Organize Your Financial Life With This Money Road Map

The following post is by MPFJ staff writer, Melissa Batai. Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food.  She blogs at Mom’s Plans, where she shares her family’s journey to healthier living and paying down debt.

Are your finances in the shape you’d like them to be?  Or, are they a disaster that you’d like to clean up as soon as possible?

If they’re a disaster, first know that you’re not alone.  Many, many people find themselves in a financial mess at some point in their lives.  There are a number of steps that you can take to strengthen your financial life and make yourself and your family more secure.  Here are the steps that I recommend you take in this order:

 

Put two to three months’ expenses in an emergency fund

If you’re a fan of Dave Ramsey, you know that he advocates a $1,000 emergency fund and then attacking debt.  My husband and I used to follow this approach, but then we ended up with emergencies bigger than $1,000, and we’d have to go back into debt to pay them.

I’d recommend instead that you first save two to three months’ of expenses, and then start paying down your debt.  That way, if you run into unexpected expenses, you can tackle them without going further into debt and erasing the progress you’ve made on paying down the debt.  (Seriously, nothing is more depressing than working hard for months to pay down your debt just to watch all of your progress disappear with one car repair or home repair.)

 

Pay down all of your debt except your mortgage

Once you have the two to three-month emergency fund, it’s time to pay down your debt.  I’d recommend paying off credit cards first, then car loans, then student loans.

While Dave Ramsey recommends using the debt snowball and paying off the lowest debt first, others have good luck paying down the highest interest debt first.  Which option is better depends on what motivates you.  Are you motivated by seeing the debts disappear one by one, or are you motivated by knowing that less money is being paid to interest each month?  Ultimately, your motivation will be what helps you through the sometimes long, painful process of paying down debt, so pick the method that works best for you.

 

If you use your credit card, pay it off each month

Credit cards can be a great tool if you use them responsibly.  If you have a cash back or airline points feature, you can even earn money for using your credit card.  The key is to pay it off each month.  If you can’t do so, it’s time to retrain yourself and start using cash or a debit card.  Once you get better control of your spending, you can start using the credit card again and reaping the rewards.

Credit cards can be a great tool if you use them responsibly.  If you have a cash back or airline points feature, you can even earn money for using your credit card.  The key is to pay it off each month.  If you can’t do so, it’s time to retrain yourself and start using cash or a debit card.  Once you get better control of your spending, you can start using the credit card again and reaping the rewards.

 

Contribute 10% of your income to your retirement fund

When you’re in the midst of financial difficulties, it’s hard to plan for the future, but if you want to be secure in the future, you must take steps now.  Ideally, you’ll want to save at least 10% of your income in a retirement fund with the eventual goal of getting that number up to 15%.  However, don’t feel intimidated by that amount.  Start slowly if you need to, and contribute just 1% of your income to your retirement fund for six months.  Then, slowly bump it up to 2 or 3% for six months.  Continue adding more every few months.  It takes

When you’re in the midst of financial difficulties, it’s hard to plan for the future, but if you want to be secure in the future, you must take steps now.  Ideally, you’ll want to save at least 10% of your income in a retirement fund with the eventual goal of getting that number up to 15%.  However, don’t feel intimidated by that amount.  Start slowly if you need to, and contribute just 1% of your income to your retirement fund for six months.  Then, slowly bump it up to 2 or 3% for six months.  Continue adding more every few months.  It takes time to get used to making retirement savings a priority.  As you develop the habit, you’ll be able to add more to your retirement savings until you get up to 10%.

 

Buy term life insurance

(Bump this step up if you have a family before you get to this point in your financial life.)  I was talking to a mom of four young kids recently.  She is a stay-at-home mom, and her husband is older than her; he’s in his fifties.  She was excitedly telling me about their new financial plan.  Each month, they set aside $100 in an emergency fund in case something happens to her husband.  That was their only plan if something happened to the sole breadwinner of the family.

I wanted to cry.  They have four young kids, she doesn’t work, and her husband is in his fifties, yet they have no life insurance!  While the money they’re setting aside is great, if her husband unexpectedly passed away, that money would quickly be consumed.

The family I’m referring to isn’t alone.  According to Fox Business, “Currently, 95 million Americans live without life insurance and only one-third of consumers are covered by individually-owned life policies.”

Term life insurance is relatively inexpensive, especially if you’re young and healthy.  While experts recommend you take out a policy for 10x your income, you can use an online calculator and talk to an expert to help you determine how much you actually need based on your life circumstances.

If you have dependents who rely on your income, you must make buying term life insurance a priority.  I would move this to the first step in this plan, even before creating a two to three-month emergency fund, if you have dependents.  Life insurance and the financial security it can bring your loved ones is that important.

 

Build an eight-month emergency fund

For ultimate security, you’ll want to bulk up your emergency fund once your debt is paid off, you’re adding to your retirement regularly, and you have term life insurance.   Some experts recommend an eight to twelve-month emergency fund, but start with an eight-month emergency fund first.  This money will be essential if you unexpectedly lose your job or suffer an injury.

Remember, when you’re measuring a month’s worth of expenses, you want to consider the essentials.  If you were suddenly laid off, you’d probably cut non-essentials like eating out and buying new clothes.  Base a month’s worth of savings on how much money you’d need to pay the essentials.  While your current monthly expenses may be $5,000 a month, you may find if you cut non-essential line items, your expenses drop down to $3,800 a month.  The latter amount should be the amount that you consider a month’s worth of expenses.

 

Pay off your house

When all the steps above have been achieved, it’s time for the biggie—pay off your house.  While some people prefer to pay off their house right on schedule thanks to low mortgage interest rates, why not pay it off if you’re otherwise financially secure?  Think what you could do with that extra money in your budget each month if you didn’t have to pay your mortgage payment?  You could invest it, give to charity, travel the world.  Once the house is paid off and you’ve completed all of the steps above, you’re truly financially free.

The best way to become financially secure is to create a map for yourself with financial goals that you want to achieve.  While the steps above may take as little as 10 years to complete (depending on your current financial situation), or as long as thirty years or more, the point is that you have a plan that you’re following.  It’s imperative that you’re continually making financial progress throughout the years rather than squandering money and going through life without a plan to guide you on your journey.

What do you think?  Do you agree with these financial steps, or would you rearrange them?  If so, what order would you put them in?

***Photo courtesy of http://www.idpinthat.com/edit/4335

The Advantages of Using a Mortgage Broker over a Bank

The following is a guest post. Enjoy! 

Dana at Tundra Mortgage Brokers recently shared her opinion on the benefit of hiring a mortgage broker to help with a home loan, instead of going directly to a bank. Whether you’re a first time buyer, a property developer, or an investor; could you really benefit by turning to a broker when it comes to borrowing money?

In this post, we’ll be diving into the advantages of using a mortgage broker instead of applying to a bank directly – and just how much you could save by doing so.

The Potential to Compare Interest Rates

Have you ever actually sat down and tried to compile a list of the different rates offered by banks? Not only do most of those in Australia (and other parts of the world) propose varying rates depending on the type of loans available; there are also fixed and variable ones to consider, too. As you might imagine this process can be quite time consuming and this is actually something that mortgage brokers typically specialize in.

Most will offer effective interest rate comparison services to those in need – and if you hire a great one, you could be looking at a selection of options in the space of a couple of days (or less!)

Recognizing a Great Deal

What’s the one thing that most borrowers will want to make sure they do when applying for a loan? Keep their costs as low as possible, of course. There aren’t many mortgages that won’t go on for at least a decade (or three) and so finding a great deal can make a lot of difference to your future finances.

A good mortgage broker should be able to compare the varying terms and conditions proposed with specific loan packages and hone in on the best available on behalf of a client.

Taking the Stress Out of Applying

Another frequently overlooked advantage of hiring a broker is the fact that they can actually take care of the technicalities, to minimize the stress that you feel when applying for a home loan. As they’ll be the middle-person when dealing with a bank you will often be able to submit your documentation to them directly, so that it can be forwarded to your chosen bank.

This can make it easy for you to minimize the formal activities associated with applying for a mortgage and allow you to focus on what really matters; getting approval.

You might need to cover a small cost when hiring a brokering agency up front, although some are happy to offer their services free of charge to you for commission from a bank, but just imagine the long term financial savings that you could enjoy. For a relatively small fee at first, you could save yourself thousands of dollars by ensuring that you sign up to a cheaper deal than you would have when applying to a bank directly.

Smart Money Management vs. Cheapness: The Eternal War

The following is a guest post by CM at Infinite Transcendence. Enjoy! 

Which Side Are You On?

People are often big on saving money since budgeting is a major part of life in your personal life and in business.  With poor money management, even the richest person can become poor very quickly.  There are countless stories of people with money going broke, and our country is a debtor nation.  Clearly, we need to spend and utilize our resources wisely.  The average person has student loans, car loans, mortgages, and a manner of other expenses.  Controlling these wisely is essential to living a life of freedom.

The difference comes down to how people choose to manage their money.  A few people manage their money from an overall cost evaluation while others simply cut down costs as much as possible no matter the expense.  Today, I’d like talk about the major difference between effective money management and being cheap.  This is something, when done properly, will make a major difference in how you live your life.  You will essentially increase your productivity while reducing costs.  That’s why smart money management is important.

 

What Is Cheapness?

Cheapness and effective money management are two different things.  Some prefer to use the word frugal to describe wiser money management.  I prefer the term smart money management because it looks at other factors outside of simple dollar and cents costs.  An individual who is cheap is someone who values monetary cost above all others.  They’ll waste immense amounts of time, comfort, energy, and sanity just to come ahead a few pennies.  They’ll drive clear shot across town to save a few pennies on gasoline.  Nothing is ever irrational if it’ll save them a few dollars, even if the cost is countless hours of frustration afterwards.

Have you ever:

  1. Bought food that was expired just to save a few dollars?
  2. Spent lots of time arguing over a minor price difference just to save a few dollars even if it meant burning a few bridges?
  3. Sacrificed quality to an extreme level to get minor savings?
  4. Massively inconvenienced yourself for a good deal: i.e. sleeping in front of a store for a weekend just to save on some item?
  5. Gone without something you really need for a long time because you simply didn’t feel like paying the price?
  6. Given up a lot of time, convenience, and quality in any other way in a disproportionate way compared to the cost?

These types of activities will only ensure that you end up further behind when it comes to building wealth and intelligent financial management.  People who want to succeed at not only managing money effectively but also in terms of building wealth will avoid this behavior like the plague because it only ensures that you’ll expend more time than what your money is worth.  Time is far more limited than money and people who want wealth are cheap with time.  Treat your time and your energy sacred.  You’ve already traded it once to make the money.  Don’t trade it again being cheap.  You’re then spending a multitude of time for a minor savings benefit.

 

The True Cost of Cheapness

People don’t look at the true overall cost of being cheap.  I have known many people who will indeed drive across town to save gas, or go through other extreme lengths to save a dollar.  One situation I remember with my own family was when we were moving.  Instead of paying for a larger U-Haul truck and hiring some extra help, they wanted to do it without help on a smaller truck.  It took around 7 trips and 4 trips on two smaller trucks to get it done.  What should have been a day or two job ended up taking several days.  This time could have been spent putting the items in the house or relaxing and using the time on something more fulfilling.

I had another friend who just used their cars instead of U-Haul and it took them an entire week!  They would have been better off hiring the help.  These things often come up in business where the time it would take to do something would be better off spent being subcontracted so that you can focus on the things that will generate you the most business.  It’s the principle of working “on” your business and not in it”.

Another negative is using cheap or inadequate tools.  This can easily run you in the red because you’ll have poorly done work or you’ll end up with sub-par equipment or machines that can fall apart on you.  This can even put you in risk in certain situations.  Many people have been harmed or killed due to machine malfunctions.  In most cases you’ll end up spending a lot of money fixing problems that could have been fixed the first time.  A $1000 job ends up costing $5000 because you tried to cheap out and spend $500.  Compounded with the time cost this is just not an effective way to manage your resources.

 

Avoiding Cheapness In The Future

Here are some ways to avoid cheap behavior in the future:

  1. When making a purchase decision whether its’ a product or a service, analyze the true cost of everything. Time, money, frustration, and time spent fixing problems again should all be analyzed.
  2. Think buying time instead of strictly saving money.
  3. Hire people when you can. That time could be used to increase your productivity elsewhere. If you can hire someone for a job that’s $50 that takes them 7 hours, is it worth it to do it yourself when you make $20 an hour?  You’re paying yourself a low wage to do the work in this instance.
  4. Use quality tools whenever you can. It saves time and you don’t have to replace them as often.
  5. Use quality parts when doing repairs. Nothing is worse than nickel and diming yourself over cheapness.
  6. Look at freeing yourself up. This means having the time to do the things you enjoy in life.

Following these tips should launch you ahead in managing your money and time resources adequately.  Simply remember with wealth management that time is a major factor as well as money.  Don’t squander your time for meager financial savings.  You’ll find that you end up digging yourself deeper into the hole.  Go out and start budgeting wisely today!

***Photo courtesy of https://www.flickr.com/photos/76657755@N04/7408506410/sizes/l

Berkshire Hathaway Shareholder Discounts

The following post is by MPFJ staff writer, Marie. You can read more of Marie’s articles over at her own blog, Family Money Values. Enjoy! 

After I started blogging at Family Money Values, my research led me to discover the “Woodstock for Capitalist” – the annual meeting of Warren Buffett’s Berkshire-Hathaway company.

 

The meeting.

To my knowledge, this is the only shareholder meeting that offers not only a chance to vote on proxy items in person, but also access to the ‘sage of Wall Street’ and his side kick Charlie Munger as well as a chance to glimpse some of the board members, including Bill Gates.  Buffett and Munger (he is a riot by the way) host a question answer period to a jam packed convention hall for most of the day.  The actual meeting typically lasts less than an hour.

There are dinners, a chance to mingle the night before with other shareholders, a 5k run, a huge exhibition hall and multiple shareholder discounts.

Eager to see the spectacle, I bought B shares of BRK stock in 2012.  Unlike the A shares (which as of 5/2/17 were valued at about a quarter of a million dollars per share), the B shares were only around $112 per share.

That first year, my spouse, my two grown sons and I drove to Omaha and spent the night so we could get to the meeting in time to see the movie.  The hotels were booked as early as January but we managed to get two rooms in a not so nice hotel at a price I could stomach.  We drove to the meeting in the morning and made it in time to see the starting movie – from the nosebleed section of the hall.  It was sort of a funny movie, with a lot of subtle and not so subtle advertising for Berkshire companies.

It was interesting seeing and listening to Buffett and Munger and hearing the questions folks came up with.

For lunch, the food vendor stalls in the hall are open and doing a brisk business.  We ate standing up as their were no empty seats.

Later, we strolled down to the exhibition hall and looked around.  There were some pretty good discounts (we bought a couple of knife sets) and then there were things that still seemed a bit too expensive (like the See’s Candy)

We didn’t take advantage of the 5k run, the reception on Friday at Borscheims, the steak dinner for shareholders (you still have to pay) at Gorat’s, or compete with Buffett in the Newspaper throwing challenge.  Nor did we get over to the Omaha Nebraska Furniture Mart or the Borscheims – where even more shareholder discounts were said to occur.  We did ride over to see the Netjets planes at the hanger.

Each year since, my spouse and I have attended the meeting – driving up the morning of it.

As the meeting attendance has swelled over the years, straining the area resources (hotels, convention room etc), the Berkshire folks have made some adjustments.

Last year, they initiated a live stream of the Saturday meetings.  If you are interested you can view that on Yahoo Finance https://finance.yahoo.com/brklivestream/

 

The discounts.

This year, Berkshire-Hathaway opened up the shareholder discounts to include all locations of the Nebraska Furniture Mart – NFM –  (Omaha, Kansas City and Dallas-Fort Worth), instead of limiting the discounts to the Omaha store.

I was excited about this one as we live near one of the other stores and was hopeful that the discount amounts would be significant, since we had gotten some good deals in the exhibit hall.  So, as soon as our proxy material arrived, with the form to fill out to receive shareholder credentials (which you need to get into the meeting and to get the discounts), I sent it back and got our max of 4 credentials in the mail.

The discounts run for several days prior to and throughout the weekend of the annual meeting. Yesterday was the first day of the NFM discounts so I geared up and went shopping to check them out.

As I had never been and couldn’t find any information online, I had no idea about what to expect.  Would they be limited to certain items?  Would the discounts be a set percent?

As soon as I entered the store, I asked the first person encountered how the discounts worked.  Unfortunately, that person was a security guard and didn’t have much information.  But he did tell me that I should talk to a sales person.  The appliance section was near (NFM at this location is huge so distance mattered!) and I quickly found a salesman to help me out.  Here is what I found.

The discounts are embedded inside the store’s database, not displayed anywhere.  You have to find an item in which you are interested, scout out a salesperson (who is usually on commission), show him your credential and ask him what the discounted price is.

Alternately, if you are the actual shareholder, you are in that database too and you can call in to check on prices and make an order.

 

Examples of the underwhelming discounts

So, I checked out some of the items I’m interested in obtaining to see what kind of discount they had.

I was underwhelmed, to be honest.

  • Samsung washer – manufacturer suggested retail price of $899, sale price to any shopper that day at NM of $643, and BRK shareholder discounted price of $630. Hmmm only $13 less than anyone else.
  • Samsung matching dryer – same prices as the washer.
  • GE black basic refrigerator freezer with ice maker – manufacturer suggested retail price of $994, no sale price to any shopper that day, BRK shareholder discounted price of $974.12 – only discounted $19.88.
  • Wood swivel counter height stool – regular NFM price of $159, discounted for shareholders to $127. While this was a better percentage than the appliances I checked, it was nowhere near the 30% off I had dreamed about.
  • Upholstered swivel counter height stool – regular NFM price of $369, discounted for shareholders to $295.

While it is nice to get a shareholder discount, the process used and the seemingly small percentage off what others pay was discouraging and time consuming.

Still if you are buying something anyway, and have access to shareholder credentials, it is worth checking out.  Who knows, maybe other merchandise was discounted at a higher percentage.

I have enjoyed going to the meetings and hearing first hand from the sage, but even better has been the growth in share price of BRK-B (which was at $166.65) as of the last quote – a rise of $54.65 per share – gee, which I had bought more!

Discounts aren’t everything. How about you all? Have you encountered any underwhelming discounts recently?

***Photo courtesy of https://www.flickr.com/photos/132053576@N03/17063139357/sizes/l

How to Throw a Fun Yet Affordable Graduation Party

The following post is by MPFJ staff writer, Laurie Blank.  Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.

Summer is around the corner, which means families everywhere will be getting ready to throw high school and college graduation parties. If you’re preparing to throw a graduation party and have been talking to parents of other grads, you’re likely beginning to prepare to spend a LOT of money – or panicking about how a graduation party will affect your family finances.

The good news is that a great graduation party doesn’t have to be super expensive. Abandon thoughts of catered dinners and expensive decorations, and consider these ideas for a fun yet affordable graduation party.

Share Your Party

If your graduate has a best friend, family member or significant other who is also graduating, consider doing a shared graduation party. Not only will you be able to split the costs with the other family, but many of your guests will probably know both graduates and will likely appreciate having to only attend one party as opposed to two.

Cut Down on Equipment Rental Costs

It can be expensive to rent party tents, chairs and tables. A cheaper idea may be to rent a local park pavilion or to hold the party at the home of a friend/family member who has a large garage where most guests can be indoors without the need for a tent. Borrowing tables and chairs from family and friends can help cut down on costs there. Since the tables will be covered with tablecloths anyway it doesn’t matter much if they don’t match.

Keep a Handle on the Food Budget

There are several ways you can make sure the food budget for your graduation party doesn’t get out of hand.

Choose Your Party Time Carefully

Know that time of day makes a difference. If you hold your party at lunch time (between 11 a.m. and 1 p.m.) or dinner time (between 4 p.m. and 6 p.m.) people will expect a full meal. However if you hold the party during midday hours, you can get away with serving a lighter assortment of finger foods and appetizers.

Don’t Do the Catering Thing

Catering is often the largest expense for graduation party holders, but it’s not always a necessary expense. Choosing foods that are inexpensive and easy to prepare, and asking for help from close friends and loved ones will help you save substantially on food costs. Here are some ideas for easy-to-prepare and serve, inexpensive foods.

  • Go to the warehouse club for maximum savings. They have great specials on deli meat, or if you really want to save you can get pulled pork for about $2 a pound and throw some BBQ sauce on it.
  • Inexpensive salads. Again, the warehouse club is your friend here. They sell pastas, lettuce and other veggies at amazingly low prices and huge quantities. Look online for salad recipes that are inexpensive yet delicious.
  • Potato and other chips may not be an adult favorite but kids love them. Warehouse clubs and stores like Aldi sell chips for super cheap.
  • Fruit and vegetable trays. Instead of buying already prepared fruit and veggie trays, shop at the warehouse club or Aldi and recruit a couple of friends to help you put together a nice array of fruits and veggies along with some store bought dips.
  • Warehouse clubs such as Sam’s Club and Costco sell delicious half and whole sheet cakes for amazingly low prices. You can usually get a whole sheet cake for under $40. If you don’t want to go the cake route, have close friends and family members contribute a plate of bars or cookies and have a dessert buffet instead of cake.
  • Lighter fare. If you’re doing a midday party you can get away with deli sandwiches cut into triangles and an assortment of veggies, fruits and chips.
  • Instead of serving sodas, choose to make punch with any combination of lemonade or Koolaid and add in lemon lime soda or Ginger Ale. Much cheaper, and different too. People drink soda often but rarely get to indulge in punch.

Invitations

Technology has made it very easy to do your own graduation party invitations, either on your home computer system or at a DIY photo system like the ones at Walmart. With pre-made templates to choose from, creating your own invitations will be cheap and easy.

Decorations

Decorations don’t have to cost a lot of money. Consider these ideas for a beautiful but frugal graduation party.

Tablecloths

Buy tablecloths at the dollar store in your child’s school colors for a colorful but inexpensive addition to your party.

Table and other Decorations

Instead of buying table centerpieces, use photos laid on tables or arranged nicely around the area, or use other items from home that reflect your child’s interests and talents. Books arranged nicely with ribbons work well as decorations too.

You can also decorate using your food choices.  Check out this Pinterest board for fun but easy ideas such as Diploma Cookies and Graduation Hat Pops.

With a little creativity and work, your child’s graduation party can be fun without draining your bank account.

A Word about Your Home’s Appearance

If you’re having your child’s graduation party at home, you may feel like you’ve got to remodel and redecorate and have your home looking picture perfect for the party. Know that cleaning, decluttering and a few inexpensive home enhancement decisions like a fresh coat of paint and a few flowers can go a long way. No need to remodel your entire home to impress people for one day. On the other hand, if you’ve been meaning to remodel anyway and have the cash on hand, an upcoming graduation party can be a great excuse to finally get it done.

How about you all? What are your tips for saving money on graduation parties? Do you have any ideas for inventive graduation gifts? 

Share your experiences by commenting below!

****Photo courtesy https://www.flickr.com/photos/attercop311/3092138753/