Going from a DINK to DUNK

I was having a conversation the other day with one of my colleagues.  He and his wife are expecting twins in the next couple of weeks and she will be staying home after the babies are born.   We were talking about the challenges of going from being DINK's (double income no kids); to being dunked under water (financially speaking).  When my oldest daughter was six months old, my husband and I made the decision for him to become a stay at home parent; and we went from being DINK's to becoming dunked under water.

We have been a one income household for 11 years now.  During this time, there have been many financial downs; I can say we were not prepared to go to one income.  During the early years, we tried to maintain the same lifestyle we had enjoyed on two incomes.  Although we had what I thought was adequate savings,  it only lasted a couple of years.  We did this through the use of credit cards.  We ran up way to much debt.  During this time, I was also going to graduate school, and managed to run up more debt through student loans.   It took a few years to settle down, but we finally got it. 

The reward for having my husband stay home with the kids is immeasurable, and if this is a decision you make for your family-my advice would be to prepare as much as you can and to save as much as you can.  Before becoming a one income family, I would say to start living on one income and to put your second income in a savings account.  If you can, pay off as much, if not all of your debt.   Reduce your expenses as much as you can and save save save for all of the unexpected expenses.

How to Save Money on a Tight Budget

I had a question this week asking how to save money on a tight budget.   The way to save money on a tight budget, or any budget for that matter, is to pay yourself first.   On a tight budget, it may only be five, ten, or twenty dollars a week.  Whatever it is, you must pay yourself first, and then your bills.  The easiest way to pay yourself first is to have an amount from your paycheck go into a savings account or to have an automatic transfer set up.  If neither of these are options, before you pay anything else, take the cash and put into an envelope and than forget it.  Each paycheck, put in your set amount, it will quickly add up.

If you find that you do not have enough money to pay yourself and your bills, you have to find a way to increase your bottom line.   The two ways to increase your bottom line are to either increase your income or decrease your expenses.  In the short term, cutting your expenses can be the quickest way to increase your bottom line.  For the long term, increasing your income will prove to be more sustainable. 

When you look to cut expenses; look at all of your expenses not essential to survival, and cut what you can.  Look at your grocery bill; start shopping the sales and using coupons.  With these tools, you should be able to cut somewhere between five and ten dollars a week.  Start cooking at home; make extra to have for lunch the next day, rather than eating out.  Look to reduce your cable bills-with services like Netflix, Hulu and even Amazon Prime, you may find you can watch all of your shows without having to pay the large cable bill.

The other side of the equation is to increase your income.  The increases in income can be on a short term basis (selling items on eBay, freelancing) or long term.  If you find yourself consistently not making enough money, one of the options you may look to do is change jobs and/or careers.  The job/career change may mean going back to school.  The biggest return on an investment is education.  The money you spend on education will be returned many times over. 

This week's giveaway-$20 Starbuck's Gift Card.

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Negotiate, Negotiate, Negotiate

I consider myself a fairly good negotiator, that may come across as arrogant, but let me explain. I don't necessarily get the best deal ever, but I almost always get a fair deal.     One of the things I learned from a very young age,  don't be afraid to ask.  As my wonderful husband can attest to, I will negotiate just about anything.  He has learned over the years that on just about any purchase, I will ask "Is there any wiggle room in the price?" , "Do you have any discounts available that I can use?"  , "Do you price match?"  Generally speaking, I will end up paying less than if I didn't ask.

My goal when negotiating is not to get the deal of the century, but to get a fair deal.  Companies are in business to make money, they can not give away the farm.  However, there is always wiggle room, especially if they think there will be repeat business.   If a company gives you a great deal on the front end, they will make it up on the back end.  If you get a fair deal during the entire transaction you end up ahead.  You also set yourself up for a long term relationship, that over time can net better benefits than a short term "deal of century".

Anytime you negotiate, negotiate from strength.  Always, always, be willing to walk away, no matter how desperate you think your situation is.  If you are negotiating from weakness, the other party will know and you will not get a fair deal.  The cliche-when you are a car dealership and trying to get a better price, you have to be willing to walk out; if you are negotiating a salary, you have to argue what you bring to the table and you have to be able to look elsewhere.

Do you all have any examples of real life negotiations-if so, how did they go?  What would you all have done differently?

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Emergencies...

I'm sitting at home today waiting for the impending store to hit.   I realize how blessed I am, we have food, water, and fire wood.  If we are stuck for a few days, we will be okay.   I even have cash on hand-in the event the power should go out and we are unable to use either ATM's or our debit cards.  When you live paycheck to paycheck, it is almost impossible to respond to the unexpected.  I have seen the stress on the faces of people who know they will have to juggle bills to pay for the unexpected costs.  It can break your heart.  

There is a sense of calm, when you know that you have the means to get through the unexpected.
Mother nature is no different than any other unexpected costs-a snow storm or a blown tire; all unexpected events that can create havoc if you are not prepared.   If you have an emergency fund, you have the means to get through the unexpected .   The reason I advocate a savings account with a $1000 before paying off credit cards, the sense of calm and the confidence it brings knowing you can get through most anything.

I hope everyone stays safe and warm during these upcoming storms that are hitting the country at the moment.

Setting up your safety net.

Tracking your expenses, setting goals and building your budgets can be overwhelming, frustrating and demotivating.    It may seem that you are spending a great deal of time working with your finances. In the beginning you will be.As you go through the process, you will find that you spend less time as the plan becomes second nature.

You may not want to know just how bad things are; the first step to making it better is to face the music.  Start my writing it all down; your income, expenses, what you owe, and what you own.  When you look at everything in black and white, it may become quite discourgaging as it may be worse than you realized.  If you don't know what to do next-work on your safety net first.  Having a safety net, can change your life.  Knowing you have a back up for those unexpected expenses, like car repairs or doctor's bills, can change the way you think.  You know longer have the constant worry-what if something happens, it can free your mind and allow for you to relax and think of how to improve other areas of your finances.

Start your savings small-even if it's only $5 a week, have an amount and put it away with each paycheck.   When you get to $1000-then start worrying about your debt.  This safety net should come before paying down debt, retirement funding, and children's education at this point.  Once you have the safety net in place-then you can start working on the other items.

Change is never easy-it takes time, discipline, tenacity, and sometimes just grit to make it happen.   It is so easy when it comes to money to get discouraged.   It may seem that no matter what you do; nothing will ever change.  But it can change, not overnight, but it can change.  Take small steps; these small steps will lead to a better future. 

Setting Goals

Budgets and financial goals, sort of like the chicken and the egg.  Do budgets drive your goals or do goals decide your budget?  For me, I set my goals and then my budget to accomplish my goals.  I have always been one to set goals, where I have failed in the past is not writing down my goals and not checking my progress towards meeting the goal.  Setting your goals, writing them down, and monitoring your progress is the path to meeting your goals.

Your goals can be simple,  in one year I want to pay down debt by $520 and establish an emergency fund by $520.  This equals $10 per week for each.  For some you'll look at your budget and have no idea where you are going to find $20 per week.  It may be hard to do, but if you look and are committed you will find it.  One way is to look at cutting out eating out expenses-if you spend $25 per week on lunches, start packing your lunch using left overs or even buying additional groceries from the store.  My guess is that you will be able to save $10 per week just making that change.  Another area is to use coupons and combine with grocery sales.   These should be able to save you something toward your weekly goal.  There are sites on the web that combine weekly sales with coupons for your, so you spend minimal time.  Some of my favorite sites are www.couponmom.com; www.southernsavers.com; and iheartpublix.com.

My cutting this expense, and putting aside your savings toward your goal of savings and/or debt reduction; you will see progress in now time.  

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How to Increase Your Income

In order to improve your financial picture, you need to reduce expenses and increase income.   Today I want to talk about income.  There are several ways to add to the budget through additional income.  I am a big supporter of multiple streams of income, not depending on one source of income.  In the same way you want to diversify your investments, you want to diversify your monthly income.  In financial terms, "you hedge your risk of loss" by having multiple streams of income, you lose one source of income, you have others to fill in the gap.  If you lose your sole source of income, you lose everything.  

In addition to "hedging your bets" with multiple sources of income, the extra income can help pay off debt and build your emergency fund.   It doesn't take a lot of extra income, sometimes as little as an extra hundred dollars a month can make all the difference.  Twelve hundred dollars a year can save you $153 in interest on a credit card charging 22%.

I think we all agree extra income is a good thing, but how?  If you are able to work a part time job at a local retailer, that may be the easiest way to bring in money on a short term basis.  For some, a retail job just is not feasible-could be you are already working two/three jobs, maybe child care is a concern, or maybe there aren't jobs that fit your schedule, in any case there are other options. 





Other ways to earn extra income that may  fit your schedule better and may be on a more long term basis are:

Sell items on Ebay-things we may never use that just sit in a closet can bring in some cash.
Take on line surveys-some pay in cash, some gift cards. 
Look to do freelance work through sites like Elance, or Odesk.
Look to write content on sites like Textbroker.
Start a store on Etsy and sell crafts.

The key is to think outside the box and find something that will fit your life.  As with most things, it may be slow at first, but given time it can pick up, just have faith. 

The Plan

We have the rules and the basics, now what?  Now comes the hard part, understanding what can change.    You have to take an objective look at your finances and determine the difference between a want and a need.  For me the want is "I want Starbucks every morning"-the need is "I need to eat a healthy breakfast and have a bit of caffeine every morning".    More times than not the "I want Starbucks" wins out.  I believe this happens as there is bit of psychology going on here.  I think  " I work very hard for a living, I deserve at least a $4 cup of coffee each day".  Whether this is true or not, this can set us up for failure as this mindset can carryover to other parts of our lives.  I'll write more on this in a later blog.

I have used a very simplistic budget and credit card example, to try to illustrate the process.  I know this is not a very good representation of  reality, but I am hopeful it will at least give an idea of the process.  A monthly income/expenditure list might look like this:

 

	Week 1	Week 2	Week 3	Week 4	Monthly Total
Weekly Salary	500	500	500	500	2,000
Rent	(300)				(300)
Gas	(50)	(50)	(50)	(50)	(200)
Food-groceries	(100)	(100)	(100)	(100)	(400)
Food-eating out	(50)	(50)	(50)	(50)	(200)
Phone		(100)			(100)
Clothes	(30)	(30)	(30)	(30)	(120)
Electric			(100)		(100)
Water			(40)
Car payment				(300)	(300)
Car Insurance		(100)			(100)
Credit card		(75)	(100)		(175)
Parking	(30)	(30)	(30)	(30)	(120)
Balance	(60)	(35)	0	(60)	(155)

A little depressing-you work hard and have no money.  In fact it's worse than no money-you have to borrow to pay your living expenses. These shortages are being covered either by credit cards or overdrafts from the bank.  With overdraft fees of $35 per item returned and credit card interest up to 30%; it is an expensive way to finance life.  Assuming that these overages are going on a credit card, you credit card balances may look something like this:

 

Beginning Credit Card Balance	1,100	750
Payments	(75)	(100)
Charges	75	80
Interest for 30 days @ 22%	20	13
Ending Balance	1,120	743

You can quickly see why your credit card balances are not going down, even with paying more than the minimum each month.  The interest and new charges are not allowing the balances to go down.  If you pay late or go over the credit limit, the fees can be up to $35 each;  adding even more to the ever growing balances.

The first plan is how to reduce expenses so that you no longer have to use the credit cards, pay the credit cards off,  and start putting a bit aside so you don't have to depend on credit cards for unexpected expenses.

Looking at the above example, I would look to add $25 to the weekly grocery bill and stop eating out; cut out clothing expense, and budget  large expenses throughout the month.  By budgeting large expenses throughout the month, you won't have one week where one large expense has wiped out your cash  leave you vulnerable to using your credit card to cover the shortage.  The new budget would look like this-I've highlighted some of the changes:

	Week 1	Week 2	Week 3	Week 4	Monthly Total
Weekly Salary	500	500	500	500	2,000
Rent	(150)		(75)	(75)	(300)
Gas	(50)	(50)	(50)	(50)	(200)
Food-groceries	(125)	(125)	(125)	(125)	(500)
Food-eating out					0
Phone		(100)			(100)
Clothes					0
Electric			(100)		(100)
Water			(40)
Car payment	(60)	(75)	(30)	(135)	(300)
Car Insurance	(50)	(50)			(100)
Credit card	(35)	(40)	(50)	(50)	(175)
Parking	(30)	(30)	(30)	(30)	(120)
Balance	0	30	0	35	65

Based on the new budget, you would have $65 extra each month.  I would advise to take a portion of the amount (maybe $35) and start putting it aside for unexpected expenses that always seem to come up.  I would then take the balance of the extra ($30) and start throwing it toward the credit card with the lowest balance.  The revised credit card balances would start to look like this:

Beginning Credit Card Balance	1,100	750
Payments	(75)	(130)
Charges
Interest for 30 days @ 22%	19	11
Ending Balance	1,044	631

With no new charges, and extra cash going towards the balance, the balances will start going down.  Once you pay off one card, you can apply the payment for that card towards other balances.  You will see your balances quickly reducing.   At the same time, you are saving some each month, so that if  you have an unexpected expense, you can pull from that instead of having to use your credit card.

It is an uplifting feeling in knowing that you have a plan, you can see your balances going down, and you have some money on the side for unexpected expenses.  This process though is a bit like a diet, the first month or so is hard, but once your clothes start felling looser, you realize it is worth it.  Once you see the credit card balances going down and having some money on the side, you realize it is worth it.

My next blog will be ideas on how to add income to your budget.



 

Simple rules of money

 

So I was thinking today that I should write about some of the simple rules of money I have learned over the years, mostly by making mistakes.  They may seem very fundamental, but can be easily forgotten as we go through the grind of daily life.   And yes I know, rules are boring and don't leave much room for spontaneity; trust me, if your finances are in order, you know you can pay your bills, you have money in the bank, you will have less stress and be able to have more freedom to do the things you really want to do.



Rule #1 - Don't spend more money than you make.

This seems so simplistic and yet the amount of credit card debt is staggering.  For some, credit cards are used for basic needs, for others it is for wants.  In either case, it's important to understand how much you are making and how much you are spending.  Once you understand this by tracking your income and expenses for a month, there will be an opportunity to review and decide whether you can cut expenses or try to bring in more money.

Rule #2 - You can not reach your full money potential if you are paying someone else interest.

If you are paying interest on a credit card, mortgage, or loan;  you can not reach your full potential.  Your first priority before investing or saving is to pay off all debt to minimize the amount of interest your are spending.  I am not saying don't save money while you are paying off debt; you should be saving something for a rainy day; but you also do not want to be in a position to be saving money, only to run out of cash and have to use your credit card as a fall back.

Rule #3 - Have a budget.

Write down what your income and your expenses, not for the next week or month, but for the next six months.  If you know you are going to have a large expense in six months, save a small amount each month, rather than having to take a huge hit in one month.  I know this can be hard, as something always comes up, it does take a bit of discipline and trial and error, but once you get into the habit, it takes a stress out of our life.

For me, these are the fundamentals that will help to simplify our money life.  I will be posting more on the budget process, taxes, and how to get out of debt.

The basics

The basics of any system to improve your money, begins with knowing where your money is coming from and where it is going.  I know my friends out there are rolling their eyes at this moment- these are the same friends who gave me  "Budgets are for wimps".    I'll agree that there is nothing sexy nor fun about listing out how much money you don't have; but it is the starting place that will allow you to understand the flows of cash.

For one or two months, make a list (it can be in Excel or Open Office Calculator) of your income and your expenses.  Write down everything, even that two dollars you gave your child.  I've list an example below of a very basic sheet to give you an idea-it doesn't have to be overly complicated.

Once you have this started, you start getting an idea of where our money is going.  For some, and I've been there, there's a lot of negative amounts at the end of each week. That's okay, first things first, see where our money is going before you make any changes.  Too many times, there is a haste to make changes now, without seeing, it's not the lattes each morning that is causing the budget to be blown, it's the credit cards with 22% interest that is causing the issues.

I'll talk about what to look at once you have the basic idea of where your money is going and how to take that information and turn it into a realistic budget that will allow for a savings and building your financial foundation.

	Week 1	Week 2	Week 3	Week 4
Weekly Salary	500	500	500	500
Rent	-300
Gas	-50	-50	-50	-50
Food	-100	-100	-100	-100
Phone		-100
Electric			-100
Car payment				-300
Car Insurance		-100
Credit card		-75	-100
Parking	-30	-30	-30	-30
Balance	20	45	120	20

And so it begins....

I started a blog similar to this a few years ago, made one post and life got in the way and never went back.  This year, I have decided to try again.  I look around and see so many people making so many mistakes with their finances-myself included. 

I'm a CPA/MBA type, and have made numerous money mistakes over the years.  With my education and credentials-I should know better.  I have mostly figured it out, but have thought about those who don't have my background and making the same mistakes over and over again.  Or those in desperate situations that are often taken advantage of (think pay day loans, buy here, pay here car dealerships).  I want to tell  people that no matter what situation they are in, there can be alternatives.her

Over the next few days, I'll be talking about the basics of budgets, writing down goals, and the importance of both to get out of living paycheck to paycheck.

I recommend the use of a spreadsheet program (ala Excel or Open Office).  This is usually all you will  need in the beginning.  There may be more opportunities with programs like Quicken and or Quickbooks for small businesses.

Looking forward to the journey.