Budgeting Basics During a Crisis

budgeting basics

Creating a budget is certainly not a walk in the park even in the best of times. Budgeting is an ongoing process and for most people, your budget has the possibility of changing from month to month. When the world is in the middle of a pandemic and you’re potentially working with a reduced amount of income, staying within a budget is of the utmost importance. Our advice for budgeting basics holds true now, but budgeting during a crisis presents challenges that we aren’t presented with when things are flowing smoothly. that you will want to pay special attention to as you map out the next several months of your finances.

If you’ve never set up a budget before, you picked an interesting time to start, but it can still be done, and major kudos to you for recognizing that you NEED to work within a budget. As with most things in life, the more you practice budgeting, the better you’ll get. Take a good hard look at all of the points listed below, note how they’ve changed since COVID-19 came on the scene, and you’ll be able to piece together a new (and hopefully very temporary) “Pandemic Budget.”

Income

Let’s begin at the most obvious place: your income. As we all know, your income is going to determine your budget, or in other words, how much money you have to spend. Your income can come from a variety of sources: your main day-to-day job, side jobs, child support, or even rental properties. It includes any source that brings money into your household each month. To start creating your budget, record the total amount of money that you’re making. For many Americans, this figure will differ from your “normal” income amount as you face reduced work hours, fewer clients, furlough, or total job loss. If the latter is the case, be sure to file for unemployment ASAP.

It’s important to take taxes into account, so make sure you’re recording your monetary income post-taxes. Some people refer to this as “take home pay.” If you’re married, you’ll potentially be combining your incomes, so record them on the same budget.

If you are self-employed, budgeting is even more important. Your COVID-19 month-to-month income may be unpredictable depending on your business. If you’re still bringing home money but your business will likely suffer in the upcoming months, use your income figures from the three months that you made the least amount of money over the past 2-3 tax years. Average those three amounts and use that figure for your projected pandemic monthly income.

Expenses

The next part (that no one likes to think about) is what you spend your money on. Though expenses have their own categories, you always have regular “offenders” every month like your utilities, mortgage, or car payment. Sometimes utilities can sway a bit from month to month, but in general, they stay consistent.

You can’t forget about the other necessities like groceries, gas, clothing, household necessities, and other miscellaneous items. For your budget, it’s important to take into consideration everything that is going to require money. You may very well need to (and/or be forced to) delete some expenses at this time both in order to cut back on spending and also because you simply won’t have access to some things right now.

Set Priorities

Your priorities right now are likely going to be slightly different than usual. Make sure the basics are covered before setting money aside for any extras.

  • Groceries: Although how you acquire your groceries may look different right now, you have to feed you and your family, so first and foremost, set aside enough money for food. This should come before you worry about other bills. You may have to adjust your food allowance slightly to allow for delivery fees at this time.
  • Utilities (Electric, Water): You have to keep the water running and the lights on, so these should take next priority. You might be asking, “isn’t my mortgage more important?” Well, living in a house without lights or water is no fun. The utility company won’t wait to turn your water and electric off if you don’t pay them. Many mortgage companies are giving a tad more leeway than usual during the challenging times we are living in!
  • Mortgage or Rent: Although you may get slightly less push back if you’re a little late, don’t put your housing payment off entirely unless it’s a dire emergency. Stay on top of it and don’t let it slip to the bottom of the pile.
  • Gas/Fuel: Normally, you have to put gas in the car to get to work. If you’re now working from home for the next several months, the good news is that the money you would have spend on gas and parking can be spread out to use in other expense categories where needed.
  • Clothing: This is another budget category that you can easily cut out right now. Even if you’re required to video conference, you only need to look presentable from the chest up, and no one is going to be able to discern whether you’ve worn the same shirt to every meeting – just hang it up to keep the wrinkles out in between calls!

Under normal circumstances, we’d say that as long as you’re meeting your necessary expenses then you can spend some of your income as you wish. A “fun money” fund, if you will. However, as we’re in the middle of a pandemic that shows no clear end date, we have to advise you to save anything you have left over – just in case you need to make ends meet for longer than originally planned.

Final Touches

Once you’ve figured out your grand total of expenses, you want to make sure that it doesn’t add up to more than your total income. If you end with a negative number, you’ll need to go back through and see what unnecessary spending can be cut out. If Income – Expenses = $0, you’ve successfully created your first budget! Some people prefer to have their final number greater than $0, just to provide a little wiggle room. This is naturally preferable so that you can begin to build up a small savings.

As you go through the next few weeks, chances are, you will have to make some edits to your budget. This is more than okay. Remember, creating a functional budget is a tricky process even in the best of times and it takes time to figure out. Don’t be discouraged at the thought of having to create a budget; instead be proud of yourself for taking a step towards managing your money skillfully, especially in such a challenging time.

Investing Basics for Millennials

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As the average college student graduates with around $30,000 in debt, it can be hard for young adults to even think about using any of their income to invest. Even for those who did not go to college, most working Americans are living paycheck to paycheck. In fact, the latest Merrill Edge Report found that 66% of millennials would rather put their money in a savings account instead of investments or a retirement plan. For many millennials, it can be confusing or scary to entrust their financial security into the hands of others. The good news is, investing doesn’t have to be scary or difficult. Here, we explore a few ways beginners can start investing in themselves and their financial futures.

Why invest in the first place?

Put simply, the number one reason to invest is to create wealth. Smart investing is the best way to increase the power of your financial resources. Investing can make it possible for you to achieve your financial goals, start a college fund for your kids, establish a legacy, or even just create a safety net for retirement. If you think you don’t have enough money to invest, think again. There is no one-size-fits-all investment plan. While most financial planners suggest investing 10% of your income, investing what you can is better than not investing at all. A small initial investment when you’re young can have a big long-term impact.

There are many different ways to invest, but the most common forms of investment are the ones you can choose as part of a brokerage account or through your retirement plan at work. These generally include:

 

Stocks
Stocks are a partial ownership of one or more companies. If a company does well, the value of their stock increases—along with the return on your investment. While more prone to sudden and sometimes drastic changes, stocks have a high return potential over longer periods of time.

 

Bonds
Bonds are fixed income investments designed to create a consistent stream of income. The values of bonds are vulnerable to interest rate fluctuations, but they are considered to be more stable than stocks, despite having a lower return potential.

 

Cash
This doesn’t just mean physical cash. It also includes investments like savings accounts, artwork, or collectibles. Cash investments tend to be the lowest risk, but they also have the lowest return on investment.

 

Mutual Funds and ETFs
These funds invest money pooled from many investors in an array of stocks, bonds, and other investments.

 

Your personal investment portfolio will be different than any one else’s portfolio. Part of learning how to invest is learning how to make the best decisions for your own financial future. Still, there are some basic rules to help you start making smart investment choices.

The biggest rule in investments is to create a diverse investment portfolio. Diversification can help you ride any potential losses. Even if one of your investments takes a hit, you will be able to rely on your other investments to make up for the loss.

Another important rule of thumb is to invest in what you believe in. Don’t let others do your research for you. If you don’t know or understand what you’re buying, don’t buy it! Do your own research to figure out which investments will be the most profitable for you. After all, no one cares more about your money than you. Be patient with your investments and only invest in what you can afford. If you invest what you reasonably can and give your investments time to mature and grow, you will see some great returns.

Creating wealth through investing involves a lot of research and evaluating different kinds of investments. Once you feel comfortable with the basics, you can come up with a game plan for your financial future. Even with limited funds, making steps towards investing can dramatically affect your financial future. Investing will get easier the longer you do it; all you have to do is get started.

8 Ways You are Wasting Money (and How to Stop)

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Some money saving tips seem obvious, like cutting back on eating out and sticking to a realistic budget. But there may be some things you are wasting money on without even realizing it. Being a smart consumer means looking at all of your expenses critically—even the little things. These are some common ways people waste money without even realizing it:

 

  1. Shopping Brand Name

This goes for everything from designer clothes to grocery items to pharmaceuticals. If you insist on buying only brand name items, you’re definitely overspending. Instead, look at the quality, function, and value of an item. For groceries and pharmaceuticals especially, the generic item is likely to contain the same exact ingredients as the name brand, but will cost you a fraction of the price. Don’t get hung up on big names; it will make a huge difference in your wallet.

 

  1. Overpaying on Car Insurance

Car insurance is a necessity, but taking the time to shop around and compare rates once a year can save you big. When it comes to car insurance, you can’t assume any one company is the cheapest. Different people will pay different prices for the same coverage which is why you have to shop around to make sure you’re getting the best deal for you. Check for discounts you may qualify for and make sure you’re getting coverage that makes sense for your car.

 

  1. Paying for Cable

There are dozens of movie streaming services and non-cable TV options on the market today—and those services are always growing. Almost any streaming service is cheaper than cable or dish and you have the added bonus of paying for exactly what you want. You can build a package catered to your interests instead of having to pay for extra channels you never use.

 

  1. Keeping Electronics Plugged In

Saving money on energy goes beyond turning lights off when you leave a room. You would be shocked at how much energy waste you produce just from leaving devices plugged in. Some electronic devices, like computers, DVD players, and even microwaves will use power even when they’re not in use. You can calculate what these devices are costing you using this tool from Duke Energy. Keeping these devices unplugged can save you money on your electric bill.

 

  1. Piling on Credit Card Debt

If you use your credit card to pay for most things, it’s a lot easier to spend outside your budget unless you are vigilant. Credit card debt can add up quickly if you aren’t keeping up with your monthly payments. If you fall behind, you may find yourself spending so much money on interest that you can never catch up enough to pay off the actual balance. Don’t ignore potentially crushing interest rates. Be proactive by looking into consolidating or refinancing debt.

 

  1. Spending Too Much on Gas

Overpaying on gas can really hurt your everyday budget. Pay attention to changing prices and shop around for the cheapest gas station in your area instead of just going to the closest one. You can even go a step further by earning rebates on gas purchases. Some credit cards will net you 5% cash back when you buy gasoline. Shopping with certain stores can help you get gas discounts, too. Giant, for example, will help you save 10 cents per gallon for every 100 points you earn at Giant grocery stores.

 

  1. Overpaying Monthly Bills

Just like with car insurance, reviewing the amount you pay for your cable, internet, or cell phone provider is essential to making sure you’re getting the best deal. Some companies rope you in with discounts and monthly credits that expire after your first few months paying for the service. Don’t let that be the final word on your monthly payment. A lot of the time, if you call your provider to discuss a payment increase, they will work with you to keep your business.

 

  1. Not Earning Cash Back When You Shop

There are dozens of apps out there that give shoppers money back for their purchases. Some apps will pay you for scanning your receipts from specific stores while others will give you cash back on individual items. Ibotta and Fetch Rewards give you cash back for scanning your grocery and retail receipts. Ebates and Shopkick give you cash back on specific items from qualifying retailers. A lot of these apps have cash sign-up bonuses. Using cash-back apps is a great way to earn a little money back when you shop.

 

All of these little ways to save money can add up big time in the end. Taking advantage of new technology and competitive pricing will give you more financial power as a consumer. Use these tips and start saving today!

Top Money Arguments Couples Have and How to Stop

Facing money problems for couples is not unknown territory. Chances are, if you and your partner are like most couples, money can often be a touchy subject. Unfortunately, studies have proven that fights about finances are able to predict divorce rates. The scary thing is, these arguments can begin even before you and your partner get hitched. Today, we’ve got a few tips to help you avoid and/or resolve these challenges.

Problem #1: Differences in Spending Habits

One of the most common financial issues that a couple may face is how they are going to manage spending. More often than not, one partner gets labeled the “spender” and the other one the “saver,” but labels are never beneficial for a relationship and can lead to tension. When one person takes care of the grocery shopping, bills, and ensuring that the family and home needs are met, and the other spends their money on frivolities, one can see how frustration can easily boil over into arguments. The key to avoiding an argument is to side-step any surprises. A budget will assist in planning out monthly spending so that both parties know how much money is necessary for bills and other living expenses. This will help “the spender” to understand that they are possibly spending too much money on unnecessary things. Creating a budget together is a great way to improve communication and get closer as a couple, as well.

Problem #2: Past Debts

Most people come to the altar with some kind of financial baggage, whether it’s school loans, credit card debt, car loans, or even alimony and child support if this is a second marriage. If you are entering into a relationship and you have a lot of financial strife, it can sometimes feel like you’re dragging your partner down, but it’s important to remember that no one is perfect. Dealing with debt as a couple can actually strengthen a relationship, and in fact, by working together, you can reduce the debt more quickly. Again, working out a plan to pay down your past debt together (even if the debt is one-sided) will increase feelings of being on the same team.

Problem #3: Separate or Joint Accounts?

Should you have separate account for personal expenses and a joint account for household expenses or two totally separate accounts? From which account will you draw money to take care of your children? These are just two examples of the many questions couples frequently find themselves asking when determining how to best merge finances. Many times, this argument can leave one person feeling hurt because they feel that their partner doesn’t trust them enough to share a bank account together. The desire for separate accounts does not indicate that your partner doesn’t want to be close to you. In fact, it can be a good idea to keep separate accounts for many couples. Finding what works for you and your spouse will take time and some “from the heart” conversations. Whether you create a joint account or continue to maintain your own bank accounts, approach this subject with love and care, so as to avoid unintentionally hurting your loved one.

Solution: Good Communication

As we all know, good communication is the key to any successful relationship – romantic or otherwise. In order to navigate the maze of marital finances (spending habits, debt, bank accounts and more) – you need to come together as one. Approach financial conversations with an open mind, while being cognizant and respectful of your partner’s personality and opinions. If at all possible, discuss your ideas about finances when you are still dating. It never hurts to get the ball rolling as soon as possible on a topic as loaded as this one. The sooner you begin to get comfortable talking about money, the better off you’ll be – long after you say “I do.”

 

 

Are Money Worries Making You Sick?

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Do you find yourself stressing out over money issues lately? Or perhaps it’s been ongoing for awhile now. Either way, if you’ve got money problems that are causing you mental strain, angst or a general feeling of dread, you may actually be causing yourself real physical damage.

When you find yourself plagued by negative thoughts (in this case, about money), it’s not only your mental state you need to be concerned about. In fact, there have been a number of studies that show a direct correlation between fretting about your financials and failing physical health.

The correlation between worrying and your physical health is so strong that it simply should not be ignored. Because of  the association between worry and some significant health problems (high blood pressure, chronic migraines, heart attacks and debilitating back and neck pain), it’s crucial that you find an appropriate way to deal with your money worries. Failure to do so could put your health at serious risk.

Are you having trouble paying your mortgage bill? Has your car payment become more than you can handle? Is your electric company threatening to turn off your power if you don’t pay up soon? Are you dealing with seemingly insurmountable credit card bills/student loans/child support?

All of these things can lead to an overwhelming sense of anxiety. Along with the aforementioned physical health problems, long-standing, untreated anxiety can cause you to fall into a deep pit of depression.

Long-standing stressors can also make you more susceptible to infections like the common cold, the flu and other viruses. The more stressed you are, the more likely you will be to catch more serious and more frequent infections. This cause and effect relationship boils down to the fact that stress hormones like cortisol can interfere with your body’s ability to fight off infections.

If it seems like you always have a cold, or if your winter viruses linger long into the spring and even pop up during the summer, take a look at your overall stress level. Studies show that people who are under financial strain have a much harder time fighting off illnesses, and tend to stay sick longer then their more relaxed counterparts.

In fact, you may be up to five times more likely to come down with the cold or flu then people around you who are not under the same financial stress. You should take your body’s signals seriously, and if you’re consistently feeling ill, take inventory of the amount of stress you’re under.

If the primary source of your worry is financial, now is the time to reassess your budget. It may be that all you need is a budget overhaul. On the other hand, you may benefit from some certified credit counseling services in order to get your finances back on track.

If you’re reading this article here on our blog, it’s likely that you could benefit from taking a look around at some of our previous articles regarding money management and stress. Please feel free to read through all of our blog posts that may be pertinent to your own unique situation. Our hope is that you get your financial worry under control, and if you need to contact us, we would be glad to step in and help you.

Image credit: BHernandez

Achieve Your Money Goals in 2015 With These Tips

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If you’re a New Year’s resolution maker – the time has arrived. As 2015 rolls closer and closer into view, you may be thinking about dropping the extra weight that you resolve to wave goodbye to every year. Weight loss, eating better, quitting smoking and generally getting into better physical health are popular goals that many people set for themselves year after year, only to end up making similar promises the following January without making much (or any) progress. Getting physically healthy is so important that it should become a year-round goal for everyone.

Another area that deserves some serious commitment is financial health. It may be true that money can’t buy happiness, but it definitely buys peace of mind. And as far as we’re concerned, happiness and peace of mind go hand in hand.

Start this new year out with the determination and positive mindset necessary to commit to getting fit financially. Try some (or all) of these tips to help you achieve the monetary triumph you deserve.

  1. Ba-ba-ba-Budget!  Ok, ok, we know you’ve heard this one a million times before, but there’s a reason for that. Much like avoiding the scale because you’re too afraid of what it will say, sometimes you just have to bite the bullet and run the numbers. How else will you know how much is really coming in and going out? Paying off debt, putting money aside for retirement, saving for your kids’ education – all of these are impossible if you don’t have a realistic budget in place.
  2. Check yourself.  Once a year, be sure to take a detailed look at your credit report to check for any mistakes or surprises. Since your credit score affects so many different parts of your life, (getting a loan, renting an apartment, landing a job, approval for insurance, etc) it’s imperative that you stay aware of your score. Checking your score every year in early January will turn it into a very valuable habit.
  3. Buy a darn coffee pot. If coffee isn’t your thing, figure out a way to give up, or at least significantly modify, your most expensive habit. Millions of Americans spend $4-$5 every day on a beverage that they could be making at home for around 20 CENTS. By taking a closer look at your daily expenditures, you’ll definitely be able to find something you can cut out. By putting that $5 a day into a savings account, you could rack up nearly $2,000 by New Year’s Day 2016.
  4. Get EXTREME.  Or maybe not extreme, but at least familiar. With couponing, that is. We’re not talking about acquiring a stockpile that takes over an entire room of your house – usually filled with things like condiments, shaving gel and toothpaste. That’s not useful to anyone! However, learning to shop strategically can save you 50% or more on your grocery bill! Never pay full price without checking for coupons, promo codes, or sales ever again.
  5. Be Mindful. We wholly support being mindful in every aspect of your life, and making mindful donations can be a win/win situation for everyone involved. Research charities before donating in order to make informed decisions about where your money will go. If an organization qualifies, your donation may be tax deductible.

Finally, if your financial situation is in dire straits, you may need to seek professional help from a financial advisor or an attorney experienced in debt negotiation, loan modifications and/or bankruptcy.

Do you have a financial improvement plan for 2015? Share your tips with us in the comments!

 

Image credit: Clement127