3 Steps to Set up a Budget

We’ve talked about this many times in the past and, simply put, the big difference between financially secure people and those who are not usually boils down to one specific thing; a budget. People who create and, of course, use a budget are usually more secure financially, have less debt and have higher credit scores then people who don’t.

If you still don’t have a budget and really don’t have a clue as to how you should start, the tips below will get you there and allow you to begin taking better control of your finances right now, today. Enjoy.

Your 1st  step is to look at the exact amount of money you spent per month over the last three or four months. If you primarily use a credit or debit card for the majority of your purposes, finding out this number is as simple as logging into your bank’s dashboard to see your transaction history. If you’re the kind of person that uses cash for most of your transactions and purchases however, it will be a little bit more involved as you’ll need to look at how much money came in, and how much money you had left at the end of the last two or three months, in order to determine how much you spent.

If that’s not possible, then at the beginning of the next month you should get a paper notebook or app and start keeping track of everything, and every purchase, that you make. (Yes, it might be slightly tedious but it’s vital to your financial future.)

What you’re looking for is where exactly your money has been going.  This is the information you need to figure out if you’ve been spending too much on certain things like entertainment, eating out, clothes and other “non- essential” items. Knowing exactly what you’ve spent is a vital part of putting together your first budget but, frankly, the next step is more important.

That 2nd step is making a plan to address your overspending.

Let’s say, for the sake of example, that you make $2400 after taxes every month. Now let’s say that you spend;

  • $1100 on housing
  • Florida dollars on groceries
  • $300 on entertainment
  • $100 on your phone
  • $750 on other expenses

Guess what bucko, you’re spending $2650 a month or $250 more than you actually make! Looking at those numbers is easy to see that there’s a problem, but the question that’s more important is how to address it, change it and fix it.

Since a budget is basically a spending plan what you’ll need to do is write down how much you’re willing to spend on each of those categories the following month and, more importantly, decide where to eliminate or at least cut back on spending. Will you eat out less, spend less on entertainment or change your phone plan?  What about clothing and $7.00 lattes at Starbucks?

Whatever you need to do to whittle that spending down to $2400 (or less if possible), you’ll need to do it if you want to get your spending and your finances under control and stay in control.

Your 3rd  step is to simply track your spending. Once you’ve categorized your spending (and you can make as many categories as you like) you need a system to track it. That’s about as simple as it gets these days with the plethora of spreadsheet programs or online budgeting apps available. Frankly, without one of these you’ll never be able to stick your budget so do yourself a favor and pick one up ASAP.

Actually, you might find out that keeping a budget is actually a bit of fun, especially when you see how much money you’re actually managing to save.

Every day, or at least once a week, check your spreadsheet and make sure that you’re not over your budget on any one particular category. Did you spend $80 today on groceries? Make sure you noted on your spreadsheet and see how much you have left for the rest of the month. Once you get the hang of it you’ll actually become quite skilled at making your money last longer, something that will inevitably help you to start putting away into a retirement account, paying down your debt or funding an emergency account.

Should you consider refinancing a student loan?

One of the biggest debts that the average American has is their student loans from college. Recently there’s been a lot of talk about “refinancing” a student loan and today  we’ll take a look at a number of different factors that you should know about before making a decision on whether to do this or not. Enjoy.

The first question is simply this; should someone refinance their private student loan into a loan with a lower rate? Most private student loans feature variable interest rates that have been based on a specific borrower’s credit history. When that person first takes out their private student loan, he or she probably has a limited credit profile and will be treated as a higher credit risk by most lenders. What this means is that, for most student loan borrowers, a private student loan comes with interest rates that are quite high.

That being said, there are a number of borrowers who, after graduation, and obtained a job and gotten excellent credit. These people may be able to qualify for a refinance of their existing private student loan and turn it into a new private loan at a much lower rate.

For many borrowers however the situation is, unfortunately, not available. Not only that but there are few financial institutions that actually offer this type of financial product. If you do happen to find one there are a number of things to consider.

First, look closely at the APR. While the monthly payment on your new student loan might well be lower, the interest rate could actually be higher due to the fact that your new long-term may be spread out over a longer period of years. If you are an active-duty service member, you might wish to consider that if you refinance its possible you’ll lose the rate benefits on your pre-service obligations.

You also need to closely consider the tax consequences as your new loan may not be considered a student loan and might not qualify for the interest tax deductions that student loan’s qualify for. If claiming this deduction is something you do every year you definitely will want to take a look at whether or not you’ll be able to continue doing the same.

As far as federal student loans are concerned, refinancing them as private student loans with a lower rate depends on a number of factors. The fact is, Congress has not lowered the rate on federal student loans in quite some time, including the most common loan the Unsubsidized Stafford Loan. If you’re a borrower with excellent credit you may be able to qualify to refinance your federal student loan with a newer one at a lower rate.

There are a number of risks however. First you need to look closely at whether you’ll be switching from a fixed loan to a variable rate loan. Since most federal loans have fixed rates you won’t have to worry about your monthly payment increasing if interest rates rise but, if you’ve switched to a variable rate loan and interest rates rise, your loan amount could rise with them.

Lastly you want to be sure to understand what you’re giving up with your federal student loan before you make the choice to change it into a new private student loan, mostly forgiveness options. On the other hand, if you have sufficient emergency savings, a strong credit history, a secure job and likely won’t need any forgiveness options, refinancing to a new private student loan may well be worth considering.

Indeed, it could help you take advantage of today’s historically low interest rates as well as the improved credit profile that you (hopefully) have today. It’s definitely a useful way to lower your monthly college loan payments as well as build your savings and retirement fund, but you need to closely consider all of the risks before signing on any dotted line.

Over 40? Never too Late to Save for Retirement

From a retirement planning perspective, the decade between your 40th and 50th birthday is a time when, if you haven’t started saving for retirement, you definitely should.  Of course anyone who started putting money away before then is going to be better positioned financially than you are to meet their long-term retirement goals, but the good news is that there’s still plenty of time to shore up your savings even if you’ve been hitting the “snooze button” on your retirement plans for the last 20-odd years.

Gregory Olsen, a certified financial planner with Lenox advisors, says that “for a lot of people, they celebrate their 40th birthday in earnest”. He also says that, luckily, most 40-somethings have the maturity and insight to be able to better project their future income needs and accurately predict what they’re going to need in order to keep up their lifestyle once they retire.

That actual numerical figure will differ for everyone, and depends on exactly when you plan to retire, what you are life expectancy is and whether you envision a “low-budget” retirement or have plans to take trips to Europe and eat dinner at the golf club every night.

On the Social Security Administration’s website you can find a Life Expectancy Calculator that will offer you general guidelines on how long you’ll possibly live, but the results you get from that calculator will need to be adjusted to reflect not only your present health but also any health risks or concerns that might be familial.

Once you start to actually estimate your expenses in retirement, you’ll need to remember to factor in the basics like food, housing, transportation and of course healthcare. While your home may be paid off by the time you retire, healthcare costs and other expenses won’t be, and may actually become higher the older you get.

Determining how much you’ll get from guaranteed sources of income, including Social Security, pensions and, for a few lucky people, trust funds, is your next step. Using the Social Security administration’s website you can determine what your future benefits are going to be quite easily, but the others may need more work.

Once you’ve determined the difference between what you’ll likely spend and what you have in guaranteed income, you’ll have a number that you can use to determine how much your savings will need to be in order to maintain your current standard of living. Most financial planners will tell you that you should save at least 15% of your income every year as well as maxing out any tax-deferred retirement savings plans that you have like IRAs, 401(k)s and Roth IRAs as well.

One of the best ways to improve your financial prospects and be able to live longer on your retirement savings is to stay as healthy as possible, including eating well and exercising regularly. If you smoke you should quit and if you’re overweight you should definitely consider dieting, as one of the biggest retirement expenses is the cost of healthcare.

Finally, starting to save right now is vitally important as you got a lot of catching up to do. It will be impossible for enough away to retire comfortably, but you’re definitely going to need to put a lot of thought and work into it and stash as much money away as possible.

Companies that Mix Religion with Business.

It’s well-known that talking about religion or politics among friends and family members can make for awkward conversation. For businesses, it can not only be awkward but also financially deadly.

Not long ago the CEO of fast food chain Chick-fil-A made his opinions known about the fact that he believes marriage should be between a man and a woman. The backlash that his comments sparked, from the media, gay and lesbian couples across the country and even Boston’s mayor, was massive.

On the other hand, when former Arkansas governor (and FOX commentator) Mike Huckabee organized a “Chick-fil-A appreciation Day”, the restaurant saw record shattering sales. When it comes to religion and business, it’s quite literally a double-edged sword (or at least a double-edged kitchen knife).

If you’re looking to invest in companies that have a religious bent, some of the companies on the short list below might surprise you. It’s not just Chick-fil-A that like to serve doctrine with their chicken sandwiches (they even close all of the stores on Sunday).

For example, clothing store Forever 21 prints a message or passage from the New Testament on the bottom of all of its bags for customers to enjoy when they make a purchase. If you’ve ever purchased a trendy skirt or skimpy top from the company you may have noticed a reference to “John 3:16” on the bottom of your bag, one of the most obvious and most well-known religious references. The Chang family, owners of the chain, are born-again Christians.

Tyson Foods, famous for their chicken, actually employs over 1200 office chaplains at locations around the country to provide, as they call it, “compassionate pastoral care” to their employees. John Tyson, founder of the company, has often spoken openly about his Christian beliefs and the fact that he believes his company should “be a faith friendly company”.

If you’ve ever eaten and In-N-Out Burger you may have noticed that their cups, containers and wrappers all have Bible passages printed on them. While they may have a secretive “special menu”, it’s no secret that this chain wants to deliver a religious message to their customers. Interestingly, the company doesn’t address or make reference to their religious passages on their company website

Then there’s Alaska Airlines who, along with their in-flight breakfast, also pass out inspirational notecards to all fliers with passages from the Old Testament. In fact, this is a company tradition that’s been going on for several decades.

All of these companies are traded on the stock market and so, if you wish to purchase stocks for your portfolio that lean towards religion or faith, you’d do well to start with them.

Bitcoin may be innovative, but these 10 financial innovations are affecting more people right now

When you talk about innovation and technology when it comes to online / internet based payments these days, the conversation often turns to Bitcoin, the innovative new monetary system that’s being used more and more around the globe. However, despite the increasing number of retailers that are beginning to use them and it’s run-up in value, there are quite a few other financial innovations that are playing more of a role in the daily lives of people around the world than Bitcoin, at least for now.

These innovations are changing things at a quicker scale, from how the average small business owner goes about business on a daily basis to how farmers in Uganda are handling their finances. Below are 10 of these financial innovations that, as far as the actual changes they’re making in our daily lives, are having a bigger effect than Bitcoins.

1) Paga. In Nigeria there’s a new service that allows you to quickly and conveniently make and receive payments instead of using the long lines that are usually found at ATM machines and banks. It’s called Paga and it just passed 1 million registered users back in November of 2013.

2) InVenture. One of the reasons that BitCoin has become so popular is because, as a new crypto-currency, it allows people without access to financial services to pay and get paid all over the world. InVenture is already helping people to do that using their standardized credit scoring system, something that will help the nearly 3 billion people who fall into that category worldwide.

3) Venmo. Want to send a payment through your smart phone with a simple text? Then you need Venmo, which allows you to do just that and has been advertised on subway cars all over New York City as of late.

4) Simple. If you’re looking for free online banking that lets you take advantage of ATM withdrawals at no cost, free checking account balance tools as well as tools to let you tag and categorize your purchases and deposit checks, then all you need is Simple, a new online bank that lets you do it simply, quickly and for free.

5) Splitwise. Let’s say you just went on to weeklong ski trip to Vail with 4 of your best friends and each of you paid for different parts of your vacation at different times. Using Splitwise, you can sort out who owes  what easily and quickly and keep those friendships going after you get back.

6) M-Pesa. In Kenya, over 50% of the adult population is using M-Pesa to send money to relatives, pay utility bills, pay for shopping and even pay for taxis. You can now find the service in India, Tanzania, Afghanistan and South Africa as well.

7) Stripe. Startups looking to build user-friendly payment interfaces for their mobile apps or websites can use Stripe to do it.

8) Balanced.  One of Stripe’s competitors, Balanced is a bit less cumbersome since it doesn’t require every client to sign up for it in order to use it.

9) Cover. Going out with a big group of friends for dinner? Trying to figure out the bill afterwards is sometimes worse than trying to ask Congress to pass a bill. But with Cover you can prearrange payment for that bill and, once the ordering is taken care of at whatever restaurant you choose, Cover takes care of the rest.

10) Ripple. Possibly the most ambitious of all of these new 10 innovations, Ripple simply wants to change how money is transferred on the Internet. If they have their way, the system that banks now use to transfer money will be completely replaced by a different and cheaper “rail” system.

College Students Need to Watch Their Credit

While you may think that college is all fun and games, keeping track of your credit score and doing your best to keep it as high as possible is no laughing matter. The fact is, having a “frat party” with your buddies can wait but a good credit score shouldn’t.

For most people, college is the first time in their life that they actually begin taking responsibility for their financial affairs. Most get their first credit card, their first car  insurance bill and, for some, their very first part-time job while they’re in college. While the responsibilities of college life, especially if you have a part-time job, can be daunting, now is actually the perfect time to obtain your very first credit report and learn about what you can do to keep your credit score sterling.

The fact is, once you actually do graduate from college (don’t go pull and “Animal House” on us, okay) the financial obligations that you’ll be facing may very well be quite large.

A credit report contains quite a bit of vital information, including a list of any credit cards that you might have, small loans that you might have taken out and any debt that you have as well. A credit report can also play a big role in whether or not you will get a job after college as well as being able to lease an apartment or get a loan for a new car.

The fact is, since you probably won’t have a mortgage or multiple credit cards when you first graduate from college, your credit history might be a bit shallow, making whatever information you actually do have on your report not only important but glaringly obvious.

Not only is it a very good idea to keep your credit score high in your credit report sparkling clean, knowing exactly what your credit report means is rather important as well. For example, you might think that paying your cell phone bill every month on time or making sure that your car insurance is always paid will reflect well in your credit report, but the fact is that this information has no bearing on your credit report whatsoever. On the other hand, if you actually stop paying those bills and they’re sent to a credit collection agency, that information will definitely appear in your credit history and negatively affect your credit score quite quickly.

In short, college is not only an ideal time to learn about credit, and educate yourself about your credit report and what it means, it’s also a great time to form some excellent credit habits that will help you throughout your working life. Paying bills on time, not overextending your credit, making sure that your credit utilization ratio is less than 10% and other important things like that.

So while you’re studying hard in college (we hope), and having a good time (but not too much of a good time), make sure that you also stay on top of your credit report and your credit score so that, when graduation day finally does arrive, you’ll be ready to hit the “real world” with both feet and be off and running.

The Good news about your Credit Score

We’ve talked about your credit score quite a bit here on our blog. The reason is that they are 3 numbers that can profoundly affect you financially. Whether it’s the interest you pay on your mortgage, your ability to get a car loan or being able to get a credit card with an excellent APR, your credit score,  and making sure that it’s a “good” one, is vital.

The reason it’s so vital is that your credit score takes into consideration practically everything about you credit wise. It looks at your credit cards, your car loan, your mortgage, your payment history, how much of your available credit that you are using and a number of other factors. Lenders then use your credit score to make an “educated guess” about the likelihood of you repaying the debt that they are preparing to give you in credit. Think of it as sort of like being graded in high school. If you want a  “smiley face” on your credit report you had best get an “A”.

There are some things that your credit report does NOT reveal however and that’s the crux of our Blog today. Take a look at some of these things below and sleep better in the knowledge that, while they certainly can affect your life, those 3 numbers on your credit report don’t reflect everything about you. Enjoy.

  1. What you earn. While lenders will ask you this question when you apply for any type of credit, it won’t become a part of your credit score. Of course if you get a raise at work that won’t be reflected in your score as well.
  2. Whether you are employed or not. If you have excellent credit and you lose your job, you can rest assured that your good credit will not be damaged, at least not initially. What we mean is that if you lose your job and you don’t get another one relatively quickly, the inability to pay your debts like your auto loan or your mortgage might then start to negatively affect your credit score.
  3. Whether you are married or not. Until the day that you apply for joint credit with your new spouse, getting married should not affect your credit score.
  4. How old you are. While your age, whether you are 25 or 65, is not factored into your credit score, it can  indirectly affect your score due to the length of time that you’ve been using credit. The younger that you are the more penalized, unfortunately, you will be for getting “new” credit and, conversely, the older that you are the more you stand to get rewards for having long-standing accounts in good order.
  5. The city or state that you live in. While some states might have higher credit scores on average than others, this fact alone has no bearing on your credit report whatsoever. The only thing that does is what you do with your credit and, good or bad, where you live doesn’t matter.
  6. Your debt source. If you’ve recently had a change in your payment history due to a divorce, health problems or loss of work, your score may change but the reason for that change will not be disclosed to credit reporting agencies.
  7. What interest you are paying right now. Whether you’re paying an above or below market rate, a prospective lender is unable to see that from your credit score. So while it’s true that your interest rate will be affected by your credit score, your credit score cannot be affected by your interest rate.

The simple fact is that your credit score makes a huge difference in not only how much money you will be able to borrow but how much interest you will have to pay on that borrowed money. What this means is simply that you need to be vigilant and diligent in repaying any debts that you have on time and meet any agreements that you have made.

Checking your credit score on a regular basis is a great way to make sure that everything is copacetic and, to that end, you are entitled to one free credit report per year from the “Big 3” credit reporting agencies which are Experian,  Trans Union and Equifax. Checking these three credit reports on a regular basis to find if they have errors is an excellent idea and allows you to dispute them quickly and get them cleared off of your record.

It’s time to Review your 401(k)

A 401(k) plan is, for many people in the United States, the very keystone of their retirement plan. Now more than ever, especially due to the fact that defined benefit plans are disappearing, many Americans have the responsibility of making their own decisions about their finances and, in most cases, doing so with very little professional assistance. These decisions are vitally important and can make or break a person’s retirement plans.

The bad news (worse news?) Is that a recent study has shown that the average 65-year-old has a 401(k) that equals about $25,000, barely enough to maintain a young, healthy person’s lifestyle let alone an older person who is leaving the workforce for good.  Another problem is the fact that most people don’t review the selections that their plan gives them or don’t reallocate their portfolio, something that can lead to long-term holdings that don’t jive with their risk tolerance and time horizon.  Unfortunately, even when they have excellent tools available, most people don’t take advantage of them.

Every company has what they call an “advisor of record” on their staff when they have a 401(k) plan. This person has a fiduciary responsibility to help investors by offering them a diversified mix of securities as well as a high level of advice. Unfortunately this advice is usually not continuous and not as high a level as necessary and many workers are left with a 401(k) plan that is unattended and doesn’t grow nearly as well as it could.

Now for a little good news. (Finally.) A number of independent provider firms are starting to spring up that offer ongoing money management of 401K plans in many businesses. In most cases these firms don’t need the input of the employee to move their funds outside of their particular plan and don’t subject the plan holder to taxable consequences.

Many of these firms offer online tools to investors or give them the ability to get advice from professional third-party managers, people who can not only choose investments wisely but also rebalance their portfolio or help the 401(k) holder to do it themselves. These tools can help someone to analyze their 401(k)s performance, manage their track records and expenses and help them with selecting the best choices. They can also be used to analyze choices and select the proper asset allocations, as well as help them procure services that will help them to create a personalized retirement plan and put that plan’s strategy into action.

It should be noted that most of these firms act as independent providers, are not paid by investment companies and give their subscribers access to competent financial advisors. It’s then up to the investor to do their due diligence and investigate all of the various online tools that are available and manage what they have already saved.

The simple fact is that the stakes these days have never been higher for retirees. When it comes to getting the maximum out of your 401(k) plan the most important thing you can do is manage it well and, if you can’t, find someone that can. Don’t assume that just because your company is offering it to you that they are running it correctly and ask questions, do research and make sure that your nest egg isn’t falling out of the tree.

Don’t Worry about your Credit Score being affected by These 5 Things

There are quite a few things that can help a person’s credit score as well as hurt it but not everything is either “positive” or “negative” when it comes to your credit score. Indeed, there are quite a few things that simply don’t matter at all when it comes to credit, something that should be a relief for plenty of people.

With that in mind we put together a blog article that goes over some of these things so that you can, at least for the holidays, put your mind at ease about whether or not you are negatively affecting your credit score. Enjoy.

1) Being rejected for any type of credit. Whenever you apply for credit something called a “hard inquiry” is the result, and it can lead to a very slight drop in your credit score. Interestingly enough, approved or denied your credit score won’t be affected further. What that means is that, while you should probably avoid any unnecessary inquiries or applications, getting denied for those you do apply for won’t shave any points off of your credit score.

2) Getting a pay cut. While having your pay decreased may result in having to lower your standard of living or adjust your budget, since it’s not part of your credit report at all it won’t affect it at all either. Your debt to income ratio however is a factor that lenders consider and so, if you rush out and apply for credit after your income drops, your ability to get approved for a loan may be damaged even if your credit score itself isn’t.

3) Tying the knot.  If you are making plans to get married you definitely should sit down with your future spouse and talk finances before the big day. While the actual act of marrying someone won’t hurt your credit score, if your future spouse has a low score and you apply for joint credit in the future, it could hurt your chances of getting that credit.

4) Using debit cards. Like a credit card, a debit card has a number of conveniences that are certainly appealing. They allow you to make online payments as well as shop online and they also give you fraud protection and allow you to go out in public with little or no cash in your pocket. If you’re looking to improve your credit score, debit cards won’t be very much help. The way to do that is with responsible credit card use. However, with a debit card, there’s very little “buyer remorse” later because there aren’t any bills coming due  for the purchases you make today.

5) Putting away your credit cards.  If you want to lower your credit card utilization rate as well as pay down some outstanding balances, putting your credit cards aside for a while is an excellent idea. It certainly won’t hurt your credit score and, if you improve your debt to credit ratio, it could help it quite a bit. The one thing you do  NOT want to do is close any accounts or not use them for so long that the credit card issuer ends up closing them for you. This will actually diminish the amount of credit you have available and raise your credit utilization rate, something that could lower your score. Of course while you are taking your break you still need to make your monthly payments.

Hopefully these 5 bits of advice have put your fears aside, if just a little, about what can and can’t affect your credit report. If you have any questions about credit,  or questions about personal finances in general, please let us know and we’ll get back to you with answers and advice ASAP.

If you haven’t started thinking about your year-end finances, now’s the time to get started

As we move towards the end of the year it’s definitely time to start thinking about your year-end financial planning. Things like taxes, open enrollment options at work and reassessing your overall financial plan should be done before January and that’s only about six weeks away. Indeed, some of the plans that you need to make are sophisticated enough that starting them in September or October is probably a better idea, but it’s already a little bit too late for that.

Of course the main focus that most people will have is their year-end tax issues but there are other, more complex topics to be addressed like IRA distributions and 401(k) plans. Charitable donations should also be specified and recipients chosen as well as whether to give those recipients appreciated assets like stocks or simply to give them cash.

If you’re looking to convert your traditional IRA or your 401(k) plan into a Roth IRA, now’s the time to do it as well as re-characterizing a previous conversion. What this does is allow you to reverse a rollover or conversion that you made to a Roth IRA.

This is also the time of year to take a look at your open for health insurance and benefits at work as well as finding ways to make the maximum amount of contribution to your workplace retirement plan. Using up all of the funds in any flexible spending accounts that you have as well as other tax advantage workplace health benefit plans is also a must as the end of year approaches.

The simple fact is that, as 2014 looms in the not-too-distant future, now is the best time to sit down and take a long, hard look at all of your finances. From savings to 401(k)s, stocks to long-term bonds and even your emergency fund, many things can and should be taken care of now so that you’ll take complete of vantage of any benefits or breaks that you may be eligible for.

Of course for most people that means giving their financial advisor, accountant or financial planner a call and sitting down with them for a few hours. If that’s you, now is the time to make that call because, since many other people are doing it as well, you made need to give them a few days or even a couple weeks to be able to see you.

If that’s the case, spend this time getting all of your paperwork gathered and in order, writing down or somehow noting any questions or concerns that you might have and getting ready to meet with your advisor and get down to the nitty-gritty is an excellent thing to do.

It’s definitely a smart move financially and, come 2014, will also give you peace of mind of knowing that, if nothing more, your financial house is in order.

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