There are two schools of thought regarding budgets among the financial gurus. Some say you don’t need one because you should be a mindful spender at worst and a hoarder of funds at best, while the other school which is the majority say you need a budget to tell your money where to go and what to do.
Budgets (planned, tame, mindful and analytical spending) are your friend
t’s common knowledge that a budget meeting in a typical family is something that’s avoided. Some would certainly rather do lawn work than the watershed moments of reviewing and curbing spending. I am a budget friendly advice giver. I understand the whole thing can be emotionally draining and taxing at times. But I think there is an easy way to attack this budgeting system:
It’s always been a mystery to me how spending gets away from us. Not the emergency broken arm spending, but freewheeling:
I want to push you toward mindful analytical spending. Understand what you can and can’t afford and live within and better below those means.
Here are the typical advised spending limits. I’ll adjust for reality a bit.
Auto: Never more than 20% of take home pay. The car shouldn’t be worth more than half your annual gross salary/earnings. The car payment shouldn’t be more than 12% of your take home pay. Also you should have at least 2 months of payments in your savings account.
Housing: No more than 35% of income on housing and housing related costs. This is the hardest and most worthless in some regard dependent upon which cities you find yourself in. For example, I live in Denver. 35% of my income while generous will still put me somewhere down wind of the Purina factory. Not where you want to be. Believe me. I have kids and wife who stay at home. I want a relative degree of safety. Also I am only 2 minutes from work. While I may pay a bit more, but the savings in gas, stress, and commute time are worth every red cent, if not more. However that’s the old school rule so stay as close as possible and move other areas of the budget around to accommodate where housing has overstepped its budgetary bounds.
I’ll stop. The internet is littered with budgeting frameworks, software, apps, advice. Google a day and find your way my friend.
Take advantage of company financial vehicles
Are you missing out on the best benefits of working for your awesome employer? This year, don’t leave ANY money on the table.
Health Savings Accounts are worth it! The ability to put your money pre-tax into an account and save for your health expenses which are most likely assured throughout the year is a no-brainer. Are there healthcare incentives which add free money to your HSA? Take the survey, go the doctor.
Is there a matching 401(k) contribution? If there is you need to contribute up to the max match.
Is there an Employee Stock Purchase Plan? If you can purchase stock in a company you contribute to and make successful and get said stock at a discounted employee rate—don’t leave money on the table!
Get every penny beyond your salary you can get.
Go beyond salary here: Is there a training budget? Ask to get certified with a meaningful certification that is a standard in your particular industry.
Maybe it’s time to get a raise. Go for that awesome role. Taking on greater responsibilities and higher paying roles. You can do it.
Buff up your emergency savings
Honestly. You want a semi-boring life! For the most part you want your excitement and even your testimonies to be planned for in some way. When I hear about some of the trials and situations people find themselves in I always thinking about how that was us a few years ago. It’s typically the result of poor planning and a lack of emergency funds. The lack of emergency funds happened because savings wasn’t a priority and the opportunities which moved us toward wealth and stability weren’t exploited.
Sudden job loss can hit any of us. It’s important to keep your resume up-to-date and keep feelers out there in the job market or industry even when you aren’t looking for a job. Also important is having some emergency funds available during that rough time. You can tide over many a storm with a big enough float. 3, 6, even 12 months of expenses is what you’re shooting for. If you keep the feelers out there in your industry and your resume is a work of art you can almost guarantee that you won’t have to use it all.
Here’s a Tip: Supplement your emergency savings by doing nothing at all! If you can save up your PTO, keep 80 hours on the books. Doing this in a state in which an employer has to pay you your PTO means you could have an entire paycheck post termination beyond any severance they grant you.
Not all job loss is sudden. If you are told that your job is ending in 3 years. Don’t write letters to your senator. Find another job. If the market in your area is flooded look into learning a new skill within that 3 years and then go into entirely new field less crowded with potentially better pay…just the musings of a guy on the internet.
Improve your credit score
Credit Karma is awesome! It’s free and you can review your credit score as well as hear what others who are in hot pursuit of ideal/perfect credit and higher scores are doing. It’s worth it to have a better credit score. Think about all the interest you could save in a typical home loan if your credit worthiness is improved. There are tons of ways so get your credit score. Discover offers Credit ScoreCard. Wells Fargo has one. FreeCreditScore.com, I’ve heard you don’t even have to give a CC over to sign up.
Here is the tip list after you get you latest credit report:
Dispute Errors Only: Don’t dispute things unless you know for certain those items are mistakes. Too many disputes on your credit report negatively affect your credit when trying to get a home loan. (Learned that one the hard way)
Lower your credit utilization: Either increase limits or decrease balances owed. No credit card should be over 30% used anyway. So if you have a credit card with a 3000 credit limit and you are using 2000, you’re negatively affecting your credit. Drop that immediately to 900 to 1000 and you’re golden. Do the same for all of your lines of credit card lines.
If your credit is a little shaky right now but you have cash because you have a better paying job or have found you self in a better financial situation; grab a secured credit card from your bank. You set the limit. Wells Fargo secured cards can go as high as $10k. Your credit limit is only limited by how much cash you put on the line. This is a good way to decrease utilization if you’re worried about approvals for credit limit increases.
Payment history counts big: Pay your bills on-time. I am a fan of automatic payments. I don’t want to use the mental bandwidth to remind myself to pay a bill. If you have a negative mark on your credit report write a little note called seeking a “Goodwill Adjustment.” Sometimes they’ll give it to you. Sometimes they won’t. If you keep up the good payments for a couple of years you’re golden as the bad stuff falls off after years.
Some Financial Guru’s say no credit is great credit. I don’t agree I don’t believe that wealth is so 1 dimensional. To have a million dollars but can’t charge a toothpick is not a holistic approach to wealth in my opinion. Now in all transparency I think most debt is dumb and I'm working my tail off ot pay back those student loans and wouldn't wish that kind of burden on my worst enemy. But not all debt is dumb and predatory in nature. The idea of being credit worthy is in some respects tied to honesty and integrity.
The Bible says that the Proverbs 31 wife’s husband is known in the gates. That means the guy is trust worthy, he keeps his word. If you can’t trust yourself cut up your credit cards. But don’t close them because credit line history is an important factor in your credit score. Keep one out the shredder for emergencies. Keep it in your sock drawer or something.
A warning about not managing your past debts: Creditors are going straight to court now, especially if you’re an African American or other minority group. Go to court and have a plan in mind. Try to reach an accord with the lawyer before you even have to go to the judge. However, I’m not attorney, so it’s best to seek legal advice from an actual attorney.
According to myFICO.com, credit score is calculated based on five factors, each carrying different weight to the overall equation. The percentages are below.
That jar collecting your change is doing little to gain you more money except accepting more change you toss in.
Get Acorns or Digit or some other round up app that invests your money in a managed fund. Take your jar of coins to the bank and deposit it then transfer the money to your Roth IRA.
If you don’t have a Roth IRA…get a Roth IRA.
Use some of your personal money (mad money) to invest in a stock you’ve researched and wanted a piece of. I think buying stock should be as common as buying apparel and coffee. If you’re going to consume—consume something that has the potential to create wealth in the long run for you.
Using the round up is effortless. Even if you’re doing a zero budget you shouldn’t be counting cents in your spreadsheet. Let those cents go toward savings for a short term or long term goal.
Lots of Tips
As stated above the internet is full of knowledge and information. I have a few blogs I frequent, but that’s a post for another day. So let’s hear it. What are your 2017 Money Tips?
Husband, Dad, Writer, Ex-Pastor, Product Manager, & Nerd