Entries Tagged 'Budget' ↓
October 6th, 2008 — Budget, Personal Finance, bad debt, credit cards, saving
Whether economics is your idea of a great way to fight insomnia, or you just didn’t get the benefit of learning about money management early on, it is never to late to learn the basic skills of proper money management. We highly recommend taking a brief course on finance if possible, but there are other ways that you can develop a strong financial foundation that will get through your life and help you retire with less worries.
Basic money management can be broken down into three main principles – Spending Less, Avoiding Bad Debt and Saving More. Let’s take a look at each one and determine how you can start including these principles into your own life.
Spending Less –
This is a vital lesson that everyone must learn, and unfortunately, it is a hard one. While most of us get the point that you have to spend less than you earn if you want to stay in the black, that concept tends to fly right out the window when faced with every day life. The prevalence of credit cards, easy payment plans and a lack of knowledge about bad debt has led many into spending much more than they make.
One of the best ways to start spending less is simply to monitor exactly what you spend, keep a log and determine where you can cut expenses. A budget is a vital tool that will help you learn more about the money that goes out the door each month and how much comes in. By working with a budget, you can start to tip the scales in favor of how much is coming in.
Avoiding Bad Debt –
This is a major problem for millions of Americans and it is only getting worse. It is vital to recognize that there are two main forms of debt – good and bad. If you have gotten into a bad debt trap, getting out is extremely difficult. Remember, bad debt is something that drains your finances, good debt is something that adds to it. Reduce your amount of bad debt, increase your amount of good debt and watch your finances turn around.
Saving More –
No matter how much money you make, saving part of it is very important. Whether it is a simple emergency fund that can help you get through bad times, or a fund for retirement, saving is essential. If you find it difficult to have any extra money each month for savings, it is time to investigate how you can change that.
Whether you need to find a better job that pays more, manage your finances better, or find ways to create more than one stream of income, there are many ways that you can start saving more money.
These three principles will help you learn more about how your own personal finances work and how to start managing your money more effectively. Everyone makes mistakes, but the difference is whether or not you rise about them, recognize the problem and implement the solution.
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October 3rd, 2008 — Banking, Book Review, Budget, Mortgage, Personal Finance, loans
When it comes to a trusted source for financial news and information, it’s hard to beat the Wall Street Journal. They have introduced a line of guidebooks on many financial topics, but for this review we’ll be taking a look at their Personal Finance guidebook. While it may be a little simplistic for the financial whiz, it is certainly a must-read for those that are still struggling with their personal finance issues, or just starting out in the world.
It should be noted that there is a companion book to this title, called the The Wall Street Journal. Personal Finance Workbook
. We highly recommend purchasing both since you will be able to implement the advice of one by using the other. Both are incredibly useful, especially if you are looking for ways to get your finances on track. The guidebook is brief, coming in at right around 200 pages, but there is a lot of information packed in there.
The book starts out with the utter basics, such as managing a checkbook, but for a lot of people, this is truly necessary advice. While this is aimed at beginners, even experts might be able to spot a few common mistakes that they are guilty of making when it comes to handling checkbooks and savings accounts.
Once this section is thoroughly covered, the book goes on to help the reader start a money management plan. This is basically a budget, and again, even though the advice is simple, it is very solid and for many, very necessary. The basics of budgeting are completely explained and there is some great real world advice for those looking to get their finances and their spending under control.
How to get a good mortgage and auto loan are also some very good topics that round out the book nicely. Basically, this is a book that is designed to help the average consumer learn more about how finances work and how to implement good practices to ensure that you won’t be spending your golden years flipping burgers.
The workbook however is even better and gives you a way to create an exact plan for your future. Both contain calculation examples and tips on how to figure out whether renting is best for you, how much house you can afford, how to save money on life insurance and many other important topics. The section on investment risk, allocation and how to find out how much money you need for retirement are particularly helpful.
While these two books may be a little too basic for experts, they are absolutely vital for the rest of us. Even if you have already heard the advice before, and there is probably a good chance that you have, the author does a great job of presenting it in such a way that it seems much easier to follow and implement the advice. We highly recommend this title to anyone interested in learning more about personal finance and how to manage their money.
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October 2nd, 2008 — Budget, Debt, Goal, Personal Finance, Wealth, bad debt, good debt
Every year, thousands of people become millionaires, while hundreds of thousands struggle to make ends meet. What is the difference between the two groups? In many cases, it comes down to whether or not you have what it takes to be a millionaire. While this may seem like oversimplification, there is a lot to be said about the mindset that future millionaires have, versus the mindset of the average consumer. Let’s see if you have what it takes to be a millionaire.
1. Do you have a clear financial plan for now, five years from now and in the future?
Many times, people become millionaires because they set specific goals for themselves, and then work hard to achieve those goals. Even if you don’t quite make it to your goals, chances are if you are aware of your financial condition, want to make it better and work at ways to accomplish it, you will be better off money wise.
2. Do you understand the difference between good debt and bad debt?
While some consumers are putting down $5000 on a plasma tv, others are using that same amount of money to put down on a foreclosed property. The first group will end up paying interest on a television that will only depreciate, while the second group has the potential of making hundreds of thousands of dollars with a future sale, or a steady stream of rental income in the mean time.
3. Do you understand the importance of budgeting?
Overspending is an enormous problem and the bottom line is – if you spend more than you make, your chances of becoming a millionaire outside of winning the lottery are slim to none. There is no point in making money if you are spending faster then it comes in. Millionaires learn the importance of saving that money and controlling their expenses, otherwise, they wouldn’t have that million dollars.
You can look at this way. Let’s say that you spend $10k every year on non-essential items. In ten years, you would have spent $100k. Now, take that same $10k, but invest it in property or stocks – in ten years you would likely have much more than $100k at your disposal.
4. Do you understand that “overnight success” takes time?
While there are a few exceptions to the rule, most millionaires spent time getting to that point. Whether it is five years or fifty, becoming a millionaire requires effort, it requires focus and it requires dedication. If you are not willing to put in that kind of work, your chances of achieving that goal are very small.
Start developing the “millionaire mindset” and make those small steps towards achieving your goals. Whether or not you actually do end up making a million dollars, you’ll be working towards developing not only sound financial principles, but chances are you will have more than enough money to remain financially comfortable for the duration of your life.
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September 8th, 2008 — Budget, Financial Security, Leverage, Personal Finance, Real Estate
Right now, the only news about the economy seems to be bad news, and it may take a few months if not years to improve. The dollar is weak, oil prices are still up and the cost of living has skyrocketed this year. These are unstable times, but that doesn’t mean that you can’t enjoy financial stability. Here are some tips to help you find your financial equilibrium right now.
First and foremost, if you don’t have a monthly budget, now is a great time to start one. You’ll need to divide all of your expenses into two categories, Essential and Non Essential. In the essential category are things like your house payment, car payment, food and utility bills. Everything else can go in the other category. You may be surprised by just how much money you’re spending every month on those non-essentials.
Once you’ve got this figured out, it’s time to find ways to bring in more money every month. That’s probably the easiest solution right now to staying afloat, but you may need to get creative. If you have extra money put aside, consider investing it wisely into something that will provide a decent return and as such, a nice little extra income for you.
One area to focus on right now is rental property. There are hundreds of thousands of foreclosures going on right now, and all of these former owners need housing. For most, this means either bunking with family or getting a rental property. However, in many urban areas, rental properties are hard to come by. In today’s market, you can pick up a house cheap and easily turn it into an income producing property.
If you don’t have enough free money to do that, consider leveraging some debt. This is a good form of debt that will go to work for you, allowing you to create more than one stream of income. Using the above example, you would get a loan for a property, and then charge enough rent to cover the monthly payments for the loan and create an income for you.
Having touched briefly on good debt, now is the best time to get rid of any bad debt you have. With interest rates going up, you’re going to want to pay down any non-fixed rate loans you have, or credit cards. Do not close off the accounts, but get your bad debt to the point where it is easily managed. This will free up more money for you each month and help you get more financially stable.
While this is not an easy time in America, things have been worse. Now is the time to think hard about how you view money and where your financial position is. If you are not happy with it, you need to take steps right now to change that and become more secure. This will help protect you should the economy continue its current downward trend.
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September 1st, 2008 — Banking, Budget, Financial Security, Goal, Long Term, Money, Personal Finance, Wealth
Unless you’ve taken some courses on handling finances, there is a chance that you may not be aware of a few of the key points about budgeting, managing your money and planning for the future. While a lot rests on common sense, there are a few techniques that everyone can use to correctly manage their finances and stay on top of their bills. Let’s look at some of the best tips that you can put to use right now.
1. You need to pay yourself a salary.
Sounds a little odd, doesn’t it? However, setting aside a portion of your income every month that will go into savings is one of the first steps on the road to financial security. The best amount to put aside is 10% of your gross earnings each month, but this may not always be possible. Try to get as close to that number as possible and watch your savings grow!
2. Always have money in case of an emergency.
The problem with emergencies is that you never know when they will happen. From losing your job, to a car accident, to an unexpected repair bill, there are financial disasters lurking around every corner. To protect yourself, you need to create an emergency fund that will not be touched unless you have an actual emergency. We recommend putting about four months of your salary aside for this fund if possible, however, anything you can put aside for a rainy day will be useful.
3. Always have a budget.
Even if you’re not restricted on your spending, you may need to be. Everyone can benefit from a budget and chances are, you’ll end up spending less every month. Take a hard look at your regular monthly expenditures and see where there is room for improvement. You should always have at least some money left at the end of the month, so aim for this goal when making your budget.
4. Paying your bills on time really does matter.
Even if your phone company doesn’t report late payments to the credit reporting agencies, this doesn’t mean that you should be late. Paying your bills on time forms a good habit and it will last throughout your life. Work your payment dates into your budget so that you always have enough put aside to handle all of your bills. If necessary, when you get paid, add up all of your set bills and then put that money aside immediately to be used when they are due.
5. Remember the key financial equation.
The key to getting ahead is to always make sure that you are spending less than you earn. It sounds very simple, but it’s not always easy to accomplish. The amount that you charge should be figured in to this equation for the best results. By keeping your spending under control, you’ll be able to start planning for the future right now, instead of when it may be too late.
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August 21st, 2008 — Budget, Financial Security, Inflation, Investing, Money, Personal Finance, Standard of Living
Turn on the television, read a paper or go online and chances are you’ll be bombarded with bad news about the state of the economy. Inflation is being whispered about, and in some cases, shouted about from the rooftops. Are we really facing inflation and how bad will it get? How can you find ways to save money when everything seems like it costs more?
First and foremost, inflation rates are up, but they are not as bad as they have been. For example, inflation in the 1980’s was actually much worse and we were in lousy economic shape back then. Now, due to the higher cost of living, it may seem as though we are in the throes of a world ending inflation, but it’s not quite that bad, at least not yet.
The main economic issue right now is how our daily necessities are quickly rising in cost. For example, flour now costs 37% more, and milk prices have jumped 23%. You don’t need to be told that gas prices are killing a lot of drivers, it’s already pretty obvious. Add in rising energy costs, crop failures and the housing crash and you have a recipe for disaster.
However, you don’t have to fall prey to inflation, if you take the right steps to avoid here. Here are some great ideas that will help you survive inflation, no matter how bad it gets.
First, if you don’t have a savings account, now is the time to start putting money aside. It may be a little tough, but you need to have some security and a cushion to fall back on. Even a small savings account can be useful. Inflation effects everything, but with the right budgeting, you can find at least some money to put aside each month.
Next, you can consider your employment options. If your company will allow you to telecommute, you can make that switch. You’ll save a lot of money on gas, particularly if you have a long commute. You may also want to consider either getting a second job that is close by, or working an online second job that you can handle from home. Getting more income coming in will definitely make inflation easier to ride out.
If you are investing, it may be time to retool your portfolio a little bit. Historically, bonds perform worse than regular stocks during inflationary periods. However, before jumping into the markets, make sure that you know what you are doing and that you have the help of a broker or financial planner to help you manage your portfolio.
Lastly, when it comes to beating high food prices, the old standards still apply. Clip coupons and find cheaper stores. Consider switching to a less expensive brand. No one likes having to scrimp, but if your budget is already tight, this can make a big difference. Stop eating out for one extra night a week or find ways to save money elsewhere to give you a little more freedom with your budget.
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August 14th, 2008 — Budget, Financial Security, Goal, Long Term, Money, Personal Finance, retirement
We would love to start a great new experiment, where everyone would catalog all of their impulse purchases for the course of one year. Everything from that cheap pack of gum to the “whatsit” that we really don’t need would have to be recorded. At the end of the year, everything would be totaled up to see just how quickly we are all nickel and diming ourselves to the poorhouse. The old saying is true, “The rich are rich because they don’t spend any money.”
So, how can you put this to work in your life, without being excessively frugal? Chances are, you probably buy more than you realize and a lot of it is probably unnecessary. Impulse buys are the bread and butter of many industries and there is a reason that those little items are so easy to buy. It’s so easy to fall into that trap of “well it only costs a quarter,” without realizing that we are easily spending way too many quarters every month.
If you’re finding that you are always out of money at the end of the month, or you just can’t seem to get ahead, it is definitely time to break free of that cycle. It’s time to develop a “needer” instead of a “wanter.” We live in a society where instant gratification is king and many of us have “wanters” that are out of control. It’s simply just so easy to focus on what we want instead of what we really need.
The first step towards putting a leash on your wanter is to take a hard look at everything you buy. Ask yourself whether or not you want to work at McDonalds at the age of 78. This is probably the easiest way to gain perspective on what you purchase.
When you look at everything as the tipping point between spending the rest of your life in ease, or working in a burger joint, it casts a harsh light on your spending habits. Yes, it’s a little extreme, but if you do end up nickel and diming yourself to poverty, it will be too late to do anything about it. Sometimes, you need to get extreme in order to train yourself into better spending habits.
Instead of going a whole year, do the experiment for just one month and see how much you really spend on frivolities. Now, next month, take that exact same amount and put it to work for you instead of against you. Leverage that towards creating a second income or put it in a savings account. Chances are, you’ll surprise yourself at how much money you can make in the place of that pack of gum. Your future is in your hands and it is up to you as to where you will spend your retirement. It is never too early to start making the right choices that could affect your financial future and the rest of your life.
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August 12th, 2008 — Budget, Diversification, Financial Security, Income Streams, Investing, Money, Personal Finance
The housing crisis has a lot of people taking a closer look at their finances and worrying about whether they too may be at risk for losing their home. There are a lot of great lessons that can be learned from this crisis, and they can be applied to all areas of your finances. Let’s take a look at some of these important lessons.
1. Don’t overspend.
It is vital to know and understand your own limits. We all know that overspending is not the smartest thing to do, but it’s so easy to get lured in. Many of the homeowners that are now homeless knew very well that they were overbuying their house, but they fell in love with it. Main point to learn: Emotion has no place in your finances. It doesn’t matter if it is the perfect house – or the perfect whatever. If you cannot afford it, you cannot afford it. It’s not a matter of life and death. In your retirement years, you’ll thank yourself.
2. Financial disasters can happen to anyone.
Everyone from the worst subprime customer to big sports stars have been affected by this housing crisis. When financial disasters occur, it doesn’t matter who you are. If you are not prepared, you will not be able to weather the storm. Never fall into the trap of thinking “it won’t happen to me.” The fact is, financial disaster is looming for each one of us, without proper planning and without the right management of our finances.
3. Having more than one stream of income is vital.
You may be set right now with your job, but what if you lost it tomorrow? What if you got sick? Relying on one stream of income is not smart, especially if you are dealing with a mortgage payment. You’ve got to be able to bounce back from a financial disaster. The best way to do that is to cut your reliance on your paycheck by creating more than one stream of income.
4. There is no safe investment.
Some of the most expensive houses in the best neighborhoods are now sitting empty. While there are good investments, there is never a sure bet in life. Always make contingency plans and never put all of your eggs into one basket. The only sure things in life are death and taxes, and it’s best to be prepared for the worst.
5. You can’t rely on anyone else to bail you out.
While big plans are in the works for bailouts, there is a lot of opposition and even if they pass, they will not be able to help everyone. You can only rely on yourself – not the government, not your family. By taking responsibility for your finances, you’ll be able to get through any financial problem with grace. Always have a backup plan and never rely too heavily on your income or on an investment. You never know when the bottom may drop out.
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August 5th, 2008 — Budget, Debt, Goal, Investing, Money, Personal Finance, bad debt, credit cards, good debt
Credit card debt is a global problem that has led many to the poorhouse. However, with smart management, credit card debt can actually be a good thing. Let’s look at how to have smart credit card debt that will help your finances instead of hurt it. The premise may be a little odd to some people, but there is a way that you can use your credit cards to improve your credit rating and start investing in your future.
First, it is important to realize that credit cards are not free money – this is a problem that affects many when they get their cards for the first time. They run out and run up the balance until they are completely maxed out. The secondary problem with this is that many of these same people will make only the minimum payments on those cards. Suddenly, they are in way over their heads and it could take decades to pay off that debt, depending on how much it is.
Now, let’s take a look at how to use credit cards in the smart way:
1. Never max out your card.
Set a limit for yourself and don’t use the card limit as a guide. You should never have a credit card balance that is greater than three months of your current salary. Less is definitely more when it comes to credit cards. Strive to have a balance of less than $100 on most of your cards. Put aside a special card for emergencies and keep a bare minimum of debt on that card to keep it open.
2. Make monthly payments higher than the minimum amount.
This is an easy way to eat away at your debt and keep your credit rating high. Making regular payments is the best way to achieve a good credit rating, but making higher payments will also help. You should also putting a charge cap on your cards, and try to never spend more than you will be paying for the payment each month.
So many of us use our credit cards for frivolous items that will only lessen in value. If you took that same amount of money and used it to invest, you would actually start seeing a return. Suddenly, your credit cards are working for you and you’ve created a secondary income stream that can reduce your reliance on your paycheck. However, you should start small with your investments and make sure that the risks are as low as possible to avoid having this plan backfire.
4. Take advantage of low interest rates.
Look for credit cards that have a very low introductory rate and then a permanent rate that is fixed and low. These cards are much more beneficial. You need to also make sure that you make those monthly payments on time, since many cards do have an interest penalty if you are late. The lower the interest rate is, the lower your total amount of debt will be.
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August 4th, 2008 — Budget, Cash Flow, Goal, Money, Personal Finance
As the housing crisis worsens and the economy looks increasingly weak, most Americans are facing the reality that their finances are in a bit of a wreck. Chronic overspending, a lack of savings and too much bad debt has left many in a financial condition that they would prefer not to be in. Here are some top warning signs that your finances are in a wreck, and how to get out of the problem.
It sounds overly simple, but many of us do not realize how much we spend in a month. Take the time to keep a log of how much you spend in one month and compare it to your salary. If the numbers are dangerously close, you’ve got a problem. Don’t forget to include your credit card purchases on there as well, since you will be paying for them.
Solution: Set a monthly budget that you can stick to. Add up the expenses that you can’t help, such as rent or utilities and then build from there. Try to free up as much money as you can. As we mentioned above, credit card spending should be included in this budget, even if you don’t have to pay for those items right away. By limiting how much you spend on your credit cards in this manner, you can start carving away at your debt. It is important to set a budget that is not too difficult to stick to. Allow yourself a little wiggle room, but make sure that you do come in well under what you make each month.
2. You are falling behind in your bills.
A couple days late here, a week there – after all, the phone company doesn’t really mind do they? If you are finding that you are trying to space out your bills to the point where you are chronically late on all of them, this is a sign that you have a major problem. Late payments really do matter, whether you realize it or not. Even phone companies report to the credit bureaus and you will not be doing your credit rating any favors.
Solution: Budgeting can help with this, but if you are finding that your paychecks are not syncing up with due date, it is important to do something about it. Most companies will allow you to change your due date to something that is more suitable for your paycheck schedule, but you will have to ask. This is a great solution if you have the money to pay the bill, but you just don’t have it on time.
These are two simple solutions that can bring a wrecked financial plan into better territory. However, it is vital to break that cycle of relying on your paycheck to meet all of your financial needs. Consider debt leverage to create more than one stream of income. This will free up your finances and chances are, you’ll sleep a lot better at night.
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