Category Archives: Budget 101

Nip, Tuck, and Sculpt

Continually audit your budget

Nip…….Overspending in the bud.  Your budget should consist of absolute essentials: Savings, Rent/Mortgage, Heat, Light, Phone, Food, Health needs, Internet, Transportation and Insurance. Although essential, some can be trimmed down. Anything beyond that can be nipped.  There are, of course, times when incidentals are needed and should be purchased.  And spending for an occasional treat is good for the psyche.  But each paycheck, nip everything possible.

Tuck…..Tuck everything you nip from the budget and add the money saved to one of your savings accounts. Even a small amount counts…..it all adds up.

Sculpt…..Sculpt your dreams and goals around your Retirement Portfolio, and aim for saving to meet those goals and to one day make those dreams reality. Time moves quickly…..plan and prepare.

Couples And Budget Knowledge

Each of you need to know how to handle budget matters.

In a relationship there are two of you.  You are in it equally and therefore add to, as in income, as well as subtract from, as in spending, and everything else in between.

This means you both – equally – fall into the ‘Need to Know Category’.

Set time aside each week, say one hour (more if needed), to go over all the finances from the past week.  Knowing how hectic life can be is a known factor, but this one hour date each week is essential to staying on top of your finances – getting a handle on it right away if it needs fixing.

It’s not handled by one and not the other…..it’s something that is shared – done together.  The income of it, the saving of it, the spending of it, the balancing of it.  Each should know where the money has gone…and why.  Spending should not be done without the knowledge of it to the other.  Special occasion gifts might be the exception to the rule.  But other than that, set a limit – say $50-100., that cannot be spent without letting the other know first.  Keep it all above board.

Too often we hear, “Oh, he takes care of all the bills, I have no idea about that”.  Or, “She’s better with money, so she handles all of it, I don’t have time, or a clue on how to do it”.  As soon as the relationship starts to get serious, work on the budget together.  If already in the relationship, start now….right now. Make a spreadsheet, so it’s all there, in black in white.

As time moves forward in the relationship, knowing what you have, and how to save, how to budget and stay within it, and how/when bills are paid so there are no interest charges or late fees, is common sense.  It’s doable and easy…… no excuses not to.

It is inevitable that we all take our last breath.  Knowing all about every aspect of your Financial Health over the years together, will be one less thing the remaining spouse/partner will have to try and figure out at an already stressful time.

Renting An Apartment?

Living alone or sharing, some tips to follow…..

Congratulations!  You are on your own and looking forward to living in, and decorating your own home.

Until you can purchase furniture pieces you choose yourself, many will use ‘hand me downs’, which is fine, and often some of those pieces will last for many years and be very useful to you.

If you can buy your own furniture, it is best to choose good, sturdy pieces so you won’t have to replace it in a couple of years.  It’s better to buy a few needed pieces, ones that will last, and hold off on others until you have the money to buy them…..this also gives you the enjoyment of ‘a treat’ here and there.  Choosing pieces that ‘store’ things do double duty… choosing a table with a drawer and/or bottom shelf, or a small chest of drawers in a hallway etc., can automatically keep things out of sight and neat.

A cleaning hint: instead of furniture polish,, dampen a micro fabric cloth with water, squeeze it out tight, and after having cleared the items off the furniture wipe it down with the micro cloth, let the furniture dry completely, then replace the items back on it.  No furniture polish to buy.

Keep things simple…… sparse is better.  It looks neater (and less to keep clean).

If any problem arises (with plumbing, leaks, large appliances, electrical, anything having to do with the apartment itself), notify the landlord or rental agent immediately.  A phone call is fine, and especially in an emergency, but an added “insurance” for you is to have it in writing as well.  So send an e-mail, stating that you are following up with your phone call, and put all the details in writing.  This gives you written verification… something to fall back on… should you have a problem arise about  any….”you didn’t say that before” conversations.  Always get/put things in writing.

Landlords typically ask for first and last months’ rent, along with a security deposit, (often a full months’ rent).  The security deposit is held by the landlord separately in a savings account, and when you move out, the security deposit, along with interest, is returned to you, providing there is no damage to the apartment done by you. ‘Normal wear’ is not counted as damage, nor is the replacement of old or now non working appliances.  If there is damage caused by you, the cost of repair(s) is taken out of your security deposit, and the balance (if any) is returned to you after you vacate the apartment. This can take 30-60 days), so keep tabs, and be sure you get any money due you.

It’s a good idea to have a separate account for your rent…. You should add a ‘cushion’ of a month or two of the cost of rent, and each month round up the rent figure and add that too.  Remember when you move, there will be moving costs, along with first, last, and security deposit for the next apartment.  This is 3 months of rent money you’ll need up front.  If there is a rental agent/broker, there is usually a fee for them too.

An important note, if you’re sharing the apartment, and the cost of rent, along with any related costs (utilities, food etc),  keep up with your savings account, but do so privately.  Do it separately.  Do not use that account as the one you use to share the rental fees.

Bottom line…..Be prepared…… have 3-4 months ‘rent’ money set aside for next time. You will need it, so don’t use it for anything else. And again, keep this account separate if your sharing the apartment.

Enjoy your new place!

 

A Few Ways to Accelerate Your Savings

Stay on budget while adding to savings……

Sometimes it’s hard to save.  We all go through times when life gets in the way with unexpected expenses.  But there are a few things that are easy, common sense ways, to continue to add to your savings.

If you have a loan you’re paying, say a car loan, when the maturity date arrives and the payments are all paid up, continue ‘paying the loan’, but put that amount into your savings account(s).  You got along without it these past years, so you still can.

Make lunches to bring to work and school.  Cook meals at home rather than eating out at restaurants…. homemade meals are far cheaper than eating out.

Make your coffee/tea/cocoa at home and put in a travel mug to take along.  Even one cup of your favorite beverage every day bought at your favorite stop, times seven days a week gets pretty pricey.  Get a pen and paper and figure out what it costs for a year…. until the figure is seen in black and white, quite often we don’t give it a second thought, and have no idea it is costing us that much.

Cut back at the grocery store by using store brands, coupons, watching for sale items and buying what you need while the sale is on (there is usually a 6 week cycle for items on sale). The snack aisle can be a costly aisle to walk down.  It’s another area where you add things to your cart without thinking of the cost.  Add the cost of the snacks in your pantry…. leave the snacks out of one grocery shopping trip….then every other. Put that money you would have spent into your savings.

Talk to all those you exchange gifts with, and instead of gift giving, maybe instead of individual gifts, you all could have a get together with each bringing a ‘grab gift’. Have a ‘potluck’ dinner with each bringing something to eat.  The money saved on gift giving can then go to your savings. And the get-together will be a lot of fun and make great memories.

If you get a pay raise at work, put the difference of what you had received before and the amount you now receive into your savings. Again, you got along without it before.

And of course, if you’ve been paying down your credit cards and now have zero balance(s), kudos to you!  But continue ‘paying’ the amount by adding it to your savings now.

All easy, but common sense ways to see more going to your savings.

 

 

Credit Cards

Credit Cards aren’t for everyone

Credit cards are a means of purchasing something without handing over cash.  They are a convenience when used properly….and they can be a curse if not.  They can be a financial nightmare.

The convenience is that a card is handier than cash.  Or you’re making a purchase of something ‘on sale’, and don’t have the cash with you. They are a curse when you don’t pay it before the due date or don’t have the full amount to pay it, adding a late fee as well as interest charges on the remaining balance, thus wiping out the ‘on sale’ amount.  Before you slide the chip in, ask yourself “Is the money there to pay for it”? – “Do I really need this?”  If the answer is no, put the item back, and walk away.

Keeping up with paying for purchases made in full and on time adds points to your Credit Score.  Something you need to do to stay in good  standing with creditors. Your score is a link to your credit history – how you pay off your debt.  A score in the excellent range can get you a lower interest rate on a loan, or a house/apartment over someone else with a lower score than yours. Your credit score follows you throughout your life, and if you’re ‘a couple’, the score of your ‘other half’ is factored in to yours.  It’s why it’s imperative that you talk finances and have all debt paid off, for both, before you say “I do”.  Their financial mess is yours, and vice versa.

Credit cards are not to be used carelessly.  Until, and only if you are disciplined enough to pay in full for purchases when the bill comes due, do not use them.  Do not open one.

Do your homework before you open a credit card.  Some have an annual fee, so watch out for that…..there are a wide variety that are free.  Each come with their own features – many with rewards.  Unless you can use their type of rewards, pass on that one, and look for another.  Read the material and ask questions before you open one.  If you don’t follow the guidelines —- it can cost you plenty. And if you don’t pay in full and on time each month, adding purchases on top of those already there, and still paying only the minimum, turns into a financial hole that can take years to climb out of.

Do not put another person on your credit card.  Don’t be tempted with ‘their’ extra points to get you travel benefits or whatever the rewards are.  They will all be wiped clean if the other person doesn’t pay for the purchases he/she has made, both in full and before the due date….and their credit score is linked to yours because of this card.

We often pull out the credit card, swipe it, and forget about the purchase, only to be shocked at the balance at month’s end.  We open the bill, stare at the balance, and think, “that can’t be right’.  So, during the month, call the Customer Service number on the back of the card, they’ll ask a question or two and then give the balance as of that day.  Get used to checking on this at least twice a month, so if you’re getting close to what you can pay when the bill comes due, you can stop using the card so you won’t overbuy.  This will prevent surprises when the bill comes in, as well as not being able to pay it in full resulting in interest charges on the unpaid balance next month.

Be credit card savvy.

 

 

 

 

Why Separate Savings Accounts?

Savings at a Glance

Keeping your budget on a spreadsheet, seeing at a glance what you have and what you spend, is the best way to stay disciplined.

The same holds true for your savings.  You should have separate savings accounts, so you can see at a glance, not only how much is there, but how much you need to add to each for their specific use.

Cash Reserve Account:  This is the one that you would use only if you, for one reason or another, lost your job… that your income has stopped. It is for no other reason. In this account, there should be a total of 9-12 months of your total income.  Should you get laid off, or need medical leave, the 9-12 months amount will pay for your monthly expenses until you return to work and have wages coming in.

While you’re out of work, do not buy incidentals, do not eat out, this account is only to be used for necessary living expenses.  And, on your return to work, you need to replenish what you withdrew to keep it current with the 9-12 month figure.

Liquid Emergency Account:  This is the one that you have for an emergency purchase.  Liquid means it’s there, it’s available to use.  This account should have a few thousand dollars in it. Should an emergency arise you’ll have the money to take care of it.  This is not for buying a new outfit or shoes, or dining out.  Emergencies here mean, car repairs, tires, root canal, eyeglasses, plumbing etc.  Emergencies mean a stressful situation.  Having the cash to pay to have it fixed takes some of that stress away.  And remember, you need to replenish whatever you take out.

Retirement Account:  This is the account that you set monies aside for your future.  For your retirement years.  You will need it. There are many types of accounts for this.  Seek out a Fiduciary…a Financial Adviser to help you, explaining each ‘vehicle’ available – be sure you ask questions and understand what the rules are, and understand completely what you’re signing on for.  Retirement accounts are meant for just retirement.  So, that said, know that any money put into a Retirement Account stays there until no earlier than when you turn 59 1/2, and some not until you’re 72.  There are both tax penalties and early surrender charges if you don’t follow the rules.  Ask questions.  Understand answers. And, do not count on Social Security.

Rental/Moving Account: This is one where it is a good idea to have money set aside for moving costs and also first, last, security, and sometimes, broker fees.  Should you choose to or need to move, the money is available when you find the new place. If you don’t have this set aside being able to put a hold on it, you could lose the apartment to someone who had saved up.

Down Payment for a Home Account:  Those choosing to buy a home, should have a down payment of at least 20% of the cost of the house they are purchasing.  In this account there should also be extra money for Closing Costs (lawyer, title, Registry of Deeds), which can run a few thousand dollars.  And remember, you’ll need a lawn mower, shovel, etc., so save for that.

Bottom line…….    It’s imperative that you save……. Save every penny you can. Every cent counts.

Tweens and Teens

Be the money savvy one in the crowd

Everyone likes to have friends, be in a group, be popular.  But you have to be wise too.  Just because everyone else is doing it, doesn’t mean it’s the right thing to do…… you’ve definitely heard that phrase before….but it’s true. Think for yourself. Trust your gut.

The majority of those your age truly don’t know how to handle money.  Maybe it’s simply because no one has brought it up.  However, before you know it you’ll be out in the world, a job, college, an apartment….and bills.  Bills you incurred, and are responsible for paying.

Learn before then – when you’re receiving an allowance (hopefully you’ve done chores to earn it) or maybe babysitting or mowing lawns etc.  Doing something that gives you some money for yourself.  Learn how to budget, how to divvy your money into categories.  Saving, holding aside, spending.  By starting now, saving right from the beginning, you’ll be way ahead of everyone.

The first rule is….Pay Yourself First.  That means… Save … some. Be disciplined about saving. Open a bank account and deposit it as soon as possible after you receive it.  Put some aside if you’re saving up for something in particular, thus teaching you that until you have the full amount to pay for an item, you don’t buy it. And yes….. you can spend some, and have a little fun.

Loaning money to your friends….hmm….maybe to get a bite to eat, is okay, but the word ‘loan’, means the borrower will pay the money back to you as soon as possible.  Do it once, and once only….If they have ‘forgotten’ to pay it back, don’t be shy, ask for it.  Do not loan a second time If they have yet to pay back the first loan.  This works both ways….if you need to borrow a few dollars…, be responsible, pay it back as quickly as possible – it’s the right thing to do.

Learn how to use a check register (or make a spreadsheet).  It’s easy, and it lets you know where your money came from and where it went.  It will keep you watching for overspending and nip it in the bud…..in that way it won’t get out of control.  You will get in the budget habit right away, and you’ll have the pleasure of watching your savings grow as well.  Every cent counts.

If you learn how to handle money properly early on, you will be less apt to get into a financial mess later on.  Discipline is key.

The “Budget Filing System”

Keeping categories separate lets you see at a glance.

Save first. Once you’ve put your savings into their allotted accounts, separate your budgeted money into three categories… Rent/Mortgage, Regular Bills, and Occasional Bills.  Open a checking account for each one.  Doing so, keeps you ‘on target’ with money in each when the bill comes in.

Rent/Mortgage:  Meaning your ‘overhead expense’ – Rent, or if you have a mortgage (which includes PITI (Principal, Interest, R.E. Taxes, Insurance), and Condo Fees if you own a condo.

Regular Bills:  Meaning monthly bills, the ‘Have to’s’ … Heat, Light, Food, Health Insurance Premiums, Phone, Car or transit costs, internet.

Occasional Bills: Meaning annual, semi-annual insurances, RMV excise tax etc.  Clothing, entertainment, gift giving are in this category too, however, these can be trimmed to the bone, or omitted.  Get along with the clothing you have, Drastically cut entertainment and gift giving. Your goal here is to get out of debt, save every penny you can.  You can do this.

After having made your budget, figure how much of your income should go in each category, and deposit that amount in the appropriate account each payday.  When paying a particular bill, withdraw it from…only…that account category.

Doing so keeps things in order. It allows you to, at a glance, know exactly if, and where, you’re falling short and the need to re-evaluate your budget…immediately.

A suggestion for all, but especially the rent/mortgage account – begin with a ‘cushion’… some extra money. Costs rise – the cushion will help while you re-evaluate your budget accordingly.

Rent/Mortgage Account -start out with, or add to it – an extra month or two of your ‘overhead’ cost….this insures the roof over your head, meaning there is excess there should condo fees or real estate taxes rise….or if your rent rises, it also means, should you move, money is there for that ‘overlap’ of the moving month, and the deposit needed for the new place.

Continually check and recheck your budget. Recalculate so there is always enough in each account….seeing at a glance where your spending can be whittled down. When done regularly it takes about 15 minutes, keeping you financially savvy and aware of where your money goes.

 

 

 

 

Are You Paying Only The Minimum Each Month?

Results of paying only minimum

You have a credit card or more than one.  You’ve spent and spent, and there are balances on each.  Within those balances are interest charges – every month, and possibly late fee charges.  The interest, now being part of the balance owed, will, next month, and every month until the bill is paid off, will add interest on the interest already there (it’s part of the balance owed). The thing is, whatever the interest rate is,  it’s a waste of your hard earned money. On most cards it’s anywhere from about 14% -28% (maybe more).

This means when you purchased an item(s) for $100.00, and when the bill came in, you paid the minimum – about $25.00, when the bill comes in next month, you still have $75.00 remaining on the item(s) purchased, but the balance due has interest added  to that amount at the rate in the credit card agreement.  Again, you pay the minimum, $25.00, but you missed the due date.  When the bill comes in the following month, you have the balance of the item(s) bought, $50.00, interest added on that remaining balance, plus the interest charges to date, plus a late fee of about $35.00.  That $100.00 item(s) are now costing you far more than that.

Adding purchases to the bill each month adds to the problem too.  By paying only the minimum each month, you will eventually be paying more in interest and any late fees than you do in your purchases.

This is how so many people get caught up in the vicious circle of financial debt.

The only way….. the only way to get out of it is to stop using credit cards, and pay off your balance(s) as quickly as you can.

If you insist upon using credit cards, and if you want to stay out of credit card debt, do not make a purchase that you don’t have the money for.  And when the bill comes due, pay the entire balance in full and before the due date.

It’s the only way to use a credit card.  It’s common sense. It can be done.

Digging Out Of The Debt Hole

Getting Rid of Outstanding Debt is a Priority

There are millions of people who have debt, but some have staggering debt.  Sad but true. Paying down your debt, continuing to do so until you pay it off and vowing to never allowing yourself to get buried in that hole again, is your goal.  Make it your priority…. It’s imperative.

You will have to cut your expenses to the bare bones.  So start chopping…there’s no other way.  Gather your debt statements.  Call the creditors and tell them you are serious about paying it off, letting them know that you are putting serious effort into getting down to a zero balance.

If the debt is your home, (if you’ve missed some payments) – that will have to be paid first, or you’ll find yourself on the street. Call the landlord or the mortgage lender and let them know you want to catch up with back payments owed, and then continue paying current payments.  Unpaid mortgages means foreclosure.  The bank repossesses the property, and you lose all you’ve put into it.  And renters can come home to find that the locks have been changed.

If the debt is your car, it may be your transportation to work. So, if it’s repossessed, whatever you’ve paid into is is now gone along with the car.  The only way to get it back is to pay all the back payments owed as well as the repossession costs (towing, storing etc). You may no longer be able to get to work if you don’t have your car, so losing your income is added to the mix.

If it’s credit card debt, stop using the credit card(s) immediately.  it means you’ve been overspending.,,,buying what you can’t afford, and not paying for what you do buy when the bill comes due, thus allowing the balance to accumulate along with added fees.  In checking your credit card statement(s), you will notice that a good deal of the balance is a high interest balance that has been included – which is money you now have to pay, but have nothing in your hand to show for it.  Also, if you’ve paid late, that tacks on an additional fee for each occurrence, …completely wasted money.  Stop using, but don’t cancel your cards.  Cancelling will decrease your already plummeting Credit Score.  Hide the card(s).  Or better yet, shred them.

Whatever the cause of the debt, paying it off, repairing your Credit Score, and living within your means is key.  You can turn your Financial Health around.  Learn from your mistakes, and don’t fall into the debt hole ever again.  Once out of debt, you can begin to add to your various savings accounts, by using the money you’re now not wasting on fees and old debt.  A gift you give yourself.