The Money Jar Budget - Get Debt-Free

Depending on your financial situation and your family traditions, Christmas time can be a very expensive time for you. Setting a holiday spending budget at any time is a good idea and it’s especially wise (and probably necessary) if you’re in a position where you have less spending money than in previous years.

Here are some helpful Christmas budgeting tips:

• Try to use cash if possible. Avoid running up credit cards during the holidays unless you’re certain you can pay the balance off in January. Try to avoid going into debt at Christmas to buy people gifts.You don’t want to pay Christmas debts off over the next year.
• Shop for sales. Start shopping early and do comparison shopping to save money.
• Cash in loyalty program points to use for Christmas shopping. Air miles can often be cashed in for gift cards and grocery store certificates and that can help lighten the financial load.
• Do homemade gifts if you can. For neighbours, teachers, and acquaintances, and sometimes even family, you can knit something, bake a tin of goodies, or put together a basket of gifts.
• Set budgets with people. If you are exchanging gifts with people, set a budget that everyone can agree to.
• Do ’secret santa’ gift exchanges with large families instead of buying for everyone or buy a gift per family instead of gifts for everyone in the family.
• Set a ‘no gift exchange’ policy with family members if necessary so you don’t feel obligated or awkward about whether or not to buy gifts that you can’t afford.
• Make a list of everyone you need to buy for and allocate a dollar amount you’re planning to spend.  Add a budget for the extra expenses (food, decorations, etc), and make a plan for where this money is going to come from.
• If you need to make extra money for Christmas and want to do it online, here’s an article about making money fast online that could help you bring in extra cash.

Christmas can catch us by surprise financially when you suddenly realise it’s only 6 weeks away and you’re financially strapped, with a large family to buy for. If you’re doing the money jar budget, you might even consider setting aside a Christmas fund next year so that you can budget and plan in advance.

money jar

Getting into a payday loan trap is easy —the payday loan companies make it easy to get a loan until payday but the problem is, you can become ensnared in a web that feels all but impossible to escape.  How do you get payday loans paid off so you can free up more of your own income? It’s not easy once you’re ensnared but it is possible and the sooner you do it, the more money you’ll have to live on!

How payday loans work

Basically, you can borrow money against a future pay. The interest rate tends to be quite high. (Many payday advance companies have interest rates so high that it seems as if it’s ‘legal’ loansharking!). When your payday comes around, you can either pay the loan off and walk away, OR (here’s the dangerous part) you can pay just the interest on that loan to carry the loan forward. That’s where the trap happens because it’s much easier to just pay the interest and continue the loan.

Because the interest rates are typically so high, you leave yourself short if you pay off the loan. It’s far too easy to  take the easier route and pay interest and plan to pay it off ‘next’ pay.  Next pay turns into the pay after that and the pay after that and before you know it …it’s months later and you’re still running to the loan place each pay to hand them a sizable chunk of your money.

Multiple Payday Advance Dangers

The above scenario happens a lot. That’s what many payday loan places are hoping for because it’s much more profitable for them if you continue to pay them interest every two weeks rather than pay back your original loan.  And because so many of these places are out there, it is easy to carry multiple payday loans at a time. Why does that happen? Many find it so difficult to keep paying that interest payment every pay that their cash flow dwindles and they become even more strapped for cash so they feel powerless to do anything but take on an additional loan. Before you know…it you could be paying off hundreds a month and running around town every pay day juggling things to keep it together.

Here’s a pay scenario:

Ms Jones borrows $800 from the local payday advance store for 2 weeks. At the end of two weeks, she pays them $130 in interest to keep the loan going. It’s either that or give them $930 —which would wipe out more than 2/3 of her paycheck. She does this again two weeks later and is really having trouble making ends meet. So she runs to the payday place two blocks away (or finds an instant online payday place that pays instantly via PayPal) and borrows $600 so she can make rent.

In two weeks she owes them $700 so instead she pays them $100 to keep that payment going for another two weeks.   Now, every two weeks she’s paying out $230.00. That’s $460 a month of her hard earned money that she’s just giving away.

How to escape the payday loan treadmill

If you’re running and running but never reaching a destination, you need to do something drastic — and quick! Here are some suggestions:

• Let the payday loan companies know you can’t continue the loan. You might have to open a different bank account and move your paycheck there. Some of them will put you on a payment plan. And this might hurt your credit rating but the temporary issue might be all you can do. When you get them paid off, don’t ever borrow another advance again.  Many won’t do a payment plan that doesn’t involve interest and penalties so this might not be the best option for everyone, depending on where you live and what your contract states.
• Bite the bullet, so to speak, and live in poverty for 2 weeks. Pay your full loan off and just suffer through being really poor for a few weeks. Live on Ramen noodles, leftovers in your freezer, and just get through it until next payday. It’s going to be tough, but to free up hundreds of dollars a month in interest fees will set you free!

These payday advance companies look like they exist to get you out of a jam but in reality, they’re happiest when you’re on that treadmill, paying them money every two weeks for the rest of your life. Many will offer loans to seniors on a fixed income or people on a disability pension. How on earth are those people going to get out of the trap? The temporary break typically only lasts a brief moment before the reality of mounting debts and incredibly high interest rates set in. These loans are designed to get you out of a quick jam but the ulterior motive is to fleece you for as much of your hard earned money as possible. If you’ve never had a payday loan….find another way to get out of that jam.

Other tips: Start budgeting for a rainy day as soon as possible and setting money aside for unexpected expenses. Live on cash instead of credit and you will eventually be financially secure. Delve deeper into this blog and check out the money jar budget system. It’s a great way to help get out of debt and put money away for the future.

money jar

Budgeting involves at least two areas: fixed budget and variable budget. It’s easy to see what your fixed expenses are but how do you know what the right amount of money is for your variable spending budget?  First, you need to sit down and determine which of your expenses can fit into that budget.

What is a variable expense?

If the amount of money you spend on something varies from month to month, this is an amount of money that you have control over spending. Examples would be:  food, clothing, entertainment, and gifts. Fixed expenses might be things like your car insurance, your rent or mortgage, your car payment.

A good way to analyse this spending is to look over the past six months of your bank statements and see what you’ve been spending. Creating a spreadsheet and looking at these numbers can be a sobering experience. This is going to be fairly easy if you spend a lot of your money with debit cards and credit cards. If you’re spending money with cash, you may need to track your spending over the next few months to help you analyse those figures.

By analyzing what you spend now and how that’s impacting your debt load, you can sit down and determine how to trim that budget.

Here are some variable budget trimming examples:

• Last month you spent $100 at Starbucks. That means you’re spending about $5 per weekday. Why not tweak the budget and only allow yourself $40 a month at Starbucks (or your favourite coffee shop). That’ll mean you only go twice a week. That $60 could top up a credit card payment and pay off that high interest credit card faster.
• Two months ago you spent over $200 on clothing. You need a clothing budget for each month but perhaps you can set that at $100 each month. In that case your weekly money jars or envelopes would have a $25 clothing fund. If you’ve been living in overdraft, that extra $100 could prevent that from happening.
• Your family ate out at restaurants 7 times last month and this totalled about $200.00. For this month, you’ll only eat out twice and allocate $70 (one $20 fast food meal and one $50 slightly nicer meal). What will you do with the extra $130?

Carefully looking at your spending is the best way to begin saving money and paying down your debts. You can still treat yourself to things you like and enjoy but by making decisions about the money you spend, you’ll have much more control over your finances and your financial future!