Chatting with our Wela fam is always my favorite part of the job. This week, I was able to talk with Jessica. She's a newer Wela user and she's starting a new job. And now she's got a $250 giftcard to amazon.Read More
Do you ever drive through a neighborhood of million dollar homes and wonder how on Earth people afford them?Read More
What is the secret to successful budgeting specifically and personal finance in general? Allowing yourself a little extra room to splurge.
If you do not already have a ‘fun fund’ in your budget it may be time to consider adding one. And while you’re at it, simplify and clean up your budget with these 5 easy steps.
Step One: Discuss your overall financial goals with your spouse/significant other – and write them down
Whether saving up for a down payment on a house, paying off outstanding debt or creating a rainy day fund, everyone has a financial goal or two for the year. Writing down your goals helps you to think through the details and motivates you to achieve them. It’s also imperative that you and your significant other are on the same page when it comes to your financial goals.
Step Two: Track your money’s in-flows and out-flows
Sit down by yourself or with your significant other, and write down on the left-hand side of a piece of paper all your sources of income. Look at your tax forms, W2 or 1040, to get an accurate amount of your income. Then on the right-hand side of the same piece of paper, write out all your financial obligations. Your paystub should quickly tell you how much you’re paying for healthcare, putting towards your 401K, and how much you are setting aside for taxes. Don’t forget to include your insurance, mortgage, car payments and any other financial obligations that you are accountable for throughout the year.
Step Three: T.S.L. Plan for taxes, savings and life
Looking at your gross income (if you are working), remember that approximately 30 percent will come right off the top for taxes (both Federal and State), 20 percent should go towards savings (emergency fund and retirement assets) and 50 percent to “life”. This formula is key to a healthy financial plan. You can read our previous blog post to learn how this formula will keep your finances in check.
So, do your in-flows exceed your out-flow? I hope so. If not, it’s time to right the ship, and this financial cleaning is a great time to reevaluate your budget, savings, and spending habits.
Step Four: Insure what’s important
Cleaning up your finances is a good time to make sure that you have all your important financial assets covered with insurance, which includes your house, car and health. Do you have life insurance, or need more coverage? For most families, the most cost effective option for life insurance is level-term (10 to 30 years). If your life insurance needs have increased (ie: more children or a change in lifestyle) it may be time to revisit your coverage amounts. If you don’t have an agent you are working with, it’s fine to shop for term life insurance online – for quotes visit matrixdirect, accuquote and quickquote.com.
Step Five: Budget for fun
Be sure to include a budget for fun, whether it’s a trip to the Fox Theatre or a vacation to Florida. Research for my upcoming book, You Can Retire Sooner Than You Think, shows that happy retirees take nearly twice the number of vacations each year compared to unhappy retirees. One of the smartest and most respected consumer advocates in the US, our Atlanta neighbor Clark Howard, has some great suggestions for traveling on a budget if you’re looking for fun, money conscious ideas.
Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.
Editor’s Note: This post was originally published in April 2014 and has been completely updated for accuracy and comprehensiveness.
Financial guru Dave Ramsey once observed, “80% of personal finance is behavior,” as opposed to mastering arcane money knowledge. The principles of building for the future are really pretty simple. Set your goals, determine what you need to achieve those objectives, establish a savings/investment strategy, and – here’s the toughest part – stick to that plan. Disciplined behavior is really the linchpin that holds everything together.
With a bit of that discipline, and a sharp eye, you can probably make several small lifestyle changes that will turbo-charge your savings effort. Here are a few suggestions to get you started. Remember, for these changes to pay off, you need to truly embrace them for the long-term.
Pay yourself first.
You can’t spend what you never see. Go to your company’s payroll department immediately and arrange to have 10% of your net paycheck direct deposited into a savings account or brokerage account. If your employer can’t do that, your bank certainly has a mechanism to accomplish the same objective. Remember: these savings should be in addition to making the maximum contribution to the company 401k.
Ease up on the coffee runs.
Make Starbucks a special occasion thing, say, every other Friday morning. While the coffee shop boom was fueled by a demand for high-quality java, you can now make top-notch coffee at home for the fraction of the average $3.25 per visit to a national coffee shop. Buy a small coffee grinder and a bag of brand name whole bean coffee, and you’ll get close to Starbuck’s quality for well under a buck a cup. Of course, networking and socializing are part of coffee shop culture. No need to forego those important get-togethers. Just remember (discipline), you don’t need to spend $5 or $10 while catching up with your buds.
Bring the party home.
Speaking of socializing, there’s no law or etiquette rule that requires you to meet up with friends at the hippest restaurant in town. That’s cool now and again, but why not stay in touch, and save everybody money, by holding regular potluck dinners? Your crew can take turns hosting, everybody brings a dish, and its BYOB. Boom! A relaxed good time without the credit card receipt hangover.
By The Way-Are you following us on Instagram yet? You should be...Check out what you can do with that extra money you're saving
Cut (or trim) the cable.
Take a long, hard look at what you are paying to watch TV. Do you really need cable or DirectTV? Maybe so, if you are a serious sports or news junkie. Otherwise, consider dropping cable for a mix of digital on-demand services – Netflix, Hulu, HBOToGo, Amazon Video -- that meets your particular needs. A Netflix streaming subscription ($10 per month) and four new-release movie rentals from Amazon ($24) adds up to a lot less than even a modest cable subscription.
If you must have cable for live sports and/or news, make sure you aren’t paying for more service than you need. Lower your service level if you have channels you never watch. Even if you are happy with your current plan, call your provider and see if you can wrangle a rate reduction. Cable providers are finally feeling the heat of competition. You might be surprised at what they offer.
DIY or shop it.
What chores have you outsourced? Are you paying $20 for a car wash? How much does the lawn guy charge? Yes, your time is valuable, but when you realize you could be “earning” $40 an hour cutting your own grass or washing the car, it’s worth considering. If you do need help with a one-time repair or project (clearing out the basement or cleaning the gutters) take a look at chore outsourcing websites like TaskRabbit. Yes, it might be easier to hire the handyman whose Google ad shows up first, but (discipline) a little effort can reap big savings.
How much will each of these ideas save you? Not a fortune, for sure. Remember, the real power is in the cumulative effect. Saving just $15 at the coffee shop per week adds up to $780 per year. Saving a $100 a month on dinner with friends is $1200 per year. That’s almost $2,000 per year that could be applied to your long-term savings.
There is money just lying there on the streets of your life. All you need to pocket that dough is, yep, a little discipline.
Okay, so you've been at this adult game for awhile, right? You hold a job with pretty decent pay, can afford to pay your bills, and still have a little left to splurge. But do you find yourself with nothing left over after subtracting your net income from your expenses?
Reduce your expenses with these essential tips:
Assess the situation. Review your list of expenses. Highlight your necessary expenses (gas, electric, rent). Once you highlight your necessary expenses, look at your expenses leftover.
You might find yourself at a lost. You may be thinking, ''I know these remaining expenses are not top priority but they are still a priority,'' It makes sense. You have a lifestyle and routine that may not benefit you as much as you think it does.
Here's how to change your spending:
1. Food - Are you a person who goes out for breakfast, lunch or orders takeout frequently? If so, it's okay. A lot of us are. As convenient as it is to walk across the street to Chipotle for lunch everyday and get a delicious burrito bowl with a side of guacamole, think about how much you're spending a day.
Example 1: Chipotle Mexican Grill
Chicken Burrito Bowl - $6.50
Chips & Guacamole - $3.25 + tax
You're spending $10 per day, 50 per week, which is $200 a month.
Alternatives: Go to Chipotle twice a week and bring lunch from home on the other days. You can save $120 per month.
Example 2: Chick-fil-A
Chicken Sandwich Combo - $5.95
Lemonade (Large): $2.09
That's $8.04 + tax per day, which is $40 per week, or roughly $160 a month.
Alternatives: Go 1-2 times a week and bring lunch from home. You'll save about $100 a month.
Example 3: Takeout
When you just want to lay on the couch and watch Netflix, takeout is the perfect complement to your weekend whinedown. But it's not your only food option. In fact, most Americans spend an average of $1,100 per year on takeout (meals + tax, credit card transaction fees, and delivery fee).
Alternative: Throw a pizza from Trader Joe's in the oven.
2. Coffee - It gives you the energy to work all day. But going to Starbucks 4-5 times a week can costs you.
Chai Latte Grande: $3.65 + tax
Blueberry Scone: $2.45
You're spending $6.10 a day, $31 a week or $125 a month.
Alternatives: Instead buy a box of coffee mix or tea and brew it from home. Buy 2-3 bags of croissants or bagels from the grocery store.
3. Happy Hour - There's nothing like a good whine down from an exhausting work week. But buying 6-7 drinks a week when you go out to bars of restaurants can be detrimental to your finances. That's about $160 per week, or $640 per month.
Alternative: Buying 1-2 drinks per happy hour can cut your expense by over 75 percent.
4. Online/offline shopping - You love a good clothing, shoe and handbag sale. You make it your duty to catch every sale Nordstrom has. But sometimes, you can go overboard. According to statistics, working women spend 20% of their salary on clothes.
Salary: $60,000 net 65
$39,000/12 months = $3,250 per month
Alternative: Knocking your shopping expense down to 10% will make a difference:
Salary: $60,000 net 65
$39,000/12 months = $3,250 per month
You would save $325 a month, which is $3,900 annually.
Getting control of your expenses is the key to tracking your spending and saving habits. Once you do that, create a plan for savings. Whether it be saving up for your dream vacation, purchasing a home or starting a business. Every little bit counts. The quicker you reduce your expenses, the more you can save, and the better off you'll be financially.
"If your savings account balance is looking sad, you're not alone.
According to a 2016 GOBankingRates survey, 69% of Americans have less than $1,000 in their savings accounts.
What's more, 34% have no savings at all:
While the numbers seem staggering, it shouldn't come as a huge surprise, consideringabout half of US families have zero retirement account savings .
GOBankingRates also broke down savings by age, so you can see how you stack up against your peers:
How much should you have in the bank?
Most financial advisors recommend having three to six months of living expenses in an emergency fund to pay for unexpected costs.
In addition to establishing a rainy day fund, it's smart to set savings goals for major purchases that you hope will be in your future, like a home, car or vacation. It may be helpful to set up multiple savings accounts in order to save for specific expenses."
Does this all hit close to home?
There's a darn good chance the answer is yes...but that doesn't mean you can't make a change.
You just need to find a roadmap that works for you...
Don't forget that we are always here to provide feedback and solutions to reach whatever goal you have.
Part three of our Financial New Year's Resolutions Series tackles ol' faithful: the budget. The beginning of the year is a great time to create and implement a budget, or to reevaluate your current budget and tweak it so it better suites your current lifestyle. Start off 2017 with our steps to your best budget.
Step 1) Define your income
For this step you’ll want to list the amount and sources of your gross income. This step is important because you need to know every dollar that is coming into your hand so you can give it a purpose in your budget. This should be your gross income, meaning before any taxes or savings. You might know this number off the top of your head, or you might need to go back and look over your past year’s bank statements to learn exactly how much you earned.
Even if you have your budget together, you’ll want to still take a minute to think through anything that might have changed, like receiving a raise or changing jobs. If you earn money from a hobby or side gigs you’ll want to include this income in this step as well.
Step 2) List your expenses
Start with your reoccurring monthly obligations like your mortgage or rent, gym membership, car payment, cable, student loan, etc. From here you’ll move to your more amorphous expenses like food, entertainment, utilities and gas. Then think through your expenses that you pay either irregularly or annually like insurance, dental bills, haircuts, shopping, etc. Once you’ve gotten everything written down with a dollar amount next to it, we suggest you look back at the last three months bills to double check if there are any expenses you might have miscalculated.
Step 3) Find the difference
Subtract your monthly gross income from your monthly expenses. This is the step that can surprise people. Are you spending more than you’re earning each month? Do you have enough cash flow left for taxes and savings? If you’re looking at a negative number, remember that you can change bad habits. Don’t focus on the negative. Instead, focus on what you can do to improve.
Step 4) Plan for the future
Now that you understand where your money is coming in, where it’s going out, and what you need to do moving forward, it’s time to put together your budget. Look through your expenses and determine what you need to remove, lower, increase or keep the same with your spending in order to reach your financial goals. On the flip side, you might need to brainstorm ways that you can increase your income. Take some time to write out a realistic budget for yourself next to your current spending habits so you can quickly see what you’ll need to change.
At Wela, we are working to release a new budgeting tool which blog readers can beta test by creating a Wela account and then inside the portal visiting www.yourwela.com/budget. This tool will help you think through what categories you’ll need to include in your budget along with giving you a suggested monthly amount. It can also help you track your budget moving forward. Take this tool for a test drive, and let us know what we could do to improve it.
Suggested New Years Resolution:
I will calculate my current income and spending habits by _____(date)_____. I will put together and implement my new budget by_____(date)_____. I will work with Wela to track and optimize my new budget by _____(date)_____. I will review my budgeting progress every __(week/month/quarter)___.
So now you can budget better. Need help with consistency?
Financial New Year's Resolutions Series Part Two: Organizing Your Finances