I love carnivals, the bright lights and the sideshows, the delicious (if fattening) food and the air of excitement all combine to make a carnival awesome fun. Since it’s still cold here the carnival season is still a few months off, but that didn’t stop me from going to the carnival anyway…the blogging carnival!

This week I joined up at two different carnivals, The Tax Carnival #67 – A Pot of Tax Gold; where I was fortunate enough to lead the carnival off with my discussion of our love/hate relationship with taxes – The Tax Man Cometh. Read over the post and then let me know how you feel about April 15th. And thanks to Kay Bell for inviting me to the party.

The second carnival I was part of is The Carnival of Money Stories XLV – The Sex, Lies and Videotape Edition where my post Watch Out For Auto Bill Payments was featured as part of a Len Penzo storyline/game. Thanks for letting me play Len!

So, it’s been pretty much fun here the last couple days and the infant/kid in me has enjoyed the carnival atmosphere so much that I believe I’ll be visiting again next week. Until then, please feel free to visit this week’s carnivals yourself and come back to see where my carnival fun takes me next week.

You see it, hear it and read it all over the place these days. America has too much debt, how did we get so far in debt or a more personal note, how do I get out of this debt. There’s no doubt that debt can be a very bad and sometimes even soul crushing thing for some of us. What I don’t see enough of is the distinction being made between good debt and bad debt.

That’s right, some debt can actually be good for you. Before you go grab the latest pre-approved credit card offer from your trash can or run down to your bank to get a loan, read on.

There are some things that provide enough value back to us that racking up debt to get them makes good financial sense. Our homes, a car to get to and from work and a college education are some examples of things the most people would never be able to buy with cash.

A home provides us with shelter, a sense of security and even increases in value by historical standards. Home loans are typically at a low interest rate and mortgage interest is tax deductible for most people. Using debt to purchase a home is usually a pretty good investment. This isn’t always true and you should read the other side of the coin at Genxfinance.

A car is almost necessary in some areas to get to and from work. Not having one can limit our job prospects and make it difficult to do the simplest tasks, such as grocery shopping. If you don’t have easy access to public transportation then financing a car can make good financial sense too. It is one debt that you should try to pay off as quickly as possible though as the return on your investment for a car is usually negative.

A college education will pay you back for the rest of your life and could be argued to be the best investment of the three. College graduates with a Bachelors degree will make $900,000 more than those with a high school diploma on average during their lifetime. Those with a Masters degree are likely to make $1.3 million more than their peers with only a high school diploma. Pretty heady stuff that. Combine that with low interest rates, payment deferral and tax breaks on student loan interest and I think you’ll agree that using credit to get a college education is a pretty financially savvy move.

That being said, we still need to make wise choices when we start to take on even good debt. Going beyond your means is not a smart idea. What I mean is that there is no need to buy a $250,000 house when you’re only making $40,000 a year. In the same vein, a $20,000 car will get you to work just as well as a $40,000 car. And an Ivy League education is not necessary to increase your income, in most cases your State school will be the best value for your money.

In almost every case you can determine how “good” a debt will be for you by looking at how it will enhance your lifestyle on a permanent basis or at least in the long term. So, a new pair of shoes might make you feel great today and maybe even for the next couple weeks, but they provide no long term improvement in your lifestyle. Paying a 12-24% premium for them (in the form of credit card interest) is a poor financial choice. The same applies to a pepperoni pizza, new clothes, a night out partying with your friends…I think you get the picture.

Taking on good debt and avoiding bad debt is all part of managing your money. When you are able to control the things that are adding to your debt you are in control of your money and will find that there’s a big difference in the quality of your life when you are in control.

Following up on yesterdays Budget Basics post I thought it would be fun to come up with a list of reasons NOT to have a budget. I know 13 is usually considered an unlucky number, but so is not having a budget. So, here goes:

1. Creating a budget is way too much work and takes up valuable time that you could be spending playing WOW or COD.
2. You feel loved when your phone rings so you enjoy getting calls from bill collectors.
3. A budget would show you where you’re spending too much money and you really don’t want to change your spending habits.
4. You love working so much that you never want to retire anyway, so why budget and save?
5. You live in your parent’s basement and have no plans on ever moving out.
6. You don’t care how much money you spend. If your checking account is empty you simply pull out the credit card.
7. You have no financial goals so see no reason to plan your spending and savings.
8. You’ve never used a budget before and think that you’re doing just fine, even if you do have $20,000 in credit card debt. I mean everyone has credit card debt right? So what’s the big deal.
9. If you had a budget you might feel accountable to stick to it and you hate feeling accountable for anything.
10. You’ve budgeted before and no matter what you put in for the expenses for each category you’re always wrong. The expenses are never what you thought they were going to be anyway and you hate being wrong like that every month.
11. You’re a free spirit who doesn’t believe in the whole planning thing. It’s too restrictive man, just go with the flow.
12. You need to hide money from your spouse and if you created a budget he/she would know how much you really make and where it’s being spent.
13. You perform better when you’re under stress and not know where you’ll get the money to pay your bills each month gives you lots of stress.

For those of you that disagree and think you should have a budget (I hope that’s all of you) here are 25 26 reasons why you should make a budget.

Hope you all enjoyed that and if you have any other good reasons not to have a budget please leave them in the comments below.

Considering the images that are typically evoked by the thought of a budget it’s not surprising that many people don’t like the thought of budgeting. Many people hear the word budget and they cringe, at least inside. For some reason the very word budget has been given a negative connotation in our society. It brings up images of deprivation, limitations and constraint. But is that really what a budget is? I think not, in fact I think of my budget as exactly the opposite, something that is freeing and offers a way to enjoy myself more without guilt.

At its core a budget is simply a way to plan your spending so you can focus on putting your money to its best use. If you’re already under a heavy debt load then a budget could mean that you need to cut back on some aspects of your life such as eating out, partying or buying expensive toys. However you can always go back to those things once your debt is under control.

A budget makes your income and expenses much clearer and gives you a way to make conscious decisions about your spending. This is very different than spending on a whim and ending up broke at the end of each month. We all have things that waste our money, but with a budget you can eliminate the worst offenders. If you have financial goals (and all of us do) then a budget will help you to plan how you are going to achieve those goals whether they are short term goals like buying a new TV or longer term goals such as taking an exotic vacation with your spouse to even lifetime goals such as retirement.

Budgeting is very different for every person and the way your neighbor or co-worker budgets may not be right for you. Only you will know how to create a budget that you can stick with to help you meet your goals. Some people can make a mental budget and are fine following that. I’ve always found that small expenses tend to creep in when I try to follow a mental budget. These expenses seem insignificant at the time, but when added up can mean several hundred dollars of frivolous purchases by the end of a month. People like me need to write their budget down, use a spreadsheet or some other budgeting tool such as You Need A Budget. It helps keep us focused and accountable.

There are many good reasons to use a budget. Some of the most common are:

1. Working to get yourself out of a high debt situation
2. Saving for a major purchase like a down payment on a house
3. Working towards a large financial goal such as retirement or college education
4. Dealing with limited income
5. Trying to live more frugally and simplify your life

I’m sure you can think of others; which is the reason why everyone needs to plan their own budget that focuses on their own goals and what’s important to them.

No matter what goals you have with your budget, the budget exists to help you plan and most importantly to be conscious of how you spend your money. This may be a bit of a chore when you first start out, but you’ll soon find that a budget can also be enjoyable. It can show us how to have more money for the fun things we want to do.

Consider this:
If you buy your lunch out every day and spend $6 on average you’re spending over $1500 a year on take-out food for lunch alone. Add a dinner out on Friday and maybe a few drinks on the weekend and you’re easily spending over $3000 a year that could be put to better use. What if you saved that money and put it towards your retirement so you could stop working several years earlier. Or you could use it to take a dream vacation. Maybe you need it for your child’s education or even your own. In the long run you’re going to get more enjoyment from these things than you get from those fast food lunches.

One thing you should be aware of when you start using your first budget is that while it will give you a good guide of what you should do, it won’t be able to change your bad money management habits. Only you can take the steps to change your own behavior regarding money. Without the commitment from you to change your own spending and saving habits your budget isn’t worth the paper it’s written on or the bytes it takes up on your computer.

At the end of the day your budget should give you a clear picture of reality, the reality of how much you earn and how much you spend. Some people shy away from creating a budget for this very reason. They know that their spending is irresponsible and they are afraid of confronting the reality. Don’t be! The very best way to start enjoying your money and your life more is to consciously plan where your money gets spent and thus take control of your money, rather than letting it control you.

You’ll find that the act of writing down where your money goes will make it much easier (and more enjoyable) to make decisions about how to spend the limited amount of money you have. And if you can attach a goal to your finances such as paying off credit cards, retiring early, taking a well deserved vacation or whatever you value you’ll find that it’s actually very easy to make conscious decisions about how to spend (or save) your money.

“Neither a borrower nor a lender be.”
– Shakespeare

Most of us know someone who has had a credit card debt charging 20%+ in interest. Some of us have even been in this situation ourselves and know firsthand how terrible this type of burden can be. It can feel as if you’re in a hole so deep that it is impossible to dig yourself out.

While it’s true that many of us should not have been borrowing in the first place, does that give the credit card companies the right to charge interest rates that are bordering on criminal in my mind? I understand that the credit companies exist to make a profit and I certainly won’t begrudge them that, but 20%+ annually? I’m sure they could make a profit charging 14% or 10% or even 8% in our current interest environment. How do they justify such a high interest rate when savings accounts are paying less than 1.5% interest?

I know they talk about default rates and what those cost the credit card companies, but don’t you think they would be protected from many defaults if their rates were lower. Or if they actually had some discretion in who they offered the cards to? Why should we be subject to paying for the credit companies follies when they lend to those who have such a poor credit history that they are almost guaranteed to default?

I’m not sure that the credit card companies are evil, but they certainly are immoral. Taking advantage of the needs of the poor (which is mostly what they are doing) is certainly immoral behavior in my book. If I was approached for a loan and knew the person was unlikely to be able to pay it back I wouldn’t make it a certainty by charging them $200 for every $1000 they borrowed. It’s much more likely that I wouldn’t offer the loan in the first place.

In Exodus 22:25 you’ll read:

“If you lend money to one of my people who is needy, do not be like a money-lender; charge him no interest.”

While the quote comes from a Christian background it reads to me as simple humanity. You can find many similar quotes and much more regarding money and the Bible at Christian PF

Sure we as consumers are partially to blame as well. I know I have made purchases in the past on credit cards that I didn’t need. I just wanted it because it was something everyone else had or I felt entitled or I simply didn’t have the patience to wait until I could save enough cash to buy it. It was foolish on my part to do so, but I don’t think that my foolishness and stupid choices entitled the credit card companies to so blatantly take advantage of me.

In the end I have to admit that yes, the credit card companies ARE evil. No one would deny (except possibly the executives profiting from our needs and wants), that these companies and those who run them are greedy and greed is one of the 7 deadly sins. You’ll have to decide for yourself how you feel about their excessive interest rates and questionable marketing practices, but I can guarantee if you’ve ever been caught in their vise like grip you’ll agree with me that whether you think they are evil or not, no one should EVER carry a balance on any credit card. I think this one small step will not only make your life better, but is an improvement for the whole human race.

“The rich rules over the poor, and the borrower becomes the lender’s slave.”
– Proverbs 22:7

Join with me and cast off your shackles and make sure you’re a slave to no man. Financial freedom is both liberating and freeing and is something we should all strive for if we want to live happy and fulfilled lives.