How much automation is too much?

robotMvelopes has some great automation tools built in so that you can simplify your spending management, but how much automation is too much? If you automatically assign all of your transactions, do you lose the emotional tie to your spending?

It’s great to automate your spending management and reduce the amount of time that you spend assigning transactions, but it’s also important that you stay in close touch with your spending levels and envelope balances.  Our Money for Life Coaches are often asked for tips on how to keep better track of their envelope balances; This can be extra challenging if you auto-assign all of your transactions.

The auto-assign functionality is perfect for transactions such as your mortgage payment, utilities bills, insurance payments, etc.   These envelopes are often funded with the exact amount of the bill, and assigning one transactions usually will take the balance to zero.

However, for discretionary envelopes (such as groceries, dining out, fuel, or entertainment), the process of assigning transactions manually to each envelope can help you to keep better track of your spending and envelope balances. When you manually assign the transaction, you can see the balance reduce with each and every transaction.  This process can be valuable in creating heightened awareness of your current envelope balances.  This awareness will also help you to plan ahead better for the expenses that you still have coming during the month. Knowing exactly how much you have left to spend and how long it needs to last, are keys to making the envelope budgeting system work effectively.

– Jennifer Streiff

[photo courtesy of flickr / CC BY-SA 2.0]

August 2009 Release: Mortgages & Loans in Debt Center and more!

We rolled out a release this month to all of our users that will allow you to add your mortgages and loans to the Debt Center, give you the option to automate your debt roll-down, and more. We also made improvements to speed up the load and response time of the application.

NEW FEATURES:

• Mortgages and Loans in the Debt Center
You can now add your mortgage and loan accounts to the Debt Center and include them in your Debt Roll-Down Plan. You will be required to enter additional information for mortgage accounts in order to accurately apply only the principal and interest as the Planned Payment for debt roll-down and payoff calculations.


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Getting out of Debt

credit_cards

Consumer Credit

Getting out of debt is one of the key elements to becoming financially fit.  In a society driven by financial excess, reaching this goal is increasingly difficult but can be done with some determination and the right tools to help you get there.

According to a survey conducted by Impulse Research Corporation, 59% of Americans stated that they regularly maintain a household budget.  This number is shocking considering the average household debt in America has grown to $18,700, with credit cards and auto loans combined. This ever-increasing debt load suggests that American families continue to spend more than they make. Obviously, many of the methods being used to manage household finances are not effective.

Despite these astounding debt levels, 41% of people still do not maintain household budgets.  The main reasons cited are:

  • 57% say, “I have a good idea what I can afford, I don’t need to keep a budget.” Statistics, however, show that many American families spend as much as 10% more each month than they earn. This can often be traced back to not knowing how much has been spent, and how much money is left on a daily basis.
  • 45% say that budgeting is “too difficult,” “too time consuming,” or “too confusing.” Budgeting can be all of the above if you don’t have the right tools or information.  But with the right tools, budgeting – which is really spending management – can be easy and far less time-consuming.  The key is using today’s technology to simplify the process, not complicate it.
  • 23% say, “I start budgeting, but loose momentum as the year goes on.” One of the keys to successful spending management is consistency.  By using the right tools and putting a plan in place, you can consistently spend less than you earn and quickly eliminate your debt.
  • 21% say, “It is too hard to stick to a set budget with more than one person making purchases and using the accounts.” Budgeting, or spending management, can be difficult with multiple people spending from multiple accounts, however, by using an envelope budgeting system, everyone can be involved in the creation of a spending plan, and everyone can see what money is available to spend, how much is left, and how long it has to last.  Using an online application like Mvelopes® Personal makes it even easier.  Your household’s spending plan can be accessed through a secure online connection from any PC with Internet access. You and your spouse can both see how much is left to spend in each spending category and how long it has to last.  No guess work involved.

In order to eliminate debt, you must consistently spend less than you make, not incur any new debt, and make payments towards reducing your existing debt.  To do this, you need a spending plan or a budget.  Maintaining a budget can be a daunting task- tracking purchases, manually recording transactions, balancing several different accounts, etc.  The list goes on and on. In our near cashless society, it’s harder than ever to keep track of every purchase.  It doesn’t have to be difficult though, by using the principles in Money for Life, it’s easier than ever to create and maintain a spending plan that will help you quickly eliminate your existing debt, and avoid incurring any new debt.

In the book Money for Life, I talk about eliminating debt using the Debt Roll-Down Method, partnered with your Envelope Budgeting System, in Applied Principle 15.  As the book explains, the debt roll-down principle works by deter­mining the total monthly payment you can make toward debt repayment. Each time you pay off a debt, you add the payment for that debt to the monthly pay­ment for the next priority debt. This will accelerate the rate at which this debt is paid. When the second debt is paid, you add the payment you have been mak­ing on this debt to the monthly payment for the third priority debt. This process is continued until all debt has been eliminated. The key is to continue making the same aggregate debt payment each month. Following this debt elimination principle can often assist you in eliminating all of your debt, including your mortgage, in as few as seven to eight years. *

As I explain in Money for Life, Applied Principle 15, there are two ways to prioritize debt repayment: smallest outstanding balance to largest outstanding balance or highest interest rate to lowest interest rate. Because, in most cases, you will eliminate your debt faster if you begin with the debt carrying the highest interest rate, most financial advisors agree you should prioritize your repayment based on the interest rate-highest to lowest.

You can quickly set up your rapid repayment plan by following these steps.

STEP 1: Create a list of all debt.

The first step is to create a list of all debt. This list should include the name of the debt, the current outstanding balance, the planned monthly pay­ment, and the interest rate for each. Begin with the debt having the highest interest rate and end with the debt having the lowest interest rate.

STEP 2: Check your monthly spending account allocations.

When you set up your monthly spending plan, you should cre­ate an envelope spending account for each debt on your list. Each month, you will make your debt payments from the spending accounts you have created. After you pay off the first debt, you will need to make an adjustment by adding the monthly allocation for that debt to the monthly allocation of the spending account for the next priority debt.

For example, let’s say your debt with the highest interest rate is a department store credit card. The amount of your monthly payment for this debt is $75, so the amount of income you allocate each month to the department store spending account for that debt is $75. Your next highest priority debt based on interest rate is a credit card. For this debt, your monthly payment is $125, so the amount of income you allocate to this credit card spending account each month is $125. After four months, you have paid off the department store debt. When you complete your monthly adjustment, you will transfer any remaining balance from the department store spending account to the credit card payment enve­lope. You also will adjust the monthly income allocation for the credit card spending account by adding the $75 to the $125. You will now be making a monthly payment of $200 on the credit card. This will be repeated each time a debt is paid off. Before long, you will have eliminated all of your consumer debt and will be making much larger mortgage payments.

STEP 3: Accelerate your debt payment with monthly spending account transfers.

Once you have created your debt-elimination plan, you can begin to accel­erate your debt repayment by transferring savings from your spending accounts to your debt repayment accounts. Many people have found they can save an additional 10% each month by using an envelope system. If you have a net monthly income of $5,000, the additional amount you can save using the envelope system could be as much as $500. Imagine how quickly you can elim­inate your consumer debt if you are adding 10 percent of your net monthly in­come to your debt payments.

For most people in America, a significant portion of their net monthly in­come is dedicated to the payment of interest. Imagine how much money you can save and invest if you are not paying interest. For most, this would repre­sent several thousand dollars each year. Invested properly, this additional money may make a significant difference in the lifestyle you choose later in life. Using an envelope system to successfully implement the debt roll-down principle will help you accomplish this objective.

With Consumer debt at an all time high, it’s no wonder more and more people are looking for help with personal financial management, debt reduction and spending management.  And given the substantial debt carried by the average family, it’s not surprising that Financial Freedom is at the forefront of the American mind – Among the top New Year’s Resolutions for 2004 were increased savings, debt reduction, and increased investments.

  • 63% resolve to save more money in 2004
  • 51% resolve to pay off their debts
  • 23% resolve to dedicate more money towards retirement

Following the Steps outlined in the Debt Roll-Down method will put you on the right path towards eliminating all of your consumer debt.  If you partner this with your envelope budgeting system, you too can reach financial fitness – regardless of your income level.  The amount of money that you earn isn’t what matters, it’s how you spend the money that you do earn. You simply have to spend less than you make on a consistent basis.

–Steve Smith

*Including excerpts from the book Money for Life – Budgeting Success and Financial Fitness in Just 12-Weeks, written by Steven B. Smith, President and CEO of In2M Corporation. (Dearborn Trade Publishing, 2004)

[photo courtesy of flickr / CC BY 2.0]

Planning to be Spontaneous

latte2It’s ok to be spontaneous, as long as you plan for it. I know, that sounds a little crazy, but it’s actually true. I was talking with one of my coaching clients the other evening and he commented that he was worried he would feel restricted by his spending plan. He enjoys being able to be spontaneous when shopping, and he feels like they have a large enough income to allow for spontaneity.

I think that is a common feeling, and there really isn’t any reason why you can’t be spontaneous, within reason of course.  Building money for spontaneous purchases into your spending plan may sound a little strange, but it’s a great way to not only plan ahead for your expenses but to also keep that feeling of freedom. And you can do it without the guilt, because you know the money was set aside for just that purpose!

In fact, we even talked about having an envelope called “Spontaneous Purchases.”   While he and his wife are creating their spending plan, they will determine together how much they can set aside for unplanned or spontaneous purchases each month, after their other spending obligations are met.

If you aren’t tailoring your spending plan to your own personal spending priorities, you really aren’t going to stick with it.  Create a plan that works for you, and with your income.  Set aside money for short and long-term spending requirements, but be sure to build in some money for fun items too.

While I agree on principle with David Bach’s “Latte Factor”, I think that it’s important to enjoy your money at the same time.  Going out for a latte everyday can add up to a lot of money, and yes, it could be saved, used for debt reduction, added to your investment  or retirement portfolio, etc. Those are all great things to do with your money, but if you really want a latte everyday on your way to work, by all means get one!  Just be sure you are planning for it accordingly in your spending plan.  Create a “Latte” envelope and determine how much you can afford to set aside for your latte breaks each month within your balanced spending plan.

If someone told me I needed to stop drinking coke so that I could put that money into my retirement, let’s be honest, I would probably ignore them. So how could I tell one of my clients he had to cut out ALL spontaneous purchases when he gets so much joy from it?  I couldn’t.  But I could help him plan ahead and build a spending plan that would allow him the freedom he desired, along with the fiscal responsibility that he also wanted. Feel free to include an envelope in your spending plan for whatever your guilty pleasure is, just be sure you are keeping everything balanced, and that you are meeting all of your financial obligations.  And if you room in your spending plan to create a “Spontaneous Purchases” envelope do that too!

-Jennifer, Money for Life Coach

What constitutes a financial emergency?

emergencyWe all know it’s important to have an Emergency Fund, but how do we know what really constitutes an emergency? An emergency would be something that cannot be planned for or expected. An unexpected loss of income, for example, would be an emergency. Normal maintenance or repairs for your car, however, would not be.

Within your balanced spending plan you should be including periodic spending such as auto maintenance, home repairs, etc. When planning the amount of the allocation to these spending envelopes, be sure to take into account the age of your home, car, and appliances.

If you drive a 10 year old car, you will want to plan accordingly for repairs, and you may also want to be saving for a new car. New brakes, oil changes, new tires, and other maintenance all should be planned for and expected. These are not emergencies and you do not want to deplete your emergency fund to pay for them; otherwise you may be jeopardizing your ability to handle a true emergency should one occur.

While you may not be able to plan for a broken pipe or a broken refrigerator, you can work to set aside funds for home repairs and maintenance. This would include repairs, maintenance or replacement of the furnace, air conditioner, appliances, lawn mower, sprinklers, etc. Think about the age and wear on your home and appliances and try to plan accordingly when estimating the amount of money to allocate within your spending plan for home maintenance each year, or month. However, if you wake up one morning and your kitchen is flooded, you may need to use some of your emergency fund. Just be sure to replenish the funds as soon as possible.

To determine the amount that should be in your emergency fund, total your monthly expenses and then multiply by the number of months that you want to be able to cover should you lose your income. If your expenses are $4000 per month, you should work to build an emergency fund of at least $12,000 so that you can pay all of your bills and expenses for 3 months. 3 months is the minimum amount that you want to set aside. Most financial experts recommend having funds to cover 6 to 12 months of expenses, and in today’s economic climate, that definitely sounds like wise advice.

– Steve Smith

“Mvelopes helps you break free from financial bondage.”

Jill and her family

Jill and her family

I recently had the privilege of speaking with Jill from Heber, Utah. Jill had submitted the following comments online and I wanted to follow-up with her to learn more! Jill wrote:

I started using Mvelopes in October 2008. I had tried MANY other online budgeting tools. Mvelopes seemed to have everything I was looking for. Confession time–I am a 47-year-old wife and mother of 4 and I had NEVER budgeted before in my life. I figured it would take a long time before I would see any real difference in our finances. I was wrong. Within months I noticed a significant improvement and, for the first time, felt like I was in control of our money, instead of the other way around. The days of hoping (and praying) we would make it from paycheck to paycheck were over. I was amazed at how fast I started to see a difference not only in our finances but in our overall family well-being. Financial stress can really take a toll on a marriage and a family. In two weeks we are leaving for our first family vacation in 10 years. We are staying at a waterfront beach resort and we are paying for everything in cash! No credit cards. Thank you, Mvelopes. Jill

During our conversation, Jill answered the following questions:

Q: How long have you been using Mvelopes?

A: I started in October of 2008.

Q: How has Mvelopes assisted you in living within your income?

A: It has made it possible that we could live within our income. Prior to using Mvelopes, we were living to our income and beyond more often than I’d like to admit. I realized that although we make enough money to support ourselves very well, but we just weren’t handling it well. I tried several other online programs (Mint, Quicken online, etc.) and Mvelopes was definitely the one that I thought suited our needs best and is the one I chose to use.

Q: How much consumer debt have you been able to eliminate during that time?

A: I have been able to eliminate all of our credit card debt, which was roughly $10,000. Like I said, we make plenty of money, but I just didn’t have a good grasp on where it was going. I just needed the proper tools to help me.

Q: How much have you been able to save while using Mvelopes?

A: I started an online savings account, which I’d never had before. I started saving for a vacation. I also have another savings account and, between the two accounts, I’ve managed to save approximately $5,000.

Q: How much has your average checking account balance increased while using Mvelopes?

A: Well, instead of frequently being in the red (chuckles), our checking account is now in the black all the time. I used to have a fear of opening the bank statements (I dreaded seeing the red). It’s been so nice to not feel that way anymore. Now our checking account balance is typically anywhere from $2,000 to $3,000. In fact, when it gets below $2,500, I start to feel nervous. However, it’s sure a lot different from the way it used to be.

Q: What financial goals have you achieved while using Mvelopes?

A: First, we paid off our credit cards. That was our biggest concern and we wanted to pay them off first. Now that we don’t have those payments anymore, I can’t believe what a difference it has made. Our next goal was to go on a vacation. We haven’t taken a family vacation for over 10 years (the last vacation we took was when my second to youngest child was 3 years old, and he’s 13 now). We have saved up the money and we will be taking that vacation next weekend, actually. We’ll be staying in a beautiful waterfront beach resort and we are so excited. The vacation is completely paid for-with cash.

Q: What are your next financial goals?

A: We will definitely be beefing up our savings. We have a son who is serving a mission for our church and we have a daughter who will be going to college in two weeks. I’d like to have more of a savings built up for them. Our two younger sons will also be serving missions when they are older, and we’re going to put money away for them. Ultimately, I’d love to pay off our mortgage, too–and that’s a “down the road” goal of mine.

Q: How many envelopes have you created?

A: Thirty-seven. I’ve kind of fine-tuned it over the months adding a few and deleting a few. It’s so nice to be able to customize things for specific needs. For example, I used to just have a general “food” envelope and now I have it broken out into “groceries,” “eating out,” and “school lunch.” I also recently created an envelope for haircuts, since this is an expense that will be ongoing.

Q: How has Mvelopes helped to reduce financial stress?

A: I really can’t put it into words. The stress level is so much less than it was. I think everyone knows how much stress and strain finances can put on a marriage, and mine was no exception. My husband has been so thrilled with this program and now he can concentrate better on his job and what he has to do to support our family. He doesn’t worry anymore. Using Mvelopes has significantly eliminated our financial stress. I can’t even tell you how much. Our marriage, our stress level, and our anxiety have really changed. When I say that Mvelopes has really changed our lives, I mean it–in so many ways.

Q: If married, how has Mvelopes helped you better collaborate with your spouse?

A: It’s funny–my husband is kind of a “hands off” person as far as our finances are concerned, so we don’t collaborate a lot. But I can now show details about our financial situation by printing out a report or simply showing him on the computer. It helps him have a better understanding of what everything costs because it’s all there in black and white. So, using Mvelopes has definitely helped us collaborate better. It has really helped us both to be able to see actual numbers.

Q: What advice would you give to new Mvelopes users?

A: First of all, don’t be afraid to pay for the service. As I mentioned, I tried free services and nothing comes close to this service. It pays for itself over and over-it’s well worth the cost. Learn to be accountable for your money and know where it’s going. You can’t stick your head in the sand and assume you have enough money to pay your bills. Knowing what you have to spend and managing it is definitely a way to financial freedom–and not just financial freedom–it’s freedom, in general. Using Mvelopes has become a habit for me, a routine, and it has saved my sanity. I actually look forward to looking at my account now. It’s kind of exciting to get online and see where we are, financially. Mvelopes has truly made budgeting fun. Budgeting used to be a four-letter word, but now it’s fun.

Q: If you could create a “tag line” for Mvelopes–keeping in mind what it’s done for you–what would the tag line be?

A: I used to be afraid of my finances and now I have confidence in my financial situation and I have hope that it can even be better in the future. So the tag line I would create is this–Mvelopes helps you break free from financial bondage. I definitely felt like I was a prisoner of my finances before and I definitely don’t feel that way now. It’s wonderful.

Jill, thank you so much for taking time to speak with me. It was so fun to hear about your success and the family vacation you have planned. I am confident that the days of seeing red in your checking account statements are over! You have really made some significant changes in managing your finances and I’m sure things will only get better from here. We wish you continued financial success and much happiness. Enjoy that vacation–it has been a long time coming.

Where does your money go?

Why do people sign up for Mvelopes? The most common reason I hear is that people need to get a better idea of exactly where the money is going. They often feel that they should have plenty of income, but it just doesn’t seem to go as far as they would think. There always seems to be more month at the end of the money.

So where does the money go? That’s not always an easy question to answer, and keeping track of your money and spending can be can be a challenge; unless you are using Mvelopes, of course. Using Mvelopes to manage your spending will help you determine exactly where the money is going, but it will also help you to redirect it to other areas once you have that knowledge.

After using Mvelopes for a month, perhaps you discovered that you were spending twice as much on Dining Out as you had estimated. This knowledge gives you the opportunity to determine whether to:

  1. Adjust your spending plan to match your spending habits
  2. Adjust your behavior to match your spending plan
  3. Find a compromise between the two

If you determine that you want to adjust your plan to match your habits, you will need to make sure that you have room within your spending plan for this increase. It will likely require reductions in other areas of spending.

If you don’t have room in your budget to increase the funding for dining out, than you will need to focus some energy on reducing your spending in that area. This is not always an easy thing to do, but it is definitely possible. Make sure you check your envelope balance frequently, as this will help you to stay within your spending goal. The last thing you need to do is simply be dedicated to not overspending your envelope. If you commit to staying within your envelope, you may have to skip a lunch date or two, or cook at home more often, but it will help you improve your financial future.

Jennifer, Money for Life Coach

Are they ready for the real world? Preparing your college students to handle their own finances is vital to their future success.

By Jennifer Streiff, Money for Life Spending Management Coach

It seems that parents go to great lengths to ensure that their students are ready to go away to college – you help to research schools, help with applications, buy books and even make sure they have a suitable place to live. The one area that often seems to be overlooked, however, is managing their personal finances and their spending.

Statistics show that 83% of college students graduate with an average of $2,300.00 in credit card debt*. For graduate students that number more than doubles, reaching $7,800. And that doesn’t even take into account their student loans! Why are these numbers so high? Perhaps it’s because they were never taught to live on a budget or how to manage their spending.

They definitely don’t learn this stuff in Home Economics Class! It’s up to you, parents, to teach them how to effectively manage their spending. To set them up for success, set aside time together to create a spending plan and to teach them the skills they need to manage it. You just might save yourself a phone call or two asking for extra money, while you are at it!

Here are a few steps to help you get started:

  1. Sit down with your student and layout a list of the expenses that they are likely to incur – doing this together will help them to start taking ownership of their financial future.
  2. Together determine the amounts to budget for the various spending categories. When appropriate use your household expenses as examples so that your teen can get a better idea of what various things cost.
  3. Find a bank or credit union that has no-cost accounts that will be easily accessible for both of you. You, of course, don’t want to pay any extra fees on the accounts, nor do you want large ATM fees in case your student doesn’t have a bank branch close by. Two other things to consider – make sure the checking account comes with a debit card and that all accounts have free online banking.
  4. Find a spending management tool that will help your student track their day-to-day spending. An online budgeting system like Mvelopes Personal is the perfect way to do this. This program helps your student proactively set up a spending plan before they start spending. Since it tracks all of your student’s day-to-day expenses automatically, he or she will always know how much they have left to spend and how long it needs to last (www.mvelopes.com).
  5. Talk about credit cards, high interest rates and what really constitutes an emergency (this is critical if you are giving them a credit card for emergency use). Another option to consider is a fixed amount debit card. This allows them the convenience of a credit card, without the risk of overspending and high-interest debt.

With a little prep work beforehand, you and your college student can be ready for that first real world adventure!

Jennifer Streiff is a Money for Life Spending Management Coach and Personal Finance Writer. Streiff has her Master’s of Business Administration and has contributed to numerous personal finance articles, as well as, budgeting books.
* A 2002 study published by Nellie Mae, showed that among 600 U.S. undergraduates at public and private four-year institutions, 83 percent had at least one credit card, and those with cards carried an average balance of more than $2,300.