9 New Year’s Resolutions

new-year-resolutions3Have your personal finances been a bit of a challenge this past year? According to Finicity’s Financial Fitness Survey, you aren’t alone!

  • Nearly 90 percent of survey respondents are moderately to very concerned about their ability to meet future financial obligations for major items, such as education and retirement.
  • Seventy-three percent of respondents said their financial situation is about the same as (40 percent) or worse than (23 percent) when compared to the previous year.
  • Sixty-six percent stated their approach to financial management is either reactive or simply total avoidance.  Only a small 34 percent follow a plan of action.

Here are 9 suggestions that you may want to consider for this upcoming year.  Now is the time to get control of your finances, and take that first step down the path to financial fitness. Why not start this next year off on the right financial foot?

1.Spend less than you make.

Just like you can’t lose weight if you take in more calories than you burn… you can’t save money if you spend more than you bring in.  Spending less than you make on a consistent basis is the key to reaching financial fitness and financial stability.  You can’t increase your savings, make investments, reduce debt or even make wise spending decisions if you’re consistently overspending your income each month.  Forty nine percent of respondents, to the financial fitness survey, said they rarely, if ever, use a budget to manage household spending.  No wonder they have so many challenges with overspending, increasing debt and lack of savings.

Put together a spending plan and make it one that works for you and your family!

For a step-by-step process of how to make an effective spending plan, look in the book Money for Life and its companion piece the Money for Life Success Planner.  These books walk you through the process and explain the reason behind each step, in a way that anyone can understand.  If you’d rather go the paperless route, Mvelopes® will help you create an online spending plan (www.mvelopes.com).

2.Save more… at least 10% of your income.

Ever hear of the theory of paying yourself first?  That’s basically what this is.  If you make it a habit to pull out 10% for savings and investments for retirement, before you pay any other bills, you are actively working towards a better financial future for yourself.  This 10% can include your 401k account if you have one, but be sure you are maximizing that option!  It’s also wise to put an additional amount into savings after your 401k investment is made.  Put this money into a money market account, money market fund or CD if possible, so that you get a higher interest rate.  According to Finicity’s Financial Fitness Survey conducted this past fall, 48 percent of respondents saved nothing in the past 6 months and 31 percent saved less than 10 percent of their income.  Don’t be one of the statistics, take action today and start saving!

3.Calculate your net worth.

Do a reality check to ensure you are on the right track. Your net worth should be increasing each year, even if it is just by a small amount.  The exercise of calculating your net worth can be very valuable as well… people often discover accounts, investments, etc that they have forgotten about, or need to update.

If your net worth has decreased from the year before, take an honest candid look at where you can make adjustments to improve these numbers.  Consider accelerated debt reduction.  Consider increased savings.  Even consider cutting up every credit card you have if it means that you stop overspending and start saving.  Be proactive in your efforts to get financially fit!

4.Start an emergency fund.

If you don’t already have an emergency fund, start one today!  Your emergency fund should have a minimum of 3 months worth of expenses in it.  This is your emergency money for a job loss, emergency repair, unexpected emergency medical expense, etc.  Keep these funds in a money market account or other high interest, easily accessible account.  If ever you have the misfortune of an unexpected job loss, unexpected car repair, unexpected appliance problem… you will be far more prepared to weather the storm if you know you have a little breathing room on your finances, thanks to your emergency fund!  That peace of mind makes all the difference.

5.Reduce your debt.

Use the debt roll down principle to quickly reduce your debt. Make a list of all your debts and prioritize them in order of interest (highest to lowest) or in order of the number of payments till payoff (fewest payments at the top).  Once your first debt is paid off, roll that payment amount into the next debt on your list. Follow the same procedure when the second debt is paid off.  You will not only reduce the number of years you will have payments, but you will also save thousands in interest if you follow this principle until you are completely debt free.

6.Use credit cards for the benefits, not the penalties.

If you use a credit card, only do so when you know that you already have the funds set aside to pay the balance completely when the bill arrives.  Do not carry a balance on your card!  It wastes money and ends up costing you a fortune in interest and finance charges.  Thirty Eight percent of respondents to Finicity’s Financial Fitness Survey stated that they never pay off their balance, and 33% only do so part of the time.  Are those airline miles really worth it?  Not if you aren’t paying the card off every month!

7.Make sure you have adequate insurance.

We’re talking home, life, disability, health, property and even auto.  Not too many other things will matter if you have no fire insurance and your house burns down.  Thirty Five percent of respondents to Finicity’s Financial Fitness Survey stated that they either knew they had too little insurance or that they weren’t sure what their coverage was.  Make sure that you, and your family, are covered adequately!

8.Create or update your estate plan and/or your will.

Whether you are single, married, divorced, kids or no kids… you need to have the proper documents to make your wishes known.

  • Update your beneficiary info on your retirement accounts, insurance, etc.
  • Specify money that you want to give to charity through a trust or gift exclusion.
  • When preparing a will reference an addendum in the will where you list who will get your various assets and personal property.
  • Make sure all language is clear and as specific as possible so that your wishes can be carried out.

9.Manage your portfolio.

If you have any 401k accounts from former employers, be sure you roll them over into an account that you control. Consolidation can also make your retirement accounts easier to manage, however, in doing so make sure you don’t jeopardize the diversification.  Tools like Mvelopes can help you keep an eye on all your investment accounts from one spot, quickly and easily.

Take advantage of the New Year and get on the path to financial fitness!

By Steven B. Smith, President and CEO of Finicity, the developers of Mvelopes and author of Money for Life – Successful Money Management and Financial Fitness in Just 12 Weeks and the Money for Life Success Planner – A 12-Week Companion to Achieve Financial Fitness.

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10 Questions to Check your Financial Health for the New Year

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With the New Year quickly approaching, millions of Americans are preparing to make resolutions to improve both their waste line and their bottom line.  If you’re looking to improve your financial fitness this year, it’s important to first understand how you’re already doing.  The following quiz, taken from my Money for Life Success Planner, will help you understand how you’re doing financially, and where you can improve.

  1. What percentage of your income do you save each month?
    1. 10 percent or more
    2. Less than 10 percent
    3. None
  2. How often do you use a monthly budget to track and plan your spending?
    1. Almost always
    2. Sometimes
    3. Never
  3. When you make a purchase using a credit card, how quickly do you usually pay off the entire balance?
    1. Immediately or before the end of the month
    2. Between one and three months
    3. I usually carry a balance from month to month
  4. How many times during the last six months have you paid a bill late?
    1. None
    2. One to five
    3. Six or more
  5. Most of your major purchases are…
    1. …planned in advance, with money set aside to cover them
    2. …planned even though the funds aren’t always there to pay for them
    3. …unplanned or spontaneous
  6. If you needed to come up with money quickly to pay for a major home repair or an emergency, what source would you use?
    1. Funds already on hand
    2. Funds from available credit
    3. No funds available without establishing credit
  7. If you lost your job or main source of income, how long could you provide for your basic needs and meet your financial obligations?
    1. Three or more months
    2. One to two months
    3. Less than one month
  8. The insurance I have to cover the loss of major assets including real estate, autos and personal property is…
    1. …enough to cover replacement costs
    2. …less than enough to cover replacement costs
    3. …unsure or don’t have coverage
  9. When was the last time you reviewed and adjusted your retirement plan?
    1. Within the last year
    2. In the last five years
    3. I don’t have any savings for retirement
  10. When you think about your ability to meet future financial obligations, you feel…
    1. …completely at ease
    2. …moderately concerned
    3. …very concerned

Give yourself five points for each time you answered “1,” three points for each “2,” and one point for each “3,” then total your score.  If you scored between 40 and 50, you’re in great financial shape.  If you scored between 20 and 39, you are off to a good start, but could still address some weaker areas.  If you scored below 20, you need to rethink your financial plan, and make some big changes.

Regardless of how you scored, now is a great time to sit down and examine your financial situation.  Write down your financial goals, and develop a plan of how to accomplish each one.

Steven B. Smith is the author of Money for Life: Successful Money Management and Financial Fitness in Just 12 Weeks! and the Money for Life Success Planner and creator of the Mvelopes Money Management system.  www.mvelopes.com

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Make It Your Own

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I was talking with one of my Money for Life Coaching Clients the other day and it occurred to me that I don’t often enough stress the importance of customizing your budget and especially your envelopes to your lifestyle.   The Mvelopes Application has a default list of envelopes, but think of them more as a list to help you generate ideas about what spending envelopes you may want and need.

Some people have 10 envelopes and some people have 75; it really just depends on how detailed you want to be with your spending plan.  For some households one clothing envelope will suffice. For others, each family member needs their own clothing envelope.  For some people it makes sense to have a single entertainment envelope, and others like to separate out movies, the ballet, or even sporting events.

The important thing is that you make a list of envelopes and a plan that works for you and your families’ priorities.  Make a plan that is really your own and means something to you.  There are no rules… except, of course, that your allocations balance with your income.

Jennifer Streiff, Money for Life Coach

Money for Life Applied Principle #9 – Learn the Secret of Envelope Budgeting Part V

applied_principles_094 There are 4 basic principles of envelope budgeting. In my last post we covered the third principle, which is when you run out, you must make a choice.  The fourth principle is “at the end of the period, what’s left is savings.”

“One of the key principles to securing financial fitness is to save something first. In addition to setting aside a specified amount for savings each month, the envelope system allows you to save the balance remaining in many enve­lopes at the end of each period. For example, if you have some money left in your groceries envelope at the end of the month, you could take that money and apply it to savings, since you would be funding the envelope with enough money next month to take care of your needs for that period.”

“Many of your discretionary spending envelopes would qualify for this review at the end of each period. Discretionary spending envelopes are envelopes covering areas of spending that are not tied to fixed or required expenses. Based on the spend­ing decisions you make in these areas, you may often have money left over at the end of each period. Examples of discretionary spending envelopes include clothing, groceries, eating out, entertainment, and so on. By adding the amount left in each of these envelopes to your defined savings, you can sig­nificantly increase the amount you apply to savings, debt repayment, or long-term investments. The envelope system holds the secret to increased savings.”

The Sweep Feature of the Mvelopes application is the perfect tool to help you apply left over money to savings, debt reduction, or any other larger purchase you are trying to save for.  Even small amounts of money can up fast when you sweep them into savings each month.

“While people in our grandparents’ day used cash to successfully imple­ment the envelope system, it is more difficult today. Many purchases can still be made conveniently with cash; however, we often pay for goods and services using checks, debit cards, credit cards, online bill pay, and even automatic withdrawals from our bank accounts. For some, the cash-based envelopes may represent the best approach for ensuring financial management success. For others, cash may simply not be a feasible alternative. The envelope principles outlined above are not dependent on the implementation tool used. As a result, you can successfully incorporate the envelope process using one of four basic approaches: (1) cash, (2) a paper ledger or computer spreadsheet, (3) a com­puter-based envelope system, or (4) a combination of these.”

Contains excerpts from Applied Principle 9, Money for Life, by Steven B Smith

Money for Life Applied Principle #9 — Learn the Secret of Envelope Budgeting Part IV

Envelope Budgeting is aapplied_principles_093 very simple, yet effective method of spending management.  There are 4 basic principles of envelope budgeting. In my last post we covered the second principle, which is spending from how much is left.  The third principle is “when you run out, you must make a choice.”

It’s fairly simple, really. When you run out of money in one envelope, you must make a choice about what to do.

“We all want to be fully empowered to make choices. Often, this is one of the justifications we make for spending money. “It’s my money, I’ve earned it, and I have the right to decide how to spend it! If I want to purchase that coat, I will, period.” The problem with this thinking is that it often takes choices away later on: because you purchased that coat, you may not be able to pur­chase the birthday gift you wanted for your daughter.”

Many people think of budgets as restricting, but in reality a spending plan is empowering and gives you the confidence to make informed spending choices.  Part of that confidence is understanding the consequences of the choices that you make.

“The envelope system does not eliminate the ability to make personal choices; it provides information so you can make more informed decisions. With the envelope system, it is quite possible to run out of money before you fund the envelope the next time. If this happens, you have three options: (1) put off the purchase until you fund the envelope the next time, (2) purchase some­thing less expensive, or (3) purchase the item and transfer money from another envelope to cover the cost. All three choices will still allow you to live within your means. With the third option, you can determine at the point of purchase which other area of spending you would like to impact. For example, if you wanted to purchase the coat and didn’t have enough money in the clothing en­velope to cover the cost, you could transfer money from your groceries enve­lope to cover the cost. If you made this decision, you would do it with the knowledge that you would not be able to spend as much on food this month. There’s nothing wrong with having made this choice. Perhaps you know that your grocery needs were less this month than in the past, or perhaps you did not spend all the money in your grocery envelope last month and you have extra. Whatever your thinking, you have to be able to make a purchase decision and understand exactly what impact it will have in other areas of your financial life. Making a purchase choice is great as long as you do it on an informed basis. The envelope system holds the secret to truly empowered purchase decision making.”

Contains excerpts from Applied Principle 9, Money for Life, by Steven B Smith

Greenbacks Roasting on an Open Fire

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A guide to holiday spending

Steven B. Smith

Christmas time overspending is so common these days that many consumers are still paying for last year’s gifts even as they plan for this year’s holiday purchases. When you think of it that way, it puts the problem of holiday spend in a troubling context. So what can be done to alleviate the financial pressures of both pre-and post-holiday expenses? Below are a few smart tips that will help you stay on top of your spending and quickly tackle any post-holiday debt:

  1. Create a spending plan now. If you haven’t done most of your Christmas shopping yet then now’s the time to put a plan in place. Figure out what you can reasonably afford to spend this year and determine how much to spend on each individual, not the other way around. Be sure to allow for things like decorations, parties and other unexpected expenses.
  2. Make a list and check it twice (or more). It’s odd how 75% off + limited quantities + hordes of other shoppers scrambling for a deal make that heated toilet seat look like such a great gift idea. To avoid buying on impulse, make a gift list for each person and stick to it. And for the occasional this-deal-is-too-good-to-pass-up, just make sure the store has a return policy you can live with.
  3. Keep tabs on spending as you go. The biggest mistake most people make is waiting to see the damage until after the holidays are over. Instead, track your expenses as you go to make sure you know when to pull in the reigns. Find a method that works for you, whether it’s setting aside cash to pay for everything, adding up receipts each night or using an online program like Mvelopes.
  4. Set a deadline for paying off all holiday expenses. If you charge $800 this holiday season (which is the average) and make only the minimum payment on that debt, it will take almost 11 years to pay off and end up costing more than twice the original price (assuming a minimum payment of 2.5% or $10 and an annual interest rate of 18%). Make sure you know the earliest you can reasonably pay off your holiday debt and push hard for that date.
  5. Spend less and still give great gifts. There are countless ways to be creative with gifts and avoid being seen as “cheap.” Try things like focusing only on gifts for the kids or starting a family holiday tradition that involves a fun activity. You can limit the amount each family member spends and challenge them to be creative, present a themed gift or give a unique family heirloom (i.e. framed pictures). Whatever you choose, there are always thoughtful alternatives to lavish gifts.
  6. Know what to do if you overspend. In the event that you do spend more than planned during the holidays, there are a few things you can do to alleviate the pain. First determine if you can consolidate all your holiday debt onto a lower rate card to avoid excessive interest fees. Try to pay more than just the minimum balance each month; paying even a little bit more can drastically reduce how long it takes to pay off a credit card. You can also return unused or unwanted gifts and put that money towards paying off debt. Finally, paying off holiday debt quickly will likely require some sacrifice. Cut back on eating out, vending machine snacks, post-holiday sales and other frivolous spending. It may not be ideal, but you’ll be glad when you finally unload your holiday debt and can start saving and planning ahead for next Christmas!

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Money for Life Applied Principle #9 – Learn the Secret of Envelope Budgeting Part III

applied_principles_092Money for Life Applied Principle #9 – Learn the Secret of Envelope Budgeting

Envelope Budgeting is a simple, yet very effective method of spending management.  There are 4 basic principles of envelope budgeting, and in my last post we covered the first principle, which is setting money aside in advance. The second principle is “spend from how much is left.”

“One of the significant secrets to not overspending is to know daily how much you have left to spend in any area of defined spending. While this seems very simple and even obvious, consider how often you make purchases without knowing how much you can really spend before your spending outstrips your available resources—or how many times you buy something without knowing how it will negatively impact your ability to meet other spending requirements.”

Let’s say for example your spouse makes a purchase that’s he or she wants to be a surprise for the family. This purchase could negatively impact your other areas of spending if you have not first set aside money for this surprise, or if this purchase takes the envelope into the negative.  Spending more in one area of spending than is available, takes money away from other areas where you thought you had money available to spend.

“When people used the tra­ditional envelope system to make purchases—to buy clothes, for example— they would take the clothing envelope with them. They knew immediately how much they had left to spend and how long it had to last before they funded the envelope again. This information was invaluable in assisting them to make sound spending decisions. If you choose to spend less than you make, then spending from what’s left becomes very simple. If there is not enough in the envelope to complete the purchase being considered, the purchase is delayed or another purchase decision is made. Without knowing how much is left, you can only hope that the purchase decision you are making will not negatively impact other areas of your financial life. Unfortunately, you will not know this until it is too late. Knowing in advance how much is left to spend is the secret to making smart spending decisions every day.”

Contains excerpts from Applied Principle 9, Money for Life, by Steven B Smith