Budget Planning

America Saves Week – Living Below Your Means

This is an important lesson that we all have to learn with our finances. If we spend less than we earn, we have money to save and can pay our bills in full each and every month. If we spend more than we earn, we will incur debt. Debt creates a future obligation which is another expense for our budget.

Not all debt is bad debt, but debt can be the enemy of your budget. Good debt is paying for education that is going to give you a better job / career path. Bad debt is I want this now and I don’t have a way of paying for it, so I will use my credit card.

How do you know if you are living below your means? You need to track your spending for at least a month. Track your net income and all your expenses to see if you have more money coming in or more going out. This is the only way to see where your money is going. You might be surprised where your money is going. Once you see where your money is going, then it’s time to determine if you want or need to make changes to your expenses. It’s not always about reducing or eliminating your expenses. Sometimes the choice is that you need more income. You will never know until your see where your money is going.

Which Budgeting App Is Right For You?

Ever wonder what budgeting app is best for you and your family? Not sure where to start? I am asked this all the time and I don’t have a recommendation for you. I still use a manual method and am happy with that for us.

For those of you that do want to use an app, how do you make the right choice? Here is a great article from The Hartford comparing several apps to help you make the right choice.

Let me know what one you use and why. I would love to hear from you.

Married Finances: Should Two Become One?

Weddings are an emotional celebration. We love the idea of a bride and groom starting a new life together. We use words like “two becoming one” or “sharing your lives as one,” meaning that everything will be shared as though the couple are no longer individuals. I believe this puts a lot of unnecessary sentimental pressure on a couple to share all their finances even though it’s not always necessary, or even wise, to do so for every single account or property.

So, how do you merge two separate financial lives? There are many successful ways to do this. Some couples keep their individual incomes and expenses separate by having separate bank accounts, credit cards etc. Then, they have a joint expense account for their household bills that they each put money into. Sharing the joint account can be as simple as having each person responsible for different bills, or figuring out the bill totals and having each put in their half. Some people base the joint account total on a salary percentage (this works great when one spouse earns more money that the other). And, of course, some people merge everything and all accounts are joint.

You need to think about what type of financial people you are. Here are 3 questions to think about that will help you decide (and could possibly save some financial squabbles):

Are you a saver and your spouse a spender? Having one person be the fall back for financial emergencies can be challenging financially and to the marriage.
Are you both spenders? What will happen when there are no reserves for emergencies?
How do you each handle bill payment? Are all your bills paid on time? Do you have bills that have slipped through the cracks?

Answers to these questions can be tricky, but worth the discomfort. Proactive thought can be a financial life saver for your future. Double check your answers by looking at your account statements and credit reports. You may not be as good at finances as you think you are, or you might be better than you thought. Discuss your habits with each other, as well as any outstanding issues that could affect you both.

I am a firm believer that you both should participle in your finances. You have joint goals in your future, so you should do the financial planning for this together as well. Don’t let the responsibility fall to one person. If something were to happen to the “responsible” one, then the other party would be left completely in the dark, not knowing anything about the accounts or how to deal with them. I have seen many situations like this. It may seem kind, or convenient, to handle the money if your partner doesn’t know how, but it’s not.

Whichever way you choose to handle your finances as a married couple, make sure it’s a mutual decision based on real knowledge of your habits and goals.

You Need An Emergency Savings

Whether you have been laid off, furloughed or salary reduced, you need an emergency savings to fall back on more than ever.

What’s your emergency savings account look like? Suze Orman suggests that you have eight months of income in your emergency savings. Dave Ramsey and Jean Chatzky both say 3 to 6 months. Hello Wallet suggest that you think of emergency saving in three ways – minor emergencies, major emergencies and job loss. Bottom line, you need an emergency savings account.

As with any goal, start with a plan – then automate it. When we started our emergency savings, our goal was to save $1,000. That would get us through the unexpected small expense. We started by saving $20 per week to reach that $1,000 goal in one year. Maybe that’s not possible in these challenging times, can you find $5 per week. While you are home, it’s a good time to review your bills, to find savings. Take a look at your credit card / bank statements, are there automatic changes you are paying for and not using? Can you replace an expense with something free? Can you reduce an expense to save money?

Once you accomplish your goal, I would like you to about your next savings goal. Sometimes unexpected emergencies cost more than you expect, especially if you are a homeowner. I have always thought that the major repair emergency fund should be in the $5,000 range. So then we started on this goal. $100 a week gets you to $5,000 in a year. We divided this between both our paychecks. My husband gets paid weekly so he contributes $50 each week. I get paid every other week, so I put in $100. We then have achieved this goal of $5,000 in a year.

Remember, this is not a save for one year and done type of thing. You may need to use this money, so you need to replace what you use. You can never have too much money saved for the what if’s of life.

Required Distributions Are Changing – Make Your Plan

As we get older and start to think about reducing our working hours or retiring all together, it’s time to make a plan for your finances before you take the leap. If you have been contributing to an Individual Retirement Account (IRA), 401K or other pre-tax account, you’ll need to start taking money out of your accounts.

You might be thinking, I don’t want to take the money out until I need it. Well, the government sees it differently. They want there tax money since you have deferred the taxes. Remember, this becomes taxable money and may put you in a higher tax bracket. As always you’ll need to discuss this with your tax preparer, bank / investment professional and/or attorney for what is right for you and your situation.

The old rule, is in the year after you turn 70 1/2 you were required to take a minimum distribution from your account by April 1 of the following year for the first year (then Dec 31 for year 2 subsequent years). This rules is still true for people who turned 70 1/2 years old by the end of 2019. Keep in mind that you can take as much as you want, but you have to take a minimum distribution each and every year after.

The new rule is part of the SECURE (Setting Every Community Up for Retirement Enhancement) Act, passed in 2019. Now, if you are younger than 70 1/2 by Dec 31, 2019, you can now wait until you are 72 years old before having to take the minimum distribution from your tax deferred account(s). So you can let your money grow an additional two years.

Now, to avoid penalties with your required minimum distribution, you must take out a minimum each and every year. To determine your amount, start with the value of your account on Dec 31 of the prior year and divide that by your life expectancy to come up with your amount. If you take less than your are required, the penalties are ridiculously high. They can be as much as 50%. You have worked very hard for your money and you wouldn’t want to give it up to penalties.

Make a plan that’s right for you with your professionals, so that you get the money you need within the guidelines for the distribution. Make sure to take at least what your are entitled. You’ll have to pay the taxes on the distribution, but you don’t want to pay additional penalties to the government. With this planning step, you can decide if you can afford to fully retire or if you need to keep working.

Oh No, The Holidays Are Coming!

The holidays are coming! The holidays are coming! Guard your budgets and hold onto your wallets. You might be thinking I’m crazy, but the retailers have positioned their holiday displays to disarm you of your cash, especially this year with fewer shopping days between Thanksgiving and the Holidays.

Did you shop on Black Friday and Cyber Monday?

Can you make this year different? Can you stick to your list and not overspend? You can if you make a detailed plan. Write down exactly what you will be buying and the dollar amount you plan to spend.

Here are some suggestions that should help you with your holiday budget list.

1. Gifts

How much for immediate family?
How much for extended family?
How much for friends and co-workers?
How much for people whose services you use?

2. Entertaining

How much will it cost when you host a gathering?
How much will you spend on hostess gifts when you attend a party?

3. Travel

How much will it cost for local travel (gas, tolls, parking, etc)?
How much will it cost for long distance travel?
How much will it cost for vacation?

4. Traditions – this can be anything from an afternoon tea to a night on the town.

If you write it all down, you might realize you’re planning on spending $300-$500 on gifts for people who aren’t on your immediate family list. And hosting dinners can be expensive just because you want to put on a good appearance. Ever notice a big stain on the tablecloth and found yourself running to the store at the last minute to buy one full price?

Holiday fun can wreak havoc on your budget, but it doesn’t have to. Now is the time to get a jump start on planning, and to put away money for the details that are important to you. Think of it as your own layaway plan. Take money out of each check, and spread out your spending, that way you won’t have buyer’s regret in January.

Doing this now may make January 2020 less stressful.

Budgeting By The Numbers

Do you ever wonder how much of your income should be going to this and how much should be going to that?

I know that you are aware that the general rule for your monthly mortgage payment should be 28% or less of your gross income. The mortgage payment plus your monthly debts (credit cards minimum payments, auto payment, student loan payment, etc.) should be less than 36% of your gross income.

These are the guidelines that help us to determine where your finances stand at any point in time. You may be higher or lower, but your know how you stand against the suggested ratios.

Here are some other suggestions:

Emergency Funds – 3 to 12 months of income. You need to have money aside for yourself when emergencies occur. There are several thoughts here for amounts – I believe that homeowners should be more towards the 12 month or more range, as you never know when you might need to make an emergency repair right now. Also, if you become unemployed, it seems that the older we get the more time there is in between jobs. This plus many more scenarios could make you rely on this emergency fund. Start or increase yours today.

Savings – the more the better! You can never have too much savings. Automate your savings and pay yourself first. Have your savings deducted from your paycheck each and every paycheck – that’s the pay yourself first part. You need to do this, as there is never money left over to save. Living off what’s left is the way to go. Remember to increase this amount often (at least every time your get a raise). If you haven’t do this start small – maybe $20 / paycheck and keep increasing this. I would love for you to aim for a minimum of 10% of your income.

Food – this one is a hard one. I know that we spend a lot on our food budget. Maybe you think this way too. I personally have tried different ways to keep this under control – from vegetable gardening, to only buying with cash, to sticking to lists (meal planners and grocery lists), but it’s tempting to spend more – that are so many items (not on my list) that we seem to want.

For a general guideline of what percentage of your check should be, check out this article from Every Dollar. Remember that these are suggestions and you can tweak them to fit your lifestyle.

Summer Travel For Everyone

As we start to think summer, what are your plans?

Personally, we are planning a few day trips / long weekends. One day trip in the works is to a concert that’s about 2 hour drive each way. This takes some planning – checking out the route and plans for the concert – tickets, parking, the location, etc. Our weekend away is for later in the summer, this involves more planning as it’s out of state to an event. Nver the less, planning comes into play here as well.

With all our plans (and whatever you are planning) for this summer, here are some tips for that road trip from The Hartford for everything from a day trip to driving in a foreign county to prepare yourself and your car to be able to plan ahead.

You need to consider – route maps, lodging, gas, lodging, admission fees, parking and more to work with your budget. Options is what it’s about. For example, route maps have come a long way from the paper maps to GPS to phone navigation apps – all are good choices, but require planning. What’s your preference? Doing your research ahead of time, helps you plan your finances and helps you to stay within your budget.

I’ll keep you posted on our summer adventures. So what’s on your bucket list for this summer (and beyond)?

Finances and Money

Finance and money is more than paying your bills on time. Yes, this is extremely important – paying bills late may effect your credit and can cost you money with late fees / finance charges. But there is more getting your finances organized. Do you have the money to pay your bills each and every month? You will want to have money for today and for the future. Do you have goals you want to achieve?

There are many ways to deal with your finances and money and you have to find the plan that works for you.

The major parts of finances and money:

Determine your goals – what do you want in life? Maybe a short term goal is having your month last all the way to the end of the month, or to be able to pay all bills in fulls each and every month. What about long term goals? How about saving for …. (insert goal such as paying for college, a car, home, vacation) all the way to financial independence.

Action plan – how are you going to achieve your goals? Break this down into action steps, using the smart goal formula. What is the first step you need to do to start down this financial road? Maybe it’s starting to save … (insert amount every pay period).

Budgeting – now’s the time to put your money on the table. How much money do you need to achieve your goals? Start by tracking your net income and your expenses (every penny) to see where you stand. Don’t think your have money to save, then you need to make changes to reduce your expenses and/or increase your income. Remember that making a budget is not a one time thing, your are making a budget, review and sticking to it.

Savings money – break it down into manageable amounts and be realistic. Your not going to be able to save $1,000 in a month, but your could start out by planning to save $20 or more per paycheck. Automating your saving is the easiest and best way to stick with this goal – paying yourself first before you paying anything else.

Paying down debt – we all know that the finance / interest charges are the enemy of your budget. This is money that could be used in other ways. Don’t stick you head in the sand, we have all been there at one point or another. Make a plan to payoff your debt – avalanche or snowball methods are way to start.

Take some time and take a look at your finances and start to deal with your finances and money to get on a path to achieve your goals.

This is very simplified and not all plans work for everyone. Take the time to modify or find a plan that works for you and your finances.

If you want more information, please visit my website for my upcoming workshops.

Holiday Tipping

It’s that time of year and we are all faced with this issue. Today, I am rerunning this newsletter if hopes of helping you decide.

The holidays are coming! The holidays are coming! You probably know this and the retail stores are starting the holidays off during the summer. From Labor Day weekend, I see the holidays all over the place in retail stores. I’m thinking the beach and heat and they are thinking December. While it’s not bad to plan ahead and be proactive, it’s too early for me, but it’s never too early to think about your budget.

Tipping is always something that comes up around this time of year. Here are my thoughts and what we do.

First, we don’t wait for the holidays. In my opinion, good service doesn’t have to wait until the end of the year. If someone goes out of their way or does an exceptional job, then by all means tip them. A while back we bought dining room chairs and the person in the store took the time to go out of his way. That deserved a tip then and there.

Second, give what you can afford. While it’s nice to give cash and to be able to give to everyone, that may not work for your budget. You can thank people verbally and express your gratitude with a conversation, special note in a card, contact the company or supervisor and express the great service you received, instead of cash. I have made calls to the airline to express how grateful we were for a particular person and the excellent service we received. Rarely do companies get calls like this and they can seem shocked at the call.

This is my plan of attack. Create a list people in your life and here are some examples:

Mail Carrier / Package Delivery
Personal Care (Hair, Nails, Massage)
Child & Elder Care
Teachers
House Cleaner / Lawn Care / Snow Removal Care
Pet People (Groomers, Walkers etc.)
Doorman / Maintenance Workers
Assistants / Key Employees

Then make a plan. If you were to tip everyone in one week, you would break the bank. I like to start after Thanksgiving and end this by New Year. Now if you have decided on an actual tip, it can take the format of the cash or possibly a cash gift card, unless you know them well enough to pick a specific merchant’s general gift card. Spreading out the tipping, helps my budget. Plus, I like to do this in person. So when I have a service done, that’s the time I tip, and again throughout the year helps my budget as well.

Finally for cash tips, make a trip to the bank and get nice new crisp bills and have thank you or blank note cards. People who get many tips need to know who they received it from, so a short thoughtful note handwritten in the card works well. It always is so much nicer to give a tip with a good presentation. I feel that the recipient thinks you took the time to think about them versus handing them crumpled bills from your wallet.

Not sure how much to give? That’s entirely up to you. There are many guides on the internet to assist you, but ultimately it’s your choice. Make your plan now so that you check one thing off your holiday to do list.