Chill Maadi

Waking up, brushing your teeth, taking a shower – these are all things that you don’t even think about. They have become so ingrained in your head that they are now habits. You automatically do them regularly without consciously thinking about it. Psychologists have different opinions on how long it takes to form a habit, but there’s one thing everyone agrees upon: habits can be formed through repetition. After doing something for a long time, eventually it will become automatic.

So, why not turn your finances into a habit?

You know that it’s important to have your finances in order, but planning and budgeting can be quite hard. Many people think that sticking to a budget is too difficult for them, but the reality is that anyone can do it. Budgeting should be an important part of your life so that you are able to succeed financially. Create a budget based on your income and expenses. Your budget can always be modified down the line, but it is important to have some sort of plan for your finances. Start using your budget daily. If you make it a part of your everyday life, it will soon become a habit. You won’t even have to think about it, but you’ll never lose focus of your finances again!

Personal finance gurus love to argue about which debt you should pay off first. Browse the Internet for just a few minutes, and you’ll find volumes of painfully long articles rehashing the same old approaches to paying down debt.

If you haven’t found the time to read them all yet, there’s no need to worry. Here’s a summary of what they basically all say in one sentence.

Either pay off the smallest debt one account at at time, or get rid of the highest-interest debt first. Neither of these methods are new. Rather, they’ve just been given fancy new names.

Dave Ramsey‘s “Debt Snowball” Method (pay off small debts first) has garnered a significant amount of recognition due to the popularity of his book entitled “The Total Money Makeover“. The “Debt Avalanche” approach is simply another way of saying mathematical rules shouldn’t be ignored – paying off high-interest debt first is unarguably the economically smart path to take in any situation.

The truth is, like most things in personal finance, no single method will work for everyone. So, if you’re more interested in finding out what will work for you instead of spending hours reading detailed analyses of why one method trumps the other, simply try asking yourself the following three questions before determining what course of action to take:

1.) Do You Have an Emergency Fund?

If not, stop right here! You need some kind of an emergency fund in place before you should even contemplate how you will pay off your existing debt.

In a perfect world you would have at least six months’ worth of expenses stashed in a high-yield online savings account. However, if that seems financially impossible for you at the moment, take Dave Ramsey’s advice and save at least $1,000 cash before moving to question number two.

2.) What’s Your Motivation?

Do you need to experience small wins to stay motivated? If so, start your journey by paying off the smallest accounts first. Relish in the joy of watching your balances hit the big zero, and get yourself as pumped up as possible about each little victory. You’ll need it to make it through the long haul because this route probably won’t be the fastest way to get rid of your debt.

On the other hand, if saving money alone gets you motivated enough to stick to your plan, the Debt Avalanche is the way to go. You can still enjoy small wins along the way by performing periodic calculations to determine how much you’ve saved each month in interest. When you hit the $1,000 mark, reward yourself with something nice (and cheap).

3.) Why Not Mix the Two Methods?

For many individuals, the best method for paying off debt is often a mix of the two approaches discussed above. For couples, this is almost always the case. Compromises have to be made to keep both spouses engaged and motivated throughout the process.

So, if you have some small debts that have lingered for years, get rid of them first to build some momentum. Then you can tackle the larger debts according to their interest rates and terms.

Regardless of what course of action you decide to take, the important thing is sticking to your plan and watching the debt disappear. It will take time, self-control, and perseverance, but the reward is well worth the effort.

Now, go and make it happen!

Wondering how you can save money? It can be challenging in this economy. How, when and where can you save money? What should you do with it after you have saved it? Here’s a realistic approach with a set of goals to keep your spending in line with the “pay yourself first” philosophy. Try this 11 Step process to jumpstart your journey to healthy financial living.

1. Set savings goals.
   Start off with short-term goals…they are the easiest. If you want to buy a new cell phone, find out how much it costs; if you want to buy a house, figure you’ll have to put at least a 20% down payment. For long-term goals, such as retirement, you’ll need to do more homework (figuring out how much money you’ll need to live comfortably for 20 or 30 years after you stop working), and you’ll also need to figure out how investments will help you achieve your goals.
   • Eliminate debt first. Eliminating debt is the fastest way to free up money. Just calculate how much you spend each month on your debts and pay accordingly. Once the money is freed from debt it can easily be switched back to savings.
2. Set a Timeframe.
   Set a timeframe goal. This means setting a particular date for accomplishing shorter-term goals. For example: If you want to buy a house in three years, make sure the goal is attainable within that time period. If it is not attainable, you’ll just get discouraged and fail.
3. Figure out how much you’ll have to save per week, per month, per year and per paycheck to attain each of your savings goals.
   List each thing you want to save for and figure out how much you need to start saving to attain it. For most savings goals, it’s best to save the same amount each period. For example, if you want to put a $20,000 down payment on a home in 48 months (four years), you’ll need to save about $417 every month. But if your paychecks amount to less then $1000, it might not be a realistic goal, so adjust your timeframe until you come up with an approachable amount.
4. Record of your expenses.
   Your savings will fall between two categories: how much you make and how much you spend. Since you have more control over how much you spend, it’s wise to take a look at your expenses. Write down everything you spend your money on for a couple weeks or a month. Be as detailed as possible, and try not to leave out small purchases. Assign each purchase or expenditure a category such as: rent, car insurance, car payments, phone bill, cable bill, utilities, gas, food, entertainment, etc.
   • Keep a small notebook with you at all times. Get in the habit of recording every expense and saving the receipts.
   • Sit down once a week with your small notebook and receipts. Record your expenses in a larger notebook or a spreadsheet program.
5. Trim your expenses.
   Take a good, hard look at your spending records after about a month or two. You will probably be surprised when you look back at your record of expenses — $300 on donuts, $200 on parking tickets? You will obviously see some cuts you can make. Depending on how much you need to save, you may need to make some difficult decisions. Remember your priorities, and make cuts you can live with. Calculate how much those cuts will save you per year, and you’ll be much more motivated to pinch pennies.
   • Can you move to a less expensive apartment or house? Can you refinance your mortgage?
   • Can you consolidate your debts so that you’re not paying as much interest?
   • Can you save money on gas, or give up a car altogether? If your family has multiple cars, can you bring it down to one?
   • Can you drop a land line and only use your cell phone?
   • Can you live without cable or satellite TV?
   • Can you cut down on your utility bills?
   • Can you restrict eating out? Buy food in bulk? Cook more at home? You might be able to save a lot of money on food.
6. Reassess your savings goals.
   Subtract your expenses (the ones you can’t live without) from your take home income (i.e. after taxes have been taken out). What is the difference? And does it match up with your savings goals? Let’s say you’ve decided you can definitely get by on $1,500 per month and your paychecks amount to $2,300 per month. That leaves you with $800 to save. If there’s absolutely no way you can fit all your savings goals into your budget, take a look at what you’re saving for and cut the less important things or adjust the timeframe. Maybe you need to put off buying a new car for another year, or maybe you don’t really need a big-screen TV that badly.
7. Create a budget.
   Once you have managed to balance your earnings with your savings goals and spending, write down a budget so you’ll know each month or each paycheck how much you can spend on any thing or category. This is very important for expenses which tend to fluctuate, or which you know you’re going to have a particularly hard time restricting. (E.g. “I will only spend $30 a month on movies/chocolate/coffee/etc.”)
8. Stop using credit cards.
   Pay for everything using cash or money orders. Don’t even use checks. It’s easier to overspend when you’re pulling from a bank or credit account because you don’t know exactly how much is in there. If you have cash, you can see your supply running low. You can even bundle up the predetermined amount of cash allocated for each expense with a label or keep separate jars for each expense (e.g. a bundle/jar for coffee, another for gas, another for miscellaneous). As you pull money from a jar for that particular expense, you’ll see how much remains and you’ll also be reminded of your limit.
   • If you need to have credit cards but you don’t want the temptation of having them available to use day-to-day, restrict that section of your wallet with a note or picture reminding you of your savings goals.
   • Credit cards are not inherently evil; it’s all about your self control. If you use them responsibly (i.e. completely pay them off every month), you can benefit from them. But the reason most credit card companies make money, however, is because people end up spending money that they don’t have. Unless you are one of the people who can religiously pay off the balance in full every month, you’re better off foregoing the promotions that credit card companies use to lure you in (cash back, introductory APR, airline miles, and so on).
9. Open an interest-bearing savings account.
   It’s a lot easier to keep track of your savings if you have them separate from your spending money. You can also usually get better interest on savings accounts than on checking accounts (if you get interest on your checking account at all). Consider higher-interest options such as CDs or money-market accounts for longer savings goals.
10. Know where your money is.
    And how much of it, too. If you accidentally overdraw your bank account, you will incur hefty bank fees; worse yet, the place you paid with that check may slap a bounced check fee on top of that, and send the check in again, resulting in a second overdraft fee from the bank! So just a few cents missing to cover that check could result in over $100 in fees. To avoid that, you should always know how much money you’ve got in your account(s), so you never cut a check for more than what you have.
11. Pay yourself first.
    Savings should be your priority, so don’t just say that you’ll save whatever’s left over at the end of the month. Deposit savings into an account (or your piggybank) as soon as you get paid. An easy, effective way to start saving is to simply deposit 10% of every check in a savings account. If you get a check or sum of cash, say $710.68, move the decimal point one place to the left and deposit that amount: $71.07. This works well and requires little thought; over several years, you’ve a tidy sum in savings. Over decades, you’ll be a millionaire.
    • You can set up an automatic transfer from your checking account to your savings account.
    • Many employers allow you to deduct savings from your paycheck. The money is directly deposited in your savings account so you never even see it on your paycheck.
    • You can also have investments for retirement taken directly out of your pay, and the taxes may be deferred with this option.

I often talk about how to spend less money. Does that mean I fall into the Spend Less spectrum of the Spend Less vs. Earn More debate? Let’s look at each side:

Spend Less than You Earn

The philosophy here is to focus on keeping expenses low. This person places an emphasis on saving money.

Earn More than You Spend

The philosophy here is to increase your earnings so you are earning more than your expenses. This person puts an emphasis on money-making ventures or income generation.

I have spent a great deal of time and energy over the past year looking at ways to cut our expenses. Does this mean I live by the Spend Less mantra? Not necessarily. The fact is the easiest way to increase your income is to hold onto more of it – cut your costs. But there comes a point where you’ve cut so much that you can’t cut anymore. That’s not a bad thing, it just means you’ve probably been successful at driving down your expenses.

Then what? Are you confident that the delta between your income and expenses will put you on the path to financial freedom? If so, awesome! But I suspect that many of you, like me, are not content with your current income. Even with lower expenses, you would like to, or are actively pursuing ways to increase your income.

So, where do I fall? Earn More or Spend Less? Simple. Both!

I fundamentally believe in keeping your expenses low and not owning lots of things that end up owing you. With careful budgeting we’ve been able to structure our expenses in a way that we can contribute to retirement, save a decent amount of our income and aggressively pay down debt. We’ve largely done this by drastically cutting our costs. Now unplanned expenses don’t phase us the way they used to simply because we aren’t living at – or above – our means, we live well below them. This has removed a great deal of stress from our lives and that is priceless.

But even in my new capacity as a stay at home mom, I’m motivated to find ways to increase our income to bring us closer to achieving our financial goals. My challenge is to find or create ventures that provide the flexibility to work from home and around the demands of an infant. I’ll be writing more about those endeavors in the coming weeks, but my point today is simply this…Spend Less or Earn More need not be mutually exclusive. There are principals on both ends of the spectrum to be embraced, you just need to find the right balance for you.

Where do you fall in the Earn More vs. Spend Less debate?

Eating out is one of our favorite things to do, but it can get expensive. We only allocate $100 month for dining out so we’ve learned to stretch our dollars so we can enjoy more meals out without breaking our budget. Here are five things everyone can do to save $$$ when eating out.

1. Drink water! – Having a soft drink or ice tea will add 20-40% to your bill. Add a glass of wine or a cocktail and you’re looking at 50% or more. Unless it’s a special occasion, drink a glass of water with lemon and enjoy that glass of wine at home.

2. Share a meal – Most restaurants simply serve more food that you can eat in a single meal. We both have healthy appetites. I will literally stab you if you come between me and food when I’m hungry. But we still share meals 90% of the time when we go out for breakfast or lunch and I always leave satisfied. But before you order make sure the restaurant doesn’t charge a split plate fee.

3. Use a coupon – With the down economy restaurants are eager to keep customers coming in and many restaurants that didn’t before are now offering coupons. Check your weekly circular mailings, local newspaper or coupon mailers for offers. Many are offering buy one get one free. But be careful of those that require a two drink purchase as that will eat into any savings on the meal.

4. Go out for lunch instead of dinner – Lunch entrees are typically priced 20% lower than the same entrée on the dinner menu.

In addition, many restaurants offer lunch specials for around $5 or $6 dollars. Chinese restaurants seem to set the standard and serve you enough food for two meals. Many Mexican restaurants serve huge portions and also include chip and salsa bars with unlimited refills. And it’s not hard to fill up on salad and breadsticks at Olive Garden before your entrée even shows up. Lunch and dinner for the price of lunch!

5. Happy Hour – Check out restaurant happy hours. If you’re in the mood for a drink and light meal this could be a great option. Happy hour specials often include drinks and appetizers at half price.

Also, check with your employer to see if they offer any programs. Mr. Frugal works for a large company in the area. They worked with local restaurants to set up a dining program that includes offers ranging from free soft drinks at local fast food joints to buy one entrée get the second free at some of the more upscale restaurants in the area. Often these programs are not promoted well internally. It took 8 years for Mr. Frugal to discover his company’s program!

Using these strategies to cut costs we’re able to eat out 4-6 times a month on $100. We get to do something we really enjoy on a pretty small budget.

What do you do to make your dining out budget go further?

Consider how much activity and even chaos there is in an average day. Working parents, busy families, social commitments, and volunteerism keeps many consumers on their toes from one day to the next. One consequence of such a busy lifestyle is becoming completely disorganized from one day to the next and most never really have an understanding of how the fast-paced life can affect your financial life.

Disorganization is not just about being cluttered in your lifestyle. It can have serious consequences that affect you financially. For one, if you do not have a system for organizing bills and other incoming financial information, there is a strong chance that you will forget to make a payment on time or at all. This can be especially costly if it happens often. The interest and penalties you accrue on your accounts can really hurt. Just one bounced check at a bank these days can cost upwards of $40. Bounce several checks and you are out several hundred dollars in addition to the fines imposed by your creditor.

Getting Organized on the Cheap

Frugal people can be as disorganized as anybody else but it doesn’t have to cost a fortune to get a better system in place for your financial and overall well-being. Here are some tips for organizing on the cheap to save money and keep you on track:

Keep a Calendar

You may have a calendar for daily events in your family’s life but you also need one for you financial affairs. You can usually pick up a free calendar at local businesses you patronize who use them as promotional materials. Print out calendar pages for free from the Internet if you don’t have any extras lying around. Write down dates a week a head of time for bills that you pay via mail and for any that you pay online, make a note of the day in which you need to make payment.

Central Mail Location

As mail comes in each day, establish a particular place in your home where all mail gets placed immediately when you don’t have time to go through it. Decorate an old shoe box to make it more attractive if your mail location is in plain view. Shred junk mail as soon as it is in your hands and store only what you need in the mail location. This will eliminate the big stacks of paper cluttering your home. By establishing one place for all mail, you’ll know exactly where to look when you need something and things will not get lost. Additionally, you may be more inclined to sort through your mail on a regular basis if it is all in one handy location.

Automate Your Finances

If you are familiar with banking online, you should make use of the free services many banks offer these days for paying bills automatically. The catch with this method for keeping up with bills is that you need to have money available to cover the debts. Automating your income through direct deposits is a way to ensure you keep more money in your account.

Budgeting

Developing a budget and then regularly updating it is a sure way to always be in the know of where you stand financially. You can use free budgeting spreadsheets to track your spending, calculate your income, and gauge your expenses. By tracking your budget on a worksheet weekly, you have your figures at a glance whenever you need them

For most people earning a modest income, getting the service of a financial planner in managing their money is one step towards the right direction. The financial planner will look at the whole scenario including retirement planning, insurance needs, and estate or asset management which most people miss to look into even if they are experience enough about investing.

It is mandatory to learn the basics of financial management even before the actual act of investing and finance assessment, but if you are a person who is so busy or lacking the motivation to study and even just plain lazy just to keep his/her financial knowledge updated, it is best to go looking for a good financial planner.

A good financial planner will definitely benefit a client but a bad financial planner is more concerned in just earning his commissions than acting for the welfare of his client.

Here are some factors that you need to consider in getting the right financial planner.

Fee-based and Commission based Financial Planners
A financial advisor may make his money by earning fees, a percentage of the amount that is invested or value of the portfolio; and he may earn thru his commissions. Those earning fee-based planner won’t have any conflict of interest with their client mainly because he is not commission-based. He won’t offer his client with products that earns a very hefty commission for himself; so it is best to say immediately that you are seeking for a fee-based financial planner.

Reputation
Always check the actual credentials of potential financial advisors. Ask for recommendation from relatives and friends about their own financial planners. Check them if they are registered or licensed to the Securities and Exchange Commission.

Experience and Qualification
Financial planners with at least 5 years of experience are always better than a neophyte. Furthermore, he should accomplish necessary qualifications to become a financial advisor. Today, the term “financial planner” is being used by many professionals in their given field. Certifications that financial advisors actually have are: Certified Public Accountant/Personal Financial Specialist (CPA/PFS), Chartered Financial Consultant (ChFC) and CERTIFIED FINANCIAL PLANNER (CFP).

But whatever may be his credentials, he must have some experience in financial planning like insurance, investments, tax planning, estate planning and/or retirement planning.

Lastly, financial planners must be easy to work with. And, even if he has the most level of experience and qualifications, but he is not that willing to even listen to the client’s goals and plans, there is not much that he can offer.  So, double-check your prospective financial planner before even hiring him/her.