The Amateur Financier

Alright, with January coming to a close, we’re approaching the end of our guide to improving your success with your resolutions.  This is not to say that you should be calling it quits with your resolutions; the whole goal of resolutions should be to start new habits that can last through the entire year, and ideally, for the rest of your life.  But I’m limited in my ability to cover suggestions on keeping your resolutions; there’s only so many resolutions that are appropriate for a personal finance blog, after all, and even taking that into consideration, I can only cover so many resolutions before, well, most people have completely given up on their resolutions.  Here’s one, I hope you definitely don’t give up on:

Giving More to Charity

Most resolutions that we make are intended to improve ourselves in some way, from increasing our financial standing to getting in shape to graduating and finding a good job.  There are few things we can do that will do more to not only make ourselves better, but also help out others than if make the strongest effort possible to give more to charity throughout the year.  I’m sure you know plenty of reasons to give to charity already (but here are some from Sweating the Big Stuff if you need some help), so our focus is on how to keep up your donations when there seem to be so many other things in your life that require your money.  Here are a few suggestions to help ensure that you give what you can, when you can:

1. Start Small and Build Gradually: If you try to give thousands and thousands of dollars right away, you’re likely to run into trouble pretty quickly.  Trying to put a large amount of money towards any new goal, whether it’s investing, saving, or charity, will likely throw off your normal spending so much that you end up quitting after only a few months and going back to not donating anything.  Instead, start with a relatively small portion of your income, a few percentage points or so, and once you have adapted your budget to your new charitable spending, then slowly increase until you reach your desired giving level.  On that note:

2. Make it Automatic: You might think that this suggestion takes away some of the fun of charitable giving; if you simply go to a site like Just Give, enter an automated investment schedule, and then sit back as your money is taken on a daily, weekly, or monthly basis, it might not feel as if you’re really contributing.  But you’ll still be giving, and you won’t have to worry that issues in your personal life (from distractions that keep you from making your next contribution to other expenses that seem to have a greater pull on your money) will keep you from giving what you can to charity.

It feels good to give.

3. Do Your Due Diligence Before You Give: It’s tempting, as you try to give more, to open up your wallet to any charity that pulls on your heart strings.  But giving more doesn’t mean that you have to give recklessly.  Make sure you do research into any new charity to which you want to give, and make to follow up on the charities you are currently giving to, as well.  I’ve written before on researching charities, and the same rules still apply: with how easy the Internet has made it to find out money about any organization, there’s really no excuse to give to frauds.

4. Consider Non-Monetary Contributions: So, you want to do more to help your favorite charities this year, but money is incredibly tight.  By the time you put money towards paying down your debts, building up your savings, and investing toward your future, you’ve barely got enough left to keep food in the refrigerator and the lights on in the house; if you try to give any money to charity, you’d quickly need charity yourself just to make it through each month.  Well, don’t worry, you do have options: most charities are just as happy (if not moreso) to get people volunteering to help them in their work, rather than simply monetary contributions.  If you have special skills, from accounting expertise to cooking abilities, it shouldn’t be hard to find a charity in your area that could use your help.  Even if you lack such skills, many charities simply need able-bodied individuals to handle any number of tasks that would otherwise require paid help; by offering up your time, you can save them money, and possibly end up contributing more than if you simply gave money

Alright, that takes care of how you can increase your contributions to charity this year.  Here’s hoping you have a wonderful year filled with lots of giving, and that the world becomes a much better place because of it.

Alright, we’re two-thirds of the way through January, which means that about two-thirds of people who made resolutions for the new year have given up on improving themselves this year. I hope that you’re not among them; the year has barely started, you can’t already be willing to give up on improving yourself. Still, I know that it can be tough to keep up with resolutions, which is why I’m here once again to share some advice on how to stick with your resolutions and achieve your goals for 2012. This week, we’re looking at one of the most important things you can do to improve your financial situation, namely

Saving More Money

Alright, there are several different ways to approach this particular goal. You can attempt to cut down your spending, a goal that my Frugal Friday posts can help you achieve. On the other side of the coin, you can attempt to boost your salary in a number of ways, from improving how hard much you work at each elemental of your job to how much you are able to earn by working in alternative jobs and earning more money as a result. Better yet, use a combination of the two, earning at least enough each month to cover you expenses and have some money left over. (Remember last week and creating a budget? Probably good to check it out again and make sure you include some money to put towards your savings)

Probably not the best to mix your budget money with your card playing

Once you have a budget that allows you to put some money aside, here are some suggestions to help you save money for the future:

1. Make It Automatic: One of the best ways to ensure that you build up savings for the future is to take advantage of the automatic transfers that most modern banks allow you to do. Figure out how much you can set aside each month (a goal to shoot for when you first start to save is five to ten percent of you income; that’s a small enough amount that it shouldn’t affect your money situation too much, but large enough that you’ll make some progress with your spending soon enough), and set up an automatic transfer from your main checking account. Where should you go with the money; well, that’s the next question…

2. Set Up a Separate Savings Account: Let’s be honest, if you try to keep your savings in the same place, as say, the account you use to pay your monthly bills, you savings will end up be spent; it’s natural when you have such an account like that to use it in that way. What you need to do is create an account that you will use purely for saving. You might want to open up said account in an entirely new company on a new website (a good site for such savings accounts is SmartyPig, which focuses on automated savings accounts); that way, the chance that you feel tempted to use your savings for random spending is limited.

3. Have a Goal for Your Savings: It’s important that you know what you are shooting for; whether you are aiming for $5000 or $50,000 in savings will have a lot of impact on everything from the best methods to use to how hard you’ll have to work to meet your goals. (The smaller an amount you need, the easier it should be to find extra money in your monthly expense account and put it into a fresh account.) There’s quite a bit of debate about how much you should try to save, from $1000 to twelve months’ worth of expenses, but it’s probably best to keep putting money aside until you can cover at least three to six months’ worth of your typical expenses. Speaking of which…

4. Resist the Urge to Spend Your Savings: As you build up your savings account, it will become increasingly tempting to spend the money. Don’t. Alright, a bit more advice than that: part of the reason we want to keep our savings in a separate account from our regular checking account is to avoid the temptation to spend the money. If that alone isn’t enough to keep you from you breaking into your savings, you’ll have to find other ways to keep your savings safe. Things like CDs can provide you with a means of increasing how much interest you earn with your savings, while helping to prevent you from withdrawing the money on a whim (or at least, slowing up the process).

5. Keep Updating Your Goals: As you go through life, the amount of money you need to set aside to keep yourself safe and secure will change; the amount that could supply you for months as a recent graduate might barely cover two weeks by the time you are in your mid-fifties, married, and with a future graduate or two of your own. While this is more of a long-term goal than simply a one-year resolution, it is good to double-check your saving needs every few months, or at least every year, to make sure you still have enough set aside to meet your goals.

There you go, a guide to building up those old savings. It will take some time and some effort, but if you stay devoted to your goal, you should have no problem setting aside plenty of money for a rainy day (or any other purpose). Good luck, and happy resolution completion!

It’s already the 13th, and you know what that means: half of the people who created resolutions for this year have already failed at them. (Conservatively estimated, of course; it’s fully possible that even more resolutions have already met an untimely end.) Here’s hoping that you aren’t among them.

Don’t get me wrong, I understand how it can happen; it takes a lot of time and effort to keep up with even a relatively minor resolution, and more than a few of us have taken on some pretty big ones this year. Still, if you don’t keep up with them and try your best, you’re guaranteeing failure, and that’s the last thing we want when it comes to things like building up our financial foundation. Particularly when it comes to things like:

Creating a Budget

This is one of the most basic things that needs to be done if you’re hoping to improve your financial situation. I’ve touched on the subject of budgeting before, but mainly looking at how to stick to a budget. I was a bit short of advice on how to actually create a budget; unfortunately, simply adding up your spending and your earning, while technically a budget, will leave you in the same sort of situation as the US government, that is, greatly indebted and unlikely to get out.

Don't worry; I'll help you avoid partisan squabbles as you crunch the numbers

How do you make a budget properly? Well, there are few simple steps to help you produce a workable budget, starting with:

1. Watch Where You Spend: Before you can create a budget to get you where you WANT to be, you need to see where you ARE at now. For a month or two, watch where you are spending your money. Record EVERY expense, no matter how small, from monthly bills to that can of soda you got with lunch. To get the most possible out of this, you have to be sure not to change your spending habits; if you live like a pauper while keeping track of your spending but spend like a prince when you don’t, you’re not going to get the sort of data you need to make a decent budget.

2. See Where Everything Lines Up: When you have data from a typical month or two, it’s time to see where how it fits together. Make a table of your income on one side, and your expenses on the other. (It’s helpful to divide your expenses into the regularly reoccurring kind (mortgage/rent, electric, gym memberships, etc.) and discretionary expenses (meals out, shopping, spending on those morning coffees and similar things that can vary from month to month.) Don’t forget to include expenses or income sources that don’t come every month; if you pay your automobile insurance twice a year or get investment dividends every quarter, you’ll need to factor them in, by dividing the amount by the number of months between each event.

Now, you’ll need to see whether your expenses are sustainable on your income level. This is pretty easy to see: simply total up all those expenses, total up all that income, and see which total is higher. If it’s the income, congratulations! You’re already living on less than you take in, the goal for our budgeting plan. (Well, if you haven’t already done so, you’ll need to be sure that you are doing things like putting money aside for emergencies and investing enough for your retirement; if you can do that and still be under budget, great! If not, please read on.) If your expenses are higher, well, then, it’s time to:

3. Trim Your Budget Where Possible: Yup, I know, the least fun part of creating a budget: trying to figure out what to cut. There aren’t too many rules I can give you; everyone’s life is different, and what is essential to me might be nothing but an extravagance to you. That said, things like keeping food in your belly, a roof over your head, enough gasoline in your car, and proper insurance coverage on yourself, your family and your belongings, all should take priority over things like, say, buying all the latest video games or going out to the movies. (That said, don’t give things like food spending a free ride; just because you need to eat, doesn’t mean you need to go out to eat each day of the week.) Your goal should be to cut enough spending so your income meets (or better yet, exceeds) your expenses; not an easy task, even before we look at those retirement contributions and emergency fund building (which do need to be included). When you do reach that point, it’s time for…

4. Sticking to Your Budget: You could make the best, most fantastic budget in the world, one that allows you to meet all your goals, plan for all contingencies, and still have enough money left to enjoy your life. It won’t matter if you don’t stick to it. This is tricky, no doubt about it, but important to really benefit from your budget. There is quit a bit of advice out there on sticking to a budget (much like a diet, it’s an area where many people have trouble). Here are a few tips to help maximize your chances of bucking the trend:

-Make sure your budget allows for some fun and enjoyment: Most of us aren’t would-be monks or hermits; we enjoy an active social life and plenty of fun. While it might seem like your movie budget should be the first thing to go while trying to balance your overall budget, if you don’t include some fun and free money in your budget, it’ll be no time before you simply decide not to follow it any more, period.

-Take advantage of free services: There are a surprising number of places where you can get goods and services that would otherwise cost a pretty penny for free (or at least, vastly reduced prices). Libraries offer books (and increasingly, CDs and DVDs) for nothing to members, there are free sources of information online, and speaking of online, it’s increasingly easy to enjoy all kinds of entertainment through online portals (even without relying on pirated info). Particularly with access to a decent computer (also becoming cheaper all the time), it’s possible to enjoy a full entertainment life without having to pay an arm and a leg (or any body parts, really).

-Make sure to reward your successes: We respond to rewards (and punishments); that’s just the way we are wired. To take advantage of that, try to reward yourself when manage to stick to your budget; just don’t go over budget doing it. Try this: take any money you manage to save during the month by staying under budget and split it in half; one half will be added to your savings (that emergency fund I kept mentioning before), the other half will be ‘fun money’, for you to use as you desire in the coming month. If you get to enjoy the results of sticking to your budget, you’ll be more likely to do so.

Alright, that should be more than enough on how to create (and stick to) a budget in the new year. Good luck, and here’s to a successfully budgeted 2012 for everyone!

It’s January, and that means that all around you, people are trying to improve their lives. More than any other time of the year, January is when everyone attempts to fix past problems and make their lives better. I’m certainly including myself in that group; it’s only six days into 2012, and two of my posts so far have involved my goals for the coming year.

Given that so many people are taking the time to focus on their resolutions and trying to improve their lives, I figured that it would probably make for a good blog entry (or four) to look at some of the more common personal financial resolutions and provide on how to accomplish them. So, for the next four Fridays, I’m going to providing advice on achieving Resolution Success, starting with

Paying Down Debt

This is a perennial favorite resolution: most of us have some debt, and it’s a rare person who doesn’t want to be debt free. Heck, I’ve covered this exact resolution before. (Although, looking back on it, I realize that I wasn’t as clear on how to actually pay down debt as I should have been; ah, the things you can learn by being a blogger.)

It's almost as good as book learnin'

But it’s obviously a tough one to actually achieve, otherwise there wouldn’t be so many people who make the resolution year after year. Since I find myself in the same boat as many people, facing quite a bit of debt and wanting to pay it down, it’s an area I definitely want to focus on this year. With that said, here are some tips to help you (and me) pay down debt this year:

-Figure Out a Plan of Attack, and STICK TO IT: As you might guess, the topic of paying down debt is a popular one, which I am hardly the first person to tackle. There are more than a few gurus with their own personal favorite ways to tackle debt, from Dave Ramsey’s Debt Snowball to Flexo’s Debt Avalanche, and pros and cons of each. Hashing out the best method is not what this article is about (and the best method for YOU is something I can’t tell you, anyway), but the important thing is that once you have a plan you feel will work for you, you need to stick with it. Going from one plan to another to another (or worse, dropping your plan altogether) will be worse than sticking with a single plan, even if that single plan is less than ideal.

-Pay More Than the Minimum: The centerpiece to every debt elimination plan is to pay more than the minimum on one particular debt. (Which one is a major source of debate, of course.) Trying to pay off your debt while paying only the minimum is a surefire method to remain in debt for years, if not decades, longer than you need to be. While some debts, like student loans, are designed to be paid off in a specific number of years (ten for most student loans), others can take decades to pay off at the minimum payments (and may not necessarily ever be paid off at those rates). If you aren’t putting more than the minimum into one of your debts, you’ll need to do so if you hope to ever declare yourself debt-free.

-Negotiate Better Rates, if Possible: It’s a situation of ‘ask, and ye shall receive’, at least sometimes. The simplest way to lower your credit card or other debt interest rates? Ask for lower rates. It really can be that simple. The worst that happens is your creditor says no, and the best is that you find yourself charged hundreds or even thousands less as you work to pay off your debt.  While I can’t say for certain whether your lenders will be willing to cut your rates, asking is the only way to know for certain.  Better yet: find out the rates you could get by transferring your debt to another creditor, and use those rates to negotiate better rates.  Worst case scenario, you know where to get to get lower rates if your current creditors won’t play ball.

-Put as Much Money as Possible Towards Debt Elimination…: Regardless of what particular repayment tact you choose, you’ll be most successful by putting the maximum amount of money possible towards debt repayment. You might say that you don’t have any money available; if you did, why would you be in debt? But there’s usually money to be found, if you put your mind to it. There are probably services you use, from cable TV to subscription websites, that you can cut, at least until your debt is gone. There are likely items in your house you could sell to bring in some extra money. And speaking of extra money, have you heard that some people even make a few bucks online doing something called ‘blogging’? If you put some time and effort to it, you can potentially derive quite a bit of additional to help your debt repayment.

-…But Make Sure to Have a Reserve: It’s tempting to go whole hog when you are paying down debt; after all, every dollar of credit card debt you eliminate is one less dollar you owe, and thus one less dollar accruing interest. But you need to have some money set aside in an emergency fund; otherwise, the moment you run into financial trouble, you’ll find yourself in even deeper debt. How much of an emergency fund to have is another of those issues you’ll hear numerous opinions on, but you should have enough that any foreseeable problems can be handled without having to add further debt.

-Be Careful About Adding New Debt: I’m going to take a different tact here than the average debt elimination adviser. Most sources you’ll read say to not add any more debt as you pay down what you owe; things like cutting up your credit cards and canceling them as soon as you eliminate what you owe. This is not bad advice, particularly if you find yourself spending money you don’t have anytime there is plastic in your wallet. But, I understand that there are times when you find yourself all but unable to avoid adding further debt. Particularly if you are a student and making little, if any, income, you’ll likely have to go into debt simply to keep a roof over your head and food in your belly. The trick is to be careful and only add more debt when it is absolutely necessary. So, food, gasoline (assuming you are going to and from classes or work, not joyriding across the country), and rent: yes; expensive parties, fancy clubs, and high-class booze: no. A good rule of thumb: Try not to add any debt that doesn’t directly help you to earn more in the future.

There are a few tips to help you take that debt off (and keep it off). Does anyone have further suggestions they’d care to share? Or perhaps horror stories of finding themselves in too much debt thanks to doing things wrong? Inquiring minds would like to know!