10 Steps to Making a Budget
10 Steps to Making a Budget
Creating — and sticking to — a household budget is the cornerstone of a sound personal financial plan. Here’s how to make one in 10 simple steps.
1. Pick a system. There’s no shortage of budgeting apps and online tools available. You can also use a basic electronic spreadsheet or even pen and paper, if you prefer. But whatever your approach, select a convenient and flexible system to capture and categorize your income and expenses over time.
2. Track current spending. Keep track of everything you buy for a month to have a realistic picture of your spending before you start. It can be surprising how many purchases occur under your radar — like that occasional latte, magazine or fast-food lunch.
3. Log Your Income. Record income from your job and any other sources, like a side hustle building websites or selling handmade jewelry on Etsy. Don’t forget to include investment or retirement income as well.
4. Record Fixed Expenses. These are costs that remain relatively stable over time — things like your mortgage, insurance premiums or car payment.
5. Project Variable Expenses. These change from month to month. They might include things like gas, takeout dinners and clothing purchases. Credit card payments tend to also fall into this category. Look at your average over the two previous months for a ballpark, but always err on the high side when it comes to budgeting for them.
6. Include Occasional Expenses. Some expenses only come up from time to time. They can be predictable (like your summer vacation) or unpredictable (like a car repair). Either way, it’s important to budget for expected and unexpected occasional expenses. To do this, take the total estimated cost, divide by 12, and include that amount into your monthly budget.
7. Emergency Fund Savings. Aim to set aside at least 3-6 months’ worth of expenses in a highly-liquid savings vehicle like an FDIC-insured bank account (some advisors suggest 12 months depending on whether you own a home, are married or have children). Clearly, this can take time to build up, so if you don’t yet have enough saved for a rainy day, budget regular contributions to an emergency fund.
8. Retirement Savings. Sit down with your financial advisor, who can help you determine how much you’ll need to save in your 401(k) and other retirement accounts each month to stay on track to achieve your retirement goals. It’s important to “pay yourself first” when it comes to funding your future — and your budget should reflect this important priority.
9. Plan for Windfalls. Decide ahead of time what you’ll do with an increase in pay, tax refund, gift, bonus or other found money. Having a plan reduces the likelihood of an impulse buy. Consider using most of it to bolster your retirement fund or pay down debt.
10. Monitor and Periodically Re-evaluate. It’s important to reexamine your budget regularly and whenever your financial circumstances change. Depending on your situation, that could be quarterly, semi-annually or annually.
Don’t be hard on yourself if it’s difficult to stick to your budget each and every month. You may need to make some adjustments from time to time. The most important thing is to keep trying to meet your spending and saving targets. If you need help determining a realistic budget for your situation, make an appointment with a financial advisor who can assist you.
Putting off 401(k) Enrollment Could Cost You More Than You Think
Putting off 401(k) Enrollment Could Cost You More Than You Think
You just landed a new job, and there are so many things to do. You have to set up your new workspace (even if it’s at home), become acquainted with your boss and coworkers and get up to speed on your new responsibilities. And there’s the company-sponsored 401(k) you should sign up for.
It could be tempting to put off investment- and retirement-planning decisions until you settle in. But that’s an idea that could cost you more than you might expect, especially if you have a longer time horizon to retirement.
According to The Motley Fool, a 25-year-old employee making about $47,000 who saves 15% of their income and realizes a 7% annual rate of return would have almost $100,000 more at retirement than another worker with all the same parameters — except that they waited until age 26 to begin their contributions.
So, move signing up for your 401(k) to the top of your to-do list. If the options are a little overwhelming, sit down with a financial advisor who can help you determine your personal risk tolerance and recommend investments accordingly.
Another option to consider if you’re unsure about making investment decisions is electing to contribute to a target date fund (TDF), if your plan offers one. These funds create a mix of investments according to an estimated retirement date.
The fund automatically adjusts the mix and risk of investments to become more conservative as the target date approaches. A TDF handles much of the decision making for you. However, it’s still important to monitor the fund’s performance and periodically check in with your financial advisor to ensure you remain on track to meet your retirement goals.
You generally want to contribute as much as you can to your 401(k) plan. But at minimum, try to contribute at least enough to earn the maximum company match.
Companies that offer a what’s called a 401(k) “match” will match your retirement contributions either dollar for dollar, up to a certain amount — or according to a percentage or formula. You always want to aim for contributing at least enough to receive the maximum possible employer match or you’re leaving free money on the table.
What you may intend to be a small delay in contributing to your 401(k) can lead to months or years as life gets busy. If this should happen, you can easily miss upswings in the market and opportunities for growth to compound over time.
Choose to make retirement planning a priority and put yourself first. Your employer-provided financial advisor can be a tremendous resource whether it’s the first time you enroll in a 401(k) plan or your third or fourth time around. And if this isn’t your first experience with a 401(k), be sure to discuss the options for any funds remaining in 401(k) accounts from your previous employers as well.
Don’t delay this important decision — set up an appointment with your financial advisor today.
Are You Underinsured?
Are You Underinsured?
For some, insurance is just one more item on their financial checklist. Whether you mortgage a home, buy a car or start a business, some type of insurance is usually required. But what if, despite paying all your premiums on time, your coverage comes up short when you encounter a loss?
There
are at least three ways you might be underinsured:
• Not carrying insurance for new risks as
your life circumstances change.
• Having a policy with coverage limits that
are too low to cover a potential loss.
• Failing to notice policy exclusions that don’t protect all your assets.
To avoid finding yourself in one of these situations, it’s important to understand where your coverage may be insufficient — or lacking altogether.
The
Home Valuation Problem
Prices, especially on homes, can rise and fall dramatically. In most cases, the insurer will pay for damage to your home up to the limit set in the policy. But what if that upper limit is no longer enough to replace your home when prices for materials and labor go up due to inflation or other causes?
Some policies include “extended” or “guaranteed” replacement coverage. It’s not uncommon to see materials and labor jump in price following a natural disaster that damages multiple homes. Extended coverage will increase the maximum amount the insurer will pay, adding a percentage — 20%, for example — to the stated policy limit. Guaranteed replacement is just that: You are guaranteed to get enough money to rebuild your home no matter what it costs. Naturally, both options will add to the cost of your premium.
The
Value of Valuables
The valuation problem also applies to your possessions. For personal property coverage, you can choose between replacement cost and actual cash value. Replacement value means the insurer pays to replace your belongings with new comparable items up to your policy limits. If you lose your home in a fire and you had an older iMac sitting on your desk, you’ll get enough to purchase a new iMac. However, if you choose the actual cash value option, you’ll get the current cash value of that computer — as determined by the insurer — meaning purchase cost minus depreciation, which is going to be less than the cost of a new comparable model.
Change
in Circumstances
If you previously had no one financially dependent on you and then get married or have a child, you may be underinsured as a family if you have no life insurance to replace your income should something happen to you. Or, your children or other family members may develop conditions or needs that your existing coverage is insufficient for. Or perhaps there are now grandchildren you want to include as beneficiaries. Think through all the people in your life who you might want to provide for in the event you’re no longer around.
Get Help From
an Expert
As
with all things related to insurance, seek out a knowledgeable agent or speak to
a financial professional for advice to get the coverage you need at the best
price and terms. Be sure to read part two of this discussion, where we’ll examine
policy exclusions, protection against lawsuit risk and the importance of understanding
your health insurance deductibles.
Understanding Your Social Security Benefits
Understanding Your Social Security Benefits
Have you looked into your Social Security benefits and decided it was just too confusing to deal with right now? You wouldn’t be alone. It involves a lot of numbers and calculations, and not surprisingly there are some pretty detailed rules. But Social Security plays an important part in most people’s retirement plan, so we’ve done a little simplifying to help you understand your options and how it all works.
Accessing your account information online. The amount of the benefit you get each month is determined by a formula based on your work history and how much you’ve contributed to the fund (spousal benefits may be calculated differently). So how do you know what the amount will be? To find your personal benefits, you need to create an account on the Social Security Administration (SSA) website. The SSA has access to your records and can calculate your exact benefit.
What is your full retirement age? While we tend to think of retirement age as 65, what is known as your “full retirement age” according to the U.S. government is different and depends on the year you were born. The SSA website has an informative chart that enables you to easily determine your full retirement age. But as an example, for those born before 1955, full benefits begin when they turn 66 (which would have occurred by 2020). For those born in 1955, that changes to 66 and 2 months, then 66 and 4 months if you were born in 1956 and so on. If you were born in or after 1960, your full retirement age is 67. Keep in mind that, although changes in the full retirement age don’t happen often and are generally phased in gradually, they can occur.
The impact of accelerating vs. delaying benefits. The earliest most people can begin receiving benefits is age 62, but your benefits will be lower if you begin receiving them before your full retirement age (there are different rules for other Social Security benefits, such as those for disability or survivors). Monthly benefits are reduced by a percentage for each month between your actual retirement date and your full retirement date.
If you start receiving benefits at your full retirement age, your monthly benefit will be larger than if you elect to receive benefits earlier. And if you wait beyond full retirement age, the monthly benefits are even higher. Once you reach 70, however, your monthly benefit stays the same, and there are no more increases except for the annual cost of living increases that all recipients get.
To find out how much your payments will be depending on when you elect to start receiving benefits, go to the SSA’s online calculation tool. The calculator will use your date of birth and desired retirement age to show the effect of your retirement choice on the benefit you receive.
A very personal choice. The decision of whether to begin receiving your benefits before or after full retirement age rests on your own individual circumstances. There are some who advocate taking benefits somewhat earlier than full retirement, arguing that — depending on your health history and life expectancy — you could receive more in total benefits by filing for them earlier.
If you expect to live into your late 80s, or 90s, then delaying the payments may make sense. Or, perhaps you have a spouse or other family member who requires special care. What is the value of being able to “throttle back” and devote more time to them as opposed to working to full retirement age or beyond? There is no right answer for everyone when it comes to making this important decision.
For help with Social Security retirement planning, talk with a financial professional who knows the system and the rules. Then do what’s best for you and your family.
Sources
https://www.ssa.gov/myaccount/
https://www.ssa.gov/benefits/retirement/planner/agereduction.html
Back to school Savings Tips
Back to school Savings Tips
Comparison shop online. A great way to save time and money is to create a school
supply shopping list in advance and check out online deals from the comfort of your
home. Start with big-box retailers and discount chains. Office supply stores may
also offer good deals. Compare your most expensive items first, such as electronics,
and consider making your purchase online instead of in store. If the site
offers free shipping, you’re also saving on gas.
Use online coupons. Groupon and other popular coupon sites are resources frugal families can use to save money on just about anything. Some sites offer savings tips – and even cash back. If you haven’t explored the cyberworld of online coupons, now is a great time to give it a try.
Buy used. Second-hand textbooks and other supplies tend to sell at deep discounts. And as long as they’re in good shape, used items are a terrific money-saving option. You can find used items on Amazon, but also check out thrift stores or even local garage sales for deals.
Public and school libraries. Many assigned novels are available to check out from local and school libraries. If your student doesn’t plan on writing in the book or keeping a personal copy, the library is a definite win. Some larger library systems offer online book reservations with free delivery — just be mindful of the due dates to avoid fees.
Seek back-to-school deals. Most retailers stock up and advertise bargains during back-to-school season. Check their online ads and mailers to keep track of the best local prices for all the items on your list.
Tax holidays. Several states offer a back-to-school tax-free weekend in August, so keep your eyes peeled for those dates if you live in Florida, Connecticut, Iowa, Maryland, Massachusetts, Missouri, New Mexico, New Jersey, Ohio, Oklahoma, South Carolina, Texas, Alabama, Arkansas, Mississippi, Tennessee or Virginia. This list can change from year to year.
Look for student discounts. If you need to purchase your child’s own computer-related software or hardware, companies such as Microsoft, Adobe, Apple, HP and Best Buy often provide student discounts. While many of these are reserved for college students, it’s always worth asking about grades K-12.
With these strategies, you can keep costs to a minimum this back-to-school season. Remember the words of Benjamin Franklin: “An investment in knowledge pays the best interest.”
Sources
https://nrf.com/blog/spending-more-for-back-to-school
https://due.com/blog/101-discounts-for-high-school-students/
