Foundations of Finance

TRICK #7: Save regularly for recurring expenses, too.

This is a trick that can help you break the habit of relying on  credit cards or raiding your savings account whenever a big annual or semi-annual expense comes up. Set up several high-yield savings accounts with one online bank and arrange for automatic deposits into those accounts on a regular basis.

If you automatically save a little money on a regular basis, it doesn’t take much to build up a good stash for when your big expenses come due. For example, if you arrange for a mere $25 a month to transfer from your checking account into your holiday gift fund each month, that’s much easier to manage than coming up with $300 all at once come December.

TRICK #8: Set long-term goals with a buddy.

One of our biggest enemies when it comes to making financial decisions is our short-term memory. We get impatient when our investment balances don’t grow as quickly as we’d like, or our friends seem to be having more financial success than we are. Or we just get tired of scrimping and saving and get the overwhelming urge for a splurge.

Getting a buddy for setting goals makes you responsible financially to more than yourself.

Keep your long-term goals in focus. Define your goals early on — such as saving for a down payment, starting a retirement fund or taking an annual vacation. Then set up plans to reach them and be sure to discuss your progress regularly. Having that accountability with someone (a spouse, best friend, family member, etc.) helps motivate you to stay on track.

TRICK #9: Ignore your annual raise or year-end bonus.

Expecting a raise this year? Pretend you’re not. By keeping your standard of living the same and not increasing your spending with each bump in pay, you can pocket the extra money and use it to reach your goals. The same goes for that year-end bonus or tax refund.

It only takes a few extra bucks to start your emergency savings, begin investing or pay extra toward your credit card debt. You could even use the money for something fun. Start stashing it in a vacation savings fund so you can afford to have a real travel adventure next year instead of the old crash-on-Mom’s-couch getaway.

TRICK #10: Give yourself a raise.

Not getting a raise this year? Take matters into your own hands. You could get hundreds of dollars added to your take-home pay each year simply by telling Uncle Sam not to take so many taxes out. Most of us give the government too much upfront — that’s why we get tax refunds in the spring.

Take back your money and use it throughout the year instead to help you make ends meet, boost your emergency savings or start investing for your future. All you need to do is file a new W-4 form with your employer to adjust your “withholding.”

TRICK #1: Give up your daily latte.

Don’t think you have enough money to invest or make ends meet each month? Nearly everybody has some fat they can trim from their spending. Forgoing your $4 latte every day, for example, would save you about $120 a month.

Investing that money every month for ten years into an account earning 10% annually would net you nearly $25,000. Keep it up until retirement, and you’d have more than $765,000 in 40 years.

TRICK #2: Put your credit card on ice — literally.

You know your spending habits better than anyone; help yourself learn self-control.

When you’re trying to pay down your credit card debt, you’ll whittle away at it much faster if you avoid making any more charges in the meantime. To resist the temptation, think “out of sight, out of mind.”

Take your credit cards out of your wallet entirely. Stash them in the bottom of your sock drawer, or entrust them to a friend or relative for safekeeping.

You could even place them in a bag of water and throw it in the freezer — you’d have to wait for it to melt before you could use it, which would hopefully be long enough for your impulse to pass.

TRICK #3: Use cash for all your expenses.

Looking for a foolproof way to keep your spending under control? Try stashing cash in envelopes according to categories so you can see how much

you’re actually spending. For example, use one envelope for groceries, another envelope for gas and transportation, another envelope for eating out or entertainment, etc.

Then when you run out of money in each envelope, you simply don’t spend any more until next month. The so-called “envelope system” may sound corny or a little old fashioned, but it could be just the trick to keep you disciplined.

These can be dreaded words. In reality if you create a budget that fits you and your lifestyle not only will it not be dreaded- but it will work! You will be able to keep track of your spending and manage savings. Here are some simple tips to start creating your own personal budget:

1. Gather every financial statement you can. This includes any bank statements, investment accounts, recent utility bills and any information detailing income or expenses. From these come up with a monthly average.
2. Record all of your sources of income. Record this total income as a monthly amount.
3. Create a list of monthly expenses. Write down a list of all the expected expenses you plan on incurring over the course of a month. This includes a mortgage payment, car payments, auto insurance, groceries, utilities, entertainment, dry cleaning, auto insurance, retirement or college savings and essentially everything you spend money on.
4. Total your monthly income and monthly expenses. If your end result shows more income than expenses you are off to a good start. This means you can prioritize this excess to areas of your budget such as retirement savings or paying more on credit cards to eliminate that debt faster. If you are showing a higher expense column than income it means some changes will have to be made.
5. Make adjustments to expenses. If you have accurately identified and listed all of your expenses the ultimate goal would be to have your income and expense columns to be equal. This means all of your income is accounted for and budgeted for a specific expense.If you are in a situation where expenses are higher than income you should look at your variable expenses to find areas to cut. Since these expenses are typically essential it should be easy to shave a few dollars in a few areas to bring you closer to your income.
6. Review your budget monthly. See what you did well and find out what you can do better on next month.