Ask The Money Coach

Posts Tagged ‘money management’

If you’ve ever tried budgeting for the long run only to find that your best-laid plans always seem to get ruined by short-term emergencies, then you’re not alone.

Unexpected things pop up that can surprise even the most dedicated budgeters.

Fortunately, there are some ways you can balance your longer-term goals – like saving for retirement or setting aside money for a new home – with practical, day-to-day obligations, like keeping up with your credit card payments and utility bills.Here are a few ideas to help you stay on top of your present financial responsibilities, without sacrificing your future economic security:

Plug Your Spending Leaks

Many times, we thwart our noblest intentions to save money by allowing “spending leaks” to dampen our finances. I found out the hard way recently how a spending leak – a literal one – cost my family hundreds of dollars in 2010. It all started with a leaky tub faucet in the hallway bathroom.

As it turns out, after my teenage daughter, my 11-year old son or my five-year-old daughter would take their showers or baths, one of them would invariably not turn the spigot completely off. And even when they did, little beads of water continued to drip – 24 hours a day.

After several months of high water bills – between $125 and $150 a month – my husband, Earl, told everyone to be more careful about water use around the house. He also went ahead and fixed that leaky tub.

I can’t tell you if the kids are truly being more conscientious about conserving water. But I do know that our December 2010 water bill dropped back to more normal levels, around $35 monthly, saving us about $100 a month. And the utility bills have consistently been lower since then, too.

So think about your own life: Are there areas where you’re spending money and literally washing cash down the drain? If so, it’s time to plug your own leaks. For instance, that car of yours that keeps giving you headaches? Instead of throwing good money after bad with local mechanics or getting by with a little elbow grease and know-how from your cousin who’s handy with a wrench, maybe it’s time to head to the dealer to get the problem fixed properly, once and for all.

If you spend the money now getting something done right, you won’t get a nasty surprise with that ailing car a month or two from now, which can blow your budget.

Try the Envelope System

Remember when you were a kid and you got money for your birthday, a holiday or some special occasion? If you got to spend that money as you pleased, chances are, that was a real treat. But you might also remember a bit of sadness, once you realized the money was all gone.

If this sounds vaguely familiar, what you experienced was actually preparing you for the real world: None of us has an infinite amount of cash, so we’ve got to use what we have wisely.

One way to better manage your spending – and avoid blowing money – is to use the envelope system. Simply put, it’s a way for you to categorize and control your spending by devoting a specific amount to various areas. For example, you might have these monthly categories:

• $400 – Food (grocery store and eating out)
• $100 – Personal care/cosmetics
• $100 – Clothing
• $50 – Gifts/miscellaneous

Doing it this way, you budget ahead of time how much cash you can spend on each of these areas during the month. Then you put that amount of money into an envelope.

The key is: Once the money in the envelope is gone, it’s gone. You can’t go dipping into other envelopes, nor should you over-extend yourself by using credit cards just because you want to continue spending.

One benefit of the envelope system is that it serves as a constant reminder that money does eventually run own if it’s not saved, just as it did when you were a kid.

If you do yourself a favor and set up an envelope for “savings” – and treat that envelope as if you were paying for any other expense – I can promise you, you’ll reap the rewards of paying yourself first.

And not only will your present-day bills get paid, but you’ll gradually start building your savings for the future, too. Lynnette’s article originally appeared on DailyFinance.

Related Questions:

• money management coach
• how much can a $125 bill hurt your credit?

What messages – overt or subtle – did you learn from your parents? Many of us can vividly remember our parents, teachers or other adults teaching us everything from how to tie our shoe laces to how to ride a bike. But what about money?

Did anyone ever sit you down and explain to you the basics of how to create a monthly budget? Probably not. Since the goal of this book is to teach you how to become a millionaire, I think it’s important to walk you through the basics of budgeting and managing your cash flow.

I’ll start with my philosophy about the importance of having a budget and explain exactly how you should create one. Later in the chapter, for those of you who want a jump-start budgeting formula, I’ll reveal a simple two-step process for creating a household budget you can live with.

I’ll also tell you practical strategies you can take to avoid blowing your budgets. Throughout this chapter you’ll learn the three elements that comprise a Personal Prosperity Plan: a Millionaire Budget; a set of Written Goals; and a Financial Policy Statement. Excerpt from The Money Coach’s Guide To Your First Million – Now in paperback.

Related Questions:

• when parents ask for money
• books that teach you to be a millionaire

Q: We have about $15,000 in credit card debt. I think we should take money out of our savings (about $100,000) to pay off these debts.

A: The Emotional Ramifications
Here’s where things get a lot trickier — and far more subjective. It sounds as if your wife is willing to live with the debt, at least for a while longer, and you are not. Perhaps the debt keeps you up at night and causes you stress or headaches. If so, share that information with your wife. She might better appreciate how you’re being impacted, and she might be inclined to use that savings to eliminate the debt.

By the same token, if your wife fears living in poverty later or worries about not having money for food or shelter, you have to look at it from her point of view. You’re 65 years old. Since the two of you are presumably within striking distance of retirement, it’s not unreasonable for her to want to maintain the biggest possible cash cushion. Whatever the case, it’s important to take each other’s feelings and emotions into account. Read the rest of Lynnette’s article on AARP

Related articles

• One more time: The best paths to help you wipe out credit card debt (askamoneyexpert.com)

Related Questions:

• should I pay off credit cards with money in savings
• use savings to pay off credit card
• use savings to pay off credit cards

Fortunately, there is one recent change to the world of credit scoring concerning small debts, which are sometimes called “nuisance” collection accounts. In August 2009, Fair Isaac rolled out to all three credit bureaus its newest general-purpose FICO score, dubbed FICO 08. With this new version of the credit score, FICO says its will disregard collection accounts and other dings on your credit file when the original balance owed was under $100.

“The logic there,” says FICO’s Tom Quinn, “is that for small dollar amounts, like a collection notice from a public library system, the (credit scoring) model will now bypass those and not consider those to be negative. Any kind of derogatory public information that’s less than $100” will be excluded, Quinn adds. This certainly has the potential to help boost your FICO score if it was impacted by such a blemish. But beware: amid the credit crunch, every single account you have, and every single financial transaction you engage in is being analyzed to determine your credit worthiness.

All Transactions – Large and Small – Matter Greatly Amid the Credit Crunch

Also, even with FICO saying it won’t use those small accounts in its scoring methodology, the debts nonetheless remain on your credit file, and some lenders may require that you resolve those issues or pay off those debts before approving you for a loan.  More importantly, you should known that every transaction – large and small – matters greatly amid the current credit crunch. And when I say “every” transaction, I mean it.

Your Financial Habits Are Under Intense Scrutiny, Even if You Don’t Know It

Increasingly, retailers, credit reporting agencies, credit scoring companies, and of course banks and other lenders are watching every financial transaction you make. Made an online purchase to buy some shoes lately? Somebody tracked it. That’s why the next time you’re working at your computer – or simply surfing the web – you’ll see a pop-up or some advertisement featuring shoes. Ditto for school supplies, furniture, electronic gadgets, or anything else you purchase. But the scrutiny goes way beyond just watching what you buy, and then trying to sell you more of it. Retailers, lenders and credit-scoring firms are all capturing a wealth of data about your financial habits, both on and offline, in an effort to tell them who among us is the most credit-worthy – and who is the least.

You May Be Deemed “Risky” Based on What You Buy and Where You Shop

So what exactly are they watching? In a word: everything. They’re looking to see whether you accept credit card offers, online, in the mail or via telephone. They’re gauging whether or not you’re likely to take a balance transfer offer for the initial low interest rate – only to toss the card when the offer expires, or when a better deal comes along. They’re looking at the types of stores you frequent, and whether you spend money (that is, use your credit cards) at “risky” establishments, like bars, clubs and casinos.

They’re also poring over all manner of data regarding your housing, and that includes both renters and homeowners. For those of you who rent, they’re looking at whether you’ve consistently paid your rent or time, whether you’ve been delinquent, and whether you’ve ever been evicted. For homeowners, they’re looking at how much overall debt you have, whether or not your mortgage is a fixed-rate or adjustable loan, whether or not you have a home equity loan or line of credit, and if so, how much you typically tap and how often. If it seems as if the credit industry has got a spotlight on you, it’s because they do. But you don’t have to be blinded by it – or blind-sided – if you manage your financial affairs properly.

Your Credit Report is Constantly Being Updated

Again, when I say that every transaction counts, let me make something clear: I’m not just referring to business transactions that involve loans. Every transaction means just that – every economic exchange you make, every credit, loan or contract agreement you enter into, and every financial move of yours that can be documented – all of it matters greatly. Every single transaction counts. Do you think that your dealings with cell phone companies, water end electric services, and public utilities aren’t being monitored? Think again. About 100,000 organizations supply information to the credit reporting agencies.

These organizations include banks, lenders, collection agencies, credit card companies, leasing firms, utility companies and any other entity that extends credit or reports information about you. Even libraries have been known to rat on delinquent patrons to the credit bureaus for having an overdue library book! The same pattern holds true for various municipalities around the country; places like Chicago and New York City will report you to collection agencies in a hot minute to for failing to pay parking tickets or moving violations. And as cash-strapped cities try to cope with budget shortfalls and a tough economy, you don’t have to be Nostradamus to predict that many more cities will soon start using collection agents to pursue “small” debts due from local citizens.

The Convergence of the Credit Crunch, Technology and Big Brother Means You Must Be Careful Even With Small, Overdue Bills

Thus, transactions large and small take on greater importance amid the credit crunch because, in many ways, Big Brother isn’t merely looking over your shoulder these days. Big Brother now seems to be peeking into your laptop, using a skycam to watch where you go, accessing your Blackberry or iPhone, and placing wiretaps on your home and business phones too. OK, so maybe it’s not that bad. But you get my point. An incredible amount of information about your finances and money patterns is being captured, analyzed, and dissected in ways you probably never imagined. I predict that in the future, this trend will greatly increase – even for small bills.

Simple, little transactions that you may regard as minor or even big bills that you are disputing can all wind up having serious ramifications for your credit rating. That magazine subscription you ordered (even if it was just part of a sales promotion) can come back to haunt you if the $14.95 bill isn’t paid. Those music videos you’ve neglected to return (since forever) could land you on someone’s collection list. And even that hospital co-payment or medical debt that you’ve been sent a bill for yet again – for the umpteenth time after your insurer refused to pay – that too could ultimately damage your credit rating if left unattended.

Related Questions:

• report a debt to a credit agency $50
• are collections under$100 really excluded from credit scoring
• does fico count small collection account
• under $100 can not effect credit
• how much does a collection hurt your credit
• debt collection $50 credit report
• can a magazine subscription ruin your credit
• collections accounts under 100
• debt collection under 100
• credit collections for under 100$
• is 100 dollars to collections bad
• collection amount $50 on credit report means