The No-Tracking Budget

April 21, 2023

You don’t have to be a financial planner to know that one of the critical ingredients of financial security is having a budget, but knowing you need one and actually sticking to one are two different stories. We’re not here to lecture about why you should budget; let’s instead discuss a way to make it less painful. The purpose of a budget is threefold:

First, to ensure you are not spending more than you earn.
To figure out how much you can actually afford to save.
If you are spending more than you make or you’d like to save more, then it helps to figure out where you might be able to cut back.

Finding a way to stick to your budget

Putting together a budget is one thing. Sticking to it is another. Putting together is relatively simple, and while there are many tools to help, sticking to it is where most people give up. So let’s talk about that part, assuming you already know how much you need to spend each month on needs versus wants.

Stop obsessing over categories when tracking.

Confession: I can’t tell you exactly how much I spent dining out last month. And I can’t tell you how much I plan to spend on it this month. That’s because that number isn’t as important to me as first ensuring I cover all my other financial goals.

I can tell you how much I’m saving toward several small but significant financial priorities so that whatever is left over is what I can spend on things I can go without, such as sushi night, shopping, spa services, or Target. (Yes, Target is a discretionary expense for me, and don’t tell me you also haven’t discovered their magnetic carts that just attract things.)

By prioritizing the things I know I need to make happen financially, I essentially back into what I can spend on wants without any tracking beyond setting up an alert to tell me if my account dips below $100.

Make it automatic

I do this through automatic transfers set to happen each payday. I have a series of savings accounts, one for each financial priority, through an online bank that lets me set up as many different savings accounts as I want. It’s the electronic version of the envelope system.

My checking account for spending money is at a “bricks and mortar” bank, and I have a checking account for bills that’s also housed at the online bank. Here are some other accounts that you might set up:

Accounts to set up for the no-tracking budget

Monthly bills

Separating your known monthly bills into a separate account and setting them on auto-pay might revolutionize your relationship with money. This account is for things with due dates and relatively set amounts like rent/mortgage, cable, cell phone, etc. You may need to estimate for things like electricity and gas. I use the highest amount from the past year, which ensures I’m well-funded.

What isn’t this account for? Things you can pick and choose how much and when to spend each month like groceries, personal care, and even your dog walker. Yes, this is money you need to spend, but it doesn’t have a due date or a set amount, which defeats the purpose. This fixed amount would only fluctuate if you made a drastic change like moving, canceling cable, etc.

Emergency fund

Getting this account funded with three months of expenses was my top priority, so before I even opened another account, I saved as much as I could. Now it’s just there, accruing interest. I can’t over-emphasize the peace of mind this gives me.

What isn’t this account for? Things I forgot to include in my “oh crap” account, like expenses to stand up at a wedding, Christmas gifts for family, or a plane ticket for a funeral. Those are all important things, but they are not an emergency.

Car stuff

This account is for car-related things such as insurance, new tires, repairs, registration, etc. Once it’s paid off, I’ll transfer my monthly payment into this account too, so I can save to buy my next car with cash.

What isn’t this account for? Gas money – that’s discretionary and comes out of my spending account.

Pet Medical

Pet insurance can run from $10-$90 per month, and Consumer Reports found that it’s not worth the money for the average healthy pet. Instead, pay yourself the premium so that if/when an expensive injury or illness pops up, you have some money saved. It’s worth noting that most pets’ major expenses come when they’re older, so if you do this throughout their life, you should have a sizable chunk built up by the time you need blood work and x-rays to figure out what old age ailment they have.

What isn’t this account for? Pet food (spending account), pet-sitting (spending or vacation account), and routine visits unless you’re accounting for that with the amount you’re setting aside into this account.

Kid activities

If you have kids, then you know that their extracurricular activities can add up pretty quickly. Try annualizing the costs and transferring one-twelfth each month to ease the burden of sign-up and gear-up season.

What isn’t this account for? Clothing, toys, everyday family expenses – try to isolate the “extra” stuff in this account, which can be a way for spouses who may disagree about how much to spend on this stuff to keep tabs on it in an agreeable way.

Depending on what’s important to you and what you want to better control your spending on, you may have other accounts. For example, my friend with a side gig has an account where she puts 20% of her income aside to have enough at tax time.

It takes some work to set up these accounts, but it’s worth it.

Real Results

I shared this system with a colleague of mine who is a busy mom of two young children, and her email to me says it all:

“I just wanted to say thank you. I’ve separated all my fixed bills through those accounts and set up a few savings accounts for shorter-term larger dollar items – Christmas, home improvements, and travel. That way, we don’t have to either put off those things or feel guilty about spending money on them.

Plus, I set up accounts for the girls for them to earn money and use on toys or whatever, and the transition of seeing the numbers is easier for them because they are still learning math and identifying the value of the paper/coin money. So, they earn it in cash, then we add it up and deposit it into our bank, and I transfer the money to their accounts.”

If you’re having trouble sticking to your budget, why not try it? What will your accounts be? Customize it to your life, and just make sure you’re also being deliberate with any “extra” money you find by trying this process!

How To Avoid The Number One Budget Breaker

May 30, 2018

One important step in setting financial goals is establishing or reviewing your budget. After all, how can you tell your money where to go if you don’t know where it’s been?

Pay attention to this as you look back

Notice that as you review your spending on a month by month basis, there is most likely something that negated your efforts to save – a last minute gift, celebratory dinner, travel for the holidays, a kids activity, even just a party had to bring supplies to. These things cost money and not an insignificant amount. And this is where all that extra money is going. It’s not the daily latte or ordering take-out or a splurge at Target that kills most of our budgets. It’s the happy fun things – the things that, I think, make life worth living. It’s these things that we end up spending our “extra” money on instead of putting those funds toward our financial goals.

It’s not the daily latte or ordering take-out or a splurge at Target that kills most of our budgets.

But I’m not saying you shouldn’t spend that money. What I’m saying is you can actually plan for these expenditures so you can still stick to your savings goals. You knew that most of these expenditures were going to happen way before the money left your account. In fact, I bet you can probably predict most of them for the coming year right now.

How to better plan for upcoming expenditures

It’s easy to budget for the monthly bills — even though the electric bill may vary wildly depending on the weather, you have a general idea of how much to reserve to pay it. It’s these other things that are tough to put into a neat monthly bucket. Rather than tearing your hair out trying to stick to spending limits in different life categories, try this way of getting ahead of “life stuff.”

Instead of trying to work these things into your everyday spending, make them part of your financial plan by mapping them out in advance. Here’s how:

Get out a blank calendar
Get out your date book/iCalendar/house calendar
Write down all the commitments you’ve already made outside your normal routine
Include weddings, vacations, graduations, holidays, babies that are due, etc.
Then go back and write in all the regular stuff that comes up: trips to the vet for the dog, vehicle registrations, kids’ sport fees, etc. You might want to use last year’s spending to make sure you don’t miss anything
Assign an estimated dollar amount to every single thing
Add it all up and divide by 12
Set that amount aside each month in a separate savings account

When I did this, I realized that almost every month I had some type of travel planned already. I also realized that my dreams of spontaneous camping weekends in Wisconsin may remain dreams unless I start planning them right now. You’re busier than you think!

Things cost more than you think

This month it’s a weekend in New Orleans, which was booked on airline and hotel points, but will still require several hundred dollars in order to enjoy the culinary mecca. This is money that I might otherwise allocate toward my goal of buying a new tennis racket. Next month, it’s a trip home for Father’s Day. That’s at least $100 in gas money not to mention a gift for my dad and greens fees when I pay for us to shoot a round of golf.

While I’ve already budgeted for a trip to Oregon wine country with my mom this fall, seeing that listed along with the other little weekend things coming up was a huge financial eye-opener. And we don’t even have kids stuff to budget for! (although every trip does require a cat sitter, so there’s that) It’s these things, these happy life things, that are your biggest budget busters.

It’s these things, these happy life things, that are your biggest budget busters.

Pay attention to these seemingly financially insignificant events on your calendar and put them into your spending plan now. This process also helps you gauge whether your savings goals are realistic.

By doing this advance planning, you should still be able to achieve whatever financial goals you are working toward such as paying off debt or building up your savings – those less “fun” but still essential goals. Knowing in advance that this money will be spent anyway actually does motivate me to cut back on my wine or clothing budget in a way that just trying to “make it all work” doesn’t. Try it and let me know how it works for you.

How To Choose Your Spending Plan Based On Your Learning Style

August 11, 2017

Just like people, spending plans (a better way to say budgets) come in all shapes, formats, styles, colors and any other distinguishing feature. They can be online, paper and pencil, a spreadsheet, a Word document, envelopes with cash, or multiple online accounts, to name a few. There isn’t really one that’s “better” than the others — the one that is best for you is the one that you stick with.

A good spending plan is one that seems to “get” you. If you have to work hard to get it, chances are you will lose interest after a few weeks and stop using it. Your spending plan may not be the one your coworker or spouse uses, and that’s OK. One way to narrow down the different ways to manage your spending plan is by knowing your learning style.

Discovering your learning style

My wife, like all good teachers, has the ability to adapt what she is teaching to each student’s learning style — different people learn different ways. If you already know your learning style, that’s great! I don’t, so being the lazy blogger that I am, I asked my wife for some good ways to figure out my learning style. She recommended EducationPlanner.org or Learning-Styles-Online. If you don’t already know your own learning style, try one of these — they are quick, less than 15 minutes to complete.

Matching it to your spending plan

Now to match the spending plan with your learning style. Education Planner categorizes people as Visual, Auditory or Tactile, while Learning-Styles uses Visual, Aural, Verbal, Physical, Logical, Social or Solitary.

If your learning style is Visual: Consider a technology based platform that has visual elements. My favorite online platforms include Mint, Every Dollar or You Need a Budget (YNAB), or your bank’s software (assuming it has visual elements like pie charts.)

If your learning style is Tactile, Logical or Solitary: Try spreadsheets — they are very popular especially with those of us who are a little more hands on; our Easy Spending Plan is an example of one. Your bank or financial institution may also provide a spending plan that works for you. The great news is that the online and bank based software I’ve seen is aware that people learn different ways and allows you to use their platform the way you choose.

If your learning style is Tactile or Physical: Don’t forget the old school way of paying cash as much as possible and keeping receipts (I recommend an accordion file to manage receipts.) Study after study has shown that when we pay in cash, we spend less than when we swipe a card. And despite what my teenager tells me, cash is used by more than just me and drug dealers.

If your learning style is Auditory, Aural, Verbal or Social: Find a partner to work together on your spending plan and talk it out. For privacy, maybe don’t have this conversation in a public place as the folks at the coffee shop don’t need to know your personal business. But having the opportunity to sound it out and socialize could be the missing ticket to budgeting success for you.

For what it’s worth, I scored highest on Visual and lowest on Auditory using Education Planner, while Learning-Styles scored me highest on Physical and Logical and lowest on Aural. (my wife is not surprised to hear that I don’t learn by listening) That is why I use my bank’s online platform, which has graphs and allows me to download into Excel, while I also prefer to pay in cash. I also have a phobia about talking about money in public. If I had found this out before I wrote this blog, maybe it wouldn’t have taken me so long to develop a spending plan…

Once you know your learning style, look at different spending plan tools and find one that seems to get you. Then comes the hard part: you need to use it. Try it for 3 months and if it is too much work for you, find another one. Don’t quit – keep experimenting until you find one that “gets” you.

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5 Back To School Things To Plan For Now

August 08, 2017

The first day of school — ready or not, here it comes. For kids, it’s a mixture of excitement to reconnect with friends and dread of going back to homework and early bedtimes. For parents, I’d have to say it’s mostly just relief — either because they are no longer having to spend an arm and a leg on summer camp or because they cannot possibly handle another day of having their kids home all day, every day, needing to be entertained, fed, refereed and cleaned up after.

As we start to close in on the big day, it’s time to start firing up your budget for the following five things, as well as some ways to save on them:

School supply list — This is the infamous list of school items that parents are asked to buy for their kids’ classroom and use throughout the school year. It can get pricey, so you have to get creative. Instead of buying pre-sharpened pencils, I get unsharpened pencils for much less and give my kids the “fun” project of sharpening them (it’s all about the spin). If I had a school supply item at home, I re-purposed it rather than buying new. Dollar stores and thrift stores are awesome places to find things like binders, document protectors, dividers and other supplies on the cheap. Shop early though, it is tough to find school supplies a week before school starts pretty much anywhere.
School activities — I will admit, I am guilty of forgetting that some activities require payment in advance. Start budgeting for after-school activities and the ancillary costs right now. Is your kid in dance? Then you know to start hitting up consignment shops for jazz shoes, ballet shoes, and leotards. Is your kid in track? Plan ahead to shop during your state’s Sales Tax Holiday weekend, and start collecting store coupons for running shoes. Add the monthly cost of the school activity to your monthly spending plan so that it doesn’t take you by surprise.
School lunch — If your kid buys lunch at school, estimate the average monthly cost and include this amount in your monthly budget as well. I normally make my kids lunches to save money. Last year, after a few weeks of half eaten lunches and a lot of complaining, I decided to get my girls involved. I had them go on Pinterest and give me five breakfast, lunch and snack items they like, with parameters – for example, snacks had to be a fruit or veggie and the lunch had to have some nutritional value. I also got them involved in making the lunches. I found they were less likely to complain and more likely to eat their lunch once they were involved in its creation. Standardizing breakfast, lunch and snacks became a time saver but also helped me find deals on items we use often. I also learned it was much cheaper to buy snack items in bulk and bag them myself rather than buy items pre-bagged, such as baby carrots or apple slices.
School breaks — School may just be getting started, but start planning ahead now for days or weeks where you may need babysitting so you can line up affordable options. This includes holidays, teacher workdays, fall break, Thanksgiving break and Winter break. Since you may be used to spending more right now on summer camp anyway, consider diverting that money once school starts to a separate “school break” account so it doesn’t eat into your holiday spending budget. Don’t forget to reference this budget during open enrollment season at work so you can sign up for the Dependent Care Flexible Spending Account and use pre-tax dollars to pay these expenses.
Clothing — My kids have the gift of destroying or losing clothing within the first few weeks of school so I stopped buying new items. I typically go to the consignment shops in the wealthiest part of town to shop for clothes – oftentimes with the tags still on them. To take it even further, I wait for a sales tax holiday – just make sure you wake up early to shop for school items, it’s a jungle out there.

Back to school is expensive, even if your kids go to public school. By planning ahead, you can prevent your wallet from screaming for mercy as you prepare and instead just enjoy having some peace and quiet at home again for a little bit.

4 Life Lessons I Wish I’d Learned 30 Years Ago

July 14, 2017

The other day I started thinking, “If I could travel back in time, what advice would 55 year-old me give to 25 year-old me?” The list grew and I started to get depressed, so I decided to limit it to two things financial and two things non financial in hopes that you might find some life wisdom in here as well.

Here are the conversations I imagine I’d have with my younger, cockier, less experienced (but oh my, much thinner…) self:

Non financial life stuff

Keep in touch with people who are important to you. In about 20 years your daughter will ask you and your wife (whom you haven’t met yet), “Were all your friends in college so nice?” The answer is no, you just got rid of the ones that weren’t good for you throughout the years. There will also be some that you regret not keeping in touch with. (There is this thing coming called Facebook which will make this easier.) The bottom line — it’s worth it to keep in touch with the people who are important to you, as they will make life better throughout the years.
Focus on things that you do well and find ways to compensate for things that you don’t do as well. I would tell Young Steve that spelling will always be a challenge for you, but there is this thing coming called spell check that will help, so don’t waste too much time memorizing words. (Although 2017 spell check still cannot figure out what word I am trying to sspaejkll on occasion.) You will be driven to overcome things you are not very good at and pay less attention to what you are good at, but this is a folly — it should be the opposite. I learned this from a book called “Strengths Finder,” which was published in 2007, and showed me I’d wasted a lot of energy over 20 years trying to “fix” myself rather than focusing on what I already did well. Figure out what your strengths are, what you are really good at and focus your time and energy on improving those. Worry less about your short-comings. (And if possible, write that book yourself in ’05 so you can retire early on the revenues from it!)

Financial life stuff

Figure out a spending plan. I know you hate the word budget – it sounds like diet and they both tell you something you cannot do and you hate that. So here is the trick you play on yourself: it’s not a budget, it’s a “spending plan,” where you plan what you want to spend your money on. And you need one ASAP. Rather than beating yourself up for what you wasted your last paycheck on, it is time to think about what you want to spend your next paycheck on. It doesn’t mean you can’t spend money, it means you will be spending money on what is most important to you. For instance, if you want to take that nice sailing trip with your friends next summer ($1,500), that means taking your lunch to work 3 days a week ($10*3*50 weeks =$1,500). 2017 tools that can help do this include Mint.com, everydollar.com, Easy Spending Plan, your bank’s system or any another system/tool/app available. The particular system doesn’t matter; what matters is that you have a way to make sure you are spending your money on what is important to you and that your system gets you and is easy to use.
Set aside 30 minutes a week to think about your finances to make sure you focus your time and money on what is important to you. Right now, your thought process is what is politely described as “inspirational” (also known as scatter brained), but when you find something you like you really dig into it (also known as OCD). If at 25, not married, no kids you cannot find time to take care of your money, you never will find time to do this. Make the time now. Turns out that you are a morning person, the latest you wake up is 6:30 (you used to think Dad was weird when he did the same thing) and that is when your energy is highest, so do it then. Set an appointment every Sunday morning from 7:00 to 7:30 to go over your finances. Look at what you are spending your money on and make sure it matches your spending plan. Make adjustments as necessary. Review your investments to make sure you are taking an appropriate amount of risk. The bottom line — focus your time and money on what is important to you.

Then I thought, “What do I think 85 year-old Steve will want to tell 55 year-old Steve?” Guess what – at this point, I think it would be the same thing. Only time will tell!

Follow This One Simple Rule for a Secure Retirement

May 26, 2017

While I was taking pictures of my middle guy and a whole bunch of his friends right before their senior prom, I was having a conversation with one of the other kids’ fathers. The inevitable conversation about what kind of work we do came up and he was, at one point in his career, working for a large accounting firm that has a wealth management arm. When he found out I was a financial planner, he shared a story about his colleague who ran that part of the business and had built himself a very nice retirement portfolio. My prom-dad-buddy asked him what the secret was that he used to grow his wealth & that of his clients.

The answer was simple: “Always live on your income from 5 years ago.”

When I heard that, I thought it was an interesting concept. If someone is accustomed to pay increases on an annual basis, this allows for a considerable amount of savings each year. This is a concept/theory that I had not heard before playing amateur photographer at prom time. But, it’s consistent with my very incredibly simple rules for personal financial management:

Spend less than you make
Don’t take on high interest debt
Save 10% or more of your salary
Always live on your income from 5 years ago

How it works

At a 3% pay increase, someone who earns $50,000 this year would earn $57,963 a mere 5 years later. Living on the original $50k would allow that individual to save almost $8,000 (probably closer to $5,000 after taxes & benefits) that year. If that same person contributed 10% of their income ($5,793) to their 401k – that’s one heckuva combined savings rate (>18%) before we even consider an employer matching contribution or account growth. If that pattern is repeated for a couple decades….retirement starts to look awfully secure. (I tried to do the math, but it got complicated. Suffice it to say, we’re talking about doubling your savings or more with this method)

There are a whole lot of very simple methods for becoming financially secure and these are just two of them. Managing your financial life isn’t as complicated as a lot of people make it sound. I’m a financial planner who hates the term “budgeting” because it sounds so restrictive and so much less than fun. I prefer to have a couple of quick & easy spending guidelines instead, like these grumpy old man rules.

How to Manage Money in a Financial Crisis

April 25, 2017

Murphy’s Law is that anything that can go wrong will go wrong. I used to laugh when I heard this until Murphy and his entire family decided to park themselves in my life. In about a 3 month period, we experienced a dramatic drop in income, had a head-on collision and wrecked our other car. (If you read my other posts, Murphy seems to sit on top of our cars).

The accident sent me to the ER and resulted in weeks of physical therapy. Our heating and air systems went out in our homes a few weeks later. It seemed like there was a permanent rain cloud over our family that we could not get out of – but we did. It was not easy, but the steps we took early in the process made everything smoother.

Accept our new reality. As crazy as it sounds, the first step was accepting that our finances had changed. Even after the drop in income, we still spent as if we had our full salaries. This just got us deeper into debt.

Create a budget based on our new income with a focus on the essentials. As we started filling in budget categories, we first focused on the categories that were essential – food, shelter and transportation. Next, we focused on the things that we considered important but would not cause us to be homeless, starving or jobless –Internet service (if your work from home, ask about being reimbursed for Internet services), cell phones, credit card bills, student loans, etc. At the bottom was entertainment, travel, and eating out.

Contact our creditors BEFORE we had problems paying our bills. I cannot overstate that the most important thing to do during a crisis is to communicate. Talking to our creditors – the mortgage, student loan and credit card companies – created a record.

I learned later that the record was two folds. One is that we stated we had a crisis in advance and the second is that we are committed to paying our bills on time and will work with our creditors. You will also know which department to call and the process for getting help if you cannot pay.

Eventually, we got to a point where we could not pay all of our bills. When we called, we knew to call the hardship department, state our situation, explain our budget and ask for help. We were able to get help from all the creditors we contacted. If you are facing a financial crisis, even if can currently pay your bills, consider contacting your creditors to inform them of your circumstances. We learned the earlier you contact them, the more likely they are to work with you.

Start slashing our expenses. I will admit, drastically reducing our expenses felt like the Band-Aid dilemma of our childhoods. Do we take it off quickly or slowly? No matter what you choose, it will hurt so just do it quickly.

The same goes with expenses. Just start slashing. We completely got rid of cable, went to a cheaper cell phone plan, cut out all eating out and got rid of our gym memberships. I listened to just about every YouTube video on healthy eating on a budget and we cut our grocery bill in half.

We did a staycation instead of traveling. Our kids still say it was one of their favorite vacations. We became Craiglist and Ebay pros and started selling stuff around the house we did not use anyway (old, unused wedding gifts and toys were our first targets) as well as taking the kids’ old clothes and toys to consignment shops.

When things stabilize, do not make up for lost spending time. When your life returns to normal, do not immediately start adding expenses. We learned our lesson about the importance of having some money set aside for emergencies so the first thing we did was to build a small emergency fund of about $1,000.

Then we used calculators like the Debtblaster calculator to come up with a strategy to get rid of the debt. It took a few years, but we were able to pay off all of our debts. The key for us was to keep our frugal lifestyle until the debts were paid. As our incomes went up, we did not increase our lifestyle so in a weird way, our financial crisis led us to getting out of debt.

The biggest takeaway we got from our experience is to never assume your financial situation will not change. We are all one car accident, layoff or family emergency away from a crisis. Living below your means, paying off high interest credit debt and having an emergency fund are the greatest barriers to keep Murphy and his family from becoming uninvited guests in your life.

How to Better Prepare Your Kids to Manage Money in College

April 18, 2017

This is the season where I start to get invitations to friends’ and relatives’ kids’ high school graduations. It never fails to amaze me how quickly they grow up. As I start to think of these kids graduating, I realize many of them will be getting ready to go to college, completely unprepared for how they will handle money.

That was the case with me. My family never discussed money with me and when I went to college, the peer pressure of having to look a certain way and the desire to hang out friends quickly left me broke, no matter how much money I had. If I could go back to 1990, ten years ago when I graduated from high school (please allow me to remain in my mathematical delusion), I wish my parents would have better prepared me for managing my money in college by doing the following:

Give them an allowance that includes ALL of their monthly expenses. My parents gave me money as I needed or wanted. Typically, I would ask for money for the movies or to cover my expenses for being on the track team such as travel, hotel and sneakers…oh and I forgot – the money to get my hair done. I learned in college that I was high-maintenance and could not afford my own upkeep. Consider adding up how much you spend on your kids’ activities, personal care and outings and giving it to them to manage themselves.

Teach them how to think about upcoming expenses and budget the money they have. One of my favorite quotes about budgeting is from John Maxwell, “A budget is telling your money where to go before wondering where it went.” Walk your child through the budgeting process to get them thinking about upcoming expenses and how to create and stick to a budget.

A friend of mine opened a checking account for her child in high school. She deposited money into the account monthly for his expenses. She helped him create a budget using online software like Mint and she had a weekly budget meeting with him.

Her son had to show her how he spent the money for the week and how much he had left. She did this while he was in high school so the money management habits will kick in by the time he went to college. Consider doing something similar with your child to help create the habit of budgeting and thinking through their financial needs.

Teach your kids about credit. When I was in college, it seemed like every credit card company known to man was on my college campus. Even though it has gotten better, credit card companies still market to college students who have no idea what they are signing up for.

Luckily, the CARD Act of 2009 provided some level of protection to college students. The act cracked down on giving credit cards to students under the age of 21. Generally, a jobless student cannot get a credit card without proof of income or a co-signer, but eventually, they will be eligible for a credit card.

I thought credit cards offer “free” money that I could take my time paying back. I had no idea that in addition to paying for the items I bought, I was paying an additional 25% in interest. Help your children understand that the money is not free and that the less they pay on their credit card, the more money they will pay in the long run.

If you decide to give your child a credit card, first make she has good money management skills. Control the credit limit and check in weekly at first to make sure the credit card is being used wisely. Then switch to monthly meetings.

The last thing you want is for your child to walk out of college in credit card debt and with bad money management skills. Teach them good money management habits now to help them build a good financial future. What better graduation gift is there?

Should You Follow Elizabeth Warren’s Money Management Advice?

March 16, 2017

While much of the country is discussing the president’s tax return, I stumbled upon an interesting article from a few years ago about the finances of one of the president’s possible opponents in 2020, Senator Elizabeth Warren. The article is titled “You, Too, Can Invest Like Elizabeth Warren” and is based on the information she submitted in a financial disclosure report along with tips from a financial planning book she wrote called All Your Worth: The Ultimate Lifetime Money Plan. Regardless of what you think of her politics, should you follow her financial recommendations? Before we get into the investing side next week, let’s take a look at the first set of recommendations called ”First Things First:”

1. Get debt free. Warren recommends that you “Drain your savings account, empty your checking account, and sell any stocks or bonds” to pay off all your debt. Warren herself has no debt except for a $15k student loan at 0% interest. In some ways, her advice makes a lot of sense. If you’re paying 18% interest on a credit card, paying it down is like earning a guaranteed tax-free 18% on your money and will also improve your credit score.

However, there are a couple of reasons why you might not want to “drain your savings account” to become debt-free. What if you suddenly find yourself in between jobs? You generally can’t put those mortgage or car payments on a credit card so now you risk losing your car and home. You can’t always rely on lines of credit either since they can be cancelled, especially if you’re unemployed or if the economy is weak. That’s why it’s always important to have some emergency savings (ideally enough cash to cover at least 3-6 months worth of necessary expenses) even before paying down high-interest debt.

Second, you might not want to pay off any debt balances early that have interest rates below 4-6% like many mortgages and student loans. That’s because you’re likely to earn more by investing that money instead. Perhaps that’s why Warren hasn’t paid off that 0% loan yet. This is especially true if you’re not contributing enough to your employer’s retirement plan to get the full match and leaving that free money on the table.

2. Don’t buy a sailboat if you work at Wendy’s (or are a journalist). What Warren really means is that 50% of your income should go to needs, 30% to wants, and 20% to savings. But how can you really separate “needs” and “wants?” Is your home a “need” because you “need” somewhere to live or a “want” because you’re paying extra for a really nice place you “want” in a great location? The same goes for everything from the car you drive to the food you eat.

This also seems like too much of a one-size fits all approach to me. Your spending and saving should be based on how you decide to balance your various personal goals and priorities. For example, I personally save a lot more than 20% of my income because achieving financial independence is a high priority of mine and I’m willing to live in a small studio apartment and not have a car to do it. If you work at Wendy’s and are willing to live with your parents and not spend much money so you can achieve your dream of buying a sailboat, go for it. As long as you understand and are willing to accept the trade-offs, do what makes YOU happy.

3. Pay off your mortgage if you have one. Mortgages tend to be low-interest and we already addressed the downside of paying off low-interest debt early, but mortgages have an additional benefit in that the interest is also tax-deductible. That means if you’re in the 25% tax bracket, a 4% mortgage costs you only 3% after-taxes so that’s the number you should consider when deciding whether to make extra payments. (You can calculate your mortgage tax savings here.) In fact, considering the low mortgage rates and the tax breaks, there’s even an argument for NEVER paying your mortgage off.

Of course, there’s much worse things you can do than getting debt-free, creating a money management plan, and paying off your mortgage. I just think her advice is overly simplistic. Next week, we’ll take a look at Warren’s investment advice…

How an Argument on Valentine’s Day Made Our Marriage Stronger

February 14, 2017

When I think of Valentine’s Day, I always think of my first Valentine’s Day after I got married. We were new homeowners undecided as to how to decorate our home. I am a saver and I wanted to bargain shop and slowly decorate. My husband is a spender who was tired of walking around empty rooms and wanted to start buying furniture without looking for a deal (gasp). Our discussion, or rather argument, about how we would buy furniture was the first dose of reality that we had very different thoughts about money.

Now, I am sure some of you are asking yourselves why she is talking about an argument on Valentine’s Day. Trust me. I am going somewhere with this. It was not easy, but after we both stopped pouting, our argument made us realize that in order to have peace, we needed to agree on how we will spend money as a couple so over the next few months we came up with a plan to manage our finances together. The following is how we were able to do it without strangling each other:

1. We had money meetings a few times a month. We had a meeting a few days before the new month began to discuss what expenses were coming up during the month and a shorter meeting before each pay period to make sure nothing changed or was forgotten. The longer we did this, the shorter the meetings became. This went a long way to prevent arguments about last minute unexpected spending. Consider using a budget worksheet as a tool to map out your spending plan as a couple.

2. We set up communication ground rules for the meeting. First, we agreed to obey the principle my kids learned in kindergarten that if you have nothing nice to say, then say nothing at all. We established the budget meeting as a no nagging, judging, and cursing zone with no sarcastic remarks allowed. We also had to give one compliment about how our spouse managed their money. Work with your partner to come up budget meeting ground rules.

3. I agreed to keep the meeting short and my husband agreed to bring his body and mind to the meeting. I also agreed to be flexible on the meeting times if important events arise, such as my husband’s favorite team playing. Agree on a meeting date and time where both of you can be mentally as well as physically present.

4. We set up 4 accounts: a joint checking account where both of our paychecks initially went into for the household bills, separate checking accounts where money was transferred from the joint checking account for personal spending that we did not have to consult each other on, and a joint savings account. We agreed on how much each of us would get to spend every pay period. Every couple is different, so discuss the best opton for the both of you.

5. We also came up with spending ground rules. For us, it was that we would not spend anything over $100 from our joint account without discussing the purchase with each other. We also agreed that we would not discuss money spent in our personal accounts. I deliberately mentioned this twice because for some couples, it’s important to have personal money you can spend freely.

So as odd as it sounds, our argument on Valentine’s Day was one of the best things that could have happened to us. It led us to getting on the same page about money, which brought us closer together as a couple. As you celebrate Valentine’s Day, consider using the day to go over ideas on how to help you and your partner manage money better together.

Don’t Spend $25k on a $10k Vacation

February 02, 2017

The winter months get many of us dreaming about our next vacation to a warm place. But would you spend $25k for a $10k vacation? My colleague, Steve White, recently wrote about how this could happen:

Everybody likes a vacation. If you could take a $10,000 vacation where would it be – Vegas, Miami, the beach, LA? If you could choose between spending $10,000 or $25,000 for the same Vegas vacation (same airfare, same hotel, same restaurants, same clubs, same blackjack losses), which would you choose? The $10,000 dollar one, right?

Let me tell you how you can spend $25,000 on that Vegas trip. Book that $10,000 trip using a credit card and make the minimum payments on it. The minimum payments would be about $175 a month and it would take you 12 years to pay if off at that rate.

$175 a month times 12 years is $25,200. Think about it. You could have taken 2 1/2 trips to Vegas for what you spent on 1 trip.

So how can you avoid this fate? One option is to simply not take vacations, but if you value your emotional and ultimately physical health and productivity, that’s probably not a good idea. In fact, spending money on experiences like a vacation generally gives a much bigger “happiness bang” for your buck.

Instead, set a goal for your vacation and estimate how much it will cost. You can even use this tool to find a trip based on your goals and budget. Once you’ve set a target, subtract any savings you’ve managed to set aside for that trip and divide the remainder by the number of months between now and when you want to take your vacation to determine how much you need to save each month. But where will you come up with that money? Steve suggests starting with a spending plan:

A spending plan allows you to focus your money on what is important to you – like a vacation. The best way to do this is to set a 30 minute weekly appointment with yourself to review your finances. I recommend scheduling this when your energy level is high and you’re able to concentrate. I am a morning person so mine is Saturday morning.

Whether you use our Easy Spending Plan, our Expense Tracker, Mint, or any other system for your spending plan doesn’t matter. What matters is that you have a spending plan. Personalize it and continually ask yourself, “I see where I am spending my money. Is this really where I want to spend it?” If the answer is no, find one area to adjust and make that the topic of the next week’s money meeting.

This isn’t about anyone lecturing you on what to spend money on but about you taking control over your own finances. Ask yourself if each expense is more important to you than your vacation. (Remember that you generally buy more happiness with experiences than with things.) If not, pay yourself first by reducing that expense and have the savings automatically transferred each month into a separate designated savings account for your vacation. Now you have a savings plan to complement your spending plan.

What if you can’t reduce your expenses enough to fund your vacation? In that case, you’ll have to adjust your goal either by postponing it or by choosing a lower cost trip. Financial planning is all about trade-offs. There’s no one right answer as long as you’re making an educated and conscious decision.

Finally, you might want to use a rewards credit card to pay for your trip. This way you can earn cash or points towards your next trip and actually come out ahead…as long as you pay the balance off in full from your savings. Do this often enough and maybe you can eventually spend $10k on a $25k vacation!

How to Budget for Child Care

January 17, 2017

I was flipping through old pictures of my children and came across the one above. My daughter, now 7, was about 10 months old in this picture. My friend needed a baby for a photo shoot and I volunteered my daughter if I could get copies of the photos. This picture is one of my favorites.

As I think back to when she was a baby, I can’t help but think of how expensive that time in our lives was. In fact, I used to call her my little mortgage payment. With the average cost of childcare for an infant easily exceeding $10,000 a year, many parents struggle to budget for it. The following strategies can help take the financial bite out of child care:

1. Create a budget to see exactly how much you can spend on child care. Look for items you can cut back on such as cable, eating out or entertainment.

2. Once you have created your budget, decide how much you can reasonable afford for child care. Contact your employer to see if they offer a child care search services. Research childcare options that meet your budget. A private nanny may be out, but a quality daycare facility may fit into your budget. A friend of mine did her budget and realized that it was cheaper for her to stay home rather than put her children in daycare.

3. Once you have narrowed potential childcare providers, ask about discounts. You may be able to get an employee discount or a discount based on where you live or if you have multiple children attending the same daycare. If your income is limited, contact your child care provider or your state’s Child Care Program Office about financial assistance.

4. Consider using employer savings plans like a dependent care FSA to save money for daycare pre-tax or claiming a dependent care tax credit on your taxes. Since you can’t use both on the same expense, weigh your options to see which one is better. In general, a dependent care FSA is better for higher income earners (above the 15% tax bracket) and the dependent care tax credit is better for lower income wage earners.

Don’t let yourself get overwhelmed by the cost of daycare. With a little bit of planning, childcare does not have to bust your budget. A little bit of research can go a long way to helping you find the best childcare option for your needs.

What a Financial Planner Told His Daughter After Her First Job

December 30, 2016

This week, I’m sharing a blog post from my colleague, Steve White:

My daughter is 22 and recently graduated college with a degree in human biology cum laude no less and she has a job working with a medical practice. (I’m a dad so I have to brag a little.) She has done several things that have reminded me why 1) being able to support yourself is important and 2) your kids do listen to what you say.

She called me when she got her first paycheck and said “Dad, I got a paycheck with a comma in it. Now you have to listen to me.” My father used to jokingly tell me that until I got a job with a paycheck, he didn’t have to listen to me, and yes, I jokingly told her the same (full disclosure – my dad did listen to me and I did and still do listen to my daughter). That paycheck with a comma in it meant that she now got to experience adult things that I’ve taken for granted like employee benefits. Her questions (and my answers) that we covered when she accepted her job included:

What health insurance do I sign up for? (the one that fits your situation) Should I check and see which one covers my prescriptions? (yes) If I take the high deductible plan, should I put money into the HSA? (yes) If I take the other plan, should I put money into the FSA? (yes)

How much life insurance should I get? (enough to cover your debt – see this life insurance needs worksheet) Who do I name as beneficiary? (whomever you want to – not me, name your mom) Wow, I don’t like thinking about if I die (Yeah, I know.)

Who is your beneficiary? (Mom) You need to name me as your medical power of attorney [see human biology major – cum laude] (I’ll think about it – aka no, let’s get back to your benefits.)

How do I fill out a W4? (What do the instructions say?) Will I have to file my own taxes? (yes) Can you help? (yes)

Thanks Daddy! (You’re welcome. What other benefit questions do you have?)

Do I need disability insurance? (yes) Why? (You’re statistically more likely to be disabled than die young – 24% chance of being disabled for 3 months or longer.)

Before she got her 3rd paycheck, she called me about budgeting, here’s how that one went:

Dad, I think I’m going to run out of money before I get paid again. (Oh, why is that?) I’ve got $23.42 in my bank account. (Yeah, I’d say that’s a possibility.)

I hate budgeting. (We all do sweetie.) Can you help me set up a budget? (Sure, I do it every day. That is one of the things I’m paid to do.)

(You remember when I decided to start watching what I ate?) Yeah, I remember you arguing with me about how many calories are in a fried pork chop. (Okay, besides that, when I thought about watching what I ate as a diet, I thought about in a negative light. I decided to think about it as an eating plan. That feels positive to me.)

Oh, I get it. I need to think about budgeting as a spending plan. (Yeah, just like you plan what you are going to eat, plan what you are going to spend.) Can you send me that spreadsheet thing you sent me before? (sure: Easy Spending Plan)

When she got her 3rd paycheck, our conversation went like this:

Dad, this morning at work, I was so excited that I got paid that I gave everyone a hug. (That’s nice.) I don’t think they expected that. (They have gotten a lot more paychecks. They have learned to restrain their excitement.)

I’m working on my spending plan and I’ve got a question. How much should I spend on lattes? (less than you do now) But I really like my soy double pump vanilla latte (I know), so what do I do? (Spend less on something else.)

But I need gas and food! (I know.) Dad – sometimes being an adult stinks. (I know.)

(Love ya sweetie.) Love you too Dad.

What To Teach Your Child About Money Over Winter Break

November 29, 2016

Experience is often the best teacher. My mother told me this often and like most kids, I ignored her. I thought I knew everything when I was a teenager despite my lack of a high school diploma, never having had a job or paid a bill, and being on the earth for less than 18 years.

When I went to college, she gave me an amount of money to spend monthly. I, like most kids, did a horrific job managing my money and I found myself broke within days of getting my monthly allowance. My mother refused to give me extra money. Needless to say, it was a humbling experience.

During my first major break in college, my mother pulled me aside and showed me how to budget. For those of you with kids in college who are floundering with their money, take the time to help them learn how to budget. Trust me. They will be much more receptive after they have tried and failed. The following steps can help your child manage their money better – and create less of a headache for you.

1. Work with your child to create a budget.

At the time I went to school, the Internet did not exist, so my mother helped me create a budget on paper. My budget consisted of eating out, clothes, and entertainment. To her credit, my mother did not roll her eyes over my eating out expenses but guided me into limiting my spending so my money could last. Today, your child can use websites like Mint to manage their money. Help them think through how much they should spend weekly, so they have money for the month.

2. Establish rules for overspending.

This one was easy. My mother said, “Don’t ask me for more money.” She made it clear that if I could not manage my money, she was not going to be “Bank of Mom.” Knowing that there was a limit to my spending scared me into thinking more about how I spent it. Go over the rules for overspending so you and your child are on the same page.

3. Consider a part-time job.

I complained to my mother that the money I was given was not enough. She went over the amount and then how I spent it, which I blew on pizza, clothes and movies. She then told me that her job was not to manage my social life and if I want one, I should get a job to cover the expenses. Immediately, my complaining subsided.

If your child is struggling to manage the money they have, go over their funds with them to assess if the struggle is a result of poor money management or truly a lack of funds. Depending on your child, encourage them to work a part-time job. Surprisingly, when I eventually got a job, my grades went up. The job was a wake up call as to what my life could be like without an education.

While your child is home for the holidays, take the time to review their spending. Helping your child create good money habits now will go a long way to creating a financially successful adult. They’ll thank you someday.

How to Financially Survive the Holiday Season

November 08, 2016

I love the fall – the changing colors of the leaves and the beginning of the holiday season. For many, this gives us time to spend with family, but for a lot of us, the holidays create a black hole in our wallets. I am sure that it comes as no surprise that Thanksgiving and Christmas are two of the most expensive holidays of the year, but with some planning, these holidays do not have to wipe out your accounts:

1. Review your spending to determine a realistic budget. Before you get caught up in the non-stop “Black Friday” sales that seems to start right after Halloween season, take some time and realistically assess your budget to come up with a total dollar amount you can spend on family gifts. Consider using your bank’s software or websites like, Mint to help you create a budget.

2. Come up with a game plan for who will and who will not get gifts. I have a HUGE family: 5 brothers and sisters and close to 20 aunts and uncles between both my parents. (Don’t get me started on first cousins, much less second and even third cousins.)

I limit gifts to immediate family members, and I give either a family photo or a photo of the kids in an inexpensive frame for family gifts. Decide who will get gifts and come up with a game plan for other family members. Remember, gifts can be more than something you purchase- yummy desserts or an offer to babysit or do another needed service for a family member are great gifts.

3. Start shopping now for great gifts in inexpensive stores. The best time to hunt for gifts in inexpensive stores is now. Also, start searching consignment shops, particularly for kid’s gifts. A few years ago, we got an expensive all wooden dollhouse filled with wooden furniture and dolls for under $25 at a local consignment shop. Start slowly going to local stores to find some great deals.

The holidays can be financially stressful. However, they do not have to be if you take the time to plan ahead. Start planning now so you can save later.

7 Signs You’re Living Beyond Your Means Even If You Can Pay All Your Bills

August 03, 2016

I’m pretty sure most people understand that the first step in achieving financial security is to spend less than you make. Sometimes easier said than done, but it’s the only way you can save any money and avoid high interest credit card debt. What a lot of people don’t get though is that just because you’re able to pay your bills each month, it doesn’t mean you’re not living beyond your means. If your bank account balance gets dangerously close to zero right before payday, you’re not “getting by,” even if you don’t overdraw and are technically making ends meet. Here are 7 other signs you’re living beyond your means, even if you are able to pay all your bills on time, and what you can do about it:

1. You’re not paying off your credit cards every month or you don’t have a plan in place to pay them off. Use the Debt Blaster to get a plan going and then stick to it.

2. You don’t have an emergency fund. This is your first line of defense against long-term financial issues. Get started on this ASAP.

3. You say you can’t afford to do that thing you really want to do. This was actually the wake-up call for me to realize that I was living beyond my means even though I was making ends meet. I really, really, really wanted an iPad and a new bike, which added up to about $1,000. I said I couldn’t afford it and yet I was spending that amount monthly on dining out and booze. If you tell yourself you can’t afford something you really want, and that thing would be reasonable for someone of your income, lifestyle and life stage to have, that’s a sign you need to examine your spending and start living within your real means.

4. Unplanned expenses like a traffic ticket or a family member’s destination wedding send you into a tailspin. If the first thing you think of when you hear a cousin is getting married at an all-inclusive resort in the Caribbean is, “How rude! I don’t have the money for that!” you are not “making it” financially. There needs to be wiggle room in your cash flow for things like this. Here’s a good way to plan for it.

5. You’re taking out 401(k) loans to pay off other bills. Even though you’re paying interest to yourself, this is still a form of debt. If you’re borrowing against your savings, you’re not living within your means.

6. You’re not on track to retire at 65. Ideally, you’d be financially able to retire before you are mentally ready, but 65 is a good age to shoot for if you’re still in the earlier parts of your career. Here’s how to find out if you’re on track. If you’re not, the earlier you start saving, the sooner (and easier) you’ll get on track.

7. A job loss or medical emergency would severely alter your future. If going without even just one paycheck would send you into late fees with all your bills, it’s time to get a system in place that helps you save for these unexpected events.

The best and easiest times to escape the paycheck-to-paycheck lifestyle is when you experience any type of windfall like a tax refund, an unexpected bonus or even just your annual single-percentage increase at work. Be strategic with that money and use it to find some space in your finances, rather than just adjusting your spending to match. You don’t have to wait for a windfall to do this though. Even just a small change each day that you mindfully use to put away a little extra adds up.

What to Do When You’re Expecting

July 19, 2016

When my husband and I got married, we wanted children, but we had to face the reality that it would be difficult to have children due to prior medical issues. Apparently, God had a different plan for us and I found myself surprisingly pregnant within two weeks of trying. We were happy with the news but after the joy wore off, I started putting on my planner hat to figure out how to plan financially for the new baby. I’ve always believed in learning from other people’s experience, so I started asking friends of mine who were parents what financial guidance they would give to a woman pregnant with her first baby, knowing what they know now. The list started pouring out:

1. There are enough surprises to being a new mom without medical bills being one of them. Contact your healthcare provider to find out how you are covered for medical visits, including vaginal and c-section deliveries and well-baby care. Once you have the numbers, consider increasing your contributions into a health savings account (HSA) or a flexible spending account (FSA) to cover the costs with pre-tax money.

2. You only get one time to be a first-time mom so take all of the leave offered to you. Contact your employer to clarify how much time you can take off and how much you will get paid during the time off. Many companies offer paternity leave so find out the rules for the baby’s father as well. If the leave is unpaid, figure out how much time you want – factoring in that you may want to take leave before the baby comes and/or your bundle of joy may be late (mine was almost two weeks pat due) into your numbers.

3. What is your ideal maternity leave? Do you have lots of friends and family to help out or do you need to outsource? If you are the primary cook of the family, do you need to budget an eating out, food delivery or frozen food budget? Do you want a nanny or baby nurse to help you out? Would you like a cleaning service to help you for the first few weeks?

Start thinking about what costs are involved in each of these options. Delivered prepared meals can run over $300 for two a day. A baby nurse could cost upwards of $200 a day. Average cost of maid services can run upwards of $157 for the service. If your budget is tight, consider asking for frozen meals or even for people to pitch in and pay for a cleaning service as part of your baby shower gift or reach out to your local place of worship for help.

4. Once you have your numbers, start to work on a budget for when you are on maternity leave as well as a budget for when you return to work. Account for possible medical costs, any gaps between your pay before maternity leave, and the costs that come with a new baby – endless diapers, wipes and if needed, formula. After you go back to work, you’ll also have possibly new work clothes (it took me forever to fit back into my pre-baby clothes), daycare (for a year, I called my daughter my little mortgage payment) and additional doctor visits. Any parent with kids can tell you that with the first baby, as soon as they sneeze, you are crying and heading to the doctor. With baby number #2, as long as they aren’t spitting up blood, you don’t even bother.

5. If your budget shows a shortfall, take the total amount needed and divide it by the months you have left and that is your savings goal. Start thinking about what you can cut back on now to save the funds. Can you reduce your cable and cell phone bills and eat out less? Can you use vacation days to get additional paid time off?

What did I learn from all this? Overall, the best guidance centered around thinking through what your ideal maternity looks like, putting those ideas into tangible dollars and realistically assessing your finances to see if it is doable. Taking these few steps will make your first few months with your bundle of joy less financially stressful.

How to Survive and Thrive in a Pricey City

July 12, 2016

I was born and raised in Brooklyn, NY – before it was trendy. When I was growing up Red Hook, the underpass of the Brooklyn and Manhattan Bridges were places you did not want to go to at night. It seemed like overnight the worse and somewhat cheaper parts of town became the most sought after and expensive places to live.

These changes are what attracted my cousin to move to Brooklyn later this year. As I was talking to her, I realized that she was excited about the idea of living in New York, but the reality of the financial change from her move had not quite sunken in yet. I told my cousin about financial changes she had not fully factored into her move such as:

Paycheck Sticker Shock: My cousin was moving from Florida to Brooklyn. She knew that she was going to experience a major shock in expenses, but she had not factored in the change in her take home income due to taxes. Unlike Florida, New York City and some other major cities have state and city income taxes. She was shocked to see about a $600 a month estimated decrease in her paycheck once she moved there. For anyone moving to a new state, using calculators like the one from Smart Asset to gauge what your new income will be can help you better manage your finances.

Caviar Tastes on a Tuna Fish Budget: My cousin grew up watching The Cosby Show and fell in love with the brownstones featured on it. She knew the rent would be high but she almost passed out when I told her that a one bedroom apartment in Brooklyn Heights could easily run over $2,500. I told her to first do a budget to see how much she can afford. Her budget did not support $2,000 in rent so we researched apartments on websites like Apartments.com, which helped her set realistic expectations of where she could afford to live.

We brainstormed ideas like renting a room, living in a basement apartment, taking in roommates or living on the outer edges of Brooklyn. We also searched apartments that were in rent controlled/stabilized buildings to protect her from crazy rent increases. I encouraged her as well as anyone moving to a new city to research the cost of housing and realize that it may be a choice between a longer commute or more expensive rent.

Ditch the Car: My cousin grew up in a place that required her to have a vehicle. It never occurred to her that she may not need a car. She was shocked when I told her that my mother, a typical New Yorker, does not have a driver’s license, and I was 24 before I got mine.

I encouraged her to get to know the mass transit system in her area and estimate the cost of maintaining her vehicle in Brooklyn. Between the extra cost of car insurance, gas, parking and the hassle of alternate side of the street parking, she decided it was not worth it and ditched her car. The extra savings helped her to afford an apartment closer to where she worked. Call your insurance company to find out the cost of insurance in your new location, look up the average gas price, the average cost of parking and the hassle of finding parking to see if it is worth keeping your car.

Finally, I encouraged my cousin to do a comprehensive budget, not only factoring in the cost of living but also vacations, since she will either have to rent a car or fly home. She created a budget that helped her get her apartment and even have a little fun. Because of all the preparation she did, she was able to enjoy her new location without going broke in the process.

3 Reasons We Spend Beyond Our Means

June 29, 2016

While the US personal savings rate is higher these days at 5.4% than it was a year ago, Financial Finesse’s research shows that 34% of people are living beyond their means or spending more than they make. Some of this overspending is due to factors beyond their control like medical expenses or other emergencies. But in many cases, it’s more from a lack of planning ahead combined with rationalizing what one can “afford,” a measurement that is often more emotional than based in reality.

For example, when it comes to meeting up with friends after work for happy hour, I’ll go to great trouble to avoid paying $15 for parking or a taxi cab, but don’t think twice about ordering a glass of wine that costs the same. When I stop to question this logic, it sounds nuts. How can I mindlessly afford $15 for a glass of wine but schlep for several blocks from the bus to avoid spending the same amount for more convenient transportation? We make the same kinds of bargains with ourselves all the time. If you’re looking to save more money by cutting back on spending, it’s important to be aware of these three reasons that often cause us to compromise our savings goals:

1. It feels good. Emotional buying is a lot like emotional eating. When we’ve had a bad day or are tired, sad or sometimes even ecstatic, our emotional mind tends to rule out our rational thoughts. But while a purchase may temporarily lift your spirits, it won’t solve the emotional need you’re seeking to fill.

One way to overcome this trap is to build a “bad day” spending amount into your monthly budget. I have a friend who keeps a fifty dollar bill in a hidden fold of his wallet for those days. Another way is give yourself visual reminders. I keep a sign in my office that reminds me, “Until you make peace with you are, you’ll never be content with what you have.” Rather than trying to buy your way to happiness, think about what’s really missing and take the baby steps to get closer to that.

2. The Pinterest effect. Social media has taken celebrations like weddings and even simple backyard barbecues to a whole new level of creativity and even competition to have the prettiest, the hippest, and the most impressive decorations and ideas. I cannot believe the themes some of my friends pull off for their kids’ birthday parties. To me, it’s a modern day version of keeping up with the Joneses times ten.

If your 5-year old’s classmate has a farm-themed party complete with pony rides, there’s an element of peer pressure to match or better that with your own kid’s party. That’s fine if it’s part of your budget, but if it stresses you out to think of what you’ll have to pay for a bouncy house or to have a live Elsa show up to the party, take a step back and assess your priorities. Your child won’t miss what’s NOT there, and you can use the money you save toward their education. “I wouldn’t mind taking out student loans if it means my parents had thrown me extravagant birthday parties as a kid,” said no college student ever.

3. We all love a good “deal.” It’s a proven fact that when large retailers go out of business, they often hire liquidation firms who come in and actually mark up prices so that they can “discount” them in an effort to clear items out of the store. They’re banking on buyers’ perception of getting a deal and it works. Same goes when you’re shopping online and buy more simply to qualify for free shipping.

When you find yourself buying something that you weren’t actually seeking out, take a pause and first consider whether it’s something you need and can afford. Try to fast-forward in your mind to the next time you’re cleaning out your closet or packing up to move and whether you’ll be glad you have that thing or wish you hadn’t purchased it. If you do decide it’s something you need, then do a quick check on your smartphone to make sure the price is actually a deal. Stores call this “showrooming,” which means they hate it when people do this, so try to be inconspicuous, but if you do find a lower price online, see if the retailer will honor it.

Finally, when you do find yourself overcoming the urge to spend, don’t let that money find itself being wasted somewhere else. Consider turning that victory into actual savings by transferring the amount you were considering spending into your savings. It adds up and you’ll never regret saving more.

What Climbing Mt. Everest Can Teach Us About Budgeting

May 31, 2016

Budget – the word can strike fear in the bravest soul. A budget for some is like climbing Mount Everest. Many have tried, many have perished, and the ones who get to the top are never the same again. As I was watching a documentary about Mt. Everest, the similarities between the ones who made it to the top and lived to tell about it and the ones who did not or perished are striking similar to those that successfully use a budget and those that have struggled to stick to a budget:

Unrealistic Expectations. Some of the failed climbers set unrealistic expectations about their own physical health, mental stamina and timeline to climb the mountain. Likewise, I have found one of the reasons why people fail to stick to a budget is that they create an unrealistic one. Look, you eventually are going to buy clothes and eat out. Even if it is not that often, put a dollar amount in the category. If are not sure where to start, look at your spending for last year, divide that number by 12 and use that number as your starting point for your monthly budget.

Not planning for the unexpected. Many climbers did not have a plan for how they would handle sudden changes in weather. Like the climbers, many people do not buffer what I called the “expected unexpected events.” We all know at some point our cars will need repairs and we will need to call a plumber. We just do not know when these things will happen. If you don’t know how much to save, consider reviewing your bank account for car maintenance and home repair transactions for last year, dividing it by 12 and using that number as a starting point.

Not changing your plan. Successfully climbing Mt. Everest means making adjustments to your plan since your route may change or the terrain might take a climber longer than expected. As our lives change, the budget needs to be adjusted. Where I live in Georgia, my gas bill is higher in the winter and my electricity skyrockets in the summer. Also in the summer, I have to account for summer camp expenses. Review and adjust your budget to account for the highs and lows of your expenses throughout the year.

Of course, sticking to a budget is a lot easier than climate Mt. Everest. We can still learn a lot from it though. Making these adjustments can help you experience the “high” of financial wellness.