How To: Create A Budget

Image by Casey Serin via Flickr
As we go through life if we don't have a plan we make mistakes. Just like taking a road trip, if we don't have a 

map we could get lost. That's what a budget is, a financial map for our money.

Ben Franklin said,

"Buy failing to prepare, you are preparing to fail."

 Because we have a natural tendency to spend all we have, we all need a budget. It doesn't matter what age, stage of life, or if we're rich or poor. The most important part of the budget is it helps us coordinate our spending with our priorities. Here are three budgeting forms: Online Budget Form , Printable Budget Form and Spreadsheet Budget Forms.
 
Step 1 Start the budget by entering your income at the top. This will should include all income. Whether it's salary, pension, social security, investment income, or other. 
 
Step 2 
Now we go to the expense section. Here we list the fixed expenses first like the mortgage/rent, car loans, and home equity loans. Also your student loans and credit card payments. 
 
Step 3 
List the amounts that you are saving for. They could be college, emergency, vacation funds. Don't forget to enter your monthly amount for investing. 
 
Step 4 
Then comes the variable expenses. These would be your electricity, gas, telephone, water, household repairs, childcare, clothing, food and dining out. Also personal care(haircuts), medical/dental, and charities. 
 
As you adjust the numbers you will see how the changes affect your ability to save more or less. The chart will also have a section where you can add the actual numbers so you can compare and adjust for next month. Don't forget that this is not your first and last budget. This has to be done every month for it to help you organize and stay organized. 
 

John Maxwell says,

" a budget is telling your money where to go instead of wondering where it went" 

 
The goals of budgeting are you will see where your money is going. If you see where it's going your more able to adjust spending and plan better. 
 
Don't worry if your doing it all right at the beginning. It takes time to get it right. But with time you will get better and better. For the items that occur that are unforeseen, that you can't budget for, that's what the emergency fund is for. 

How much should I save for college?

 Fidelity Investments released guidelines last month for how much parents should save in a 529 college savings plan. It shows both annual and monthly selections. If the plan is followed you should not have to take out any loans. 
 
The guidelines estimate what a four year in-state college would cost in 18 years from now for a parent with a newborn infant today. It used data from the College Board about the average cost of public and private colleges today and how much those costs are growing annually. It assumes a 5.4 percent annual growth rate in costs for the next 18 years. 
 
Next, using Sallie Mae data, Fidelity estimated how much in scholarships, grants and family gifts households currently earning $55,000, $75,000 and $100,000 annually could expect to receive and subtracted that amount from the expected cost. Then it estimated how much, at each of those income levels, a family would need to save to cover future college costs. Assuming they put the money in a 529 plan that gave a return in line with what the company estimates an investment in Fidelity's age based investment option should provide. 
 
The table reflects their findings and supplies their actual dollar amounts to be invested every month. 
 
 Their are no guidelines for family's making over $100,000 dollars per year. But they should examine the guidelines and interpret a plan that suits their own situation. Also the proposed savings amount don't consider the extra expenses that go with college, only tuition. Though transportation and health care are qualified 529 expenses. 
 
Fidelity Investments claims if you follow their recommendations the family making $55,000 would accumulate $48,000 for public college and $107,000 for a private college. The $75,000 family would have to save $51,000 for public college and $115,000 for a private college. The family making $100,000 would need to save $55,000 for public college and $123,000 for a private college. 
 
Now these figures are very subjective. We don't know what the final amounts would have grown to. Also we don't know if a family could sustain making these large payments for 18 years. But if they could the 529 accounts would become substantial. I am aware that it's pretty hard to estimate all this and I have to give Fidelity credit for attempting this. The amounts of monthly savings are relatively close. The family incomes are not, so the burden is on the lower wage earners. Like I said it's a place to start. w

Young Investors Shunning Stocks

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A story over at CNNMoney.com caught my interest. It told of a young man of 18 years, deciding to pull his $25,000 investment in an aggressive mutual fund, out. When he was tired of seeing his money dwindle down during the decline in 2008, he moved it to a certificate of deposit. 
 
While all investors have become more cautious, the biggest change has come from those in the under 35 crowd. The youths have witnessed the decline in the value of their parents portfolios and seen how their parents have decided to delay retirement or even go back to work. The younger investors consider themselves more conservative today than they were a year ago. 
 
If your in your 20s you have seen the market drop 55%, climb 88% and then drop again in a short span of time. During the last decade you seen the stock market return 0%. 
 
This younger generation will probably live to 100 and beyond, because of all the medical breakthroughs now and the ones they will see when they retire. The only way they can afford retirement is through the investing in equities or they will be working way past the time they want to retire for lack of assets. 
 
Like us all, the under 35 crowd is leery about investing in the volatile stock market. History reveals that equities have earned 7% each year after inflation over the last 200 years. It most likely will continue. Has this been the worst market decline? In modern times, yes. But don't forget the early 90's and 1987 decline. If you really want to check out declines, check out the Dow Chart from 1900-2010 at this link. 
 
There have been corrections of 50% or more, over and over again throughout the the stock markets history and there will be again. Why does it shock people, like this has never happened before. If you keep investing in good times and bad you will come out at the end. The fear people feel when their investments go down is unnerving. A great decline like we just went through, makes people afraid and sometimes scares people away from investing. It still is the best way to go if you are in for the long haul.  

Book Review: The Difference

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Jean Chatzky has a new book called "The Difference". It describes the different traits of people who attain financial success and the ones who don't. She claims that in previous times the difference between rich and poor was great. Today the percentage of rich who came up from the middle class is 83 percent. The super rich who usually stay that way give the other 17 percent. Of the rich, their income is derived from 10 percent coming from passive investments and 90 percent coming from active business'. 
 
Ms. Chatzky breaks all of us down into four groups. Wealthy, Comfortable, Paycheck to paycheck and Further in debt. The reasons for someone to end up in one of these categories is our attitudes and behaviors. The four groups our: 
 

• Financial Attitudes and Behaviors 
• Goals 
• Personality 
• Non financial Behaviors 

 
Of course the greater your positive attributes are in these category's the more successful you will be. She says we don't have to be excellent in all these category's but just good. 
 
I have to add that her accent on good personality traits only work if you make a decent living. You spend less than you make. You invest your money so it can work for you in retirement and protect yourself and your finances from disaster. 
 
I admit I have only read the first chapter online at Oprah.com. Yet the book seems to rehash the same concepts of the book "The Millionaire Next Door". I can agree with the author that you have to have the right traits and behaviors to make money and to keep it. If you have the right knowledge you will be able to attain financial success. 
 
This book is well written and can be a good aid in discovering what you could be doing wrong. It has a lot of interesting facts and puts aside a lot of the myths of the rich and how they got there. If you never read other books about how work, good behaviors and a work ethic transfers into wealth, this book will be good for you. 
 
In reading a lot about this subject I believe that after a while all this good advice is just advice. It's all up to you to get up and put the book down and go make some money. 

Investing 101: TIPS - Treasury Inflation-Protected Securities

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Treasury Inflation-Protected Securities, or TIPS have been around since 1997. The Treasury issues TIPS. They produce a fixed interest rate paid semi-annually. The treasury uses the Consumer Price Index as a guide to adjust the principal for inflation. Both principal and interest are adjusted for inflation. If deflation occurs your still guaranteed the original principle according to Bankrate.com 
 
Newly issued TIPS are purchased directly from the government through it's TreasuryDirect program, in the months they are auctioned off. There is a secondary market where they can be purchased all year. 
 
You can buy TIPS with 5, 10 and 20 year maturities. You will have to pay taxes on the increase in principle, even though you don't receive it till the bond matures. So it is better to have TIPS in a tax-deferred account. 
 
The experts say the best way to buy TIPS is through a mutual fund. It's more expensive and there is a minimum of $1000 when buying individual TIPS. 
 
So what's so good about TIPS? With normal fixed income investments there is risk of inflation eroding their value. With TIPS, they are guaranteed to keep up with inflation. If you believe inflation is a danger then TIPS are for you. Your money will be protected. 
 
TIPS are one part of a well diversified portfolio. They receive a nice interest rate and are protected from rising inflation. The downside to TIPS: The principal of the bonds and the coupons fall when prices decline.

10 Reasons To Rent

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Don't you sometimes get sick of all the maintenance you have to do when you own a house? Starting with the most annoying thing, mowing the lawn and trimming the bushes or trees. Then there is painting to do and leaky faucet. What about that remodeling job your wife wants you to do. It's always something breaking. The American dream becomes the American pain in the butt. 
 
Over on CBS' Moneywatch.com they had a top ten list of the advantages of renting. 
 
1.Fancier Living: You may not ever be able to afford to own it, but with renting, you can enjoy that luxury condo overlooking the ocean. 
 
2.Perks!: A lot of apartments come with community pools and gyms. My favorite thing about the apartment complex that I lived in during college was the massive swimming pool they had. 
 
3.Water/Heat Included: Oftentimes, apartments come with water and heat included, so that's less bills that you have to keep up with. And the world is better with less bills to pay. 
 
4.No Need For Weeding: I've never mowed a lawn when I've rented. You don't have to do any yard work. 
 
5.When The Move Bug Bites....: While renting, the worst case scenario is waiting a year to move. Bad landlord? Move out. Annoying neighbor? Good-Bye. With a 
Home it's much more complicated. 
 
6.No Maintenance Background Needed: As mentioned before when a pipe bursts or any other maintenance issue pops up, just make a call to the landlord and sit back and relax. 
 
7.Momentarily Cheaper: there's a lot of us financially struggling thanks to the economy and when it may be money down the drain, I am not spending nearly as much as a mortgage. 
 
8.Home Prices Fluctuate: Its a buyers market or is it a sellers market? I have no idea, because I don't have to know, I rent. 
 
9.No Risks: if you do try to sell your home during a bad economic time, your at risk for losing money. But with renting, you hopefully get your deposit check back. 
 
10.Property Tax and Insurance: No taxes for renting and renters insurance is way cheaper than homeowners insurance.