Category Archives: Budgeting

Budgeting

Savings Vs Debt

When we or anyone else talks about budgeting, it’s with the main idea of making sure you can pay all your bills and, hopefully, have something extra so that you’re not always living check to check. This is all well and good, but it’s possible that maybe you’re not paying enough towards your bills or putting enough away for your future. And with those as your only two choices (spending every dollar you make is NOT a choice for now), which is better to deal with first?

Last year the federal government passed a law stating that your credit card vendors must supply you with not only bills 21 days before their due to be paid but estimates of how much you would need to pay monthly, without using your cards again, to get rid of that particular debt. For some people that number might seem impossible to deal with on a tight budget and they might decide to try to put some money away instead. Let’s look at some real numbers.

The first is interest rates. The overwhelming majority of credit card interest rates come in between 14% and 23%. At your best the rate you’ll earn on any type of investing or savings might be 10%, and that won’t be every year (if it is you might want to hire a consultant to see if you’re getting the Madoff runaround). If you have time, it’s probably better to put more money towards your debt, even if you can’t pay it off in 3 years, because it’s growing faster than you can grow your money.

However, what if you can’t stop spending or using your credit cards? Some people just can’t stop themselves and it’s understandable. There are wants and needs that come up, and sometimes the credit card just seems so handy. Even though it wouldn’t be recommended overall as a first choice, in this case it might be better if you can put some of your money away towards savings or investment because it might help to spur you to stop using your cards at some point and actually pay down your bills with the extra cash you might see.

The “might” is important to see because it depends on the type of savings or earnings you’re hoping to try. Traditional savings accounts don’t earn anything these days except maybe some peace of mind. CDs might pay 2-3%, while most mutual funds could, as the economy improves, grow by 5% in a year, which can be compounded if you add to the investment amount on some sort of monthly basis. Of course you have to know that there’s risk if you’re shooting for a 5% growth, so you could just as easily lose that much on your investment each month, even with adding money all the time. If you’re risk averse, paying down debt once again becomes the better option.

It’s always better not to get into overwhelming debt, but remember that every day is another opportunity to get a handle on it, and there’s always someone who can help you overcome it.
 

Budgeting

5 Things To Do When You’re Going To Have Problems Paying Your Bills

Everyone has a period where there’s a problem concerning paying bills. It could be for many different reasons but no matter what the reason is, the pressure feels great. A reality most people don’t know is that you always feel worse when you don’t know what to do than once you figure out and start to address the issues. Here are 5 things you need to do along the way towards getting back your peace of mind.

1. Figure out if you’re really in financial distress or not. This involves a word some people think is ugly, budgeting and yet it’s a necessary thing and truthfully not as evil as some people think it is. Trust me, it’s comforting knowing that you have a lot more money than you thought you did if you do it right, and sometimes even if you don’t have as much as you hoped, you find that you have enough to pay everything if you just spend smarter.

2. If you’re close to being in trouble the first thing to do is figure out what you’re allowed to be a little bit behind on. Try to never fall behind on credit card payments because they’ll jack up your interest rate and that adds to your outstanding debt greatly. Services like phone, cable, even your power will often allow you to miss the date of payment and tack on maybe a $15 late fee, and some don’t tack on anything. This is a short term solution if you know you can catch up.

3. You just might have to get rid of some things or reduce other things. Sorry, but comfort just might have to take a minor hit along the way. If you have to turn off or reduce cable for awhile it’s something to think about. Do you really need that big package on your smartphone or regular phone or can you drop something for a short period of time?

4. Pick up the phone and call. Hiding won’t make things go away, but picking up the phone and making a call can help greatly. If you have a car payment sometimes you’ll find out that they give you so many “grace” payments during the course of your loan, which means you’ll get to skip a payment or make a very much reduced payment. Sometimes your credit cards companies will give you a reduced payment rate for a few months as long as you agree not to use the card at all and won’t jack up your interest rate. Many companies in today’s world will accept a one-time smaller payment if you tell them what your situation is. Almost everyone will work with you, but you’ll never know if you don’t try.

5. Don’t panic; get help if you need it. Why are accountants around? Why is there an organization called Consumer Credit Counseling? Why are there other people who can help you with budgeting and planning? Because many people need help with their finances and it doesn’t always get to the point of having to declare bankruptcy. Get help if you need it; if you don’t, then do what you need to do to get out of trouble and regain your peace of mind.
 

Budgeting

4 Reasons Businesses Need To Track Their Money

Some months ago we wrote in this space about the art of bookkeeping, offering some tips on how businesses might make the practice easier to do. We didn’t go into why it’s important to do, and we’re going to rectify that now with 4 reasons why it’s important, since we gave 4 tips the first time around.

1. You need to know if you have enough money to do what you need to do. Forget having enough money to go on vacation for the moment. If you don’t have enough money to cover your expenses from month to month, your business will be in trouble. Unfortunately, none of us is the federal government, which means we can only spend whatever money we happen to have. Without budgeting, you might find yourself buying something, only to realize that you needed that money for something else.

2. You need to know where the bulk of your money is coming from so you know where to concentrate your efforts. If most of your money is coming from certain products or services, it would be smarter to try to get more clients for those things and put other things on hold for awhile. This of course touches upon the Pareto Principle, and yet it seems to be true for so many things.

3. You need to know where the bulk of your money is going. Tracking expenses is never fun, but it’s the only way you know if you’re spending too much money on the wrong things, or if something might be amiss. I had a client who was spending a lot of money on a supply item that wasn’t crucial to the business. He found that his employees were ordering this item and either using it for purposes it wasn’t designed for or taking it home for their personal use. Yearly it was a lot of money going out the door that, once it was pointed out to him, was an immediate savings to his company once he shut it down.

4. You need to know where your business stands financially. You can’t plan for the future if you don’t know where you are now. If you need special certifications that have to be paid for, you need to plan for that. If you need to pay quarterly taxes you might need to plan for that. If you have employees you pay weekly or bi-weekly, you need to plan for that. Knowledge is power and safety, and if tools or people like accountants are available for you, it’s smart to use them to your advantage.
 

Budgeting

Decreasing Debt

This is the first of a two part series on managing your money. It goes beyond just thinking about budgeting your money, something we feel strongly about. Instead, it’s looking at debt, why you want to reduce it and how, and then looking at why you need to also think about increasing revenue. That’s for next time; right now, let’s talk about debt.

Having too much debt can be debilitating. Sometimes people come up with some radical ways of attacking it. There was a recent story on CNN where a young man just out of college with around $26,000 in debt decided he was going to pay it off in 2 years. How he did it was to go extremely austere. He didn’t turn on the heat in the winter, and he lived in Minnesota. He bought a lot of foods at discounted prices and ate much of the same thing over and over, even when it expired; that put him in the hospital a few times. He bought few clothes, and when he did he went to discount places. He didn’t drive a car for those 2 years so he wouldn’t have any expenses related to that.

There were a few other things he did, but he did end up paying off his debt. It was a pretty extreme way of doing it, and I’m not sure it’s worth going to the hospital, especially if your insurance isn’t as good as his apparently was. What it did point out though was how well things can go if you have a plan, even if it’s not as extreme as his was.

How do you increase debt? Obviously you stop spending too much money. However, you still have to live, and if you have kids, you still need to address their needs. Here are some ideas:

* Cut down on snack foods

* Buy foods that allow you to cook large meals that you can eat many times.

* Buy some items in bulk or on sale and freeze them if you have to

* Cut down on eating out

* Plan your trips out for the day ahead of time and plot a course so you’re not driving all over town, out of order, and wasting a lot of gas

* Instead of going to the movies pay for a service like HBO, which offers 13 channels (2 in Spanish) for only $7.99 a month, which offers movies for children and adults alike at a reasonable price. You can cook your own popcorn for less than 30 cents a bag.

* Plan what you want to buy before you leave the house, and stick to that

* Leave the house with a specific dollar amount in mind and don’t go over that amount, no matter what

* Pay a bit more on at least one of your bills every month, and concentrate on the one with the highest interest rate

* If you must use a credit card, wean yourself down to only one and monitor how much you spend on it

If you can follow most of these rules, you’ll be able to pay down debt without increasing more, still be healthy, and possibly be able to afford one fun day every couple of months or so, which helps make staying in control much easier to deal with. Give it a shot; you might surprise yourself.
 

Budgeting

Claiming Dependents On Your Weekly Or Biweekly Paycheck

How many dependents do you claim on your taxes? I’m not talking the once a year tax-preparation, but the daily or weekly or biweekly taxes that are deducted from your paycheck.

Most people across the country will claim the same number of dependents that they do on their yearly tax form. What this is supposed to do is remove enough tax so that when you file your income taxes for the year you’ll either have paid everything that you owe or will either owe a little bit more or get a very small refund.

What some people do is claim fewer dependents on their paycheck so that more money is taken out at every pay period. What this does is guarantees them a refund when their taxes are done, and many people plan around that refund. However, it might not be the best use of their money. Let me explain.

Getting a refund from the government is nice. However, by taking more money out of your check it’s the government that gets to use that extra money to build interest on than you. If you have no problems with the government using your extra money then that’s fine. But if you’d like to use that extra money you might think about claiming one less dependent and then rolling that money over into some kind of investment. Not only would you be growing money for yourself, but because you’re investing it you get that extra bit tax-free for a while, which means you won’t have to pay much more on your yearly taxes, if you have to pay anything at all.

Did you know that you can claim anywhere up to nine dependents for your pay checks whether you have that many dependents or not? This is not a recommendation by the way, but it’s something you should probably know.

Every once in a while if you need a little bit of extra cash, it might not hurt to look into claiming more dependents for a pay period or two. What you’re doing in essence is borrowing against yourself instead of having to take out a loan or asking someone else for money. If you claim 9, for instance, you might not have any taxes taken out of your check or very little, and you can roll that money into something else. You could even roll it over into some kind of investing, but the tax amount that you’ll owe on it at the end of the year will still be higher than what you might want to deal with if you decided to do it more than a couple of pay periods.

That’s the main thing you needs to think about if you decide to claim more dependents than you actually have. You will still owe the government its money, and if you don’t plan for that then when you do your taxes at the end of the year you might be shocked to find out how much money you owe. Of course you could probably keep doing the same thing and borrowing against yourself, but that’s not a wise thing to do. Still, if you ended up having to make a deal with the government to pay back outstanding taxes, it will cost you a lot less than the interest on a credit card.

This is just something to think about if you’re ever in a spot where you need a little bit more money, or maybe want to take some of the money and invest it so that you’re making money rather than allowing the government to make money off of you. Of course you’ll want to talk to your accountant or money manager to see how this type of thing will work for you if you’re going to invest it, as well as talking to your accountant if you’re planning on upping your dependents for a short period of time so you can be warned as to around how much that might end up costing you if you don’t catch back up later on.