4 Instances When Zero Budgeting Is Not Recommended

Zero budgeting can mean two different things. In business, it means approving all budgets from scratch instead of basing a budget of of the previous year’s expenses. In personal finance, however, zero budgeting basically means deducting sums from your income until you have no money remaining to allocate. The funds are allocated weekly, or monthly, until the remaining net income is zero. This practice can be used to ultimately balance your finances, but it is not recommended if you are subject to certain unknown expenditures, need emergency savings, are not contributing regular to your taxes or are saving toward a long-term goal.

#1 Unknown Expenses

Some individuals have very consistent expenses. They know when they will be required to pay an insurance bill, a car bill or a credit card bill. Most individuals have been budgeting for years, and they know what they spend each month on each necessity and luxury. You may not fall into this category if you are living in a new city, just had a new child or are owning a home for the first time. Any major change, in fact, can throw off your existing budget, and you will need more wiggle room than a zero-sum plan allows.

#2 You Have no Emergency Fund

You can compensate for certain unknown expenses through an emergency fund. If you have been able to build up a sufficient emergency fund to date, you may not need to be concerned with continuing to build on that fund. You should have the liquidity to immediately cover three months of living expenses if you were to lose your income. Zero budgeting is not a good idea unless you have met this goal. Allocate more dollars toward savings wherever possible until this is a reality.

#3 You Have Uncertain Tax Obligation

By making regular withholding payments toward your income taxes, you can be fairly certain your tax liability will be covered at the end of the year. However, some individuals do not have the luxury of paying a withholding on every paycheck. For example, freelancers, independent contractors or those who receive most of their money in tips and bonuses need to budget for taxes. Zero budgeting based on your pre-tax income will leave you with a big check to pay and no money to pay it with come April. Even zero summing with an estimated after-tax income is risky in case you miscalculate your tax burden during the year.

#4 You Need to Think Long-Term

Short term goals are easily met with zero-sum budgeting. However, the process rarely meets long term goals. If you know you need to save for a home, retirement, college or a wedding, you need to start thinking about how to save money each month instead of spend your entire income. Of course, part of your zero sum balance can be allocated toward a savings account for these items. Just make sure you are setting enough aside to meet your goals before you allocate any dollars toward entertainment.

What Is The Best Way To Fix A Bad Credit Rating

Millions of Americans have blemishes on their credit files that prevent them from getting auto loans, mortgages or credit cards. Unfortunately many people in their efforts to improve their credit fall prey to unscrupulous credit repair scams. The truth is that it is almost impossible to remove accurate negative information from a credit report.

Correcting past credit mistakes and improving your credit score takes time, commitment and effort and can easily be accomplished by paying your bills on time and following the following steps.

Start by focusing on getting installment loans paid on time every time. Installment loans are loans with fixed interest rates and are normally associated with big ticket items such as home loans, autoloans and student loans. .These types of loans are weighed more heavily than the credit cards when calculating credit scores.

Your goal is to pay these accounts on time and never be more than 30 days late making a payment for at least the next year to qualify for auto loans/credit cards and for the next two years to qualify for a mortgage.

Determining who gets paid when for credit score/rating purposes is as follows:

Student Loans, Mortgages and Auto Loans Credit Cards and other revolving debt, Non-reported debts such as utilities and cell phones

Non-reported debts will not show as late payments on your credit report – however, if you do not pay them or make alternative payment arrangements within 90 days, they will go into “collection” and will then show up as a bad debt on your credit report.

If you have open collection accounts on your credit report, almost all lenders will want to see them cleared up before they lend you money. Collection accounts also hit your credit score hard when they are new, you can see your credit score drop up to 100 points if you have one account in collection.

Generally, the only exceptions made are for medical bills, most lenders tend to over look these types of collections and will not required them paid off.

Paying off accounts that are in collection takes some planning , start with the most recent accounts first these are the ones that affect your credit score the most. Always contact the collection agency directly and attempt to negotiate a lower payment. Almost every collection agent out there will take fifty cents on the dollar -or less- if it means you can pay the account off now.

Negotiate with your creditors to get the best deal you can by telling them you only have X amount and can send it now, there may be some back and forth, and you may have to speak with the collection manager. Once you have negotiated a deal, always have the collection agency send you the deal in writing before you send any money. If you do not get the deal in writing before you send the money there is an excellent chance that the collection agency will just deduct the funds from the amount you owe and tell you that that they have no record of the deal and that you owe the balance outstanding on the account.

Once you have paid the account, save a copy of the deal and a copy of your cancelled check. After 60 days obtain a copy of your credit report to ensure that the collection agency updated your file. In most cases they usually fail to update your file and you will have to send a copy of the deal to the credit reporting agency. They will update your file and the debt will show on your credit file as “Settled for less than full amount”. This makes no difference to your credit score though, as far as your credit score is concerned the debt has been settled.

Keep in mind that a bad debt will “fall off” your report in 7 years. They no longer report it after that time. If the debt is close to the seven year mark do not pay it off, rather use your money to pay down your credit card debt.

Credit Card debt looks best on your credit report when it is paid on time and the account has been open longer than one year. The amount owing on any credit card should not be more 30 percent of the credit limit. For example if you have a credit card with a $5000 credit limit you should never owe more than $1500 on the card..

Any extra cash should be used to pay bad collection accounts, then pay down your highest balance credit cards then pay down your installment loand

None of these things will save you money. These are merely tactics to quickly improve your credit rating. Then you can worry about how best to use your money.

Huge thing to remember: check your report for incorrect items. Any lender who has denied you credit must legally provide you with a copy of the report they used to turn you down. Usually this is in the denial letter somewhere with 800 number to call credit agency to get report.

Finally, if you have to declare bankruptcy you should be aware that the bankruptcy will hurt your score badly for the first couple of years, there is nothing you can do but wait that out. Each lender has a different criteria for handling bankruptcy. It will usually be easier to get a mortgage than a credit card or auto loan after a bankruptcy. Bankruptcies will fall off your credit report in 7 years, too.