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Archive for the ‘Life Planning’ Category

Establishing a Budget

Thursday, September 6th, 2012

Do you ever wonder where your money goes each month? Does it seem like you’re never able to get ahead? If so, you may want to establish a budget to help you keep track of how you spend your money and help you reach your financial goals.

Examine your financial goals

Before you establish a budget, you should examine your financial goals. Start by making a list of your short-term goals (e.g., new car, vacation) and your long-term goals (e.g., your child’s college education, retirement). Next, ask yourself: How important is it for me to achieve this goal? How much will I need to save? Armed with a clear picture of your goals, you can work toward establishing a budget that can help you reach them.

Identify your current monthly income and expenses

To develop a budget that is appropriate for your lifestyle, you’ll need to identify your current monthly income and expenses. You can jot the information down with a pen and paper, or you can use one of the many software programs available that are designed specifically for this purpose.

Start by adding up all of your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends, interest, and child support. Next, add up all of your expenses. To see where you have a choice in your spending, it helps to divide them into two categories: fixed expenses (e.g., housing, food, clothing, transportation) and discretionary expenses (e.g., entertainment, vacations, hobbies). You’ll also want to make sure that you have identified any out-of-pattern expenses, such as holiday gifts, car maintenance, home repair, and so on. To make sure that you’re not forgetting anything, it may help to look through canceled checks, credit card bills, and other receipts from the past year. Finally, as you list your expenses, it is important to remember your financial goals. Whenever possible, treat your goals as expenses and contribute toward them regularly.

Evaluate your budget

Once you’ve added up all of your income and expenses, compare the two totals. To get ahead, you should be spending less than you earn. If this is the case, you’re on the right track, and you need to look at how well you use your extra income. If you find yourself spending more than you earn, you’ll need to make some adjustments. Look at your expenses closely and cut down on your discretionary spending. And remember, if you do find yourself coming up short, don’t worry! All it will take is some determination and a little self-discipline, and you’ll eventually get it right.

Monitor your budget

You’ll need to monitor your budget periodically and make changes when necessary. But keep in mind that you don’t have to keep track of every penny that you spend. In fact, the less record keeping you have to do, the easier it will be to stick to your budget. Above all, be flexible. Any budget that is too rigid is likely to fail. So be prepared for the unexpected (e.g., leaky roof, failed car transmission).

Tips to help you stay on track:

  • Stay disciplined: Try to make budgeting a part of your daily routine
  • Start your new budget at a time when it will be easy to follow and stick with the plan (e.g., the beginning of the year, as opposed to right before the holidays)
  • Find a budgeting system that fits your needs (e.g., budgeting software)
  • Distinguish between expenses that are “wants” (e.g., designer shoes) and expenses that are “needs” (e.g., groceries)
  • Build rewards into your budget (e.g., eat out every other week)
  • Avoid using credit cards to pay for everyday expenses: It may seem like you’re spending less, but your credit card debt will
    continue to increase

Four Money Mistakes You Might Be Making

Tuesday, July 3rd, 2012

Four years after the economic crisis led many Americans to re-evaluate their financial picture, economic uncertainty is still the norm. While there’s little you can do about the shaky economy, you can help stabilize your own finances over the long term by evaluating what you’re doing right … and wrong. There’s no guarantee, but avoiding these four money mistakes may help you survive and ultimately thrive in any turbulent economy.

Mistake 1: Jumping on the bandwagon

Are you letting economic news–good or bad–control your financial decisions? For example, are you selling gold because you’ve heard that prices are at record highs or buying real estate because you’ve heard that prices are at record lows? Have you decided to pull most of your money out of the stock market because you’ve seen headlines warning of a possible financial crisis? Unless you’re basing your decisions on your own needs and circumstances rather than on the opinions or actions of others, you can’t be sure you’re doing what’s right for you. Instead of jumping on the bandwagon, take a proactive, rather than reactive, approach to your finances, no matter what economic news you’re hearing or what other investors are doing. Revisit your tolerance for risk and your own financial goals, and try to prepare yourself for a variety of scenarios. Avoid basing money decisions on emotion, or you may find yourself facing unanticipated consequences down the road.

Mistake 2: Only saving what’s left over

Do you continue to worry that you’re not saving enough? Do you routinely rely on credit rather than cash to pay for the things you want or need? Rather than blame your financial inertia on your income, look a bit deeper, because the real culprit may be the lack of financial priorities. If you don’t know exactly how you’re spending your money and you haven’t set financial goals, it’s unlikely that you’ll see much financial progress.

Go back to basics by preparing (or reviewing) your budget. If you tend to save only what you have left over every month, you can put yourself on a more disciplined course by having a fixed amount taken out of your paycheck automatically for retirement. Or, you can set up automatic transfers from your checking account to a savings or investment account.

Mistake 3: Not having an emergency fund

One lesson that you may have learned over the past few years is that the job market isn’t stable. That’s a major reason why one of your savings priorities should be an emergency fund. While it isn’t glamorous, this underappreciated workhorse really pulls its weight during hard times. Having cash on hand that you can use for an unexpected expense, or to pay bills if you lose your job, is vital because it can help you avoid having to rely on credit or tap your retirement savings. If you don’t have emergency
savings to fall back on, a minor money shortfall can quickly turn into a major cash crisis.

Mistake 4: Not asking for help

Even if your finances are in good shape right now, you may be overdue for a checkup. Reviewing your finances is especially important during periods of volatility because it can help reveal potential strengths and weaknesses, and identify changes you might need to make to adjust to the current economic climate. And if you’re already in financial trouble, don’t let fear or shame prevent you from asking for help. Facing financial problems early may help you make a full recovery. Many creditors are willing to work with you, but this may be much easier while your credit is still good, and while you still have time to turn things around.

Pay Down Debt or Save and Invest?

Friday, June 22nd, 2012

There are certainly a variety of strategies for paying off debt, many of which can reduce how long it will take to pay off the debt and the total interest paid. But should you pay off the debt? Or should you save and invest? To find out, compare what rate of return you can earn on your investments versus the interest rate on the debt. There may be other factors that you should consider as well.

Probably the most common factor used to decide whether to pay off debt or to make investments is to consider whether you could earn a higher after-tax rate of return on the investments than the after-tax interest rate on the debt if you were to invest your money instead of using it to pay off the debt.

For example, say you have a credit card with a $10,000 balance on which you pay nondeductible interest of 18%. You would generally need to earn an after-tax rate of return greater than 18% to consider making an investment rather than paying off the debt. So, if you have $10,000 available to invest or pay off debt and the outlook for earning an after-tax rate of return greater than 18% isn’t good, it may be better to pay off the debt than to make an investment.

On the other hand, say you have a mortgage with a $10,000 balance on which you pay deductible interest of 6%. If your income tax rate is 28%, your after-tax cost for the mortgage is only 4.32% (6% x (1 – 28%)). You would generally need to earn an after-tax rate of return greater than 4.32% to consider making an investment rather than paying off the debt. So, if you have $10,000 available to invest or pay off debt and the outlook for earning an after-tax rate of return greater than 4.32% is good, it may be better to invest the $10,000 rather than using it to pay off the debt.

Of course, it isn’t an all-or-nothing choice. It may be useful to apply a strategy of paying off debts with high interest rates first, and then investing when you have a good opportunity to make investments that may earn a higher after-tax rate of return than the after-tax interest rate on the debts remaining.

Say, for example, you have a credit card with a $10,000 balance on which you pay 18% nondeductible interest. You also have a mortgage with a $10,000 balance on which you pay deductible interest of 6%, and your tax rate is 28%. So, if you have $20,000 available to invest or pay off debt, it may make sense to pay off the credit card with $10,000 and invest the remaining $10,000.

When investing, keep in mind that, in general, the higher the rate of return, the greater the risk, which can include the loss of principal. If you make investments rather than pay off debt and your investments incur losses, you may still have debts to pay, but will you have the money needed to pay them?

When deciding whether to pay down debt or to save and invest, you might consider the following:

  • What are the terms of your debt? Are there any penalties for prepayment?
  • Do you actually have money that you could invest? Most debts have minimum payments that must be paid each month. Failure to make the minimum payment can result in penalties, increased interest rates, and default. Are your funds needed to make those payments?
  • How much debt do you have? Is it a problem? How do you feel about debt? Is it something you can easily live with or does it make you uncomfortable?
  • If you say you will save the money, will you really invest it or will you spend it? If you pay off the debt, you will have assured instant savings by eliminating the need to come up with the money needed to pay the interest on the debt.
  • Would you be able to borrow an additional amount, if needed, and at what interest rate, if you paid off current debt? Do you have an emergency fund, or other source of funds, that could be used if you lose your job or have a medical emergency, or would you have to borrow?
  • If your employer matches your contributions in a 401(k) plan, you should generally invest in the 401(k) to get the matching contribution. For example, if your employer matches 50% of your contributions up to 6% in a 401(k) plan, getting the 50% match is like getting an instant 50% return on your contribution. In addition, there are tax advantages to investing in a 401(k) plan

The Significance of February

Tuesday, February 14th, 2012

We are currently in a Leap Year, and February 29 is a Leap Day. And it is not just a day for the calendar to catch up with the earth’s rotation, it has significant social implications. According to an old Irish legend, or possibly history, St Bridget struck a deal with St Patrick to allow women to propose to men – not just the other way around – every 4 years. This is believed to have been introduced to balance the traditional roles of men and women in a similar way to how Leap Day balances the calendar.

In some places, Leap Day has been known as “Bachelors’ Day” for the same reason. A man was expected to pay a penalty, such as a gown or money, if he refused a marriage proposal from a woman on Leap Day. During the middle ages there were laws governing this tradition.

In many European countries, especially in the upper classes of society, tradition dictates that any man who refuses a woman’s proposal on February 29 has to buy her 12 pairs of gloves. The intention is that the woman can wear the gloves to hide the embarrassment of not having an engagement ring.

So watch out eligible bachelors!  This could get expensive.

Five Traits Low-Stress, Happy Work Cultures Have In Common

Thursday, February 24th, 2011

Have you ever wondered what seperates happy people from unhappy people? The answer(s) likely are wide ranging and very dependent on who you talk too. So let’s limit the possibilities to work-related environments. One researcher spent years studying pockets of happy people trying to identify why they were that way. He came back with five traits that made the biggest diference when it came to working. Great article to read before starting work next Monday. You can find the 5 traits by clicking here.

Don’t Count California Out

Friday, February 11th, 2011

With all the recent bad press regarding California’s economy, concerns about the financial instability of several municipalities, sometimes it’s good to remind ourselves how the state is also being a force for good in  the area of environmentally clean technology. In the January 2011 issue of FA Green, a nonpartisan organization named Next 10 identified three key trends which they believe will be the reasons that California will continue to lead the way! Very interesting read, especially Trend #3 which surprised us here at Acclaro. If you are interested in reading the entire article, simply click here.

Can Money buy Happiness?

Friday, December 17th, 2010

A recent study by Thomas DeLeire and Ariel Kalil suggests that it some areas, it does, though not necessarily in the way you think it would. In a paper entitled “Does consumption buy happiness? Evidence from the United States”. The authors examined the association between various components of consumption expenditure and happiness in the Health and Retirement Study (HRS), a nationally representative sample of older Americans. They found that only one component of consumption is positively related to happiness—leisure consumption. In contrast, consumption of durables, charity, personal care, food, health care, vehicles, and housing are not significantly associated with happiness. Second, they also found that leisure consumption is associated with higher levels of happiness partially through its effect on social connectedness, as indexed by measures of loneliness and embeddedness in social networks. On one hand, these results counter the conventional wisdom that “material goods can’t buy happiness.” One the other hand, they underscore the importance of social goods and social connectedness in the production of happiness. Click here to go where you can download and read the entire study. The article is really a fascinating read and reminds me that it is time for another trip!