Oh say can you see, where to buy thee a better economy?
Who benefits from us borrowing money to buy products that are not made in the USA (since we do not seem to make very much lately)?Example: Foreign made big screen TV. The merchant you buy the TV from will benefit as will the bank you borrow with if you do not pay off your bill within the grace period. The credit card company gets a cut from the merchant's share. The state and county you bought the TV in will benefit if there is sales taxed to be collected. The maker of the TV benefits from this sale.
You the consumer get the benefit of having the TV that will be worth about 1/2 of what you paid for it buy the time your walk out the store with it. If you are borrowing on a high interest credit card you are could be paying at least 200% more than the purchase price depending on how disciple you are with managing your money.
The best option for you, the consumer, would be to wait to make the purchase until you can pay cash for the item. This gives your real leverage to get the best deal you can. Everyone except for the credit card company and bank.
Credit cards are a great convenience and are useful if you use them properly. Running a bunch of cards up to the maximum balance is not using them wisely. Making minimum interest only payments is not using them wisely either. I'm not suggesting that everyone get rid of their credit cards but I do recommend we get rid of the balance before the grace period expires. Sure, we might not be able to do this every month but we should try to be paid off more months out of the year than months we carry a balance.
Again, I am speaking from experience with real world experience. I learned the hard way and know that having revolving credit can be addicting. I like my toys when I was younger and ignored my parents advice to save because I wasn't patient enough to wait for them. It might be harder to dig yourself into a deep debt hole as fast today as when I was younger. The tech age makes it easier for your debts to hit the credit bureau almost the same day today instead of the weeks it could take when I was younger.
Debt to income ratio.
Making a budget and sticking to it is a must do for everyone. It is as important as a diet and liked by all about as much. Diets are about making sure that you do not have too many calories left over and budgets are making sure that you do have extra left (at the end of the month).
The basic rule is very simple. Your total monthly obligations must be less than your monthly net income. Net income is the amount of money you take home on payday. Gross is what you earn before any deductions are taken from your pay.
For our example we will use $15.00 an hour as a base salary. This come to an average of $2,610.00 a month (no overtime received). This is your gross monthly salary. There are a lot of variables that impact the amount of money the government will take out of your check. A lot depends on where you live (state income tax for example) and whether you are single or married. Whether you have children and how many. We will use 20% as the amount of money you will payout in payroll taxes. Again, a lot of variables are possible and the actual amount could be only 5% or as much as 35%. Your situation will be very different. To find the percentage you pay, subtract the amount you take home from the amount you are paid (before any deductions). Divide this amount by your gross then multiply that figure by 100 to get your percentage.
For example:
Your check is for $2,088. Your gross is $2,610. The difference is $522. $522 divided by $2,610 times 100 is 20. Your payroll taxes are 20% of your gross.
Here's a little trick...
- Paste the following into Google and it will do the calculation for you.
- You can substitute your figures with the figures in this example:
- ((2610 - 2088) / 2610) * 100
$2,088 is the monthly net amount.
- $261 goes to your tithing/charity (10% of gross)
- $261 goes to savings (10% of gross)
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$1,566.00 is your "household" budget amount. This is NOT the amount of money you want or have to spend each month. Your credit will tank if you do. Lenders recommend that your monthly obligations do not exceed 42-45% of your gross income. That about $1,175 (45%) a month for car payments, rent/mortgage, credit cards, other loans.
This means you'll have about $400 a month for food, gas, entertainment, general spending.
Do this - try to keep your bills to 40% of your gross ($1,044 in our example) and put what you have left over at the end of the month into savings for unexpected expenses.
$522 - 20% to taxes
$261 - 10% tithe
$261 - 10% savings
$1,044 - 40% monthly obligations
$522 - 20% additional savings/unexpected expenses/future purchases
Do not do this - spend everything after taxes and borrow when an unexpected expense comes up:
$522 - 20% to taxes
$2,088 - 80% to spending
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