Creative Savings Create a Balance

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Week Three: Create A Balance

Capping off my resolution to budget, budget, budget, and meet my financial goals, I have decided the most realistic course is to attempt to adopt a new attitude of thriftiness and simplified living. This will mean that I will have to make some cuts in my personal discretionary spending and also make some concerted effort to change how I approach each day.

Behavior changes are easier if they are taken one day at a time, so I am laying out a plan to approach this upcoming week that will hopefully equate to a Creative Savings Lifestyle Change… A change that allows me to still live rich, but also spend less.

This week I am going to focus on the art of using my own ingenuity and inventiveness in the effort to economize. To keep living rich though, it is not merely saving for the sake of saving; but is making a game of getting the most for the least outlay of cash.

To get started in the right direction (or to help refocus if you’re already headed down the frugal pathway), here is the first weeks’ worth of challenges to stretch the ability to think and act in creative but frugal ways:

Sunday For the next seven days, don’t spend any money on entertainment. Brainstorm with your family to come up with things you can do that are free: visit a library, do some mall-walking, or read some good books.

Monday Try not to purchase anything this week at full price. Use coupons, buy on sale, or simply delay your purchase until you can get the item at a discount. When you do spend, put yourself on a “cash only” system. Give your credit cards and even your checkbook a rest by buying only what you can pay for with cash.

Tuesday Today challenge yourself not to spend any money on anything. Enjoy the feeling of keeping your cash in your wallet.

Wednesday Put off a trip to the grocery store as long as you can this week. Be creative in using up what you already have in your pantry.

Thursday – Surf the Internet for new ways to save money. Sign up for a free e-mail newsletter, blog, or discussion list that will provide ideas and encouragement.

Friday Explore your cabinets for everyday items that can be “re-purposed” for things you believe you need: empty food boxes from Costco can be covered with construction paper and glue to make stackable toy containers or book nooks; sheets or pillowcases that are dingy and no longer used for beds can be trimmed and edged into doll blankets. Think to yourself: when I was in college and had no spare cash, what would I have done?

Saturday Look for ways to save gas and give your car a break this upcoming week and write out your plan. Combine errands, do business online or get some exercise by walking to places that are within walking distance.

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Outdated Lessons

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I recently stumbled upon a great article about the lessons we learned growing up that we should NOT pass along. Sometimes just like our hands, it is better to keep some things to ourselves!

Outdated Money Lessons You Shouldn’t Teach Your Kids

by LINSEY KNERL

I’m a sucker for tradition. Actually, I am a fan of nostalgia – things that make you warm and gooey and bring you back to the days of your youth. When it comes to issues of personal finance, however, nothing I was taught (even the more “traditional” lessons) really panned out for me. While I’m a big believer in balancing the budget, following the law, and doing your share, I won’t teach my kids money lessons that are popular simply because they are old. Here are a few examples of lessons that are still being handed down from generation to generation – but that really need to stop.

“Be a Company Man”
There are two problems with this lesson. First, there are no company “men”. Just as many women are pulling down a fair wage in today’s economy, and the occasional guy who spouts this lesson may also still think “women shouldn’t be in the workplace”. The second issue I have with this is becoming more obvious in this current economy. Companies try to take care of workers, but they can only do so much. Be a family man. Be a man of truth. Be a funny man. But don’t ever base your identity solely on the corporation who signs your checks.

“Always Pay with Cash”
This can be a terrible piece of advice that assumes we live in a one-size-fits-all world. It is also nearly impossible to abide by. If you use water, gas, or electricity that costs more per month than the deposit you put down when you opened your account, you are using credit. Unless you waltz in with a wad of cash and tell your utilities manager that you would like to only use the amount you prepay every month, you are “charging” your bill for a short time.

Most should avoid credit until they have developed the ability to use it responsibly. (You may also want to apply for a credit card but put it the freezer in order to build your credit profile.) But let’s call a spade a spade, shall we? This adage should never be given to your kids without a lengthy lesson on credit. It would be better if it were changed to “pay with cash if you aren’t good for your word of paying back the things you buy with credit.” You may also add in “credit rocks if you are good with your budget and like earning perks for the shopping you do anyway.”

“Don’t Spend it All in One Place”
This is one that many of us still hear. The thought behind it is that if you “blow” all your money on one purchase, you won’t have it for other things. But don’t we already know that? Similar to the “play the field” advice for relationships, it can discourage kids from setting, planning for, and committing to a financial goal so that they can one day buy a large purchase that would otherwise be unattainable. So yes, “spend it all in one place” – if that’s what it takes to make that mega purchase of a home, car, or college tuition.

“Time is Money”
Yikes! To some extent this is a true statement. If I burn minutes and hours waiting for a doctor that is late for my appointment, and I’m missing time in the office earning a paycheck, then time is money. If I’m spending a day off from work (unpaid even) to visit my sick aunt in the hospital or to witness my daughter’s first volleyball tournament, then this is very simplistic thinking.

I can always earn more money, but I can never get the precious moments of life back. Be sure that when teaching this to your kids, you are qualifying the value of time in units other than cash. You only get one life, and you can take none of your belongings with you when you die. (Both are traditional lessons that parents should be passing on to their kids!)

Week Two: Budget, Budget, Budget

budget (Photo credit: 401K)

Continuing along with February Financial Resolutions

Week Two: Budget, Budget, Budget

Week Two of my February Resolution, and it has become clear I definitely need to budget, budget, budget (or win the lottery, but that is still a financial dream) to meet my financial goals. I am determined to make my top three goals: the two-week trip with my grandchildren, staying at home so I can offer myself as an alternative to daycare for my children and grandchildren, and having a really big anniversary party for myself and my husband to celebrate 40+ years, including getting him the big gift he has his eye on – a new free-weight set.

That of course means cutting some corners and living frugally for me, because the way our family budget works, I only get an established piece of the whole.  That means I must start living in control of the finances I can control. I have some tried and true methods for organizing finances in a way that contributes to financial success, and I’d like to share them with you below.

This guide will help you to:

1. Track Your Spending
2. Create a Budget
3. Determine Your Net Worth

1. Track Your Spending

Do you know how much you spend each month? If not, now is the time to find out. Many great advisors will tell you to track spending over a one-month period to find out exactly where all of your money goes. This is good, it does help, but we are humans, and lots of people change the way they spend when they start writing stuff down, and often expenses pop up in one month that aren’t always there (think: registration for your car, a visit to the doctor, a child’s birthday), so just writing one month of spending down does not really give the whole picture. How can I change that? you may ask…

If you participate in on-line banking, you can expand this to a three or six month retrospective review, and really get a quick-start on this part of the goal.  Just log on and create a print out of the last 90-180 days.  If you do not e-bank, you can get the same information if you stop by your local branch and ask a teller for a 180 day print out.  This will give you a great history of what you have been up to lately. I like color, so I highlight: Green is rotating bills, orange is groceries, pink is out to eat, yellow is gas, purple is entertainment, etc. Then I add up the specific areas and see what is going on and how I flex from month to month.

After you have either tracked your spending this month real-time, or used the bank print outs to give you a jump start, ask yourself – Are you spending too much on incidentals? Are you falling behind on your savings goals? Spending more than you make? By the time you finish this exercise you should have an answer to all of these questions. Below is a link from an excellent planner at frugalliving.com.  She has developed a worksheet that is visually appealing to use and very helpful:

• Monthly Spending Worksheet

2. Create a Budget

Once you’ve established a list of financial goals (week one) and taken a close look at your spending habits, it’s time to create a budget that reflects how you want to spend your money.

3. Determine Your Net Worth

Another very important part of budgeting is knowing what you have, not just what you want.  No point in attaining a goal if it risks your long-term future.  Understanding your net worth can tell you a lot about your current financial health, and help you to plan for your financial future. Find out what your net worth is now, and then get in the habit of recalculating your net worth yearly or whenever there is a significant change to your finances. This worksheet is also from the planner at frugalliving.com, and just as great as the monthly planner she created.

• Net Worth Worksheet

 

I wish you luck in Week Two – this is always the hardest part for me, and usually where I fall apart, so I am counting on my newly created Top Three Financial Goals to pull me through the adjustments – I love my morning coffee and I can’t help but want a few nice extras like my hair color or manicures.  So finding a way to not break the bank and attain all that I hope to this year is definitely an exercise in stepping out of my comfort zone!

 

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Setting Top Priorities Using Financial Goals

 

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Week one of my February Financial Resolution involved setting my top Financial Priorities and that to me means developing some Financial Goals.

Contrary to what may be one of my most treasured thoughts, a financial goal is not winning the lottery.  That is a financial dream.  A financial dream come true if you are the lucky 1:489,000,000.  A Financial Goal is something you’ve planned for. And it’s the planning – not sheer luck– that turns financial desires into financial reality.

As I stared at my piece of paper, I thought, what does a Financial Goal look like?

A financial goal lays out:

• what you plan to accomplish
• what resources you’ll need to make it happen
• how much time you’ll need to make it happen
• how you plan to make your goal fit into your overall budget and life

So hopefully, now that you have the key components, you are also ready to take this week to create your own financial goals.

Here’s How:

List your financial goals. Start by using the four steps above and write out what you want to accomplish. I created an example to share:

1. What I want to accomplish: I want to take my grandchildren on a two-week national park vacation this summer. 
2. The resources I will need are: Information on where we are going, money for hotels, meals, and gas, entrance fees for the national parks, souvenir money, emergency money, and perhaps additional resources I am not able to put in writing now, but should put some thought against as my plans develop. 
3. How much Time I need to make it happen: I will need perhaps thirty hours to plan the trip, and I will need sixteen days to complete the vacation I have in mind. I am not sure the amount of lead time I need to save for the trip until I have a better idea of which parks I would like to visit.
4. Plan into my overall budget and life: I will need my children and their spouses to agree to allow me to take the grandkids for two weeks; I will likely have to make some personal choices to save the amount needed to take the trip. I will have to save for the vacation, and perhaps make some sacrifices in my personal expenditures to have the financial resources for this trip.

Prioritize your Goals
Place goals that can be accomplished in under six months under “Short-Term Goals,” goals that can be accomplished in six months to a year under “Medium-Term Goals,” and goals that will take more than a year to accomplish under “Long-Term Goals.”

Estimate the cost.
How much money will it take to reach each goal? Create an estimate, and write down the resulting figure.

Set a target date.
When do you hope or need to meet your goals? Set a target date for each goal on your list, and use this as your deadline to meet or beat.

Determine how much you need to save.
Divide the estimated cost of your first goal by the number of weeks until your target date. This will show you how much money you need to save each week to meet your goal. Write down the resulting figure as an “Amount to Save Weekly”, and repeat for all of the other goals that you’ve listed.

Budget for your goals.
Rework your budget to include the money that you need to meet your goals. Then, put your plan into action, and watch those financial goals turn into financial reality!

Tips:

1. Be realistic about how much time and money it will take to accomplish each goal – an estimate that is too low will only frustrate you.
2. Keep your motivation by revisiting your list frequently to check on your progress.
3. Setbacks will happen. If something throws you off of your target date, don’t give up – set a new date.
4. Have more goals than you can work on at once? Then, determine which ones are most important to you, and make those your first priority.

Related articles

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Make A February Financial Resolution

Almost like clockwork, one month into the New Year and many of the resolutions that my husband and I make are often pushed to the wayside as life seems to be ever pushing it’s own agenda on us.  I have therefore resolved this year to try a different tact: a monthly resolution.

I did surprise myself and actually followed through with my January resolution of creating this blog to start a grandparent community that more closely reflects my interests with my grandchildren (spending time, saving and having fun), and I appreciate all of you who have taken the time to read through items that you may find valuable.

February is a whole different ballgame for me, now that taxes are in full swing and I am forced to itemize my income and expenses in detail for the IRS, I am resolving to use this opportunity to create a financial plan for 2012 that will allow me to live my best retired grandparenting days yet.

I am going to take the following steps, one each week, and hopefully you can follow my example, share what works, and doesn’t and we can head into March with a financial fitness plan that will open all kinds of fun doors for us.

Week 1: Setting  top priorities

What do you most want to do with your money this year – pay down debt, save for the grandkids education, take a family vacation, or something else? Put a dollar amount on your priorities, divide by the number of months you have to achieve them (now 11, whoops… maybe I should have started in January!), and make a plan to set aside funds each month.

Week 2: Budget, budget, budget!

Since you have to do it for your taxes, track your monthly expenses – from your mortgage payment to a pack of gum. Now, subtract those expenses from your income. Any surprises? Is there enough left for your goals? If not, it’s time to reevaluate spending or your goals.

Week 3: Create a balance.

Ask yourself some tough questions that will make your life easier: Can you maintain your lifestyle within your current income? Could you cut back on certain spending habits while maintaining a happy and healthy balance? What bad financial habits do you have – and how can you change them?

Week Four: Seek professional help for wealth planning.

Funny, but this is sort of like the doctor going to the doctor for me.  I used to do this ten years ago! But as Mary Poppins delightfully says: A spoon full of sugar helps the medicine go down.  Now that in weeks 1-3 I have taken my medicine, it is time to have some sugar.

Buyer beware, when you seek professional advice: Your financial professional should provide personal solutions and adaptive investing when discussing your lifestyle planning and goals. He or she should have a clear picture of where you want to be with your finances and provide the vehicles to get you there – but always be realistic. Anyone who does otherwise does not deserve your business.

With the economy in a state of uncertainty and volatility, you need to grab the reins and control your own wallet. The first step is getting a clear understanding of where you are, and where you want to be. Onward we go!

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Financial Advice For Your Grandchildren

Financial advice is simple on the surface. Save your pennies. Don’t buy without shopping around.  Do your homework. Don’t spend more than you earn.

The details surrounding the financial basics, though, are always changing, and therefore require some knowledge and training to navigate.

I have spent some time examining how financial experts advise their own grandchildren, and the secrets necessary to teach your “accounting students” are actually quite simple.

Start Them Early

Good financial habits are so important, you should take action to instill in them your grandchildren as early as possible. Spontaneous lessons as opportunity arrives are just as important as deliberate money-management planning strategies such as maintaining a budget and having a savings.

Help Them Choose Wisely

Laying a foundation of money management skills can start with simple lessons.

Two year old Jax wants everything when I walk into a store with him. Setting limits and expectations early is an important lesson, so sometimes I will say no, and talk about the importance of staying within our family budget. Or I will force him to choose one item under a certain dollar amount using a brief explanation about staying within our means or not dipping into savings for things we want.

Discussions on wants versus needs can occur everywhere: the grocery store, the mall, even at the playground, when you grandchild says she “needs” and extra five minutes of playtime.  

Conversations on the value of their time (using the “time is money” statement), and how much of it to dedicate to one activity over another can occur anywhere around the house.

Teach them to Save & Spend Smart

Your grandchildren can’t save much if they aren’t spending their money shrewdly. Helping them plan specific financial goals, knowing what amount of money is required to fund them can start at any age.

Joe Kovac, a former CFO and founder of JTK Consulting, suggests starting off with a modest allowance: “Have your grandchildren accept responsibility for some of their own expenses, even at five years old they can learn to spend carefully. Instead of buying them a treat at the grocery store, have them purchase it.  This teaches them how far a dollar really goes, and helps them learn to make choices.”  If you cringe at not spoiling your grandchildren, you can provide the allowance – and the lesson. In addition, he advocates having children save fifty percent of their allowance a week, starting immediately.

“I use a 50%, 30%, 20% model.  My grandchildren can immediately spend 50% of their allowance on anything they want, place 30% into what we call ‘short term savings’ for bigger items they want, like a toy or a doll that may take three or four weeks to save for, and 20% into what we call ‘long term savings’.  Long term savings are for special occasions, like free spending on a summer vacation.  I use the words ‘long term’ relatively, three months is an absolute eternity for a five year old, but a year is reasonable if your grandchild is ten”.

Set the Example

The most influential financial advisor isn’t the one your grandchildren will hire — it’s you, according to John Brown, the author of How to Run Your Business So You Can Leave it in Style (Amacom Books, 1993) and founder of the Golden, Colorado-based Business Enterprise Institute, an organization that helps business owners sell their companies or leave them to the next generation.

His advice, regardless of what your child does for their career:  “You have to be consistent. If you’re telling them not to spend a lot, but you do the opposite, it’s not very effective.”

 

Steer them Away From Unnecessary Risk

It is hard not to become attracted to credit cards. They are so readily available and allow them to attain more now and pay later, so it’s easy to understand why your grandchildren may be pulled into purchasing more than they can really afford.

Teach your grandchildren about the importance of living within their means and finding creative inexpensive solutions to satisfy their needs.

Investing Wisely

Some debt is good. It is possible to intelligently balance borrowing with investment returns. For example, rather than prepaying a tax-deductible 6 percent mortgage, the extra cash could be used to contribute to a retirement plan that could earn a tax-deferred 8 percent average rate of return.

You can teach your grandchildren to write out a financial plan, including their goals, starting at a very young age, and have them practice thinking through all of their options before making financial decisions.

You can’t stress enough to your grandchildren to start investing as early as possible. Those who start saving at age 25 have, on average, 40 percent more money when they retire than someone who begins at age 35, because the money has more time to grow.

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