Budgeting is a skill that can be learned over time. However, people tend to need help getting started, especially when they aren’t the best at managing finances. Castle Finance Direct has been able to provide advice on budgeting and loans if this is something you’ve been thinking about.
For anyone out there wondering why they should budget, a good reason is to make sure you aren’t spending more than you make. People who do this tend to find themselves in overwhelming debt and financial messes. Budgeting helps you track your expenses and stay on top of things.
Another reason to budget is if you’re trying to save money. When you budget, you can monitor your spending and work towards reaching your financial goals more quickly.
How to Budget
There are three core steps in creating a budget and the first is to write down your income. After doing that, find out all of your recurring or monthly expenses and write those down as well. The final step will be to subtract your expenses from your income which will tell you what your financial standing is. If you find you’re spending more than you’re bringing in, you have a ‘budget deficit’. In the case that you have surplus after paying all of your expenses, you have a ‘budget surplus’.
Loans – How do They work?
Loans are essentially when a lender and borrower come together to agree on terms of the transaction. Every borrower’s terms are different, so it all depends on what is most favourable to you. However, you can’t make the most informed decision if you’re not knowledgeable about loans. Some loans require collateral but not all do. You’ll also notice that each has a different term period as well as varying interest rates.
Secured vs Unsecured: Two of the most common types of loans out there are secured and unsecured loans. A secured loan is when the lender attaches collateral to the terms such as a mortgage loan or car loan. An unsecured loan is the opposite as there is no collateral attached. There is, however, often higher interest rates whether it’s a credit card or a secured loan.
Revolving vs Term: There is also a revolving loan or a term loan, and the common theme amongst both is the repayment terms. While you can continually spend and repay a revolving loan, term loans have equal monthly instalments that need to be paid over a fixed period of time. A credit card is an example of an unsecured revolving loan. A home equity line of credit would be classified as a secured revolving loan on the contrary.
Simple vs Compound: Interest rates on loans can be set at simple or compound interest. Simple interest is when interest is put on the principal loan. Compound interest, however, means more money has to be paid by the borrower on interest because they’ll be paying interest on interest.
Special Considerations: Seeing as interest has such a significant impact on loans, you want to try and get lower interest. Higher interest means more expensive payments and in some cases, over a longer period of time.
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