Raising Financially Savvy Kids

Every parent wants their child to grow up to handle money responsibly.  Many of us know from experience what financial dangers await them when they approach adulthood.  It’s wise for us to prepare them now with knowledge and experiences that help them manage money well in their adult years.  Below are some actions parents can take to begin shaping childrens’ money knowledge.

1) Discuss money with your child.  Children need to know that money has to be earned.  They need to know that it is finite (there is only so much).  They need to know that it’s a result of work.

2) Encourage saving.  Children need to see the value of this at an early age.  Simply getting a clear plastic container and putting their money in there can be a good start.  A parent could even put a picture of their desired purchase on the container as a visual reminder of why they are saving their money.

3) Discuss giving.  Teaching the value of giving can do wonders to help your child be a helper of those in less fortunate situations.  Dropping change in a Salvation Army tub or the offering plate at church can be opportunities for your child to know they are helping others.  It’s also smart to teach your child that they can give in non-materials ways as well.  Activities such as helping the elderly with lawn care, planting flowers at their school are a few examples of help that doesn’t cost money.

4) Start working early.  Children need jobs.  As early as 3 years old children can begin doing tasks around the house.  These jobs need to be age appropriate and well defined.  It’s OK to pay them for additional jobs that you find acceptable.  They have to complete their non-paid jobs first, however.

5) Partnering up on meeting goals.  Parents of preteens and teens can partner up to help their child reach financial goals.  If a child wants a $300 game system the parent can match every dollar they save up to $150.  The child gets exposure to goal setting and responsibility while the parent ponies up to the agreed upon match.  This can even apply to college spending money as well.  If you’re the parent of a college age student summer time is a great time to institute this type of agreement.

What are your thoughts about raising financially smart children?  What would you add to my list?  Feel free to drop a comment.

5 Signs You Are A Money Magnet

Is money actually drawn to some people? Is it repelled by others?  Interesting thought isn’t it.  How is it that some people never want for money while others never have 2 nickels to rub together.  Which one are you?  If you’re interested in becoming a money magnet here are some traits that I think are necessary to attract money:

1) You know where your money goes.  It’s plain and simple.  People with money have a system wherewith they keep track of how it is spent.  Whether it be business or your own checking account, you must be a money tracker.  For many of these folks it means they have a budget (a plan).

2) You place high value on saving.  Money is attracted to people who respect it enough by saving some of it.  It’s not the spent dollar that makes you wealthy but the one you save that does the trick.  You can’t reap the benefits of compound interest if you never save or invest your money.

3) You seek wise counsel.  Nobody is ever successful with money without surrounding themself with competent money managers.  None of us were born with all the skills necessary to manage money.

4) They seek out profit not wages.  The wealthy aren’t concerned about how much they can make an hour.  Their focus is ROI – return on investment.  They seek out investments and ventures that promise great profits.

5) They value diversification.  The wealthy seldom put all their eggs in one basket.  They have a game plan that accounts for unexpected market movements.  When they suffer in one sector, the other portions of their portfolio fare well.

How many of these traits apply to you?  If you had a 6th sign to add to this list, what would it be?

Newlyweds & Money: It’s About Teamwork

In her Kiplinger.com article, “6 Money Mistakes of Newlyweds,” Erin Burt shares mistake #3: That one partner shouldn’t give the other the financial reins.  This is so true.  Managing money in marriage is a shared undertaking.  Both partners have a vested interest in the final decisions.  When two partners marry they become one.  Their decision to marry means meshing their financial interests together.  Marriage partners need equal input into money decisions.  If one partner is better with details and budgeting it’s OK for them to create and maintain the budget.  The critical practice is that both partners have the freedom to discuss how money is spent.  It all comes down to communication.  How does money get managed in your marriage?

The other 5 money mistakes are: 1) Keeping money secrets; 2) Not having a budget; 3) Dragging debt down the aisle; 4) Sweating the small stuff; 5) Failing to plan for an emergency’

Create Your Own Stimulus

We’ve heard the term stimulus a lot in the last 3 months.  Our President, congressmen, and senators have thrown billions of dollars at the economy trying to jolt it into a recovery.  Whether the funds will accomplish the intended results remains to be seen.  My intent is for you to worry about what you can control.  While the stimulus is putting billions of dollars into this economy, the actual help it provides to your bottom line is probably minimal.  I think you your time is better spent creating your own stimulus plan.  Below are some clear cut measures you can take to create your own stimulus plan. 

1) Have A Written Budget.  Unlike the earmarks and fat of the stimulus, have an exact destination for your money.  Have categories for expenses such as mortgage, groceries, utilities, insurance and the like.  You can’t captain a good ship without knowing the conditions of all the parts.  You need a written plan for your money before the first dollar is spent.

2) Fund and Emergency Fund.  You must prepare for the unexpecteds of your financial life.  Murphy will come visit you.  You need a buffer between you and life.  This is your emergency fund.  Having a mimimum of $1000 will keep you from having to take the bailout money (credit cards).

3) Turn a Hobby Into Part-Time Income.  When you have a shortage of funds, seek out other types of income.  If you have a strong interest or aptitude for woodworking, start a part-time business.  If you’re a computer whiz, folks will pay you for repairs or consulting work.

4) Slash Your Expenses.  There are cheaper ways to finance your life.  Must you have premium cable with all the extras?  Must you have a brand new gadget when the one you have works just fine?  Must you pay full price for groceries?  Couponing can make a difference.  Good deals can be had at garage sales, consignment sales, and flea markets.  Imagine how much better our government would be if they only spent what was in the account.

The only money you have control over is your own.  Don’t wait on Washington to solve your problems.  Get your own plan together and create your own stimulus.

Personal Wealth Redefined

Can wealth only be measured by dollars and cents?  Are there investments you can make that cost nothing materially and still yield great gains.  The answer is yes. 

Good Investments.

1) Time with your children.  I’ve heard it said that children spell love T-I-M-E.  You don’t get a do over when it comes to parenting.  We all get one shot and we best get it right.  There’s a lot at stake if we don’t.  Our children deserve our support, time, and attention.  As I was writing this post my 3 year son asked me to toss ball with him.  I put my pad down and entertained for a few minutes.  Let’s not get too busy and forget the valuable investment of time with our children.

2) Time with spouse.  As the father of two children I can tell you quality time with my spouse is hard to find.  Is it worth the effort? Absolutely.  My decision to marry meant that I should put the needs of my partner above my own.  While I don’t practice this daily, I do try to communicate well with my spouse and work with her as much as I can.  My children will only be around until their early 20’s (hopefully). I plan for my wife to be around for the rest of my life.  I need to invest in our relationship as much as I can.  Don’t neglect the needs of your spouse.  You made a commitment when you said “I do.”  Do your best to honor that.  Your marriage will only improve when you do.

3) Time with God.  I am a Christian.  I place high value on God in my life.  While I don’t spend time daily in prayer, my relationship with God is important. When I chose him as my savior I became a different person.  I try to live a life that shows that change.  My words and actions should reflect that change.  He is the foundation of my life. 

4) Making Memories.  I want my wife and children to share great times with me.  I think I need to focus on having great times with my family.  Family is about traditions and fun.  While I feel the pressure to achieve great things in financial terms, I pray I never lose sight of the opportunities to have great times with those I love the most.  If I become too selfish and let these moments go by I will have become bankrupt.  I will have squandered opportunities that I can never get back.

What about you?  What is your definition of personal wealth?  Does yours only involve dollars and sense?  Look at the people around you.  What are your values?  Spending a moment thinking on these things may give you a different angle on what wealth is all about.  What non-material investments do you place value on?

If you desire more information on this topic let me recommend a great book:  LifeFocus: Achieving A Life of Purpose and Influence by Jerry Foster.

College Rules…Work for Your Fun

It’s no secret that the costs of college rise every year.  As your child nears college age it’s important to look at what you can offer your child in the way of assistance.  My premise is that the college experience should be a partnership between parent and child.  While nobody will argue that fun should be a part of their experience, it’s not unfair to ask your child to fund some of their own fun.  It’s important that they be a part of this decision.  Below are some possible solutions to funding your child’s “fun.”

Matching Funds. For every dollar he/she raises you will match it dollar for dollar.  You could also use a ratio (3:1, 2:1).  This matched money goes into an account set aside solely for college fun expenses.  You might consider setting a time limit on this.  Example: Every dollar you give me for the next 3 months I will match it.  You’re not only helping them fund a college expense but instilling responsibility as well.

Match up to a specific dollar amount.  Your budget may not permit you to do a match for every dollar earned.  You may need to set a cap on the amount that you match.  Once your child meets that cap, the rest of the money raised is unmatched.

Summer College Stimulus.  This is an example of the time frame listed above.  Your current/future college student can receive matching funds for any money given to you for the summer.

Set Parameters on What You Supply.  Let your college student know how much fun money you will supply.  You must remain firm on this issue. Remaining firm will teach your young adult child discipline and responsibility.  You will also need to tell him that you’re willing to discuss ’emergency’ events to determine if additional help is needed.

The decision to fund your child’s college fun is an important one.  How much help you provide should be based on your specific financial situation.  You need to understand that your child’s involvement in the solution can promote responsibility.  Involving your child in raising some of these funds just might teach them lessons they won’t get from a book.

6 Ways to Create $50 a Month

Maybe your skeptical about coming up with the $50 a month to start funding your retirement?  Times are tough and squeezing an extra $50 can seem daunting for some folks.  Below are 6 straightforward and simple ways to find the $50.00 (or more).

1) Couponing.  My wife has been couponing for nearly three months and saving $50.00 can be found quite easily using a few tried and true methods.  For more information read my post, “Winning with Coupons.”

2)Part-time job. 

3) Invest Your Raise.  Look at this math. $40,000/yr job gets a 2% raise equals 800.00 a year.  After taxes, $600 a year.  600/12 months is $50 a month on the nose. 

4) Downsize something.  Satellite TV package, insurance, car, cell phone package, etc.

5) Sell Something.  Some examples are Ebay, yard sale, consignment sales, or anything else that takes up space in your life.

6) Income Tax Return.  Most returns average well above the $600 you need to fund your extra $50 a month.

What do you say?  Are you up to the task?  Is your future worth a few small changes now?  Go ahead and take action today to start your journey toward a better future for yourself and your family.

Retirement Made Simple..Can You Spare $50?

If today’s economy has taught us anything it is the simpler the better.  I don’t think many folks today have a couple extra hundred dollars a month to throw at their retirement.  My question is, “Can you spare $50? a month?”  There is one caveat here: You must have a $1000 emergency fund before doing so. Why? You don’t need to fund retirement before being ready for the financial unexpecteds of life.  Retirement funding before emergency fund is putting the cart before the horse.  If you need help starting an emergency fund, I have previous posts on the topic.  Once you have your emergency fund, begin setting your $50 aside in an automatic savings account.  Example: www.ingdirect.com.  I want you to do this consistently until you reach $1000.00.  At that point you can begin shopping for solid mutual funds to start a ROTH IRA.  For information on Roth IRA benefits, consult my previous post.  You may wonder if it’s worth the effort.  What can $50 a month do for me long term? I’m glad you asked.

A 35 year old invests $50 a month for30 years getting 7% return = $17,872 (after inflation)

A 45 year old invests the samefor 25 years at same return = $11,872 (after inflation)

I think this tells you that a little can become a lot.  If you desired more you could increase your contributions to get more.  Investing in stock mutual funds  (long term) can bring returns higher than 7%.

You have to start somewhere.  The journey of a thousand miles begins with one step.  You have to decide if that time is now or later.  Maybe you can’t come up with $50.00 a month. My next post will give you several suggestions.

Get Your Head In The Game!

Have you ever been out of touch? clueless? puzzled?  Maybe you got benched by your coach for not having your head screwed on right?  You just weren’t up to the task and you were sent to the pine for some reflection time.  You ask yourself:  What did I do?  What was I thinking?  How did I forget what we practiced? Mismanaging money kick you to the sidelines as well.  Managing money is a game.  There are rules to follow.  There are offensive and defensive moves that must be practiced.  Neglecting the principles and practices can result in failure.  Below you will find some tried and true advice to keep yourself in the financial game.

1) Know where the goal is.  You must know your destination.  You need to know what produces results.  Is your goal to be debt free?  more unity with your partner about money? start investing for retirement? I’ve heard it said that a goal is a dream with a deadline.

2) Have a solid offense.  Offense means putting points on the board.  If your goal is to have a comfortable retirement, then you need to designate a place for this money to go.  Some of your choices are IRA, Roth IRA, 401K, and pensions.  You must have a budget as well.  If your dollars don’t have a destination you will not get the most out of them.

3) Have a solid defense.  You need to protect what you earn.  If you’re married and have children this part of your game needs serious attention.  Some examples of good defenses are: having reliable insurance (home, life, auto, health,disability), emergency fund, and a will.  Life has risks and you need to be prepared ahead of time. 

4) KnowYour Strengths.  You need to be aware of the options available to you.  Not using Michael Jordan or your 401K can have disastrous results. In regards to retirement, you need to know what is offered by your employer.  You need to educate yourself about these options so you can maximize the benefits you are offered.

Marriage, Money and Manners

Have you ever considered how manners play out in how you and your spouse discuss money?  Is it reasonable to consider manners in regards to money?  You may wonder what does manners have to do with money.  It comes down to respectful communication.  Just as manners tell you to say ‘thank you’ and ‘please,’ common courtesy also applies to money as well. 

Checking In.  I’m delighted when my wife calls me first before purchasing an unplanned item.  This conveys respect for the money that we work hard to earn.  Checking in with your spouse about financial issues ensures peace and keeps you both on the same page.

Teamwork.  The keyword when it comes to marriage and money is team.  We are not separate when it comes to financial decisions.  Every financial decision impacts the overall picture.  Whether it is an expense or savings, it needs to be discussed by the team.  

Two Heads Are Better Than One.  Sometimes your partner can see things that don’t occur to you.  Gaining their input may provide a different view on how that purchase may conflict with other financial goals that you have.  Your spouse may also offer other alternatives that you can’t create from your own mind.

Power of Agreement.  You can’t discount the power of agreement in a marriage.  When a husband and wife enter into marriage it is about two becoming one.  When you choose to marry you choose to involve another person in your choices.  You and your spouse need to enthusiastically agree on money decisions.

In conclusion, how you and your spouse discuss money is important.  It’s imperative that both partners feel free to discuss money issues openly.  Money secrets can weaken the trust that must be present for a relationship to remain strong.

What money manners do you practice in your relationship?  Please share what works so others can glean from your wisdom.

Online Bill Payments..What works?

I recently discovered that I did not make an online payment for 2 consecutive months.  While I have paid this bill online for a couple years, I did not make the time to go to the website and make the payment.  I used to get an email reminder to pay it but haven’t received one that I can remember.  This was a humbling lesson.  While I like to think I’ve got it all together, little slip ups like this remind me that managing money is a journey not a destination.  What about you?  How do you make sure all online payments get paid?

Roth IRA: Great Retirement Option

The Roth IRA is a great way to invest for the future. It gives the investor more options than most other investment types. If you don’t have a 401K at work, a Roth IRA is probably your best choice. The main thing a Roth gives you is options. Below are the main advantages to having a Roth IRA.
1) Contributions Grow Tax Free.  Any money you put in a Roth IRA can be withdrawn without tax consequences.  While you are taxes at ordinary tax rates when withdrawing 401K money, this is not so with the Roth.  Being able to withdraw this money at retirement with Uncle Sam getting a slice is a good deal.

2) Contributions can be used to fund college expenses.  This is one of those options that make this investment great.  You can use contribututions to pay for your college or your children’s college.  Our financial needs change due to circumatances.  Even if you desire to use this for retirement, if your financial picture changes you can use this to help fund Suzie’s first year in college.

3) Contributions can help with the purchase of a first home.  Here is another great option provided by this investment.  Money inside a Roth IRA can be used as down payment toward your first home purchase. 

4) Roth IRA assets can be passed to your heirs tax free. What a comfort knowing that your children won’t lose a portion of your estate to the government!  If you have a Roth IRA, this money will pass to your designated survivor without tax consequences. 

5) Contributions (not earnings) can withdrawn at anytime without tax consequences.  You never know what is around the corner.  If a costly financial issue drains your emergency fund, you can use money in a Roth (contributions) as a back up.

I hope you can see a Roth IRA is a GREAT investment tool.  If you’re interested in reaping any of the benefits above, open one real soon.  You won’t regret it.

4 Signs Your Budget Is Broke

Budget means different things to different people. To many it’s a bad word. It means constraint and limits. Something we don’t like to think about. Whether you have one or not your money still goes somewhere. A budget is simply a drill sergeant for your money. It tells your money what to do and where to go. How are you managing your money? Are all the bills getting paid on time? Does your current system work? Below are some signs that your budget may be broke.

1) You’re paying overdraft fees.  If you’re paying overdraft fees, something is definitely wrong.  Having your account run over is a sign that you’re overspending somewhere.  An overdraft comes with additonal fees for your mistake.  This is a sign that some fine tuning is needed.

2) Using credit cards to purchase everyday items.  Going to your credit cards for things such as groceries and gas is a sign that things are out of balance.  Unless you pay the card off at the end of every month, you are paying for these items with interest added. Not smart.  If you’re regularly going to plastic because the account runs dry, it’s time for change.

3) Poor record keeping.  Put simply, not writing your transactions in your checkbook can be a hazard to your financial health. It’s not uncommon for me to find 10 or more unrecorded transactions in our checkbook every month.  This is very easy to do if both spouses use a debit card but only one carries the checkbook.  If you have suggestions, please leave a comment on this item.

4) It’s not in writing.  It’s imperative that you have your budget in writing.  You need to have groupings for expenses such as insurance, housing, food, medical care, and automobile just to name a few.  Not having a written budget is like going on a vacation with no road map.  

In summary, a budget is a must if you want to get the most from your money.  Money that doesn’t have a destination quite simply gets blown on non-essential items.  If you’ve seen some of these signs in your own finances, it’s time to make some adjustments.  Banks have enough money as it is.  Don’t let them get their hands on anymore of yours.  Be on the lookout for some solutions in my next post.

Weekend Roundup

Here are a few sites that have had some interesting posts this past week. At http://www.pimpyourfinances.com there’s a great post on a better way to budget – accrual. At http://www.thesimpledollar.com Trent posts a good article on starting a side business in a tough economy. At http://www.cashmoneylife.com there is information about how to avoid identity theft. There’s a good review of Dave Ramsey’s 7 Baby Steps at http://www.biblemoneymatters.com. At http://www.ncnblog.com there’s a good post about dealing with stress entitled, “From Overwhelm to In Control.”

Winning with Coupons

My wife has taken couponing to the next level over the last 2 months.  She has taken the game seriously and is winning.  She shows me the receipts to prove it.  While cutting and organizing can take time, there are some unbelievable savings for those who commit to this practice.  Below are some nuggets of wisdom I have gained from my wife to share with you.

Begin clipping coupons.  If you take the local paper start there. If you have a larger paper nearby, get the Sunday edition and look for items that you eat.  Cleaning supplies can be had at large discounts as well.

Go to www.southernsavers.com.  You will find printable coupons at this site.

Go to www.time2save.blogspot.com.  Here you will find women who teach couponing to local civic groups and churches.  While they are located in southeast, they might give you some guidance to resources available in your area.  Some tricks of the trade remain the same regardless of where you live. 

Stockpile.  This is simply buying large amounts of an item that you use regularly.  Items sold in stores go in 12 week pricing cycles.  If you’re diligent, you can find items rock bottom cheap and buy large amounts.  Items such as ketchup, cheese, and canned items don’t expire for a long time and can be kept up to 3 to 6 months.

Have a game plan before leaving the house.  Know what items you need and where you’re going to get them. 

Buy One Get One Free.  Our local BI-LO chain doubles coupons every day up to 60 cents.  The local Publix doubles every day up to 50 cents.  You can use 1 coupon per item.

Be Organized.  My wife uses a 3 ring binder that can be zipped up.  She uses clear plastic ‘baseball’ card sized pages to put the coupons in.  You can label sections with categories such as dairy, cereals, chips, drinks. etc.  While this can be time consuming, it can pay dividends if you’re committed to this practice for the long haul.

A Vacation Worth Taking

Vacation. A time to get away and enjoy the fun part of life.  Most of us look forward to this as a reward for our hard work.  Vacation is a good investment for a family as long as the price is right.  A good vacation must make financial sense.  Below I list come essential characteristics of a good vacation.

1) Cash Only.  It makes little sense to fund a vacation on a VISA card.  First and foremost you’ll be paying on your ‘fun’ for months after the experience is over (with interest).  Opening that credit card bill each month can leave a bitter taste in your mouth financially.  Spending cash will influence you to get the most from your experience.  I’ve heard it said that we spend up to 18% more when we buy with plastic.  Cash money is better controlled and appreciated.

2) Cost Efficient.  How far do you want your dollar to go?  Must you have the 4 star hotel?  Must you fly when it’s only a day’s drive? Must you eat out for every meal?  Compromising on your accomodations can result in lower costs and getting more for your money.  The money saved by driving just might pay your family’s way into the amusement park.  It’s wise to evaluate all options when planning your vacation.

3) Corresponds with Financial Goals.  A vacation needs to fit into your larger financial picture.  Robbing your emergency fund to fund your vacation is not a good financial choice.  Funding your emergency fund before funding your vacation is good thinking.  You need to have your priorities in proper order.    

A good vacation can be achieved in many ways.  Thinking through your options makes good sense.  A vacation is meant to be a time to retreat and enjoy the fruits of one’s labors.  Take a vacation that gives you mental relaxation.  The real mental benefit to a vacation is knowing you paid in cash!  Think and plan ahead and let this next vacation be one of your best.

Money Woes In the Family: How to Respond

In these difficult times many families are experiencing money shortages.  It’s safe to say that folk are in great need as the effects of the recession continue.  What I wish to focus on today is how to help family members who come to you for assistance. Where do you draw the line and decide how much is enough? What are reasonable expectations about repayment of family loans?

Do What You Say You Will Do.  It’s important for you to do only what you say you will do.  If you decide they can stay at your house 1 month, stand by it.  If you decide a $500 loan is enough, stand by it.  Family relationships are the most troublesome when it comes to money.  The help itself is not the issue, it’s establishing strong parameters aroung the type of help given.  It’s important that you give them a hand up, not a hand out.

Put it in writing.  If you’re expecting return of payment on your loan, it makes sense to put it in writing.  While this need not be a formal legal document, it’s important to make the particulars of repayment clear.

Be Willing To Gift It Away.  I’ve heard it said to not make loans to family.  You need to consider this strongly when looking at the long-term situation.  You won’t see your friends at Thanksgiving every year, but you will see your brother Sam.  Some things are not worth fighting over.  If you only get half of what you agreed on, it might be best to tell them it’s a gift (maybe Christmas came early).

Give them Information.  Information is power.  Maybe your family member lacks information.  Do they know what a budget is? Do they have one?  Is he/she aware of resources in the community that can help?  Resources such as free credit counseling (www.nfcc.org), low cost housing, temporary job placement, and public transportation are available in most communities today.  Oftentimes these resources are just a phone call away.

Bartering.  Maybe your family member has some skills that you lack.  A week’s stay at your house in exchange for a repaired pipe might be a good trade off. 

Listen to your spouse.  You need to let your spouse know of your family member’s request for help.  Your spouse may offer other options that can benefit the situation.  Your spouse may be better informed on just what kind of help your family is able to offer at the time.  It’s better your spouse be involved on the front end rather thnn them find out later.

The decision to help a family member with financial problems is a big one. It’s important that you do what you can and keep the security of your own financial needs as well.  What about you? What ideas above make the most sense to you when you consider helping your family with money?

7 Tips – Getting Off The Credit Card Treadmill

Ever wondered if you’ll be free of those credit card payments?  Do those payments linger around like  a friend who has long worn out their welcome?  Below you will find 7 tips that will help you put an end to credit card debt.

1) Have an Emergency Fund.  One of the reasons folks use credit cards are for emergencies.  The car breaks down. The dryer stops working.  Having a minimum of $1000 in your emergency fund allows you to handle these expenses without going to the credit card. 

2) Stop Charging.  You simply won’t get ahead until you do this.  Implement number 1 and you can accomplish number 2. 

3) Pay More Than the Minimum.   Paying more allows you to do 2 things: 1) Pay the credit card off much faster; 2) Saves you hundreds of dollars in interest paid.  Below is an example of the momentum you can have by following this practice:

$5000.00 Visa Balance, 13% apy, paying the minimum payment $100.00. Result: Pay it off in 6 years, pay a total of $2, 123 in interest, total amount paid: $7,123.00!

Same as above except paying $200 month (100 extra) a month.  Result: Pay it of in 2 years, 5 months, $788,98 in interest, total amount paid, $5788.00! 

4) Buy Needs, Not Wants.  We need food, clothing, and shelter. If your current appliances and cars work, you don’t need the newest version.

5) Pay with cash.  Dave Ramsey says we pay 18% more when we purchase with plastic.  Watching real money leave your hand makes you a wiser shopper.

6) Don’t take them with you.  You can’t use what you don’t have. 

7) Cut them up.  Enough said.

Bailout: Where You Throwing Your Money?

Our government is about to unload another HUMONGOUS stimulus package to improve the economy.  Whether or not it serves its intended purpose remains to be seen.  Our new president and Congress believe that saturating the economy with more money will restore the economy’s health in the long term.  Let’s make the bailout personal.  How much has excessive spending helped your personal finances?  What are you throwing your money at?  What results are you getting on your expenditures.  What percentage of your monthly income is spent in the following areas:

DEBT

Non-mortgage debt – credit card payments, signature loans, student loans, vehicle loans, etc.

Mortgage Debt – Principal, Interest, Taxes, Insurance (Home)

Food – Groceries, Eating Out,

Insurance – Car, Life, Health, Disability, Long Term, Dental 

Entertainment  – movie rentals, vacation,

ASSETS

Savings – Emergency Fund, long-term savings

Retirement – pension, 401K, IRA, Roth IRA, SEP-IRA, Roth 401K, etc.

It’s important to know what returns you are getting on the dollars you spend? Are you spending a lot of your income on servicing debt?  How much of it is being spent on assets?  Unlike our congressman, you have to be accountable for your financial choices.  While it’s unclear who will pick up the tab for our government’s spending, you are accountable for what you spend. Do yourself a favor and spend money on things that appreciate rather than depreciate. Adios!

Weekend Roundup: Sites of Interest

As I’ve travelled the web this week I’ve found some interesting aticles regarding personal finances. At www.centsabilitytowealth.com I found a good article (Feb. 11) about strategies for lowering your grocery bill.  I also found a gem at www.stupidcents.com about being a newlywed and dealing with money issues.  At www.getrichslowly.org  J.D. posts a good one about the best place to park your savings account money.  Please do read the comments.  This is where all the good advice resides.  At www.bripblap.com I found a great post (Feb. 11) about 10 ways to stop worrying so much about money.  Hats off once again to www.biblemoneymatters.com in referencing Dave Ramsey’s 7 Baby Steps.  Dave’s plan is one of the best out there.  Finally, www.sensetosave.com shares 15 ideas for saving money at restaurants.  Give these a read.  They’re bound to help you.  Have a great weekend!

Dentistry & Money: A Comparison

Have you ever connected dentistry and your finances?  Think about it for a minute.  Nobody likes to talk about their money problems. Nobody likes to face that dreaded dental exam.  If you think about the principles behind dentistry you can find some real connections to your finances.  Below are some common themes that connect dentistry and money.

Prevention.  We’ve all heard the phrase that an ounce of prevention is equal to a pound of cure.  Brushing those teeth regularly is equal to having an emergency fund.  The emergency fund protects you from events that can set you back financially.  Regularly funding your emergency is the equivalent of flossing to ward off those unexpected cavities that can develop over time. 

Protection.  Protecting your teeth is an investment.  You need those teeth to carry you through a lifetime of eating.  Making sure you have adequate insurance protects you and your family from risks.  Having adequate insurance on your health, cars, life, and home is a must in order to protect yourself from large liabilities. 

Periodic Exams.  Your teeth need a regular check up.  Regular check ups help you know the condition of your teeth and any problem areas that may arise.  A good financial plan must be reviewed regularly.  Some financial choices need monthly reviews.  Balancing your checkbook and writing out your monthly budget are 2 examples.  Reviewing your savings and investment accounts may need review every 6 months. 

In summary, your finances and your teeth need regular attention.  Neglect in either of these areas can result in decay and have consequences for you. I challenge you to be the model patient and implement the practices of prevention, protection, and periodic exams.  When was the last time you had a financial check up?

Wants vs. Needs

We  have a lot of choices about what we do with our money.  How much of what you buy every week is a need?  How much is a want?  What about your credit card purchases? What return value are you getting on these items?  In looking back over the choices that you made with money this past month did those choices benefit you long term?  We all have 3 basic needs: Food, Clothing, Shelter.  Transportation is probably a close 4th.  Let’s look at the number of choices you have in these 3 areas.

Food – What do you spend on groceries every month? Do you shop for bargains? Do you keep a sharp eye for items on sale?  Do you use coupons? While food is a basic need, there are many ways to shop wisely and keep costs down.  What do you spend a month on Eating Out?  Is this a need or a want? I say want.  How much money could you save if you only ate out 1/2 as much as you do now?

Clothing – There are lots of choices in regards to clothing.  Does what you buy have to be new? Consignment sales and yard sales can offer slightly used, good clothing at much lower prices.  My two brothers and I spent most of our early years in garage sale clothes and we don’t have any negative repercussions.  You can also get good sales as clothes are going out of season if you keep your eyes open.

Shelter – We all need a place to protect us from the elements.  As I write this my wife and I are building our first home.  The costs of this are coming apparent as we approach the last 6 weeks of this process.  We do want to stay ‘in budget.’  There are lots of choices inthe amount you can spend on your home.  Look at appliances.  TV, Refrigerator, Dishwasher, Oven, Computers, Sound systems. The list could go on.  Before you replace that next appliance, ask yourself, “Is there anything wrong with the one I have?”  “Can I repair it cheaper than buying a new one?” “Can I pay cash for the new one?”  “Can I find a good one that is slightly used?” Can you say, Craigslist? 

We all have lots of choices in how we buy the things we need and want.  If you find yourself cash strapped and stretched with your money, it could be time for you to address needs vs. wants.  Distinguishing a need from a want is a valuable skill if you want to move ahead financially.

Weekend Roundup: Best Sites

Here are some posts that I read this past week.  I hope you drop by them if you have the time.

There’s an interesting post at www.getrichslowly.org about a 10 minute budget.  On Feb. 5 www.nodebtplan.net shares about “It’s only a deal if..”.  At www.freemoneyfinance.com  Feb. 4 post he shares about a March Madness competition between bloggers (Feb.5). There are some great articles to read there about finances.  At www.christianpersonalfinance.com  you’ll find helpful links such as “Budgeting 101”, “Get out of Debt”, and “Save Money.”

Money Secrets?: Spill the Beans

There’s a reason it’s called ‘personal’ finance.  How you spend your money is personal. You choose what you buy.  You choose what is too expensive and what is not.  When a couple joins their hearts together in marriage they bring their money issues into the marriage as well.  Sometimes the ‘personal’ issues of money are not addressed until much later in the relationship.  This can create tremendous stress on a marriage.  While we all have made money mistakes, some issues (debt) are just better left alone, right? NO.

The time to address the money issues you brought into the marriage is now.  Money fights are the number one reason for divorce in this country.  You may wonder if your partner will remain with you after telling the truth.  I can’t answer that.  I do know that honesty is a very foundational value in marriage.  Being truthful establishes trust.  Trust must be present for a marriage to survive.  Maybe you’ve incurred a lot of debt after you got married.  Are you and your spouse fully aware of the debt load you have created?  Below are 3 benefits of being completey honest about your debt.

1) Complete Awareness.  It was years into my marriage before I sat down and looked at all that we owed.  It was a wake up call for me.  Knowing how much I owed brought home the fact that there was a need for change.

2) The Urgency for Change.  Once you know what the full scope of the problem, you can then begin to see the need for change.  You may acknowledge for the first time your financial train is headed for disaster.  You may first begin to see that it’s time to chart another course.  It’s time to read and heed those warning signs.

3) Confront Denial.  It is so easy to spend money and not know where it goes.  You swipe the card and go on home with your purchases.  You are like a kid in a candy store.  You will not be deprived of what you want.  Behaving like there is no tomorrow does have its consequences.  The purpose of this post is for you to address your denial now.  Assess the damage and make a new plan for the future.

4 Questions to Answer TOGETHER.

1) What do we owe?  This may take a few days and several conversation.  Get out paper and pencil and write out every debt you owe. List it by name, current balance, interest rate, monthly payment.  This is a list of every loan and credit card balance that you have.

2) Are we happy with it? When you look at what you owe are you comfortable?  Is the plan you have for eliminating debt working?  Do you lose sleep thinking about your debt?  These questions can help you determine if you need to stick to your current plan or devise a new one.

3) Do we see the need for change?  Does knowing all that you owe make you angry? resentful? regretful?  If  you’re having strong emotions it’s probably time to make some changes.

4) What change can we start now?  This  a critical question.  Maybe you need to chop the fat from your budget.  Do you “have to” eat out so much? Do you “have to” have Starbucks three times a week?  Do you “have to” eat out for lunch everyday?  Saying no to a few things can free up money to be directed toward your debt. 

Complete honesty is critical when it comes to marriage and money. I hope the words I shared today will help you and your partner to have a higher trust level.  More trust in marriage results in more stability. Good luck!

Home Ownership: Your Advice Needed

My wife and I are building a house.  We estimate that we’ll be in some time around mid-March.  We will be first time homeowners and request the advice of friends on what to expect once get under the mortgage and all the other expenses.  I’ve estimated what the payments will be along with estimates on utilities, taxes etc.  I just wanted to hear from friends about anything we need to be on the watch for.  We are excited about it but also want to be as ready as possible.  Please comment any ‘hidden’ expenses that we can better prepare for.  You can comment on this post or drop me an email.

Weekend Review: Young Married Roundup

I read some great links this past week that I think will benefit young married couples.  Here they are:

www.milkyourmoney.com  shares “What Should You Do With Your Work Raise?”

www.biblemoneymatters.com writes about developing a budget

www.frugaldad.com  shares about 10 ways to stretch your college dollar

www.studenomic.com   shares the importance of young graduates having an emergency fund

www.freefrombroke.com  the Jan. 27 post shares about “9 Reasons You Need an Online High-Yield Savings Account.”

Have a great week!

Income Tax Refund: Opportunity Knocks

This is tax filing season.  We have started gathering our papers for our accountant.  The income tax refund you receive is an “opportunity.”  What kind of opportunity?  That is up to you.  There are hundreds of ways to spend this money.  Below are some suggestions on wise ways to use your “opportunity” money:

1) Fund Your Emergency Fund.  One thing I hope you take from the current job market is to be prepare for the unexpected.  Having an emergency fund also protects you against using your credit cards for unexpected expenses.  Appliances break down.  Cars need repair.  Having an emergency fund can give you peace of mind.  I recommend a $1000 minimum for your emergency fund. 

Pay Down Outstanding Debt.  If you have a large debt load, it makes sense to apportion some of your refund to attack this.  Debt keeps you from enjoying life.  It robs you of sleep.  It puts strain on relationships.  Making a dent in some of your debt is a good idea. 

Have Fun (within reason).  You know the saying all work and no play.  It’s okay to designate some of your refund for some fun for yourself and family.  I recommend that your  fun money be less than 25% of your refund amount.  Oftentimes families allow having fun be there biggest priority with a tax refund check.  It is important that you have your priorities in order when spending this money.

Additional Tip:  Don’t spend it before you get it!  Folks make a couple errors when they do this.  First of all, you might not get the amount back that you spent.  This just adds more to your total debt.  Secondly, the unexpected can happen while you’re check is “in the mail.”  An urgent repair can pop up and you’ve already spent the check before it arrives.  Wait until the money is in your account before you spend the first dime. 

His Money? Her Money? What Gives?

I’m interested in this ever complex issue of how couples manage their money.  When a couple marries they must decide how to manage the money.  Will they have combined accounts, separate accounts, a spending allowance? 

Bottom Line: It is Your Financial Future (what benefits one benefits the other).  Who spends what isn’t as important as whether you agree on a system that works.  Mutual agreement is the main issue.

Agreement on Goals: It’s important that you both discuss your short-term and long-term financial goals.  Maybe you both agree on eliminating debt but you differ on the timelines to accomplish these goals.  You need to be on the same page.  There are times when compromising is necessary. 

What is the Payoff?  How much arguing about money does it take to finally agree on your finances?  Is one of you or both being selfish?  Are you resentful over the debt your spouse brought into the marriage?  Have one or both of you made big purchases without discussing it with the other?  It doesn’t take long before the money fights begin to take their toll.  If you want marital peace, you must work together on your financial picture

It’s about Respect.  Making financial decisions independently can put stress on your marriage.  Asking the opinion of your spouse on an upcoming decision communicates that you value and respect their input.  Respect is a 2 way street.  If you give it, you will get it back. 

The power of Teamwork.  You and your spouse are a team.  While you may feel like you’re competing against each other at times, the fact remains that working together toward a goal makes marriage more fun. You may have heard the acronym: TEAM: Together Everyone Achieves More.  The more you work as a team on finances, the more peace you’ll find in your marriage.

Do you and your spouse have a good plan that works in your day to day finances?  Please share your comments so others can gain more from this post.  Thanks

Retirement Planning: 3 Reasons To Start

Retirement for a lot of folks seems so far away.  Oftentimes this results in a lack of urgency to begin saving for the future.  There will be expenses when you retire.  There are many forces to take into consideration when you think about when to start planning for retirement.  Knowing more about these challenges can give you motivation to begin saving for your future.  Money is active and always changing.  Below are three reasons for you to learn more and start planning for your retirement.

 

 

1) Inflation

Put simply, inflation is defined as continuously rising prices, or the continual fall in the the price of a dollar.  It is measured in percentages.  We all know the price of groceries and gas went up this past year.  The last decade inflation has averaged around 3%.  However, inflation in 2008 will probably be at least 4.0%.

I went to www.usinflationcalculator.com and found that what cost $20.00 in 1988 cost $35.54 in 2008.  This is a 77% increase in price over a 20 year span.  If you are 5 or 25 years from retiring, you must take inflation’s affect into account when thinking about your future.

I’m not a mathematician but if the rate for the past 20 years remains the same for the next 20, here is what a round of golf will cost.  Today’s cost: $30.00.  2028 = $53.10.

Sometimes seeing the numbers can help us see the need for investing now.  The earlier you begin saving can help you enjoy the benefits of the next reason.

 

2) Compound Interest

This has been called the 8^th wonder of the world.  The money that you invest compounds each year. Example: $1200 invested in year 1, compounded twice a year at 10% interest is 1323 (1200 + 123)

                1323 at end of year 2, same 10% rate 1323 + 135 = 1458

                1458                   “  3,     “        “         1452 + 145 = 1608

This example assumes you make no new contributions to the original amount. I’m not good at math so I included a link for you to run your own numbers.  

Here is the address:  http://www.webmath.compinterest.html.  When asked to enter how often the money compounds, I think 2 or 4 are what you find in most investments. I’m limited in the math of compound interest. However, this is valuable knowledge to grasp in regards to how money can grow.

 

3) Healthcare Costs

Medical News Reports Today reports that healthcare spending grew at a rate of  6.1% in 2007 down a little bit from 2006 rate of  6.7%.  If you breathe air you know the high cost of healthcare.  There is no sign that this rate will decline in the years ahead.  The average inflation rate in America is only half of the growth rate of healthcare costs. We will have healthcare costs in retirement.  They will be a real issue as we become older.

Here are three reasons you need retirement money for healthcare:

1) Your need for healthcare treatment increases as we age; 2) The cost of those services are going to be higher; 3) Medicare coverage will not cover all medical expenses in retirement.  The Kaiser Family Foundation reports the following expenses as uncovered by Medicare: dental care, eye exams, eyeglasses, short-term skilled nursing care, and healthcare given outside the United States.  In summary, you need to have retirement dollars set aside for healthcare expenses.

 

 

Weekend Roundup: Sites of Interest

I wanted folks to know about some great posts that I found this week.  A great post on sacrifice by Trent at www.thesimpledollar.com. He mentions his story about getting seriously out of debt.  He also mentions his transition from thinking short-term to long-term in regards to his money.   I read another great post at www.mydollarplan.com on 16 ways to do it yourself.  If you have children visit www.milliondollarjourney.com and read the article about ” 8 Money Lessons to Teach your Kids.”  If we don’t teach them, who will?  Over at www.studenomics.com the author dispels some myths about funding college.  If you or someone you know needs ideas on this topic, this website is a great place to visit.  My last recommendation is the website, www.growthtrac.com.  While it is not a blog, I have found good faith-based advice for marriage here for many years.  Give these a try and I’m sure you’ll find some solid information for your life.

Marriage Talk: A Shared Vision

What do you as a couple want to accomplish financially this year?  Save for the future?  Eliminate debt?  Start a part time job?  Being able to agree on your vision is a good first step toward getting what you want.

Power of Agreement.    At his website www.marriagebuilders.com  Dr. Harley has a link for The Policy of Joint Agreement.  To sum it up, he says that no couple should make a decision unless they both enthusiastically agree on it.  Whether it’s funding retirement or talking more like adults, you both must agree to move forward.  Whatever your vision is, you must agree on it to get traction toward your goal.  What areas of your finances would you both agree should be priority one?  Decide together on this and you are ready to move forward. 

Example:  We agree to get our budget in writing this month. 

Follow Through.  Having your priority defined is half of the battle.  The second half is following through on that priority.  What time or money is required to fulfill this priority? Discuss what changes this will require of each of you and make the changes. 

Previous Example:  Follow through by recording every purchase you and your spouse make for the next 30 days.

While this task can seem daunting, it will give you an accurate picture of where your money is going.  You don’t put a budget on paper before you first identify where the money is going.    At the end of the month get all of the receipts out and begin categorizing under headings like Housing, Groceries, Insurance and Eating Out, Clothing Utilities, etc.  Every dollar in your budget needs a designation and a destination.

Execute the Plan.  Before the first bill gets paid, create that budget on a spreadsheet or a software such as Quicken or Microsoft Money.  I use Microsoft Money and find it very user friendly.  After month 1 on your written budget sit down and review how it went.  Did the allocations work out alright?  Did any unexpected expenses arise?   How can you account for them in the future?  See my previous post on emergency funds.    

Evaluate and Adjust.  Mastering a monthly budget is about evaluating what works and what doesn’t.  The rise in the cost of items can cause you to allot for more in certain areas.  Grocery and gas costs are a couple items that have been impacted in our budget lately.  A good budget is a work in progress.  It takes time, attention and focus.

While I chose a written budget as an example for shared vision, you can address other areas such as date nights, clearer communication, or conflict resolution.  The ability to both agree is powerful in marriage.  It’s easy to fuss over differences.  A couple that can agree on something is on their way to a more enjoyable marriage.

Budget Busters: 3 Solutions

What is it about these things?  You have your budget set.  How much you spend on each expense is tucked away nicely in each category.  For some unknown reason you end up with zero dollars in your account with 5 days until payday.  Where does the money go?  Where did it get off to?  Sometimes the best laid plans can go awry at times.  So what’s the solution?  What are your budget busters?  Better yet, what can you do to remove them from your financial life?  I do believe you can overcome these budget busters with some specific actions.

Solution 1: Track All Expenses.  I went through a program at my church called Crown Ministries.  One of the first assignments was to record every purchase I made for 30 days.  I kept all receipts and recorded them in  a log book.  What an eye opener!  What amazed me was what I spent on eating out.  Doing this exercises will help you know any unaccounted spending in your budget.  GO ahead and get a small notebook and pencil and start following ehere every dollar goes.  You’re bound to identify some budget busters here.

Solution 2.  Budget for Non-Monthly expenses.  There are some expenses that I don’t pay every month.  Here are a few examples: newspaper subscription, laundry detergent (we buy this in bulk), printer ink cartridges, and dog grooming.  These expenses occur every other month.  What this means is I have to be careful to set money aside to cover these expenses even though I don’t make a payment every month.  You could even withdraw that money from your account and put it in an envelope until you make payment the next month.  Example: $40 for ink cartridge.  Put $20 in an envelope from one paycheck and combine the next month and you’ve got it covered. 

Solution 3.  Balance your checkbook every month. As you reconcile your checkbook and statement you may identify expenses that weren’t in your budget.  If you’re like me you’ll find several entries missing from your checkbook.  I make a debit card purchase and forget to write it in when I get home.  Balancing your checkbook every month is a good practice.  It will usually give you a clue to some changes you need to make.

Young&Married: Lessons Learned?

My wife and I will celebrate 10 years of marriage in April.  It’s been a roller coaster ride of good and bad decisions.  I wish we knew a few things then that we do know now.  We made some decisions that had long term consequences for us.  We called on Visa to get us off to a good start on the things that we “had to have.”  I recall a phone call that I got just months after getting married about a furniture sale.  I agreed to let my wife buy a couch and sofa on our credit card.  What I found out when I got there was we purchased a dining  room suite as well.  It was “too good” to pass up.  This decision and some others was our beginning of lessons learned as young and married. Below are 3 things I wish I knew then about how to handle money better.

Lesson 1: Saving Is As Important as Spending.  We had no clue as to how to save money.  We didn’t understand the idea of saving and waiting to buy it later.  We didn’t understand the unexpected expenses that would attack our finances.  Appliances and cars break down.  Who would have thought about this?  Establishing savings didn’t happen for us until 3 years after we got married.  We were slow learners.

Lesson 2: Credit Cards are a slippery slope.  As I mentioned earlier in this article, my wife and I made our choice to use credit cards early in our marriage.  They’re like a long-term illness.  They can take years to recover from.  We know from experience.  Buying stuff on credit creates a cycle of dependence on credit.  It’s only when you stop charging are start saving that the cycle can be broken.

Lesson 3: Distinguish Needs from Wants.  We had to have that new furniture.  It was a need.  Yes we did already have something to eat on but we needed more.  No.  We wanted more.  We wanted new.  We had other choices.  We made the one that we thought was best.  Looking back now we could have settled for a used set of furniture.  We just didn’t want to.  We’ve learned a few things since then.  We have bought some “used” items in the course of our marriage.  What about you?  What lessons have you learned?  If you’re no longer young and married and wish to share some of your lessons, please leave a comment for me and others to learn from.  If you are young and married, read this article again.  Please learn from my mistakes.  Best wishes.

Money & Marriage: Let’s Talk It Out

One of the biggest challenges facing marriages today is the issue of money.  Couples today struggle talking peacefully about money.  It’s pretty well documented that money fights are among the top reasons for divorce in America.  Couples find the only way to discuss money is to fight about it.  This doesn’t have to continue.  I suggest there are 3 ways to handle talking about money.  Please read on and I hope you’ll find some advice that helps your marriage.

TALK EARLY.  There are present money decisions and future money decisions.  Couples need to discuss future expenses long before they get there.  To talk early is about planning.  Oftentimes couples may see a future expense coming (putting tires on car, going on vacation, buying those new outfits) but never sit down to decide how to afford these expenses.  “We’ll get to it” seems to be the attitude.  Instead of setting aside money each month, couples get right up to the event then let VISA take care of the need.  Several months after that vacation they view that larger VISA bill and say, “Why can’t we get ahead?”  You’re not talking early.  You’re not looking at your short-term and long-term goals.  If you don’t talk about it, how can you plan for it?  Talking early will prevent such financial landmines from destroying the peace in your marriage.

2) TALK OFTEN.  Money decisions happen many times a day.  For a couple to have peace, they must be able to discuss money issues freely.  Maybe you and your partner set a limit on what you can purchase without consulting the other.  Needs can change in your family.  Adjustments are necessary in your budget.  My wife is respectful enough to call me when she’s making a purchase that wasn’t in our plan.  Because of her accountability we will oftentimes make the purchase if it’s reasonable and doesn’t bust our budget.  It’s better to discuss these things as they occur rather than one of you learning about it later.  I can promise you that NOT talking about money will NOT work.  Spending decisions are something we make everyday.  Being able to talk often about money will ensure a better relationship.

3) TALK PEACEFULLY.  This one is the kicker.  How can you talk peacefully about money?  You and your spouse have to define how this will work.  Think about the times and places you have talked peacefully about money issues.  Continue to visit those places and times.  If it’s not broke, don’t fix it.  You may be among those that hasn’t experienced peace in discussing money.  My first suggestion is for you both to agree that handling money right is a foundation for your marriage.  If you can agree on that issue, you can begin to make the atmosphere for healthier money talk.  You and your spouse need to block off uninterrupted time to discuss the finances of your daily life.  If you have no children, finding the place and time shouldn’t be that difficult.  Those with children may have to wait until the little ones are off to bed.  You need some ground rules for these money talks.  Here are a few suggestion: Use normal tone of voice; no blaming allowed; discuss finances only; and time outs are allowed.  Adults need time to cool down.  It’ OK to agree to discuss some items later.  Note: Discussing it “later” doesn’t mean 6 months from now.  Agree on a time no less than 2 weeks away.  Issues that linger undiscussed can become explosive landmines for your marriage.

Make the choice.  Talk about money.  Discussing it early, often and peacefully will put you on the path to a happier marriage. 

Thanks for your time.

The Lost Art of Saving

Why are families in America not saving money anymore?  Each pay period all the money comes in, all the money gors out.  Where is the discipline to save?  Below are what I think are some reasons along with solutions to deal with them.

“Gotta Have It Now” Thinking.  Consumers today are very impatient.  They see a pricy item packaged terms such as “No Payments, No Interest” and jump on the opportunity.  Having stuff is allright as long as you understand the opportunity cost of having it now.  The payments and interest do get paid (usually kick in after 90 days or so) and the already tight budget gets tighter because “I want it now” thinking prevails.

Solution: Save for big purchases.  You will be a lot more happy paying cash for it than being chained to those payments for 24-36 months.  Besides, if you’ll admit it, the one you own works quite well as it is. 

Availability of Credit.  Up until this past year, if you could breathe you could obtain credit.  While credit standards have tightened a bit lately, there are still abundant offers to sway consumers to buy.  Being in a recession hasn’t slowed down TV advertising and hundreds of offers to obtain credit.  Advertising debt is a billion dollar industry.

Solution:  Just Say No.  You can wait and save for the item and purchase it later. 

Lack of Discipline.  Today’s consumer is not interested in having a financial plan.  You’ve heard the phrase:  “Those that fail to plan, plan to fail.”  What happened to planning ahead for your financial goals?  You will need new tires in 6 months, you will retire someday, you will send Jasmine off to college, you will die (not a popular idea).  This list doesn’t even cover all the events you will go through.  It takes concentrated effort to address these issues.  

Solution:  Put these issues on paper and begin looking at your entire financial plan.  If you’re married block off an uninterrupted hour to begin talking about these topics.  You and your  family will only benefit by beginning these conversations.

Addicted to Debt? 4 Warning Signs

Are you a debt addict?  Are you out of control?  Is your debt load beyond belief?  Just as the alcoholic must deal with the drink everyday, we as consumers must maintain self-control in an environment full of opportunites to buy things.  You may wonder if you are an addict.  Is it time for you to admit you have a problem?  Here are some warning signs that indicate you need to seek help.

1) No Emergency Fund.  Not having an emergency fund is a sign that you’re suffering from a lack of self-control.  Murphy will come to visit your household.  You will have unexpected expenses.  Not having an account for the the “unexpecteds” will result in increased debt when that next event happens.

2) Excessive Credit Card Debt.  How do I define “excessive?”  Excessive credit card debt is over 50% of your annual household income.  Example:  If you make 50,000 a year, anything over 25,000 is excessive.

3) Excessive Car Debt.  If your car debt is over half of your annual income, you have a problem.  Good transportation doesn’t have to come at this kind of price.  You need to consider more affordable transportation.  Payments of this type will overload your budget and place undue stress on your financial situation.

4) House Payment that exceeds 40% of your monthly budget.  Being house rich and cash poor is not a good place to be.  Having a payment at this percentage of your income puts tremendous strain on your finances.  Servicing debt this large will undoubtedly put strain on your ability to pay all the other required expenses of raising a family. 

If 2 or more of these warnings describes your financial picture, it’s time for change.  You need to downsize your life.  You can live on less.  It’s a personal decision.  If you don’t have an emergency fund, start funding one now.  You can consult some of my previous posts on advice on how to do this.

Funding Retirement: Can you afford to wait?

Funding retirement is an important part of your financial plan.  Where are you at in this process?  Which perspective best describes you? 1) I’ll get to it later; 2)  I’m too young to worry about it; 3)  I’ve got too many other bills to pay.  Each of these excuses are common in today’s society.  Each day we choose what we spend our money on.  If we spend it all on today’s needs, we’ll be less than happy when we get to retirement.

Procrastinator (I’ll get to it later)

When faced with the decision to save for the future or spend for today, a lot of people prefer the latter.  Putting off retirement has financial costs.  For example, look at the different monthly investment required to achieve a $375,000 nest egg.  At age 35 you need to save 251.62 per month.  Wait five years  (40) and the monthly requirement increases to 394.12.  Investing early and often can pay off big time due to the power of compounding. 

Getting to it later is not a good strategy. You can open a Roth IRA with as little as $250.00.  You can make monthly investments as small as $50.00 per month.  You can start small and increase your investment as your income increases.

I’m too young to worry about it.

You need to worry about it.  The previous example illustrates that the earlier the better. 

I have too many bills to pay.

Granted, we all must pay our bills.  However, there are things that happen to most of us that can get the investment ball rolling.  Here are a few suggestions: 1) Pay raises; 2) Income tax refund;  or 3) second jobs.  Do yourself and your family a favor and get started today on your retirement.  Be on the lookout for future articles on the beginning steps to your retirement.

Want that Goal? Identify Your Obstacles

The beginning of a new year is a time when you think about goals.  What do I want to be different about this year? better health?  better work relationships?  better money management, etc.  In order to reach your goal you need to identify your obstacles first.  Put those obstacles in writing.  Post them on your refrigerator.  If you don’t anticipate these things, they will throw a hurdle up in blocking your achievement of the goal.  Since this is a personal finance blog, I’ll use a financial example.

Goal: To completely fund my $500.00 emergency fund by June 30, 2009. 

What obstacles could get in the way of attaining this goal?

1) Not knowing where my money is going;  2) Not doing the math to see how much I need to set aside to reach the goal;  3) Not bothering to designate a place for the money to go;  4) Not having a budget in writing to make sure the money is designated for saving every paycheck.

We are busy people.  There are opportunities to do a lot of other things than pursue a savings goal.  For some folks, even creating a budget can be an overwhelming task.  Our society throws buying opportunites in our faces in all kinds of ways.  It takes discipline to stick to a financial plan.  Let’s get back to these obstacles. Let’s take them apart one by one.

Obstacle 1: Not knowing where my money is going.  Answer:  Begin a budget.  A budget is a written description of where every dollar goes from your paycheck. Each expense is recorded there.  Extra nugget: Don’t forget to budget those lattes and mochas.   

Obstacle 2: Not doing the math to know how much to set aside each paycheck.  Answer: Do the math:  If you get paid biweekly (every other Friday), you will have 12 paychecks between Jan. 1 and June 30, 2009.  Divide your goal (500) by 12: 500/12 = $41.66 per paycheck. 

Obstacle 3: Not designating a place for the money to go.  As I mentioned in an earlier post (Emergency fund), an online savings account such as www.ingdirect.com is an excellent place for this money to go.  Having it somewhere separate from your checking account removes the opportunity to use it for other purposes.

Obstacle 4: Not having a budget in writing.  Answer:  Get a budget completed ASAP.  You can use a spreadsheet from your computer, a blank sheet of notebook paper, or a computer software program like Microsoft Money or Quicken.  Just get all your expenses (including Savings) on there. 

Oftentimes not identifying obstacles will hinder our efforts to reach important goals.  What goal do you want to achieve this year?  Make time (this is big) to write those obstacles down today and have a plan to remove them one by one!  Have a great year!  Please do contact me when you reach that goal.  We’ll celebrate together!                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Emergency Fund: First Line of Defense

I have no military background whatsoever.  However, my experience on the battleground of personal finance has taught me that you must have a plan for the unexpected.  Things will not always go according to plan.  In financial terms I ‘m saying expect the unexpected.  My washer broke down last week.  The repairman’s labor (15 minutes) and materials set me back $184.00.  This is an unexpected event.  Luckily, I had my emergency fund in place and didn’t have to slap this occurence on the VISA.  It’s these unexpected expenses that can keep you reliant on credit cards and servicing more debt.

What is your plan to deal with the unexpected expenses in your life?  Do you have Mr. VISA as your back up plan?  Would you like to have the money already in place to escape paying finance charges on these purchases?  The emergency fund is your answer.  Emergency fund money needs to be set aside in  a separate account that can be accessed quickly.  I have an online savings account with ING Direct to serve this need.  The account can be accessed anytime and money can be directed to your checking account in a few days.  Having it in a separate account keeps me from raiding it for non-emergencies. 

HOW CAN YOU BEGIN? 

Step One –  Decide how large of an emergency fund you need.  I recommend an amount between $500-$1000 as a minimum.

Step Two Decide how much you can start setting aside each paycheck toward your separate account.  Place this expense in your budget just like your car payment.  Label it “Savings.”  You can start with as little as $25 per pay period. 

Step Three – Go to www.ingdirect.com and open an account.  You’ll be asked to give checking account information so you can start having this money deposited each month.  You choose the amount and the day of the month you want it transferred.

Step Four – Stick to your plan!  Do not touch this account for anything BUT AN EMERGENCY!  A spur of the moment vacation to Florida is NOT AN EMERGENCY!  Legitimate emergencies are car repairs, appliance repairs, high medical bills, etc.  Be vigilant and leave this money alone.  In a few months you’ll be proud to know that your defense plan is moving along and your relationship with Mr. Visa is growing very distant! 

WHAT’S ON YOUR FINANCIAL RADAR?

Radars are used to detect things and help anticipate a problem early.  The earlier you identify a problem, the better you can devise a strategy to solve the problem.  Let’s look at some potential things that get onto the radar:  automobile payments, appliance repairs, new tires for your vehicle, insurance payments, house payments, groceries, video rentals.  These are financial events that happen to families everyday.

How often do you consult your radar?  What range is your radar set on?   Next few days? weeks? months?  years?  Do you account for financial emergencies?  Murphy will visit your financial house.  Are you prepared for the unexpected?  What about those irregular events like insurance deductibles,  car repairs,  medical bills,  childrens’ clothing.  Is your strategy in place for these financial issues?

Maybe it’s time for a radar tune up?  Maybe you need to first get a radar?  Maybe you then need to set it to the right setting?  Nobody ever wins without a plan.  You need to get your radar out and start looking ahead.  Maybe you want to start that emergency fund?  Maybe you want to start planning for retirement?  What goals do you wish to accomplish this year?  If it’s not on your radar, it will not get your attention.

Young Money

MY DOLLAR PLAN shares good advice for <A HREF=www.mydollarplan.com/ignoring-finances-when-young-is-a-risky-game//>YOUNG people managing money.

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