. Take the Joneses, your neighbors who seem to have everything. They may have a lot of material possessions… but do they have any real assets? In other words do they own anything that they, in reality, own? You may be surprised. It’s easy to have a lot of nice stuff. All you really need is a credit card with a high spending limit.

Building real wealth is not an entirely difficult thing to do. It will require some sacrifices to be made, but almost anything that’s worth having requires sacrifice in some form or another. What kind of sacrifices? Well that really depends on you. If you spend your money before you make it then you’ll have to change some of your buying habits. If you save your money for a month or two to buy something nice, well you have a head start, but you might have to start saving some of it for yourself, rather than for that new HDTV.

I’ve come up with a short list of things that I feel are important to starting out on the road to wealth. It’s all about habit building. Once you’re in the habit of saving and investing it’ll be hard to not do it.

Here’s what I’ve come up with:

• Establish and maintain a positive credit rating
• Learn to budget, and then to LIVE ON that budget
• Learn to save (and not to immediately spend your savings)
• Establish a 401(k) account, or if not offered establish an IRA or a Roth IRA

Sound difficult? It’s really not. I promise. Keep reading for some more insight.

Establish a positive credit rating

Establishing (and maintaining of course) a positive credit rating will more than likely be one of the most important things that you will ever do when it comes to your finances. Truthfully it’s not difficult to establish and keep your credit rating (e.g. credit score) at an above-average level. The average FICO score is in the mid 600′s, something which can be achieved with just a little dedication. What sort of dedication? Not much. Truly. Pay your bills on time (this can be easily achieved with recurring online bill pay). Don’t max out your credit cards. Get credit cards if you don’t have any; use them monthly and then pay off the bill every month (on time of course). Be smart about your credit. Don’t open up a charge account at every store you shop at just because they are offering you 10% off today’s purchase. Don’t use your credit card to pay for something unless you have the cash to pay it off (or if you insist on using it still, make sure you’ll have the cash within a month to pay it off). Doing these simple things will help you to establish a squeaky clean credit rating, which will lead to lower loan rates and a much easier time qualifying for loans… not to mention potential auto insurance savings, etc.

For a little more detail on how a FICO credit score is calculated, and how it can be used, check out How Your Credit Score Defines You.

Learn to budget

Budgeting is an important part of your financial health. Budgeting means, in a nutshell, living within your means. It doesn’t necessarily mean tracking every single purchase you ever make and not allowing yourself to spend more than “x” amount of dollars on entertainment in a given month. Instead I have learned that it means to know how much you earn in a month and to not let your expenses exceed your income. Sure it sounds like a silly thing to say, but many people have yet to grasp this concept. Another thing I’ve learned that must be a part of ones budget is to budget a portion of your money away into some form of a savings or investing account. Go ahead, enjoy your life and spend your money while you still can, but make sure that you save just enough to cover emergency expenses and larger more expensive purchases, such as a down payment on a house or that new 52″ HDTV you have been lusting after. For a detailed look at a budgeting method I use, check out My 33% Savings Plan.

Learn to save

This one is pretty self-explanatory. Save a bit of every single paycheck and you’ll find yourself living much more comfortably than those around you. This principle is important for a few reasons. First it’s a good idea to have an emergency fund of about 3 to 6 months worth of your income saved up… for emergencies of course. Having this fund will erase untold amounts of stress from your life. Finally learning to save will eventually lead you to financial independence, and isn’t that what we’re all really after? Chances are you won’t be winning the lottery in this lifetime, so you’ve got to provide riches to yourself rather than expecting others to provide them to you.

Establish a 401(k)

For those who might not be informed on what a 401(k) is, please check out Are You Ignoring Free Money. I believe most of you probably have a pretty good idea of what a 401(k) is and what they can mean to your financial health at retirement. Contributing regularly to your 401(k) starting at a young age can mean all the difference in the world to the lifestyle you will be able to enjoy at retirement. If a 401(k) is not something that is offered by your employer (if you don’t know if it’s offered ask your manager – there’s a pretty decent chance that it is) then you will want to spring for an IRA or a Roth IRA. These are retirement accounts similar to the 401(k) in that they are tax-advantaged, but instead of being managed by your employer they are managed either by yourself or by a financial services company such as Vanguard. If you are in a low income tax bracket then a Roth IRA might be a better choice for you, because they are only taxable before the money is deposited into them. In other words when you go to withdraw from your Roth IRA at retirement you will not owe taxes on ANY of the monies that you pull out of your Roth IRA. Fantastic eh?

I defininitely believe that the above listed principles are very important to maintaining a strong financial health, and I also believe that only by being prepared and informed will you be able to become financially independent and probably even rich.

Do any of you have any other suggestions on things that you have found to be important when starting out your financial life? Or maybe something you wish you would have known – or done – when you were younger? Please leave your comments, and if you like this post feel free to share it with others.

Updated September 27, 2009

If you’ve ever used Quicken, Microsoft Money or another personal finance software program you know how easy they can make it to track your spending habits and other finance related things, such as your investment performance. Mint is personal finance software that is somewhat along the lines of Quicken and MS Money, but with a more streamlined focus.

Mint is an online money management program, which basically means that you can use it anywhere that you have access to the internet and a modern web browser such as Firefox, Safari or IE 6+ (on a somewhat related note if you’re still using IE6 please upgrade to IE7, or even better, Firefox). Mint is relatively straightforward and pretty simple to use, but the best part about it is that it is completely free.

Mint makes money by offering you products that it feels will be able to benefit you financially. While this system is not perfect, it works pretty well. You don’t have to deal with annoying ads and you get decent suggestions for financial products. I can live with that.

Mint recently came out of beta, which means that the service is supposed to be quite stable. While I have not experienced any major issues with Mint I do have a complaint. They support most (if not all) of the large financial institutions (your BofA’s, Chase’s, and Vanguard’s of the world) but if they don’t currently support your financial institution you’ll likely end up waiting just about forever for support to be added. I’ve been using Mint for about 7 months now and they have yet to add support for my credit union, let alone ask me for assistance (I’ve volunteered to test the support process) in doing so.

Using Mint.com

As I previously mentioned Mint is pretty straightforward and quite easy to use. After you initially sign up Mint will walk you through adding accounts and you’ll also have the option to set up a budget (if you don’t do this then Mint will create one based on your spending history). You can set up accounts based on different categories, such as Investments or Spending accounts (checking & savings) and Mint even offers support for loan accounts.

Once you have your accounts set up on Mint you’ll become quite familiar with the Overview screen, which shows a quick overview (did they name it well or what?) of your account balances any large transactions you’ve made recently, bills that may be due soon, investment performance in the past 7 days and even your budget for the month. The screen looks something like this…

From the Overview screen you can navigate to more detailed information such as a listing of your transactions, spending trends (complete with pretty graphs) and investment information.

The investing section of Mint is definitely one of the most helpful features that Mint offers.

If you can’t see the image very well you can click on it to view it in its original size. Anyway, back on topic. What I really like about Mint is that you can compare your portfolio performance to that of well known stock indexes such as the S&P 500 and the NASDAQ. Mint will let you know the change in your portfolio, as well as compare it to the stock indexes. It graphs the performance and basically if the graph is green your portfolio is performing better than the selected index, and if it’s red then your portfolio is underperforming the selected index. Pretty simple, but a great way of showing you how your investments are doing.

Another thing that I really like about Mint is it shows you a nice clean line graph of the value of your investments over the past 7 months (assuming you have 7 months of history, of course). Again it’s simple, but it’s presented very well and just makes it that much easier for someone who might not really have any other way of tracking the performance (or value) of their investments.

The Verdict on Mint.com

While Mint isn’t perfect (especially when it comes to supporting some of the smaller financial institutions) it’s a wonderful money management program and the fact that it is completely free is hard to believe considering all of the features that it offers. I’m sure that over time Mint will continue to make upgrades to its software which will mean more features for us end users. Overall I really enjoy using Mint and I have yet to find any online personal finance software that I like better.

On that note: Mint, if you’re reading this – what can we do about getting support for my credit union?

The start of a new year, new month or even a new day is a great time to look forward to what you want to accomplish. Do you remember the phrase “Carpe Diem” from that horribly depressing movie, Dead Poet’s Society? It means “seize the day.” There really is no better day than today to decide on who you want to be or, financially speaking, what you’d like to do.

Look Back Before Looking Too Far Forward

Before you get too far ahead of yourself on your looking forward don’t forget to look back. If you want to change your spending habits then you’ll need to be aware of where you messed up and on the flip-side where you did well. With that being said, what did you accomplish yesterday, last month or last year? How did you do financially? Take a good look at how you’ve done with your money in the past and try to identify any areas of weakness and strength.

How Have Your Saving and Spending Habits Been in the Past?

Did you save more than you planned, or did you end up with more debt than you had at the beginning of the year? Maybe you went on holiday and overspent or, on the other hand, spent less than you had budgeted for. No matter how horribly (or how well) you’ve done with money management in the past it’s never too late to learn from your mistakes and what you’ve done right.

Now Look To The Future

Now that you’ve identified areas where you’ve had difficulty in the past it’s time to take a look at how you can do better with these problem areas in the future. First take a look at your regular monthly income and expenses and pay special attention to any areas of weakness. For example if you consistently overspend on eating out try to compensate for that in your budget by either budgeting a higher amount for eating out or forcing yourself to eat in more often. By doing this you’ll be able to regain control over problem areas in your budget.

Try To Anticipate Unexpected Expenses, and Budget For Them

Don’t forget to take into consideration any unexpected expenses that you could run into throughout the year – and especially don’t forget the little things that no one really thinks of such as birthdays and anniversaries. If your car is pretty old don’t forget to plan for possible repairs or if you anticipate buying a new tv or other expensive items don’t forget to budget for that as well.

How have you done with budgeting in the past? Do you have any experiences you’d like to share? I hope that you were able to pick up on a few things. Good luck out there and… Carpe Diem.

We all have bad habits, especially those related to our own financial well-being.  Some of us have a compulsive shoe buying habit while others might not be able to go without that Vente latte from Starbucks in the morning. Then there are some who just need some advice on where to park their money or how to budget or how to get started investing. To be honest sometimes we all need some personal finance tips to steer us in the right direction. So today I’d like to list a few of my favorite posts here at Debit versus Credit as well as a few that I’ve run into at other personal finance blogs. We’ll start with some recent posts of mine:

Buffet’s Buying – But Should You?

Investing for Beginners – Analyzing Financial Statements

4 Ways College Students Can Save Money

Never Lie to Your Insurance Company

Do You Really Need Cable?

Of course there’s a plethora of great financial tips and advice out there on the internet. For example my friends over at the Blueprint for Financial Prosperity posted a list of 50 Financial Skills Every Person Needs to Know and MoneyNing tells us why personal finance is like taking a shower in If You Have Time for a Shower You Have Time for Personal Finance. After you’re done reading those then check out the “No Spending Day” idea posted over at I Will Teach You To Be Rich (and don’t forget to check out his other tips on frugality).

That’s going to do it for today. If you have any personal finance questions or need personal finance advice then either comment here and ask your question or feel free to send me an e-mail at joseph [at] debitversuscredit [dot] com

Make it a good Monday!

I ran across an interesting article the other day which featured an interview with Lauren Willis, an associate law professor at Loyola Law School in Los Angeles.  The name of the article is Why You Can’t Teach Money and it’s a question and answer session between a writer at Money Magazine and Lauren Willis.  Lauren essentially says throughout the article that it’s dangerous to try to teach people about money.  I’ll outline some of the points she has made and tell you why I think overall her argument is flawed.

Financial Education Doesn’t Work

Lauren came right out and said that what’s bad about financial education is that it doesn’t work.  Following is the reason that she gave:

Sellers of financial products spend billions drowning out well-meaning messages to consumers from nonprofits or government agencies.  Also, financial products are always changing – credit and insurance products have changed dramatically in the past 20 years – making it hard for educators to keep up.

She has several good points, but the overall message is flawed.  The marketing departments of financial corporations are huge and they do literally spend billions of dollars a year trying to market their products to the consumer.  Likewise financial products are changing.  This can definitely present some challenges to financial education.  It’s hard enough to battle a billion dollar marketing budget, but when you through constantly changing products it makes it very difficult indeed.  However to assume that just because financial education is facing some very large obstacles to overcome does not make it okay to say that it just plain doesn’t work.  That’s an end-all statement, one which I’m convinced is completely incorrect.

Don’t Even Bother Teaching The Basics

The next question asked of Lauren was in direct response to her opinion that financial education doesn’t work.  The interviewer asked:

But aren’t basics such as budgeting always applicable?

Lauren’s response:

Teaching them is a waste of money. Studies show that sending people to either high school personal-finance classes or adult retirement seminars does not result in better financial behavior.  It may do the opposite. Financial literacy classes give people the illusion that they can successfully manage their finances. So rather than seek help, they end up making worse decisions.

I’m interested to know more about these studies that show that personal-finance classes do not result in better financial behavior.  If anyone out there has heard anymore on this then please let me know.  “Studies” in and of themselves are generally a waste of time and quite often biased towards the end conclusion.

Some people who take financial literacy classes may be naive enough to believe that they can with 100% certainty manage their entire financial lives.  Maybe some of us can.  I think I’m smart enough to admit that I don’t know everything about everything when it comes to personal finance.  I also believe that most people are more than willing to ask for help when it comes to subjects they are less-aware of.  If this wasn’t the case then I wouldn’t have a single reader at this personal finance blog because no one would need advice, tips or even care what financial decisions others have made.  Her point therefore is a moot point.  People generally seek help, even when they have taken financial education classes.

I believe that basics such as budgeting are definitely always applicable.  It’s good to know the basics of personal finance.  Otherwise you may be taken advantage of not only by finance companies but even by a financial advisor – someone who is supposed to be helping you!

Regulate, Regulate and Regulate Some More

Professor Willis knew that an argument against hers would be that if you don’t know the basics then you could very well be taken advantage of by an unscrupulous lender (sound familiar) or maybe an insurance salesman.  She briefly covered this when asked by the reporter what we should do, if not teach people financial basics.  Her answer:

Stop trying to turn everyone into a financial planner. Instead, try to get everyone to understand that the people selling you financial products often don’t have your best interests at heart.  What’s more, politicians need to regulate financial products and make them into things that will benefit consumers, rather than expect education to be the cure-all it is not.

I agree with her that we should teach consumers that people selling financial products often (if hardly ever) don’t have your best interests at heart.  This should indeed be part of any well-planned financial education curriculum.  However I’m strongly against further regulation of financial products, at least to the point that she is recommending:

Sellers could be required to offer you a default product that is safe. Whenever you applied for a mortgage, for example, you would have to be offered a 30-year fixed amortizing loan.

While I don’t anticipate myself needing anything more than a 30-year fixed loan when I do eventually purchase my first home I think that an uneducated consumer (that knows nothing about other types of mortgage loans) who would benefit more from a 5-year ARM being sold a 30-year fixed right off the bat (due to federal regulation) would be downright silly and possibly disastrous to our financial system.  Such intense regulation would cause serious damage to financial firms who would have to pass on the pain to the consumers in the form of lower savings rates, higher loan rates and higher insurance premiums.

More intense regulation is not the answer.  Financial Education is.  I completely disagree with her that it is pointless and a complete waste of money.  It needs to be done correctly and it needs to be backed up by parents, friends and relatives.  Instead of regulating where regulating need not be done (thereby making our financial system less competitive) why don’t we find more creative and effective ways of teaching financial education.  It can work and it will work if we do it right.

To the credit of Professor Willis’ argument I will say that in the interview she seemed to imply (but never explicitly state) that she was not against financial education altogether but rather against government-sponsored financial education (such as The Economic Recovery Act of 2008).

($10,112.01)

That’s a large number.  A much larger number than I thought it would be.  That number right there is how much we have paid on our primary Visa credit card this year.  I should explain something.  We don’t carry credit card balances on a month to month basis.  When I get a credit card bill I do everything I can to pay it off.  So far I have been successful.  Right now my success is just about to run out of steam.  In order to pay off this card we have to use a sizable chunk of our “short-term” savings.  Granted the bill this time around is not so bad.  Only about $1,700 dollars.  It’s all basically my Mexico trip right there.  Studying abroad does not come cheaply and it especially does not come free.  It was all worth it though.

The point to this whole post is that the wife and I are worried about draining our savings account.  We are hoping to buy a house in about a year and that savings account is going to be our down payment.  Naturally we’d like to keep a sizeable chunk of money in there due to this being the case.  With that being said we have decided to put ourselves on a strict no-spend diet.  In order to keep ourselves sane this will not apply to the small amount of mad money we get on a monthly basis, but other than that cash we will not be spending any money on any unnecessary items.

Enter the Wealth Tracking Tools

I’d like to make sure that I’m actually building wealth over time.  As I already mentioned we’re looking to purchase a home in about a year and we’d like to be prepared for such.  With that being said I’ve decided that after months of procrastination it’s about time that I start using some tools to track our progress (or lack thereof) with our financial goals.  Starting later this week I’ll be posting on a regular (monthly) basis updates to our net worth and other relevant financial tracking numbers.  Of course I’ll be using Excel to create these spreadsheet tools.  Hopefully with our increased vigilance of following our budget we will be able to accelerate the wealth building process.  One can only hope.

I have a confession to make. It wasn’t very long ago that I experienced the worst few years of my life, financially speaking. In the latter-half of 2004 I began my adult life full-force, and I hate to admit, but I began it quite poorly. In not very much time at all I managed to get myself in thousands of dollars of credit card debt, which I discovered was a debt that would not easily go away. In my defense I was a full-time college student working part-time jobs to try and pay the bills, but playing the devils advocate it is obvious that I could have done more with the little money I made. I managed my money poorly for a time, but thankfully I’ve been able to learn from those mistakes. I’d like to share just a little bit with you on what I did wrong and, as cliché as it sounds, what I would do differently if I could do it all over again.

It happens before you even know what’s going on… one minute you’re sitting on the Titanic, and the next minute you realize the ship is sinking and there’s not a single lifeboat in sight.

It all actually started out pretty ironically. I told one of my friends in early 2004 that I wanted to save $30,000 by the end of the year 2005. In fact I almost did quite the opposite; I do believe by the end of 2005 I had around $15,000 – $20,000 worth of student loans and credit card debt. It happens before you even know what’s going on… one minute you’re sitting on the Titanic, and the next minute you realize the ship is sinking and there’s not a single lifeboat in sight.

Let the reckless spending begin

I started my freshman year of college in August of 2004 and due to certain circumstances I had no money to pay for my tuition. Doing what I figured was absolutely normal I borrowed some money from my brother to pay for my tuition. I started looking for a job at about that time also, realizing the need to repay my brother, but didn’t find anything steady for a few months. At that point I had applied for and received a credit card which I used to pay for my basic living expenses: gas, food and the like. I expected to pay off my credit card and my brother within a few months from the time I got my job, but instead I kept using my credit card and accumulating debt. I hadn’t done any budgeting and figured out how much I could afford to spend a month, and so I did what so many Americans do; I spent more than I made every single month. Within no time at all I had accumulated around $5,000 dollars worth of credit card debt, and I was beginning to feel as if I were drowning in debt. It was at this point that I began looking for a solution, but the solution I found was not a permanent one.

I wanted to cut down my credit card debt and figured I could take out some student loans to pay it off and then I could start fresh. This worked for a few months, but I still had not disciplined myself to live within my means, and when my lack of discipline was combined with the cost of tuition and books my credit card debt quickly climbed back up to its previous levels. This is when I decided to take on more student loans to pay down my credit card debt again, only this time unsubsidized loans with a higher interest rate. After I had racked up credit card debt and taken out student loans to pay it down a few times I finally realized the error of my ways and decided it was time for me get serious about my finances. To my credit I did fairly well with this at first, but eventually I managed to slip up again… and this time for even more than all of my student-loan debts combined.

New cars are great… if you want to throw your money away

I gave up a lot when I signed those papers, but one thing I regret the most is the amount I could have saved if I had kept my previous vehicle and put the difference between its payment and my new car’s payment into a savings or an investment account.

Yeah I did it, I bought a new car. Not just any new car though… I bought myself a 2006 Mitsubishi Eclipse back in March of the same year. Even though I had managed to accumulate a significant amount of student-loan debt at this point I had not yet made such a large financial mistake as I did when I purchased this car. Once all was said and done I had a loan in the mid to high 20′s and a car worth barely 20 thousand dollars. Viola! Instant 36% depreciation. I gave up a lot when I signed those papers, but one thing I regret the most is the amount I could have saved if I had kept my previous vehicle and put the difference between its payment and my new car’s payment into a savings or an investment account.

After this mistake I had had enough of my idiocy. I realized how poorly I had been managing my finances for the two prior years and I resolved to shape up. I concentrated on spending less so I could pay down my debts and save a little each month. I paid just a little extra on my car each month to try to get the principal balance down. I married a woman who knew how to save. I am proud to say that other than my student loans and my auto loan I am debt free. My wife and I have also managed to save between our 401(k)’s, a brokerage account and an emergency fund enough to almost completely pay off either my auto loan or my student loans.

If I could do it all over again I would have made myself a budget and stuck to it. I still would have had some student loan debts, but looking back I realize I could have avoided most, if not all, of my credit card debt and I could have my original auto loan almost completely payed off by now, had I not traded it in for a car two and a half times more expensive. I believe I would have been able to save a decent amount during that time. I would not have accomplished my goal of $30,000 in savings, due to my small income, but I would have accumulated some wealth if I had done these things. Mistakes are meant to be learned from, and I do believe that I have learned my lesson from these mistakes in my past.

What about you?

What financial mistakes have you made that you are not proud of, and what have you done to learn from them and/or correct them? I’d love to hear what you have to say!