Do you have an emergency savings account? It’s an account that holds on to a predetermined amount of money in case of a financial emergency. So what’s a financial emergency? It's any financial surprise that could potentially derail your money management. For example, you get into an accident and have to pay a $2000 deductible, or your water heater explodes.
Emergency savings accounts are an essential element of any good financial management system. You never know what's going to happen with your life and your finances. You might be just fine this week and then next week your washing machine breaks down. If you’re not prepared these financial setbacks, it can be devastating. They can result in debt, late payment fees and stress. If you have the money saved to cover them, that stress just goes away. You’re able to deal with the financial emergency, rebuild the savings, and move forward.
Emergency savings accounts are also very easy to create. You simply set up an automatic weekly or monthly deduction of 5 to 10 or even 100 dollars from your checking account into your savings account. You just set it and forget it. When you reach the emergency savings goal that you’ve established, you stop the monthly deductions. If you have a financial emergency and you deplete your account, then you go ahead and implement the same system to rebuild it.
It is of course important to decide in advance what an emergency account looks like to you. For some people, all they can afford is $500. That's fine. Others would prefer to save 3 to 6 months of their living expenses as an emergency savings account and that's fine too. Whatever you decide is your goal, implement systems to achieve it.
Not having an emergency savings account often happens because people hold on to myths about money. For example, “I never have enough money to pay my bills and get ahead,” is a money myth that can hold you back.
Identify and let go of your money myths.
What do you believe about money?
There are many myths that people believe about money. You may have grown up with a few of them yourself. For example, the old adage that “money doesn't grow on trees” implies that money is limited and hard to come by. Or what about “the rich get richer and the poor get poorer” mentality? It implies that if you're struggling right now, you will always be struggling or it's going to get worse.
Most of the myths that we have about money just aren’t true. And yet we hold on to them and we base our financial decisions on those myths. In order to be financially successful and to be comfortable with managing your money, it's important to identify and let go of your myths. There are a couple of different steps in the process.
1. Become Aware of Your Money Myths
To become aware of your own beliefs, you might sit down and write out a list of the things that you believe about money. As you're writing this down, you might also pay attention to the things that you say to yourself and other people about money. For example, do you ever find yourself saying, “Oh I'm never going to be able to afford that?” This may be a money myth that you perpetuate with your language.
2. What’s True?
The second step is to go through those myths and your beliefs about money and to assess whether or not they're actually true. Ask yourself where the myth came from and why you believe it to be true. In many cases you'll find that the belief that you have about money has no basis in your reality or experience.
3. Let It Go
Let go of the money myths and beliefs that don't serve you and embrace new beliefs about money that support you to manage your money better. For example, if you believe that you have to have a degree in finance to be an investor, a little research will show that there are numerous investor success stories where the investor had little to no financial education.
What you believe about money can help you or hurt you. Identify what you believe, assess whether it's true, and embrace beliefs that support you to succeed.
Mobile apps that help you track your money.
Do you have a smartphone? If so, the following mobile applications can help you stay on top of your spending, savings, debt and even your investments.
This free application is one of the best and most widely used. It can be used on a variety of operating systems including iOS, Android, and Windows. It provides you with all the tools that you need to track your income, expenses, saving goals and budget. It syncs with all your accounts from a wide variety of financial institutions. It is a comprehensive application that can make managing your money quick and easy.
This is another free app that works for both iOS and Android. It works a lot like Mint and can help you sync many of your accounts so you can access your information all in one place. It also strives to guide you to make smart money decisions by asking questions about your financial goals.
BillGuard is also free and for the iOS and Android systems. It is designed to help you protect your identity and to help you manage your spending habits. It syncs to your bank accounts and tells you how much you spend each month.
Also check with your financial institutions to learn what mobile applications they have available to use. Your credit card lenders, banks, and investment brokerages all have mobile apps that can help you manage your money better.
We've talked a bit about money management and a few mobile apps that can make it easier. Now we’ll answer the question, “Do you really need a budget?”
Do you really need a budget?
Do you have a budget? If you’re like the vast majority of people, you believe that you have a pretty good handle on how much you spend and how much you bring in. Unfortunately, that’s probably a faulty belief. And why would you leave it to guesswork? This is your money we’re talking about. The more knowledge that you have about you financial situation, the easier it is to make your money work for you. Do you really need a budget?
If you want to make the most of your money and achieve your financial goals then the answer is yes - you do need a budget. Here’s what a budget does for you.
A budget can tell you exactly how much you have to spend in any given category. If you want to go out to eat, you can look at your budget and see that your dining category has been depleted for the month but you might see that you have extra money in your clothing allowance. You can then make a decision on whether you want to spend that extra on clothing or go out to eat. Knowledge is power.
Achieve Savings Goals
A budget helps provide you with a framework to save money. The general rule is to set aside about 10 percent of your monthly income in retirement. You might save an additional 5 percent for big ticket items like a new car. Your budget can tell you at a glance where you are in terms of achieving your savings goals, and it can help you know how much to set aside each month.
The bottom line is that a budget alleviates stress about your money. You know exactly where your money is going and what it’s doing for you. Money is a tool that serves you. However, it can’t serve you well unless you know how it’s being used. A budget simply guides you to make the most of it.
It’s not a doctrine. You can change your budget. It’s a guideline and a means to control your finances. Create a budget today and start using it to manage your money quickly, easily and stress free.
How to get over the “B” word.
What is your physical reaction when someone mentions the word “Budget?” We really should call it something else because most people sneer, grimace, or physically shiver in revulsion when the word is uttered in their presence. It’s a bad word. But why?
One reason that many people detest the budget concept is that they believe that a budget is restrictive. It might remind them of when they were kids and their parents made them save money. Denial is another reason that people abhor budgets. When you know how much you have coming in, you also realize that you’re probably spending too much.
The truth is difficult to face and there’s nothing like a list of your expenses and your income to remind you about how much or how little you actually have to spend. So how do you get beyond this limiting factor? How do you embrace a budget and use it for good?
1. It’s Not Law
What you put into your budget isn’t a law. There are no budget police that are going to come and knock down your door if you spend too much in one category. A budget is a guideline or a plan that YOU create. It’s a simple tool to manage your money and you can change it however you see fit. If you decide this month that $100 is enough for dining and then next month you realize that you need more like $200, then you can change it. It’s entirely under your control.
2. It Is about Control – Your Control
A budget helps you control your money. It puts you into the driver’s seat and lets you make all of the important decisions. And who else should be making these decisions? No one, right? A budget can feel extremely freeing, especially when you are able to see that some expenses aren’t necessary and that by eliminating them, you have more money to spend in other areas.
3. More Money in Your Pocket
When you create a budget, it also sets the tone to start paying more attention to your finances. For example, it’s not uncommon for someone to sit down and create a budget only to realize that they’re giving their bank $10 a month in fees, they’re paying 30 percent interest on their credit card and that they are spending $75 a month on a gym membership that they never use. This adds up quickly. A budget helps you stop the gaps and seal the cracks so you keep more of your hard-earned money.
Three simple ways to save more money each week.
Who wouldn’t like more money in their bank account or pocket? The more money you have, the more money you can spend on things that you enjoy, right? And the more money you can save. So, let's talk about three simple ways you can save money each week. And no - we're not talking about cutting your own hair or reusing coffee filters. We're talking about legitimate ways to save money.
1. Bank Fees
The first tip is to look at your bank fees. How much are you spending each month in bank fees? Ideally it should not cost you money to bank. If your bank is charging you fees, give them a call and see if you can open up a different type of account, a no fee account or switch bank. It’s a competitive market and they’ll likely waive your fees.
The second thing to look at is your insurance - your car insurance specifically. You can save hundreds of dollars a month by simply comparing companies and policies. Take a look at how much you're spending with your deductible and how much your insurance costs are. Get online and start comparing options. There are online comparison services that you can use to rate car insurance, and you can also just pick up the phone and start calling.
3. Cell Phone
A third way that you can save money each week is to take a look at your cell phone plan. You want to compare what it costs each month and what you get for that money, as well as monthly fees. Many companies will actually pay you money to switch, and you can do it without a contract.
If you want to save money, start comparing policies and plans. One additional way that you can save money (and we're going to talk a little bit more about this next time) is with your credit card interest rate. Take a look at what you're paying in interest on your credit cards. There’s a very good chance you're paying 20 even 30 percent on your credit card purchases. If you don't pay the balance each month, it can really add up.
Negotiation can save you thousands.
Do you have credit card debt?
Credit card debt is highly destructive. It can take a large toll on your monthly income and it can be quite stressful. Negotiation is one way to save yourself thousands of dollars each month. Last time we talked about how you can negotiate many different things to save money. You can negotiate the price of your phone, insurance on a car, and the fees that you pay your bank. Anything you spend money on is negotiable. One area which can have a dramatic impact on your month-to-month finances is your credit card interest rate.
Here’s a simple example of how interest rates really impact your monthly finances…
Let's say you go out for a really nice dinner with friends and you spend $250. If you only pay the minimum payments on the $250, it will take you two and a half years to pay it off. You'll end up spending a total of $297 and that's at a 14% APR. There’s a very good chance that your APR is much higher than that.
If you would rather keep your money than give it to the credit card company, then it pays to negotiate your interest rate.
1. Call the company
Call your credit card company and ask to speak with someone. Tell them the interest rate you're paying and then ask if they can reduce it to a specific amount. For example, if you’re paying 14% you might ask to reduce it to 10%.
2. Prepare for the “No”
Chances are they're going to come back with, “we can’t do that.” You can then ask to speak to someone else or you can talk about taking your business to a different credit institution. Generally speaking, they’ll either “talk to their supervisor” or let you talk to them.
3. Be patient
You may have to talk to a few people before you get a reduction in your interest rate. It’s worth the effort. Each percentage point can mean hundreds, if not thousands, of dollars saved. Over time, that savings will make it much easier to pay off your debt.
Keep in mind that you can use the same strategy with your cell phone, with your bank fees, and with just about any type of regular customer account that you have. There is room to negotiate and pay less each month.
Just like you don't need a degree to pick up the phone and call your credit card company and negotiate a lower interest rate, you do not need a degree in finance to invest your money.
You don’t need a degree in finance to invest your money.
Joe has a degree in art history. Does that mean that Joe is destined to be eternally broke and always live from paycheck to paycheck? He doesn’t have a degree in finance. He never even took an accounting course. Actually, Joe is quite well off and that’s not because he’s a walking encyclopedia about Byzantine mosaics. No, it’s because he followed the basic investing guidelines and has been able to make his money work for him.
What are those guidelines?
1. Start Investing NOW
The sooner you start investing, meaning today, the more money you’ll have down the road. It’s the simple concept of compound interest. Even if you only save $100 a month, if you start today, that can mean an additional $50,000 when you retire. That’s a lot of money!
2. A Little Research Goes a Long Way
Many people believe that you have to chase stocks and have a ticker scrolling across your smartphone to make money in investments. Really, while some people do that for a living, the average person isn’t going to invest this way. Rather, it’s better to do a little research and look at the numbers of funds. Look for low-cost diversified funds that deliver consistent returns. This isn’t a get-rich-quick scheme; it’s a get-rich-slowly plan.
3. Leverage Retirement Accounts
Take advantage of your company’s 401K and of the IRA laws and invest in both. You get free money with your company’s 401K, and tax free investing with your IRA.
There’s really no reason to not take advantage of this free money. Open your accounts and start investing today. If you have to choose just one to focus on, focus on your retirement. You can’t borrow for retirement.
Making the choice between savings and paying off debt.
Do you feel like you just don’t have enough money to save and to pay off debt? It’s a common conundrum. It makes people feel like they have to choose. The truth is that in most cases you can take care of both at the same time.
Pick up the phone and call all of your financial institutions where you owe money, and negotiate a lower interest rate. This may be a bit tedious but as mentioned before, you can actually save a few hundred dollars a month by simply talking to someone at your credit card company. Imagine what you can now do with a few extra hundred dollars. You might also call your banks and your cell phone and insurance company and negotiate a lower plan.
2. Choose a Card
Choose one card to focus on. You’ll pay the minimum balances on all of your cards and a little more on the one that you’re focusing on.
3. Look at Your Savings Goals
After negotiating, you should have some extra money each month. Divvy it up. Decide how much is going to pay off debt and how much is going into savings. Look at your savings goals. Ideally, the first thing that you’ll save for is your emergency savings account. If that’s the case then consider dividing your extra cash up 50/50. Half into emergency savings and half for debt.
Once your emergency savings is built up, then shift it so that you’re paying 75/25. 25% to savings and 75% to debt. You can save money and pay off debt at the same time. The first step is to look at the fees and interest rates you’re paying and to negotiate a better deal. That extra money can be put to work. If you have to choose whether to pay off debt or save, build your emergency savings first, and then focus on your debt. Other savings, with the exclusion of your 401K, can wait until debt is taken care of.
We’ve talked a lot about saving, investing, and managing your money. But what if someone steals your identity and spends your money? What can you do? We’ll wrap this up with a quick look at how to protect yourself.
Are you protected against identity theft?
Have you had your identity stolen? Has someone spent your hard-earned money by stealing a credit card, bank account number, or worse…your social security number? While you cannot completely protect yourself from identity theft, there are some simple steps that you can take to reduce the risk.
1. Free Credit Report
Get your annual free credit report and review it. Look for discrepancies and pick up the phone and inquire about any questions or issues that you have. A free credit report helps you stay on top of what’s going on with your finances and it makes sure that no one is using your name to support their spending habits.
2. Credit Monitoring
Most credit cards today, and bank accounts too, offer monitoring. That means they send you a text or email alert anytime money is spent on your card or your account. Sign up for this and review the messages. If someone fraudulently uses your account, you’ll be able to catch it quickly and have the account frozen. And in most cases you won’t be responsible for the charges.
3. Shred It
Shred your statements. Make sure that anything with account numbers is kept out of sight and destroyed rather than thrown away. You’d be surprised how many people get financial information right out of the trash.
4. Protect It
Don’t use your credit card, bank account websites or information on an unsecured wireless connection. That enables anyone with a little tech know-how to access your information and go shopping. Stay safe.
5. Look Out for Signs
Skimmers are little devices that can be used to scan the information from your card. You’ll find them at ATM machines, gas station pumps and even wait staff can skim your card. When in doubt, use cash. There’s really nothing wrong with using cash. If you feel like something is suspicious or you just don’t want to risk it, pay cash.
Protecting your money is about staying smart, implementing systems that support you, and spending a little time learning how to invest your money wisely. Money management doesn’t require a higher education or savvy financial knowledge. It does require a little time, patience, and a desire to make the most of the money that you earn.
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