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  • Budgeting

    How to Create a Budget That Works

    Budgeting! It’s a word that can strike fear in our hearts. For one thing, many people associate budgeting with not having much money. You have to stick to a budget to make sure you pay the bills. Budgeting can have associations of always buying generic paper towels, and doing without concerts, wine-tasting, or any other fun activities of choice.

    But budgeting doesn’t have to be associated with deprivation. At it’s best, budgeting is a plan for clarity. You need to know where your money needs to go every month to pay the bills. Without clarity on that, you can fall behind. That impacts your quality of life, by leading to (potentially) calls from debt collectors and loss of a good credit rating.

    Budgeting allows you to know how much you need. You need concerts and wine-tasting just as much as paying the electric bill. With a budget, you can plan for those events. You can plan for vacations. You can plan for a down payment on a house, or a new car.

    Here’s how to create a budget that works, for all these things.

    1. Monitor Your Expenses

    One of the chief reasons budgets fail is that they are established without real knowledge of how much you spend and how much you need to spend.

    So one key part of doing a budget is simply monitoring what you do spend. Put any thoughts of “that’s too much!” or “wait, do I need this?” aside for now. What you’re after is an honest tally of what you really spend, without censoring yourself.

    For a month, monitor and track what you spend. On everything. You can use a notebook, a spreadsheet, or software like Mint.

    Why? A budget won’t work if you don’t really know how much you spend. A budget plan can’t be based on lack of knowledge. Say you have never really tracked how much you spend on groceries. You might decide that $250 per month is a good budget.

    But what if actually you have been spending $450? That’s not an unreasonable amount; the price of food has been rising steadily for the last few years. Your budget is doomed to failure if you decide $250 a month is your budget. It’s highly unlikely that you can cut nearly half of what you have been spending.

    2. Budget Based on the Monitoring Data

    Once you know how much you are spending, sit and make adjustments that make your expenses match your income. Do start with basic bills. Need $50 for the electric bill? Budget for it. Need $375 for groceries? Budget for them.

    Don’t stop until every category is covered.

    For the first few months, don’t worry if you go over or fall under your budget. It’s normal to have some categories not match completely. Spending for everything not fixed varies. It’s normal. You’re still gathering and refining data.

    The important thing is to get clarity on what you need every month.

    3. Make Your Budget Match Your Income

    What happens if your income doesn’t cover the budget?

    Well, one of the joys of monitoring expenses if that you know what you have been spending. After you know what you spend in a typical month, you can cut it. If you need to make adjustments in the budget, start by cutting discretionary expenses 10%. So if you’ve been spending $375 on groceries, see how you can cut grocery bills by $37.50.

    Every discretionary category can be done this way. Spend $200 on eating out? Cut 10% the first month. See if you can make a game of it. One less lunch or dinner can be $20+ saved. Entertainment? If you spend $100, rent DVDs at the library (DVDs? Yes DVDs lol) and add your $10 for a movie ticket to balancing the budget.

    Then, as you salary increases, add back that 10% and save for big ticket items like vacations, houses, and cars!

    And that’s how you develop a workable budget.


  • Budgeting, Cash Flow, Personal Growth

    6 Tips to Combat Impulse Spending

    Every day our email in boxes are filled with tempting offers from online stores and brick and mortar retailers — bait for the millions of “fish” they hope to land. If the bait works and you bite, guess what? You’re part of the billion dollar catch! There’s a carefully planned strategy behind their actions. The strategy has one aim and one aim only — to convince you that if you don’t buy now, you’ll miss your chance to snag their great deal! That’s why you’ll often see phrases like “last chance!” or “sale ends at midnight!” on so many online solicitations. And so you “bite”, grab the “deal” and feel a mixture of temporary elation mingled with guilt for breaking your budget and spending money you know you shouldn’t spend. The next day, new offers from the same retailers unfailingly appear with phrases like “sale extended for one more day!” or “absolutely your last chance!”.

    Since the whole strategy behind creating a workable budget is careful planning, impulse spending has to be one of the biggest budget “whammies” there is, since by its very nature it’s unplanned. According to Ian Zimmerman, PhD for Psychology Today, impulse buying is related to anxiety and unhappiness. Paradoxically, impulse buying typically results in buyer’s remorse and unhappiness, which should be a convincing argument for finding a way to stop doing it!

    Some of us are more likely to succumb to impulse spending than others. Zimmerman says that’s because some of us have a personality trait called, logically enough, “impulse buying tendency”, meaning that impulse buying isn’t an occasional trap we fall into, but rather a habit that we succumb to regularly. People who possess the trait are more social, more conscious of social status, and concerned with their image. They also tend to experience higher levels of anxiety and have trouble controlling their emotions.

    But whether you’re spending on impulse to look better in the eyes of your peers, or to get yourself out of a bad mood by “buying” a little (short-lived) happiness, there are ways to combat your urges and take control of your finances. Here are 6 tips to help you combat impulse spending once and for all:

    1. Don’t shop when you’re upset.

    It’s too easy to fall into the trap of buying something you don’t really need in the hope that it will make you feel better. (It might — for an hour or a day!)

    2. Stop thinking of the mall or online shopping sites as “entertainment”.

    Real entertainment makes us feel good. Shopping for entertainment tends to do the opposite. We wind up feeling cheated because we can’t afford something we see that we’d like to have, or we buy it and feel guilty for spending impulsively and breaking our budget. It’s a no-win situation! Start by unsubscribing to any physical catalogs or online solicitations you’re regularly receiving. You can use a service like Unroll Me, to unsubscribe from multiple retailers at once, or simply find the “unsubcribe” link usually found at the bottom of a retailer’s email message and click on it.

    3. Go shopping with a list.

    Buy only what’s on the list and get out of the store as fast as you can — no browsing!

    4. Ask yourself questions.

    “Do I really need this?”, or “Will buying this really change my life and make me happier?”. Be honest with yourself! Don’t try to “sell” yourself to justify an impulse buy.

    5. Watch out for the “on sale” trap.

    An astonishing number of us buy things simply because they’re on sale and we “could use it”. Truth is, we could all use the extra money more!

    6. Keep a list of the things you really want/need.

    (That way, if you find one of them on sale and have the cash on hand to buy it, it really will be a good deal!)

    There will always be “stuff” out there that we’d love to have, and there will always be people who have more than we do. Those are things we can’t control. The only thing we can do is learn to control our impulses by stopping, taking a breath, and remembering we can actually find happiness without acting on every impulse!


  • Budgeting, Debt

    Car Buying: Why Buying Used Is the Best Option

    For some people, buying a different car is a lifestyle choice. For others, it’s a matter of necessity. Whatever your reason for entering the automobile market, the first choice you’re faced with is whether to buy new, buy used, or lease. From an economics standpoint, buying used is usually the most financial sound choice. Here are 3 reasons why you want to consider buying used for your next car purchase.

    1. You’ll save a lot of money.

    Of course, it’s obvious that a used car costs less than a new car; but the difference is substantial because new cars depreciate very quickly. According to Consumer Reports, a new car loses 46 percent of its value after three years. So if you paid $25,000 for a new car, it would only be worth $13,500 after three years. On the other hand, if you bought that three-year old car, you’d have a pretty nice vehicle, and will have spent much less on it.

    2. Today’s used cars are more reliable than used cars of the past.

    For years, there has been a big push by automobile manufacturers to lease cars; and that’s a boon to the used car buyer. Typically, lease terms run for two or three years, at which time the lessee turns the car back to the dealer. You can probably guess what happens to the car then – it’s sold as a certified pre-owned (CPO) vehicle. These CPO vehicles are a great value for the used car buyer because the lease terms limit the number of miles the car can be driven and require superior care and maintenance. Otherwise, the lessee pays a penalty. So the person who buys the CPO vehicle gets a low-mileage, like-new vehicle at a used car price. It should be noted that CPO vehicles are typically more expensive than a regular used car, but they’re still a great value, especially since the dealership is certifying that the car is essentially like new.

    3. Buying used is no longer like buying “a pig in a poke”.

    It used to be, when you looked at a used car, you were at the mercy of the person selling it when it came to the vehicle’s history.  We all know that image of the greasy, untrustworthy car salesman.  That’s no longer the case, at least when you buy from a reputable dealer. Today, most dealers offer a vehicle history report from providers like Carfax and AutoCheck. In fact, if the seller doesn’t offer a history report, it’s probably best to pass on that vehicle. Of course, a vehicle history report may not identify every possible cause for concern associated with a particular used car, but they still add some peace of mind when buying one.

    While buying a used is more risky than buying new or leasing; today’s used vehicles are, for the most part, better than ever. Vehicle history reports that can reveal important details about a car’s past, and automaker CPO programs offer a reasonable assurance that you’re getting the cream of the used car crop.

    Here is some additional information about buying used:




  • Budgeting

    Why Your Budget Isn’t Working

    When you tell someone that you’re having trouble with your finances, the first thing they often tell you is that you need a budget! While that sounds great in theory, in many cases, even with a great budget, you’ll still find yourself falling short at the end of a paycheck. If your budget isn’t working, you’re not alone! Understanding how a budget really works and taking a few steps to change your financial perspective will help you straighten out your financial woes.

    Your Budget is a Set of Guidelines

    Obviously, your budget doesn’t necessarily line up with exactly the way you spend your money every step of the way. If you aren’t sticking to your budget, it’s not worth any more than the paper it’s printed on (or the app it’s saved in). There are several common budgeting issues that can make it harder to stick to your budget.

    • You didn’t include any “play money.” Regardless of whether you’re saving up for something with a big reward–a big vacation or a coveted purchase, for example–or you’ve simply stretched your finances too thin, some play money is necessary in order for you to stick to your budget more effectively. With no room at all, you’ll be more tempted to “cheat”–and that spells disaster for your budget.
    • You forgot to leave room for unexpected expenses. If your finances are too tight, an unexpected cold can spell financial disaster–much less a larger expense like a serious illness or a major car repair.
    • You didn’t know what your expenses actually looked like. Gas, for example, is a necessity for getting to and from work. You can tell yourself that you’re only going to go through one tank of gas per week all you like, but if you routinely need a tank and a half, that shortfall is going to have to come from somewhere.

    Fixing Your Budget Woes

    Once you’ve taken a look at the problems with your budget, it’s time to fix it. You need a realistic budget that actually includes a picture of your financial situation, not the financial ideal you’d like to strive for. As you’re rewriting your budget, try some of these tactics.

    Keep track of your actual spending for 3 months.  I always recommend 3 months because it accounts for any period of time where there maybe unusually high or low spending (think birthday months for example). Write down where every dollar you spend is actually going, from those quick trips to the grocery store to pick up an extra ingredient for dinner or your daily coffee shop trip to the lunches out with your colleagues.  A great way to do this is by printing your last 3 months bank statements and categorizing each item line by line.  Then total up each category for the monthly total.

    While you can certainly cut some of those expenses, it’s very helpful to actually know where your money is going–and seeing it on paper can be the incentive you need to start using the office coffee maker or brown bagging it instead of constantly going out for your food and beverage needs.

    Write a budget based on your actual spending. If you need $200 to feed a family of four for two weeks, it’s unrealistic to think that you can get by on $100 for the same period of time. On the other hand, shaving $10 or $20 off of your food budget by skipping the cheese, avoiding dessert, or making inexpensive meals for a period of time is a more realistic way to cut expenses, especially on a short-term budget.

    Account for all of your spending. If you spend $20 a week at your favorite coffee shop, that money has to come out of a line in your budget somewhere. Is that your “fun money” for the week? Does it come out of the grocery budget? One of the biggest problems is the temptation to not “count” small expenses. Unfortunately, those expenses have to be paid for somehow–and often, they add up faster than you think.

    Creating a solid budget is just the first step of the battle. Once you have one, you have to stick with it. Commit to shifting the way you think about your finances, then make the necessary changes that will allow you budget freedom to see how living debt free can change your life.

  • Budgeting, Uncategorized

    Getting Out Of Debt: Two Strategies To Consider

    So you found yourself with a bit of debt. Maybe it’s from student loans, maybe it’s credit card debt from emergency car repairs that couldn’t be put off, or maybe you went a little crazy with holiday spending this year.

    If you are in debt to more than one creditor (e.g. you’re carrying a balance on multiple loans or credit cards), there are two main strategies that you can use to tackle your debt. Each one requires you to look at your accounts and determine how you want to prioritize paying them off.

    Before we look at the strategies, let’s assume that your debt looks like this:

    Credit Card A – $874 balance with 25% interest

    Credit Card B – $2,341 balance with 22% interest

    Student Loan 1 – $10,501 balance with 6% interest

    Student Loan 2 – $766 balance with 2% interest


    The Snowball Strategy

    The Snowball Strategy prioritizes paying off those accounts with the lowest balances first.

    Using this strategy, you would focus your debt pay down efforts on the accounts you’re closest to paying off, while continuing to make smaller payments on your other debts. Eventually, you would pay off all of the smaller balances and be left with only one larger debt to finish paying off.

    In the example above using this strategy, you would pay off your accounts in this order:


    1. Student Loan 2 – $788 balance with 2% interest

    2. Credit Card A – $874 balance with 25% interest

    3. Credit Card B – $2,341 balance with 22% interest

    4. Student Loan 1 – $10,501 balance with 6% interest

    The benefit of this method is largely psychological – prioritizing those debts that you are closest to paying off means that you’ll see $0 balances faster. This can be encouraging and help you keep up the momentum of paying down your debt!



    The Avalanche Strategy

    The Avalanche Strategy prioritizes paying off those accounts with the highest interest rates first.

    Using this strategy, you would focus your debt pay down efforts on the accounts to which you’re paying the highest rate of interest, while continuing to make smaller payments on those accounts with lower interest rates.

    In the example above using this strategy, you  work on paying off your accounts in this order:


    1. Credit Card A – $874 balance with 25% interest

    2. Credit Card B – $2,341 balance with 22% interest

    3. Student Loan 1 – $10,501 balance with 6% interest

    4. Student Loan 2 – $788 balance with 2% interest

    The benefit of this method is financial – prioritizing the debts with the highest interest rates means that you will pay less in interest overall.


  • Budgeting

    Tips to Combat Impulse Spending: Embrace With Control

    How do you define a want versus a need?

    And once you draw the line between the two, how do you control the impulse to spend on something you don’t need now?


    The easy part is talking yourself into removing money from your wallet:

    “I deserve this.”

    “I worked really hard this week.”

    “Life is short, why not enjoy my money now?”

    “If I don’t spoil myself, who will?”


    The hard part is exercising control over spending, looking at that current money as funding for your future self, rather than immediate gratification that lasts less time than it takes to earn those funds in the first place.

    It’s not enough to talk yourself out of impulse spending. You need tools that help and reasons to do it:

    It’s OK to embrace the impulse:

    The trick is to budget for it. Call it whatever you want – an impulse buy, a treat, gift or spree – just plan for it. Use a computer spreadsheet, paper and pencil or carry it on your smart phone app. Mint and Wally are two popular apps available for all devices that provide detailed breakdowns of spending and saving by amount and time comparisons, so you see where spending gets out of control.


    Save for the impulse:

    Along with budgeting, set aside a category (using a paper or digital envelope) just for impulse spending. Place a limit on that fund each month and once spent, there is and no more until next month.


    Get interested in interest:

    Impulse purchases add up. Want to see what that money means for the future? Use a compound interest calculator to set a savings goal. Choose an amount to save each month (perhaps the cost of a couple of fancy coffee drinks), the number of years you can save that amount, add the interest rate (from your local bank) and you can figure out what you will have. An example: $10.00 a month saved for 40 years at five percent interest yields nearly $5,000.00!  That is money you won’t miss from your impulse spending.


    Ignore the impulse; reckon with reality:

    Student loans are big business: 44 million borrowers currently owe about $1.3 trillion, with each borrower in for an average of $37,000. Your impulse shopping seems trivial compared to what you owe, but redirecting those funds towards paying off those loans frees your money for other uses sooner.


    Save where you can so you spend where you want:

    This is the basic mantra of author, journalist, mother and financial survivor Donna Freedman’s Surviving and Thriving blog. She understands how to make it on the basics, work with what you have and live within your means, because she did it for many years. Her message: establish priorities in life and spend your money on those while you save on less important impulse spending.


    Have multiple life plans:

    Living is never done in a vacuum and never proceeds in a nice straight line. You have a job now that offers health insurance, but if you lose your job, can you pay for your own health insurance? You have auto insurance, but does your policy cover everything after an accident? If the opportunity to start your own business presents itself, can you afford to say yes? When you save instead of spend on your impulses, you have the money for life’s good and bad “Oh !%$*” moments.


  • Budgeting, Cash Flow

    5 Ways To Increase Your Cash Flow

    We spend a lot of time tackling debt and budgeting our cash flow.  But what happens when your budget just keeps coming up red month after month?  You’ve made all the cuts you can, and if you see one more peanut butter and jelly sandwich you might puke.  Cutting expenses will only get you so far.  At some point we have to address income.

    Here are a few ways you can explore to increase your cash flow.

    1. Ask for a raise

    Getting a raise in your current job is the first thing you should consider. But when you ask for a raise, you have very little leverage with your employer. After all, they already have you. So you must make a convincing case for why you deserve a raise. Here are some ideas on how to ask for a raise.

    2. Change Jobs

    If you’re currently in a job that doesn’t pay well enough to enable you to consistently contribute to your savings and retirement plans, it may be time for a change. Of course, whether you should change jobs is dependent on a number of important factors including the overall job market, the job market in your chosen field, and your own expertise and experience in that field.

    3. Sell Stuff Online

    When most people think of selling products online, they think of sites like eBay and Amazon. While those certainly are among the most well-known, they’re not alone in that industry. There are dozens of online marketplaces and platforms where you can sell stuff. Whether it’s your own items, or things you sell for others on consignment, online selling is a good way to generate extra income without interfering with your full-time job.

    4. Teach people what you know

    Most of us have skills and talents other people would like to learn; we just don’t realize it. Take an honest inventory of your own skills and talents, including what you do at your job, and determine if there’s something in your skill-set that’s marketable as something you could teach people for money. If you’re honest with yourself, you should be able to come up with at least one. You can then monetize that expertise by teaching people with less experience or knowledge than you in that subject area.

    5. Become a Contributing Writer

    This dovetails nicely with the teaching people what you know idea. There are dozens of blogs and online magazines that will pay you on a per-article basis to write for them; and you don’t need to be an established writer to do it. All you need is some subject matter knowledge and the ability to string words together into coherent sentences.

    We’ve barely scratched the surface of what’s possible here. Opportunities abound for those who seriously want to earn extra money, regardless of their level of experience. Here are some additional ideas on ways to increase your cash flow: