Putting together a personal budget
Building a budget is neither complex nor difficult. A series of simple steps will get you started.
First, you must identify your disposable income. This refers to the income left over after paying your taxes. From this amount, you should deduct those fixed costs such as rent or mortgage, car payment, insurance, loan notes, etc., that remain the same month after month.
The next step is slightly more complex, as you need to forecast as accurately as possible, your ongoing variable costs, such as groceries, telephone, celular phone, and the like. What is left over after deducting these is termed discretionary income. This is the money you have left over after covering all your essential expenses, which can be used for savings, entertainment, vacation planning, gifts, etc.
It is highly recommended that you set aside in savings, a percentage of your discretionary income as a contingency fund, in case of unforeseen expenses such as car breakdowns, illnesses or home repairs (I recommend a minimum of 10% of your disposable income). That will allow you to cover them (or at least lessen the impact), without severely affecting your lifestyle. Now take what is left, and divide it up among the sundry expenses that may arise. Perhaps you’ll want to set aside $40 a week for entertainment, which might include a drink after work on Friday afternoon, a movie or a night at the county fair… all discretionary expenses, without which you can still meet your obligations. An upcoming birthday for your favorite nephew, a subscription to your favorite magazine, or a good bottle of wine can all be planned for at this time.
Review your budget and try to see if you have forgotten anything, and adjust it as necessary. Once you have this completed, you need to give it a chance, by following it as rigidly as possible. As you go along, you may identify other costs that you hadn’t thought of, and your budget can be adjusted to accommodate them.
A suggestion I would make is this: if you find that you don’t spend the amount you have allocated for one of your discretionary expenses, such as entertainment, don’t “roll it over”, to increase your allocation for the following month. Instead, add it to your savings. This has the benefit of leaving you better prepared for unexpected costs, and also helps you build the mindset for adhering to your budget.
Stretch Your Paycheck
How to maximize the spending ability of our paycheck is a question that most of us have asked ourselves at some point. Unfortunately, we tend to look for big results, rather than a swarm of small results. Here are some tips that can help you make it through to the next paycheck, without finding your pocket empty.
1. Don’t allow yourself to purchase ANYTHING on impulse. Marketing gurus know that impulse buying is a consumer’s weakness, and they capitalize on that. Take a look at the type of products that are always displayed in the vicinity of the cashier’s stand, and it’s quite evident.
2. Never purchase any non-essential item without shopping elsewhere for a better price. In this internet age, it is extremely easy to cross-check pricing, without spending a lot of time or gas doing so. A lot of sites use promo codes and coupons like Medifast coupons to save money on products that would otherwise be very expensive. If you feel you MUST buy it, don’t you want to at least assure yourself that you’re getting the best bargain around?
3. Put yourself on a budget. Determine realistic amounts to spend in various aspects of your life, and stick to them. Assuming your essential needs (rent, utilities, insurance, etc.) are already allowed for, allocate a realistic amount for other items like entertainment, eating out, hobbies, etc.
4. Put your credit card in a safe place, and LEAVE IT THERE! Nothing will destroy your budget faster than an unexpectedly high invoice from your credit card provider. Credit is too easy to spend, and the minimum payment often covers only the interest, if that. Pay cash, or do without!
5. As part of your budget, make savings a high priority. Unexpected car breakdowns, illnesses and home repairs can sink your budget as fast as a shopping binge at the computer store. Always set something aside, so you’ll be able to absorb those surprises without facing a diet of bread and water until your next check comes in.
6. Don’t be afraid to scold yourself if you fail to follow your budget. Then, fix the problem. You could return the purchase, or simply change your behavior and enforce your own self-imposed rules, but just allowing it will only reinforce the behavior that put you in difficulty to begin with. Make the necessary adjustments, and you’ll find that your paycheck will stretch further than before, giving you more buying power.
How Does a 529 College Savings Plan Work?
A 529 Plan, named after Section 529 of the Internal Revenue Code, is an educational savings plan operated by a state or educational facility, designed to help families set aside funds for future college costs.
A 529 Plan can be used to meet educational costs of any qualified colleges nationwide. In most plans, your choice of school is not affected by the state in which your 529 savings plan is located. You can be a TX resident, invest in a SC plan and send your student to college in NY.
Since the 529 Plan was created in 1996, every state now has approved at least one 529 plan. Each state gets to decide whether it will offer a 529 plan (or plans) and how it will be structured. This means that 529 plans can differ greatly from state to state. You should research the features and benefits of your plan before you invest. Your investment counselor or broker can assist you with this process.
As long as the plan satisfies a few basic requirements, the federal tax law provides special tax benefits to you, the plan participant. For instance, although you cannot claim deductions for the annual contributions to the plan, the gains are tax-deferred, online and providing the fund is used for its intended purpose, tax exempt. Should the beneficiary decide not to attend college, the donor still has exclusive control of the funds, and can reclaim them, but will then have to pay federal income tax on the gains, as well as a 10% penalty.
Some states also offer substantial tax benefits on state income tax, so it becomes even more important to carefully research and compare all your options before deciding on a plan.
The allowable contributions, up to $300,000.00 in many states, are quite substantial, and management of the Plan is usually handled by either the State Treasurer or an appointed independent fund manager.
There are two specific types of 529 Plans: either prepaid plans or savings plans.
Savings Plans work much like a 401K or IRA by investing your contributions in mutual funds or similar investments. The plan will offer you several investment options from which to choose. Your account will go up or down in value based the performance of the particular option you select.
Prepaid Plans let you pre-pay all or part of the costs of an in-state public college education. They may also be converted for use at private and out-of-state colleges.
What You Need to Know About a First Time Mortgage
Facing all the options for loan structure when buying your first home can be a very intimidating experience. You’ve probably heard of fixed-rate mortgages, and adjustable-rate mortgages, but you may not be familiar with the seemingly endless number of variations between the two.
Without a substantial income and a considerable nest-egg to lay out as a downpayment, it isn’t always easy to qualify for a first time mortgage. Add to that the fact that you’re being peppered with terms you don’t fully understand, and the intimidation factor is understandable. There are some very basic things to consider, which may help reduce the intimidation you feel.
First, make a realistic decision about how much you can afford for a downpayment. Don’t unreasonably discount your ongoing living expenses or the hidden costs of owning a home, particularly one with no drapes, worn carpet or faded paint. Give yourself a cushion for those other immediate costs.
Now, take a serious look at what you can afford to pay on a monthly basis, both initially, and after any potential rate adjustments. Don’t assume you’ll get a 10% raise every year, because you won’t.
Then ask your financing company to show you what they can offer you, within those limitations, for the term of the loan. Don’t be surprised if they say they have nothing within those parameters. Ask them how close they can come to your capabilities. That is when it will get interesting.
There are various types of stepping rate adjustment loans, where the payment remains the same for a few years, then adjusts. Those adjustments may occur once or twice during the term, or annually. There are balloon loans, wherein a monthly payment is computed on a 20 or 30 year term, but the loan becomes payable in full after a lesser number of years. The variations are virtually unlimited.
The first time home buyer must accurately predict his income for the entire term of the loan, or have a plan to sell the home after a certain period. Fluctuations in the interest rates, changes in employment status and the home market can all affect your ability to meet the obligation, or sell the home, so it is important to be realistic in your expectations. Make this important decision with your mind, not your heart! The last thing you want to do is to “find a way” because you’ve fallen in love with the idea of owning your own home. That is how many first time home buyers get in trouble.