Archive for July 2012
Strategies For Saving Money
One of the largest issues I see during our one-on-one financial coaching meetings is the inability to save money.
Here are some facts about saved money:
- Saving money is essential to long-term sustainability
- Saved money relieves stress
- Saved money allows you to take a chance
- Saved money allows life to happen (job loss, disability, pay cut, injury, etc.) without going broke!
But you already knew that part. We all know that we are supposed to “save money for a rainy day.” Yet, even though we KNOW how important it is to save money, most people fail to do so.
My hope with this blog post is to challenge YOU to take a next step. If you have negative savings (no money plus overdrafted accounts and debt), the goal is to bring you to zero. If you are at zero savings, the goal is to get to at least $2,500 in a beginner emergency fund. If you have been able to save a substantial amount of money, it is my hope that you will participate in the discussion and share your own tips that have worked well for you.
Automatic Draft From Paycheck
Establish a savings account and have the money drafted from every single paycheck. Whether it is $25 or $250 per pay period – just SAVE! You KNOW that the car is going to break down. You KNOW that the school is going to send home a surprise expense.
By establishing this draft, it allows the money to be “out-of-sight.” When money is out-of-sight, it can be out-of-mind. This allows the account to grow without you robbing it!
Now, I personally had a problem with this when I did not have a monthly budget. I would ROB my own savings account about 2.1 microseconds after I was paid. Only after I had a plan developed together with my bride, Jenn, did my savings account begin growing in a healthy manner.
Create An Escrow Account For Known, Upcoming Expenses
For those unfamiliar with an escrow account, it is a savings account that is established by a mortgage company. The mortgage company totals the annual cost of property taxes and homeowner’s insurance and divides it by the number of payments being made each year. The mortgage company then pays for the taxes and insurance from this escrow (savings) account. For example, if the property taxes are $1,200/year and the insurance is $600, then the total amount needed each year is $1,800. The mortgage company will collect $150 extra with each monthly payment to place into the escrow account.
An escrow account smooths out the cost over a year – instead of having to pay for it all in one month. It tightens the monthly budget, but having a fully funded escrow account sure is AWESOME when vacation arrives and the money has already been saved to pay cash for it! Those who have a mortgage with an escrow account will testify to the fact that they never worry about paying for the taxes and insurance – ask someone!
Take a moment to read THIS POST about how to calculate the amount you need to save each month for your known, upcoming expenses.
Take it from one who has lived it – if you do not plan for your known, upcoming expenses, your ability to save money will be tremendously hampered!
How about you? What are some ways you have made saving money easier in your own finances?
NOTE: I hold my Known Upcoming Non-Monthly Savings in an account at Capital One 360. It allows me to save money “out of sight – out of mind” and allows me to create “sub-accounts” for each item I am saving for. For example, I have created a “Christmas” and “Car Replacement Fund” in my account. You can check out Capital One 360 HERE.
4 Reasons It Is Hard to Budget
As I assist others in the creation of budgets that actually work, I see certain issues that crop up very frequently. In fact, here are four reasons that budgeting is difficult for many people.
4 Reasons It Is Hard To Budget
1. Unwillingness to change behavior. A refusal to recognize that INCOME – OUTGO = EXACTLY ZERO will not eliminate this fact from being reality. If someone is unable to pay their bills, but they are still getting weekly manicures – something is wrong! If someone is unable to pay their bills, yet are still spending a ton of money eating at restaurants – something is wrong! Behavior MUST change in order to move from “surviving” to “thriving” financially.
2. It is not about money at all. It is a TRUST issue. You want to see power struggles in a marriage? Get them to talk about their money! I believe a lack of trust is a HUGE reason that it is hard for many couples to budget. It is about trust. Here are some of the questions being asked.
- Do I TRUST you enough to put our money together into a single checking account?
- Do I TRUST you enough to let you pull cash out for spending money?
- Do I TRUST you enough to follow our written plan – the budget?
- Do I TRUST you enough to hear your opinion about where we should spend our money?
- Do I TRUST you enough to believe that we really need to spend that much money at the grocery store?
- Do I TRUST you to do well in the future! – Because you have messed up with money in the past!
3. One spouse is not interested in working with the other. This will kill a budget before it ever starts! I have seen multiple examples where one person works like crazy to get their money in order, only to have the unfortunate surprise that their spouse has run up a huge credit card bill, or shows up with a new car, or buys a new boat, or signs up for an expensive vacation, or … The list goes on and on. When this occurs, the “behaving” spouse (who has been following the spending plan) becomes very tempted to throw in the towel and join in with the frivolous spending. They reason, “Well, if he/she can have what they want, I deserve it too …” Couples who do not work together on major financial decisions run a high risk of not maximizing their financial potential. They also run a higher risk of divorce.
4. Failure to recognize that there is an “INCOME” portion to the INCOME – OUTGO = EXACTLY ZERO equation. Seriously, I can’t believe I have to write this, but it is SO true! I have people show up for counseling, and they are not working! Now, I can understand a couple of weeks without work (maybe), but I REALLY DO NOT UNDERSTAND HOW SOMEONE COULD NOT WORK FOR SIX MONTHS! How is this possible? GO TO WORK! DO SOMETHING! Go get a job. I don’t care if it makes someone feel sad to take a job at McDonald’s! It makes me feel sad when they draw welfare for 6 months when they have ABSOLUTELY NO REASON that they cannot work – except for “it makes me feel bad”. Waaah! Earn some money. It will help cure depression.
Well, I have ranted enough today. I know that it can be difficult to budget, but I believe that you can do this! I believe that you have the know-how, the capability, and the inner-strength to work together with your spouse, avoid the debt trap, develop a plan for your life, and have fun doing this together!
YOU CAN DO THIS!
You CAN have a budget that really works! Check out our FREE BUDGET TOOLS to get started.
My book, I Was Broke. Now I’m Not., can help you learn to live and operate with a monthly budget and begin to fund your dreams. Purchase your copy today and get started!
ING: How Much Money Do You Need To Retire?
If you have read this website with any regularity, you will know that I am a freak about having a financial plan. I want a written and very detailed plan for anything related to my finances.
One thing that I teach during live events is the importance of calculating how much money you need to retire. It is also taught in my book, I Was Broke. Now I’m Not.
It is SO IMPORTANT to know how much money is needed to retire well.
How much money do you need to retire?
One of my favorite on-line banks, has created a terrific website to help you answer the question. I went to the website and calculated my number, and it FIRED ME UP!!!
I enjoyed the brief exercise so much that I want to CHALLENGE to everyone today to take five minutes to complete the following two tasks (trust me, it will be worth it):
- Calculate Your Number at INGYourNumber.com
- Calculate Your Number using the JosephSangl.com “Retirement Nest-Egg Required Calculator“.
Are YOU going to be able to retire well?
What Should You Do When You Are Living Paycheck-to-Paycheck And You Have Lost Your Job?
What should you do when you are living paycheck-to-paycheck AND you have lost your job?
With over 70% of Americans living paycheck-to-paycheck, this is a great question to ask!
When you are living paycheck-to-paycheck, bills go past due THE VERY INSTANT you miss ONE paycheck.
So what should you do if you are in this situation? Below is a list of things that I would do IMMEDIATELY if I were living paycheck-to-paycheck and lost my job.
- PRAY!!! It really does work!
- Call every single creditor you owe and inform them of your situation. Humbly ask them to help you. Ask them if they would please lower the interest rate to 0%, charge no fees, and give you three months of no payments. Most of them will work with you!!! Communication person-to-person works so well!!!
- File for unemployment.
- Immediately cut out all non-essential expenses. Get rid of the cable, internet, home telephone (keep the cell phone), gym membership, etc.
- Get a job – ANY job! Obtain a job that earns something to help bridge the gap between full-time positions.
- Apply for a better job. Apply for new jobs on monster.com, linkedin.com, hotjobs.com, and the newspapers.
- Prepare a spending plan. Spend all of the money you do have on paper BEFORE you actually receive the money. In other words, start PLANNING your spending! Free tools are available by clicking on “Tools” at the top of the page!
By the way, if you are living paycheck-to-paycheck, but still have a job – consider yourself warned!!! You might be laid off TODAY! What would your family have to do if you lost your job TODAY? Why not make today THE DAY that you change your family’s entire financial future?
Looking for additional Personal Finance Resources? You can obtain free tools by clicking HERE and purchase books/materials by clicking HERE