Welcome to the end of our personal finance resolution week.  I’ve decided to save a very special resolution for the end, one that’s quite close to me.  Yes, we’re going to end with the resolution to give more money to charity.  It’s a resolution I’m taking quite seriously, one that I’m doing myself.

Hopefully, you’re already donating something, anything to those less fortunate than you.  If so, good for you!  I know from personal experience that donating to the less fortunate feels great, and certainly, if you have access to a computer (or any of the many personal devices that now can do as much as a computer, if not more) and the internet, you’re doing better than many people in this little world of ours.  With that said, let’s go through our standard set of qualifications, to ensure that your plan is actionable, specific, and reasonable:

Even if you start small, you can still give

Actionable: There are plenty of deserving charities out there (see my post on choosing a charity to find a deserving one that meets your needs and philanthropic desires).  Once you have one (or more) charity that you want to support, the question then becomes what you want to give.  Money is an obvious choice, and certainly, with the financial trouble we’ve been having lately, most charities can use all the money you can afford to give and then some.

But don’t forget that charities also need people.  Many charities, perhaps most, would rather have five hours of your time each month than $100 of your money.  If you’re short on cash but still want to exercise your philanthropic muscles, try to find a nearby charity that could benefit from your skills, from your handy(wo)man skills to your expertise in fund raising to simply providing an understanding ear.  There’s plenty of ways to give without emptying out your bank account.

Specific: Once you know what you’re giving, and to where, it’s time to add some specifics to your plan.  If you’re giving your time and effort, you should try to come up with a schedule that is achievable and will be something you can stick to for the foreseeable future.  If you have some spare time on the weekend, make your resolution something like ‘Spend three hours each Saturday helping at the food bank’.  If you can give up one Saturday a month, maybe consider something like ‘Spend one Saturday each month helping Habitat for Humanity build homes’.  The important thing is commit to regularly giving your time to help the less fortunate.

If you are giving treasure rather than time, the same rules apply: make it specific, achievable, and something you can maintain for the foreseeable future.  Perhaps resolving to donate five percent of any money you receive to the charity of your choice would be good.  Alternatively, if you are collecting a regular paycheck, you could resolve to give a set (ten is a nice round number) percentage to the local food bank on a weekly (or biweekly, or monthly, whenever you get paid).  If your income is much more erratic, you might prefer to give a set amount instead of a percentage; a few hundred dollars a month, or whatever you can afford.  Which brings us to the last point…

Reasonable: As with retirement investing, giving to charity is a situation where you are (hopefully) torn between the urge to give as much as you can, and to give very little, in order to have more money for yourself, either for spending or investing purposes.  It’s hard to provide the best level of contribution for everyone (although, if you happen to be religious, your faith might provide a good guideline; Christianity, for example, suggests tithing ten percent of your income to the church and the less fortunate).  You don’t want to give so much that you end up needing  charity yourself, but every cent you can give to a decent charity will help to improve another life, perhaps even more than one.  If you find yourself not able to give as much money to charity as you want, the best option is probably to give more time, instead.  You can get the same sense of helping others and giving of yourself, without having to deplete your coffers in order to do so.

Probably the most important advice I can provide about charities and giving is to just do it; it’s a wonderful way to help others (and perhaps accumulate some good karma for yourself, as well).  If you made this type of resolution, my hat is off to you; keep up the good work, and be sure to let me know how your donations work out for you!

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Wow, we’re really having fun, going through all our resolutions and seeing what we can do to help keep them (for a change).  So far, we’ve covered how to pay off debt and follow a budget; now, it’s time to get into one of the big ones, preparing for retirement.

Getting your financial ship in order so that you are ready when retirement rolls around is not always an easy task.  Unlike paying down debt, where there’s really only one way to go (namely, paying more than the minimum each month, so you bring down your balance), there are many possible ways to help ensure your golden years are filled with plenty of gold.  Numerous options are on the table, from upping your 401(k) contributions to starting an IRA, and any (or all) of them MIGHT be what you need to do to make your retirement bright.

No matter what plan you decide on to shore up your retirement funds, though, you’ll still need to do what we’ve been doing all week: make your resolution actionable, specific, and reasonable:

Actionable: Ensuring a well-financed retirement is a good goal, but it tells you nothing about how to get there.  Luckily, there are any number of avenues open to you to help improve your future retirement.  Some possible resolutions could include:

-Opening a 401(k) (or similar pretax retirement plan) at work and contributing to it
-Starting a Roth IRA at a mutual fund company
-Pay down your mortgage faster, so there are fewer expenses in retirement

As that last point probably illustrates, there are ways to improve your retirement prospects that don’t involve directly investing in a retirement account.  There are numerous other possibilities, from ensuring that you have adequate insurance to making out a will (and possibly a trust), but let’s stick with these three for the time being.

Specific: As always, we need to ensure that our resolutions are exact if we hope to use them as a guide to our (financial) lives, so let’s see how to make these resolutions more specific.  Luckily, when we’re talking about resolutions like this that involve saving and investing, it’s not that hard to make them more precise simply by attaching exact numbers to them:

-Opening a 401(k) and setting up an automatic contribution of 10% of your gross salary.
-Starting a Roth IRA and maxing it out every year (for this year, that comes out to be $416.66 dollars each month)
-Adding an additional 10% to your mortgage payments each month, with the goal of paying down your mortgage several years earlier than scheduled

Now, these are just some possible numbers to use with these resolutions; depending on your circumstances, you might be able to put more money aside for retirement, or you might have to put in less.  Which brings us to the final consideration about these resolutions:

Reasonable: More than any of the resolutions we’ve covered so far, saving for retirement brings on questions of how much is too much.  If you endeavor to put as much money as humanly possible into your retirement accounts, you’ll make your future more secure and have more money available when you do retire; but it will be at the cost of spending much less money now.  On the other hand, you can opt to spend more and invest less, which means more fun now but more problems later.

Optimizing your investment/spending balance isn’t easy, and if you are in a low-income job, it gets even trickier.  Ten percent of your salary (even before taxes) might be too much if you are below the poverty line and barely making ends meet as it is.  Similarly, four hundred dollars a month might be too much to put aside in a Roth if you are only making $1000 per month after taxes.  And of course, if you can barely afford your mortgage already, then tacking an extra 10% on is probably out of the question.

The point being, you have to adapt personal finance advice to fit your own situation; setting reasonable goals means knowing what resources you have available, and adapting your plans accordingly.  Don’t try to stretch your budget beyond its breaking point, even if means having to put aside less money for retirement (and potentially having to delay your retirement a bit in order to meet your goals).

As with any thing worth doing, preparing for retirement will take some time, but if it allows you to have a more secure and rewarding retirement, it’s more than worth it.  As with any resolution, it will take time and effort to get it right; good luck to you!

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Welcome back to the Amateur Financier, as we focus on helping you to keep your resolutions this new year of 2010.  This time, we’re going to go over how to make (and more importantly, stick to ) a budget in this new year.  This task seems rather daunting to many people, but it’s essential to good money management and keeping your financial house in order.

First, to create a budget.  There aren’t any real tricks to it; you simply need to know your income (from your job, investments, and any other sources), your regular bills (utilities, mortgage/rent, investments, etc.), and average spending (for everything from your morning coffee to Christmas shopping).  You can make a chart showing your income and comparing it to your expenses, as I did back in my financial lessons, and as long as you spend less than you earn, you’ll be golden.

A Simple Budget in Action

One note: it’s easy to ignore abnormal expenses that don’t recur every month, such as Christmas spending or insurance bills that only come a few times a year.  Rather that not including them and being caught off guard when they roll around, divide them up into regular monthly installments, and set aside that amount in a special, separate account.  (It’s easy enough to create separate accounts using an online bank like ING Direct.)  When it comes time to pay these bills (or do your Christmas shopping), you’ll have more than enough money set aside in your dedicated account (with the contributions and the interest that you earned) to cover your abnormal expenses.

Once you have a budget created, the easy part is over, and it’s time to get ready for the hard bit: sticking to a budget for the rest of the year.  As with our last resolution to pay down debt,  we’re going to make this one easier to follow up on by making it actionable, specific, and reasonable:

Actionable: ‘Stick to my budget’ seems pretty actionable, doesn’t it?  But we can do a bit better; let’s add a regular review of our budget (and our attempts to stick to said budget) to our resolution.  ‘Create a budget and review it regularly to see whether I’m following it’ makes us much more accountable to follow up on the budget, meaning we’ll be more likely to keep thinking about it and hopefully, following it.

Specific: Now that we’re decided to review our budget regularly, we need to decide how often to do so, and create a schedule about when we’re going to do so.  Reviewing your budget on a monthly basis makes sense for most people; we tend to get most of our bills on a monthly basis (including rent, utilities, and credit card bills), so a monthly review while we’re paying the bills will enable us to multitask while staying on budget.

You don’t have to use a monthly schedule; a weekly or biweekly schedule could work as well, since most people collect their paychecks on a weekly or biweekly schedule, anyway, making it easier to determine where your paycheck should go.  (If you do use this sort of schedule, you should consider applying my earlier comments about abnormal expenses to your monthly bills; putting aside one-fourth the cost of your monthly bills each week will ensure that you have enough to cover the bills at the end of the month.)  I would advise against reviewing your budget less than monthly; it’s hard enough to knowing your income and expenses a month ahead of time, let alone trying to predict the next three months or one year when you sit down to create your budget.  So our resolution now is, ‘Create a budget, and review it monthly to ensure that we are still meeting it,’ a much more specific resolution to follow.

Reasonable: How reasonable it is to stick to your budget will depend on how realistic you made your budget.  If you like going out to the movies every week but only budgeted $50 a month to your entertainment expenses, you’re almost certainly going to go over budget every month.  This is why regular reviews are so important; if you see you are going over your allocated amount in a particular area, you will have to deal with it.  Perhaps you can shift your budget a bit to compensate; if you love movies, but don’t like to dine out that much, you could add more to the ‘Entertainment’ category and take some away from ‘Restaurants’, and simply try to eat out less.

In many cases, though, it might not be possible to shift your budget like this; you only have so much income (at least, in the short term; in the long term, you can start a part time business, take a second job, or do any number of things to boost your cash flow), and have to make choices about what to spend it on.  If you can really only afford $50 towards your Entertainment budget, going out to the movies every week is probably not a good option.  There are several tactics you could use to cut your entertainment spending; only go every other week, don’t get popcorn or a drink when you, or consider renting movies instead of seeing them in the theater.  The point being, there are usually ways to cut your spending, if you’re willing to be flexible.

There you have it; the keys to sticking to your 2010 budget.  Follow this advice, and you should have no problem sticking to a (reasonably designed) budget.  Good luck budgeting for a whole new year!

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During this first full week of the brand new year, I thought I would turn my attention to helping my readers keep their New Year’s Resolutions.  We all make them, and all too many of us abandon them before we make much progress.  I’ve put up several of my resolutions last week, as well as how I intend to accomplish them.  I thought I would provide some advice and encouragement to my readers when it comes to their personal finance goals.  (Sorry to anyone who resolved to lose weight, exercise more, or find love; those sorts of resolutions are outside the purview of The Amateur Financier.  Good luck, though.)

In order for your resolutions to be good and helpful to you as goals for the new year, they need to be actionable, specific and reasonable.  In order to be actionable, you need to make your resolution dependent on things that are in your power to control.  Saving more of your money is in your control, winning the lottery is not; thus, saving more is a decent resolution (although, we’ll improve on it in just a minute), while resolving to win the lottery to pay off your debts is not.  A specific resolution will provide you with a particular goal, one you can judge your progress towards through out the year and determine whether you are making adequate progress.  So, resolving to save $100 per month is a much better goal than simply resolving to save more; you can monitor how much you save and see if you are meeting your $100 a month goal, falling short, or (hopefully) exceeding it.  Finally, your goal has to be reasonable; we all have limited resources of time, energy, and money, and we need to prioritize how we expend them in order to achieve everything we hope to achieve.  What’s reasonable will depend on your circumstances; if you net $1000 per month after taxes, saving $100 each month is perfectly reasonable; if you are only making $200 in net income, saving $100 is too much of a stretch, and a more reasonable goal might be $20 or $25 each month.

So, now you see how we can apply these techniques to a goal of building up your net worth; how do we apply them to paying down debt?  (Be it credit card debt, student loan debt, or some other type of debt we find ourselves facing.)  Let’s see how we can apply these three principles to paying down your debt:

Actionable: ‘Becoming Debt-Free’ has a nice ring to it, doesn’t it?  Unfortunately, it’s not really that actionable; it tells us nothing about how you’re going to become debt-free, or what actions you’ll take along the way.  Something more along the lines of ‘Pay down the amount of debt I owe each month’ is a much more workable resolution.  But we still need to make it specific…

Specific: Now that we have a particular plan of action in mind, it is time to make it specific.  Paying down the amount of debt you owe each month is good, but you should set a goal for how much you’re going to spend on debt reduction.  You can either specify this in terms of how much you want to reduce the total amount that you owe (’I'm going to pay down my debt by $50 each month’) or the total amount you intend to spend on debt service (’I'm going to spend a total of $200 each month on debt service’).  The former method has the advantage of telling you how much your outstanding debt will decrease each month, but you’ll need to budget for interest and other fees separately to meet your goal (so you’ll end up spending more, possibly much more, than $50 each month).  The latter method gives the total you intend to pay each month, making budgeting easier, but doesn’t indicate how much your outstanding debt will decrease (and it will be a different amount each month, as you pay down your debt and more of the money goes to the principal, rather than fees and interest).  Either method works, so choose whichever seems easier and more motivational to you.

Reasonable: It’s a bit tough to define just what constitutes a reasonable debt repayment plan, as so many factors will influence your personal financial situation and ability to pay down your debt.  A good rule of thumb would be to commit at least 10-20% of your net income (after taxes and matched retirement contributions) to debt servicing, including interest, fees, and paying down the balance.  If you use the second method I discussed above, it’s fairly easy to look at your net income, calculate ten percent, and pay that much toward your debt each month (assuming it is enough to cover the interest with some money still going to the principal; otherwise you’ll have to increase the amount you pay).  Make sure that this amount is both sufficient to cut down your debt while not stressing your budget too much (cutting back to repay debt isn’t bad, trying to live on Ramen to pay down all your debt this year isn’t).  For the first method, you’ll have to have a feel for what you pay in interest and other fees, and be sure to add your desired principal repayment amount on top of that.  Again, be reasonable about what is possible for your family and your budget; better a slower, less stressful debt repayment schedule than one that drives you completely insane.

That’s all there is to it; create your plan, keep to it each month, and monitor your progress, and soon you’ll be debt free!  Good luck!

P.S. Feel free to check out my Ten Commandments of Credit Cards for more advice on using credit properly and getting yourself debt free if you wind up in credit card debt.

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