Sage Personal Finance

Creating a budget for your household is very important but can feel like an overwhelming task. Here are some steps to help you get started.

1. Calculate your total income and expenses for a month. Start by looking at your paystubs and add up the net amount from each paystub for a month (your total income). Then write down all of your regular monthly expenses (i.e., rent, car payment, groceries, gas, entertainment, etc.) and add up how much you are spending. You will also want to include irregular expenses (i.e., insurance, property taxes, gifts, tuition, etc.). To determine the monthly cost of your irregular expenses, add up all of the irregular expenses for the year then divide that total by 12.

2. Now that you have calculated your total income and total expenses, you have to figure out if you are spending more money that you are earning or if you are saving money each month. Simply subtract the total of your regular and irregular expenses from your total income. If your expenses are more than your income, then you are accumulating debt each month and need to cut back on your expenses. If your income is more than your expenses, you are saving money each month.

3. If you need to cut back on your expenses or would like to save more money each month, then you should examine all of your expenses and figure out where you can save money. A good way to start is to separate your expenses into essential and non-essential groups. For the essential expenses (i.e., rent, electricity, food, etc.) are there ways you can save on those bills? Using coupons or shutting off lights and unplugging appliances when not in use can start to save you money. For the non-essential items (i.e., eating out, entertainment, etc.) are there items that you can live without? And what are ways that you can still do the activities that you enjoy but not continue accruing debt? Stopping your Starbucks visits, committing to eat out only once a month, or attending matinees instead of evening shows are great ways to start to save money.

If you start with these three steps, you will be well on your way to creating a household budget and having a more secure financial future. Just remember that sticking to a budget is difficult and it may take a few months before you are able to do it, but don’t give up! There are also apps like Mint and GoodBudget that can help you stick to your budget.

When it is still two weeks until your payday and an unexpected problem arises (i.e., you need to fix a flat tire or visit the hospital), it may be tempting to take out a payday loan to make ends meet. Although it may seem like an answer to your immediate problems, it will probably end up costing you more money in the long run.

Payday loan companies charge extremely high interest rates. Some companies also charge maintenance fees and origination fees for a loan even if you borrow as little as $100. Additionally,these companies will generally let you rollover your debt if you pay the fee. This may seem like a nice feature but you could quickly end up paying more in fees than the original amount borrowed. For example, if you borrow $300 and pay $45 in fees and roll over the loan for another two weeks, you will end up paying $390. If you are unable to pay the loan for two months, you will end up paying $360 in fees – more than the original loan amount.

So, how do you avoid needing to take out a payday loan? The best plan is to save each month to prepare for unexpected emergencies. Even if you are only able to invest $20 into a savings account each payday, that money will start to accumulate and could help you make ends meet when money gets tight.

-Kathryn M.

The best way to avoid repeating history is to learn from your own and others’ mistakes. This is especially true when it comes to money management. Online, there is a lot of financial advice available to the next generation. Here are six tips that everyone should follow, especially those just starting out.

1. Plan for the future. Deposit money into a Roth IRA or a workplace retirement account as soon as you start working and have the funds to do so.  Ensure you get your company to match your contributions if they offer this perk.

2. Pay yourself first. Save a certain amount of every paycheck by depositing it into a savings account.

3. Live within your means. How well you manage what you make is key.

4. Know the difference between bad debt and good debt. Any debt that has a lower interest rate than what the money would gain if saved may be good debt. If the debt has a high interest rate, like with credit cards, it is bad debt. Be sure to pay off credit cards and use them sparingly.

5. Keep an eye on your credit score and credit report.  It helps to check in at least once a year with each credit bureau to view your report to ensure there are no errors on it.

6. Be prepared for the unexpected. Set up a rainy day fund with savings you never touch unless an emergency occurs.

-Kathryn M.

Sometimes a little extra spending money comes our way from either earning a pay raise, paying off a debt, getting a tax refund, receiving an inheritance or gift, etc.  When this happens, it helps to think about how that money can help you create a secure financial future.

If you are in debt (i.e, you have loans, credit card payments, etc.), consider putting that extra money towards paying off the principal of that debt.

If you don’t have any debts to pay off, consider investing the extra money. Depositing the extra funds into a savings account, retirement account, or rainy day fund are all great ways to plan for the future.

Or, if you have a big trip planned or know you will be needing to make a large purchase in the near future, set aside the extra funds for that purpose so that you don’t have to use your credit card to pay for the upcoming expense.

Making a budget and sticking to it isn’t usually too fun but there are a few ways that you can make it a little more interesting.

1. Use a budgeting app. You can search online for apps or check out news web sites like the New York Times which reviews different apps.

2. Create a game to play with your spouse or friends who have similar budgeting goals. For example, award three points for the person who goes a day (or the longest) without spending any money or two points for eating in instead of dining out, etc. At the end of the month, the person with the most points wins a prize (maybe a home cooked meal prepared by the ‘loser’ or a week without having to take out the trash).

3. Join an online community where you can discuss your budgeting goals and receive support and tips on how to stick to your budget.

4. Set milestones for yourself. This is especially important if you are working towards long term goals.

5. Reward yourself (responsibly) when you have been able to stick to your budget for a month.

6. See how much money you can make by selling stuff at a garage sale or on eBay that you no longer need. You could incorporate this into your budgeting game- the person who makes the most money in a month earns four points!

-Kathryn M.

There is always lots of talk about how you should manage your money and what you should be doing.  But what about the things that you should not be doing?  Let’s discuss some of these here…

1. Carrying too many credits cards with balances. Credits cards can come in handy for emergencies and for earning rewards but having many cards that are maxed out is a sign of a problem. Credit cards have extremely high interest rates which makes it difficult to pay down your debt.
2. Taking out too many large loans. Just as having credits cards with large balances can damage your financial well-being, so can having too many loans or loans that are too large. Before signing a loan for a house or car, be sure that you can afford the monthly payment. Most financial institutions will help you figure out how much you can borrow based on what monthly payment you can afford and what your interest rate will be.
3. Keeping up with the Joneses. Seeing your neighbor who makes less money than you buy a new car or new furniture can entice you to do the same. Don’t let yourself get sucked in, your neighbor may have more debt than you know!
4. Taking advice from others who are broke. We all need a little help now and then but it is important to choose carefully who you seek out for advice.
5. Buying expensive gifts. Instead of buying a new computer or iPad for your family members, consider giving your time or a less expensive gift that they will enjoy. Also, talk with your family about drawing names for gifts. That way everyone only has to buy one gift.
6. Ignoring your debt or lack of savings. Debt is not a problem that will go away on its own so it is helpful to develop and stick with a plan for paying it off.

-Kathryn M.

It is a new year and that means that it is once again tax season. Although filing taxes can be cumbersome, there are steps that you can do to make it easier. First, research tax credits and deductions for which you may be eligible. You can find information about everything tax related at www.irs.gov.  It is important to understand what credits and deductions are available so that you can be sure to save as much money as possible or receive a larger refund. Be sure to do your research even if you pay a professional to prepare your taxes for you because he/she may not be as invested as you are in saving you money.

Second, get all your paperwork in order. Collect your W-2’s, 1099’s, receipts, etc. so that you have everything you need in one place before you begin working on your taxes.

Third, investigate which tax filing service may be best for you. There are a variety of electronic filing options that are free and some that are low cost. You may also qualify for free assistance from the IRS. You can check with your local library to see if they offer assistance. Or if you live near a university, see if the senior year accounting and business students prepare taxes for free or at a low cost.

Finally, start preparing for next year. If you are receiving a large refund or ended up owing money to the IRS, adjust your withholdings accordingly so next year you will not owe or be owed very much. If you had trouble finding all the necessary paperwork, create a folder or box to keep all your tax related paperwork in.

-Kathryn M.

Although credit cards can be a source of temptation to overspend and incur debt, they can also be beneficial to use in emergencies, to build credit, or to earn points such as cash back rewards, frequent flier miles, or hotel credits. If you decide to have a credit card for any reason, there are some basic rules that you should follow to get the most out of your credit card.

First, pay off your entire credit card balance every month. Credit cards carry very high interest rates and only paying the minimum amount each month can end up costing thousands of dollars over the course of many years. One way to be sure that you have the funds to pay off your balance every month is to think of each credit card charge as a debit transaction and record it in the same way. That way, you have the money set aside to pay your bill at the end of the month and you know when you have reached your spending limit. If you overspend one month, be sure to pay as much as you can of your credit card amount due that month and spend less the following month to ensure you don’t carry a balance from month to month.

Second, read the fine print regarding annual fees, interest rates, and rewards before accepting any card. If you know that you might not be able to pay off your credit card bill entirely each month, you will want to get a card with the lowest possible interest rate. If you use your credit card for large purchases and pay off the balance each month, choose a card with rewards that you can use. Either way be sure that you fully understand the terms of the credit card before signing the agreement. Don’t hesitate to ask questions.

Third is to know how cards can positively and negatively impact your credit score.  Your credit score is based on the FICO formula which takes into account a variety of factors. One is the duration of your credit accounts. The longer you have had a credit card account or loan, the better it is for your credit score. Opening new credit card accounts frequently will negatively impact your credit score. Paying off your credit card bill every month and not charging the maximum amount on your card will also have a positive impact on your credit score. To learn more about your credit score, visit: http://www.myfico.com/CreditEducation/articles/.

-Kathryn M.

If you are currently working at a job you despise or you are unemployed or see no future at your current company, you may have to decide whether to go back to school or to look for a new job. If you are considering returning to school, there are several factors you should consider before you enroll.

First, how will you benefit from going back to school? If getting a degree will only help you get a higher paying job that you dislike, it may not be worth it. Or if you are unsure of what you want to do, going back to school may be a costly way to find out. Research careers that you are interested in and interview people working in that field to be sure it is a good fit for you.

Second, can you afford to go back to school? You not only need to consider the financial cost of enrolling in classes but also the significant time commitment required to succeed in school. Although many schools offer online programs in which you can primarily go at your own pace, these programs still demand considerable amounts of time for studying and completing tasks (not to mention lots of self-discipline to stay focused). Also, you lose income for all the time you spend going to school and not working.

Third, are there jobs available for which you already qualified and would enjoy doing? If going back to school isn’t right for you, you may be able to find a job for which you are better suited. There are many online resources to search for jobs and post your resume for potential employers including monster.com, indeed.com, LinkedIn, careerbuilder.com, and ziprecruiter.com just to name a few. Whatever you decide to do, be sure to do lots of research, consider all of your options, and talk with those closest to you in order to make the best decision.

-Kathryn M.

It seems that there are advertisements for companies that promise to get your student loan forgiven everywhere these days. Since the average student loan debt for graduates is now almost $30,000, the idea of having that debt forgiven is extremely appealing. Nevertheless, beware. If it sounds too good to be true, it most likely is a scam. Although the government has developed a few programs to forgive student loan debt for people who meet specific criteria, the majority of advertisements are for companies who merely consolidate the debtor’s loans. While consolidating loans can be advantageous for some, it can also result in the debtor losing some benefits of the original loan (in some cases, the ability to have the loan forgiven). These companies generally charge a fee up front and sometimes charge hidden monthly fees.

Before paying a company to have your student debt forgiven, research the government approved debt forgiveness programs. The Consumer Financial Protection Bureau and the Department of Education provide information on student loan debt forgiveness programs. If you think you may qualify for one of these programs, make sure the company you choose has a good reputation. Check the Better Business Bureau for reviews and google the company to see what previous customers have said about their services. Finally, trust your instincts. If something doesn’t feel right, find a different company.

If you do not qualify for a government approved debt forgiveness program and are having difficulty making monthly payments, talk with your lender. Most companies prefer to work with you than have you default on your loan.

-Kathryn M.