Are Retail Store Credit Cards Bad For Your Credit?

Anyone who likes to shop at major retailers has probably at some point been asked to open a store credit card. The sales pitch for these cards often includes some lofty promises about the amazing savings you will receive. Unfortunately, most cards don’t live up to being such a great deal in reality.

But are these cards bad for your credit? You may have heard financial experts recommending against these cards. They won’t hurt your credit score simply because they are retail credit cards, but they do have a few features that can increase the likelihood that your credit score will suffer or won’t as quickly reach its potential.

Here’s what you need to know.


The decision to open a credit card should never be taken lightly, yet much of the marketing around store cards tries to catch consumers off guard and get them to make rash decisions. If you open a retail card, it’s certainly not the end of the world, but ideally you would give it some thought before saying yes. That’s because many store cards have a few major disadvantages.

Also, keep in mind that opening such a card probably is not a big deal for someone with a long, established credit history who could turn around and access more credit if they needed it. On the other hand, for a young consumer—say, someone who would be opening the store card as their first credit card—the disadvantages will be felt quite a bit more.

Low Credit Limits

A big disadvantage of these cards is that they offer low credit limits. On the one hand, that could be a good thing for some consumers since it puts a low ceiling on how much new debt you can take on. But on the other hand, it could hold back your credit score. A higher credit limit can help your credit score by improving your credit utilization. So by offering low limits, these cards may not help your score as much as some others.

Again, if you were a new credit user and you were choosing between a store card or a traditional credit card, the traditional card will likely provide the better boost to your credit score over time because of a potentially higher credit limit.

High Interest Rates

Perhaps the most well-known disadvantage of retail cards is that they often have very high interest rates. CNBC reported that one popular department store offers a credit card with a 26.99 percent variable rate. Compare this to the average interest rate on a credit card, which is somewhere between 15 and 20 percent (different outlets arrive at different figures on this point). That’s a significant difference.

If you take out a store credit card, you will want to be extra careful to ensure you can pay the balance in full and avoid the sky-high interest rate.

Few Places to Use the Card

Another major con to store credit cards is that most of them can only be used at the associated store. Though there are a few exceptions, you generally won’t be able to take the credit card you opened at ACME Department Store and use it anywhere else. This can make the card pretty useless in your wallet and limit its effectiveness in helping you build your credit score.

Potential for Overspending

Also, a store card could cause a psychological effect that works against you—by incentivizing you to return to that store more than you really need to, leading to overspending.

Limited Rewards

One of the selling points of store cards that often reels people in is that they offer good rewards. You’ve probably heard pitches like “You can save 20 percent on your purchase if you open a card today.” However, these rewards may not be great in the long-term. First, remember that for many cards—like department stores—you will only earn rewards at that store because that’s the only place you can use the card. Even for store cards that do give you greater flexibility, you will want to compare the rewards against other credit cards on the market.

You may be able to find a card that gives 1-2 percent cash back on all purchases, which could turn out to be better than the rewards on the store card. If so, it might be better to skip the store card and opt for better rewards instead.

All the Normal Tips Apply

We have so far touched on some of the drawbacks to retail credit cards. This doesn’t mean that you cannot or should not use them, but instead that if you do you should be strategic. Look for the card with the best features—good rewards, higher credit limit, and the ability to make a variety of purchases.

If you choose a card—whether it be from a department store or online retailer—remember that all the normal tips about credit card management apply. Just like with any other card, you will want to do your best to avoid interest and fees and to stick to your budget so your spending does not get away from you.

If you’re behind on your store credit card payments or would like other assistance with your credit card goals, remember that NFCC-certified credit counselors are here to help.

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Tips for Budgeting as a New Couple

The early days of a new relationship can be very exciting. It’s fun to spend time with someone you click with, and it is natural to begin thinking about whether this person may be a big part of your future. There is one important area that you don’t want to overlook as you’re getting to know—and let’s admit it, “vetting”—someone. That is budgeting. Don’t get so caught up in the new relationship that you forget to keep track of your budget, both as an individual and a new couple.

Know where things stand and be careful 

Being a “new couple” means different things to different people. But whether you are a few days, weeks, or months into a new relationship, you should take things slow financially. Take inventory of where you stand with each other and what the expectations are. You should probably err on the side of caution early on and keep things separate as much as possible. This means that, if it’s feasible, you should avoid lending each other money or paying for expenses that are solely the other person’s. You should also avoid joint bank accounts early on. You basically want to protect yourself until you get to know your partner and have made a structured plan together. And remember, if your relationship is exclusively online right now, you will want to be extra careful and watch out for romance scams.

Discover each other’s money personality

As you get to know your partner, don’t overlook their financial personality. You can learn this through conversations about money, but also through observing their habits. You will quickly learn who is the spender and who is the saver (or maybe you’ll be the rare relationship with two savers!). You’ll learn what motivates the other person and what their financial strengths and weaknesses are. Be observant and look for areas that you can express as concerns and areas that are strengths. This will be good to know in general, but will help with budgeting specially. When you know what makes the other person tick, you will be better equipped to make a budget that works for both of you.

Discuss each individual’s goals or make joint goals

One of the best ways to budget is to start with your goals. After all, a budget is essentially a tool for achieving them. Take time to learn each other’s goals, both big and small. This will help you learn more about your partner’s financial standing. Do they have goals to pay off old debts, student loans, etc.? It’s also the opportunity to make plans together, like traveling or a large purchase, and then build a budget to put those plans into action.

Figure out the expenses you share and make a plan to split the costs fairly

As your relationship goes on you will probably have more shared expenses. Write these down and keep track of them together. You will want to split them equitably. Different couples will reach different conclusions on how to do this, depending on the expense. Some split things 50/50 and others reach a different breakdown depending on factors like income or usage.

Work together from a formula (pie chart or 50/30/20)

In addition to tracking your expenses, you will need to make a full budget. Luckily, you don’t have to reinvent the wheel. Consider a simple pie chart budget (there’s a great example in this article), or the very popular 50/30/20 approach. Whatever you decide, try to stick with it for a while to create consistency and give yourself some time to see results before trying a different strategy.

Revisit the budget often 

You want to stick with your budget for the benefit of consistency, but don’t just make a budget once and call it quits. You will need to revisit the budget often. Doing so will allow you to make adjustments as changes occur to your income or expenses, check in on your progress, and hold each other accountable to make sure you stay on track and hit the targets you set. Figure out what works best for you and your partner. Maybe it’s once per week or once per month, but the important thing is to check in with each other regularly and keep an open line of communication about your finances.

More Help is Available

A new relationship leads to new experiences and new hopes for your future. Remember to keep your finances a top priority, too. If you want more help with your credit and financial goals, either individually or as a couple, consider reaching out to our credit counselors for a free credit counseling session.

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Should You Use Gross or Net Income When You are Budgeting?

Are you familiar with the difference between gross and net income? If so, which one should you use when you are budgeting for major purchases? As it turns out, the concepts of “gross” and “net” incomes are very simple, but the implementation can be a bit more complicated. In this post we will give you a quick refresher about the differences between the two terms and how you can use them when budgeting.

Gross vs. Net Income Explained

One quick note: we are focused exclusively on these terms in the context of personal finance. While the concepts are certainly very similar across other contexts, like business usage, just remember that we are talking about your personal income.

Your gross income is the total amount you are paid before any deductions. In most cases this will be income from your employer. It is the equivalent of your salary. If you take a job position that pays $40,000 per year, then your gross income will be $40,000. Now, if you have multiple sources of income—say a full-time job paying $40,000 and a part-time job paying $10,000—then your gross income would include the second source. You would therefore have a gross income of $50,000.

Your net income is your gross income minus deductions. It is also referred to as your take-home pay. The simplest example is when your employer withholds taxes from your paycheck. Your gross income is reduced by your withheld tax amount, and what remains is your net income. In addition to tax withholdings, your employer may also withhold funds for retirement contributions, health insurance premiums, or other benefits. Whatever is withheld, the remainder is your net income.

Which Income Figure Should You Use for Budgeting?

When you are making a budget, you will want to determine whether to use your gross or net income in your planning. This will vary depending on which budgeting tool you use. Some may instruct you to list your gross income, and then taxes and deductions will be line items as expenses. Others may ask you to start with your net pay. If you start with your net pay, you will just need to ensure that you don’t double count an expense in your budget (like health insurance premiums) that may have already been deducted from your pay.

Deciding which income figure to use is a relatively minor detail when it comes to general, monthly budgeting because your budget tool will guide you, or if you budget by hand you can figure out which way is preferable to you.

However, it can be a very important detail when you are budgeting for specific large purchases. Just to give a few quick examples—have you heard the “rule” that you should spend 30 percent or less of your income on housing? Or that transportation costs should account for less than 10 percent of your monthly income?

These guidelines and others like them can be very helpful for thinking about your financial well-being and making plans for your future. However, before you ever complete a purchase using one of these principles, you should know whether you are making calculations based on net or gross income.

In the links above, the guideline about housing costs uses net income. Meanwhile, the tip about transportation costs uses gross income.

Why It Matters

GoBankingRates has published a list of how much the average resident in all 50 states would take home as net income based on a $50,000 salary (gross income). According to that post, in California someone with a $50,000 salary would net $38,697. When divided by 12, that comes out to $3,224.75 per month.

Following the housing rule above, that leaves a housing budget of about $967 per month (30 percent of $3,224.75). Had you used gross income for the calculation, you would have arrived at a housing budget of about $1,250 per month. This is a huge difference, as for some people a rent of $1,250 would not be affordable.

This is just one simple example, but you can probably see how the distinction between net and gross income can a make a very big difference in whether a course of action will be a good financial move or not. If you use gross income in your calculation when you should have used net, you may end up on a path that is not financially sustainable.

Other Common Pitfalls

While we are already on the subject of gross vs. net income, here are a few minor “pitfalls” related to these two types of income. Keeping these in mind will deepen your financial understanding and help you keep a predictable budget.

Don’t Double Count Expenses

We mentioned this briefly before. If you use a budgeting tool that asks you to start with net income, be sure that you have a way of tracking your deductions. For example, let’s say that you have retirement contributions taken out of your paycheck each month. If you make a budget based on net income, then your starting point will be after the retirement savings have already come out.

When you get to the line item for “retirement” on your budget, you would need to exclude the amount already deducted from your check. This might mean putting zero dollars, or listing other retirement savings you made outside of your paycheck. You wouldn’t want to count an expense twice because that would throw off your whole budget.

Also important—you will want to keep your deductions in mind and not forget about them. There may be some optimizations and improvements you could make to your deductions and if they are totally out of sight and mind you might not think about them very often.

Remember Taxes

This is somewhat related to the point above, but don’t forget about your taxes. If you get a large refund each year, then in a way that means your net income is higher than your paychecks indicate, because you are essentially having too much withheld throughout the year. You can change your withholding by working with HR at your employer to do so. Or, you may prefer having a large refund, which can operate in some ways like a zero-interest savings account. Either way, remember that tax withholdings will affect your net pay.

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This is the Free Budget Template You Need in 2021

At NFCC, we feel that tracking your monthly personal budget and household expenses shouldn’t require a finance degree. That’s why we’ve created this free budget template, based on a simple “Money In / Money Out” principle that will allow you to balance your budget and spend within your means each month. This budget template (available below as a Microsoft Excel spreadsheet) succeeds because of our unique “Money In, Money Out” strategy. This strategy is the result of helping thousands of people like you fix their credit each year and escape the heavy burden of debt that, frankly, stresses everybody out.

Download your free nfcc budget template

Money In, Money Out

There are 180 known currencies in the world, but only two types of money: money coming in (income) and money going out (expenses). Most budget templates only track your paycheck as money coming in, but we know that’s not realistic. The fact is, we have a variety of income sources each month, and it’s crucial to track every dollar. Money Out is where this spreadsheet holds all the power to balance your budget. The Money Out section of the spreadsheet tells you when you’ve spent beyond your income. This is important, because forgotten or overlooked expenses can chip away at your income – and it can add up. When you can see how your Money In and Money Out is balanced, you have the power to reduce the stress associated with debt, bad credit, and the trouble that comes with living beyond your means.

Tracking Your Money In

Income is not only your paycheck; it’s anything you received in the calendar month, including:

Refunds for items purchased the previous month (this does not include refunds already applied to your credit cards.)
Cash gifts received for birthdays, Christmas, Hanukkah, or being named “Employee of the Month.”
Gift cards received are as good as cash, so include them as Money In.
Winnings from gambling, which includes that card game with your friends and bets places on the big game
Help from the parents, such as $200 given to you for car repairs. Include it as a gift.
Loans are tricky; they can be counted as Money In and Money Out. If you have a $10,000 line of credit from your mortgage and take $2,000 of it for a vacation, include $2,000 as Money In, but include the debt repayment as Money Out as you are repaying it.
Include interest earned from your checking or money market bank account or any other interest that is yours to spend.
Important: Only include money in your possession from the calendar month you are budgeting for. This is money that is available to be spent.

Great work! Once you’ve added these items in the Money In section of the free budget template, you should have a clear view of the money you can spend during the month. On to the next step.

Tracking Your Money Out

Money Out is just that, money that you’re spending on bills, food, Uber, Spotify, concert tickets, gasoline and more. Even the cash in your pocket is going to be spent, but let’s not go crazy. Documenting every nickel and dime expense for cash spending is too tedious, so in this budget template cash is not itemized, it’s just a sum of “cash” that goes into your wallet each month for pocket expenses. Complete the spreadsheet with all of your household expenses in the Money Out section, including:

Nest Egg (Savings) You might not think of saving money as Money Out, but it is. You’re taking money from your Money In section, and you’re putting the money into a savings account (hopefully interest-earning). It’s an expense because you can’t use that money to pay for any other expense.
Wishlist can be a traditional savings account where you are saving up money for something special, such as a new iPad or vacation.
Monthly bills that include electric, mortgage or rent, NetFlix, landscaping, phone, or anything that comes in the mail as a monthly bill, should be added to the month when the bill was received, not the date of services.
Loan payments should be added to the budget month when the payment is due.
Credit card bills may include items like NetFlix, Pandora, or Uber. Only list these once on your spreadsheet, meaning a NetFlix charge to your credit card can be listed as NetFlix or credit card, but not both.

Why NFCC recommends budgeting for the month

We put Money Out nearly every day, even if it’s just a few dollars for lunch or gas in the car. But Money In happens less often, typically on payday, which may be weekly, bi-weekly, or monthly for some. For this reason, we recommend blocking your budget into months. This blocking is done to ensure that you set boundaries on how you collect and spend your Money In. For example, if you use your January Money In to fill up your gas tank on January 31st, you have basically paid for February’s gas with January’s money. Use the calendar month as boundaries for your Money In and Money Out. Another example comes from one of our credit counseling clients who forgot to pay the electric bill she received in October and instead paid it in November. When the November electric bill arrived, she paid it on time – also in November. Unfortunately, her November budget didn’t allow for two electric bills to be paid, so she overspent her budget in November. This can all be avoided by fixing your income and expenses to a single calendar month.

Trimming the fat in your spending habits is the last step

Once your Money In and Money Out has been added to the spreadsheet, there may be some fine-tuning to do. Look at the “Difference Remaining” row, which shows the difference between your spending and income. Did you overspend, or do you have money remaining? This is where the budget template really earns its high marks from our clients.

If your Money In is higher than Money Out…

Good news! Your Money In is higher than your Money Out. This means you earned more than you spent, and you can decide what to do with the remaining money. Using the spreadsheet, you may choose to increase your credit card payment, increase your payment on loans, or increase the money put into savings. Financial experts at NFCC agree you should prioritize a higher payment against any debt that includes additional interest. Pay the additional money on the debt with the highest interest rate first (often credit cards which, can be 14% to 24% interest.) As you add the additional payment in the spreadsheet, watch the Difference Remaining row automatically recalculate to show how the additional spending impacts your budget.

If your Money Out is higher than Money In…
Unfortunately, your current expenses are greater than your income. If this is allowed to happen, you may find yourself sinking further into debt. You’re not alone, however. Call us! We have world-class credit councilors that are just minutes away from helping you. In the meantime, look for areas in your budget where you can begin reducing your costs. Here are some tips:

Look at your cash line item. Can you get by with less pocket cash this month? Reduce that cash expense by 20% or more.
Seasonal renewals hit your credit card when you least expect it. Check your credit card bill for any seasonal renewal items you didn’t want, such as that NFL Football Season Pass on Direct TV. Call your cable TV provider as ask for a refund before it’s too late.
Look for extra income by hosting a garage sale, picking up some more hours at work, or sell investments.
Avoid price creep by renegotiating your monthly costs on cell phones, cable TV, streaming services, or insurance costs. These costs tend to “creep” up over time, even by small amounts that vendors hope go unnoticed. One debt consolidation counseling client told us their cable TV bill went up $22.06 in the course of a year, but the service programming remained the same. Call your providers and ask them to reduce the costs or risk losing you as a customer. Many times, they will agree to reduce the price increase or postpone it.

Be prepared for next month

Don’t wait for your bills to become overwhelming next month. By looking at this month’s budget template, you’re well prepared to make tough decisions about facing next month’s Money In and Money Out. How can you prepare? Here are some ideas:

Some expenses that hit your credit card each month often go unnoticed, such as streaming services, subscriptions, and bills scheduled to charge your credit card automatically. These can quickly add up. Review your credit card statement in detail each month and cancel anything that isn’t critical.

This process of continually trimming the fat in your budget keeps you in ideal financial shape and can avoid surprises when tracking your Money In and Money Out each month.

Need additional help?

Get immediate relief from credit card debt. Connect to a trusted NFCC member agency, who will be there to help you find the debt relief solution that’s right for you without a loan. Contact us today.

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How to Set Realistic Financial Goals for 2021 and Reach Them, Despite Uncertainty

For most people, 2020 has been a challenging year. From the COVID-19 pandemic to the subsequent recession to the many unprecedented political and cultural events, this year has been one for the history books. While most are hoping that 2021 is nothing like 2020, the reality is that the future is uncertain.

As you think ahead to 2021—and having a clean slate in the new year—financial goals may be your top priority. Here are some tips for making realistic financial goals and reaching them, so that 2021 can be a major “bounce back” year for you.

Basic Rules for Goal Setting

You may have heard of the SMART goal system, but here’s a reminder. Goals should be:


We’re focusing on the “A” for attainable, but you will want to keep all of these in mind as you create goals. If you create an attainable goal—meaning that it is realistic and manageable—but you fail to put a time parameter on the goal, then it may not be very effective. Similarly, a goal could be realistic but not very specific. This could mean that you wouldn’t even be able to say with certainty that you completed your goal because it was not clearly defined. You get the idea—just keep this SMART system in mind and make sure each individual goal meets all the criteria.

What makes a goal realistic or “attainable”?

To be a realistic goal, the goal needs to be within reach. However, don’t fall for the temptation of thinking that only easy goals are realistic. It’s actually very important that you set goals that will motivate you, and very easy goals often are not motivating. On the other hand, you do not want to set a goal that is too difficult to complete, because that may not be realistic and could lead to burnout. You are really looking for the sweet spot of something that is challenging but not so difficult that you have a high likelihood of failure. When setting a realistic goal, it may be helpful to do the following:

Ask yourself if this is a relatively small or large goal. Is it short-term or long-term? For larger and long-term goals, you will need to make sub-goals, which are milestones along the way.
Research your proposed goal. Can you find stories or data about other people who have achieved the same goal? If no one has ever accomplished it before, then it may not be realistic.
Assess your starting point. Even if you know a goal is achievable, make sure that it is achievable from your starting point.
Find what motivates you. Motivation is the secret sauce when it comes to goal setting and goal achievement. When you’re motivated, you can do more than when you’re not. Use motivation to set harder goals than you would otherwise, but you also need to find ways to stay motivated as you work toward your goal.

Tips for Financial Goals

There are some specific strategies available that can help you achieve your financial goals. After all, financial goals are some of the most common new year’s resolutions. These include, paying off debt, building an emergency fund, and saving for a specific expense like college or homeownership. Using these strategies can help ensure you don’t fall short of whatever goal you set.

These are not sophisticated strategies by any means, either. Instead, think of them as basic habits you will need to implement in order to maintain financial success and stability

Budget Before, During, and After

We can’t overstate the importance of budgeting. When it comes to achieving your goals, your budget will be the ultimate road map. Hopefully, you already have a budget. If so, that will give you a clear “starting point.” But if not, the important thing is to maintain a budget moving forward.

A good budgeting system will give you a real-time way to check in on how you’re doing. Are you staying within your spending constraints in various categories? Has your income picked up or dropped off? Where do you need to cut back, or where can you put extra funds when your income changes? A good budget holds the answers to all of these questions.

Save as Much as Possible

Many, if not all, financial goals involve saving to different degrees. The more you save, the more flexibility you will have and the more purchase power you will have. Take a critical look now at the categories in your budget to see where you can make cuts. Every extra dollar you save will be an extra dollar toward your financial goals.

Have an Emergency Fund

Building on the previous point, it is important to build an emergency savings fund equal to six months’ expenses or more. You will want to do this as soon as possible, so it may even be your first major financial goal. Given all the economic uncertainty around us, this step can provide much needed stability.

Assess Your Credit

Many goals also involve credit health, directly or indirectly. Having good credit is an important piece of your financial puzzle. Remember that you can review your report for free at You should do this frequently to track your progress and ensure your reports are accurate.

Have Accountability

It is easier to stick to a plan when you have someone supporting you along the way. Find a trusted relative or friend with whom you can be open about your finances and goals. Ideally, this would be someone who has already achieved the goals you are working on, or who is on a successful financial path themselves.

Good Luck Achieving Your Goals!

Remember to make SMART goals. A major factor is that your goals should be attainable, which means they should be realistic and manageable for you. By implementing some basic financial strategies and habits, you will be well on your way. If you’d like help with your financial goals, particularly with credit or debt, learn more about credit counseling or get started today.

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How to Make a Financial Plan for Your Goals in 2021

We have talked before about setting financial goals for 2021. Given the difficult year that was 2020, it seems likely that many people will set New Year’s resolutions around their financial well-being. Because your finances are so important, you will want to make sure that you set yourself up for success and do not struggle to gain traction. The key to hitting your financial goals is to have a financial plan in place that gives you the structure you need to be successful. Here are some suggestions for how to do just that.

Clearly Define Your Goal

The first step is to define your goal. Be clear about exactly what you want to achieve. Again, this goes back to the framework that your goals should be SMART. As a reminder, that means they should be:


As an example, don’t make a goal “to pay off debt.” Instead, make a goal to pay off a specific number of credit cards (like three credit card debts). Or even better, make a goal to pay off an exact amount (say, $10,000 of your debt). Having this clarity will give you a good vision for exactly what you want to achieve, and that will determine the steps you need to take to get there.

Think about Reverse Engineering Your Goal

Sometimes when you are preparing goals, it can be helpful and motivating to look at examples of what others have done.

One of the most famous examples of goal setting and achievement is the first moon landing. In 1961, President Kennedy announced the goal that America would put an astronaut on the moon by the end of the decade. At the time of this bold goal, no American had spent more than 15 minutes in space!

This was a lofty goal by all accounts, though it probably fit nicely into the SMART framework. Importantly, it was a clear goal with a set timeline. This meant that everyone working toward it—mostly the brilliant folks at NASA—could develop the steps required to reach the goal. Starting with the end result—the goal—they could work backwards and determine each piece that would need to be in place in order to be successful. They were successful, and the rest is history.

You can approach your goals like this too. Using the goal to repay $10,000 in debt is again a helpful example. First, make sure there is an end date for the goal. Let’s say it’s feasible to pay it off in one year. Then your goal would be to “pay off $10,000 in debt by the end of 2021.” What steps or sub-goals would you need to achieve this goal? Maybe it’s that $7,500 should be paid off by October, $5,000 should be paid off by July, and $2,500 should be paid by April.

That’s a simple example, but the concept can be applied to many goals. When you start with the end result, two things happen. First, you begin to visualize your success, because you are beginning with the assumption that your goal is completed. This can give you a huge psychological boost. Second, you can identify the steps that will be necessary to reach the end goal.

Put Pen to Paper

As part of your financial plan, you should write down each financial goal you have. Then, list out the various sub-goals you will need to achieve along the way. There are many different ways you could write this down to map it out. If you want to see some great examples, and access free templates, you can check out this post on goal trees from a financial independence blogger.

You will need to put more in writing, too. Just putting your goals on paper and getting organized with what you hope to accomplish probably is not enough for most people. You will also need to put your current financial situation into writing—in other words make a budget.

This is the most critical part of a financial plan, because it will reflect your day-to-day reality. Budgeting at the beginning of the year is an especially helpful exercise because it allows you to review the previous year’s expenses across all spending categories and provides the chance to plan for the upcoming year. This is the perfect opportunity to make a plan for reducing your spending. You will likely find categories that provide opportunities to make cuts and spend less than last year.

Making these cuts—and keeping up with them all year long—may even be sub-goals toward your larger financial goals. Some cuts can be made at once, like reducing a monthly bill such as when you cut out cable. Others will be ongoing cuts throughout the year, such as reducing your grocery budget. Reductions to your spending that occur time and time again throughout the year could be listed in your financial plan as weekly or monthly sub-goals, and your budget will allow you to check in frequently to see how you are doing.

There are Many Tools to Help

You can make your financial plan with literal pen and paper, or use some of the many digital tools available. The NFCC has a helpful budget planner that would be a great start. There are many sophisticated budgeting and financial planning software programs that can help, too. Think carefully before paying for such a service. While that may be helpful, it’s also a cost that will add up over time. And budgeting manually may be a better alternative because it forces you to take a more critical look at the numbers.

Whatever you decide, the important thing is to keep track of your goals, break them into sub-goals when needed, and budget each month. Taking these steps will put you well on your way to achieving your 2021 financial goals. If you need more assistance, remember that the NFCC is here to help.



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How Much Should You Plan to Spend on Utilities Each Month?

One of the keys to financial success is keeping a balanced and predictable budget. The most important categories in that budget are those that are critical to your health and safety. Most utilities fit into this category. You’ll want to ensure that you know what to expect for these costs each month. And, you will want to actively seek ways to lower your utility bills if they take up too much of your monthly budget.

How much should you pay for utilities each month? It may be better to think in terms of a percentage of your income rather than a flat dollar amount.

Budgeting by Percentages and Defining “Utilities”

Conventional wisdom has been to budget according to percentages for each major spending category. Many experts have recommended for decades that consumers should spend less than 30 percent of their gross monthly income on housing, though some give a range like 25 to 35 percent. This may go back to a government standard introduced in the 1960s. Is this still relevant today? Maybe. It certainly can be a helpful guideline, though it is far from perfect.

budget for utilities

An example percentage-based budget. Source: Michigan State University Extension.

A popular new budgeting approach is to use the 50/20/30 budget. In this model, housing is folded into your “basic needs,” which should be 50 percent of your income or less. This model may better reflect different costs of living in different locations.

Source: NerdWallet

However, neither of these methods account for utilities specifically. The “30 percent rule” really misses the mark here. Many experts have taken the 30 percent rule and added other categories like groceries, transportation, and insurance. All the categories are assigned a percentage, and together all the percentages add up to 100 percent. But often, no percentage is assigned to utilities. So, utilities fall under “housing.” This can be a problem because many people consider them to be two different expenses and may not account for utilities when calculating how much of a mortgage or rent payment they can afford. The 50/20/30 is better at accounting for utilities because it leaves a lot of wiggle room. However, it does not set a specific range for utility costs.

If you would like a specific rule to follow, then keep your utilities under 10 percent of your gross income. Though a good rule of thumb, ten percent is still pretty high, so think of it as a ceiling and keep the costs as low as you reasonably can. You should review the average monthly costs for common utilities in your area and budget for those amounts or more. Importantly, you must remember that your specific location and the square footage of your living space will determine how much you pay. But, knowing the average can be very useful to ensure that what you are paying is reasonable.

If you use the traditional budget percentages, remember that your 10 percent utilities budget is part of your housing budget. If you use 10 percent on utilities, that would leave only around 20 percent for your other housing costs. If you use the 50/20/30 budget, then the 10 percent is part of your 50 percent “needs” budget.

It might sound easy to keep utility costs under 10 percent of your income, but it is not easy for everyone. The less income you have, the higher the percentage of your budget you will devote to energy. The Natural Resources Defense Council reported in 2016 that low-income consumers were at risk of facing burdensome energy costs. That group had a “median energy burden” of 7.2 percent, meaning that a median of 7.2 percent of their monthly budget went toward energy costs.

This study only looked at “energy” expenses. It excluded water and secondary utilities like trash pickup and cable services. Therefore, once you add these additional expenses, it is easy to see how the costs could exceed 10 percent. Careful planning is important to limit your utility spending, especially when accounting for all utilities.

Budgeting for Your Total Utility Cost

To get an idea of what you should be paying for utilities, review your monthly bills, and cross reference them with these findings. You can also check with your local utility providers for more specific information, or consult with a realtor, neighbor, or anyone else who knows the specifics of your neighborhood.


According to the most recent data from the U.S. Energy Information Administration, the average U.S. electric bill is $115.49. You can review all the data and look up the average for your state.

Water and Wastewater

A leading water-focused research group published a study last year, finding that the average bill in the U.S. for water and wastewater was $104 total.


Rocket Mortgage reported in 2017 that the average monthly gas bill was just above $55. It also reported state-by-state data that you can review.

Garbage Removal

The utilities listed so far are all necessities. Some homes may not use gas, but those that do rely on it for critical tasks like heat or cooking. There are other utilities that are very nice to have, but don’t quite rise to the level of being necessities.

One of those is garbage removal. You can probably expect to pay between $20 and $50 for garbage removal in most cases.

Phone, cable and Internet

Phone, cable and Internet costs are also not necessary and can vary widely. Unlike electricity, which costs more as you use more, typically these services charge a flat fee. The best way to save money is to pick the most affordable services upfront. These days, there are very low-cost cell phone plans, and many people choose to skip cable and opt for a cheaper streaming service instead. For Internet, you may be able to save money by opting for a slower speed, since oftentimes the upgraded plans do not make enough difference to warrant the cost.

For a family of two adults, a conservative budget for these expenses might be around $100 per month. However, these costs could easily creep to $200, $300 or more if you do not shop around, subscribe to many services, or opt for expensive options.

Making Changes

If you need to get your utility costs under control, the two best ways are to use less and to shop around. NerdWallet has put together 15 easy ways to lower your utility bills. Most of those focus on weatherproofing, stopping leaks, and so forth. Don’t forget about negotiating and checking prices with different companies. If it has been a while since you last shopped around for utilities, it may be worth doing so again to see if you can get better pricing than you are currently paying.

Another idea would be to get a roommate who could share the costs with you, though this will not be feasible for everyone.


Utilities can add up very quickly and take a big chunk of your budget. Unfortunately, many traditional budget models do not properly account for these costs. Try to spend no more than 10 percent of your monthly income on utilities, and take simple steps to lower these costs as low as you can.

If you are struggling to pay utility bills or other bills, contact a credit counselor who can work with you to figure out your best options moving forward and do a thorough review of your budget.

The post How Much Should You Plan to Spend on Utilities Each Month? appeared first on NFCC.

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10 Smart Ways to Reduce Expenses and Tighten your Budget to Make your Stimulus Check Last

Have you received your economic impact payment, also known as a stimulus check? If so, you are probably thinking about the best way to use it. People who have been severely affected by COVID-19 will likely need to use it right away. The funds could cover food, housing payments, and other emergency expenses. On the other hand, those who have not felt an impact may invest or donate the funds. But many people are in the middle. They have felt the financial pinch from COVID-19, but are not in dire straits. For this group, the funds can serve as an important backstop, cushioning their savings and providing a reserve to dip into in the coming weeks and months. If that sounds like you, here are 10 tips for how to make that money last as long as possible.

Shift Your Mentality

First of all, you will want to maintain the right perspective. Even as the pandemic eases in the coming months, remember that the Unites States economy is in uncharted territory. Prepare for the unexpected, and think of your budget as being an emergency budget. Even if the situation gets better and the economy holds steady, there is nothing wrong with being over-prepared, and you will be thankful that you took precautions either way.

Have a Starting Point

Make sure you have a written budget. This monthly expense planning tool can help you get started. You will want to think about how much of your monthly income is going toward each major spending category. For example, experts usually recommend that no more than 25 percent of your budget goes toward housing, and that food and utilities not count for more than an additional 25 percent. You might even try the simple 50/30/20 approach. Whatever you pick, try to make a plan that is even more conservative than the recommendations. If you have already been budgeting then look at how much you have been spending in each category, and try to reduce the amounts significantly.  For example, if fifteen percent of your monthly income has been going toward food, you might try to bring that down to ten percent or less.

Avoid or Minimize Meals Out

Speaking of food, it is a large portion of everyone’s budget. However, it is also one of the easiest expenses to cut back. Eating out costs significantly more than making meals at home. Yes, eating out can be a way to contribute to the small businesses in your community. But if you are trying to keep your own finances afloat, you shouldn’t overdo it. Try to limit how much you spend at restaurants.

Clean out Your Pantry

Going to the grocery store is a challenging process during the COVID-19 era, and the expenses add up. But you may have a freezer or pantry full of food. This could be the perfect time to use that food strategically instead of buying more. Maybe there are a few ingredients you need to pick up every few weeks (like milk). But try to stay home and prepare the food you already have. You can even make this a fun challenge to see how close you can come to emptying your pantry entirely.

Cut other Grocery Luxuries

While you are limiting trips to the grocery store, try to eliminate any luxury items. This might mean skipping the name brand items and only buying generic products, giving up certain cuts of meat, and taking a break from alcohol. These can be some of the most expensive items on your grocery list, and cutting them for a while will make a noticeable difference.

Reduce Utilities

Utilities are another huge expense. Heading into May, we are almost to the time of year that many people run their air conditioning all day long. Try to avoid this to save on your electric bill. Open windows, wear lighter clothing, or run fans. Taking these measures might be a little less comfortable, but could reduce your bill.

Also, now is a good time to reassess your home Internet and television subscriptions. If you subscribe to multiple streaming services, consider reducing it to one.  You might also reduce your Internet package by selecting a slower connection speed. These changes will add up and save you a good chunk of change.

Cut back on entertainment

COVID-19 brought many forms of entertainment to a halt. No more trips to theaters, or concerts, or skating rinks, and so forth. However, it is still easy to get caught up in entertainment expenses at home. You might want to order new video games, or pay to stream a newly released movie. You may want to purchase items on Amazon to entertain yourself or your kids. Instead, try focusing on the things you already have. What do you already own or already pay for that can provide entertainment for free?

Here’s one simple list for free family entertainment ideas at home.

Cut Personal Spending

Like with entertainment, a lot of personal spending has already been cut, given that salons and similar businesses have been closed in most locations. Many of us aren’t used to going this long without a haircut, and have experimented with different forms of quarantine hair. Even once restrictions are lifted, you don’t have to rush back to the barbershop, nail salon, masseuse, or similar service. Instead, experiment with what you can do at home. See what new habits and methods you can find for self-care that are affordable and easy to do. Reducing these monthly, or even weekly, expenses can create huge savings moving forward.

Consider Stopping or Reducing your Giving

Donating money is a very personal decision. It is also incredibly important in times such as these, when many businesses and individuals are struggling financially and physically. Many nonprofit organizations are on the frontlines of helping people recover. If you can continue your normal level of giving, that is wonderful. Or if you can make a one-time gift to a charity, that is also fantastic.

In fact, thanks to the CARES Act you’ll receive up to a $300 tax deduction for cash donations to charity if you take the standard deduction. But, be honest with yourself about your situation. Consider if money is too tight to give right now. If so, you might reevaluate later in the year and make a gift then instead, once you know you can do so without jeopardizing your own financial health.

Manage Monthly Debt Payments and Interest

If a significant portion of your monthly income goes toward debt payments, you might want to reduce them. Or, you may be able to delay them, especially for student loans or mortgage payments. For credit card debt, it might make sense to reduce the payments along with the interest and fees. This could potentially free up more money for the rest of your budget, and give you more cushion each month. One great way do this is through a Debt Management Program.

Moving Forward

These tips should help you tighten your budget and stretch your income quite a bit further. Even if you just implement some of them, you should feel the difference at the end of the month, and your stimulus funds should last a little longer. Remember that the total impact of the COVID-19 pandemic and its effects on the economy are still uncertain. So, try to create lasting habits and changes to your budget that you can use not just in the weeks to come, but in the months and years to come.

The post 10 Smart Ways to Reduce Expenses and Tighten your Budget to Make your Stimulus Check Last appeared first on NFCC.

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Three Conversations You Should Have Right Now Regarding Coronavirus and Your Finances

The rapid spread of the latest coronavirus, COVID-19 has already impacted the financial lives of millions of American households and shows no signs of diminishing any time soon. Where does this leave you and your family in terms of your financial preparedness for the potential economic downturn? Have you reviewed your ability to manage on reduced work hours or to survive a layoff? What does that mean in terms of your current financial obligations like rent, mortgage, auto loan, credit cards and utilities? Successfully managing your available resources requires open lines of communication with everyone who has a stake in your financial health.

Here are three conversations you should have right now in order to minimize the financial impact of the COVID-19 crisis.

Your Family

Open and frequent communication about finances can help make a crisis much easier to manage among family members. Even if you are the only one in your household, it is important to review your savings and fine tune your budget based on your current needs and future goals. Your personal savings will play an important role in an emergency but having an emergency spending plan will help you make that savings go farther. Work with everyone in your household to determine what is necessary and what expenses can be cut. Discuss which alternative budgets will work best and consider going off script to develop the best plan for your unique circumstances. For example, the popular 50/30/20 rule may work well during normal times, but the 30% recommended for entertainment and other discretionary expenses would not be appropriate during a time of belt-tightening.

Your Employer

The prospect of having work hours cut or eliminated can add a tremendous amount of stress to an already unsettling situation. Job stress resulting from these unknowns can have a detrimental impact on how you manage through difficult times. Make sure you understand what options are available for the continuation of employment and any income adjustments that may result from staffing changes. Knowing those details can help you anticipate when you will need to implement changes to your household budget. The discussion should also cover your benefits and their status if employment is terminated or hours are cut. When possible, make use of your Employee Assistance Plan (EAP) to receive counseling and access to other support services that can help you manage during times of economic disruption. Also keep in mind that there are some industries hiring to meet additional demand as more people adapt and shelter in place. If loss of income seems imminent, explore ways to generate a supplemental income stream with an employer or in the gig economy.

Your Lenders and Utilities

Being proactive can make a big difference when dealing with all sorts of financial obligations ahead of a crisis. There are already lenders and service providers offering special assistance for people with questions about managing bills during the coronavirus pandemic. It is likely that there will be an increasing level of guidance as the virus continues to impact more communities. When you are certain that your wages will be reduced or eliminated, contact each of your financial obligations to make them aware of the situation. Be honest and as detailed as possible about how the change will impact your ability to pay your account. Even if they offer special recommendations in response, always ask if there are other options for you to consider. The more informed you are about your choices, the more likely you will find the most appropriate solution. Sometimes these discussions can be overwhelming, and you are provided a lot of information to process. It is reasonable to ask for some time to consider your options and review the information, and you should also request to have details provided in writing by text or email.

There is no shame in reaching out for help in a time of need, so don’t hesitate to contact a nonprofit credit counseling agency for guidance when you feel confused or overwhelmed. Trusted agencies like those affiliated with the National Foundation for Credit Counseling (NFCC) have been helping people overcome financial challenges since 1951 and are here to help you no matter your circumstances.

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