Ten Rules Of Thumb For Budgeting May Fend Off A Payday Loan

Budgeting isn’t easy for everyone; especially when it comes to having to take out a payday loan just to make it to payday. Following a few simple rules of thumb can help you get your finances in check and be on the road to cash recovery should you be experiencing hard times with your budget. Consider the following when making decisions for your and your family’s finances:

1) What’s Your Debt To Income Ratio? (DTI)- Your debt to income ratio takes a look at how much you make versus how much you owe every month. Debt repayment includes your mortgage, rent, car payment, credit cards and any other loans you have taken out. It is best to keep this percentage of your income under 50%. Your mortgage can account for up to 40% with the other 10% going to other debts.

2) How Much Discretion Do You have? Discretionary spending refers to money spent on non-essential items. Discerning between “wants and “needs” is imperative to sticking with your budget and not overspending. Your discretionary spending should be no more than 10%-15% of your take home pay each month.

3) Are You Saving? You should be putting at least 15%-20% of your budget into a savings account.  More if possible! That way you don’t have to seek out the payday lender when you are in a financial bind.

Is a payday loan in your budget’s future?

4) Are You Looking To The Future? Putting money into your future means saving for retirement. At least 10% of your income should go into a retirement account whether it be a 401K with your employer or a self manages IRA.

5) Where’s Your Rainy Day Fund? Everyone should have an emergency or “rainy day” fund for unexpected costs, medical emergencies, or a job lay off. Ideally this should equal 6 months of living expenses.

6) Where’s Your Coverage? Having life insurance is one of the best things you can do for your loved ones. How much you spend on insurance every month needs to fit your budget, though. Multiplying your annual income by at least six is a good number to go by.

7) Are Your Credit Cards Rolling Over On You? If you are constantly struggling to pay off your credit cards balance, you could be living beyond your means. Rolling over your balance more than twice a year should be a warning sign.

8) Can You Afford Your Home? If you are looking to buy a home, take the amount of the home and divide it by your monthly income. That will give you your house affordability ratio. If it’s over 60% – you can’t afford it!

Are you exposing yourself financially with a payday loan?

9) What’s You Equity Exposure? Investing in stocks offers the highest rate of return but can be risky. As you get older, the risk should go down. Take your age and subtract it from 100. This will give you your “equity exposure”.

10) Got Gold? This yellow metal is still a great investment, but putting too much of your money into the shiny favorite can skew your investment portfolio.

If you are dedicated to taking control of your finances in an effort to put something aside, invest in your future, and avoid taking out a payday advance for emergencies, taking the above rules of thumb into consideration can put you on a financial path of peace and security.