Managing Money

Summary

• It takes patience, but you can save money even with a low income.
• Start by setting small goals.
• If you’re paying down credit cards, set aside cash as well.

Think you’re making too little money to save any? You may be selling yourself short. Even on a low income, it is possible to build up a cash cushion for emergencies. But it’s not something you can do overnight. It takes planning and patience.

Of course, a key step of saving is to take control of your spending. But you should plan to save even if you have not yet drawn up a budget. Setting a saving goal can help motivate you in your cost-cutting task. When you commit to put money aside, you have one more good reason to watch your pennies.

What should that savings goal be? How much is the right amount for an emergency fund? Here are some tips to help you make a saving plan that works for you.

Set goals you can reach

Most financial planners say you should have an emergency fund to cover at least three months of your normal earnings. This is your cash “cushion” for unpleasant surprises—losing a job, sickness or injury, major car repairs, and the like. For many people, whatever their income, saving that much is easier said than done. One problem is that it takes time. If you’re on a low, fixed income and can set aside 10 percent of that money each month, you’re a good saver. But even at this rate, it will take you two and a half years to get three months of cash flow in the bank.

That can be discouraging. You are less likely to give up if you break it up into small, achievable bites.

Consider saving at first for rare but large expenses. If you know you’ll get a $600 bill for car insurance a year from now, start setting aside $50 a month for it. Then add a monthly amount to cover next year’s holiday shopping. If you can handle three or four items like these, you’re close to saving a month’s income. You have a cushion that can come in handy, and you have also built a saving habit.

Build a moat on all sides of your savings

Your emergency fund has to be on hand when you need it. So don’t put it in any investment, like stocks, that can lose value. But you don’t want the money to be too close by. It’s only for emergencies, after all. If you don’t separate it from your checking or debit-card account, the temptation to spend it will be too great.

Think about those old-fashioned piggy banks—the ones you had to break to get at your money. They were designed to make saving easy and spending a little harder. Your own savings vehicle should work the same way. It needs to be set apart from the account you use for everyday spending.

Shopping around for savings vehicles can also pay off in better rates of return. The more interest you get, the more you are being rewarded for saving. Try to find an institution that pays higher interest for larger balances. This also rewards you for saving more.

One more way to build a moat around your money is to have someone else, such as an employer, put money directly into your savings account. If you are working, find out if a share of each paycheck can be sent to savings, with the rest going to your checking account.

This is a good way to “pay yourself first.” Once the system is set up, saving just happens. You don’t have to do anything more. If you are getting payments from a government program, check to see if a similar service is available.

Pay down debt, but keep the cushion growing

It gets harder to save if you’re trying to pay down debt at the same time. Credit cards charge high interest, so it’s good to pay them down as soon as you can. But if you have cash for emergencies, you can avoid using the plastic. So it’s best to do both: Build the cash cushion while reducing debt. Split your money between the two. If you make weekly deposits to your savings, you might redirect one of these each month toward paying off credit cards. If you have more than one card, pay off the one with the smallest balance first.

By Tom Gray

©2011-2022 Carelon Behavioral Health

Money buys more happiness if it buys experiences rather than things.

“If only I could have … .” Fill in the blank and you’re repeating a wish that has been heard throughout history. Despite what philosophers and religious teachers may say in dissent, the belief that possessions are a path to happiness is widely held and deep-rooted. It undoubtedly upholds much of the modern consumer-driven economy. It spurs people to work harder and to raise their standard of living. It also stirs envy, greed and the frustration of trying to meet impossible material goals.

The search for contentment in possessions has its good and bad sides. Beyond that, there’s the question of whether the prize is worth the quest. Is the promise of happiness in owning things a mirage?

Research into subjective well-being (SWB), the technical term for happiness or contentment, is relatively young and there is much to learn. The data so far suggest that possessions are a relatively weak force in producing happiness. There’s more to SWB than pursuing “leisure of itself,” but what one does in leisure time—such as socializing, worshipping or traveling—can have plenty of influence on one’s state of mind.

Buying experiences more rewarding

When it comes to the choice of how to spend one’s discretionary income, for example, spending aimed at producing a life experience tends to make people happier than spending on material goods. Research indicates that, after basic needs are met, buying a vacation tends to pay off more handsomely in SWB than spending a comparable amount on a new wardrobe or a kitchen upgrade.

One reason material purchases fail to produce much happiness is that the people who place great store in them tend to report low subjective well-being. In other words, people who think things can make them happier tend not to be very happy in the first place, and tend to stay that way.

Quick to fade: satisfaction from purchases of things

Researchers also have found that the satisfaction from buying material goods is quick to fade. So is any perceived boost in status: You can move up the scale by trading in your Prius for a Porsche, but you’ll find there is always someone with more to show off. But just as the novelty and emotional boost of things wears off, the pleasure of a remembered experience actually can grow with time—and the unpleasantness can fade.

Of course, everyone needs some possessions to meet basic needs. The poorer you are, the more material things make a psychological difference. Consider automobiles. If you don’t have a reliable automobile to get to and from a job, for instance, being able to buy one can do a lot to change your life for the better. On the other hand, trading up from a dependable but boring car to a flashier model can put you on the so-called “hedonic treadmill,” in which you have to keep buying more just to keep your sense of well-being from sinking.

Other determinants of happiness

If psychology sends one clear message about material possessions, it’s that they’re not a likely source of lasting emotional value for those who already have the necessities of life. “Necessity” is itself a highly subjective concept. Some will need more than others to feel comfortable or secure, though having more can also raise the necessity bar upward, so that one never seems to have quite enough—the hedonic treadmill again.

In general, though, the other determinants of happiness—friends, marriage, family, faith, and fun—look like more proven routes to the good life.

By Tom Gray

©2004-2019 Carelon Behavioral Health

Source: Leaf Van Boven, department of psychology, University of Colorado at Boulder (author, with Thomas Gilovich, department of psychology, Cornell University, of “To Do or to Have? That Is the Question” (2003) in Journal of Personality and Social Psychology, 85, 1193-1202; David G. Myers, “The Funds, Friends, and Faith of Happy People” (2000), American Psychologist, 55, 56-67; Ed Diener, et al., “Subjective Well-Being: Three Decades of Progress (1999),” Psychological Bulletin, 125, 276-302.

Summary

Use this list to make sure your tax return form is correct and complete.

Before filing your return, review it to make sure it is correct and complete. It’s important that you review your entire return, even if you have someone else prepare it, because any errors may delay the processing of your return.

The following checklist may help you avoid common errors:

• Submitting your tax return electronically ensures greater accuracy than mailing your return. The e-file system often detects common errors and rejects your tax return, sending it back to you for correction. This could save you delays in processing your tax return.
• Did you clearly print your name, taxpayer identification number, and current address, including your ZIP code, directly on your return?
• Did you choose only one correct filing status?
• Did you check the appropriate exemption boxes for your personal, spousal, and dependency exemptions? Did you enter the total number of exemptions?
• Did you enter the names and taxpayer identification numbers for everyone listed on your return? If using social security numbers, they must be entered exactly as those names and numbers appear on each person’s social security card. If there have been any name changes, be sure to contact the Social Security Administration at SSA.gov or call them at 800-772-1213.
• Did you enter your income on the correct lines?
• Did you calculate deductions and credits correctly, put them on the right lines, and attached the necessary forms or schedules?
• Did you put brackets around negative amounts?
• If you are taking the standard deduction and checked any box indicating either you or your spouse were age 65 or older or blind, did you find the correct standard deduction using the chart in the Form 1040 Instructions or the  Form 1040A Instructions?
• Did you figure the tax correctly? If you used the tax tables, did you use the correct column for your filing status?
• Did you sign and date the return? If it is a joint return, did your spouse also sign and date the return?
• If you received an IP PIN (Identity Protection PIN) from the IRS, see “identity protection PIN” in the instructions for your form.
• Do you have a Form W-2 from each of your employers and did you attach Copy B of each Form W-2 to your return? If you have more than one job, combine the wages and withholdings from all Forms W-2 you receive and report those amounts on one return.
• Did you attach each Form 1099-R that shows federal tax withholding?
• Did you attach all other necessary schedules and forms in sequence number order as shown in the upper right-hand corner?
• Did you use the correct mailing address from your tax form instructions?
• Did you use the correct postage on the envelope?
• If you owe tax, did you enclose a check or money order made payable to the “United States Treasury” with your return and include your name, address, social security number, daytime telephone number, tax form, and tax year on the payment?
• If you are due a refund and requested direct deposit, did you double-check your routing and account numbers for your financial institution?
• Did you make a copy ofChecklist of Common Errors When Preparing Your Tax Return
• Reviewed Mar 20, 2019
• Summary
• Use this list to make sure your tax return form is correct and complete.
• Before filing your return, review it to make sure it is correct and complete. It’s important that you review your entire return, even if you have someone else prepare it, because any errors may delay the processing of your return.
• The following checklist may help you avoid common errors:
• Submitting your tax return electronically ensures greater accuracy than mailing your return. The e-file system often detects common errors and rejects your tax return, sending it back to you for correction. This could save you delays in processing your tax return.
• Did you clearly print your name, taxpayer identification number, and current address, including your ZIP code, directly on your return?
• Did you choose only one correct filing status?
• Did you check the appropriate exemption boxes for your personal, spousal, and dependency exemptions? Did you enter the total number of exemptions?
• Did you enter the names and taxpayer identification numbers for everyone listed on your return? If using social security numbers, they must be entered exactly as those names and numbers appear on each person’s social security card. If there have been any name changes, be sure to contact the Social Security Administration at SSA.gov or call them at 800-772-1213.
• Did you enter your income on the correct lines?
• Did you calculate deductions and credits correctly, put them on the right lines, and attached the necessary forms or schedules?
• Did you put brackets around negative amounts?
• If you are taking the standard deduction and checked any box indicating either you or your spouse were age 65 or older or blind, did you find the correct standard deduction using the chart in the Form 1040 Instructions or the  Form 1040A Instructions?
• Did you figure the tax correctly? If you used the tax tables, did you use the correct column for your filing status?
• Did you sign and date the return? If it is a joint return, did your spouse also sign and date the return?
• If you received an IP PIN (Identity Protection PIN) from the IRS, see “identity protection PIN” in the instructions for your form.
• Do you have a Form W-2 from each of your employers and did you attach Copy B of each Form W-2 to your return? If you have more than one job, combine the wages and withholdings from all Forms W-2 you receive and report those amounts on one return.
• Did you attach each Form 1099-R that shows federal tax withholding?
• Did you attach all other necessary schedules and forms in sequence number order as shown in the upper right-hand corner?
• Did you use the correct mailing address from your tax form instructions?
• Did you use the correct postage on the envelope?
• If you owe tax, did you enclose a check or money order made payable to the “United States Treasury” with your return and include your name, address, social security number, daytime telephone number, tax form, and tax year on the payment?
• If you are due a refund and requested direct deposit, did you double-check your routing and account numbers for your financial institution?
• Did you make a copy of the signed return and all schedules for your own records?
• Source: Department of the Treasury, Internal Revenue Service, www.irs.gov/taxtopics/tc303.html the signed return and all schedules for your own records?

Source: Department of the Treasury, Internal Revenue Service, www.irs.gov/taxtopics/tc303.html

Summary

Learn important information about who is authorized to help you with not only your tax return but with more challenging tax issues like audits, collection problems, or appeals. 

The IRS recently provided a special tax tip: “Who Can Represent You Before the IRS?” The tip shared new rules and important information about who is authorized to help you with not only your tax return but with more challenging tax issues like audits, collection problems, or appeals. Here’s the gist of what you need to know.

1. Not all tax professionals are created equal when it comes to representing you before the IRS. First, make sure your tax practitioner has an active IRS Preparer Tax Identification Number (PTIN), meaning she is authorized by the IRS to prepare your federal tax return(s). Second, make sure you know whether your tax preparer has unlimited representation rights or limited representation rights, and what that entails.
2. Tax professionals have unlimited representation rights if they are an Enrolled Agent, Certified Public Accountant, or an attorney. This means they can represent you on any tax matter, whether or not they helped you prepare your tax return.
3. Whether or not a tax professional has limited representation rights depends on the tax return in question.  If tax professionals don’t have the credentials required for unlimited representation, they can provide limited representation “if, and only if, they prepared and signed [your] return.” In addition, they must be participants in the Annual Filing Season Program.
4. A tax professional with limited representation rights can’t help with everything and everyone. Limited representation rights only allow your tax return preparer (who meets the qualifications previously listed) to represent you “before the IRS revenue agents, customer service representatives, and similar IRS employees.” Also, they cannot help with collections or appeals.
5. Bonus tip. Not sure if your tax preparers have what it takes? Look them up in the IRS’s Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. When you choose a tax preparer to help you with your tax return, consider finding someone who can represent you for all tax matters with the IRS, so you know you’ve got the right support if a problem should arise.

©2016-2019 CLC Incorporated

Summary

Getting too deep into debt with too many credit cards—buying items you don’t need—is a common mistake.

Everybody makes mistakes with their money. The important thing is to keep them to a minimum. And one of the best ways to accomplish that is to learn from the mistakes of others. Here is our list of the top mistakes young people (and even many not-so-young people) make with their money, and what you can do to avoid these mistakes in the first place.

Buying items you don’t need…and paying extra for them in interest

Every time you have an urge to do a little “impulse buying” and you use your credit card but you don’t pay in full by the due date, you could be paying interest on that purchase for months or years to come. Spending money for something you really don’t need can be a big waste of your money. But you can make the matter worse, a lot worse, by putting the purchase on a credit card and paying monthly interest charges.

Research major purchases and comparison shop before you buy. Ask yourself if you really need the item. Even better, wait a day or two, or just a few hours, to think things over rather than making a quick and costly decision you may come to regret.

There are good reasons to pay for major purchases with a credit card, such as extra protections if you have problems with the items. But if you charge a purchase with a credit card instead of paying by cash, check or debit card (which automatically deducts the money from your bank account), be smart about how you repay. For example, take advantage of offers of “0-percent interest” on credit card purchases for a certain number of months (but understand when and how interest charges could begin).

And, pay the entire balance on your credit card or as much as you can to avoid or minimize interest charges, which can add up significantly.

“If you pay only the minimum amount due on your credit card, you may end up paying more in interest charges than what the item cost you to begin with,” said Janet Kincaid, FDIC senior consumer affairs officer. Example: If you pay only the minimum payment due on a $1,000 computer, let’s say it’s about $20 a month, your total cost at an annual percentage rate of more than 18 percent can be close to $3,000, and it will take you nearly 19 years to pay it off.

Getting too deeply in debt

Being able to borrow allows us to buy clothes or computers, take a vacation or purchase a home or a car. But taking on too much debt can be a problem, and each year millions of adults of all ages find themselves struggling to pay their loans, credit cards and other bills.

Learn to be a good money manager by following the basic strategies outlined in this article. Also recognize the warning signs of a serious debt problem. These may include borrowing money to make payments on loans you already have, deliberately paying bills late and putting off doctor visits or other important activities because you think you don’t have enough money.

If you believe you’re experiencing debt overload, take corrective measures. For example, try to pay off your highest interest-rate loans (usually your credit cards) as soon as possible, even if you have higher balances on other loans. For new purchases, instead of using your credit card, try paying with cash, a check or a debit card.

“There are also reliable credit counselors you can turn to for help at little or no cost,” added Rita Wiles Ross, an FDIC attorney. “Unfortunately, you also need to be aware that there are scams masquerading as ‘credit repair clinics’ and other companies, such as ‘debt consolidators,’ that may charge big fees for unfulfilled promises or services you can perform on your own.”

Paying bills late or otherwise tarnishing your reputation

Companies called credit bureaus prepare credit reports for use by lenders, employers, insurance companies, landlords and others who need to know someone’s financial reliability, based largely on each person’s track record paying bills and debts. Credit bureaus, lenders and other companies also produce “credit scores” that attempt to summarize and evaluate a person’s credit record using a point system.

While one or two late payments on your loans or other regular commitments (such as rent or phone bills) over a long period may not seriously damage your credit record, making a habit of it will count against you. Over time you could be charged a higher interest rate on your credit card or a loan that you really want and need. You could be turned down for a job or an apartment. It could cost you extra when you apply for auto insurance. Your credit record will also be damaged by a bankruptcy filing or a court order to pay money as a result of a lawsuit.

So, pay your monthly bills on time. Also, periodically review your credit reports from the nation’s three major credit bureaus—Equifax, Experian and TransUnion—to make sure their information accurately reflects the accounts you have and your payment history, especially if you intend to apply for credit for something important in the near future.

Having too many credit cards

Two to four cards (including any from department stores, oil companies and other retailers) is the right number for most adults. Why not more cards?

The more credit cards you carry, the more inclined you may be to use them for costly impulse buying. In addition, each card you own—even the ones you don’t use—represents money that you could borrow up to the card’s spending limit. If you apply for new credit you will be seen as someone who, in theory, could get much deeper in debt and you may only qualify for a smaller or costlier loan.

Also be aware that card companies aggressively market their products on college campuses, at concerts, ball games or other events often attended by young adults. Their offers may seem tempting and even harmless—perhaps a free T-shirt or Frisbee, or 10 percent off your first purchase if you just fill out an application for a new card—but you’ve got to consider the possible consequences we’ve just described. “Don’t sign up for a credit card just to get a great-looking T-shirt,” Kincaid added. “You may be better off buying that shirt at the store for $14.95 and saving yourself the potential costs and troubles from that extra card.”

Not watching your expenses

It’s very easy to overspend in some areas and take away from other priorities, including your long-term savings. Our suggestion is to try any system—ranging from a computer-based budget program to hand-written notes—that will help you keep track of your spending each month and enable you to set and stick to limits you consider appropriate. “A budget doesn’t have to be complicated, intimidating or painful—just something that works for you in getting a handle on your spending,” said Kincaid.

Not saving for your future

We know it can be tough to scrape together enough money to pay for a place to live, a car and other expenses each month. But experts say it’s also important for young people to save money for their long-term goals, too, including perhaps buying a home, owning a business or saving for your retirement (even though it may be 40 or 50 years away).

Start by “paying yourself first.” That means even before you pay your bills each month you should put money into savings for your future. Often the simplest way is to arrange with your bank or employer to automatically transfer a certain amount each month to a savings account or to purchase a U.S. Savings Bond or an investment, such as a mutual fund that buys stocks and bonds.

Even if you start with just $25 or $50 a month you’ll be significantly closer to your goal. “The important thing is to start saving as early as you can—even saving for your retirement when that seems light-years away—so you can benefit from the effect of compound interest,” said Donna Gambrell, a Deputy Director of the FDIC’s Division of Supervision and Consumer Protection. Compound interest refers to when an investment earns interest, and later that combined amount earns more interest, and on and on until a much larger sum of money is the result after many years.

Banking institutions pay interest on savings accounts that they offer. However, bank deposits aren’t the only way to make your money grow. “Investments, which include stocks, bonds and mutual funds, can be attractive alternatives to bank deposits because they often provide a higher rate of return over long periods, but remember that there is the potential for a temporary or permanent loss in value,” said James Williams, an FDIC Consumer Affairs Specialist. “Young people especially should do their research and consider getting professional advice before putting money into investments.”

Paying too much in fees

Whenever possible, use your own financial institution’s automated teller machines or the ATMs owned by financial institutions that don’t charge fees to non-customers. You can pay $1 to $4 in fees if you get cash from an ATM that isn’t owned by your financial institution or isn’t part of an ATM “network” that your bank belongs to.

Try not to “bounce” checks—that is, writing checks for more money than you have in your account, which can trigger fees from your financial institution (about $15 to $30 for each check) and from merchants. The best precaution is to keep your checkbook up to date and closely monitor your balance, which is easier to do with online and telephone banking. Remember to record your debit card transactions from ATMs and merchants so that you will be sure to have enough money in your account when those withdrawals are processed by your bank.

Financial institutions also offer “overdraft protection” services that can help you avoid the embarrassment and inconvenience of having a check returned to a merchant. But be careful before signing up because these programs come with their own costs.

Pay off your credit card balance each month, if possible, so you can avoid or minimize interest charges. Also send in your payment on time to avoid additional fees. If you don’t expect to pay your credit card bill in full most months, consider using a card with a low interest rate and a generous “grace period” (the number of days before the card company starts charging you interest on new purchases).

Not taking responsibility for your finances

Do a little comparison shopping to find accounts that match your needs at the right cost. Be sure to review your bills and bank statements as soon as possible after they arrive or monitor your accounts periodically online or by telephone. You want to make sure there are no errors, unauthorized charges or indications that a thief is using your identity to commit fraud.

Keep copies of any contracts or other documents that describe your bank accounts, so you can refer to them in a dispute. Also remember that the quickest way to fix a problem usually is to work directly with your bank or other service provider.

“Many young people don’t take the time to check their receipts or make the necessary phone calls or write letters to correct a problem,” one banker told FDIC Consumer News. “Resolving these issues can be time consuming and exhausting but doing so can add up to hundreds of dollars.”

Final thoughts

Even if you are fortunate enough to have parents or other loved ones you can turn to for help or advice as you start handling money on your own, it’s really up to you to take charge of your finances. Doing so can be intimidating for anyone. It’s easy to become overwhelmed or frustrated. And everyone makes mistakes. The important thing is to take action.

Start small if you need to. Stretch to pay an extra $50 a month on your credit card bill or other debts. Find two or three ways to cut your spending. Put an extra $50 a month into a savings account. Even little changes can add up to big savings over time.

Also remember that being financially independent doesn’t mean you’re entirely on your own. There are always government agencies, including the FDIC and the other organizations that can help with your questions or problems.

Source: Federal Deposit Insurance Corporation, http://www.fdic.gov/consumers/consumer/news/cnspr05/cvrstry.html

Making and sticking to a budget is a key step toward getting a handle on your debt and working toward a savings goal—of any kind. Let’s say you want to set money aside for emergencies or you aspire to save up for a much larger goal like a car, down payment on a house, or retirement. Until you get a realistic picture of how much money you’re bringing in and where it’s going, it’s difficult to know whether you’ll have enough left over to put away.

Getting started can be the hardest part, especially if your finances feel out of control, but these easy-to-follow steps are designed to help you create a budget that really works for you:

Step 1: Where does my money come from? The first place to start is getting a complete picture of where your money comes from. You may be self-employed, have multiple jobs, or receive child support or government benefits—all of these sources should factor into what you have available to make ends meet. Start by recording all of your income with this Income Tracker.

Step 2: Where does my money go? Equally important but the heaviest lift is logging your spending, so you get a realistic picture of what your money, on an average month, is going to. This Spending Tracker helps you both log and sort your spending by categories like utilities and housing to eating out and entertainment.. If this feels overwhelming, start small and look at your expenses one week at a time by either reviewing your receipts or checking account. You could also start a daily log of your expenses so you’re making sure to capture those small expenses — like buying breakfast or lunch instead of bringing it with you — that add up over time.

Step 3: What are all my bills, and when are they due? If you’re coming up short at the end of the month, it could be that the timing for your bills and income don’t match. This Bill Calendar is designed to help you remember when your bills are due, but also keep in mind weeks when you need to be careful about your spending. Missing payments or not paying on time can also have larger impacts on your credit scores and overall financial wellbeing.

Step 4: Create your working budget. Once you’ve identified all of your income sources and started tracking your spending and when your bills are due, this Budget Worksheet pulls everything together so you have a working and realistic budget.

Creating a budget will help you figure out if you have enough money to cover your expenses, while also having enough to save or spend on something extra you may want for yourself or your family. Be sure to update your budget if you experience a change in employment or your spending habits.

Sticking to a budget

Changing your money habits won’t happen overnight. Making — and sticking — with a budget takes effort, but here are a few important tips for being successful:

Create a tool that works for you. Be realistic and start looking at your finances one month at a time. Create a way that’s easy for you to track income and spending in real time, whether that’s a daily journal or putting receipts in a folder that you review at the end of each week.

Analyze your spending habits. This is an opportunity to take a comprehensive look at your spending, and it is also the easiest way to look for areas where you can cut back. If you know you’re prone to impulse spending, create a plan that’s doable to help you limit that spending. Be sure to track your spending.

Set a goal. Whether it’s small or large, it’s helpful to have an end goal and something you’re working towards. Use this worksheet to help.  Also, rewarding yourself, even in small ways, can help you keep up with any progress you’ve made.

Develop a support system. Like sticking to an exercise routine, it’s easier when you’re surrounded by families and friends you can trust to offer you support, either by doing a budget with you or listening when you’re struggling.

Source: Consumer Financial Protection Bureau, www.consumerfinance.gov

Summary

• Identify income.
• Identify “historical” spending.
• Identify and categorize debts vs. expenses.

With today’s economy, rising prices for necessities make a spending plan a moving target.

Preparing a spending plan

The following suggestions are helpful in establishing a successful spending plan:

1. Identify income. Identify each of your after-tax income sources. If your income varies, use a conservative estimate in your calculations. Do not include overtime or bonuses, as they may not materialize.
2. Identify “historical” spending. Gather the details on your spending for the last three months. If you are already using financial software, this should be fairly easy. If not, then you will need to use bank statements, canceled checks, credit card statements, household bills and receipts to create an approximate “historical” spending record. If you have not been tracking your expenses, this may be a difficult, yet worthwhile step.

If you can’t determine how much you’ve spent for a particular category, try to estimate from memory. You will be able to revise your estimates as you refine your tracking process over time. Be sure to include one-time or periodic expenses. For example, if you pay your property taxes semi-annually, you need to total your taxes for the year and then divide by twelve in order to estimate your monthly average property tax expense.

3. Identify and categorize debts vs. expenses. A debt payment is a bill that can be permanently paid off; such as a mortgage, back taxes or child support, a car loan, boat loan, credit cards, medical bills or collections. Expenses include payments for rent, gas, electricity, phone, car insurance, and groceries. These are on-going expenses that will likely be with you the rest of your life. Allocate your debts and expenses to the appropriate categories outlined in the worksheet provided. You may need to add categories that are specific to your needs.
4. List all uses of cash and credit. Account for all cash and credit spending in your plan. You may be surprised at the amount of cash you are unable to account for. Cash includes ATM withdrawals, cash from the grocery store, cash back on a bank deposit, or cash payments for any other reason (kids’ allowance, lawn service, tips, etc). Categorize all cash expenditures, i.e., how much was spent on food, entertainment, restaurants, etc. Remember to review and account for all credit card spending and categorize each expense accordingly, whether you have paid it off yet, or not.
5. Create a spending plan. Once you’ve determined where your money has gone in the past, you need to determine where you want it to go in the future. This plan should include your savings goals, as well as your expenses. Start by subtracting your actual total monthly expenses from your total monthly income. If you have more expenses than income, you can either increase your income or reduce your expenses to balance your spending plan.
6. Reduce expenses or increase income to balance your spending plan. First, go back through your nonessential expenses or “wants” to identify which categories you are able to reduce or eliminate going forward. Typically, this means identifying expenses that are not required, but may be strongly desirable. Often, a “want” can be reduced, rather than eliminated, such as eating out less frequently, using coupons or eating at less expensive restaurants.

If you are not able to balance your spending plan by reducing or eliminating nonessential spending, you may need to consider reducing some “essential” or “fixed” expenses. Depending upon the severity of your shortfall, it may be appropriate to consider selling a second car to eliminate a car payment, or refinancing your home to reduce your monthly fixed expenses.

You may also choose to take on a second job or seek a higher paying job to increase your income. Also, if you make large contributions to your retirement plan but are struggling to make your credit card payments on time, you may want to temporarily reduce your retirement contributions to increase your take home pay. If you have an employer matching contribution, try to contribute at least the minimum to receive the full employer match, if possible. Otherwise, you lose the “free” money provided as an employee benefit.

If you appear to have money left over at the end of the month, but it’s only on paper, then you haven’t identified all of your expenses. Try to determine where the money slipped through your fingers. Are you making ATM withdrawals and have no idea where the cash was spent? Are you eating work lunches out, paying cash and forgetting to track the expense?

If you actually have extra money left at the end of the month, pat yourself on the back! You may want to increase the amount that you are saving each month toward your financial goals. Congratulations!

7. Pay yourself first. Allocate a portion of your income to savings: five percent to ten percent is a good place to start. Put that amount aside each month without fail, automatically if you can. If you don’t “pay yourself first”, you are unlikely to pay yourself at all. A portion of your savings should be allocated to an emergency fund. Other savings vehicles may include traditional savings & investment accounts, 401(k) plan(s), Roth IRA(s) or IRA(s). Increase the amount going to savings as your spending plan allows. 

Be sure to include each of your “savings” goals as an expense category in your spending plan. You can set your monthly savings goals according to what you believe you can afford, or according to how much you will need to save in order to accomplish your goal over time. For example, if you plan to buy a used car for $7,000 in three years, you need to save $182 per month in an account paying 4 percent annually to achieve your goal. 

8. Track ongoing spending. Now that you have created a spending plan, you need to create a system that:

• Identifies your expenses soon after they are incurred.
• Allows you to tell how much you have left to spend in each category.

A combination of personal finance software and online banking can cut out a lot of the effort required in this process. If set up properly, financial software programs can tell you exactly what you have spent in each category, and what you have left available to spend.

If you do not have access to a computer or are simply not a “computer person”, it is also possible to use a simple spreadsheet to track your expenses. This method requires setting aside the time to enter the information into your journal on a regular basis, preferably daily. It also requires that you pay close attention to the amount still available to spend in each category.

In years past, many people cashed their paychecks and put the money in envelopes for each of their spending categories; one for rent, one for groceries, etc. Although today it may be unwise to keep your entire paycheck in cash in your home, it is possible to apply this system strategically to simplify your accounting. Envelopes can be especially useful for any category from which you make frequent cash purchases. For example, if you know that you have allocated $50/month for work lunches, you can put $50 into an envelope for that purpose. When the envelope is empty, you stop buying work lunches until payday, or you borrow from another category.

9. Revise your plan. Money management is an evolving process. Once you have established your initial plan and lived with it for a time, you need to make revisions. As you become more conscious of your spending habits, you should fine-tune your approach so that your money is working harder for you, instead of the other way around.

It is OK to make adjustments to your plan as long as you do not lose sight of your personal financial goals and objectives. Many families use a 12-month plan, which you can start at any time; you need not wait until January. If this is your first real review of your monthly expenses, do a trial run using a shorter time frame to start.

The key to success in tracking your spending is to consistently apply whatever method you decide to use. A few minutes each day can mean the difference between accomplishing your financial goals, and getting caught in a cycle of debt.

10. Celebrate. As you make progress toward your financial goals, build in small rewards to keep yourself motivated. When you’ve paid off that daunting credit card, use part of the money that would have gone toward the next payment to do something special for yourself. Then next month, apply that same payment amount to the next goal on your list. Success in budgeting is not in perfection; it is in persistence. Like most goals worth working toward, it will take time, commitment and passion to succeed. If you stay focused on the vision of your ideal financial future, you will get there.

©2015-2019 CLC Incorporated

Summary

• Don’t go out hungry.
• Ask about splits and substitutions.
• Consider appetizers as entrees.

Restaurant and fast-food meals can be high-calorie money-wasters, but they don’t have to be. By learning about the menu beforehand and knowing what to ask for, you and your family can have tasty, nutritious meals for little money.

Do your menu homework

It is a standard practice for chain restaurants to offer nutritional information on menu items. You should be able to find data on calories, fat, and sodium. Whether you plan to eat at a chain restaurant or a stand-alone eatery, check online for a menu to find healthy choices and what they cost.

You may be surprised at what you find. Not all salads fit the “healthy” label (that is, high nutritive value with relatively low fat and calorie counts). Nor does poultry always beat beef as a healthy choice. And pasta dishes, like salads, can be all over the map. You may also be surprised by the prices of the healthier dishes—they can be among the cheapest entrees on the menu.

Don’t go out hungry

“If we eat in a restaurant, we are usually given more than we eat at home,” says Heather Mangieri, a Pittsburgh, Pennsylvania-based registered dietician and a spokesperson for the Academy of Nutrition and Dietetics. When we’re served more, she adds, “we usually eat more”—even if it’s more than we would be comfortable eating at home. The problem is not just portion sizes but the extras, like the bread restaurants put in front of you.

One way to avoid stuffing yourself is to ask for smaller portions or splits (see below). You can also help prevent overeating at the restaurant by not working up an appetite. Kelly O’Connor, R.D., an outpatient dietician at Mercy Medical Center in Baltimore, Maryland suggests eating a snack at home before going out and making sure that your previous meal is the normal size. “You don’t want to go ravenous to a restaurant,” she says. “You’ll eat a lot of bread.”

Ask about splits and substitutions

Cut portion sizes by opting for half-size dishes. Sometimes these are listed as such on the menu, or featured as part of a combination (like a half-sandwich and soup). If the menu doesn’t offer these portions, ask for them. If two or more of you are dining, ask to share an entrée, salad, or other item. Restaurants may charge a split fee for this, but you still end up paying less than you would if you ordered two full-sized items. Splitting desserts, not just two ways but three or four, is routine nowadays and you normally won’t be charged a fee.

Consider appetizers as entrees

Given the general scaling-up of portion sizes, appetizers can be as big as a normal main dish at home. A soup and salad can likewise make a meal. If the restaurant has side dishes, such as vegetables normally served with entrees, these might also help fill out your dinner.

Don’t limit yourself to just the dinner menu. Lunch portions are usually smaller and less expensive than the same food offered on the dinner menu, so choosing mid-day meals for eating out is one way to save money. Even later in the day, you should look to see if lunch items are still being served.

Eat grilled, not fried

Fish and poultry can be Jekyll-and-Hyde menu items, depending on how they’re prepared. Grilled, they can be lean, healthy, and a nutrition bargain. Breaded and fried, they can turn into overpriced fat and calorie bombs. You can usually tell the difference from the restaurant’s nutritional data (see above), but if you’re eating where this information isn’t available, stay on the right track by keeping “grilled, not fried” in your mind as a sort of menu mantra. Though some fish, in particular, can be pricey, Mangieri says “you can still get a basic white fish like tilapia or cod fairly inexpensively.”

Mangieri says you should also not be shy about asking how food is cooked and requesting alternatives. If your restaurant prepares chicken parmagiana by breading and sautéeing, she suggests asking if they can bake the chicken instead.

“Creamy” means trouble

A good rule for pasta, salads and soup is to avoid anything creamy. With pastas, this means choosing red over white—marinara sauces over high-fat concoctions such as Alfredo sauce. Mangieri says marinara is also a good alternative to oil-based sauces that lack the creamy texture but still pack plenty of fat. With soups, avoid “cream of…” varieties. When ordering salads, avoid ranch or other creamy dressings, and ask to have your dressing served on the side so that you use only what you need.

“Value” items can be anything but

“Value menus” or “all-you-can eat” buffets aren’t good deals on the healthy eating scale. They encourage you to eat too much food of low nutritional quality. “You’re getting a cheaper product, but it’s also high in fat,” says Mangieri. The same warning goes for “super-size” menus and meals.

Be careful with the kids’ menu

Parents should apply the same rules to these menus as they do to the grown-up dishes. If it’s food that would be good for an adult, it’s good for the kids. You might avoid fried chicken fingers or macaroni and cheese, although spaghetti with marinara sauce might be fine.

Why not go a step further and get the kids interested in the good stuff you’re eating? You could split a regular entrée two or three ways among the youngsters, or share some of your own food with them. It’s not a bad idea to widen the menu choices for your kids at home, too.

Keep track of how often you eat out and how much you spend

The only way to tell if you’re saving money on eating out is to know how much you’re spending and then compare it to what you’ve budgeted.

Resources

The Academy of Nutrition and Dietetics has some tips for healthy eating when dining out at www.eatright.org/resource/health/weight-loss/eating-out/eating-out.

For information on menus and nutritional data at specific restaurants, go to the restaurant’s website and look for links with a label such as “Food,” “Menu,” or “Nutrition.” Sometimes the link to nutrition information is on the menu page rather than the home page.

By Tom Gray

©2011-2019 Carelon Behavioral Health

Source: Academy of Nutrition and Dietetics, www.eatright.org; Heather Mangieri, RD; Kelly O’Connor, RD

What does financial happiness mean to you? Perhaps it is the pleasure you get from helping others or the joy you have by possessing the latest fashions or gadgets. It may also be the security of knowing that you are living within your means and saving for your future. Financial happiness means different things to each of us. No matter how you define it, financial happiness requires leading a financially responsible life.

Learn financial responsibility

Money management tips are often much easier said than done. (Live on less, set up an emergency fund, limit credit card usage, conserve energy to keep utilities low, sell valuables you’re willing to part with, etc.) You may have to work hard to limit your spending and cut back on non-essential purchases. To become financially responsible, you must begin working toward this goal: to have money left over in your checking account after your monthly bills are paid.

Create a budget

If you are living paycheck to paycheck or getting deep into debt, you need to set up a budget. Creating a spending plan and tracking your expenses can both help you notice certain expenses that are too high or occur too often. Having financial goals motivates you to stay on track and save for future expenses, such as a wedding, a new home, the birth of a child, a vacation you’ve been planning for a long time, or your retirement.

Manage debt

True financial happiness is impossible when you have debt that you cannot manage.  Running away from debt or denying it won’t help. If you are deep in debt, you must trim expenses everywhere you possibly can and live within or even below your means. Prioritizing debt elimination must be your focus when creating a budget!

Get support

When you know your cash flow, set your goals, and start to save money, your financial happiness should begin to flourish. If you need help, consider working with a professional. A financial counselor can help you identify areas that need improvement and assist you in developing a plan based on your individual circumstances.

Source: Military OneSource

Summary

• Finance is not just for experts—everyone needs to know the basics.
• The earlier you learn how to save, the better off you’ll be.
• Most essential financial knowledge is not taught in school.

When it comes to money, ignorance is anything but bliss:

• You could be wasting thousands of dollars a year by not knowing the interest rate on your credit cards.
• You could be throwing away your chance for a decent retirement by failing to save now, even if you’re still in your 20s.
• You could be cheating yourself out of that house you’ve always wanted because you don’t know how to create a budget.

Such are the costs of not achieving financial literacy. It’s hard to put a number on them, but people pay an enormous price for shortfalls of essential money knowledge. A failure to save (along with too little appreciation for stock market risk) may force millions to delay their retirement. Too much debt and too little saving add to the stress of cash-strapped workers.

Life isn’t always easy. But it does not have to be this tough, and the future does not have to be so uncertain. By learning some core concepts and getting in the habit of living by them, you can avoid the pitfalls and get the most out of the money you earn.

Learn the basics

Accountants, financial planners, and other experts typically point to the following areas where knowledge is most needed and often lacking:

Saving. We all realize—eventually—how crucial it is to put money aside for retirement and other life events, such as buying a home and paying the kids’ college bills. The problem is that too many people don’t learn this lesson early enough.

Experts reccommend saving 10 to  20 percent of your earnings.

Put money in a 401(k) or similar plan up to the percentage that your employer will match. For instance, if your employer offers a 50 percent match up to six percent of your pay, you are turning down free money if you don’t sign up for the full six percent.

Borrowing. Unless you’re born into wealth, you will need credit for the biggest purchases in life, such as a house and probably your first car or two. Student loans are another form of credit you should not be afraid to take on, if you must. And you may need to borrow if you want to start a business. In all these cases, you’re borrowing for a benefit that will outlast the time it takes to pay off the loan. That’s smart use of credit.

It’s also smart to use credit cards, but only if you pay off the balance in full every month, with no exceptions. This is the way to earn a good credit score, which then qualifies you for the best terms on auto or home loans. Having no credit record is equivalent to having poor credit.

Spending. A key to financial literacy is awareness of exactly how much you spend, and on what, from day to day and month to month. Tracking expenses is the first step to taking control of your finances. You can do it with old-fashioned paper and ink, with software such as Quicken and Microsoft Money or with online services such as Patzer’s Mint.com. It shows you where you can cut back on things you don’t really need and look for cheaper alternatives for necessities, such as telephone service. Taking the time to get the most out of your money pays off “no matter what you’re buying,” says Bolson.

Banking. Literacy here means, among other things, knowing how to balance a checkbook and avoid overdrafts. Put your money in a savings account that pays interest.rather than a non-interest-bearing checking account.

Taxes. The financially literate know about the tax bite and plan around it. This means budgeting for spending and saving out of after-tax income, not your pay before taxes. Learn how to make the tax system work in their favor. There are huge incentives for private retirement savings, but too few people take advantage of them. This brings us back to those 401(k)s, which defer taxes as well as build up a nest egg.

Investing. It’s easy to suffer from information overload here. You can find hundreds of books and countless opinions on the topics of where to put your money and how to make it grow. But the basic concepts are simple. (It just takes discipline to follow them.) First, stocks do perform best in the long run—like 10 years or more. For shorter term, their risks outweigh their potential rewards. On the other hand, bonds and cash are less volatile in their price but are more vulnerable to inflation.

As a general rule, if you are saving for a long-term goal such as retirement, the younger you are, the more you should invest in stocks. Dollar-cost averaging, in which you invest the same amount at a same interval (monthly or quarterly, for instance) is a good way to do this, and 401(k)s will do it for you. By the same principle, you need to shift money out of the stock market as you get closer to retirement. If you need the funds in 10 years or less, you can’t count on them if they’re in stocks.

Armed with this essential knowledge, the financially literate need to develop good habits, such as learning to live below their means. It takes brainpower to handle the more complex side of investing, taxes and other financial matters.

Literacy also means being realistic in your expectations for work, retirement and other phases of life. Realists, for instance, know that they probably won’t be able to keep working for the rest of their lives, even if they have failed to save for retirement. That’s a sobering thought, but it’s typical of how the financially literate think.

By Tom Gray

©2008-2019 Carelon Behavioral Health

Source: Adele Brady Bolson, CPA; Aaron Patzer, CEO and founder, Mint.com; John McWilliams, CPA; American Institute of Certified Public Accountants

Summary

Here are a few of the common mistaken ideas about finances.

A major financial decision can be an expensive mistake if made on the basis of sketchy facts or outright error. Here are a few of the common mistaken ideas about finances:

Myth: I don’t earn enough to save any money.

Fact: This is a common myth about saving and investing. It’s true for a few people—those with little or no earnings and high expenses that they simply cannot avoid—but many more people mistakenly believe that it applies to them. Saving is not difficult as long as you learn to do so early, as soon as you start earning money. It only takes a little, consistent amount set aside each month to start building a decent nest egg.

Myth: You have to have a high income to retire rich.

Fact: This is the mistake of confusing income with wealth. Income is what you take in. Wealth is what you keep. It is easier to get rich with a high income, but it’s hardly assured. You can spend everything you earn and end up with nothing, whether your annual income is $10,000 or $1 million. By the same token, it’s harder but not impossible to build up a small fortune from a modest income. It can be done if you start saving early, keep saving and always live below your means.

Myth: Bonds are less risky than stocks.

Fact: They are safe and appropriate as a source of near-term income, but they can fall steeply in value over the long run, whereas well-diversified stock holdings almost always come out ahead of other investments (and inflation) if held for 20 or 30 years. So it’s obvious that bonds don’t make much sense for the retirement funds of younger workers. What’s less obvious is that they can be problematic for retirees, too.

People tend to put too much of their wealth into bonds too early when they retire. People hitting their mid-60s should be looking ahead to a long retirement, since it’s increasingly likely that they will have one. They have to plan for 30 years from now, with the possibility of high inflation and rising interest rates (both bad for bonds) in between.

Stock mutual funds can produce income as well as bonds do, through automatic withdrawal plans that draw a preset amount regularly—such as every month—from the fund account.

Myth: Living expenses will fall sharply in retirement.

Fact: An old rule of thumb in financial planning says costs after retirement will be some percentage (usually around 75 percent) of what they were when the retiree was still working. But expenses in any individual case may differ greatly—and to the upside.

People tend to underestimate their post-retirement costs. Costs of employment (such as work clothes, commuting costs and the Social Security payroll tax) do go down. But retirees may spend more on travel, hobbies and other recreation they have deferred. Health costs also may rise. The shaky state of some pensions and retiree health coverage may lead to further expenses down the road. The smart move is to ignore rule-of-thumb numbers, assess your own budget and decide what you want to do in retirement. Then figure out what all your plans will cost.

Myth: Buying a home is always better than renting.

Fact: Residential real estate always goes up in price—except when it doesn’t. And what about the mortgage-interest tax break? It’s a great write-off if you actually need that much house. But borrowing too much and overspending just to save on taxes is a great way to lose money, because you will always be wasting more than you get back at tax time.

Compare your rent to the after-tax cost of a suitable home in your area. If the home is more expensive, you may be buying into a bubble. And you’re sure to be taking on plenty of debt. If you live in a rent-controlled place and your mortgage (would be) three times your rent, that mortgage is going to get you into trouble.

Myth: At least I’ll have a pension when I retire.

Fact: Corporate pensions and health coverage for retirees once had the look of a sure thing. But rising costs (especially for health care) are forcing some of America’s largest employers to rethink their commitments. In the worst cases, companies can go into bankruptcy and turn their pension obligations over to a federally sponsored agency, the Pension Benefit Guarantee Corporation (PBGC). The PBGC covers pension payments up to a certain amount. For some of those who counted on living large on their pension, the reality may be a sharp disappointment unless they have done plenty of saving on their own. It’s always good to save as much as possible and not to depend on anyone else, such as your employer or the government, to ensure you a comfortable old age.

By Tom Gray

©2005-2021 Carelon Behavioral Health

Source: Eva Rosenberg, MBA, EA; Jerry Webb, chairman, Webb Financial Group, Bloomington, MN

Summary

Don’t let the financial stress of a plush vacation make your relaxing time lead to an anxiety attack.  Here are a few options to keep your vacation fun and cost effective.

Don’t let the financial stress of a plush vacation make your relaxing time lead to an anxiety attack. Here are a few options to keep your vacation fun and cost effective.

1. Spending plan:  When you’re planning for a vacation, decide how much you will need for all the expenses and save a little each month, so you will be ready to meet those expenses when vacation time comes. Remember to account for things like travel (to and from your destination as well as at your destination), food, souvenirs, items you may have forgot to pack, activities, house/pet sitter, etc.
2. Staycations: Instead of paying for travel, a house sitter and those Disney hopper passes, try taking a vacation at home. Tell any neighbors that you’re taking a vacation. Turn off your phone and computer so business will wait. Relax in the comfort of your home where you can take those dusty board games out of the closet and remember how fun it is to make a million bucks in Monopoly or guess that it was Miss Scarlett with the candlestick in the library.
3. Make your own food: If your destination accommodations allow it, bring food from home or shop at a local grocery store. This is a vacation.  You aren’t pressed for time in the morning and have to slap together a plain turkey sandwich. Take this as a chance to enjoy cooking and baking again. It’s generally cheaper than eating out and can make a fun activity for you and your vacation buddies. If you’re adventurous, see if your destination has a local farmers’ market, so you can experience any unique foods from the area.
4. Inexpensive activities: Just because you go away doesn’t mean you have to do the main attractions at your destination. Bring a book or a board game and enjoy it in the local park or a coffee shop that you don’t have at home. Take a self-led walking tour of the town or city you’re staying in. Rather than running for the money-grubbing tourist attractions, ask the concierge what locals like to do.
5. Naps: When you vacation at a place like Disneyland or Universal Studios, it’s hard not to soak up as much of the attractions as possible, but if you’re vacationing to get away from the rush-rush of everyday life, then don’t rush-rush around Fantasyland or the 3-D shows. If you don’t take a moment to relax, you’ll get back home and wish you had a vacation from your vacation. Let your body recuperate from the stress of everyday life. Think of it this way: you bought the hotel room—enjoy it!

©2015-2019 CLC Incorporated

Summary

• Rebuild your safety cushion.
• Pay off debts.
• Contribute to your 401(k).

Back at work? Congratulations! You have good reason to celebrate. Even if your new job isn’t your dream job, or doesn’t match your old one for salary and benefits, you know that getting a paycheck beats unemployment any day.

But you still may have some financial worries to deal with. Your period of unemployment may have depleted your savings and piled up debt. You also may have put off spending money on things, such as repairs to your home or car, that can’t be delayed much longer. You may feel that you deserve a treat after all you’ve been through, but you’re afraid to spend too much.

Here’s some advice: Sit down, take stock of your situation, and be patient. It took a long time for your finances to get in their current bad shape, and it will take a while for them to recover. But recover they will, if you make a realistic plan and stick to it.

Here are pointers for getting your finances back on track.

Spend on urgent needs—and give yourself a small treat

No, you shouldn’t burn through your first few paychecks buying all the things you’ve been denying yourself. But a small indulgence, like dinner at a nice restaurant, is a good idea. Christine D. Moriarty, a Vermont-based certified financial planner, suggests taking $100 from your first paycheck to “splurge on something.”

Be ready to spend—a lot more than $100, maybe—for maintenance, repairs, and other must-do items. Look at everything you have been putting off and ask, “If I don’t deal with this now, will I have more expensive problems later?”

You may be able to postpone some spending, like for a new car. But if you’re already overdue for an oil change on the old one, don’t put it off any longer. Likewise if it’s December and your furnace needs work, fix it. Be sure not to let insurance policies lapse. And don’t keep putting off that visit to the dentist: “If you don’t fix a filling now, you will face the scenario of getting [a tooth] pulled later,” says Moriarty. 

Rebuild your safety cushion

Once you’ve had your back-to-work celebration and have taken care of pressing needs, start building up your short-term savings for emergencies—like a return to unemployment. If you have credit cards or other high-interest consumer debt to pay (see the next item) you can deal with these at the same time you save. Take your paycheck, subtract what you spend on essentials, and then split the remainder in a proportion that makes sense for your debt level and savings needs.

Megan Poore, an Austin, Texas-based financial advisor, suggests putting 25 percent of your surplus into savings and 75 percent into debt repayment. If you’ve managed to keep out of serious debt, shift the split more toward savings.

How much do you need to put into an emergency fund? The usual rule among planners is three to six months of expenses, but Poore says you might want to raise it higher “if you’ve just come off an 18-month spell of unemployment.”  

Pay off debts—starting with the smallest

If you’ve maxed out on credit cards to stay afloat while job hunting, do something right away to whittle down that debt and stop spending so much on interest payments. You may feel like tackling the biggest balance first, but it’s smarter to start with the smallest. That way, says Poore, you get rid of one minimum payment obligation. This frees up money to pay off the next-smallest balance, and so on.

Moriarty has another debt-related tip: Access your credit reports and add a note explaining that you were unemployed, giving the dates when this period of joblessness started and ended. That way, she says, “If you have a lot of debt, people can see the reality of what was going on.”

Feed your 401(k)

Is this really a time to think about saving for retirement? Yes—and you have a painless way to save if your new employer offers a 401(k) or similar plan.

You shouldn’t starve your emergency fund and forego urgent dental care to max out your 401(k). But you should be putting something in “from the get-go,” says Moriarty, even if it’s just two percent of your salary and even if there’s no employer match.

If your employer does match up to a certain percentage, make it a goal at least to reach that level. If the match is 100 percent of deferrals up to three percent, you get an automatic 100 percent return on the money you set aside from your pay. 

Learn from your experience

You have just finished a course in the school of hard knocks. This is a good time, Poore says, to think about what the experience has taught you: “When you get to the end of a crisis, when it is still fresh, you should take some notes about what you would do the next time around.”

You’ll probably find that you’ve learned a lot about job hunting, but you may also have gained insights into your spending and your priorities. Tough times teach us what is essential and what is not. Now is the time to write that lesson down and remember it for the good times, so that you don’t fall into the trap of wasting money on things you don’t really need or want.

By Tom Gray

©2011-2019 Carelon Behavioral Health

Source: Christine Moriarty, CFP, President, MoneyPeace Inc., Bristol, VT; Megan Poore, Financial Advisor, Lucien, Stirling & Gray Advisory Group, Austin, TX

There’s a certain logic to reviewing your finances at the start of the calendar year. For one thing, you pay your income taxes on a calendar-year basis, so going over income and expenses at this time is a good way to get a head start on the tax-filing process. Also, the end-of-year pay stubs give you a quick snapshot not only of the past year’s income but also the taxes you paid. Finally, you may be more in the mood for personal reassessment and making resolutions. Financial checkups are in the spirit of the season.

Here are some areas that planners suggest you include in your yearly review.

Review your cash flow

Look at your checkbook balance for January 1 and compare it to where it was at this time last year. Is it higher or lower? Do you know where all the money has gone? It’s never a bad time to start addressing these questions, and the start of the year is as good as any.

If you’re already tracking and categorizing your expenses, good for you. You should now be able to add things up and get a picture of your spending habits. If you’ve already made a budget, better still. You can see if you’ve stayed within your budgeted amounts.

Using your latest pay stubs, you should be able to tell how much money you took home after taxes in the past year, and if this is more or less than what you spend. If it’s more, you’re saving. If it’s less, you need to find out why. Unless you had an extraordinary expense (something that doesn’t happen every year, like a down payment on a house or car), then you need to take another look at your spending and figure out what to cut.

Review (and rebalance) your investments

If you’ve done your homework and defined your investment goals, such as retirement and college, you should check regularly to see if you’re still on track to reach them. The start of a new year is a good time to take stock of your stocks and bonds—to see which investments have done well or poorly in the past year, and to make adjustments. If you have a 401(k) or other employer-based retirement plan that gives you several investment options, you may want to change the mix at this point.

Deciding exactly what to adjust is something of a judgment call. Generally, experts say you should try to maintain a mix of stocks and bonds (or stock and bond mutual funds) that fits your long-term strategy. If at this point you’ve planned to have 70% in stocks and 30% in bonds (or money-market funds), you should rebalance your portfolio if it has strayed from those proportions in the past year. If the stock (or equity) part of your portfolio has shrunk, you should shift money to stocks. In effect, this means doing what doesn’t come naturally to most investors: selling winners and buying last year’s losers.

For investments in taxable accounts, remember that any sales can create capital gains that may result in a tax bill next year. But you also can sell securities that have lost money and use the loss to cancel out the taxable gains. Most investors carry out such tax strategies later in the year, but it never hurts to plan ahead.

Make sure you’re prepared for the worst

The bittersweet passage of another year brings up issues that you usually keep on a mental back-burner—like the question of what happens after you’re gone. Read your will carefully every few years to make sure it still reflects your wishes. Also, review your will whenever you’ve been through a major life-changing event or a significant change has been made in the tax laws.

You also should review your insurance, making sure that you have adequate life and disability coverage. If you haven’t done so already, check with your employer’s human resource department to see what coverage you already have.

By Tom Gray

©2001-2021 Carelon Behavioral Health

Source: Clark Randall, CFP, financial planner, Lincoln Financial Advisors, Dallas, Texas; Frank Russell Co.; The Motley Fool

Summary

• Set up a filing system simple enough to understand and use.
• Pitch stock reports, old bank statements and paid bills after a year.
• Keep tax records for seven years or longer.

If you’ve been stuffing every bank statement, canceled check and receipt into shoeboxes for years and running out of room, here is some good news: You can probably throw much of it away. But here’s some advice you may not want to hear: You really ought to be better organized.

Set up a filing system simple enough to understand and use, then go through your records to separate the keepers from the disposables.

There are many ways to do this. Here are some widely accepted general rules to help you get started.

Make room for your records

Choose one or more places for filing crucial information. Start with a portable file, though papers that are difficult or impossible to replace should be kept in a safe. For virtual records, be sure to organize your files well and oback them up.

Set up an understandable system

How you divide your records and label your file folders (by time, type of record, vendor or financial institution) is your decision. Just be sure to file records in a way, and in a place, that makes it easy to retrieve them.

Home-finance software such as Quicken can come in handy for organizing. But paper-only systems can work fine, too. The important thing is to know what’s in your files and where you can find what you need, when you need it. Make lists and give them to people, such as family members, who may have to retrieve records when you’re not there to help them.

Start sorting

Rules for dividing the keepers from the discards aren’t precise. What’s right for you depends in part on your own sense of security. Even if you’re the type who likes having a paper security blanket, some records just take up space and should be pitched. These include stock and mutual-fund annual reports, which are really just marketing material that duplicates data already available on the web.

There’s no need for old bank account statements either, unless you need the statements to locate and order an old check for tax purposes. If you do your banking online, chances are that all the information you need is available at the bank’s website, including images of canceled checks. Brokerage statements don’t need to be kept more than a year, though transaction records—received at the time of stock and fund purchases—should be kept at least as long as you own the asset. Again, as with paper bank statements, check to see if you can retrieve transaction records online. You also can discard paid bills and credit card statements older than a year.

Here are a few simple rules for “the art of wastebasketry,” to decide if a paper record stays or goes:

• Are there any legal or tax implications?
• What’s the worst possible thing that would happen if I didn’t have this?
• Is it difficult to obtain again?

Keep tax records on a seven-year plan

The rules for keeping tax records follow the Internal Revenue Service’s (IRS) time limits on auditing past returns. (Records you should keep include returns, expense receipts, canceled checks, auto usage logs, employee income statements, records of stock and real estate transactions, and anything else needed to back up income or expense claims.)

The IRS can audit returns up to three years old or six if under-reported income is involved. As a practical matter, this means you should keep all records for seven years. The most logical way to file your records is by tax year (that is, the year covered by a tax return, not the year you filed it). Records on the cost of an asset need to be kept from the point at which you acquired it. This rule applies to a home, investment property, shares of stock or anything else that you might sell for a capital gain or loss. In these cases, you need to be able to document the cost of buying or building the asset, plus any money you spent on improvements for it. The sum of all these costs is called the “basis”.

Be careful to keep copies of all tax statements, such as 1099s. If you get a single copy of a statement and you need to send it along to an accountant or tax preparer, make a copy for your own files.

Keep a discreet record of your passwords

The more you use online or automated telephone services for banking, investing, and other financial activity, the more user names and passwords you have to remember. You may need to record them somewhere, not just to jog your memory but to make them available for someone else, such as a spouse, who may need access to these accounts when you’re not around.

But think twice before putting a file on your hard drive, which might be vulnerable to hacking from outsiders if you are online much of the time. A thumb drive or other removable storage is a safer spot. Label the storage media in a way that doesn’t tip anyone off to its contents.

By Tom Gray

©2001-2019 Carelon Behavioral Health

Source: Barbara Hemphill, CEO, Hemphill Productivity Institute, Raleigh, NC; Deena Katz, CFP, chair of Evensky, Brown & Katz, Coral Gables, FL; Barry Freedman, CFP, chairman, Freedman Financial Associates, Peabody, MA; John Sestina, CFP, president, John E. Sestina & Co., Columbus, Ohio

Summary

• Full disclosure is crucial before marriage or remarriage.
• Separate credit cards and checking accounts are OK, as long as both partners are in the loop.

It seems simple enough. There should be no secrets between husbands and wives about savings, income, debt or anything else. But when the subject is money, spouses may know far less than they should.

Take a transparency test

Write down your own estimates for basic measures of family wealth—net worth (with or without the value of your home), joint income and total debt. Have your spouse do the same. In both cases, don’t look up bank statements or other records, and don’t share notes. Then compare your answers. How close were you to each other? How close were you to the actual figures?

If you were both on target, your marriage has a good level of financial transparency. If you were wide of the mark and wide of each other’s estimates, you need to start sharing information and responsibilities more closely.

Don’t lose track of documents

The basics of assets and income are just the start for full disclosure. Each partner in a marriage should be familiar with (and know where to find) important documents. These include, but are not limited to:

• Wills
• Powers of attorney
• Insurance policies (including life, disability, auto and health)
• Trust and deed documents
• Bank accounts
• Investment accounts
• Safe deposit boxes and keys
• Credit card statements
• Retirement accounts
• Pension plans
• Funeral arrangements
• Identification (such as Social Security cards and driver’s licenses)
• Income tax returns (for the past seven years)

You may need to know about other documents, too, if you or your spouse owns a business, was married before or has children from a prior marriage.

The sharing of financial knowledge tends to be easier for couples in a first marriage who married young. Typically, they would have come to the marriage with little or no independent wealth or (ideally) debt. Obligations to children or ex-spouses would normally not be an issue. Most of their financial life is shared, and so should be the knowledge.

Trust, but verify, at remarriage

What if one or both soon-to-be-spouses have more of a history? Couples who have been married before—or who are marrying “late” and already have significant income, assets or debt—can face a more difficult situation. They have things to find out before tying the knot, and the topics can be touchy. But if they don’t get answers, they can be in for unpleasant surprises.

If you are marrying someone who has been married before, ask about:

• Pension plans. Specifically, what provisions have been made for payments after the death of the earlier spouse if that spouse is already collecting a pension? The new spouse may see none of this money.
• Retirement accounts (such as 401(k)s and IRAs). Who is the named beneficiary? Is it an earlier wife or husband? Is it the kids? .
• Wills and trusts. What estate planning has your future spouse put in place?

It may help to sit down with a neutral third party, such as a financial planner, who can ask both of you the hard questions and show you how to correct any potential problems.

Sharing the credit

Another source of unpleasant surprises is debt. Even in a long-time first marriage, one spouse could quietly go wild with credit cards if the other isn’t watching. In later marriages or second marriages, credit histories may hold hidden issues such as bankruptcies or foreclosures (both of which impact one’s credit for seven years).

One easy way to spot potential problems is to pull credit reports on each other. All couples, whether re-married or married for the first time, also need to continue sharing information about credit and spending. You should each keep track of your individual credit scores and keep each other posted.

Delegate, but don’t forget the updates

As with credit cards, couples can have separate checking accounts as long as they don’t use them to spend in secret. Separate accounts can be more convenient if both spouses need to write checks and want to make sure one doesn’t accidentally overdraw a joint account. But having a joint account for day-to-day expenses works well too.

The important thing with any system is to make sure the bills get paid and to keep both spouses in the loop. One of you can be responsible for the actual financial chores, such as paying bills and managing or tracking investments. The other should be updated regularly on your current financial condition.

By Tom Gray

©2008-2021 Carelon Behavioral Health

Summary

Set rules on what and how your teen can spend her money, whether from an allowance or job.

Money doesn’t grow on trees—or so you thought. Actually, purchasing power is not a problem for most young adults. College freshmen are bombarded by credit card offers, and sadly, many find themselves deep in debt before graduation. Many high school kids choose to work outrageous hours (at the expense of their sleep, homework and school activities) to keep up with out-of-control spending habits. Parents, however, can teach teenage children how to save and spend responsibly.

Allowance

Teens who receive an allowance get hands-on money management experience and the freedom to make financial decisions. However, an allowance isn’t just “fun money,” and you should list the expenses that you expect the allowance to cover (for example, lunch money, clothing, gas when using the family car, entertainment, etc.). Set rules on what and how your teen can spend her money, whether from an allowance or job. Child-development experts agree that an allowance should not be conditional on doing chores. If family responsibilities are not met, you can discipline your teen in other ways.

Budgeting basics

Budgeting will help your teen not only keep track of her income and expenses, but also set goals and plan ahead. To develop the budget, list all sources of income, like allowance, jobs and gifts, and all expenses, such as savings, lunch, clothing, movies and music. Analyze the expenses, noting the difference between “needs” and “wants.” Discuss which “wants” she can do without in order to save for a future goal. Each month, review the expenses together. Opening a savings and checking account with your teen also is a good idea. Make sure she understands the importance of this account and how to balance it monthly. 

Saving

Including savings as a budgeted expense gets teens in the habit of putting money aside before they start spending. Many teens have trouble saving because they want everything right away and they don’t see the financial benefit of saving for the future. To illustrate this concept, use charts and graphs to show how a mere monthly deposit of $10 or $20 will grow over time using interest. Setting expensive goals, like a new bike or class trip, will show how saving money won’t actually deprive her of what she wants, but rather, can help her get the things she really wants over time. You even may want to consider matching what your child saves (up to a limit) in order to stress the importance of saving.

Working

Working teaches many important lessons: time management, working with people, accountability, work ethic and money management. But, make sure your teenager isn’t overzealous in her moneymaking efforts (at the expense of school, family and other obligations) by setting limits on where and when she works.

Money attitudes

Your lifestyle and spending habits can influence your teen’s attitude toward money and spending. Placing too much value on material things, like designer clothing, name-brand products or lavish family trips, can send the message that, above all else, consumerism brings happiness and fulfillment.

Resources

The Complete Guide to Personal Finance: For Teenagers and College Students by Tamsen Butler. Atlantic Publishing, 2010.

360 Degrees of Financial Literacy
www.360financialliteracy.org

By Christine Martin

©2000-2019 Carelon Behavioral Health

Summary

Resolutions for spending less, saving more and figuring out your taxes are all great, but they usually end up forgotten, pushed aside or delayed. Read these tips to keep you on track with your finances for the new year.

Resolutions for spending less, saving more and figuring out your taxes are all great, but they usually end up forgotten, pushed aside or delayed. We highly recommend the following tips to keep you on track with your finances for the new year.

Resolution #1: Know where your money goes.

If you don’t know how much you spend, or where it goes, consider setting up a system to stop any “budget leaks.” Going over income and expenses will also give you a head start on filing your income taxes (because who doesn’t like making taxes easier?).

Resolution #2: Pay less in taxes.

Year-end pay stubs give you a quick summary of last year’s income and the taxes you paid. 

Resolution #3: Save more.

Saving more often begins with cutting back on expenses. Try going one week without buying anything except what you absolutely need. (And, yes, that includes rethinking your afternoon pick-me-up from Starbucks.) This exercise can help you determine which expenses can be reduced or eliminated from your budget.

Resolution #4: Pay less for insurance.

If you haven’t shopped for insurance rates in the last three years, check with other insurance companies to make sure you’re paying a competitive premium—particularly with auto and homeowner’s coverage. First, visit your state’s department of insurance website and get a list of preferred companies. Also, consider increasing your insurance deductibles to lower your premium. You can often do that with a simple phone call to your insurance company.

Resolution #5: Set financial goals.

To help your finances stay on track, identify the goals that will help shape your future. Because families often encounter problems when there is disagreement about shared financial goals, discuss goals with family members to determine what’s important to everyone. Shared family goals provide a greater incentive, and it’s much easier to forgo discretionary spending when everyone understands that another more important dream moves closer to realization. (For example, it’s easier to skip Starbucks when it means you’re saving for Disneyland.)

©2015-2019 CLC Incorporated

Summary

Learn the differences between nice-to-haves, habits of convenience, and good habits.

The first step to saving more is to figure how you spend. Keep track of your spending, right down to the penny, for a couple of months and you will learn a lot. You’ll see how much you pay every month for things you can’t do without. You’ll also see how much goes for things that are nice to have but that you don’t really need.

You might find, though, that your spending for must-have items seems to eat up your income. You pay so much in this category that you have nothing left to save. If that’s what you see, you should take a closer look at how you draw the line between necessities and habits. You may find that a “necessity” is really just something that you’re used to buying, without thinking much about it. In other words, it’s a habit.

The survival test

First, let’s define the key terms. A necessity is something required for your family’s survival. Or it’s needed for your own survival, if you have no family to support. Survival is a strong word. It means that you truly could not live without something. But it’s a good term to use here because it forces you to put every spending item to a strict test.

Some items really do pass the test. You must have them to live in comfort and good health. A roof over your head is one. Nutritious food is another. You can’t do without water, electricity and fuel for washing, heating and cooking. You need to stay clean, warm and dry. You need clothing. You need some form of transportation. You need the medicine prescribed by your doctor. You need some way to stay in touch with others, such as a phone.

The nice-to-haves

But even within these areas, you may spend more money than your real needs require. Take food. When you go to the store, do you stock up on soda as well as on fruits and vegetables? If so, part of your spending is in the “nice-to-have” category. If it’s part of your regular spending, it’s a habit. So here’s a good way to define that term habit: Spending that’s driven by your “likes” disguised as “needs.” You buy soda because you like it and you’re used to buying it. You would be just as healthy (maybe healthier) doing without it.

Some habits are bad for you as well as expensive. You probably know what these are already. Smoking is one. Alcohol can be if you drink more than you should; even in moderation, it’s a habit that you can save money by breaking. If you’re used to a doughnut every day with a high-calorie coffee drink, you’re better off breaking that habit, too. Some of us have a shoe habit—we simply buy too many. Try going six months or a year with the shoes you already have. You might be surprised at how easy it is.

Habits in your mind

Other habits are subtler. They can be mental habits that lead you to shop in certain ways. Do you always pick well-known (and costlier) name brands over plain-label items? Unless you’ve given both products a chance and have found the brand-name version to be truly better, you have a brand-name habit. Without really thinking, you assume the brand name is worth the extra cost.

Another type of mental habit is the way in which people get used to things they once saw as luxuries. Subscription TV networks can be one of these. You may have forgotten that you can survive without ihem On the other hand, yesterday’s luxury can be today’s bargain. Cell phones are in this category. Compare the cost of cell and landline service: You may save money by getting rid of your landline.

Habits of convenience

Some habits form because they save effort. If you’re used to ordering books and movies online rather than checking them out at the library, you’re paying for convenience. But at a little cost in time (and maybe some exercise, if you walk), you can get many of these items for free, or close to it. It’s also easy just to renew the same insurance policies year in and year out. Price-shopping at renewal time takes some work, but you may find you’re paying too much for coverage.

Habits can be good, too

Finally, there are the habits that you will want to nurture. For instance, it should be a habit to make a shopping list every time you go the grocery store. A plain-label habit at the grocery store would be good for your finances, as would a habit of regularly using the library. The same goes for a habit of cooking dinner from scratch each night rather than buying take-out food. A habit of putting money aside each month, even if just two or three percent of your income, may be the best of all. And you can get that good habit going faster if you can spot your spending habits and get them under control. 

By Tom Gray

©2010-2021 Carelon Behavioral Health

Summary

• Habitual and repetitive purchasing
• Used as quick fix to lift mood
• Can have harmful consequences

Experts estimate that more than 25 million Americans are compulsive shoppers—a serious problem akin to compulsive gambling.

The harm in compulsive shopping

Compulsive shopping is characterized as habitual and repetitive purchasing that becomes a sure-fire way to “feel better,” but ultimately results in harmful consequences. Although the reasons behind the compulsion vary with the individual, experts cite several underlying factors in the problem, including:

• Other mood, substance use or eating disorders
• Society’s emphasis on appearace and “must-haves”
• Ease of securing credit and shopping virtually anywhere, anytime—including through online and TV offers
• Increased self-esteem and feelings of happiness and power when spending—creating a vicious cycle when guilt and remorse drive a shopper to open his wallet again  

The consequences of compulsive shopping are similar to those of other addictions. An activity most people view as a chore or a fun way to fill leisure time can cause myriad problems for a compulsive shopper, including strained relationships, anxiety, guilt and serious financial and career fallout.  

Signs you are a compulsive shopper 

You or a loved one may have a problem with compulsive shopping if:

• Shopping is used as a quick fix when feeling down or anxious
• Buying favorite items helps boost self-esteem or polish an ideal image
• Spending produces a “rush”
• Large amounts of unneeded goods accumulate, often with the price tags still attached
• Purchases are made even if they are not affordable
• Spending causes serious financial or legal concerns, such as maxing out credit, juggling multiple accounts or missing bill payments
• Shopping is hidden from friends and family, and eats up increasing amounts of time
• Relationships and job performance suffer because of shopping and its consequences
• Binges cause guilt, anxiety and denial  

Curbing the habit

Compulsive shoppers don’t have to shop ’til they drop. Recognizing the problem is a large part of the solution. Strategize to help curb the habit: 

• Get rid of all credit cards except for one, which is kept for emergencies. Make all purchases from a checking account.  
• Create a shopping list for every trip to the store, and stick to it.  
• Don’t “window shop.” If you want to look, do it after store hours.  
• Remove temptation. Avoid discount warehouses, catalogues, internet shopping sites, TV shopping channels or other situations that enable shopping binges.  
• Conduct a spending audit. And as part of the plan, put financial goals in writing and record every purchase you make.  
• Find a distraction. When the urge to shop hits, exercise or talk to a friend instead.  

Most importantly, seek professional help with both financial and personal recovery. Therapy and credit counseling can help. The phone number listed on this site is a good place to start.

By Kristen Knight

©2005-2021 Carelon Behavioral Health

Summary

If you’re trying to get better with finances, try something simple that can help you boost your finances, and turn it into a daily or weekly habit.

Step 1: Try something simple that can help you boost your finances, and turn it into a daily or weekly habit. For example, putting your change in a jar to save up for something special.

Step 2: Track how you spend your money for 30 days. Organize expenditures by how you pay for things. For instance, use these labels: cash, credit card, debit card, online payment, or check.

Step 3: Formalize a monthly spending plan (budget). Anticipate how you will spend your money so you can plan how to meet those expenses.

Step 4: Schedule an hour at home when you are by yourself (or with your spouse) and without distractions. Use this hour to develop 30-day goals for reducing your financial stress. Have the same meeting every couple weeks so you can evaluate your progress and establish new goals.

Step 5: Evaluate all of your once-a-month bills. Evaluate your cell phone contract, your cable, internet, utilities, etc., and challenge yourself to research and negotiate lower rates or modify your use of services so that you can lower your bills.

Step 6: Make a list of your irregular expenses. Examples include car registration, property taxes, car maintenance, etc. Think about the next three to six months and list any periodic expenses you will need to pay. You should account for these in your budget. Can you start putting money into savings every month in anticipation of these expenses?

Step 7: Pay your bills on time. Use your monthly spending plan to organize your expenses and allocate money toward your bills.

Step 8: Establish a plan to reduce and eventually eliminate credit card use. Once you’ve stopped using the card(s), focus on getting rid of the debt. Choose a priority account to receive more than the minimum payment, while paying minimums on the rest. Once the priority account is paid off, apply that payment to the next priority account to redouble your efforts and eliminate debt more quickly.

Step 9: Start saving. If you don’t have an emergency savings account, then start one. You have to build up a savings account that you can fall back on instead of credit cards. No matter how small your contribution, contribute some amount every paycheck. Financial professionals recommend three to six months’ take home pay in emergency savings.

Step 10: Are you saving for your retirement? Do you have a retirement plan at work that in any way matches your contributions? Contribute enough to your retirement plan so that you get 100 percent of any matching contribution from your employer.

Step 11: Achieve and maintain a good credit score. You need to understand what influences your credit score, and you should monitor your credit reports. Did you know you can get one free credit report from each of the three major credit bureaus (Experian, Equifax and TransUnion) every twelve months through annualcreditreport.com?

©2015-2019 CLC Incorporated

Summary

• Cut big expenditures first.
• Cut down on your gas, electric, cable, phone, and internet costs.
• Consolidate debt.
• Wean yourself off dining out.

To trim unnecessary expenses from your budget, it helps to know what your budget is. Calculate your total income and total expenses. Go through your receipts—utilities, groceries, credit cards—and don’t forget quarterly bills for insurance. Then, keep track of all expenses for one month, including last-minute “tiny” purchases, such as buying a pack of gum in the checkout line.

Focus on the big stuff first

Once you have that information, focus on cutting your big expenditures first—mortgage, insurance, car payments. You may think these bills are written in stone, but you often can make adjustments that will save you money.

• Refinance your home loan for a lower interest rate.
• Get competing insurance quotes.
• Raise your insurance deductibles.
• Replace an expensive car with an economical model.
• Relocate to a less expensive house or area. This could give you newfound financial freedom.

The quick and (relatively) easy

While these big items will slash your expenses, you can still make easy, everyday changes that will immediately put more money back in your wallet.

Utilities: Look for ways to cut down on your gas, electric, cable, phone, and internet costs.

• Visit your power company’s website for energy-saving tips. Some ideas require an initial investment in time and money—from weather-stripping to new windows. But you can also do the quick-and-easy: Adjust your thermostat. When it’s cold—put on a sweater. When it’s hot—open your windows. Block the sun with heavy-duty shades in summer.
• Consider “bundled” services that combine internet, phone, and cable TV charges.
• Contact your phone company and ask them how you can reduce your bill.
• Don’t like cell phone bills? Get an emergency-service-only plan.
• Spending lots of money on cable TV? Cut down on those premium services.
• Only run the dishwasher, washer, and dryer when full. Turn off lights and electronics when not in use. Use energy-conserving power strips.

Credit cards: Look for ways to manage your debt.

• Consolidate debt via a reputable service. Visit the National Foundation for Credit Counseling for a list of members: www.nfcc.org.
• Are you charged a yearly fee? Next time you get a no-fee offer, contact your credit card company and ask them to match the offer. Most likely, they’ll comply.
• Pay off your entire bill every month. Get a card that requires monthly pay off. Can’t control yourself? Get rid of your credit cards.  

Food: There are many ways to trim food expenses.

• Wean yourself off dining out. Pack a lunch at least twice a week. Cut out one night per week of eating out, take-out or home delivery. Each week, increase your number of homemade meals. Set a limit on restaurants: one visit per month. Set a limit on expensive restaurants: no places that charge more than $15 for an entrée.
• Avoid buying over-packaged, over-processed foods. Buy whole foods, especially in-season fruits and vegetables.
• Buy in bulk and keep your pantry and freezer stocked with quick-fix meals.
• Shop during sales and use coupons. Search for free online coupons using the words “groceries” and “coupons.”
• Learn how to prepare at least one meatless meal. Aim for two meatless dinners per week. It’s cheaper and healthier.
• Alternate alcoholic drinks with a glass of water and limit yourself.
• Instead of going out, have friends over for a potluck dinner and game night.  

Shopping: You don’t need to cut out all your pleasures, just make sure you’re not spending mindlessly. The trick is to reduce impulse purchases.

• For shopping, give yourself a two-time rule. If you go to a store or see something online, put it on hold. Go back a few days later to see if you still want it. Chances are your desire will have cooled.
• Resist all impulse purchases in checkout lines.
• Put catalogs in the recycling bin immediately.
• Take a close look at your wardrobe. Buy a few quality basics—slacks, skirts, suits—then mix and match with inexpensive tops and shoes.
• Compare prices.
• Check out manufacturers’ websites for discounts or refunds before buying big-ticket items.
• Rent; don’t buy things such as power tools you’ll use once a year. Go to the library for books, music and movies. Many publications feature their latest editions online.
• Barter or trade for services.

Miscellaneous: Take a close look at all of your expenses and research ways to reduce or eleminate them.

• Search the internet for travel bargains, last-minute deals, and budget destinations. Check out house sitting and home swapping options.
• Conserve gas by driving the speed limit. Make sure tires are properly inflated. Ride your bike or walk when possible. Get a basket for your bike and run small errands on two wheels.
• Rethink your gym membership. Instead, you could walk, ride a bike, run or buy a piece of home equipment.
• Investigate homemade cleaning agents—white vinegar, lemon juice, etc. They’re cheap, usually work as well, and are better for the environment.
• Avoid dry cleaning. Search the internet for ways to clean silk and other tricky items. Better yet—avoid buying high-maintenance fabrics.
• Don’t hire house cleaners and lawn services. Do the work yourself; it’s exercise.
• Investigate carpools and co-op child care and babysitting.

By Amy Fries

©2006-2021 Carelon Behavioral Health

Summary

The solution to balancing your budget is typically some combination of action steps. The following are usually worth considering.

The solution to balancing your budget is typically some combination of action steps. The following are usually worth considering.

1. Adjust your tax withholding.

If you typically receive a refund when you file your taxes, you may benefit from an adjustment to your withholding to increase your net income. For example, if you typically receive a $3,000 tax refund, you may receive up to $250 more in your paycheck each month when you adjust your withholdings.

2. Temporarily reduce your retirement contributions.

You may need to temporarily reduce your retirement contributions to improve your cash flow. It is suggested that you continue your contribution up to the amount being matched by your employer. Depending upon how tight your budget is, you may need to stop your contribution until you can regain financial stability. Remember that this is a temporary fix. Restart your contributions as soon as you can balance your budget. You will want to retire some day.

3. Consider refinancing your home.

With interest rates so low, refinancing your mortgage may lower your monthly payment. When refinancing, it is advisable that you reduce your interest rate by at least 1.5 percent. For example, if your interest rate is currently five percent, and you can qualify for a refinance rate of 3.5 percent, then it may be a good way to significantly reduce your monthly mortgage payment. Remember, refinancing may result in paying more interest over the life of the loan.

4. Consider refinancing your auto loan.

You may qualify for a lower interest rate on an auto loan. Check with your local credit union or bank to discuss reducing your monthly payment by refinancing to a lower interest rate. If you got a loan when interest rates were higher, or your credit score has improved, you might be able to save on your monthly payment by refinancing and (possibly) extending the term. Remember that you don’t want a loan that will outlive your vehicle.

5. Manage your unsecured debt.

If you have high-interest unsecured debt (credit cards), you may be able to reduce your monthly payments and still reduce your debt. Try asking your lenders for lower interest rates, or a hardship payment plan if you are struggling to make your payments. If you don’t mind your cards being closed and the corresponding negative effect on your credit, consider a non-profit credit counseling program. In the most extreme cases, a Chapter 7 or Chapter 13 bankruptcy may be an option worth considering. 

6. Consider alternative repayment options for your student loan.

If your student loan payments are high, you may be able to reduce them through consolidation or by taking advantage of an alternative repayment plan. Some of the common repayment plans are income-based, graduated, extended, and pay-as-you-earn plans. Generally speaking, the longer your term is pushed out, the lower your payments will be, but you may have to pay more interest. Understand the pros and cons of the various options before making a decision.

7. Reduce or eliminate non-essential expenses.

Go through your spending and identify your non-essential expenses or “wants.” Determine which ones you can live without (or with less), and reduce or eliminate them to balance your budget. This may include eating out, entertainment costs, additional clothing expenses, or other “non-critical” activities or purchases. Look at your last few months of expenses in these categories to calculate your typical spending per month. Then, make the decision to eliminate some, most, or all of an expense to help make ends meet. A family of four can easily spend $200 or more a month on fast food or eating out. Reducing this expense, even by half, provides significant monthly savings.

8. Reduce additional non-essential items.

If you have reduced or eliminated the most obvious non-essential expenses or “wants” and still can’t make ends meet, look for non-essential expenses that may require more planning and effort to reduce, and may not be as easily eliminated. Consider changing service levels on gym memberships, cell phone data usage plans, or reduce/cut out tobacco and liquor expenses. Be careful to understand charges that you may incur if you cancel a contract early.

9. Take on additional work.

One solution, often overlooked, is finding ways to increase your income. Ask for additional hours at work, look for a second part-time job, or find a higher paying position. Ask your supervisor or manager what you need to work on to be a top candidate for a promotion.

10. Get a roommate.

If you have an additional bedroom available (and you own your home or your landlord will allow it), think about getting a roommate. An extra $300 to $600 per month for rent, plus help with utilities, will go a long way toward balancing your budget. Be sure to check the background of any person that you are considering and make sure their personality is a good fit.

11. Bargain grocery shop and use coupons.

Consider shopping at a bargain grocery store for non-perishable items. Planning meals ahead of time and around store sales can also help keep your food budget down. Coupons can be a big help to decrease monthly food costs. There are many places to find coupons and discounts, including the internet, newspaper, flyers, and coupon clubs.

12. Say goodbye to traditional cable.

Technology has advanced quite a bit over the last few years making it more convenient and easier to access entertainment from multiple sources. Consider cutting your cable or reducing your cable to local channels only and pairing it with a media device (Xbox, Blu-ray, Roku, or any other) and an inexpensive entertainment service (Netflix, Hulu Plus, or Amazon Prime). This type of change can save you quite a bit of money as it only requires an internet connection and a subscription fee ($8-$22 each). Depending on your cable provider, you could save from $50-$150 a month.

13. Be mindful of utilities.

One way to save energy and money is to adjust the temperature on your air conditioner or heater when you are not at home. Turn off the lights, computers, or small appliances in rooms that you are not using. Also, consider unplugging unused electronics as they still draw a small amount of power from the outlets even when they are not in use. Taking all of these steps can significantly reduce your utility bills.

14. Review insurance coverage.

If you are a healthy person that rarely visits the doctor, consider changing your plan to a higher deductible, which will reduce your monthly premiums. A review of all insurance policies (medical, homeowner, auto, or other policies) to ensure appropriate coverage, may allow you to keep more money in your pocket each month. Remember, however, that a higher deductible will mean more out-of-pocket expenses, if you need to file an insurance claim.

15. Take a sack lunch.

If you are buying lunch out several times a week, you are likely spending far more than you realize. Consider taking leftovers or a sack lunch to save yourself a potentially significant amount of money. A typical lunch costs anywhere from $4-$12 a day, which can easily add up to $100-$200 a month.

16. Sell an asset.

Selling an asset to pay off a debt and reduce monthly expenses may be a needed option. For example, sell an additional car to eliminate the monthly payment of the car. Sell an extra car so that you can pay off or pay down credit card debt or personal loans with the profit.

17. Free coffee at the office.

Buying coffee or specialty drinks on a regular basis can add up quickly. Cut out all of these and you could see significant savings. For example, if you buy a Starbucks coffee a day, that could add up to about $100 per month.

18. Reduce fixed expenses.

If you are not able to balance your budget by applying all of the suggestions above, you may need to consider reducing your “essential” or “fixed” living expenses. Depending on the severity of your cash shortfall, you may need to take more drastic measures such as moving to a less expensive residence or reducing to a one car family to reduce your overall cost of living.

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