Personal Financial Planning: Budgeting
A key component of personal finance is financial planning, a dynamic process that requires regular monitoring and reevaluation. In general, it has five steps:
If you are experiencing financial problems, it’s likely that you are having trouble keeping all of your accounts up to date. Setting priorities will allow you to make better use of your resources so that you can organize, budget, and prepare a plan for eliminating your debt. In considering your options for managing debt, you will have to decide how much you can afford to dedicate to reducing debt and which debts to pay first. You may be tempted to take on additional debt, such as refinancing your home, adding a second mortgage, or borrowing money to pay off credit cards or other burdensome obligations; but these options produce more debt and are not recommended.
It’s a good idea to first pay those creditors who have the ability to take legal action against your home, car, or financial assets. Debt with collateral must be carefully managed. Collateral is property that a creditor may seize if you do not pay a particular debt. Creditors who have collateral are usually referred to as “secured” creditors. Creditors who do not have collateral are commonly referred to as “unsecured” creditors.
Allocate additional funds to pay off credit cards with low balances first, and consistently reallocate the monthly payments that would go to those accounts to high balance accounts. Also, consider paying more than the minimum to accounts with high interest rates and/or fees. Remember, creditors who call are those with aggressive collection practices. These debts may not be the ones you should pay first. Creditors or collectors who call repeatedly do so because they have no other way to collect on a debt. Make appropriate arrangements on these debts, but do not give in to harassment.
• Mortgage loans to buy or refinance a house or other real estate
• Home equity lines of credit from banks or finance companies
• Personal loans for cars, trucks, motorcycles, or equipment
• Car equity loans from a loan or finance company
• Personal loans from companies with property as collateral
• Lines of credit for personal or business use
• Personal loans from finance companies with no collateral
• Various legal or medical bills
• Retail credit cards such as gasoline, clothing, or home repair