Welcome to BW’s Smart Money podcast, where we answer your real-world money questions.
In this episode: Learn how to create an effective budget and manage credit responsibly to build a strong financial foundation for 2025.
How can you create a budget that works for you? What are the best ways to use credit cards responsibly? BW personal finance expert Kim Palmer joins host Sean Pyles to discuss budgeting strategies and smart credit management to help you build a strong financial foundation for 2025. They begin with a discussion of budgeting, with tips and tricks on choosing the right budgeting method, tracking expenses effectively, and overcoming common pitfalls like unexpected expenses.
Then, Sean and Kim discuss credit card management and how to use credit responsibly. They explore the importance of monitoring transactions, strategies for avoiding overspending, and tips for keeping your credit utilization low to protect your credit score. They wrap up their conversation by sharing actionable advice for managing debt and improving your credit health over time.
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Episode transcript
This transcript was generated from podcast audio by an AI tool.
All right, everybody, raise your hand if one of your promises to yourself in 2025 is that you’re going to follow a budget. Hey, look at that. I see lots of hands in the air. Just kidding, I can’t see you, but there are probably quite a few of you who’ve made that promise to yourself. Today, we’re going to help you keep it, and we’re going to make sure that your credit life doesn’t get in the way.
The main caution to watch out for with credit cards is overspending. Credit cards can just be really tricky because it doesn’t necessarily feel like real money, and other than the credit limit on the card, there’s really nothing stopping us to keep swiping away to buy what we want.
Welcome to BW’s Smart Money podcast. I’m Sean Pyles.
Throughout this month, we’re featuring several episodes to help you get the year started off on the right financial foot, if you will. It’s your money in 2025. Kim, you’ve joined us today to talk about budgeting and credit, and when I say credit here, I mean the credit you use, like from a credit card, as well as your credit scores and credit reports.
Yes. These are two aspects of our financial lives that are so common, but they’re also really frequently misunderstood. We are going to walk people through some of the basics of setting up a budget. We’ll actually go a bit beyond the basics, and then we’re going to have some tips and tricks for layering credit onto that budget.
And that’s a really good way to think of it. Know your budget first, then you can figure out how to use credit, aka debt. Of course, we are aware that probably most of the audience already has some credit cards, so we’re really going to get into how to use credit responsibly and make sure you’re making it work for you, not against you.
Credit is something you really need to actively manage, and one excellent way to do that is…
Budget, exactly. We’re going to meld these two aspects together so listeners can really head into 2025 with a really solid financial foundation.
Kim, I always enjoy hearing how my fellow Nerds put their advice into practice for themselves. I want to ask whether there’s anything you do at the start of the year to help yourself along these lines, any reviews you do of the previous year or mental exercises to figure out how you’re going to budget and manage your own credit life for the coming year. Anything you’d like to share with the audience?
Yes, of course I do. I absolutely love doing spending reviews, so I do a big one at the end of every year, but I actually also do more frequent reviews, so every month I like to pull up my credit card statement, which is basically where the bulk of my spending is, and then I just see what surprises me, what trends do I notice? Sometimes I’ll even notice some mistakes or errors that I have to fix. Sometimes there’s a big expense that I want to dig into and figure out why something went up so much that month, like takeout, for example. And from there, I can also just make decisions about where I might want to scale back or shifts I want to make. Sometimes there are irregular expenses. For example, right now I’m going through a lot of deposits for summer camps because now is the time to sign up.
Oh, so far in advance. Yes. We have to get those spots now to make sure we’re set for the summer. It means putting up a lot of deposits, so I’m noticing that, and it just helps to plan for that. And then I can realize, okay, this month is a lot because of these certain reasons, but I know that won’t repeat next month. Now you have to tell me, I would love to hear what you do.
Well, I do something similar, but I’m maybe a little bit lazy and I try to automate this as much as I can.
I utilize an app that consolidates all aspects of my finances into one place, including my investments, spending categories, and savings accounts. At the end of each year, I review my financial activities through this app. In 2024, I analyzed different spending categories and evaluated which expenses I felt good about and which ones I did not. Based on my assessment of how I managed my money, investments, and savings in the previous year, I determined what changes I wanted to make.
It seems like we have a similar approach, although I prefer logging into my account rather than using an app. One key difference is that I don’t have the added expense of putting kids into summer camp, making my financial management a bit simpler.
We are interested in hearing your thoughts as well, listener. What financial goals are you working towards as we embark on the new year? Feel free to leave us a voicemail or text the Nerd hotline at 901-730-6373 or email a voice memo to [email protected]
Kim, credit and budgeting are common topics among listener questions on Smart Money. Let’s delve into budgeting first, as it is essential before considering credit. For those who have never created a budget but plan to do so in 2025, where should they begin? Perhaps with a complex spreadsheet that they may never use?
In reality, simplicity is key when creating a budget. It should be easy to understand, navigate, and follow. Kim, if you were to design a personal budget, what would be your initial step? Would you opt for analog or digital?
Before discussing analog versus digital budgeting methods, it is beneficial to choose an overall budgeting approach. I personally advocate for the 50/30/20 budget, which allocates 50% of your income towards needs, 30% towards wants, and 20% towards savings and debt payments. This method allows for personalization and adjustments based on individual circumstances.
I appreciate your mention of the flexibility of the 50/30/20 budget. While this budgeting framework has received criticism for being unrealistic, its value lies in providing a clear overview of where your money is being spent. Understanding your current financial allocation is crucial for making informed changes.
There are other budgeting methods worth considering, such as the cash-stuffing or envelope-based approach, where expenses are divided into categories each month. Zero-based budgeting is another method that accounts for every dollar spent. Ultimately, the best budgeting method is one that aligns with your preferences and financial goals.
Personal preference plays a significant role in determining the most effective budgeting approach. For example, I prefer a macro-level budgeting strategy due to my multiple savings and checking accounts with specific purposes. While I distribute my paycheck across these accounts, I do not track every BW Reader meticulously. This method works for me, as I have sufficient funds to cover my expenses without needing to micromanage my budget. It’s important to tailor your budgeting approach to suit your individual financial situation and mindset. I have heard from several financial planners that I’ve interviewed over the years that they also use that approach, so it definitely appeals to people who like that level of organization. You’re definitely not alone in that.
Let’s discuss some budgeting apps that are available. Mint used to be popular, but there are other options now. Some useful apps include BW, YNAB (You Need A Budget), and Honeydue. Each app offers different features to help with budgeting.
Deciding what to include in your budget and how detailed to get can be a personal choice. It’s important to include all expenses to ensure you’re prepared for any costs that may arise. Looking back at your spending over the past year can help predict future expenses.
When it comes to the timeline for budgeting, some people prefer to budget monthly, while others break it down even further to a daily budget. It’s important to find what works best for you.
Reviewing your budget regularly is crucial as it allows you to make adjustments as needed to stay on track. Budgets are not set in stone and should adapt to changes in income and expenses.
Overall, budgeting and credit management go hand in hand in financial planning. It’s important to responsibly use credit cards and maintain a good credit score. Your credit history can impact many aspects of your financial life, so it’s essential to manage it wisely. When it comes to credit cards, some primary cautions to keep in mind include overspending, high interest rates, late fees, and the risk of accumulating debt. It’s essential to use credit responsibly by tracking your spending, paying off the balance each month, and keeping your credit utilization below 30% of your total limit. Warning signs of getting into trouble with credit include missing payments and struggling to pay off balances. If you find yourself in debt, creating a plan and using methods like the snowball or avalanche method can help you pay off your debts. Regularly reviewing your credit reports and fixing any errors is crucial for maintaining good credit. Your credit score reflects your credit history and is essential to monitor and keep in good standing. Each of us actually has multiple credit scores, as they are provided by different credit bureaus. The formulas used to calculate these scores are proprietary, making them somewhat mysterious. While we may not know the exact calculations, we can draw some conclusions based on the information we have shared today.
It is important to note that there is no specific passing score when it comes to credit. Some individuals may feel guilty or ashamed if their credit score is not a perfect 850, which is equivalent to an A+. However, the average FICO 8 credit score is 717, which is considered a good score. For example, the best loan rates, such as those for mortgages, usually go to individuals with credit scores above 740.
It is beneficial for individuals to consider their financial goals when aiming for a good credit score. If someone does not currently have an excellent credit score but does not plan on applying for new credit in the near future, they can focus on improving their credit gradually. This way, their credit will be in better shape when they do need to use it.
In terms of managing credit card balances, it can be helpful to have a plan for paying off the balance and to aim to pay more than the minimum amount due each month. Utilizing debt payoff calculators, like the ones available at BW, can assist in tracking progress and setting achievable goals.
Looking ahead, there are various factors to consider that may impact one’s credit, such as changes in interest rates, inflation, and tariffs. Staying informed about current events and how they may affect personal finances can help adjust budgeting and credit strategies accordingly.
Ultimately, taking the time to review past spending and plan for future budgets can significantly impact financial stability. By investing time in financial planning, individuals can work towards achieving their larger life goals.
In conclusion, it is essential to remember that financial numbers are not the sole focus, but rather a means to achieve broader life objectives. By staying motivated and aligning financial strategies with personal goals, individuals can navigate their financial journey more effectively. To seamlessly integrate the original HTML content into a WordPress platform, you can follow these steps:
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