Over the last several months, many of us have re-realized the importance of a good budget. This is normally a four-letter word at worst and, at best, something we periodically place on the to-do list between “clean out the gutters” and “wash the windows”.
When we do get around to it, we spend a rainy weekend knee deep in piles of old bills, credit card statements and receipts trying to figure out where exactly all of our money went. Whether through Excel, Money or Quicken, we eventually produce some kind of budget that represents the recent past in a somewhat coherent pattern. We make a few cuts, have a talk with members of our household and set forth with our new budget. The net result of all of this effort generally proves to have the same staying power as our new year’s resolution to eat less and workout more. Perhaps it’s time to revisit this time honored approach to budgeting and look at some new tools and ideas that can help.
A budget, in short, is what allows you to live within your means. The word “live” is optimal here as your budget needs to be a part of your daily life. That’s not to say that it needs to become an obsessive habit, but with all the technology available to help you stick to your well made plans, why not make keeping this resolution as easy as possible? Mint, Finicity, Wesabe and YNAB (You Need a Budget) are just a few of the online-based products out there today that attempt to take these principles to the next level.
YNAB, a personal favorite, goes as far as to suggest a whole new way to look at your budget, establishing four rules as keys to a successful budget. To borrow from their website, they are paraphrased as follows . . .
1. Stop Living Paycheck to Paycheck – or, simply, live on last month’s income not this month’s. While it may take 4-6 months to save and work to that point, it will greatly increase responsible spending while alleviating many of the stresses that come from timing monthly expenses to pay day, whether that be waiting on the next pay check, social security payment or monthly portfolio withdrawal.
2. Give Every Dollar a Job – sit down each month and allocate where the income you’ve built up from the prior month is to be allocated. Continue this process until you have no more dollars to allocate. Once you’re comfortable with this process, it should take no more than 15-20 minutes each month and will greatly improve financial communications and comfort levels throughout the household. Whether a car payment, entertainment, savings, or a vacation, every dollar will be assigned a task. As the website suggests, “dollars are like teenagers, unless given some guidance, they’ll own you.”
3. Prepare for Rain – This is fairly self explanatory. Make sure you are saving in advance for those bigger ticket items like property taxes or auto insurance and that you’re setting some additional funds aside for the unexpected.
4. Roll with the Punches – You and your budget will fail from time to time. The key is to recover quickly and make adjustments to the current allocation that will allow for a softer correction rather than a harsh, unexpected cash flow stoppage down the road.
Regardless of what you decide to do, do something different next time the budget makes your to-do list. As we will undoubtedly see dramatic changes over the next several years in how we approach finance in this country, it only makes sense to make this a time of personal review as well.
By Chip Workman
Monday, June 15, 2009
Monday, June 8, 2009
Start Reading Your Statements
President Obama recently signed credit card reforms into law, but credit card companies don't have to start playing by the rules until July, 2010. That means that these credit card companies have only the next year to get it while they can, and unfortunately, many of them are already looking for ways to make more money before the deadline. It might come as a shock to some, but these new fees and higher rates do NOT just apply to those with low credit scores. Anyone who carries a balance could see changes.
The new law is meant to combat some practices that are not exactly fair to the consumer. Things like:
Hiding fees
Raising rates for any or no reason
Balooning rates when you've missed a payment on another of your bills
Applying payments to the lowest rate balances first
While these new rules are meant to be more fair to the consumer, they are being slammed with fees and higher rates in the interim. The average rate on a credit card has ticked up more than 1.5% recently, and analysts expect that to rise an additional 1-2 points by the year end. The new law will restrict the practices of late and over-the-limit fees, so we will likely see many cards add an annual fee.
Credit limits have already been slashed, as many consumers now have access to less than half the credit they had just months ago. If you're a person who never uses their credit card, it wouldn't be a bad idea to use it once a month for gas, then pay it off. Doing this will make you somewhat less of a target for a limit decrease.
While no one should be surprised that subprime cards and those with instant approval are disappearing, it is disheartening to see your rewards program get watered down. Some cards will simply not be able to offer the rewards that they used to. Some banks are even talking about charging interest from the day you make the purchase, so even those who pay in full each month will have to fork over interest!
If you've never gotten in the practice of going over your credit card statement, now is the time to start. Those last 3 pages of small print? Read them! And if you start to see any of the changes discussed previously happening to you, don't be afraid to call and speak up!
-If you are fortunate enought to have good credit, you have some leverage.
By Amanda Bashore, CFP®
The new law is meant to combat some practices that are not exactly fair to the consumer. Things like:
Hiding fees
Raising rates for any or no reason
Balooning rates when you've missed a payment on another of your bills
Applying payments to the lowest rate balances first
While these new rules are meant to be more fair to the consumer, they are being slammed with fees and higher rates in the interim. The average rate on a credit card has ticked up more than 1.5% recently, and analysts expect that to rise an additional 1-2 points by the year end. The new law will restrict the practices of late and over-the-limit fees, so we will likely see many cards add an annual fee.
Credit limits have already been slashed, as many consumers now have access to less than half the credit they had just months ago. If you're a person who never uses their credit card, it wouldn't be a bad idea to use it once a month for gas, then pay it off. Doing this will make you somewhat less of a target for a limit decrease.
While no one should be surprised that subprime cards and those with instant approval are disappearing, it is disheartening to see your rewards program get watered down. Some cards will simply not be able to offer the rewards that they used to. Some banks are even talking about charging interest from the day you make the purchase, so even those who pay in full each month will have to fork over interest!
If you've never gotten in the practice of going over your credit card statement, now is the time to start. Those last 3 pages of small print? Read them! And if you start to see any of the changes discussed previously happening to you, don't be afraid to call and speak up!
-If you are fortunate enought to have good credit, you have some leverage.
By Amanda Bashore, CFP®
Monday, June 1, 2009
The New Rich
A financial crisis causes us to reevaluate every aspect of our lives. Many people have discovered that they have been so busy accumulating “stuff” to keep up with the Jones’ (not Jeannette and Greg), that when this is no longer possible, the emptiness in their lives becomes apparent.
For the past 19 years I have gotten a first-hand look at how people deal with the financial matters. The most important lesson I have learned is that money and happiness do not go hand- in-hand. Many times it’s the people who spend the most that never seem to achieve the degree of satisfaction they seek, and those who focus on what they have, and not what they lack, are truly rich.
No one likes to lose money or experience an economic downturn, but if this causes us to look inward for our wealth, many of us will find we are already rich. For those who do not, look for other ways in which you can prosper such as reconnecting with family or friends and volunteering to help others less fortunate than yourself. The rewards will last through all cycles of the economy.
By Chris Carleton, CFP®
For the past 19 years I have gotten a first-hand look at how people deal with the financial matters. The most important lesson I have learned is that money and happiness do not go hand- in-hand. Many times it’s the people who spend the most that never seem to achieve the degree of satisfaction they seek, and those who focus on what they have, and not what they lack, are truly rich.
No one likes to lose money or experience an economic downturn, but if this causes us to look inward for our wealth, many of us will find we are already rich. For those who do not, look for other ways in which you can prosper such as reconnecting with family or friends and volunteering to help others less fortunate than yourself. The rewards will last through all cycles of the economy.
By Chris Carleton, CFP®
Friday, May 15, 2009
In Defense of Food
Obama has been very focused on healthcare this week. On Monday, he met with insurers, drug manufacturers and other health-industry stakeholders, who pledged to slash spending by 1.5% a year. On Tuesday, he met with chief executives of corporations to discuss cost-saving programs they're putting in place. Obama's Wednesday meeting with House Democrats came in the wake of Medicare and Social Security trustees' grim assessments of the programs' finances. The trustees said Medicare's hospital insurance trust fund will be insolvent in 2017, two years earlier than predicted last year.
We know our country is in a health care crisis, but all the focus seems to be on treating illness at a lower cost versus asking how we can become a healthier, less drug dependent population to begin with. Many studies have shown that health care expenses are one of the biggest threats to a financially secure retirement, and staying healthy is your best defense. We all know what we need to do – exercise and eat healthy, but what does eating healthy really mean?
Michael Pollan, the author of In Defense of Food, makes a convincing argument that America has become a paradox: a very unhealthy population obsessed with nutrition, dieting and the idea of eating healthy. With his motto, “Eat Food, Not too Much, Mostly Plants,” Pollan introduces a guide for eating that avoids the confusing low carb, high protein, low fat directives that have been handed down by nutritionists over the last 30 years. Instead of counting calories and studying the nutrition content of manufactured snacks, we should eat only foods that our great grandmothers would recognize: fruits, vegetables, nuts, whole grains, fish and meat.
Mr. Pollan does an excellent job of chronicling the evolution of the Western diet, and how our eating habits have led to chronic high blood pressure, diabetes, cancer and other diseases that have escaladed over the past 30 years. If we stay on our current path, I doubt that there will be any amount of government spending that can keep us well.
If you want to start a new healthcare trend by helping yourself instead of popping a pill, I recommend In Defense of Food for guidance. You might even be inspired to keep butylated hydroxyanisole out of your lunch today.
By Jeannette Jones, CPA, CFP®
We know our country is in a health care crisis, but all the focus seems to be on treating illness at a lower cost versus asking how we can become a healthier, less drug dependent population to begin with. Many studies have shown that health care expenses are one of the biggest threats to a financially secure retirement, and staying healthy is your best defense. We all know what we need to do – exercise and eat healthy, but what does eating healthy really mean?
Michael Pollan, the author of In Defense of Food, makes a convincing argument that America has become a paradox: a very unhealthy population obsessed with nutrition, dieting and the idea of eating healthy. With his motto, “Eat Food, Not too Much, Mostly Plants,” Pollan introduces a guide for eating that avoids the confusing low carb, high protein, low fat directives that have been handed down by nutritionists over the last 30 years. Instead of counting calories and studying the nutrition content of manufactured snacks, we should eat only foods that our great grandmothers would recognize: fruits, vegetables, nuts, whole grains, fish and meat.
Mr. Pollan does an excellent job of chronicling the evolution of the Western diet, and how our eating habits have led to chronic high blood pressure, diabetes, cancer and other diseases that have escaladed over the past 30 years. If we stay on our current path, I doubt that there will be any amount of government spending that can keep us well.
If you want to start a new healthcare trend by helping yourself instead of popping a pill, I recommend In Defense of Food for guidance. You might even be inspired to keep butylated hydroxyanisole out of your lunch today.
By Jeannette Jones, CPA, CFP®
Thursday, May 7, 2009
Time for Drastic Changes?
As discussed in the last post, dealing with all the emotions involved with the recent market rollercoaster can be incredibly difficult. As volatility calms somewhat and talk of whether the market has turned the corner takes focus, our stomachs settle a little and reflection begins on how to avoid this the “next time”.
There are many so called experts suggesting that everyone revise their asset allocation, revamp how you look at potential returns over the long term, and distrust any kind of planning technique that did not 100% forecast the recent downturn.
While I would never suggest that thoughtful reflection on your finances is a bad thing and that thinking through what really is a need versus a want and how that relates to your tolerance for risk is certainly a worthwhile exercise, I would caution against sweeping changes to your investment philosophy based solely on the events of the last several months.
If you’re a long term investor, your recent investment experience has no doubt been as painful as most. That said, as prices have been driven down, long term expected returns have increased substantially. In other words, you are seeing an increase in expected reward for your perceived increase in risk. Taking the view that market gains will never return or that we are bound to head into historic downturns more frequently in the future is not so much a flight to conservative thinking as it is unnecessary fear due to recency bias. It is this same bias that helped precipitate the downturn in the first place as, back in 2007, the popular opinion was that the good times would never end.
Allowing your emotions to swing the risk pendulum back too far in the direction of safety will serve only to compound the issues you already face. In fact, it is the decisions you make now that will effect your long term success as an investor, not the decisions you’ve made over the last several months. Paying attention to your spending and staying true to your goals, investment strategy, risk tolerance and retirement needs is what will really pay off in the long run.
By Chip Workman
There are many so called experts suggesting that everyone revise their asset allocation, revamp how you look at potential returns over the long term, and distrust any kind of planning technique that did not 100% forecast the recent downturn.
While I would never suggest that thoughtful reflection on your finances is a bad thing and that thinking through what really is a need versus a want and how that relates to your tolerance for risk is certainly a worthwhile exercise, I would caution against sweeping changes to your investment philosophy based solely on the events of the last several months.
If you’re a long term investor, your recent investment experience has no doubt been as painful as most. That said, as prices have been driven down, long term expected returns have increased substantially. In other words, you are seeing an increase in expected reward for your perceived increase in risk. Taking the view that market gains will never return or that we are bound to head into historic downturns more frequently in the future is not so much a flight to conservative thinking as it is unnecessary fear due to recency bias. It is this same bias that helped precipitate the downturn in the first place as, back in 2007, the popular opinion was that the good times would never end.
Allowing your emotions to swing the risk pendulum back too far in the direction of safety will serve only to compound the issues you already face. In fact, it is the decisions you make now that will effect your long term success as an investor, not the decisions you’ve made over the last several months. Paying attention to your spending and staying true to your goals, investment strategy, risk tolerance and retirement needs is what will really pay off in the long run.
By Chip Workman
Monday, April 27, 2009
The Diamondback and Market Emotions
Kings Island recently unveiled its new roller coaster, the Diamondback. Although I have yet to make it to the park for a ride, I did take a virtual spin via their website. It looks like a real stomach-churner, and it reminded me of something else that has been a source of nausea for most of us recently.
–Yes, I’m referring to the markets.
I’m reminded of a chart, The Cycle of Market Emotions. Many of us would agree that this ebb and flow pretty accurately describes the roller coaster of emotions that we have been feeling over the past year. Through my dealings with clients, I find it interesting that we all rest at different stages on the continuum at different times. While one might be feeling desperately panicked and want to sell every share of every fund they own, another could have already crossed this emotional ditch and be optimistically eager to buy shares at a bargain.
–Yes, I’m referring to the markets.
I’m reminded of a chart, The Cycle of Market Emotions. Many of us would agree that this ebb and flow pretty accurately describes the roller coaster of emotions that we have been feeling over the past year. Through my dealings with clients, I find it interesting that we all rest at different stages on the continuum at different times. While one might be feeling desperately panicked and want to sell every share of every fund they own, another could have already crossed this emotional ditch and be optimistically eager to buy shares at a bargain.
It might come as a surprise to some, but one of the most valuable services that we provide to our clients is to save them from themselves. In this age of 24-hour media, breaking news, and every form of talking head financial ‘expert’ on any station, it is easy for one to make a decision out of panic and do permanent damage to their long term investment success. With our guidance and disciplined investment philosophy, we help our clients achieve their goals and avoid these self-destructive behaviors.
It has been said that “the love of money is the root of all evil.” Maybe that’s why the average mutual fund investor doesn’t even come close to realizing the return of the average stock mutual fund.
-Because his emotions got in the way.
By Amanda Bashore
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