Friday, January 29, 2010

Review Your Credit Card Summary Statement

Tip #227 - Review Your Year-End Credit Card Summary Statements. When you came up with a budget a few weeks ago for the upcoming year, you may have relied on your memory, your bank or credit card statements, or best guess to assist you in allocating money to each category that you will be spending money in this year. Now that we are a month into the new year, it might be prudent to look over your categories and see if the amounts you allocated to each are realistic.

At the beginning of the year most credit card companies send out a statement that shows all of the activity on your account for the previous year. It not only shows what stores you have used your card in, but it also breaks down the transactions into categories. For example, restaurants will fall under the “Dining” category and tire stores and gas stations fall under the “Automobile” category. Of course, their categories aren’t perfect because it doesn’t put the motor oil you bought at Wal-Mart under the automotive category. But in general it gives you a good idea of what you spent throughout the year and in which categories.

If you received your credit card summary statement in the mail recently then take out the budget that you wrote up for this year and compare the two. This will be a good check on how accurate your budget is. If you estimated that you will spend $500 per month at the grocery store in the coming year, but your credit card statement reveals that in the past you’ve spent $700 per month, you need to change your budget or change your grocery buying habits.

Of course this exercise will only work if most of your purchases were done by credit card. If you mostly pay by cash or debit card, this will not work. I am not necessarily advocating that you use your credit card for this purpose because I know they are dangerous in some people’s hands. But the reality is that a large majority of people still use their credit cards for most everything, and if you are one of them, then you might as well take advantage of the year-end statement they provide for you. Reviewing your statement summary might be a good wake-up call on how much money you are wasting in certain areas of your life. And it can help you set a realistic budget in the coming year.

In Real Life (IRL) – I have gotten year-end credit card summary statements in the past, and I must admit that I have often glanced at them and then simply tossed them aside. This year, my husband handed me our credit card purchase summary, and I realized what a useful too it could be in comparing it to the budget that I drew up. Things like our utilities payment, school tuition, and mortgage were always easy for me to figure out. But when I budgeted our gasoline expenditure and automotive repairs, I was simply going by my best estimate on how much we drove each year, the price of gas, and my best recollection of all of the repairs we have made. These categories are ones we never pay cash for, so I knew the credit card statement would be accurate in how much we spent.

As I went through the statement, I realized I had allocated too much to certain categories or not enough elsewhere. I was especially shocked in how much we spent in tolls, and I was pleasantly surprised in how little we spent on eating out this year. I was able to adjust the amounts I budgeted in some categories. Overall, the total amount I estimated in our budget was pretty close to what we were spending, even if the categories were a bit off. Doing this exercise did give me peace of mind that my estimations on what we were spending weren’t totally out in left field. For those of you who use credit cards, have you ever studied your year-end summary? You might like to try it. It’s very revealing! For other ways to save money, check out Frugal Fridays.

Tuesday, January 26, 2010

Be Aware of Advertising

Tip #226 - Be Aware of Advertising. On a daily basis most of us are barraged with messages to separate our money from our pocketbook. Very few people are immune to advertising unless they live in a cave or in the wild. We often think of advertising as television commercials or ads in magazines. But it goes much further than that. It permeates nearly every aspect of our American culture. If you visit nearly any web page on the computer, there are usually ads decorating the border of the page. When you pull down a box of cereal from the cabinet in the morning, there is an ad right on the front. Turn on your cell phone and you see the name of the cell service you are affiliated with. The toothpaste you use makes claims about itself right on the tube. If you take public transportation to work, there are ads all over the buses and subway trains. From your car you might see ads on billboards or on buses. Many supermarkets have ads on their floors. Sports arenas have ads all over their fields. In your mail, you probably get advertisements almost every day.

What do all of these advertisements have in common? They are all trying to convince you that you need to buy their product or service. The message may be subtle or it may be direct. It may be mostly truthful or quite exaggerated. But either way, companies advertise so that you will spend your money on their product.

Many people think they are not influenced by advertising, but in reality there are probably very few who are not affected. A jingle gets caught in your head. A commercial on television shows an appetizing snack. A billboard presents a scene of two people relaxing in the sun on a beach. How can one not be drawn into any of these? The fact is most of us are, to some extent. Why? Because advertisers are good at what they do. They know how to make us want their product by presenting pretty scenes, luscious food pictures, or catchy tunes. And when they draw us in, we spend money on what they are selling.

There isn’t anything wrong with spending our money. After all, we all need to buy things. We need food to eat, clothes to wear, and a way to get to work. And we all want to have some fun, too. But we don’t have to buy everything that appeals to us – food that looks good, cars that sound glamorous, or trips that look exotic. In fact, just by being aware that we are influenced by advertising may help us cut down on spending money on the product or service they promote. If you weren’t craving french fries before you saw the oversized billboard of McDonald’s fries, then don’t stop on your way home to buy some. You need your money more than McDonald’s does. If you were not planning a trip to Cancun before you saw a great deal on a website, then don’t plan one now. If you are not in the market for a new car, then don’t be dazzled by the features shown on a television commercial for the new line of sports cars.

Be aware that most of these ads are designed so that you will spend YOUR money on their product. They are not public service announcements. Just by realizing that you are susceptible to their advertising will cause you to pay attention to what you are doing and may lessen the chances that you will succumb to the products that are promoted.

In Real Life (IRL) –
"Way back when" I took a marketing class as part of my business major in college. I remember one particular message our professor told us and that was that people who think they are least likely to be influenced by advertising are actually the most influenced. I don’t know what facts or statistics he had to back it up. And I really don’t know if it’s true or not. But what I do know is that whether or not we think it, we are all influenced by advertising. And there is more of it around us than we realize. There is so much advertising permeating our lives, that I think it is one of the reasons that people have trouble putting away money. Because subconsciously advertisers from all directions are trying to get us to buy their products. And we are letting them because we are comfortable with advertisers doing this. After all, advertising is almost everywhere.

I realize that I am susceptible to the genius behind advertising. Pictures of families playing in Disney World may stay in my mind for months until I start planning our next vacation there. Pictures of hot fudge sundaes may have me running out at night to buy into my newfound craving. But many times, I just ignore what the ad is trying to sell me. I tell myself that I am not interested, and that I do not need the product. And the bottom line is, if it is not in my budget I usually do not buy it. That doesn’t mean Disney might not influence me to spend my budget money there rather than at the beach where I originally planned. Or that I won’t go out to eat at McDonald’s instead of Wendy’s. But I won’t start buying things that I do not have plans for. How much does advertising affect you? How do you think you can cut down on being influenced?

Thursday, January 21, 2010

Find Your Savings Style

Tip #225 - Find Your Savings Style. Just as “All Roads Lead To Rome,” there are many ways to acquire wealth. There are those who are ambitious and enterprising who seek and find ways to start a business or increase their income by getting an additional job and build their wealth that way. There are others who become investors and buy and sell stock, hoping to build up their riches that way. There are still others who cut down on their expenses, live frugally and hope to build up their savings in that manner. There is no “right” way to do it. You need to look at your credentials, personality, opportunities, and comfort level with risk before you decide how you will pursue YOUR road to riches.

We can all dream of winning the lottery. That is surely a quick way to get rich. But the likelihood of that happening is very, very small. So one has to be realistic on how to go about building up his/her savings. You can get a second job or start a business and increase your income by not spending the additional money you earn. You can learn about investing and buy and sell stocks or other investments. You can invest in real estate and become a flipper or a landlord. You can stop eating out and move to a house half the size and put away the difference. In other words, you can try to increase your wealth very quickly by taking huge risks or you can grow it slowly by minimizing your risks.

How do you think you would be most successful in growing your wealth? Are you the type that loves a challenge and wants to start a business? Do you think you have the guts to invest large amounts in a stock and the stomach the swings of the market? Can you put up with the headaches of being a landlord? Or are you willing to do away with luxuries so you don’t have to undertake much risk while still building your savings? Be realistic with yourself. The person with the most money does not win. The ride along the way is very important. If you cannot sleep at night if your money loses value, then investing in high-risk stocks is not for you. If you let things roll right off you, then being a landlord may be just your style. If you are not a go-getter, then starting a business would not be a good move. If you have patience, then giving up small things in order to save money might be your best bet.

Find your savings style and capitalize on it. Use that as a base for your plan to build wealth. Just because you see someone else making it big in the stock market, doesn’t mean it would work for you. By the same token, don’t look down on others who live frugally to save their dimes while you are living the big life. Your road to riches should make sense for you. Find your way.

In Real Life (IRL) – I had a conversation with my mother this morning that made me introspective on savings styles. I told my mother that I was selling a sewing machine on Craigslist that I hoped to get a couple hundred dollars for. My mother reminded me that the sewing machine came from a condominium that my brother bought for investment. “Really? I asked. I truly didn’t remember that. I thought it was part of a condominium we bought with my mother-in-law for her to live in. But my mom said, “No. Don’t you remember that your brother gave it to your mother-in-law because she sews?” The more I thought about it, the more it came back to me. Yes, we did take that sewing machine out of my brother’s investment property and give it to my mother-in-law. As it worked out, my mother-in-law never used the machine, and it sat unused for a few years until our visit a few weeks ago when I decided I would take it home with me to practice my sewing. It wasn’t until we took it out of the cabinet that we realized it was a complicated machine best utilized by experienced sewers (unlike me) and worth a few hundred dollars on eBay. That’s when I decided that I would sell it. Which brings me back to savings styles.

While my brother is buying condominiums for investment and income streams, I am selling bits and pieces from inside the condominiums on eBay and Craigslist. He owns dozens of investment properties and gets calls all hours of the day from tenants and isn’t phased by it. He borrows money, pays back money and is constantly looking for the next investment. He doesn’t worry about “small” costs like eating out and designer clothes. His style is not my style. I am not a big risk taker. I’d rather build my money up slowly than have heartache over a busted pipe or a stock that lost half its value overnight.

When my brother helped me create a financial plan, he was amazed at how little we live on. Our monthly clothing budget from discount and thrift stores might equal what he spends on coffee for the month. Our approaches to building wealth are very different. Yet neither is wrong. He might get there faster than I do. He might have more swings. He will enjoy his dinners out and not be phased by leaking pipes. While I am content to build my wealth with ten dollars here and twenty dollars there earned on eBay that I hope will turn into a college fund for my children. And I sleep peacefully at night knowing that I don’t have to worry about anyone’s leaking pipes.

Either way or many other ways of building up savings, and therefore wealth is valid. Again, there is not one "right" way to become rich. There may, however, be only one right way for you to build up your savings. You just need to be truthful with yourself on what you can handle and then start doing it. For other ways to build up your savings, check out Frugal Fridays.

Sunday, January 17, 2010

Be Content With What You Have

Tip #224 - Be Content With What You Have - Strive to be happy with the things you have. If you are not content with what you have, then you will spend money on things that you think will make you happy. Having the latest and greatest of anything - whether it be kitchen appliances, fashion, or electronics - will only cost you money. And wanting to have the latest will only set you up for a cycle of buying and discarding to upgrade your possessions every few months or years. Years ago, when families made a big purchase, the purchase was usually a thought-out, planned purchase. In addition, the things they bought were intended to last a long time. A kitchen appliance was bought to last a decade or more. The same could be said for a television or telephone. Today the life expectancy of a product is much shorter, and not just because it might not be built as well, but because the features on them are imporoved upon much more quickly.

It is these features or styles that many of us feel that we need to have. Last year's model isn't good enough for us. Black kitchen appliances? So 1990's. We need stainless to make us happy. A cell phone larger than our fist? How can we lug around such an outdated electronic? Two-year old car? We need one with the latest gizmos on it. This discontent with older models of items are costing us lots of money.

I find that the less you watch "Home and Garden" shows, the less you want a big, fancy home. The the less you watch t.v. about upscale families, the less you want the fancy cars and and expensive appliances. The less you read fashion magazines, then the less you think your things are shabby or out-of-date. The less you read electronics magazines, the less you want the latest t.v., GPS, IPhone, or other gizmo. Let's stop thinking about our purchases as short-term products, and let's learn to be content with older models or not the latest styles. Be content with a car that allows you to drive from point A to point B. After all, that is the function of the car, not the latest GPS unit inside. Be happy with classic styles; you don't need to look like you are walking down a Milan runway when you go out to dinner. Be content with a kitchen that has appliances that do their job. It is unlikely that you need professional-grade ones unless you are opening a restaurant. When we learn to be content with what we have, we will spend a lot less.

In Real Life (IRL) - I am not one to be on top of the latest fads. I am driving a 2002 car. I have white appliances in my house along with 50-year old cabinets and a laminate floor. My cell phone is two years old and cannot access the Internet or take any pictures. My clothes consist of jeans and pants and simple shirts. I am okay with all that. Do I ooh and aah when I see a home on t.v. with granite counter-tops? Sure I do. Does my husband dream of owning a car that has fold down seats and the latest tracking devices? You betcha! Do we talk about replacing our cell phones with a fancy Blackberry or Iphone. Of course, we do. But we will do those things when our current products are no longer working. We are happy that our cars are running, our appliance help us cook our meals, and we have a cell phone to use in emergencies. While all of the upgraded features would be nice to have, they just fulfill a temporary need for the latest and greatest and becomes out of date when the new "latest" comes along.

Our items generally get replaced when they wear out, not when we tire of them. So we learn to be content with what we have. Doing so keeps us from spending money needlessly on products we don't need. How about you? Are you happy with what you have? Or do you want to spend mony on the latest and greatest products?

Friday, January 15, 2010

Help Haiti

Help Haiti - Today my family made a donation through The Jewish Federation to help with the devestation in Haiti. Although I don't believe in making public all of the charitable donations that our family makes, I wanted to post this because Money Saving Mom is graciously donating $10 to the relief fund for everyone who blogs about their donations. I figured $10 would be more appreciated than me keeping quiet.

Thursday, January 14, 2010

Keep Your Vacations Cheap

Saving Money Tip #223 - Keep Your Vacations Cheap. A vacation is a chance to get away from your normal, everyday life. It could be visiting another town, pitching a tent in some nearby mountains, or staying at your parents' or friends' house for a week. It does not have to mean a 7-day guided tour of Paris, or a week-long Disney cruise, or a visit to an all-inclusive resort in the Caribbean. The latter three options are all expensive vacations options. And vacations need not be expensive. They just need to be "away" from your regular routine.

Transportation - if you own a car, then driving to your destination is often the cheapest means of getting there. This may not be true if you are only one or two people and there are fabulous specials on the airline or trains. Buses are also cheap options. However, the larger your brood, the cheaper it is to take the car.

Eating - having food in a new location is often different enough to make it fun. Having a picnic in the park, bringing your favorite meal to eat around a friend's table, or simply eating on paper is a great way to save money on vacation while still keeping it frugal and fun. Or, eating out in cheap, local places are great treats, especially when your normal routine is to eat in.

Activities - Free fun can be found almost anywhere. Watching people, observing scenery, taking hikes, exploring a new town on foot are all fun and free. While walking around your neighborhood for the 100th time can get old, walking through new-to-you ones is fun. Any change of pace from the normal routine is a fun activity.

When choosing your vacation, try something different. If you live in the city, visit the country. If you live in the country, go visit a big city. If you live near mountains, go to the beach. If you live near the coast, visit the mountains or the plains. If it's winter, drive somewhere warm. If it's summer, drive somewhere cooler. Explore a different region of the country. New England is picturesque to someone who has never been there. The midwest is unique to someone from a coastal city. The south is charming. The west is scenic, and the mountain states are beautiful. Just by visiting a place that is different that your home, you will enjoy new experiences that make it a vacation worth taking whether it costs a lot or not.

In Real Life (IRL) -
I mentioned that we recently took a car-trip to Florida. We specifically picked Florida for a vacation because we have family living there, the climate is different than ours, and there are many free or cheap outdoor activities to take advantage of. So even though it is farther than we would have liked to travel by car, the other elements made the trip frugal and fun.

For us the fact that the temperature was 30 degrees or more warmer than where we traveled from was one of the best parts of the vacation. Just being able to play outside in moderate temperatures was a huge welcome change for us. For 9 days, the activities to entertain our family cost less than $75. Quite a bit less than 9 days at Disney World would have cost! And my children were entertained, educated, and challenged. Here is a rundown of what we did to entertain our family so cheaply:

Day 1: We took a long walk through Wakodahatchee, a nature preserve. While we were there, we saw several alligators, including baby alligators. We saw iguanas in the trees. We even saw a chameleon who had made himself blend in with a spotted tree - very neat! We also saw numerous, turtles, fish, and birds. Our children got exercise, observed nature, learned about tropical reptiles, birds, and fish, conversed with grandparents, and enjoyed tropical weather. Cost of our outing? Free! This nature preserve is a project of the city and open to everyone for no cost.

Day 2: Spent the day at nearby beach, Deerfield Beach. What more can I add? Sitting on the beach at the end of December, building sand castles, finding seashells, and playing in the water was just what our family wanted in a vacation. Cost of a day at the beach? $3.75 for parking meter.

Day 3: Drove down to Miami and Miami Beach. Spent the afternoon in "Little Havana" the Cuban section of the city and enjoyed traditional Cuban food at Versailles. Observed all of the lettering on buildings and signs in Spanish and absorbed the culture of the city. Drove through a car wash to clean the salt off our car - what a fun and entertaining experience! Afterwards, we walked up and down South Beach and played on a playground on the beach alongside children of many nationalities and cultures. Cost of our outing? $2.99 for the carwash, $4 for parking, and $6 for Cuban pasties. (Grandmother treated for Cuban food which would have cost about $30 otherwise)

Day 4: Spent the day at a local playground. It was not dissimilar from the one just blocks from our home. But this one wasn't covered in snow. Cost? Free

Day 5: Went to our local beach - Delray Beach. Other than playing in the ocean, we did the same activities as our other day at the beach. Cost? $3.75 for parking

Day 6: Went to the Gumbo Limbo nature center with both indoor and outdoor activities. We got to test our knowledge of tropical birds and flora and fauna. We climbed a 40-foot tower, saw tropical trees, watched turtles being fed, walked through a butterfly garden, and saw a replica Indian Chickee hut. Cost of our day? $10

Day 7: Went to The Girls, a "u-pick" hydronic strawberry patch where we picked strawberries, saw banana trees, watched giant turtles, talked to parrots, smiled at the swans and saw the miniature donkeys. We learned about hydroponics (growing plants using mineral nutrients in water, without soil.) and saw all kinds of neat things in the garden. Cost? $15 for the experience and 3 pounds of strawberries.

Day 8: Went to the most amazing playground I have ever seen (see picture above). This playground called Sugar Sand Park is the work of the city of Boca Raton. It is a HUGE maze of tunnels, slides, ramps, that reaches high in the sky. In addition there are swings, a sand box, a water feature, a carousel, and a science center. Children of all ages can be entertained here - you just need to keep a careful eye on them! Cost of the day? $3 (for three children to go on the carousel). The science center is $2 more per person, but we are saving that for another visit.

Day 9 - Went to a very nice Children's Museum called Schoolhouse Children's Museum in Boynton Beach. There we learned about life in turn of the century south Florida. My children got to experience running a farm, running a home, riding a train, being a postman, a doctor, a merchant and more. Afterwards, we got to play on another wonderful playground behind the museum. There was a steep slide that lands you right in a sandbox. Cost? $19

Nine days of wonderful entertainment, culture, learning, and experience all for less than $75!

This type of experience can be replicated in any town or city. Any good new-to-you experience is a vacation from the ordinary. It need not cost a lot to get away and have fun. For other ideas to save money, check out Frugal Fridays.

Monday, January 11, 2010

Keep Your Longer-Term Goals In Mind

Tip #222 - Keep Your Longer-Term Goals In Mind. In last week's post on setting financial goals, I wrote it in anticipation of setting up a budget for the coming year. Therefore I suggested coming up with financial goals for the next year. But these goals are only short-term goals. And we need to keep our short-term goals in context with our long-term goals, and our mid-term financial goals.

So why is your goal is to save $10,000 this year for retirement? How did you come up with that number? Suppose your goal was to save $5,000 last year for retirement and $10,000 for next year? Where is this accumulation of funds leading to? What are your long-term goals with respect to retirement?

You can think of your long-term goals as your goals 10 years from now or more. If you are 35 years old and your goal is to retire when you are 50, then you have 15 years until retirement. Perhaps you have calculated how much you need to save each year to get to the "magic" number you want in retirement. Or maybe you are just saving as much as you can. Or maybe you don't know why you are saving the amount you are. But you should know why. Your short-term goals should fit in with your long-range plans. If long-term plan is to have $1 million in retirement, and retirement is only 15 years away, you would need to save a lot more than $10,000 to reach your goal. Of course this isn't just about retirement. You might have some mid-range goals as well - goals for maybe 2 to 10 years from now. Perhaps your goal is to buy a house in 8 years or save for your daughter's college in 5 years. Regardless of what your long- and mid-term goals are, your short term goals should be the first step toward reaching them.

So when work on your savings this year, keep in mind how this savings amount will be combined with past and future savings to meet your longer-term financial goals.

In Real Life (IRL) - I realize that sometimes we work backwards in things. This post probably should have come before the one I wrote about setting your financial goals. But sometimes we work backwards rather than forward when it comes to money. So while I was trying to be forward thinking by writing about setting this year's financial goals before doing your budget, I should have been even more forward thinking and asked you to do an exercise of what your longer-term financial goals are before coming up with your short-term ones. In theory, it makes more sense that way. In reality, many of us are just trying to save as much as we can on a yearly basis, regardless of what our long- and mid-term goals are.

I will admit that while I have come up with our long-term financial goals as well as the approximate amount we might need for them:
--retire when my husband and I are 60 years old
--save 100% of my children's undergraduate degree (state school or equivalent)

I have not yet calculated our costs associated with our mid-term goals:
--save for braces
--save for two new cars
--save for a Bat-Mitzvah

We just haven't done much with our mid-term goals, concentrating instead on our retirement and the children's college funds. Although I do know they are there in the back of my mind. And, I hope that once I start a part-time job that we will incorporate some of our yearly savings towards these goals. What are your long and mid-term financial goals and how are you starting to save for them?

Thursday, January 7, 2010

Create Your 2010 Budget

Tip #221 - Create Your 2010 Budget. After a few days of kicking around your financial goals for this year, you should be ready to write down a formal budget. If you had a budget for last year, this exercise should be relatively easy for you. If you are new to budgeting, then it will take a bit longer the first time you set one up. Ideally, a budget can be set up in an electronic spreadsheet. This way when you tweak the numbers, it is easy to change and adjust other categories. But if you aren't comfortable with that technology, then a paper and pencil budget will work just fine.

So how do we create a budget? Most people do their budgets monthly, but there is no rule that says it has to be done that way. If you want to do a weekly, bi-weekly, bi-monthly, or quarterly budget, that could work, too. A lot depends on your pay schedule and your expenses. Since most people get paid once or twice per month and bills are often due once per month, that seems to be the easiest, but it's not set in stone. If you decide on a monthly budget, start listing the categories that you pay out each month, starting with the fixed categories and biggest categories, such as housing and utilitie. Fixed categories are those that cannot be changed easily and are often necessities, but not always. Examples would include mortgage/rent, transportation costs, electricity, and food. After listing the fixed categories, list those that are more flexible such as cable tv, cell phone, and vacations. Lastly, list those that are very flexible such as entertainment and miscellaneous. What's flexible in one person's budget, however, may not be as flexible in another's so list it according to your needs.

After listing the categories, write down the amount you spend in each category. Some amounts are easy to come up with such as rent or mortgage. While some take a bit of figuring out. Insurance is usually paid just twice a year; water four times per year. Make sure you calculate your yearly amount for these categories and divide by 12 to get your monthly cost. Electricity, for example, usually varies quite a bit from winter months to summer months. Go over your past year's bill and average out the yearly cost and divide by 12, adjusting for whether you will increasing or decreasing your electricity use this year or if rates have gone up. Still other categories will be more challenging to figure out and will require some guess work. How much do you need to allocate to the gifts category each year? How much do you spend on your pet?

Other things you want to include in your budget is savings categories such as car savings, retirement savings, etc. and debt repayment categories. The amount in these categories would include how much you want to save each month in each of these categories. If you owe money on a loan, include those too: car loans, credit card debt, school loans, etc. The amounts in these categories would be how much you want to pay back each month on these loans.

When you are done, your budget should look something like this:

Monthly Expenses:

Rent: $1800
Electricity: $100
Gasoline: $80
Telephone: $40
Cable: $40
Internet: $40
Food: $500
Retirement Savings: $500
College Savings: $500
Car Savings: $100
School Loan: $350
Preschool: $100
Vacation: $150
Gifts: $100
Pet: $50
Entertainment: $100
Miscellaneous: $50

You need to then add up your expenses and compare that against your monthly income. If your expenses exceed your income, you need to adjust your expenses somewhere. If you are set on your savings goals, then you need to cut something else out like entertainment or vacation. If your income exceeds your expenses, then you can allocate more to one or more of your categories.

Notice I do not have taxes or health expenses on my budget. You can include those or not. If you include then in your budget then you would use your gross income to figure out the budget. If you don't include them, you will use your net income after taxes and other payroll expenses are taken out of your company paycheck. Either way would work.

In Real Life (IRL) - My husband and I worked on our 2010 budget last night - a little later than usual since our impromptu trip to Florida. Using our last year's budget, it was a breeze to go through this exercise. Since we fell short on our gifts category last year, we upped that by 50 percent. We also took away the pet category since our dog passed away last April. We are keeping our savings goals the same - for retirement and college. We reduced the costs of activities for the kids. I was feeling overwhelmed running them everywhere and I didn't feel the girls were getting much out of their dance classes, so we dropped those. However, since my son will be turning 3 this year, we upped the amount for camp and summer activities now that he is eligible to attend. I reduced our clothing expense since we didn't seem to be spending as much as I budgeted last year. And I upped our cellphone expense because my husband's job stopped payng for his cell phone. Overall, it took us about 45 minutes to go through our budget, using our last year's copy.

For now, we are working on the assumption that I will not start working this summer or fall. We know it can change, but until we know any details, it would be too difficult to make a budget on so many unknowns. Should I get some work later this year, our budget will have to be adjusted to account for extra preschool classes, and we'd probably put more towards savings for some short-term goals like a new car, a Bat-Mitzvah, and braces. Lastly, we expect some hefty housing costs to fix our leaky basement. That will be coming out of some money we had set aside for that purpose and not our yearly budget. Here is our budget. It is based on our net income after taxes, health insurance, and our 401(k) donation.

Item Monthly Payment

Mortgage/Rent $2,300
Phone $45
Cable $45
Computer $45
Electricity $125
Water $25
Gas $200
Cell phones $35
Gasoline $240
Travel $200
Car Insurance $125
Food $400
Preschool $300
Activities $50
Religious School$50
Summer Camp $150
Entertainment $80
Vacation $200
Clothes $100
Gifts $150
Condo Loan $415
IRA $834
Education IRA $500
Misc/Giving $133

Have you created your yearly budget yet? For other ways to save money this year, check out Frugal Fridays.

Tuesday, January 5, 2010

Set Your Financial Goals For 2010

Tip #220 - Set Your Financial Goals for 2010. At the end of last year, I suggested you review your financial goals from 2009 to see how well you did achieving them. Well, now that it is the beginning of a new year, it is time to set some new financial goals. The first rule of setting a financial goal, or any goal for that matter, is for it to be realistic. My goal could be to earn $300,000 this year, but that's not going to happen, so there's no reason to set a goal that will not be met. Your financial goals should be in line with your income, and it goes hand in hand with creating your budget which we will discuss in the next post.

So first think up, and then write down your financial goals. They can be adjusted and tweeked in the next day or two when you write up your budget. Your financial goals can include how much you want to save up this year. The savings could and should be further broken down into categories - savings for retirement, savings for a new car, savings for college, etc. The more specific the goal, the easier it is to achieve. Your goal can include the income levels that you want to meet in these jobs. Maybe you owe money for a credit card, student loan, or a car. Your goals could include how much you want to pay off on those loans or how much extra you want to pay each month above the minimum.

The goals could include how much you want to earn this year. If you have a salaried job, this might not be plausible. But perhaps you run a side business making hairbows or selling on eBay. Or maybe you have a job where you are allowed to put in overtime. Your fianancial goals could also include how you want to manage your money. Do you want to only pay cash in the upcoming year? Do you want to pay off your credit card each month? Perhaps you want to keep money in envelopes for each budget category.

Spend a few hours or a day thinking about what you want to achieve financially in the coming year. Start writing down these goals and then in the next day or two you should write up a budget that covers your expenses. Your budget may show that some of your goals are not realistic and you may need to adjust them. Or, on the other hand, your budget might show a lot of extra fluff that can be taken out, and you can raise your goals. We will talk about budgets in the next post. In the meantime, think about your goals and get them written down.

In Real Life (IRL) - I reviewed our 2009 financial goals a couple of weeks ago. Most of the goals we were able to meet - putting $2,000 into each of our children's education funds, putting the full amount allowed at my husband's company into his 401(k), and paying down our mortgage on our condo in Florida. Other goals we were not. We were hopeful to put $5000 each into a Roth IRA for both me and my husband. We fell a few thousand short on that front. We also didn't allow for enough money to be spent on gifts and unplanned expenses.

Over the past few days I have thought about our financial goals for 2010. Many of them remain the same. We plan to put $2,000 into each of our children's education accounts. We are fully funding my husband's 401(k), and we hope to put $5,000 into each of our Roth IRAs. We also hope to catch up on our 2009 Roth IRA shortfall. We have until April 15, 2010 to do so. We are on track to pay off our condo's mortgage by year-end, so that is a continued goal that is being carried over from last year.

Another goal of mine is to increase my income by taking a part-time job. I worked full-time before I had children and went part-time after that until my third child was born when I stopped working altogether other than selling on eBay, which brings in minimal income. Since my youngest will be turning 3 this summer (how can that be?), I am going to try to work part-time while he goes to preschool a few days per week. We haven't written our our formal budget yet, but we are expecting our expenses to go up in the next few years - a Bat Mitzvah to save for, a new minivan to save for, and more frequent Hebrew lessons. A part-time job would be able to cover these expenses.

My husband and I will be writing up our formal budget over the next few days (after we unpack!), so some of these goals may need to be tweaked. In the meantime, this is what we hope to accomplish financially in 2010.