Budgeting & Debt 101: Your Financial Literacy Power-Up

Jessica Quindlen: [00:00:00] Welcome back to the Sound Cents podcast. I'm Jessica Quindlen. We are celebrating Financial Literacy Month. I have Laura Straub, our Lead Community Educator. Hello, Laura.

Laura Straub: Hey.

Jessica Quindlen: And Emma Protsik, our Financial Coaching Supervisor.

Emma Protsik: Hi, Jess. Happy Financial Literacy month.

Jessica Quindlen: So excited. All right, Laura, I’m starting with you. Why is having a budget so important for financial health?

Laura Straub: Well, a budget is simply a plan for our money. Having an idea of where our money is going, how much is coming in, can just be such a big help for us, both mentally and for our financial health. Really figuring out when those bills are due, when am I getting paid, and then what do I want to do with that money? So just simply having a plan in place.

Jessica Quindlen: I love that so much and I love that Financial Literacy Month is April because I feel like January gets all this love with New Year resolutions, do this, do that. April is the beginning of Q2. We're three months into the year. Hey, let's take a look. Did you start that budget? Dive in because there's still plenty of time left.

Laura Straub: How is it going?

Jessica Quindlen: Yes, exactly.

Laura Straub: Is it going well, is it not? And with April too, we have taxes, so it already gets like that stressful “ah, [00:01:00] taxes” where this is a more fun like, “Ooh, let me look at my budget.”

Jessica Quindlen: Alright Emma, so building on budget, what are some common budgeting methods and how can someone choose what's best for them?

Emma Protsik: There's lots of different ways to budget if you are looking to spring clean your finances. it's going to take a little bit to try out different methods so we can talk about, three that I think are the most common that I've seen. As far as choosing one that's best for you, again, a little bit of trial and error, do some research. I really recommend looking up YouTube videos, of people making budgets with specific methods to see how that flow works.

But as far as some common ones, the envelope method is I think one of the most common. So traditionally that is, taking out actual cash and you create these envelopes with different spending categories. You have one for your groceries and you have one for your utilities. So, the idea with this budgeting method is once the cash is gone in that spending category, you're done spending in it. This really helps us separate out our money. It's actually playing on a cognitive bias that we have as humans called mental accounting but taking more of a [00:02:00] positive spin on it.

One way you can easily do this digitally is by opening up multiple checking shares. If you have an Ent account, you can have multiple different checking accounts. You can give them nicknames, make it nice and easy, and even get your own debit card for those. So that is my favorite method.

It's one that I work personally into my budget, but another super common one is just automation. Having an automatic budget. You can set up automation for paying your bills, for transferring into your savings, paying off debt, all those different goals that you have.

And you can even bring in other tools, those personal financial management tools. You Need A Budget (YNAB) is a good example. If you have an Ent account, if you are a member, Money Insight is a great option. It's free for you to use through your online banking.

And then the last method that we'll talk about is our percentile budgeting. Laura, did you want to share a little bit about this one?

Laura Straub: Sure. Percentile budgeting just takes it into three different categories for us. We have our needs, wants and savings. It takes it into a broader categories and those really specific ones that envelope does. Our [00:03:00] needs are, our bills, whether it's our mortgage or rent, utilities, food. Where our wants are, those fun things in life, the things that bring us joy. And then savings.

The percentile is a good rule of thumb. It'd be 50% toward needs, 30% toward our wants, and then 20% toward our savings. But if that doesn't feel right for you and you need to adjust those percentages, please do. It’s just a broader way to look at our budget.

Jessica Quindlen: I love that. So Laura, I'm going to stick with you. What are the biggest mistakes people make when they're trying to stick to a budget?

Laura Straub: If we don't have a realistic plan, something that we can actually do. If we are saying, I'm going to save $500 this month, and we're barely scraping by, that's not realistic for us, right? So, setting up a more realistic plan for ourselves, but then also including in our budget, the things that give us value.

For instance, I love art and theater, so I make sure in my budget somewhere I can go to the [00:04:00] theater, whether it's the cheap seats in the way back, or sometimes it can be the more expensive seats. That way I have something to look forward to. It keeps me a little bit more accountable, especially when I'm out grocery shopping or shopping in general. I can look back to those values and be like, no, I'd rather spend my money on this instead of this random purchase.

So, it can really help us. Look at your values, incorporate them somewhere in our budget, and then make sure it's a realistic budget for ourselves. We're not setting unattainable goals for ourselves.

Jessica Quindlen: I love that. I feel like that applies to goals in general. To think about it with finances, you hear about that with, fitness or weight loss or things like that.

And if you love going to the theater or if you love chocolate, don't cut it out of your budget. If you need your weekly ice cream, put it in the budget. Figure out a way to get it.

All right, Emma, so how can someone create a realistic budget that they'll actually follow, making sure there's chocolate and theater involved, of course.

Emma Protsik: Absolutely. No, I love that Laura brought up those values. I think that if you look up how to budget, you're going to find the kind of common advice [00:05:00] cut out those unnecessary expenses. But I am actually a big believer of the opposite, exactly what you two are just talking about. Again, it's all about that prioritization.

Start small. I think tracking expenses is a great place to go. Before you do that though, identify those values and really look at those. Again, those unnecessary purchases are the things that don't align with your spending. So, you can start to create those new categories moving forward.

Not to just keep repeating the same thing, but for a realistic budget, don't get rid of that fun. Figure out a way to make it work. If you aren't able to afford more of the fun stuff, try to figure out ways to do more affordable things to fill that desire, whatever it is that you're needing.

But keep in mind those values. It's not one size fits all. Start small. And again, I think I say it constantly on this podcast, but just give yourself grace. Set up those different check-ins to see how things are going and make adjustments as necessary.

Jessica Quindlen: I love that. And I think too with the cutting out unnecessary expenses, it's like Laura said, she's finding a way to go to the theater.  Is she going every single night? I'm assuming not.

If you need your ice cream, do you need it every single night of the week? Things like that help find ways [00:06:00] to make the “unnecessary” work for you.

Emma Protsik: Every time I swipe my card, I play, would I rather. I try to figure out what else could I be spending this money on?

Is it towards paying debt or even putting money towards my goals? Do I value whatever I'm trying to purchase more than those things? And that's a good test.

Jessica Quindlen: And I think different months can be different. There may be a month where you're like, I'm feeling good, this can go towards debt. And then there's a month with a birthday or a party or something, or there's two shows in town we have to see. So that month is going to get extra love.

Laura Straub: All the tradeoff.

Jessica Quindlen: Laura, what are some different types of debt and how should they be prioritized?

Laura Straub: Yeah, so there's different types of debt. The biggest difference is revolving versus installment debt. Revolving is our credit cards or lines of credit. Those change based on our consumption, so really looking at how are we utilizing those tools for ourselves. And then the other one is installments. So loans, whether it's a mortgage, a car payment, et cetera.

Now when we're looking at how they should be prioritized, it really comes back to what do we [00:07:00] owe? What is the priority for us? So, really just figuring out what your most expensive debt is, tackling that, and your behaviors too. If it is revolving credit with those credit cards and you're just constantly putting stuff on that credit card, looking at that behavior of how you're using that credit card can really help you in the long run.

Identify your patterns of behavior when it comes to spending. But as far as prioritizing the debt, it really just comes down to how you want to tackle it and the strategies that you want to start doing.

Jessica Quindlen: What is the difference between the snowball and the avalanche debt payoff methods?

Emma Protsik: It's the system, how you set them up. With both the snowball and the avalanche method, you are prioritizing debt. You're saying this is debt one, debt two, debt three, and so on. So the ones that you want to pay off first. The most important part for both of these systems is making sure you are doing minimum payments for all those debts. That is the largest part of our credit score, so get a plan in place to make those minimum [00:08:00] payments.

After you've looked at your budget, identified those values, figured out those different expenses that don't make you feel so great you can cut out, hopefully you have a little bit of extra money that you can apply towards debt repayment.

You are then going to put that towards debt number one. So, debt number one is not only getting their minimum payment, but a little bit extra to help pay down that principle. So, what's happening is the debt's getting paid down quicker. Once we have priority debt number one paid off, we're then going to take whatever the minimum payment we had allocated for that debt, as well as that monthly extra and put it on debt number two.

And that's kind of where that snowball idea comes from. You continue to go down until all of your debts paid off and you get to debt three or four. Those payments are massive. Because you're just adding to it.

So, the difference between the two is just that prioritization. What is debt one, what is debt two?

The snowball method probably the most common. I think it is really good motivation and a really good confidence boost for people because you prioritize from the smallest debt balance to the biggest. So, you're paying off the debt that you owe the least amount of money on first.

Typically that [00:09:00] means that you’re paying it off the quickest. With those minimum payments and that extra, you then move on to the next highest debt till you get to the most expensive.

I actually prefer the avalanche method for some of what Laura was talking about, prioritizing the most expensive debt. So same system. Again, you're putting them in order, but instead of looking at that balance, you are looking at the interest rate.

Laura Straub: Yeah, and what I like about both of these methods is that it keeps your budget really straightforward until all your debt is gone because you're using the same amount every month. It's just how is it allocated.

Jessica Quindlen: What are some practical strategies to reduce debt without feeling overwhelmed?

Laura Straub: The biggest thing is really looking at our budget. First and foremost, if we can come up with a good plan in place that we're not feeling overwhelmed with, that's a good start. [00:10:00]

Also, utilizing our resources, so our financial coaches. If you just need to talk it out with somebody, we can do that for you. That way you're not feeling alone in this either because sometimes it can just feel isolating. Dealing with debt repayment and just “what's going on with my finances?” So really having that help can just help you feel a little less overwhelmed.

And then the other thing that we can look to, if those avalanche and snowball methods just really aren't working well enough for you, we can look at other strategies such as consolidation or refinancing. That way we can figure out a good game plan for you that's less overwhelming and that you can feel good about. So just know you're not alone. You can come in, talk to one of us.

But just taking a step back too can just really help. The more often we're looking at our budgets, the more we're going to feel empowered with our budget, the more secured we're going to feel about it. It's like a muscle. If we don't use it, we're going to lose it. So, look at your budgets and constantly [00:11:00] reevaluate them.

 Jessica Quindlen: How can people stay motivated and consistent with their financial goals?

Emma Protsik: I think as far as motivation goes, we can bring it back to what we talked about earlier - our different values. So again, it depends. Figure out what motivates you.

I think that when it comes to finances, it's good to set small goals. That is a great way to stay motivated, especially early on in the process when you have maybe larger financial goals that [00:12:00] seem very daunting. So little goals here and there. Set a $100 savings goal, pay off $200 in debt, whatever that looks like for you.

And again, set up those reward systems Our brains like that. It keeps us motivated. And whether that's going to the theater, spending time with your friends, going out to dinner, whatever that looks like for you, set up those things in place along the way to keep you motivated. 

We also recommend checking in with your finances and your goals at least monthly. But figure out that system that works. Again, it's going to take a little bit of trial and error, but what I always tell people that are working towards financial goals, set up a designated time.

I know I've talked about it on the podcast before, but set up that designated time whether that's monthly, every two weeks when you're getting paid, that you know you're going to sit down, at least look at it. You gotta flex that muscle. You gotta face it. You gotta start somewhere.

Laura Straub: Absolutely. Yeah. And just continue to celebrate those small wins. It really does do a lot to help folks stay motivated when it comes to our budget, but again, find what works for you and stick with it.

Jessica Quindlen: Awesome. Well, that brings us to the end of our show. Laura. [00:13:00] Emma, thanks so much for being here.

Emma Protsik: Thank you.

Laura Straub: Yeah, thank you.

Jessica Quindlen: And we actually have an exciting financial coaching promotion going on in this month of April. If you book an appointment with one of our financial coaches, you will get a limited-edition Broncos hat. You can find more information on our website or on our social media pages.

 And now for our new segment brought to you by Dave Logan, the iconic voice of the Denver Broncos.

Dave Logan: Got your eye on a big purchase? Use the 30 day rule. Wait 30 days before buying. If you still want it after that, go ahead. But more often than not, you'll find you didn't really need it. That's how you win the spending game.

Jessica Quindlen: Thank you for listening to Sound Cents from Ent Credit Union. Be sure to follow our podcast as well as rate and review us. I'm Jessica Quindlen. I will see you next month. Same time, same place. [00:11:00]