a money plan

Posted : April 11, 2018
Last Updated : April 11, 2018
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a money plan

A budget is a plan that tells your money where to go. Learn how to understand the difference between wants and needs, recognize the difference between a credit card and a debit card, and balance a checkbook or bank statement.

Needs and Wants

Understanding the difference between wants and needs can be tricky. But being a smart consumer means you can make smart choices about how you spend your money. As a consumer, you need to realize that people often have unlimited wants but limited resources (money). This is called scarcity. With a limited amount of money, you need to plan to cover all of your needs before you start spending money on any of your wants.

A Spending Plan

It’s important to have a spending plan for what you’re going to do with your money. So how do you know if you are managing your money well? Now is a great time to start keeping a record of your spending. It’s easy! When you earn money, simply write down the total amount of money you have then list the items you buy and how much they cost. Having a plan is the best way to manage your money.

Types of Expenses

Writing a budget helps you give every dollar a name and an assignment before the month begins. Remember, a budget is your spending plan for any bills you have to pay as well as the thing you will buy. There are four types of expenses you’ll need to know about when you develop your monthly budget.
  1. Variable Expenses: change in dollar amount every month and include things like utility bills, gasoline, and groceries.
  2. Fixed Expenses: remain the same from month to month like rent and insurance premiums.
  3. Discretionary Expenses: for things you don’t necessarily need like eating out, gifts, and candy.
  4. Intermittent Expenses: occur at different times throughout the year and tend to be in large lump sums like tuition payments and car repairs.

36% of teen girls say they save money to buy music or clothing. 48% of teen guys say they save money to buy technology and computer items.

Banks, Debit Cards, and Credit Cards

A bank account is a big deal. With your money in the bank, you have the ability to spend it with a debit card or a check. Just remember to keep up with how much you spend when you buy something.

Banks will offer you debit cards as well as credit cards. So, what’s the difference between a debit card and credit card? They may look the same, but there is a big difference in how they work. A debit card can be used for anything you would use a credit card for – and you won’t spend money you don’t have! Credit cards allow you to borrow the money, but then the credit card company charges you interest on your balance. And here is something else to consider: Surveys show that people spend more money using a credit card than they do when using cash.

Debit Cards Versus Credit Cards


Debit Cards Credit Cards
590+ million cards in US circulation 507+ million cards in US circulation
You only spend money you already have You borrow money and create debt
No interest penalty on purchases Average annual interest rate is 13%
63% of people use a debit card to purchase groceries 33% of people miss payments and have to pay late fees
Average personal debt using a debit card: $0 Average personal debt using a credit card: $4,878

 
There's a common misconception that debit cards have some limitations, but that's simply not true. A debit card will allow you to do all of the things a credit card will do, such as:
  • Make purchases in a store
  • Make purchases online
  • Eat at a restaurant
  • Rent a car
  • Buy a plane ticket
  • Reserve a hotel room
  • Buy a concert ticket

Here’s one thing a debit card won’t do: put you into debt!

A Balanced Approach

If you want to win with money, it’s really important to learn how to keep track of your purchases, withdrawals, transfers, and deposits. Poor record keeping and mistakes can cost you a lot of money in the form of overdraft fees (often listed as NSF fees: Non-Sufficient Funds). These fees happen when you think you’ve got more money in your account than you actually do. Your bank will subtract this fee directly from your account.



Source: Ramsey Solutions
 

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