Daily Preparedness

Before we get into our next face of grasping your financial bull by the horns, check out the new page entitled ‘Frugalmania’‘. The tab is at the top of the page and it will direct you to the first four categories of frugality tips. Have one to share? Email it to us! New categories will be added shortly and the newest items in each category will be written in italics.

All self-promotion aside, if you followed the instructions from last week’s post, you should have a clear idea of where you stand financially. You should know how much money you make, how much you spend, how much you owe and how much you have saved. Don’t you feel clever? You should and now it is time to make some decisions and plans to reach your GOAL ! ! ! !

It is time to sit down, plan, think, confer, decide, make a list, plot a course and move onward. The only tools you will need is the financial information you have gathered, a pencil, a calendar, a calculator and a notebook or other sturdy type of writing surface.

First, if you are in debt and have not already done so, go through last week’s check list and slice everything you haven’t sliced from your budget. Your primary goal will be to get out of debt as soon as possible, build up an emergency nest egg and STAY OUT OF DEBT! Keep that in mind as we move forward with making plans.

Look at your nice blank calendar for the year. Fill in all gift giving occasions, including birthdays, known weddings, holidays, Mother’s Day, Father’s Day, graduations, Valentine’s Day, Easter and Thanksgiving. Why Thanksgiving? No gifts are involved but there are usually increased food and social costs so you need to plan for them. If you have detailed enough records, look back and see if your spending spiked during these periods. Was it a reasonable amount or was it too much? Either way, you will need to work these extra expenses into your savings plan.

Do any of these events incur travel expenses? Can you afford that? Can you plan far enough ahead to cut your costs? If they are family events, can extended family members help with travel expenses so that they can meet your new little bundle of joy? Estimate realistically what these trips are going to cost you.

On your piece of paper, develop a budget for these events and divide the cost over the next 12 months. Add that amount to your savings projections.

It might be helpful at this point to start a spread sheet or a month-by-month cost analysis for the major categories. It will help you keep track of what you are saving for and the amount you have available to you. Only you and your family can prioritize many of these categories and decide where you can or want to cut back.

Next, write down any household repairs, car repairs (including emissions, safety, tires, etc), or major items you know you will need for the next year. Add those amounts up and divide by 12. Enter into your monthly expense chart.

Now, you get to write down things you would like to purchase or trips you would like to take. Think about even mundane things such as a new mattress, a new freezer or new television. Set a realistic budget for these items. It might be worthwhile to do some research about the items you believe you want to purchase, typical prices, features, etc. so that you can be prepared.

If you can chart all of these items in addition to the ‘regular’ household expenses you previously figured out and still have money left over–wahoo! You have a plan!

If you cannot cover all of your regular expenses and pay off your debts while covering these other expenses, you will have to cut items from your newly formed ‘wish list’ and/or your regular expenses.

For those that are out of debt and saving on schedule, the purpose of the exercise is for you to identify not only what you might need for the next year, but what you want. If you and your family/spouse agree on the list of priorities, your discretionary income will be better channeled. The biggest secondary benefit is that by identifying the items you will need/want for the coming year and doing the preliminary research, you will be prepared to pounce on a good deal when you find it.

Example:

You want a new stainless steel refrigerator. It is on your list and everyone agrees that it is a good idea for the coming year. You do some preliminary research to know what size your kitchen can hold, what features you want, which brands are best and the expected cost. You have the money set aside, but no strict deadline for purchase. One day, you stop at a store for an item and decide to browse through the appliances. And there it is–your perfect stainless steel refrigerator with every feature you want and it is the last floor model. It is marked 50% off the normal price. Eureka–you did it! You knew what you wanted, what it should cost (so you knew the 50% off was really 50% off the retail) and had the money!

Likewise, if you want to go to cousin Freddy wedding in August, you know it will cost your family $2000 to go. You’ve carefully shopped for hotels, tickets and even calculated in the cost of clothing. By doing your analysis, you see that you simply are not going to have the $2000 in time. You will know have to decide if there is another way to accomplish your goal (can one family member go or could you find a cheaper place to stay?) or decide that going to cousin Freddy’s wedding is not something you can do this year. If you can afford it, you have plenty of time to shop, plan, bargain hunt and get the best possible prices on everything before August.

Having a plan also helps develop self-control. It is easier to tell yourself, “I don’t really need this dress and I want to go to cousin Freddy’s wedding more” than it is to tell yourself just plain “No”.

If your goal is to simply get out of debt (and that is a FABULOUS PLAN that should be your first plan), give yourself a visual reminder of that goal. Fill an empty jar with beans. Mark the jar (a permanent marker will write on glass) in increments of debt, proportionate to the debt and your time table for paying it off. It can work best if your first few marks are fairly small amounts–say what you can pay off in a week’s time. You can lengthen the increments as you get further into the plan.  For example, if I had $10,000 in consumer debt that I was going to pay off in the next year,  I would make my first mark at $200 which would be a little bit more than one week’s ‘pay down’. I would do this for the first several months worth of weeks and then lengthen it to monthly. Unless you need constant re-enforcement! You might add a bean to your wallet to remind you of your goal. As you pay off that debt, take out the beans to that line. When the jar is empty, you are FREE!! Pat yourself on the back, roast a marshmallow, sing a song and enjoy the freedom–then stay that way!

Having a plan helps family members understand cut backs in other areas and gives you a common goal to work towards. Just remember to keep saying, “Nothing feels as good, looks as good or tastes as good as being financially free!”

Christmas is over and the New Year begins in just a few days. It is that time of year when our hearts and minds turn to setting ‘resolutions’ which we often forget by Valentine’s Day! Let this year be the exception and set not a single resolution, but rather set some goals for yourself and your family. Set goals that will improve your standard of living, your health and help you be better prepared for what looks like a bumpy financial ride for all of us!

Before setting a single goal, it is important to know where you are right now. Think of setting goals as the same process you would use when utilizing a GPS system. First, you have to know where you are in order to get directions to where you want to go. Today, let’s focus on financial well being and your ability to weather financial storms ahead.

Your starting point must include your current income, which should be easy to figure out. If you don’t know your gross and net take home pay, ask your employer to provide a year-to-date summary for you. Look at that summary and see what you currently have taken out of your paycheck. Are your IRS deductions reasonable? Did you pay a great deal of income tax last year when you filed your return or did you receive a larger than necessary refund? Although lots of folks LOVE getting those refunds, they are actually interest-free loans that you have granted Uncle Sam. Be realistic and consult a tax expert if you have questions.

Next look to see if you are taking advantage of the benefits provided by your employer without being over-insured or paying for benefits that you aren’t using. Do you take advantage of 401K contributions matched by your employer? What about a pre-tax health savings account–which is only worthwhile if you actually use the full amount every year! And don’t forget pre-tax childcare expense accounts.

Now you know how much you make. Do you know how much you spend? Do you know how much you owe others? Take a cold hard look at your spending habits by pulling out (or accessing online) your previous bank statements. Who is getting the bulk of your money? Is there a fair amount of cash unaccounted for?

If you haven’t already done so, write down every single mandatory monthly payment that you must make. Don’t forget mortgage, insurance, student loans, debt in any form, utilities, TV, phone, internet, tuition, cars, etc. This first category should include only those expenses that are set each month.

The second category will be flexible expenses such as savings, clothing, food, gas, donations, travel, entertainment or gifts. If you don’t know how much you spend on these items, it is likely that you are using cash. That isn’t bad, but it can be difficult to track what you spend. For the next few weeks, write down anything you pay cash for and calculate that into this category. Be brutally honest or the exercise will be pointless and you will not know where you are beginning from!

Add up these two categories and see if you are running a deficit. If you aren’t, you should be saving every month and never having to worry about when the next payday is. But, if you have loans that you must repay or are carrying a balance on any credit card, you are still experiencing deficit spending–just keep that in mind as we proceed to decide where we are right now!

You should have a fairly clear idea at this point if you are living within your means, way above your means or (the best of all possibilities) BELOW your means and saving the difference.

For those of you living below your means–good on you! You know what you make, what you spend and are saving your hard-earned money. You now only need to decide if you are taking advantage of all possible tax benefits, investing your money wisely and where you want to be in the future. Are you on track for goals one year, five years, ten years and twenty years in the future? Are you utilizing your common sense and self-discipline to be prepared in other areas of your life? Are you enjoying life–are there things you would like to do or to acquire? Do you have a plan to accomplish those wishes (you probably do, but it never hurts to check)? Do you know what you could cut from your budget immediately if need be? Do you know exactly how much money you have to have on a monthly basis? Set your goals based on the answers to those questions, and keep reading just in case you can learn something new. Or post your suggestions to everyone else!

If you are living just within your means, go through the following exercise with those living above their means. You are failing to get ahead and truly prepare yourselves and your family. Should you hit a ’speed bump,’ your security will be threatened. Now is the time to re-appraise, cut back and save, save, save, save. Acquire no new debt, pay off any that you have as quickly as you can and strengthen your overall level of self-reliance.

Those of you in a serious deficit spending lifestyle need to stop–RIGHT NOW!!! If you are consistently spending more money than you make, it is time to swallow a giant dose of self-discipline and take off those rose-colored glasses. Put your credit cards away, analyze the living daylights out of that budget and start cutting TODAY!! Not tomorrow, not after the holidays are over, not after that big family reunion, not after your teeth are whitened, etc, etc, but NOW! Take a cold, hard, self-reproaching look at those expenses you have written down and face the facts head on:

Do you have cable TV? Cancel it today.

High speed internet? Cancel it today.

Eating out (and that includes stopping for a soda or a candy bar out of the vending maching)? Stop today.

Giving generous gifts? Stop today. Make something simple or just send the person a well thought out and meaningful letter.

Buying new clothes? Stop today. Use what you have, shop clearance racks, garage sales, thrift stores and freecycle.org for items you really have to have.

Having manicures, pedicures, massages, spa visits? Stop today.

Insisting on designer labels? Get real!!

Eating prepared, over-priced and nutrionally challenged foods? Learn to cook! It isn’t hard, really it isn’t!

Renting movies or paying for Netflix? Stop it…the library offers a wide variety of DVD’s for free.

Paying for a zillion and one activities for your children? Stop and send them outside to run around. Take them to a free playground or one of the many free museums around you. Give them some paper and crayons or even better scissors and glue! Read a book, play a game or just talk to each other.

Going to the movies? Please, wait for the DVD at the library.

Buying books? Again, the library and that goes for magazines as well.

Driving around burning up gas? Consolidate necessary errands (first you have to learn what is really necessary & needful) and save gas.

Need something or have something you don’t need? Try freecycle.org or craigslist. You might be surprised what you can give away or get for free.

Bartering is a good thing, too.Can you exchange mending, child tending or gardening for Junior’s piano lessons? Save your cash and exchange your skills.

Eating fancy meals, even at home? Learn to cook and enjoy staple, inexpensive foods high in nutrition and low in fat.

What about prepared snack foods? String cheese, chips, cookies, candy–all high in calories and low in nutrition. Pop some popcorn or make a batch of nutritious cookies from your food storage. Cut up a chunk of cheese. Stick snack foods in ziploc bags before you leave the house so that you won’t be tempted.

Is your home over-heated? Turn that thermostat to a reasonable level. Turn it down even further at night and put a sweater on in the daytime! Close the curtains, plug up drafts and wear warmer clothes.

Utilities sky-rocketing? Turn off lights, electric appliances and other energy-sucking items when not being used.

Batteries eaten up by gadgets? Either use re-chargables and/or cut down on the gadgets.

Cell phone bills silly? Ask yourself–do you really need one? Is Junior texting everyone on the planet? Does Junior even need a cell phone? Are you using up or paying for too many minutes?Will your employer subsidize your cell phone?

Shopping for fun? Try going for a walk, reading a book from the library or visiting a friend. Shopping = spending = more debt = more stress = no fun at all.

You get the idea, don’t you? Slash all discretionary spending and pare down even ‘necessary items’ to their barest levels. Pay off that debt NOW! Keep telling yourself that nothing tastes as good, looks as good or feels as good as being out from under the load of debt and uncertainty.  For anyone living below their means or just at their means, this should be your first goal of the year–control spending, cut anything unnecessary, pay off debt and save something! Set weekly, monthly, quarterly and yearly goals. Keep close record of how you are doing and pat yourself on the back as you accomplish each goal. You’ll like yourself and each new day much more when you are financially free.

For everyone else, you might want to do the same analysis of your spending to be certain you know where you are spending your money. Analyze exactly what you would have to have to live if your income was slashed. Also, set goals for those things you want to do with your money this year. Write those goals down and divide them as explained above.

We have all heard and should all have internalized that we are collectively facing an economic upheaval. No matter what your income, your profession or your situation, we are all likely to be affected by what promises to be a rocky ride. Fasten your seatbelts and prepare!