Archive for the ‘Money Management’ Category

Tech Savvy? Use Mint to Create and Stick To A Realistic Budget Plan

Wednesday, October 17th, 2012

Last week, I walked you through various Steps of Creating a Realistic Budget Plan. If you own a smartphone or tablet, you might want to use a personal finance app to create your budget without pulling your hair. Here comes Mint, a free personal finance app that makes budgeting extremely simple and easy. It also allows you to track your financial goals.

Let’s learn how Mint works and how you can use its various features to create your budget.

Budgeting With Mint: Automatically Categorized Transactions

When you sign up for Mint, it will ask you to link all of your financial accounts (checking accounts, bank accounts, credit cards, debit cards, investments, etc.) so that you can view your spending history on a single place, just like you see on your bank’s website. You need not log into multiple websites and track multiple modes of payment.

Mint has a number of default categories such as home, entertainment, food, kids and so on. Every time you use your credit card or debit card, it automatically categorizes the purchase. So, you can see where and how much you are spending over time. For example, when you purchase songs from iTunes, it is categorized into “Music”, similarly shopping at Meijer or Whole Foods goes into the “Groceries” category.

Most of the times, you won’t have to do anything manually. On rare occasions when you want to place a purchase in a different category than the default, just click on the category to change it.

With these categories, Mint will help you create and manage your monthly budget that you can access through Budgets tab.

Getting Started With Your Budget

When you begin with Mint, it shows you a starter budget based on the common categories such as “Restaurant,” “Groceries” and “Entertainment.” If you want to raise or lower your monthly budget, you can edit them. If you want to track your budget on weekly, quarterly or yearly basis instead of monthly, you can do that, too.

To get a realistic view of your current spending habits, go to the Trends tab. It will show you the spending from any month, week, quarter or year you want. If you notice that a particular category, say, Groceries is taking a significant portion of your budget, you can click on it to see a graph of just Groceries category. It will also display how much of the monthly allotted budget for this category has already been spent and how much is remaining.

Enter The Cash Transactions Manually

Though transactions through credit cards and debit cards are automatically added to Mint, it can’t track how much you are spending in cash from your pocket. So, when you spend cash, log them into the appropriate category of Mint. On the Transactions tab, go to the “Add a Transaction” button. Here you can choose a category, describe where you spent money, deduct the amount from your last ATM transaction if necessary (so that your total balance remains the same). You don’t have to deduct the amount from ATM transaction if you got that money from other sources than ATM.

Additionally, you can split any of the transactions into two. It is particularly useful when a part of the transaction falls into one category and another part into some other category. An example? Let’s say you spend $50 in iTunes Store. So, Mint will automatically put that transaction into Music category. But YOU know that only half of that sum was spent on music and the other half on movies. So, you can split the transaction into two by going to the Transaction tab. Just hit Enter Details and then Split.

Review Your Budget Once a Week/Month

All the offerings and features of Mint are no good if you don’t review your budget often. Set aside some time every week, month or quarter to review your budget. It will help you reassess how much money is left that you can spend the next week or rest of the month. Do you need to cut your spending? Where the most of your income goes? You can know these things only if you review your budget regularly.

Setting Goals

If you save some money regularly- whether for emergency, a vacation, a car or retirement, Mint will help you in this regard as well. It does all the maths to tell you how much you need to put aside every month to accumulate the required sum by the time you want.

Once you tell it your goal, Mint will also offer recommendations to achieve that goal quickly. For example, if you are saving for a new home, Mint will advice you on improving your credit score and other related subjects. Go to the Goals tab and stick to the instructions.

Budgeting is a tedious and time consuming task. But it becomes very smooth and easy with Mint. Now you have no excuse to delay creating your own budget.

Do you still have any doubts or queries? Ask me.

Step by Step Guide To Create A Realistic Budget: Part-2

Tuesday, October 9th, 2012

Last week we talked about budgeting basics. For people who create a budget, it may not be the most exciting stuff in the world, but it helps them maintain their financial house in order. Just keep in mind while preparing your budget that you need to provide as much detailed information as possible.

Here is your step by step guide to create a realistic budget:

The Most Important Tip – Don’t Put It Off Any Longer

Most People often procrastinate, or avoid making a budget altogether. And even fewer people manage to stick to it. When you actually think of sitting down with your stack of bills and a pen, or with a spreadsheet document on your computer, you immediately find something more important to do. Creating a budget seems like a boring task to you.

The truth is, you fear confronting your financial life in the harsh and bitter light of day. Despite all your delaying tactics and excuses, it must be done. Remember, if you don’t control your money NOW, it will control you. By procrastinating any longer, you are prohibiting yourself from enjoying the sense of freedom that comes only from controlling your finances. So, now be brave, sit down and just do it.

Step 1: Pull Out All Your Financial Statements

Yes, it includes all the recent utility bills, investment accounts, bank statements or any other bill that has some information about your income or expense. This will be used for calculating a monthly average, so try to include as much information as possible.

Step 2: Sum Up The Exact Figures of Your Income

If you receive a regular paycheck, consider take home pay that you receive after automatic tax deduction. If you are self-employed or have any other sources of income such as investments, record these as well.

Step 3: Create A List of Monthly Expenses

Jot down all the expenses you incur over the course of a month. It includes everything from your grocery bills to restaurant receipts, mortgage payments, auto insurance, utilities, dry cleaning, entertainment, car payments, internet, clothing, medical, transportation, credit card bills, life insurance, etc.

If you regularly put away some money for your rainy days, retirement or for investment purpose, include that in your expenses, too.

Step 4: Divide Expenses Into Two Categories: Variable and Fixed

Now that you have the list of your monthly expenses, divide it into two categories. The expenses that stay relatively same month after month will go into fixed expenses column. It comprises of rent or mortgages, car payments, internet/cable services, insurance premium, etc. Mostly, these are not likely to change in your budget.

Expenses such as entertainment, eating out, gasoline, groceries, gifts will be in the column of variable expenses. This is where you can make most of your adjustments when you are under financial strain.

Step 5: Total Up Your Monthly Income and Add Up The Expenses

This is a crucial step. Now you have the sum of monthly income from all sources. Add up all your monthly expenses. Now subtract your total monthly expenses from the total monthly income. If the end result is positive, i.e., if the income is greater than expenses, you are in a good financial position. You can use the excess of cash to eliminate the debts faster, or save for retirements.

In case your expenses are higher than the net monthly income, you need to make some changes. That leads us to our next step.

Step 6: Adjust Your Expenses

Let’s say you earn $2,000 a month and your expenses are $2,500. That means you are spending $500 extra every month THAT YOU DON’T HAVE! You are either borrowing that money or taking out from the past savings.

Your ultimate goal is to figure out what you should do to reduce or eliminate the extra $500 each month. You can try to cut back on the variable expenses. Try to eliminate the expenses that are not absolutely necessary.

Step 7: Review Your Budget Every Month

You need to have a look at your budget every month, just to ensure that you stay on track. When a month is over, take 5 minutes to sit down and compare the budget you had created versus the actual expenses. It will show you what you handled well and what you still need to improve upon.

Do you still have any questions or anything holding you back from creating a budget? Shoot your question in the comments and I’ll answer you.

Are you tech savvy? Next week I will show you how you can easily create your budget using Mint, a FREE personal finance app.

PS: If you don’t have sufficient time to create your own budget, go to the Financial Planning Association website to find out a certified financial planner in your area. They can help you out.

Read next article in series: Tech Savvy? Use Mint to Create and Stick To A Realistic Budget Plan

Budgeting Basics To Help You Create a Budget: Part-1

Thursday, October 4th, 2012

Whether you realize it or not, knowing the budgeting basics is necessary to manage your money effectively. The very basic concept of personal finance is you earn money, and then you spend that money. It involves budgeting on a regular basis.

When you get to spend your income on something, you already know that you can’t spend that same money on something else – which may be more important. But by creating a budget, you get to know how much money you have, how much to save and what your monthly expenses are.

What Is A Budget, Anyway?

A budget is the backbone of your personal finance, irrespective of your situation. You simply have to break down and plan how much money is flowing in and where it goes. Have you ever seen a successful business that doesn’t track its income and expenses? Well, the same rule applies to your personal finances.

Most folks have a misconception that if they create a budget, they instantly need to cut back on fun spending. Maybe that’s true, but you can’t figure out what expenses are to be eliminated until you create a budget plan.

A professional financial planner, James Mannion, says that most of us get a limited amount of money every month. And there is an ever-growing list of creditors and bills that cannot wait. Therefore, it becomes necessary to create a budget and stick to it.

Remember, you are not creating a budget to live a miserable life; you are creating it to effectively manage your money. Without proper allocation, funds may fall short.

By creating a budget, you take control of your money; otherwise it may control you. Don’t fill your mind with negative thoughts that a budget will make your life miserable. Of course, you can still enjoy life and include “fun activities” in your budget.

Track Your Monthly Income

The first thing in creating a budget is to calculate your monthly income from all sources. It’s very easy, you just have to look at your salary or profits if you are a business person. Married people can add their spouse’s income as well. It’s always better to include income from other sources as well, like income from interest, dividends, a website or a side business, etc.

Track Your Expenses

Once you have penned down your exact sources of income, you need to take a look at your monthly expenses. Include all the fixed monthly payments such as mortgages or rent, insurance, car payments, taxes, debts, etc. Usually, these are the fixed expenses, meaning the amount doesn’t change every month.

Now you have to work up a little to find out where the remaining money goes every month. Take out your latest bank statement or checkbook for help. This way you can figure out how much you spend on entertainment, groceries, magazine and TV subscriptions, utilities and so on.

Finding The Balance in Your Budget Plan

By now you have all the information you need to create your budget. Add up all your income, and then total up your monthly expenses. Now subtract total expenses from your monthly income. If this figure is positive, you spend less money than you make. Great! In case the final figure is negative, you need to better control your expenses.

Don’t panic. Now that you have seen how much you fall short, all you need to do is adjust spending in certain areas to improve your budget. Sometimes making just small adjustments in spending habits is enough. You can cut corners by cancelling your magazine subscriptions, going for matinee instead of the prime time show, or by reducing the number of times you eat out.

To make budget planning more practical and easy for you, I will show you how to prepare your budget, step by step next week.

Do you create a budget to manage your finances? What challenges you face along the way?

Read next article in series: Step by Step Guide To Create A Realistic Budget: Part-2

Planning To Consolidate Your Debt? Beware Of the Underlying Dangers

Tuesday, August 14th, 2012

When you are burdened under heavy debt from a number of creditors, people or debt consolidation companies will persuade you to consolidate your debt. Hold on! Debt consolidation, which allows you to take out one loan to pay off all others, may not always be the most viable option for your financial needs. Though it can save you time and money by securing a lower interest rate and reducing the number of payments you make every month, there are certain potential dangers you cannot afford to ignore.

In the beginning, the idea appears to be very easy, but this quick fix may lead to more trouble in the long run. Chris Viale, general manager of Agawam, Mass.-based Cambridge Credit Corp., clears this illusion, “You’re getting symptomatic relief, not a credit cure.”

There are three main types of debt consolidation programs, let’s discuss each of them in detail, along with the dangers they can pose in future.

Paying Off Debt With Home Equity Loan

Home equity loans seem pretty lucrative. Just by leveraging the value of your house you will be able to pay off other debts. You also get tax breaks because home equity loan interests are tax deductible.

However, it doesn’t mean you must opt for home equity loan to consolidate your debt. The debt consolidation companies use your home as collateral. If, unfortunately, something unforeseen happens, you risk losing your home. With the economy in turmoil and unemployment rates at record high, you never know who will be fired next at  your workplace. And yes, the debt will still be there to haunt you!

Zero-percent Credit Card

What about those who don’t have a house? Well, in that case, many people go for zero-percent credit cards. Using this method, you switch the balance from one or more credit cards to a new one with a lower or zero interest rate for 6 to 15 months.

Again, caution and prudence is required. Companies offer low or zero interest rate in the beginning only to lure you. It won’t last forever. So, before transferring your balances to one credit card, get to know two things:

[ol style=”13″]
[li]When the low or zero percent interest rate will end.[/li]
[li]What the new rate will be.[/li]

Another thing, the interest rates will remain low for the given time period only if you pay on time. Just one late payment and the credit card company will push the interest rates up. Also, make sure that there are no hidden charges to surprise you in the future.

I have a tip that can save you some more money. Keep paying the debt on the new credit card without missing even a single payment, and switch to another credit card before the zero interest rate expires. However, you have to be a little cautious because getting a new credit card account so frequently may adversely affect your credit score.

Debt Consolidation Loan

Everyday, you might be getting dozens of e-mails pitching debt consolidation to be the best solution to your mounting debt problem. Convenience is the biggest benefit of debt consolidation loan. By taking one big loan to pay off all the previous loans, you get rid of paying 15 different lenders at different days of the month.

However, convenience doesn’t always mean savings. When consolidating your debt, make sure that the costs of consolidated loan are lower than the combined interest of all the previous loans. Usually, when you have nothing to get a secured loan (for example, your house or other property), lenders are highly likely to charge a higher rate.

A common problem in debt consolidation is that most of the companies are in business only for a quick buck. So, they try to capitalize on the fear of debt-ridden customers and provide them poor service at sky high fees. Worse, some of them are just out-and-out scams.

Still, paying off your debt by consolidating them into one can work for you. However, you must do two things:

[ol style=”13″]
[li]Analyse your current financial position to know whether or not debt consolidation makes sense for your needs (without risking your house). [/li]
[li]Verify the certifications, memberships and third-party registrations of the debt consolidation company. Check with National Foundation of Credit Counseling, Better Business Bureau or AICCCA to see if the company you are considering is a member of any of them. [/li]

Consolidating the debt without proper background research may lead you into a more complex financial mess.

Have you or any of your acquaintances experienced the dangers of debt consolidation? Feel free to share your story with us.