Understanding Home Finances

Home finances are how you control your spending. This is done by being organized and planning. It’s about paying bills such as giving back borrowed money. You keep records about money for various reasons. There are ways to shop and ways to safeguard money.

Things you’ll need
 * Pen
 * Paper
 * Wallet
 * Checkbook, etc.
 * Proper forms
 * Phone book
 * Desk
 * Filing cabinet

Notice your money needs
Financial needs cause basic and long-term financial goals or ideals. Basic goals include solvency, emergency funds, and insurance. Solvency is when your income is high enough to pay your bills. An emergency fund is a savings account the same size as 3 to 6 months of income. Insurance would include health, unemployment, property, and auto insurance. Some of these basic financial goals might seem ordinary or extravagant but concerning your own ability to earn, they might be goals. Long-term money goals include a house, retiring, and a will. A house or apartment can be bought if your income is high enough. Such property is an investment because you could sell it. With a large enough income, you can deposit money in a retirement savings account and also save toward your child‘s education. Your customers or employer might be able to pay you enough. Another goal is to hire a lawyer to draw up your will, so your fortune goes to your family in a responsible way.

Keep a monthly budget
A written spending plan each month helps you keep household spending under control. It lists income, required expenses and the amount left for optional expenses, and can be shown to people. First, you list your sources of income such as allowance, stock dividends, pan handling, trying to make a sale, and disability checks. You next add the amounts (which include estimates) together to write down your income for the month. Step two is listing your fixed expenses. These include bus money, rent, cable TV and other bills that stay the same. Add those amounts together to get the amount “total fixed expenses.” Then you write down your estimates of your variable expenses, and add them together. Variable expenses are things like food, electric bill, clothing and medical care. Add total fixed and variable expenses to find total basic expenses. When you subtract the basic expenses from estimated income you get the amount left for optional (discretionary) expenses. Examples of discretionary expenses are gym memberships, movies, golf, and vacation trips to resorts. If the discretionary amount is a negative number, you’ll need to reduce your spending somehow. If saying no to a child or employee’s request for a raise, showing your monthly budget might help. The budget may be neatly written or printed on a single sheet of paper.

Control your spending
Warning signs that your optional spending is getting out of control include: Discretionary spending is easier to lower than basic expenses and probably easier to lower than increasing your income.
 * More ATM withdrawal receipts than usual.
 * Not as much money in your bank account as last month.
 * Higher credit card bill than last month.
 * Credit card payments above 20 percent of your income.
 * Running out of cash faster than before.
 * A utility bill a lot higher than last year.

Pay your expenses
If a purchase is made with a credit card, you still owe the money. The way to not owe is to pay with money you’re not borrowing. You could pay with cash, check or over your computer. If you use an ATM machine to withdraw your money, make sure nobody is spying on you. If you cash a check at a store or somewhere, write your name instead of “cash,” for when you sign the back of the check. When you pay a bill by mail, you send a check instead of cash. After “pay to the order of” you write who you owe. After the dollar sign, you write the amount in numbers and before the word “Dollars” you write the amount in words. After “memo” you put what the money is paying for. The line in the lower right corner is where you sign your name, agreeing to bill your bank account. Your bank account contains money you loaned to the bank. You bring the money to the bank and you deposit it into your account. The bank is not where you get the money in the first place. You get it somewhere else such as an employer or a welfare office who in turn get their money according to the laws from the spending of people like you. Other ways to pay include over your home computer and by authorizing automatic payments. Although banks might provide overdraft protection from your savings account or credit card, you need to sign up for it first. If you accidentally bounce a check, the bank bills your savings account or charges your credit card if you signed up for it. Otherwise, you get in trouble.

Balance your checkbook
The bank sends you a statement each month which tells its record of your account for the past month. It contains information you don’t know about yet, such as amounts you were charged by the bank. Your checkbook’s register contains information you wrote down that the bank doesn’t know about yet, such as very recent checks you wrote and possible mistakes. If you balance your checkbook with your bank statement each month, you notice mistakes such as forgotten ATM withdrawals or forgotten pay check deposits. By the way, write “for deposit only” on the back of the check above where you’re going to sign it before you bring it to the bank. To balance your checkbook, first do the check register. A. Write down your checkbook’s balance. B. Subtract from that all the service charges reported on the statement, adding those together first. C. To the subtraction answer add the interest the statement says you earned, and that answer is the corrected balance. Next do the bank statement corrections. A. Write down the bank statement’s balance. B. Add to it any deposits you reported in you checkbook that were not on the bank’s statement. C. Subtract checks you wrote that haven’t reached the bank yet. D. From that subtract any withdrawals not reported. This also is the corrected balance. If the two corrected balances aren’t the same, find out why.

Pay your taxes
Other paperwork that needs to be done is filling out and sending in your income tax form (called “returns“ in the U. S.) each year. If any of your expenses are deductible, you need to be able to prove it. You send the government the form to make sure you’ve paid all the taxes you owe or find out if you’ve paid too much. Some people buy tax software each year that helps them find deductions and tax credits they qualify for (and need to keep record of). Some hire an accounting firm. Some send their tax returns via the internet. The income tax is apparently the government’s fee for allowing you to earn money rather than work for nothing.

Limit your borrowing
Credit means debt from cards, mortgages, lines, and loans. There’s an agreement you’ve read or signed. You give the money back and also pay a price called interest. You should limit your debt payments to 36 percent of you take-home pay. For example, if your mortgage takes 26 percent, ten percent remains. If 16 percent, 20 percent of your take-home pay remains for line of credit, credit cards and home improvement loans. Banks and stores are not welfare offices. The four basic forms of credit are: charge cards, credit cards, loans and line of credit, all of which bill you. A charge card has an annual fee and requires you to pay all you owe every month. Credit cards have a minimum amount you pay and have a limit to the amount you can borrow each month. Loans include mortgages, home equity loans, personal loans, and car loans. You give the money back and pay interest. Line of credit is like a mortgage, giving the bank your house if you don’t pay.

Pay your credit card bill
Credit cards are different depending on who the lender is. You need to read the terms on the credit application to make sure you understand what you’re getting into. Cards with a yearly fee tend to charge lower interest. Some cards give a 25 day grace period after a purchase before they charge interest; some don’t. The interest rate of store cards tends to be higher than that of cards issued by banks. According to U. S. law, if your credit card is lost or stolen, you pay the first $50 of unauthorized purchases. Affinity cards have a fee for each purchase or a fee for getting the card. Secured credit cards have a savings account with a minimum balance as collateral. If you don’t pay, the bank takes the money from that account, which is similar to check overdraft protection. A card with no annual fee is best if you pay off your balance in full each month. If you use your card a lot, look for the longest grace period and lowest interest.

Keep your credit score high
Credit is borrowing something on the reputation you will soon buy it. For example, the bank might pay the store ten dollars for you if you pay the bank eleven dollars. So, if you have a record of not paying because you can’t or think it’s wrong, they simply won’t give you more credit. Credit bureaus keep you credit history. They are “credit reporting agencies” that lenders report things to and find things out from, such as if you don’t pay on time or went bankrupt. They also keep track of your income, debt, and wealth. The higher your credit score, the less risky you are to them and the more likely you’ll qualify for a credit card. For example, if you’re income is below poverty level, you won’t qualify. On the other hand, if you’re income is high, you’ll start getting unsolicited offers for credit in the mail, which lower your credit score if you accept the offers. A credit score of 501 is low and of 990 is high. Landlords, insurance companies, employers, lenders and credit card companies take your credit score into consideration. There are things you can do to raise your credit score. For example, don’t be late paying your bills. Don’t owe credit cards a lot. Don’t cancel credit cards. Don’t apply for credit cards very often, or they’ll think you can’t pay your bills. Keep the same credit card for at least two years. Don’t owe a credit card more than 50 percent of the card’s credit limit. Pay back the credit card you owe the most to first. If you’re denied credit, you can get a free copy of your credit report from the credit bureau mentioned in the letter if you ask for one within 30 days. If you find incorrect information, you can file a short statement telling your side. If you‘re just curious and want to see your credit report when you haven‘t been denied credit, there might be a small fee to get your credit report.

Get social security reports
In the U. S., you can get a report from the Social Security Administration showing your social security payments to them. You might want to get a report to make sure they’re records are accurate, or to see if you qualify for social security yet and if so how much you would get. It’s not welfare; it’s a retirement plan. You’re required to be employed a minimum amount in order to qualify, and the greater your income the more your retirement will be. The Social Security Administration won’t correct errors that are more than 39 months old, so you might want to request a report every couple of years. To get the report, you need to fill out the proper form. To get the form, contact your nearby social security office.

Keep good records
Papers people carry with them include: driver’s license, car registration, social security card, health insurance card, medical information, credit card and auto insurance card. Records kept at home are about: employment, the house, bank account, credit, and investments. Documents kept in a safe-deposit box might be about: property, people, and business. How long you should deep a paper depends on what it is. For example, documents proving tax deductions should be kept for seven years. Other things, such as records of retirement account contributions, are kept permanently. The records should be kept neat and well organized. Your action file contains work you need to do such as paying bills and answering letters. Your reference files contain things you might need to look up or prove. Family files include other things such as photos, letters, magazine clippings, and personal writings. Your files might be kept in desk drawers or a filing cabinet. When letters, ruff drafts, voided checks, unsolicited credit cards and so forth are thrown out they can be snipped or torn up first. Tips & warnings


 * The budget starts like a diary and is used to plan spending.
 * Bank statements tell any bank charges you don‘t know about yet and omit checks it doesn’t know about yet.
 * Keep financial records and important papers safe and well organized.
 * Read your mail to make sure no one is stealing from your bank account or with your credit card number, etc.
 * Remember, checks are not money; they withdraw or borrow money.
 * Debit cards withdraw; credit cards bill you.
 * A credit line is borrowing against your house.