It's a Money Thing

Building a Budget

JEN: Aw, man, I do not have the budget for new shoes right now!

BILL: Over budget, eh? Ahem.

JEN: Yeah, um, sorry. 

BILL: Maybe I can help. I’m a card-carrying budget builder! 

JEN: I keep trying to make a budget that works for me, but it all keeps… falling apart.

BILL: Sounds like you need a new approach. Don’t hesitate to start from scratch and try again! Begin by getting your basic proportions right.

JEN: Hmm, go on. 

BILL: A solid, well-proportioned budget will give you increased security, flexibility and efficiency when it comes to money. You won't end up constantly broke before payday, or saddled with out-of-control debts. What do you know about 50/30/20?

JEN: Is that a new boy band or something?

BILL: Ha ha. I like you! Allow me to demonstrate (whistle). Bring ‘em in! Take your total net income, and create a budget to spend 50% on needs. 

NEEDS BRICK: I’m essential!

BILL: 30% on wants.

WANTS BRICK: You know I’m the coolest one.

BILL: And put 20% into savings.

SAVINGS BRICK: I’ve got your back.

BILL: You get it? 

JEN: Umm…

BILL: Start with your needs. Factor in all the essentials like housing, insurance, clothing, transportation, cellphone, groceries and utilities.

JEN: But what if my needs cost more than 50%?

BILL: If that’s the case, you have three choices: finding cheaper options, looking for ways to earn more money, or sacrificing a bit from another category.

WANTS BRICK: Hey! Lousy needs.

BILL: Your wants are the most flexible category, but they can also be the hardest to wrangle. Wants include dining out, concerts, movies, fashion, electronics, travel, subscription services and all other non-essential purchases. 

JEN: OK, I’ll rein in my wants if my needs are too expensive. Cool.

SAVINGS BRICK: You could also sacrifice wants to put more into savings.

WANTS BRICK: Hey, back off, pal!

JEN: Yeah!

BILL: Savings are extremely important, and not just for big, long-term goals like buying a house or retiring. You can also save for short-term future expenses, like an annual payment, or a needed computer upgrade. You should put some money aside for an emergency fund as well. Saving up ahead of time will help you keep your budget more manageable, so you don't have to resort to high-interest debt to cover unforeseen expenses. 

JEN: Can I save less than 20%?

BILL: Sometimes you gotta do what you gotta do, but remember that your savings help with future needs, which aren't optional. 

SAVINGS BRICK: That’s right! Ignoring me could come back to haunt you!

JEN: All right, I like this whole 50/30/20 thing, but my real problem is sticking to the game plan. How do I keep my budget from falling apart again?

BILL: That depends on you. Do you want total and complete control? Then go old school and make an itemized spreadsheet. 

JEN: And… if I want super easy?

BILL: Then let technology do it for you! There are some great online tools and apps out there that make budgeting a snap! No matter which method you choose, make sure you track your spending for two months to get a full picture of your spending habits. Then you can make adjustments to trim down your needs, maximize your wants and stay on top of savings. 

JEN: Nice! I can make it all work together, instead of feeling like each expense is fighting for dominance.

BILL: Yep! When your budget is well built, everything will fit nicely.

JEN: Hehe, awesome. I’ll use the 50/30/20 rule as a framework and build myself a better budget this time.

BILL: Now you’re talking. Go get ‘em! 

JEN: Whoops!

JEN: Hehehe.

Credit Score Breakdown

CREDIT SQUIRREL: Excuse me. What do you know about credit scores?

JEN: Hmmm. Not very much. Also, who said that?

CREDIT SQUIRREL: I did. Do you know what a good credit score is?

JEN: Uh, twelve?

CREDIT SQUIRREL: No.

JEN: A hundred.

CREDIT SQUIRREL: No.

JEN: Four… out of five. 

CREDIT SQUIRREL: No. Allow me to explain. A credit score is a three digit number that's calculated by credit bureaus and gives banks, credit unions and landlords an idea of how likely you are to pay your loan or rent on time. Most scores are between 300 and 850. 

JEN: But the higher the better, right? I always like to score as many points as possible.

CREDIT SQUIRREL: Excellent. Having a low score means you could be turned down for a loan. And if you're somewhere in the middle…

JEN: You still get the loan?

CREDIT SQUIRREL: Sometimes, but you'll have to pay more interest, and that's not good because it will cost you more in the long run. 

JEN: So what goes into a credit score, Credit Squirrel?

CREDIT SQUIRREL: I'm glad you asked. Each credit bureau has its own calculation, but it basically goes like this: 35% is based on payment history. If you make payments on time, it's good. 30% is based on capacity. This shows how much of your available credit is being used. If you're close to maxing out the credit limit on your credit cards or other lines of credit, it's not good. Even if you’ve been making regular payments on time. 15% is based on length of credit. The longer that you've been using credit, the clearer the snapshot of your credit habits. This is your credit history. 10% is based on new credit. If you open lots of credit cards or loans in a short amount of time, you look risky. Lastly, another 10% is based on the types of credit you use. This is your mix of credit cards including retail store cards, bank and credit union cards, plus student and auto loans and mortgages. And that my friend is the breakdown of a credit score. 

JEN: Thanks Credit Squirrel. That was very helpful. 

CREDIT SQUIRREL: Do you have any more questions for me?

JEN: Yes. How do you know all this and also how come you can talk? Thanks Credit Squirrel!

JEN: Oh look. Credit Squirrel forgot his tiny hat. Boop.

How to Boost Your Credit Score

JEN: Oh good.

CREDIT SQUIRREL: Yes?

JEN: Credit Squirrel! Hey! I need some help with building my credit score…

CREDIT SQUIRREL: Shhh shh shh. Yes of course. Come in.

JEN: Ummm, Okay…

CREDIT SQUIRREL:  Right. Here are a seven ways to build and maintain good credit scores. Number one: pay your bills on time. Don't hide them and don't pretend they don't exist. Pay your statement balance in full each month. 

JEN: That's simple enough.

Number two: part of your credit score is based on the length of your credit history. So if you're just starting out, open one credit card and use it for small, regular, manageable payments. Like a cell phone bill or gas.

JEN: Okay. Something I know I can pay off every month.

CREDIT SQUIRREL: Indeed. Three: keep your credit utilization low. This means using only a small portion of your available credit. 

JEN: I don't think I understand.

CREDIT SQUIRREL: Example! If you have $1000 of credit available and you're using almost all of it each month, it makes you look as though you rely heavily on that credit line. Keeping your utilization down to about 10% keeps your credit score in tip top shape. 

JEN: 10% utilization. Got it!

CREDIT SQUIRREL: Four: don't open a large amount of credit cards in a short time. Lots of inquiries on your credit report within a short time frame makes your score drop. Five: to give your score an extra boost, have a variety of credit. A mix of credit cards, retail cards, utility bills and installment loans keeps your score balanced. 

JEN: Nice!

CREDIT SQUIRREL: Six: try not to carry a balance. Pay off your statement balance every month. 

JEN: What if I can't afford to do that?

CREDIT SQUIRREL: If you can't afford to pay something off in a month, you probably shouldn't be putting it on a credit card in the first place. A credit card shouldn't be treated like extra income. Budget wisely. Making only the minimum payments each month can get you in trouble very quickly with all the interest you have to pay. 

JEN: Yikes!

CREDIT SQUIRREL: And finally, number seven: monitor your credit. There are free sites that you can use to get a good estimate of your credit score, as well as paid services to access the exact scores. 

JEN: That's really great. Thank you so much, Credit Squirrel. Once again, you've been incredibly helpful! Oh! I was just getting advice from the Credit Squirrel. He lives in this tree and you know what? Never mind. Everybody can go away now. 

Responding to Financial Emergencies

JEN: Reading a book, flipping a page… Paper cut! Ow-ow-ow-ow-ow-ow-ow-ow… Is there a doctor in the house?! 

PIG: I’m a doctor! A money doctor.

JEN: You’re my piggy bank.

PIG: But I deal with emergencies all the time! Financial emergencies, that is, not the medical ones… but—you know—same basic principles.

JEN: I don’t know, man…

PIG: Let me give it a shot.

JEN: Ew, no! For a paper cut? I hate needles!

PIG: What I mean is… let me help you.  When you’re in a financial emergency, do these four things. Number one: stop the bleeding. Hey! That totally works for paper cuts, too! In financial emergencies, it means shutting down all of your non-essential spending. Bleeding money will sabotage your emergency plan. Protect your ability to eat, sleep and earn income. Pause, skip or cancel everything else.

JEN: If that’s what it takes, I’ll do it.

PIG: Number two: take a close look at what’s going on.

JEN: I don’t wanna. I’m scared.

PIG: I know. But trust me, you gotta know how bad it is in order to make it better. Take a good hard look at your statements—or, in this case, your finger, I guess—and account for every single dollar that comes in and out of your budget. Get clear on your spending. You need to know exactly how much money you need to regain, and you can’t do that by ignoring the problem.

JEN: It’s not great, but I think I can recover.

PIG: Good. Number three: put a band-aid on the situation. Now, what do I mean by that?

JEN: Uh… this?

PIG: Oh, right! In this case, yes—but I’m talking about temporary fixes that keep things manageable while you figure out the course of action. Talk to your financial institution, talk to your credit card companies, explain the situation, see if you can move your payment dates around—whatever it takes to ease the pain while you look for help.

JEN: Beep boop beep boop.

PIG: Lastly, number four: get the appropriate help. Aid comes in many forms.

JEN: Like looking up my symptoms online? 

PIG: Research is a start, but your goal is to seek out knowledgeable guidance. Talk to a financial advisor at your credit union, look into government assistance programs and relief packages, reach out to organizations that offer counseling and support. There are resources out there for you.

JEN: I appreciate that. Emergencies suck.

PIG: Having a plan in place helps you respond quickly so that you can recover faster. 

JEN: Beep boop beep boop beep boop.

PIG: Stop it.

JEN: OK, fine.

PIG: What were you reading, anyway?

JEN: Oh, it’s called “Stay Sharp” and I’m just getting to the chapter about—Aaaa!

Pay Yourself First

JEN: Dang. How am I ever going to save enough for a sweet vacation? Well, at least it’s payday tomorrow. I wish I had lots of money in my savings account!

FRANK: Hey, thanks for the change! But wishing won’t help you build your savings. 

JEN: I try to save, but I always wind up short on cash before I get paid again, so what’s the point? 

FRANK: The point is, you gotta pay yourself first. 

JEN: Okay, I pay myself 10 million dollars!

FRANK: Hah, not likely. Let me, uhh… Ahem, let me explain. When most people get paid, they pay their bills first, then spend money on fun, and then, with what’s left over, they contribute to long-term savings goals. Problem is…

JEN: You wind up without enough left over. 

FRANK: Bingo. If you want to start saving, take your total monthly income and subtract your essential monthly expenses. Then take a good chunk of the remaining cash and put it into your savings the moment you get your paycheck, every time. Even a small amount each month can build up fast. 

JEN: Well, sometimes I might… forget to do that.

FRANK: So, automate it! If you set up an automatic transfer into your savings account on payday, then all you have to do is sit back and watch the savings grow!

JEN: That makes a lot of sense. Kind of like how I go jogging in the morning, because if I leave it until later on, I usually end up slacking off. 

FRANK: Absolutely, and the best part is, you can use this technique for all your savings goals! Like an emergency fund, your retirement nest egg, a down payment for real estate, or that tropical vacation you've dreamed of. You can even set up a separate savings account for each goal. Paying yourself first ensures that you’re saving, and it lets you spend your remaining income stress-free!

JEN: Sweet! Next paycheck I’m paying myself first! Sounds way better than wishing for more savings, unless you're one of those magical talking frogs?

FRANK: Just the regular talking type, I’m afraid.

JEN: Hah, gross. So, can I get my change back?

FRANK: Nope. That’s going towards my savings goals now.

FRANK: Hi, Raven! Into my savings, please!

RAVEN: Hello again, sir. Another successful day?