The union of two people in love, the birth of a new family member, the birthday of a person we hold dear to us; these are the times when we want to show our appreciation and gratitude for having these people in our lives.

What we wish to express is priceless, but we like to express it through purchasing gifts at costs that can bust our budgets. Fortunately, there is a way to generously express our emotions while keeping inside the realms of our budgets.

Anticipate Purchasing Needs

Some events are predictable, such as your best friend’s birthday, your anniversary, or Christmas. Take a moment to sit down and write a list of all of the predictable special occasions over the next year that will occur.

Chances are you’ve seen something while shopping that you thought might be perfect for “so-and-so”. Start filling in this list with the gifts you have seen already that would be perfect for a person and an occasion. Keep your occasion list around to refresh your memory before heading to stores.

Build Gift-Purchasing into Your Budget

One reason why special occasions can be budget busters is because they appear as unpredictable expenses in our budgets. You can get around this by building them into your monthly budget.

It is helpful to know an approximate amount you want to spend on occasions throughout the year, so sit down and come up with a rough estimate. Then divide this by 12, and you have the amount of money each month that you have designated towards making gift purchases.

Time is on Your Side

By knowing what gifts you want to purchase and for whom (from the list you made in the first step), and by designating an amount you can spend each month (from step two), you can now shop at the most opportune times throughout the year.

This puts you at a huge advantage. Not only can you spend longer picking out the perfect gift for that special someone, but you now have built-in time to wait for the item to go on sale! There are always large sales and deep discounts at the end of a season. For example, purchase camping equipment at the end of summer, or sweaters at the end of winter.

Designate a Space for Your Gifts

Now that you will be shopping year round for gifts (how fun!), you will need to designate an area to hide your gifts so that loved ones will not find them and ruin their surprise! Try an attic, box in the basement, pushing them under the bed, or any other forgotten area in your home.

Using these steps should take the stress out of shopping for special occasions and holidays because you have given yourself the gift of time and an allocated budget. This will allow you to freely enjoy giving of yourself, which is the true idea behind giving gifts.

Click here to leave a comment on this article.
© My Dollar Plan
Get free subscriptions to hundreds of popular magazines!

Fast forward to adulthood. At one time my spending got out of control. No matter how much I earned, I spent more, so I used credit cards to make up the shortfall. Credit cards charged interest, which led to more debt, which meant I had to borrow more…  Sound familiar?

If you are having trouble controlling your spending you might want to consider giving yourself an allowance. This worked wonders because it taught me to control my spending and build up my savings. Painlessly.

Give Yourself an Allowance

Here is how it can work for you:

1. Give yourself a set amount each week. In my case I withdrew $50 in cash every week. I arrived at that amount by tracking my incidental spending over a period of two weeks. Whatever the amount, it should be reasonable and an absolute limit.
2. Use your allowance for all incidental spending. Incidental spending might include any meals or snacks out of the house, movies, books, unplanned purchases, etc. Don’t include items that are already budgeted for such as groceries, gas, etc.
3. At the end of the week save what is left over. Deposit any excess into a savings account. This could be your emergency account or just a “fun” account you set up for this purpose. If there is nothing left over that is OK too!
4. Make it a game. At first it was tough to control my spending and keep it under the limit. Over time I rose to the challenge by making it a game of sorts. Every week my goal was to save as much of the allowance as I could. The reward was that at the end of the year I could use what I had saved for anything I wanted. At the end of the first year I had over $600 in the savings account (which I applied towards my debt).

Advantages of an Allowance

The advantages of putting yourself on a weekly allowance are:

1. Freedom to spend within reason. One of the best aspects of having a weekly allowance is it eliminates the need to micro-budget every aspect of your financial life. Budgets often fail because people feel they are too constraining and don’t allow for any flexibility. An allowance gives you some flexibility with a limit attached.
2. Teaches you to control spending. Habits are a huge factor in the way humans behave. By getting into the habit of only spending so much a week you set yourself up to maintain this habit even if you eliminate the allowance later.
3. Reinforces the habit of saving. Saving the leftover allowance is a way of teaching yourself that saving money is just as easy as spending it. Once you start saving on a regular basis it becomes another habit that is difficult to stop.

Allowance Tips and Tricks

Don’t Cheat! The only way an allowance will work is if you are 100% honest as you use it. If you cheat, you are cheating yourself of the opportunity to relinquish bad habits for good ones.

Save even more! Do you have a budget for other types of spending, like for groceries or gas each month? Treat it the same way and deposit any leftover amount into a savings account. Make it a game and reward yourself in some way. My guess is that seeing the amount you saved over the course of the year will be reward enough!

After the allowance. Now that I am out of debt I no longer have an allowance because it isn’t necessary. Interestingly, I still spend $50 or less a week on incidentals. Having an allowance taught me that I don’t need to spend, and that saving is something fun and worthwhile to do.

Have you tried giving yourself an allowance to control your spending? How did it work out for you?

Click here to leave a comment on this article.
© My Dollar Plan
Get free subscriptions to hundreds of popular magazines!

Checking account overdraft fees now account for more than 75% of the fees banks charge on consumer deposits. The median overdraft fee is $26, and can be much higher. Worse, the fee can be assessed each time you overdraw your account, up to several times a day according to the report. Disturbing news if you happen to have a checking account, isn’t it?

The good news is that overdraft fees can be easily avoided with a little forethought on your part. These tips work whether you keep your check register manually or electronically:

How to Avoid Overdraft Fees

1. Keep your Register Updated. Simply put, if you don’t know how much money is in your checking account right now, then you are at risk of overdrawing your account. Many people think keeping a check register up to date is a hassle. Instead, make it a habit by entering each check or debit card purchase as it is made. Set aside time when you get home to balance the register. Do this every time you spend, and soon it will be second nature.
2. Don’t Forget ATM Withdrawals. One of the easiest ways to lose track of your money is to forget to record cash you withdraw from an ATM. It happens to people all the time – they forget to record the withdrawal and when the bank statement comes they find out they have $50 or $100 or whatever amount less than they thought they had. Nip this potential problem in the bud by always getting an ATM receipt. Place the receipt in a safe place. When you get home refer to the receipt to enter the withdrawal into your register.
3. Remember to Record Automatic Payments. Having your utility or insurance company automatically take payments out of your checking account can be very convenient. Overdrawing your account because you forgot to record an automatic payment is decidedly inconvenient.
4. Review your Statement. The best way to keep tabs on your checking account is to compare the monthly statement to your check register. Any discrepancies need to be taken care of immediately. If you have done a good job keeping track of your money there will never be a discrepancy – and that is the goal.
5. Cushion your Checking Account. Having a little cushion in your account is probably the most effective way to stop overdraft fees when all else fails. To create a cushion, record a withdrawal in your register of $100 or whatever you want the cushion amount to be but leave the money there. Try to forget about the cushion and carry on as usual. If you get into trouble and accidentally spend more than your balance that $100 (or whatever amount) will be sitting there to take up the slack, and hopefully prevent a nasty fee.

Click here to leave a comment on this article.
© My Dollar Plan
Get free subscriptions to hundreds of popular magazines!

The System

I use an Excel spreadsheet to manage my budget, track my spending, and monitor my savings. To use this system, you must have a budget already in place. If you don’t, you might want to start one and return to this post at a later date.

My spreadsheet has 5 tabs: Summary, Checking, Savings, High Interest Savings*, and Budget Tracking. Below I’ll explain each tab in detail. I recommend you download and open the full spreadsheet to follow along. I’ve entered some sample transactions to help you see how everything fits together.

In order to maximize rewards, I pay for everything I possibly can with a credit card that I pay in full every month. This system helps me make sure I stay within my budget AND have enough money to pay my credit card each month. If you don’t use credit cards (or are sticking to cash while you get out of debt!), you can still use this system.

Summary

This tab shows your budget and balances in your checking, savings, high interest savings, and credit card accounts. You’ll also notice a section called “Direct Deposit Totals.” My company lets me direct deposit into multiple accounts, so I split my check based on my budget categories.

All my budgeting is based on pay periods: I split monthly costs such as rent and my student loan payment and take half the cost out of each paycheck. Money that will be spent in this pay period goes into my checking account, money that will be spent in the next month (like rent) in my savings account, and money that will be saved indefinitely (e.g., emergency fund), spent irregularly (e.g., gifts), or spent in more than a month (any long term savings goal) in a high interest savings account. If you can’t direct deposit to multiple accounts, you can achieve the same thing through auto-transfers each time you get a paycheck.

You’ll notice my budget categories are pretty simple. “Food” is both eating out and groceries. I basically incorporate anything not named (e.g., entertainment, haircuts, small household purchases) into “Personal.” “Savings” is a fixed amount that I split into different categories in the “High Interest Savings” tab – we’ll get there in a bit. You can choose to have more or less budget categories – this is all about finding a system that works for you. Please note that the numbers here are just a sample and not an indication of what I think you should spend in each category!

For each account, there is a line called “according to me” and a line called “according to them.” “According to me” is an auto sum based on the information you enter in the other tabs (Checking sums all the categories in the checking tab, Savings sums all the categories in the savings tab, etc.) “According to them” is what the bank or credit provider says your account balance is – a number you can get by logging into online banking. The number in each “difference” line should always be zero – if anything doesn’t balance, either you made a mistake in your tracking or your bank made a mistake when calculating its balance.

You can adjust this sheet to include as many budget categories and accounts as you wish, as long as you include new tabs and/or update the existing ones as necessary. If you need help, please let me know via the comments and I’ll get back to you.

Checking, Savings, & High Interest Savings

I’ll discuss these three together because they are similar. This is where the actual tracking comes in. Within each tab are sections for each of the categories that are held within that tab. For each category there are columns for date, place, deposit, and withdrawal. Each time you get paid, you “deposit” the correct amount in the first line of each category. Each time you spend money, you enter the transaction in the “withdrawal” for the appropriate category. Each category gives you a running balance at the bottom, which feeds the total balance on the “Summary” tab. In order for this to work, you must enter every transaction – I recommend doing it at least every 3-4 days if not more often.

If you do your spending on a credit card like I do, you can use the “credit card” section within each tab to hold the money until your payment is due. Every time you make a withdrawal from one category, simply “deposit” the same amount of money in the “credit card” section. Your account balance stays the same, but the amount you have available in your spending categories goes down. You’ll see some examples within the spreadsheet. If you don’t use a credit card for your spending, you can delete this section or just ignore it. If you frequently withdraw cash, do your best to assign it to a category when you withdraw it. You can always adjust if your actual spending is different from your predicted spending.

A key section in each of these tabs is “holding.” This is for when you transfer money that will only sit in the account temporarily. For example, I transfer my rent money from my savings account to my checking account each month. I record it as a “withdrawal” within “rent” in the “savings” tab. I then make a “deposit” equal to the amount of the transfer within the “holding” category of the “checking” tab. Once the check clears, I make a withdrawal from the “holding” category. This ensures that all account balances are accurate at all times, even when you have money flowing in and out.

In the high interest savings tab, you will notice I split my savings into several categories. At the top of each category, I include the target amount for each paycheck and/or the overall goal. The “other” account is used for any unexpected expenses, like a donation if a friend is participating in a charity event. I also use it as a cushion if I go over my budget in a pay period.

Budget Tracking

This tab allows you to monitor your spending over time. You can track your spending in each category and see where you’ve gone over budget. This is the only tab that isn’t 100% automatic. The food, transportation, clothes, and personal lines add automatically for the current pay period based on the withdrawals in the “checking” tab. You have to manually enter your spending (which should be pretty fixed) for the other categories, including the categories that reside in your high interest savings account.

The spreadsheet will sum all lines to give you a total and compare it to your total budget for the month. It uses conditional formatting to compare each number to your budgeted numbers and turns the cell red if you are over in any category or in total. If you see lots of red, it may be an indication that you need to adjust your budget or reign in your spending.

To continue the tracking over time, follow these steps:

1. At the end of each month, take the current amount that is left in your budget for the period (found in line 12) and transfer it to your high interest savings or wherever you would like the surplus to go.
2. Copy the numbers in the current period (in this example, cells G2:G12) and paste them into the next period.
3. Then copy the current column, place your cursor in the first cell (G2 in this case) and use paste special -> paste values to get rid of the formulas and leave just the numbers.
4. Save work to this point under the current file name.
5. Save a new version (I use dates in my file name such as “Budget Tracking July 15-31”).
6. Delete all spending/withdrawal entries in the three account tabs.
7. Start tracking for the next period!

Conclusion

This is a way easier system in practice than it might seem on paper. It’s always harder to explain something than it is to do it, and I’m still new at this blogging business! If you have trouble with controlling your spending, I challenge you to try it for one month and report your progress in the comments. I’d be happy to answer any questions via the comments or in separate emails. Thanks for reading and happy tracking!

*If you don’t have a High Interest Savings account, you should! Check out Madison’s page for referral links.

Budget Tracking Spreadsheet

Download the Budget Tracking Worksheet to begin.

Click here to leave a comment on this article.
© My Dollar Plan
Get free subscriptions to hundreds of popular magazines!

As many of you may have heard, the government recently released the rules for its Car Allowance Rebate System (C.A.R.S.), also known as “Cash for Clunkers.”

The program’s goal is two-fold: to get older, less fuel-efficient cars off the road and 2) to encourage sales and leases of new cars in order to stimulate the struggling auto industry. Cash for Clunkers does this by allowing auto dealerships to offer a credit towards a new car to owners who turn in their “clunkers.”

Cash for Clunkers Features

• Fuel Economy: To qualify for the credit, your “clunker” has to have a combined fuel economy of 18 mpg or less and your new vehicle must get 22 mpg or better. You can calculate the fuel economies of both vehicles here. Remember: the comparison should be done between the “combined” values.
• Rebate Amount: The credit amount is either $3,500 or $4,500. It is calculated based on the difference in fuel economy between the “clunker” and the new vehicle. For cars (not trucks), if the new vehicle is 4-9 mpg better, the credit is $3,500. If it is 10 or more mpg better, the credit is $4,500.
• Your Vehicle: To see if your vehicle qualifies, you can use the Cash for Clunkers calculator or check the eligible vehicle trade in list.

More Details

Timeline: The program applies to trades that occur July 1, 2009 or later so if you traded in a car in July and didn’t receive the credit, you may still be eligible. It ends November 1, 2009, or when the funds are exhausted, whichever comes first*.

Combining Credits: You can combine this rebate with other dealer and government incentives. The Cash for Clunkers credit can be used in addition to any other rebates that the dealerships normally offers, and can’t be used by dealers as a replacement for their usual incentives. It can also be combined with government tax credits, like the one for hybrid cars.

Taxes: This credit will not be subject to income tax. However, whether it is subject to sales or local tax or not will vary by area.

What happens to my “clunker?” The Cash for Clunkers program requires that all “clunkers” be destroyed so that they can’t be resold, though some parts may be.

Is this Program for Me?

The Cash for Clunkers program should help the United States encourage automakers and consumers to move towards more fuel-efficient vehicles. For the right consumers, it can be a great way to save money on a new vehicle purchase they were going to make anyway. However, don’t let this credit sidetrack you from still doing your research and properly negotiating the best price for your car.

In addition, those who aren’t already in the market for a new car shouldn’t necessarily now make a purchase because of this program. A car may be worth more in a private party sale or worth more to its owner than cash. For example, a 2002 Ford Explorer with 75k miles could sell for about $6k on Craigslist and, if in good shape, should last another 3-5 years without many major repairs. In either case, its value to its owner is worth more than the government’s $4,500, especially if he makes an effort to improve its fuel efficiency.

If you’re ready to buy, be sure to get a free copy of your credit report before applying for a car loan.

Will it Last?

*Because of the popularity of Cash for Clunkers program, there was mention last week that the program had used up all the funds; then the House voted to inject an additional $2 billion to revive the program. No matter what Congress does, if you make a purchase, the rebate will be honored through Tuesday, August, 4.

For more information, see the Cash for Clunkers FAQ.

Click here to leave a comment on this article.
© My Dollar Plan
Get free subscriptions to hundreds of popular magazines!

Establishing a Budget

When I first became interested in personal finance in the fall of 2007, one of the first things I did was create a budget and tracking system. It allowed for savings, Roth IRA contributions, housing, and other categories such as food, transportation, clothing, etc.

Unlike many people who find that their first attempt at a budget is not realistic, my budget was actually pretty accurate and usable from the very beginning. Over a year later, my monthly budget is only slightly different from the very first one! So, post over, I’m awesome, right?

Wrong.

Blowing the Budget

I would say that I actually stick to my budget 100% perfectly (that is, come in on or under budget in every category) only about 10% of the time. Another 50-60% of the time, I might go over in a few categories, but still keep my total spending under the planned total.

And then there are the times where I just fail – for one reason or another, I allow my total spending to exceed my planned spending for the month. I always know when this is the case – my very detailed tracking system allows me to see how much money I have available at any given time.

When I know I have $20 available and then I spend $35 at a dinner I felt I couldn’t say no to, I have officially gone over. Even that wouldn’t be so bad, if only I stopped there.

But I recently noticed a recurring problem – once I complete the transaction that pushes me into the red, I cease to remember I have a budget at all. I spend, spend, spend: new dress here, extra dinner out there, and on and on. The initial $15 over budget turns into $50, $80, even $100 or more. Once I relinquish that first bit of control, I unleash a spending monster!

Getting Control of the Budget

Here are three things I’ve done recently to tame the spending:

1. Increase my budget slightly. This seems counterintuitive, but I realized that when I go over budget, I go way over. In general though, I work hard to stay under budget. Giving myself a little breathing room so that that one extra expenditure is still within my planned spending actually ends up saving me money in the long run!
2. Institute no-spend days/weekends. When I realize I’m running low in certain categories or overall, I institute no-spend days. This means no money physically leaves my bank account; I am still allowed to use things I have already paid for like gas and cable. Other than that though, I can’t spend a dime, so I have to make meals using existing groceries, watch TV or movies that I already own, and only go out for free entertainment such as museums (I live in DC).
3. Be honest with those around me. In the past one of the reasons I’ve overspent is because I don’t want to look like I either don’t have money or like I am too obsessed with saving money. After all, I’m only 23, not a very popular age to say “I’m going to stay in tonight.”

   But I have recently started discussing my financial goals and current status with my boyfriend and closest friends. After a particularly expensive weekend last weekend, I flat out told my boyfriend, “I have only $20 until my next payday. I can’t spend any more than that. Period.” It was the first time I had been quite so frank.

   I also make an effort to tell my friends that I am saving for things like an upcoming licensing exam, new furniture, and an eventual car, so that they understand when I have to turn down expensive outings.

These things aren’t easy, especially the last one. But in the end, they’re better for my bottom line. Everyone goes over budget every now and then. It’s what you do next that matters. The trick is to focus on spending as little as possible after the budget-buster occurs.

What do you do to keep your spending under control?

Click here to leave a comment on this article.
© My Dollar Plan
Get free subscriptions to hundreds of popular magazines!

Microsoft Money Plus Home and Business is the center of my Financial Organization detailing almost 200 accounts in multiple files for all my family members and our business.

Microsoft Money Expiration Date

They didn’t give much notice on the end of the product. The last day to purchase Microsoft Money Plus is June 30, 2009. All purchased Money Plus products must be activated prior to Jan. 31, 2011.

However, even if you already have a version installed, like I do, you may need to act quickly. The online services expire two years after initial activation or Jan. 31, 2011, whichever is earlier.

I checked, and my copy will expire on December 22, 2009, which means I only have six months left. I am purchasing another copy so that I will have service until the end date in January 2011. I’m glad I checked right away since the purchase deadline is Tuesday!

To find your expiration date, look under the help menu in Money Plus, and select About MS Money. The expiration date appears by the serial number.

Expiration Information

If your product is already activated, you don’t have to quit using the product when it expires, however, online services will no longer be available. That means that online quotes won’t work anymore. Neither will direct online banking and bill pay. Microsoft says that Money will “still process bank statements imported from your bank’s Web site (if available), and quotes can be manually updated.”

I ran a version without online quotes when my old version expired two years ago. After 3 weeks, I was more than annoyed. It would take hours to update my portfolio. I won’t do that again. If you are tempted, don’t forget that support will also end. So if you encounter a problem, don’t expect it to be fixed.

More Information

I’m a big fan of the usenet group. Lots of users have very helpful information, including information on the discontinuation from the unofficial microsoft.public.money FAQ.

Alternate Tools

Switching to a new product will be the next step. Here are some of the products that people have mentioned that I’ll consider over the next year.

Quicken. Quicken, which used to be the main competitor for Money, is already offering a discount for Microsoft Money users and created a FAQ on discontinuation, but they don’t anticipate having a complete solution for a few months. I’ll wait until I see that people are having success transferring all their data; I would hate to lose years of information. (Suggested by a reader, Ross, via Facebook.)

Other Personal Finance Applications. In addition, I’ve heard of multiple personal finance applications mentioned by others in the usenet group that I’ll plan to explore. They include GnuCash, Moneydance, and AceMoney. If you’ve used any of these, I’d love to hear about it!

Online Products. In addition, I’ll see if some of the online products will be able to play a role, like Mint (suggested by reader, Nitin, via Twitter), Quicken Online, and the recently reviewed You Need a Budget. However, these applications probably aren’t robust enough yet to manage a complete financial picture, including business and tax data.

Action Plan

I made sure to purchase my next version of MS Money by the June 30 deadline so that I’ll have service until January 2011. That should give me enough time to wait and see how successful people are in migrating gigantic files. In the mean time, I’ll just wait and see how it goes.

If you use Microsoft Money… what are your plans?

Click here to leave a comment on this article.
© My Dollar Plan
Get free subscriptions to hundreds of popular magazines!

One popular program is You Need A Budget (YNAB), a tool that promises simple, easy-to-use software and a money management methodology.

I recently took a look at YNAB Pro and really liked what I saw! You Need A Budget has four main principles that it encourages as a way to financial peace:

1. Stop Living Paycheck to Paycheck
2. Give Every Dollar a Job
3. Prepare for Rain
4. Roll with the Punches

YNAB Basic Versus Pro

One of the first things you’ll notice on the You Need A Budget website is that there are two versions of their product offered, Basic and Pro. The YNAB Basic version is $24.95 and the YNAB Pro is $49.95 and you can either download the software or request a hard copy. Unfortunately, Mac users will have to stick with the Basic version for now because the Pro version is not yet available.

Some advantages of the Pro version are that it allows you to import transactions from your bank and automate recurring entries, and also offers unlimited budgeting categories and auto-suggested budgeting features. It also has built-in reporting and lets you enter a single receipt and split it up among different budgeting categories which can come in very handy.

Register

The first YNAB section is the “Register,” which allows you to store all of your financial transactions from multiple accounts, including checking and savings accounts, and credit cards.

You can download data from your financial institution and import it here or you can manually add entries, which may be most effective for cash transactions. The most important part of this section is correctly categorizing your entries (i.e., Food: Groceries, Food: Restaurants, Recreation: Entertainment), which is the basis for the rest of the You Need A Budget program but unfortunately can take quite a bit of time at first.

(click on the images to expand them)

Budget

Once you have organized and categorized all of your transactions in the Register, you can click over to the Budget tab to see your total expenditures from the time frame that your data encompasses. What’s so great is that every individual transaction is now rolled up so that you see the total amount you spent in each category for each month, i.e. total “Food: Groceries” in April. Having this information from the past couple of months is a great way to form a budget that you want to stick to for the coming months.

Now, for upcoming months, you can establish a baseline budget of the amount you expect to spend in each category and mark it under the “Budgeted” column. You Need A Budget will automatically calculate the “Remaining” amount that you have left to spend in each category and overall for the month. As each future transaction is registered and categorized, your monthly surplus or deficit is clearly displayed.

Scheduler

The “Scheduler” section of You Need A Budget is a convenient way to lessen the amount of manual entries you have to make. Recurring elements of your budget, i.e. a paycheck, a mortgage payment, car insurance, etc., can be scheduled here so that you don’t have to enter them each time they actually do occur.

Reports

And now for the fun part! You Need A Budget lets you take all of this information that you’ve entered about your spending and income and make some sense of it in pictures: charts and graphs. I thought this section could use some flushing out in terms of more ways to view your data but I think the “Spending by Category” pie chart is awesome. It’s such a great way to see where your money is going each month. The “Total Spending (month-to-month)” is also a great way to see fluctuations in your monthly spending, both overall and by category.

You Need A Budget

You Need A Budget is a great tool for anyone looking to get their finances better organized. Those who are familiar with Microsoft Excel will especially like the familiar format of the “Register” and “Budget” screens.

YNAB will also appeal to those who feel uncomfortable giving a budgeting tool access into their accounts and prefer a program that sits on their desktop. However, because YNAB does not receive a feed from any financial institutions, the process of entering every single transaction can be very manual.

This provides very good encouragement for keeping track of every penny though!  I also found the “Help” menu on the left-hand side of the screen very handy.

Do you use You Need A Budget? How do you like it?

Click here to leave a comment on this article.
© My Dollar Plan
Get free subscriptions to hundreds of popular magazines!

Money Management Styles

There isn’t one right way to manage a couple’s money. It’s largely dependent on your personalities, how you were brought up, your values, and your expectations about money.

The best way to find out what works for both of you is to have an open discussion about your money, goals, and money management styles, preferably before you get married. Try out your plan, and if it doesn’t work, make adjustments.

1. Joint Finances

This is how Scott and I manage our money. All of our earnings are combined in one account. All of our expenses are paid out of the joint account, and once money comes into our house, there is no division of who it belongs to.

We contribute to retirement plans, benefit packages, and savings by evaluating the best offer. For example, when we were saving over 50% of our salary for retirement, I took almost his entire paycheck and deposited it into his 457 and 403b plans, because they were better options than my 401k I had at work.

Tips for Success:

• Agree on a joint budget.
• Include spending money for each spouse in the budget.
• Determine a threshold, and discuss purchases over that threshold.
• Set joint savings goals.
• If one person manages the money, have regular discussions about the status of the family finances.
• Be open to change if it isn’t working.

2. Yours, Mine, and Ours

There are two different methods if you want to manage your money independently from your spouse, but share the joint household bills.

Even Steven. This is the college roommate style. Deposit your paychecks into separate checking accounts and share the cost of all your bills evenly. You’ll each contribute half to the mortgage, utilities, groceries, and other monthly bills. With the leftover amounts, you can save or spend as individuals on your own interests and hobbies.

Proportional Contribution. This strategy is similar to the even contribution for a couple, but works well for a couple who have vastly different salaries. You each determine what percent of income you bring into the household, and contribute that amount to the household expenses. For example, if one spouse makes $80,000 and the other makes $20,000, you’ll contribute 80% and 20% of the cost of the bills.

Tips for Success:

• To ease bill paying, you may want to calculate a total contribution each month required by both of you for bills and transfer that amount to a joint account.
• You both will need to contribute to savings and an emergency fund each month for the long term.
• Be aware that one of you may be saving all your leftover money, and the other spending it.
• You still need to discuss your long term goals together and plan for retirement.
• At tax time your money will be combined on your tax return; plan for this to avoid frustration.

3. Independent Finances

You can also manage your finances separately without contributing to bills together. And it does work successfully for some couples. I watched my parents practice this method of money management all my life and it works for them. They split their bills into his and hers. For example one spouse may pay for groceries, cable, and insurance and the other spouse pays for gas, clothes, and electricity.

As long as you find a way to divide the responsibilities in a way that makes you both happy, it can work.

Other Impacts

In some cases your money management is largely influenced by where you live or who you work for. For example, we live in a community property state, so all of our income is viewed as 50/50 by law. While it doesn’t matter for your day-to-day money management, it does impact your taxes, and if you ever divorce. It’s something to be aware of if it applies to you.

Another example is working for the military, which is subject to different laws. I don’t pretend to know anything about military laws, but if it applies to you, you may want to check out the Military Finance Network.

Tips for Managing Money with Your Spouse

No matter which strategy you choose, there’s bound to be bumps in the road. When that happens, keep some of these tips in mind.

Cool down. If you have a disagreement about money, try not to discuss it in the heat of the moment. Let some time pass and be prepared to discuss it when you both are calm.

Establish guidelines. Even if you decide to use one of the more independent money management strategies, you’ll still have to discuss money with your spouse. For example, if you have kids, you’ll need to agree on your plans for spending money on them. Setting up guidelines ahead of time, will avoid conflict down the road.

Give credit for good things. When you have a disagreement about money, keep your perspective. I have to admit that 11 months out of the year, my husband is exceptional at managing money. We always discuss large purchases and he tries really hard. It’s probably a challenge for him, since personal finance isn’t an interest. I try to remind myself of this if we ever have a money matter that we don’t agree on.

How do you manage money with your spouse?

Click here to leave a comment on this article.
© My Dollar Plan
Get free subscriptions to hundreds of popular magazines!

Market Conditions

Nickel suggested that depending on the market, sometimes more expensive houses fell further in value than the less expensive houses; so our gain would be less than anticipated.

Luckily we’re in an area that hasn’t really been affected by the major housing market collapse. In fact, our area actually increased over the last year. The Zillow Real Estate Market Reports has a fun map to check on the housing market in your area. He also reminded me:

It’s not all about the money. If you really like your current house/neighborhood, then it may well be worth the extra cost.

Ron shares what is going on in his market. He would love to consider downsizing but the homes are selling for far less than what he would like … if they’re selling at all. He adds:

In the last quarter, only one existing home in my price range was sold and it was on the market for 9 months. Only 3 new homes sold in that same price range. The real question is, what could you get for it if you did put it up for sale and how long would it sit there?

School System

Sara l reminds me to consider if the schools in the next neighborhood over are the same (or as good as) as our current schools. She’s got a great point. One of the reasons that we chose this neighborhood and town was because of the terrific school system. That doesn’t show up on any kind of financial comparison… because it’s priceless!

This one really hit home in our discussions this weekend. Both Scott and I are big fans of education, and I’m more than willing to pay a premium to send our kids to a good school. She also shared her story:

We recently upsized (rental condo to first house), but we did so with many of the same considerations. Our outlook was we’d be there for 7-10 years and bought a house to accommodate our future plans (namely kids). Our house for current family size is a little crazy but will balance in a year or so.

The Future

Howard wants me to think about the future. Our house is too big for us now, but what about when our children get older. He has a great point… would we downsize now… only to rebuy a bigger house in another 5 years? Don’t forget to throw in the added pain and cost of moving. He also reminds me to think about the appreciation:

What about future appreciation? You know as well as anyone if both places appreciate at the same rate, the bigger place now will be worth far more in the future.

The Money

Four Pillars doesn’t think it would be worth it. He reminds me that buying a house for $100,000 less is not worth it, especially after all the fees and costs; as I would only lower my mortgage by about $80,000. He adds with a smile:

You have another kid on the way – just keep ‘em coming! That house will fill up in no time.

Adrienne suggests to try to refinance our current house anyways. I should mention, we actually have a great rate, at 5.125% with what I consider a perfect ten year mortgage. Although it would be nice to get a lower rate, it won’t break the bank if we don’t refinance. She says:

Check several lenders. I’m sure you can find one who would count your income. I also have less than 2 yrs of self-employment and each lender reacted to that differently (from straight no to it not being an issue.)

Reader Stories

Many readers shared their own personal stories. Their choices and rationale are helpful for anyone on the fence!

Golfing Girl shares:

For all the reasons you listed we are so glad that we downsized from the beginning. We were approved for $400K but ended up with a great little place for $160K. Now the only reason for us to move will be to change school districts. But our property taxes are lower and our energy bills are fabulously low. Plus no stairs to carry laundry or groceries up and down!

Small Steps to Health just bought their first house a few weeks ago:

Had it in our heads to purchase a small house so that if one of us get laid off, we can still afford the house. We ended up with a huge house in a pricey neighborhood that we would never have been able to afford a few years ago. Once you start shopping, I think it might be a little hard to resist some of the bargains on the market right now.

Staci is in the exact opposite situation. They are outgrowing their two bedroom house and thinking about upgrading. Here’s why they decided to wait:

• Mortgage is currently paid off, buying bigger would have a big impact on our cash flow.
• Our location to work. Moving to a bigger house would mean buying another car, lunch at the office.
• We love our neighbors/hood.
• We finally have our house how we want it.
• A smaller house is cheaper to live in.
• We don’t have to buy stuff to fill it up.

Meagan says they are currently asking themselves some similar questions. They own a home, but purchased a lot last year with the intention of building a house. However, finding out they were expecting a baby, and the uncertain economy has made them a little skittish about building, since they could live fairly comfortably live in their current home for quite awhile. She’s asking herself a lot of great questions:

• Can we truly afford the new payment and the other incremental costs?
• What happens if we don’t sell our current home right away?
• And we haven’t even really tackled the costs and time commitment associated with the new baby or the fact that I don’t intend to return to work full-time.
• Why not wait a year or two and see how things shake out?

Action Plan

You’ve all given us a lot to think about. We talked about it a lot over the weekend, but haven’t made a final decision… we’ll keep you posted!

Click here to leave a comment on this article.
© My Dollar Plan
Get free subscriptions to hundreds of popular magazines!

If you are looking for places to save money, use it as a road map to get started! Don’t forget, trimming the budget is just one side of the equation; in a future article we’ll look at ways to bring in more income.

Budget Savings

1. Housing. To save on housing costs, consider a refinance. If you want to go even further, downsizing is always an option.
2. Cars. Sell the car and buy a cheaper one. Look at the true cost to own at Edmunds to make sure you’re really spending less over the long run.
3. Gas. We use the TrueEarnings Card from Costco and American Express to earn cash back on all our gas purchases.
4. Insurance. Save on insurance by shopping around. Also check out 11 ways to save on car insurance.
5. Groceries. Buy in bulk and learn how to cook at home using ideas for frugal and easy cooking. We also use the Grocery Game to cut down on our weekly food bill.
6. Dining out. We love to eat out, but don’t like to spend a fortune doing so. 10 ways to eat out for less keeps the bill in line.
7. Phone. We use the Sprint SERO plan for cheap cell phone plans with data and Vonage for our home phone.
8. Electricity. Use available tools from your electric company to analyze your energy use to determine how efficiently you heat and cool your house. Implement 10 easy energy savings tips to bring your bill down.
9. Internet. We switched to DSL from cable, which is cheaper in our area. It’s slower, but not noticeably.
10. Childcare. We took advantage of a discount to pay upfront for the whole year. Don’t forget to use your dependent care flex spending plan to use pretax dollars.
11. Entertainment. Get free blockbuster movies. I also use the money I earn from free money offers to fund our entertainment budget.
12. Gifts. Give frugal homemade gifts. For holiday gifts, we save all year, using an ING account.
13. Office supplies. Use discount postage stamps, or better yet, pay your bills online.
14. Taxes. Use the ultimate tax resource guide for lots of tax saving ideas including credits, deductions and free e-file options.
15. Vacation. Whenever we travel, we try to take advantage of frequent flier miles we have built up, hotel rewards, and other timely travel bonuses. In addition, I set up an alert in Travelocity to watch for bargain deals.

What have you done to save money on your budget?

Click here to leave a comment on this article.
© My Dollar Plan
Get free subscriptions to hundreds of popular magazines!

Running Water

We were on vacation for two weeks in July. When we got back we had very little water pressure. For the last week, we’ve noticed it everywhere.

The plumber. We called the plumber on Monday morning to find out what was going on. They measured our water pressure at 25 psi. It should be 40-60 psi. He also found that he could hear “water running like a banshee” in our pipes, but the meter wasn’t running, and he couldn’t find water spilling out anywhere in the house.

The city. Next, the city came out to see if it was on the city service side. They shut off our water connection and determined that it’s somewhere between the hookup to the city service and the entrance to our house.

Here’s the problem, it’s 8 feet underground at the connection, and they’re guessing that the pipe runs under our foundation to the rear of the house. Somewhere that pipe has burst.

The diggers. The diggers should arrive this morning after diggers hotline confirms the location of all the utilities, and they will dig until they find it or hit the house. We’re hoping it’s in front of the house. We haven’t discussed plans if it’s under our house, but the plumber did say that it would likely involve tearing apart our basement (which is all finished).

The developer. Ironically, I found out a couple of our neighbors had similar issues and the city believes the developer had an “inexperienced” plumber do all the hookups at the water service. They will be represented on site today too.

The insurance company. Our insurance company won’t be sending someone out today, but they instructed us to take lots of pictures and get the broken pipe. Once we determine who is at fault and the total cost, we can decide if we want to file a claim. It’s questionable at this point whether or not our policy covers this.

Who Is Responsible?

We’ve lived in our house 2 years, but we had a 1 year warranty from our general contractor. The city claims it is not their pipe. The plumber says it isn’t their work, and the developer isn’t saying anything.

Ultimately, it looks like we’ll be on the hook for it. The only estimate we’ve received is a minimum of 3 men to dig until they find it, 1 plumber to fix it, and then put everything back together including sidewalk, sod, and landscaping. I’m not sure what that adds up to, but it sounds like $$$$ to me.

The Personal Finance Connection

I wouldn’t be writing about all this if it didn’t have a personal finance lesson. When we bought our first house, I use to take 1% of the purchase price and put it into a savings account each year for maintenance. Of course, over time I’ve gotten a little lax about that so there isn’t much in it anymore…

Do yourself a favor and set aside some money for household maintenance. Skipping this step and pretending something won’t happen is a recipe for disaster!

Click here to leave a comment on this article.
© My Dollar Plan
Get free subscriptions to hundreds of popular magazines!

It reminded me of a couple other situations, such as how we handled my 5 month unpaid maternity leave and how to handle irregular paychecks for a small business or freelance work. Here’s how you can approach each of these situations without overspending.

Lump Sum

Let’s walk through the example I gave with my friend – getting a payment upfront for a given amount of time.

Put the money away immediately. I directed her to put the money in an ING account. I like ING because you can create separate accounts for different purposes. Create a new “paycheck” account to hold this money.

Calculate a paycheck amount. If the money should last all summer, and he was used to what would normally be 7 bi-weekly paychecks during the summer, divide the lump sum by 7.

Schedule your paychecks. In ING you can set up a set of transfers. Schedule all 7 transfers to your checking account bi-weekly for the whole summer.

Adjust your budget. You may find that the “new paychecks” will be lower than your old ones. Various things could impact this based on the way the employer calculated the time period or because of the differences in tax withholding. Adjust your budget to cover any shortfall.

Relax. You no longer have to worry that in August you’ll have already run through all the money, as your newly scheduled “paychecks” will arrive as scheduled.

Small Business or Irregular Paychecks

When you run your own small business or typically receive irregular paychecks due to freelance or contract work it may be easier to smooth your income into your checking account. Consider yourself your own employee and create a schedule of paychecks.

Create a holding account. Similar to the steps above you’ll want to create a separate account to house all your incoming money.

Calculate a minimum. Determine the least amount of money that you can get by on each pay period. This will be your “minimum paycheck.”

Calculate a target. Determine how many times you predict that you won’t bring in the minimum to pay yourself your paycheck and by how much. Total these amounts and add some additional money just in case. This target number is how large of a buffer you’ll want in your account.

Transfer your paychecks. Each pay period, transfer your “minimum paycheck” to your checking account. Leave any additional money in the account to build the buffer. This will enable you to still get your minimum paycheck at times when your incoming money isn’t enough to meet the minimum paychecks.

Give yourself more money. At some point it’ll be time for a bonus or a raise. Once you reach your target, if you see that your holding account is continually growing, you can either raise the minimum paycheck or give yourself a one-time bonus.

Saving for Unpaid Time

I used a similar approach for handling 5 months without a paycheck.

Calculate the total unpaid time off. Determine the total amount of money that you won’t receive and how long of a time period it will cover.

Set a savings goal. Divide the total amount by how much time you have until the event begins. For example, if you want to save $5,000 in the next 8 months before a baby is born, you’ll want to set aside $625 per month.

Save the money. Put the money in a holding account so you aren’t tempted to spend it on something else.

Calculate and draw paychecks. Once your unpaid time begins, calculate and schedule the paychecks similar to the lump sum method above.

Action Plan

I’m currently working on establishing a paycheck system similar to the one above for our business. It helps a lot with planning, budgeting and the overall stress level of money management. My next step is to calculate a target amount for the months with a shortfall.

Have you dealt with irregular paychecks? How did you handle it?

This article is featured in: Carnival of Personal Finance, #159: The First Zero-Emissions City.

Click here to leave a comment on this article.
© My Dollar Plan
Get free subscriptions to hundreds of popular magazines!

A Bite on the Car

This week we had a young man come to look at the car. He wants to buy the car, but he won’t be able to get the money for a couple weeks. It’s actually not as strange as it sounds. He’s an exchange student at the University and he needs to get the money from his parents back home.

Waiting to Sell

Since we are refinancing and turning over our credit cards it’s not actually that bad if we wait another month or two before we buy a new car; it actually works out a little better.

Down Payment to Hold the Car

We requested 2.5% of the price for a down payment. If he doesn’t purchase the car in a month, he will forfeit the down payment. We plan to stop advertising the car, but we will still drive the car.

Similar to Buying a House

We set up the transaction of selling the car similar to that of selling a house; buyers often give a down payment in the form of earnest money, which is forfeited if the closing doesn’t take place.

Action Plan

We’re going to start looking for a replacement car… now that we have an almost deal. We’ll probably hold of on purchasing though, until the deal goes through for sure.

What do you think of the strategy? Would you take a down payment to hold a car?

Related Articles by Others:

• Why Are People STILL Buying Trucks and SUVs? at All Financial Matters
• The Cost of Road Rage and Aggressive Driving at Moolanomy
• Hyundai’s “Dollars and Sense” Ads: My Take at The Simple Dollar
• Why I Still Have No Money at Consumerism Commentary

Click here to leave a comment on this article.
© My Dollar Plan
Get free subscriptions to hundreds of popular magazines!

Our dumbest purchase ever: a sauna!

It’s a tradition in our family that everyone has a sauna at their house. When we were building our new house two years ago, I insisted that we put one in. And not any old sauna…. an 8 x 6 foot sauna.

The unassembled unit cost $4,536. But in addition to that cost, tack on at least another $1,000 for the builders to assemble it and their overhead. We’ll call it $5,500. Luckily, it came in under our budget of $7,600. (Of course we came in over budget on many other items, but that is a completely different topic!)

But let’s not forget that the $5,500 will be added into our assessment and we’ll be paying real estate taxes on it to the tune of $100 per year at our current mill rate. Add on the interest from our mortgage for that and it’s at least another $130 in the first 5 years before the adjustable rate kicks in.

Let’s say we stay in the house five years. Our money spent on the sauna will be $6130.

In addition, when we sell our house down the road, I’m pretty sure that a sauna isn’t on most people’s need list. They probably won’t mind it, but it’s definitely not going to recoup the cost.

If we look at cost per use, it’s even worse. Take into account that I was pregnant most of last winter and couldn’t use it. My husband doesn’t even like saunas! Sure it’s fun now on cold days, but there’s probably many things that I could buy for $6,000 that would bring more enjoyment.

What’s your dumbest purchase ever?

Check out others recalling their dumbest purchase ever:

• The Dumbest Purchase Ever – Siding on the House @ Credit Withdrawal
• The Dumbest Purchase I Ever Made @ Single Guy Money
• The Dumbest Purchase We Ever Made @ Being Frugal
• What Was Your Dumbest Purchase Ever @ Cash Money Life
• Dumbest Purchase Ever @ Gather Little by Little
• My Dumbest Purchase Ever – It’s a Mindset @ Paid Twice
• My Dumbest Purchase Ever and Lessons Learned @ Moolanomy
• Possibly My Wisest Purchase Ever @ Mrs. Micah

This article is featured in: Carnival of Money Stories #52.

Click here to leave a comment on this article.
© My Dollar Plan
Get free subscriptions to hundreds of popular magazines!