- Plan for the unknown. Create an emergency savings fund to cover all of your monthly bills and expenses for 12 – 18 months. This is your backup plan so that if a financial crisis occurs you have money to pay the costs and it prevents you from going into debt. Use what-if scenarios - have a plan A, B, C and D for unexpected events that may occur.
- Do better than your parents. Open an IRA and save at least 10% - 20% towards your retirement each month. Start contributing with your first job. You will need 70-80% of your current retirement salary for 20 – 30 years to have enough money to cover bills and living expenses during retirement. Plan for your grandchildren’s retirement. Save more than you think you need to ensure you have enough for retirement.
- Don’t be afraid to take risks. Become a homeowner while you are still single, start a business while you are single or don’t have children yet, become a franchise owner or invest in risky stocks. Your risk tolerance decreases as you get older so take some financial risks while you are young and have more years to recover. Warren Buffet lost 50% of his wealth at an early age but regained it and then some.
- Peer Pressure. Avoid peer pressure from your co-workers, family and friends. Many adults find themselves pressured into a lifestyle that requires them to give their family more and buy things they can’t really afford. This behavior results in financial disaster.
- Co-sign. You can’t control what other people do. When you co-sign for a loan or credit card you are basically saying you will pay for the item because most people don’t feel obligated to pay something back unless their name is the only one on it.
- Ensure yourself and your stuff. Protect yourself by buying health, life, disability, long-term care. Buy homeowners, renters, car, fire, flood or other insurance to protect against loss or harm. Most people go into debt due to lack of health insurance or other insurance. Review policies yearly and keep beneficiaries up-to-date.
- Debt. Pay off debt as soon as possible. Pay off your mortgage before you loan term ends. Pay off car loans early. Keep credit card debt at 20% or less of the credit limit.
- Leave it alone. If you have money in a savings account, CD, money market account of retirement account leave it alone. Money is like a tree, if you take care of it will grow forever, it you touch it, pluck leaves and branches off of it , it starts to wither and die.
- Hire a professional. If you are not an expert with managing your money then hire an expert. We hire a doctor, lawyer, mechanic or therapist to take care of us but refuse to hire an expert to help us take care of our money.
- Automate your finances. Get organized and automated your finances. Use tools to help track your money and pay bills online or use automatic paycheck deduction. This will prevent you from paying late fees and help you easily keep track of your money.
- Keep Uncle Sam happy. Pay your taxes. Many celebrities have lost property or gone to jail because they did not pay their taxes. Each quarter or every six months do a check to see if you have paid enough taxes; adjust your withholdings or set aside money each month so you don’t have to pay a large tax bill at the end of the year.
Saturday, September 28, 2013
"You see things and you say why? But I dream things that never were, and I say Why not?" by George Bernard Shaw or "Success is creating a state of mind that allows you to obtain anything you really desire." by Mark Victor Hansen. I love these success quotes.
The definition of financial success varies from person to person. There is no magic number because every person’s situation and needs are different. However, basic financial success is having enough money to pay for basic necessities and bills and having money left over to pay for things you want or need such as going on vacation, home and car repairs, paying for your children’s college education, money for unexpected expenses, money to help you plan for retirement. Financial success is ultimately about how you spend your money. It involves creating and achieving your financial goals, being content with what you have and not comparing yourself to others.
Financial success is being totally in control of your finances. Financial success is not showing your success and using discipline with your ego. Poverty and financial success starts with a mindset – either negative or positive. Financial success involves having a positive mindset and is not based on your income, how many properties you own or whether you make the Forbes List. Financial success is continually practicing good financial habits throughout your life. Use these 11 practical methods to help you gain financial success.
Tuesday, September 24, 2013
Many people cringe or experience fear when they hear the word "budget". Many people feel the word is too restrictive and means they won't be able to enjoy life. Many people today don't have a savings account. Many of us have good intentions and start out creating a budget but after a few weeks or a few months pick up the old habits and start spending and charging again.
A budget is your friend. It is there to help you when you need it. A budget is your safety net if you get sick or lose your job you can use your savings to hold you for a few months until you can find a new job. Creating a budget shows accountability for your spending and identifies what you spend, what you earn, and what you owe and reduces credit card usage.
A budget is only restrictive if you don't have any extra cash left over after you pay your bills. Stars and athletes have budgets; they hire accountants to keep track of their money so why shouldn't you keep track of yours? 70% of Americans live paycheck to paycheck and 40% of Americans live above their means. This statistic shows there is a serious problem in America.
A budget frees you from stress, worry and anxiety because you know what you have, what you are spending and have the money available to buy the things you need and occasionally the things you want. A budget helps keep your finances in balance. When your budget is out of balance you use credit cards, go into debt and this can lead to serious financial problems such as foreclosure, bankruptcy, etc. If you know how much money you earn you should also know how much you spend.
A budget is your financial roadmap and helps you deal with unexpected expenses. What you do today or what you spend today will affect your future. A budget can help you plan for the future. A budget frees up cash to achieve financial goals: plan for vacations, home renovations, your children's college education, and plan for retirement. A budget is needed even if you pay your bills on time. Some benefits of using a budget are: helps you become accountable and responsible, prevents you from spending more than you have, reduce usage of credit cards and shows you what you are doing now. Here are 7 tips for creating a budget:
- Calculate. Subtract monthly expenses from your monthly income. If the total is negative or less than 5% of your total monthly income that is a red flag that you need to make some major adjustments to your budget.
- Track. Track your spending daily, weekly or monthly. Include everything you spend money on in your budget.
- Verify. Verify your bank statements with your monthly receipts.
- Savings. Include savings in your budget as a recurring item no matter if it is $1 or $1,000.
- Use a tool. Use a software tool, pen and paper, the envelope method or smartphone app.
- Flexibility. Include some wiggle room. Make your budget flexible to accommodate for unexpected expenses.
- Create goals. Create short and long term goals and include in your budget. Create a monthly and a yearly budget
Friday, September 20, 2013
Do you donate to charity? Do you know why you donate to a specific charity? Do you make anonymous contributions or like to receive recognition? Whom do you give to, and why? Do you donate to small charities or larger ones? Do you donate only to tax deductible charities?
Google executive Sheryl Sandburg states that less than 1/3 of the money that individuals gave to nonprofits in 2005 reached the poor. A study by the Center on Philanthropy at Indiana University showed that only 8% of charitable donations provide basic necessities, food and shelter. Sandberg names two possible explanations for this “charity gap”: (1) It is easier to give to those in our own communities than to the truly economically disadvantaged who are outside our immediate circles of relationships; and (2) donors do not fully understand where their contributions are going.
Sandburg encourages Americans to consider the disconnect between their desires to do help the poor and the destination of their money. Americans donate the most to religious groups, education, foundations, health care organizations, human services and arts and humanity groups.
The US average for donating to charities is 2% or $76. The wealthy spend 3% of their monthly spending towards charity. Most charitable states are: Delaware, Washington, DC , Kansas, Oklahoma is the top state, and Washington. The United States is in the lower half of the top 20 of all countries that donate to charities. Approximately 86% of professional athletes donate to charities.People give based on their identity: who they are and how they view themselves. The degree to which identities are flexible, involve a willingness to act, and help make sense of the world has significant implications determining whether and how much people give.
Individuals who donate to charity may deduct contributions on their federal tax returns. Contributions must be made to legitimate charity to receive a deduction; contributions to a specific person may not be deducted. Keep careful records of money given through bank records or written communication from the charity, which includes the name of the organization, the date a contribution was given, and the amount. For a deduction of $250 or more, individuals need written confirmation from the charity proving that the donation was contributed and if the charity provided any goods or services in exchange for the donation. Donating to charities provides a way for you to help others. You can donate to charities in several ways: through money, non-cash donations or time. Now more than ever charities need your help. There are so many people suffering in the United States and across the world but they need your help. Here are 6 questions to consider when donating to charities:
1. Is the charity recognized as a non-profit by the IRS? It’s necessary in order to write the donation off.
2. What percentage of my donation will go to the charities? Should be 75%+
3. How long have they been in operation? 5+ years, a proven track record is key
4. Have you been reducing services? If yes, that could be a red flag.
5. Do you have a year’s worth of operating capital? If yes, then it shows staying power.
6. Remember to get and store your receipt!
Here are 4 tips on donating to charities:
1. Charitable Organization. The organization must be recognized by the Internal Revenue Service as a 501(c)(3) tax-exempt nonprofit organization. Verify status by checking www.charitynavigator.org and www.guidestar.org.
2. Keep receipts. If you donate a cash gift greater than $250, the charity must acknowledge the gift in writing. If less, you’ll need a receipt, canceled check, or credit card statement. If you do payroll deduction, you need the pay stub or W-2 and they’ll provide acknowledgement saying this deduction was a charitable contribution. For non-cash gifts, request a receipt with the name and location of the nonprofit, date of the donation, and description of the item.
3. Give appreciated assets. Appreciated assets include stocks and real estate. By donating an appreciated asset, you can get the tax deduction based on the current value, not the lower value of the property when it was obtained.
4. Volunteer work deduction. Out-of-pocket expenses related to the volunteer work, can be deducted.
Monday, September 16, 2013
Managing your finances properly requires discipline, attention to detail, organization skills, planning and sacrifice. These skills are also useful in other areas of your life. Managing your finances also reduces stress, anxiety, depression, frustration, anger and arguments. Many people spend time cleaning their house, organizing, updating, replacing and moving things around. Whatever the case – everyone organizes and updates their home but do you organize and update your finances?
Many people don’t know how much money they earn, how much they spend or how much debt they owe. Approximately seventy percent of Americans are living paycheck to paycheck. In some instances people live paycheck to paycheck because they don’t know where their money is going. Make a promise to yourself that you will do at least one thing to become better at managing your finances. Here are 6 fantastic ways to help you effectively manage your finances and keep your financial house in order.
Actions you take now will affect you in the future. Avoid being wasteful and always spend less than you earn - spend 70%, save 20% and donate 10% to charity. Create a budget to track and control spending. Track everything your spend money on and include savings goals. Subtract your monthly expenses from your total monthly income after taxes. If you have less than 5% of your income left over make some adjustments. Create an emergency fund to cover monthly bills and miscellaneous expenses for 9-12 months. Reconcile your bank accounts and verify every transaction including trips to the ATM. Spread spending for large purchases over several months to ease the burden. Reduce spending by 30% to reduce financial risks. Pay bills online or through automatic deduction to save money and avoid paying late fees, paper statement fees or other fees.
Insurance is a form of protection against loss, damage or theft. Insurance should provide enough to reimburse for loss or damages. The basic types of insurance everyone should have are: health, life and disability especially if you have children. Health insurance is needed if you need medical services or need to go to the emergency room. Disability insurance is used if you have a short-term or long-term medical condition that prevents you from working and ensures that you still continue to receive a paycheck, usually 60% of your salary. Life insurance is used in the event a family member dies and should at least be enough to cover burial expenses. Insurance needs grow as you get older so ensure your coverage and beneficiary information remains current and update yearly.
Don’t be a Sponsor
Learn how to say no. Avoid loaning money to others including your children even if you can afford it - especially if you are the person who earns the highest salary in your social network. Don’t loan money if you want the money paid back. If a person mismanages their finances loaning money will only enable them to continue their bad money habits. Instead, offer to pay for them to attend a financial course or buy them a self-help financial book.
You can't focus on anything else when you are in debt. Pay down debt and get current on late accounts. Keep debt excluding mortgage at 15% or less of your net monthly income. Use your credit card for emergencies only. Negotiate with creditors to setup payment plans to pay off old debts. Start by paying off the smallest bills first, then use the money paid towards a previous bill and apply it to the next bill and continue this process until all your debts are paid. Pay balances off at the end of each month or pay more than minimum monthly payment. Pay ½ the balance with the 1st paycheck then pay the remaining balance with the 2nd paycheck or pay the minimum monthly payment when you get the bill, then each week pay as much as you can toward the balance. Keep credit card balances at 20% or less of the credit limit.
Whether right or wrong - credit is used to judge your character and affects your ability to get hired for a job, get insurance or get approval for credit. Review your credit report at least once a year and at least 3 months before making a big purchase such as buying a car or home or starting a business. Check your credit report from the 3 major bureaus – Equifax, Experian and Transunion at least once a year. Order a copy of your credit reports at annualcreditreport.com. Maintain good credit. Dispute any errors either online or by postal mail. Pay your bills on time or setup payment arrangements to maintain a good relationship with your creditors. Avoid opening multiple new accounts in a year.
Plan for the Future
Contribute as much as you can go to your employer's retirement plan or setup your own. You will need at least 70-80% of your income during retirement and will need a minimum of $1,000,000 to retire depending on where you live, what age you retire, your health care costs, and your lifestyle. You will need money for at least 20 years in retirement. Setup an account even if you are self-employed or a stay-at-home mom. Focus on long term growth. You have to be willing to leave your money untouched for at least 5 to 10 years; otherwise you won't be able to see the benefits of your money growing. Don't put all of your eggs in one basket - diversify to help offset losses. The ideal approach is to contribute 10-20% each month towards retirement. Increase retirement contributions with each salary increase. Go past retirement - do better than your parents. This will ensure you have more than enough money to retire and enjoy your golden years.