Posts Tagged ‘Spending Plan’

5 Reasons to Use a Spending Diary

Have you ever used a spending diary?

Dear Spending Diary…

Reason #1 to use a spending diary

You have more month at the end of your money. Spending diaries are a tool to help you track your spending.

Reason #2 to use a spending diary

You have a high debt to income ratio. Studies show that when people pay with cash, they spend less on purchases then when they pay by credit card.  When you track your spending, you are forcing yourself to pay more attention to your spending habits.

Reason #3 to use a spending diary

You are an impulse shopper and find you are buying more than you need. If you write what you are thinking and feeling about your purchases, you can start to look for patterns. For example – you notice that when you shop hungry, you spend more at the grocery store. Once you notice the pattern, you can make different choices and avoid situations that trigger spending sprees.

Reason #4 to use a spending diary

You need to fine tune your budget or spending plan. A spending diary will give you clues about areas that you can cut or increase spending. If you are looking to increase savings, a spending diary focuses on tracking spending so you can spot savings opportunities.

Reason #5 to use a spending diary

You want to check that your spending habits align with your values. When your values and spending are in alignment, you feel better about our choices. For example if you value eating healthy and you are spending all of your food budget on fast food – then you begin to think about your habits and choices and strategize ways to bring your spending back into alignment with your values.

Your comments and questions are always welcome. Need help getting your own financial house in order? Schedule a complimentary session with Money Mentor Coach, Dedra Murchison for one-on-one coaching.

Read More...

How healthy is your emergency fund?

Are you saving for a rainy day?

Are you saving for a rainy day?

How much is enough when it comes to building an emergency fund?

Back in the day 3-6 months was standard fare. If your family is growing, you are adding more dependents, or starting your own business, you may want to consider having an extra cushion. There are several factors to consider as you decide how much is enough.

  • How long are the elimination periods on your disability or long-term-care policies?
  • Are you living paycheck to paycheck or do you have some financial stability?
  • Is there a high likelihood of unemployment in your horizon?
  • Are you working in an industry that is becoming obsolete?
  • What is your personal comfort zone?

Having a budget is a pre-requisite to figuring out how much you need for an emergency fund. Multiply your monthly expenses by the amount of months you want to cover and you have your number. The next step is to look at your resources. If you have that amount in savings, congratulations! If not, find the gap and start saving to fill the gap. You want to keep your emergency funds liquid.

Use a savings account, high-yield savings account or money market fund to park your funds. You are giving up yield for security. This is not money that you invest aggressively.  Savings accounts and high-yield savings accounts offer FDIC insurance. Money market funds are not FDIC insured and although they are designed to maintain a net asset value of one dollar, there are market conditions where money market funds may “break the buck” and you can lose value. Read the fine print and understand the risks, fees and expenses associated with each investment vehicle.

Certificates of deposit are another option. They offer a slightly higher yield than a savings account in exchange for restricted access to funds. They typically are sold in fixed time periods and accessing those funds before the term ends will cost you in penalties. If you are using Certificates of Deposit, you might want to consider a laddering strategy. This involves purchasing at fixed intervals so that you always have access to a pool of money without penalty.

Once you have established your fund, you want to make sure that you are using it for emergencies only. Make plans to replenish the fund if you have to dip into it for an emergency. Having an emergency fund provides peace of mind that you can handle minor hiccups in the road of life.

Read More...

The Road to Financial Literacy

via Unsplash by Simon Waelti

Have you mapped out your path to financial literacy?

It has been a long day at work. You are busy. You have things to do, places to go and people to see. You open the mail and read your 401(k) statement. You look at the charts and graphs and numbers and wonder what it all means. Are you saving enough? When can you retire? Are you making the right investment choices? The phone rings and you put away the statement and resolve to do something about it next week.

Sound familiar?

Most people continue to put off planning for retirement. They are too busy. Too confused by all the choices. Intimidated by the technical aspects of planning. Afraid to make a mistake. Wanna know a secret? There is hope and there is help. Today there are a host of tools available online and offline to help you get the knowledge you need to bridge the gaps in your financial education. Armed with information, you can make smarter choices about your money. If you invest the time, you will feel more confident and you can increase your skills.

The first step is to carve time out of your schedule to devote to learning. Decide how much time you can spare. In as little as 15 minutes a day you can make progress. Look at your schedule and block that time out. NOW. Stop reading this article and get out your calendar. I can wait….

Okay – so now you have decided how much time you are going to devote to learning. The next step is to define what it is that you want to learn. I am a huge fan of lists. Create a list of all the things you do not know. Include all the questions you have about anything related to your finances  (even the ones you are too scared to admit to not knowing). Once you have a good list going, you can sort through the list and rank in order of priority.

Now you are ready for some learning tools and resources. There are all sorts of classes available online and offline.

The FDIC offers a series called Money Smart that covers the basics of financial management. There are also modules available for youth, older adults and small business owners. In as little as 30 minutes per module you can increase your knowledge base on a variety of topics from how to track your money to understanding how credit works.  Another option developed by Texas AgriLife Extension Service under contract with  the U.S. Department of Labor Women’s Bureau is WiseUp. WiseUp educates Generation X and Y women and offers modules on money basics, record-keeping, insurance and risk management, investing and achieving financial security. Money Smart and WiseUp are free and require registration to get access to the learning modules.

Prefer your learning online with ed2go?  With a course catalog that includes courses on everything from accounting and finance to writing and publishing, you can take classes on a variety of topics to increase your skills and knowledge base. There are now about 9 courses on personal finance and investments.  Each course provides details, a syllabus, requirements and reviews. Most courses typically last 6 weeks and you have access to interactive student forums where you can post and discuss your questions. The pricing varies and discounts may be available through your college, university or local library.

If you are serious about your learning quest, you may want to consider taking educational courses designed for Certified Financial Planners(CFP®). Courses include general principles of financial planning, insurance, investments, income tax, retirement, estate, and financial plan development. You can take the courses without committing to taking the exam. I took the tax class with a woman who was not on the certification track and she discovered an error in her tax return and was able to recoup the cost of the class by amending her tax return and requesting a refund. Knowledge is powerful stuff. For more information about the CFP® program you can visit the CFP Board online.

These are only a few of the many options that are available to increase your financial knowledge base. Investing your time pays big dividends and increases your confidence. Regardless of whether you are working alone or with a financial professional, the more you know, the easier it is to make smarter choices about your money.

Read More...

The “B” Word

The B Word

Is budget a four letter word?

In case you are wondering if I am about to go PG-13 with this post, let me reassure you that the word in question is BUDGET. If that word makes your eyes twitch and you feel like you should stop reading this post and start dusting the coils on your refrigerator, reading “War and Peace” or alphabetizing your spice rack – let me ask you one question. Ever wonder why there is more month than money? If that is the case for you, I highly recommend that you give this BUDGET idea some serious consideration.

Budgets do not have to be complicated. A basic budget helps you get on track and stay on track. I like to think of my budget as a spending plan. It is an accounting of income and expenses over a specific time period. There are many tools available to help you get started and to monitor your plan.

Here are a few of my favorite tools:

Mint.com is a great tool for tracking your net worth and spending. Mint does a lot of the heavy lifting by organizing and categorizing your spending. This site allows you to pool together all your financial data in one place so that you have a snapshot of YOUR big financial picture. You can sign up for alerts to help keep you on track so that you do not overspend in a given category.  This is an ideal solution for people who are too busy to maintain and update data. You can be up and running relatively quickly depending on the number of accounts that you have established. Squeamish about security or privacy? Mint is a read-only and offers bank level security. I encourage you to read the FAQ’s and make sure you are comfortable before signing up for your free account.

Free budget templates – If you perform a basic Internet search, you can find a host of templates. One of my favorites is Vertex42. There are simple versions and a more robust household version. There is even a version for college students. Got debt? They also offer an amazing debt reduction calculator that allows you to look at various scenarios and options for eliminating your debt.

The Happiness Spreadsheet by Cathy Curtis – I always recommend that you factor in a bit of fun to your budget. The amount will vary with your income and expenses but I find that if you do not allow for this – it is hard to stay on track long-term. Curtis links spending, values and happiness. When you create a budget that is aligned with your values and income level – you have a greater likelihood of achieving financial success. The book contains exercises to easily guide you through this process. I am a huge believer in a values based approach to financial planning and this is a great tool to help you build a better budget.

These are just a few suggestions. The important thing is to get started TODAY.  Once you have created a budget, then you can move into the monitoring and adjusting period. You will start to build up data and see where maybe you left off a category or you need to increase or decrease spending based on actual expenses.  It is important to track projected versus actual spending. This will keep you focused and on track.

Read More...