budgeting

Steps to Slay Your Financial Fears

February 8, 2016 by penn

With a few quick tips, even you can tackle the scary parts of budgeting, investing, managing debt, and filing taxes.

Money can be a cause of financial fears for many of us, whether it is because we think we do not have enough of it, or because when we do have money we do not know how best to manage it. But the fears associated with managing money can disappear quickly if you begin to address these issues one small piece at a time.

[Read: When We Learn Financial Lessons the Hard Way]

The First Step: Taking a Quiz

This may seem a little silly perhaps, or at the least like a strange place to start. But if managing your money causes you anxiety or fear, a good way to begin to tackle that is to figure out exactly where your fears lie. There are questionnaires or quizzes which will help you to pinpoint where your weaknesses may be when it comes to managing your finances. Look around and you can find a questionnaire with Vanguard or LearnVest, or possibly with your own banking establishment.

This will help highlight what is called your risk tolerance – basically how much risk you are comfortable living with – and can shed light on what your investment style could be. Information like this can help you to decide how to allocate your assets and funds.

(Don’t think you are the first person to be nervous about investing! Confusion is the jumping off point for educating yourself and eventually knowing all you need in order to make wise investments and manage your money well.)

The Second Step: Knowing the Difference Between Good and Bad Debt

You did not know there are good kinds of debt in addition to the bad? When you come to understand the difference you will be able to be confident in deciding when it is a good idea to borrow money, and when it is not.

Good Debt: Good debt is debt that will eventually pay you back. For example a home mortgage can be good debt if you eventually sell the property for more than you paid for it. Student loans can be good debt if the education you receive helps you to earn more money than you otherwise would without it. What it comes down to is borrowing money that will appreciate in value.
Bad Debt: Bad debt is essentially spending more money than you earn. When you live beyond your means the value of the money ‘borrowed’ is not appreciating. This is commonly understood to be the worst sort of debt.

Whenever you borrow money to pay for something which loses value over time that is bad debt. For instance if you take out a loan to buy a car, and the car immediately starts to depreciate, when you sell it back to a dealer or to an individual, you will definitely be making less on the sell back than what you initially paid for the car.

[Read: Good Debt vs. Bad Debt]

The Third Step: Writing a Will

Everyone eventually needs a will, but the process does not have to be as scary as it may sound, and it does not have to be very expensive.

To get started you can:

Call the local bar association: You can usually find free or cheap help in your area if you go through the American Bar Association’s website and look for local help in your state. Some local bar associations can also refer you to a lawyer who will do a free or low cost half hour consultation in which you can quickly explain the situation and ask for advice.
DIY: Do it yourself may seem like a daunting option, but there are software options out there which can help you to write a will by yourself. These options can be found online with a quick search, or you can check your local library for books on the topic. It is up to your personal preference.

You may also want to check on whether or not it is wise to get a trust depending on the worth of your estate. Advice on this can be found in many of the same places as information on writing a will.

The Fourth Step: Minimize Your Tax Bill

By looking around just a little you can find tax breaks and deductions available to you. If you need advice or assistance in filing for your returns, the time to act is now. It is not wise to wait for the grand rush come spring time, when number crunchers and accountants are at their busiest. Finding a trustworthy CPA in the slow season is a good idea.

The Fifth Step: Keep Track of Your Expenses

For some people, probably more than would like to admit it, budgeting can be a scary concept. But you can ease yourself into it initially by simply watching where your money goes throughout the month. There are different ways to track this. You can use free online budgeting software. Or if you trust yourself enough you can do it simply by opening up a spreadsheet, which requires perfect saving of your receipts, checkbook records, and credit card payments.

[Read: Ways to Protect Yourself from Financial Disaster]

What is most important at the end of the day is to try out these different beginner options that will eventually have you monitoring your finances well and investing intelligently. Just try whatever works best for you and learn from the mistakes you will make. Eventually you will get it.

Watch this video to learn a little more about starting out budgeting:

Taking on Financial Responsibility

November 7, 2014 by penn

Financial responsibility entails a number of specific qualities that an individual must have in order to be successful at the task. It is definitely a term that some people use lightly, while others take it completely seriously. Financial responsibility is essentially the key to being financially stable and staying out of financial trouble, like debt or ending up with no money at all. A key to being financially responsible is realizing what financial obligations must be meet for you to be able to live comfortably, monitoring your spending habits, and saving money when and where it is necessary to do so. Keep reading for more information on financial responsibility.

The Real Deal on Credit Cards

Yes, it is very true that credit cards can be life saver when it comes to needing emergency money to take care of an urgent matter. However, credit cards can be a dangerous tool when payments cannot be made on time and interest continues to increase. An important part of financial responsibility is to be able to take care of financial obligations whenever they come up, and a credit card is a good way to be able to do that. But with the ownership of a credit card, you must be able to keep up with payments to stop yourself from going into credit card debt. This means staying under your credit card limit, using the card only when necessary, and making payments according to your credit card terms. Understand that with the use of a credit card, you will be required to pay back more than what you initially spent. If you must apply for a credit card, you must be willing to take on the full financial responsibility involved in owning one.

Borrowing within Your Means

For some, it does not take much effort to stop themselves from borrowing. In some cases, it is appropriate and necessary to purchase an item under the circumstance of borrowing. When taking part in financial responsibility, it is important to determine which purchases should be bought by borrowing money, and what purchases do not require borrowing money. It also requires borrowing money on a responsible budget. For example, it is very common to purchase homes using a loan. But if you do not need to purchase a huge home to accommodate a family of 5 and you only need to house 2 people, there is no need to borrow the amount of money needed to cover such a big home. Taking out loans requires a lot of financial responsibility and you will be required to pay back more than you initially borrowed. If you are not able to borrow within your own means, it is highly recommended that you stay away from borrowing money.

Saving for Emergency Spending

There is nothing worse than a financial emergency arising and having no funds to take care of it. A major part of having financial responsibility is the ability to save money for extra spending and emergency spending. Saving can include a variety of methods. Some of these methods include opening a savings account to have funds automatically or manually deposited, investing in businesses or stocks, or even something as simple as starting a savings jar at home. However you decide to start a savings fund, keep up with it by taking a small percentage of your income each week or month. Deciding to save by investing will require strategic planning and possibly financial advice.

The Art of Budgeting

Some individuals may deem it too difficult to budget, therefore deciding not to do it. Budgeting goes hand-in-hand with saving and should be done as an important part of having financial responsibility. Budgeting involves spending money only when necessary and being able to save what has not been spent for emergency purposes. Budgeting also means knowing your spending limits regardless of what those around you are doing with their money. Regardless of how much money you have at one given time, if you are not able to afford the cruise trip that your coworkers are planning during the summer, do not risk your financial stability by going on the trip. If buying the brand new phone that has just hit the store requires you skipping your credit card bill for the month, do not buy it. Budgeting requires hard work and sacrifice, but the ending rewards are so much greater than ending up in financial jeopardy.

A big part of having financial responsibility is recognizing what you need to do for yourself to be financially stable. That means that you have to determine what purchases are necessary and what purchases will just be a complete waste of money. It also means taking financial help and using them wisely, like credit cards and monetary loans. Being financially stable requires a lot of financial responsibility, but once you get the hang of budgeting, saving, and spending only when necessary, you will find it more comfortable being a part of the financially-stable club.

Will Living Without Your Cards Keep Debt At Bay?

June 14, 2013 by penn

Consumerism is driving economies all around. It has a lot of benefits for a lot of industries but for the buying public, it holds a lot of challenges.

The primary tool driving a consumer-centric economy is purchasing capacity. If you do not have the means to purchase a specific item, then you cannot get it. But this practice has been shattered to pieces with the advent of credit cards. This purchasing tool is so rampant that individuals sometimes have more than one in their possession.

As the name suggests, this plastic card allows you to purchase items on credit. Even if you do not have the actual money on hand, it lures you to buy the item anyway because you can pay it off at a given time in the future. This way of thinking has crippled a lot of families by putting them in credit card debt and left in regret as to why they kept purchasing all the items in the past.

Getting rid of your cards is a good start in trying to keep debt away. If you have more than one card, pay all of them off, call the bank to cut the credit and literally cut the card in half. Keep one card in your possession just for emergency. It will also be your tool in getting your credit score up as long as you can pay it off after every purchase.

Starting to live without your cards will take some getting used to if you have been dependent on them for the longest time. The next thing you need to do is sit down and look at your expenses every month. With this list, match it with your monthly income. Your income must always be bigger or at least equal to your expenses. If it is the other way around, you will have to find a way to either increase your income or reduce your monthly payables.

Once you are all set on this step, next is to adopt a cash basis policy. It means that you use only the cash on hand in managing expenses. This is where maintaining a budget comes in handy. With your list of expenses and income, you will know how much amount should go to where every single time.

One idea to keep tabs in this is to categorize your expenses and by using an envelope. Mark envelops based on the category. With your expense list, identify each of them and put them in a category. Every time you get your income, whether from a job or business, make sure that you put in the envelope what you have budgeted as payment for each item. It also applies to your weekly allowance if you keep one. It lets you know how much you can spend and limits it at that amount.

Another idea is using a debit card. Yes, it is similar in look and feel and even the way you use it to purchase items with a credit card with one major difference – it runs on a debit system. You can only use it if you put money in it. Think of it as a state of the art piggy bank. You can only consume as much as you have put in, nothing more.

Of course, all these will be pointless if you do not adapt a change in attitude. You can cut all the credit cards you want but if you keep the same buying mentality of getting what you cannot afford, you will still feel the disadvantages of having a big debt.