money management Archives - The Free Financial Advisor

How to improve your finances on a low income

September 19, 2018 by Jacob Sensiba Leave a Comment

Improving your financial situation is hard for anybody. It can be even more difficult if you have less to work with.

This is an all too common problem in America, as 78% of full-time workers live paycheck to paycheck (Source). Even scarier, 34% don’t have any money saved whatsoever (Source).

That said, there are steps you can take and resources you can utilize to better your financial picture.

Budget

The first and one of the most important things you should do is, create a budget. This is a great way to figure out where you are at. Here are the steps:

Write down your expenses for the last few months (month-by-month breakdown)
Line items for expenses – housing, utilities, debt, food, transportation, bills, discretionary spending.
Write down your monthly income
Compare the two numbers to see exactly how much you have left over.

Here’s another way to look at it.

Write down your income
Write down your necessary expenses (housing, utilities, bills, transportation, food, debt)
If there is any left over, do you want to save it, pay down more debt, or have fun with it

If there isn’t any left, you need to figure out how to lower your expenses and make adjustments as needed.

Lower expenses

Move closer to work – this should reduce your transportation costs
Take public transportation – much less expensive than driving a car
Walk or ride a bike – if you live close to work, this could save you tons on commuting costs
Move to a less expensive place to live – if you work in a metropolitan area, housing probably isn’t super cheap, look for a cheaper place to live
Shop at discount stores
Shop at thrift stores
Use coupons – Or coupon sites like Coupons.com
Use apps – A great list by LifeHack
Find a side hustle – Again, solid list on BudgetsareSexy
Only buy necessities

Automate

Automating your finances is an important step, though not possible for everyone. If you have a lower income, you may be afraid that the money won’t be in your account for that automatic withdrawal.

Automate what you are comfortable with, or voraciously set reminders. Don’t forget to pay a bill. You can damage your credit score and incur late penalties.

Additionally, having a small transfer from checking to savings once a month can be a great way to save up for emergencies.

Take advantage of social programs

Open a credit card

There’s no denying it, your credit score is important. It determines your interest rate on loans, it can influence where you live, it can even play a factor when applying for a job.

Start small and start slowly. Open up a credit card. Look for one with no annual fee and a great rewards program. Make small, necessary purchases each month and pay them off right away.

Don’t carry a balance month-to-month. Doing this will inevitably cost you money via interest charges. And never miss a payment.

Start an emergency fund

If you don’t have one, set one up today. Having some sort of safety net available is vital. If you don’t have that, you’ll probably charge an emergency expense, which will cost you more money in the long run.

Start small and stay consistent. Contribute a little bit each month or each week to build up that emergency fund.

Get rid of debt

This will have a huge impact on your financial life. Once you are free from debt, you will have more money available for savings, fun money, or for improving your situation in other ways.

There are a few methods to help with debt repayment.

Debt avalanche – This method targets high-interest debt. You will pay the minimum to your other debt accounts and pay as much as you can towards your debt with the highest interest. Once that is paid off, you refocus that money towards the debt with the next highest interest
Debt snowball – This method targets low-balances. You pay the minimum on your other debts and pay as much as you can on the debt with the lowest balance. Once it’s paid off, you redirect that money towards the next lowest balance.
Balance transfer – If you have credit card debt and have a high-interest rate, it may be beneficial to transfer your balance to another card. Many cards have 0% interest, introductory offers on balance transfers.

This will also save you a lot of money on interest payments! Debt is very annoying, and getting rid of it will feel so liberating. Work towards this goal.

Go to the library

There are two ways the library can help you.

One, it’s filled with knowledge. If you want to get a different job, but don’t know much about your target industry, there are resources to help you. If you want to get promoted at your current company, and need to learn about different job roles and responsibilities, you can learn more.

Two, the more time you spend at the library, the less you have to spend at home. You can turn off the heat or air conditioning, and your lights while you are gone. This could drastically lower your utility bill.

Conclusion

One thing I forgot to mention, is the benefit of small rewards. When you are trying to better your financial situation, and are focusing everything on that goal, it can feel discouraging and you can quickly lose motivation.

If you meet a milestone, like paying off a debt account or you cut a balance in half, reward yourself.

Now, don’t go crazy, but a small reward for a job well done can keep you motivated.

You can improve your situation, but it has to be a priority. Do your best to improve a little bit each day. These improvements will compound over time and you’ll be amazed where you stand in a year or two.

If you’d like to learn more about improving your financial situation and for our disclosures, visit www.crgfinancialservices.com.

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Are you taking on to much investment risk?

August 15, 2018 by Jacob Sensiba 2 Comments

Investment risk doesn’t apply to only a select few investments, it applies to everything because every investment has its own sets of risk.

Do you know what they are? Are there ways to avoid them, or at least limit how they affect you?

Let’s dive deep into this topic and learn more.

What is investment risk?

I suppose in its simplest form, investment risk is the chance that your investment will lose value.

If you have a stock or a bond, your investment could lose value. If you have cash, inflation could eat away at your purchasing power.

There are many other types of investment risk.

Types of investment risk

Interest rate risk – The chance that an increase or decrease in interest rates could affect your investment. This specifically pertains to fixed income investments, like bonds. Interest rates and price are inversely correlated, so if rates go up prices go down, and vice versa.
Business risk – This involves a particular security. If you are investing in a company’s stock, the chance of them going out of business and you losing some or all of your investment is the risk.
Industry risk – As you can imagine, this relates to an investment within a particular industry. There are industries that are affected as a whole by certain events. If oil prices drop, the energy industry will suffer. If the economy is booming, the consumer staples sector will underperform. If tariffs are levied on steel and aluminum, the automotive and industrials sectors will be negatively affected.
Credit risk – This relates to a debt issuers ability to make good on their obligations. If you invest in a bond that matures in 10 years, you are supposed to receive two payments per year, plus your principal in the tenth year. The chance that, that debt issuer can’t make those interest payments or pay you back the principal is credit risk. I should mention that there is also a risk to stock investors. When a company goes bankrupt, it has to pay back lenders, investors, and others, but there is an order to which people are paid back, and stockholders are last on that list.
Taxability risk – This refers to a municipal bond. If a muni bond is issued with tax-exempt status, the risk is that it could lose that status before maturity.
Call risk – The chance that an investment is called back. A callable bond is the most common example. More often than not, a company will issue and call back a bond if interest rates have lowered. The issuer is refinancing in a sense. They buy the bonds back in order to reissue them at a lower interest rate, and this will cost them less money in the long run. Fear not, however, because you have the added risk of your investment being called away, you are usually compensated with a higher interest rate.
Inflation risk – Essentially, how severely inflation could eat away at the purchasing power of your investment. Cash is most at risk because you are getting zero return and inflation at any level is costing you money. Stocks, historically, are the best investment to outpace inflation.
Liquidity risk – Your ability to sell your investment when you want to. Some investments trade more frequently, thus have higher liquidity. Stocks are a great example of an investment with high liquidity. An investment with low liquidity, depending on the market environment, is real estate, or physical items, such as precious metals, guns, or art.
Market risk – The risk that at any point in time your particular investment, whether it’s stocks, bonds, real estate, gold, etc. will lose value. Prices in all of those investments can and will fall at one point or another, and no amount of diversification can save you from it.
Geopolitical risk – Think war, terrorist acts, tariffs being levied on certain countries or products, etc. Geopolitical risk happens in your country or in other countries that yours is involved with. When 9/11 occurred, the NYSE and NASDAQ closed in anticipation of panic selling. On the first day of trading, the Dow fell 7.1% and closed the week down 14% (source). Heck, just this year the threat of tariffs has put investors on edge and increased volatility.
Currency risk – This usually affects people who have investments or business operations in other countries. If the value of a currency compared to the USD (U.S. Dollar) goes up, that could negatively affect the bottom line for businesses.
Mortality risk – The chance that you will die before fees, premiums, and payments will have been worth it. This usually revolves around insurance products, but could also relate to social security or money you’ve stashed away for retirement through the years. If you worked and saved for 30 years, but passed away in your sixties, and were unable to enjoy the fruits of your labor, that’s mortality risk.

Three asset classes and associated risks

There are many other asset classes and investments available, but these are the three that most people are associated with.

Stocks – Market risk, business risk, industry risk, credit risk, geopolitical risk.
Bonds – Market risk, business risk, industry risk, credit risk, geopolitical risk, inflation risk, interest rate risk.
Cash – Inflation risk

Diversification

Though not all risk can be diversified away, and you will take on some risk in every investment, no matter how careful you are, it’s important to diversify.

Each asset class and each investment have its own unique risks. In any portfolio, it’s important to diversify between stocks, bonds, real estate, cash, physical assets, and geographic location.

The allocation to each set of assets will vary depending on your risk tolerance. Traditionally, stocks are the riskiest of these but offer the most reward, then bonds, and then cash. Holding real estate and physical assets, like gold is just another way to diversify your assets. Gold, however, is usually a good investment to have when the market tanks, as it’s often referred to as a safe haven asset.

With regard to geographic location, the U.S. is only one-quarter of global GDP (source) and the U.S. stock market is only 43% of global market value (source) so you’d be silly not to invest money in other countries. Besides, if the U.S. market/economy tanks, not every country will follow.

Ways to Increase your Wealth

August 8, 2018 by Jacob Sensiba Leave a Comment

Wealth, what is it? In a sense, it’s your net worth. Net worth is your assets minus your liabilities.

For a comfortable retirement, you’ll want to see that number tick upwards over the course of your working career.

But how to do you increase your wealth? Are there certain strategies that work better than others?

Let’s take a deep dive into some strategies for growing your wealth.

Decrease Expenses

You want to increase your wealth, decrease your expenses. I can probably list several things you’re wasting money on.

Restaurant food
Drinks at the bar
Cable
Movies at the theater
Interest rate charges
Transportation
Clothing
Frivolous purchases

It’s easy to reduce costs here. Restaurant food and bars – stop going out so much. Cable – cut the cord and sign up for Netflix, Hulu, or go to the library.

Movies at the theater – buy the movie or rent it from the library. Interest rate charges – negotiate your rate, use a balance transfer, or eliminate your debt.

Transportation – use public transport, walk, or ride your bike. Frivolous purchases – wait at least a day before you decide to buy.

Earn More

Ask for a raise, bust your butt to earn a promotion, which usually translates to higher pay, start a side hustle, become a freelancer, etc. There are several ways available to increase your earning power:

Drive for Uber or Lyft
Become a Tasker on TaskRabbit
Get paid for your skills – UpWork or Fiverr
Here’s a list of the most popular side hustles – Budgets are Sexy.

Real Estate

Real estate is a great way to increase your wealth. One of the more popular ways to do this is through rental properties.

Do your homework when looking for properties, you’ll want to look at:

Location
School district
Real estate valuation
Property taxes
Community amenities
Current listings and vacancies
Natural disasters

If you find a good property, plan for a 20% down payment to avoid PMI. Once the rent starts flowing, you’ll find your wealth will climb. As you pay down the mortgage, the equity will increase, giving you more assets than liabilities.

Pay down debt

Debt is the number 1 detractor from building wealth. Not only does it prevent you from saving, investing, and/or acquiring assets, but you’re probably wasting money on interest payments.

You need to do what you can to get rid of your debt so you can start building wealth. As you pay off your debt, your wealth will increase because you will reduce your liabilities, which makes your net worth (aka wealth) go up.

In a general sense, there are five ways to help reduce your debt

Debt snowball – Payoff your lowest balance first. Pay the minimum to all of your other balances and pay the most you can towards your smallest balance. Once that balance is paid off, redirect that money to the next lowest balance, and so on.
Debt avalanche – Pay down your highest interest debt first. Pay the minimum to all of your other balances and pay the most you can towards your highest interest debt. Once that is paid off, redirect that money to your next highest balance.
Balance transfer – There are many credit card companies that will offer an interest-free balance transfer. Take advantage of this if you have a credit card balance with a very high interest rate. This will save a lot of money on interest payments.
Personal loan – Usually for credit card consolidation. Most credit card interest rates are crazy high. You get a personal loan to effectively lower your average interest rate. This will only work for you if you have decent credit, however, so do your homework.
Refinance – This applies to students loan and mortgages (well really any loan, but these are the most common). You refinance to lower your interest rate, and sometimes (as is the case with student loans) to consolidate.

Increase your savings rate

A very common problem in this country is that people aren’t saving enough. The average savings rate in the U.S. is around 3% (source). That is a far cry from what people really need to save.

So what we have to do is increase our savings incrementally. Start with the highest percentage of your income you can possibly save. If that 1% that’s fine. If it’s 10%, that’s fine too. Just do what you can.

From there, we will take a few months to get used to that extra 1% or 10% not being there. Once you are familiar with less money, bump that percentage up 1. And once you get used to that, bump it up again.

The key is to make small positive changes for a lifetime. A small change each day or week for the rest of your life? You’ll see HUGE results from this.

Utilize retirement accounts

Retirement accounts are awesome. It’s a very effective way to save for retirement.

Plans for individuals – Traditional IRA and Roth IRA (Here to learn more about these)

Plans for businesses – 401(k) and SIMPLE IRA are the two most common. (Learn more here and here).

All four of these vehicles give your retirement savings the ability to grow tax-deferred. Meaning you don’t pay taxes while the money is inside the account. Additionally, three of these four could help lower your taxable income.

The two business plans are contributed to with pre-tax money. More money in the retirement account means less being taxes. The traditional IRA is contributed to with post-tax money, but you could receive a tax-deduction IF you qualify.

Roth IRA you use post-tax money, don’t receive a deduction or a reduction in taxable income, BUT your withdrawals will be tax-free.

Please look at those links for all the information and rules for each plan.

Develop a “delayed gratification” mindset

Having a delayed gratification mindset is so important when planning for your future. Our default behavior is to do the things that make us feel good right now, but it’s almost always in our best interest to delay that good feeling for a better one down the road.

You want that ice cream cone, but it will be more beneficial to your future self if you forego it and eat something healthy instead. You’d like to buy a new video game, but it would behoove you to buy a book, a course, or invest it.

Improve Financial Literacy

If you want to grow your wealth, you have to know what you are doing. Learn about budgets, retirement plans, and investing. Learn about assets and liabilities, and the various ways you can make money work for you.

If you know how things work, it’ll make it easier for you to follow through.

Automate

Automation can play a vital role in your quest for growing your wealth. Set your bills to auto-pay. This allows you to focus on more important things.

Also, automate your savings. Have it done right away so you don’t have the opportunity to spend it. Go next level with this and set your savings to automatically increase every so often. You’ll save more without even having to think about it.

Invest in yourself

Ben Franklin once said, “An investment in knowledge pays the best interest.” If you want to get promoted at work, get paid more for your skills, or just want to improve your life, invest in yourself.

Read books, take courses, listen to podcasts, watch YouTube videos, or find a mentor.

There is so much knowledge out there and there are so many opportunities to improve your life. Take the initiative and go get it!

Conclusion

Growing your wealth can be a challenging endeavor, but by using many of these tips, you can be on your way to making some very positive changes.

To learn more about growing your wealth and for our disclosures, visit www.crgfinancailservices.com.

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

How to Invest for the Long Term

August 1, 2018 by Jacob Sensiba Leave a Comment

Investing is an important part of your financial life. What’s more important is investing for the long-term.

With a long time horizon, you have the ability to ignore short-term market volatility and you have the ability to let your investments compound over time.

Investing this way can be difficult, however, so here are some tips on how to do that.

Pick a strategy and stick with it

You need to pick and stick with what works for you. There are several strategies that you could choose.

Value – A strategy that involves a deep dive into company/industry fundamentals. Companies/industries in this area may or may not be out of favor. All you care about is how the underlying fundamentals look.

Growth – High flyers. Companies with high P/E ratios. Companies that have a strong case for continued growth. Sectors like technology and consumer discretionary are considered growth.

Contrarian – If you buy when others sell or sell when others buy, you may be a contrarian investor. You go against the herd. Someone who does this has a unique ability to be extremely objective.

Momentum – You invest in companies or sectors that are performing well and are fairly likely to continue that trend going forward.

Start early

This is no secret, the earlier you start the better. Albert Einstein once said, “Compounding is the eighth wonder of the world.” It really is amazing what compounding can do. If you have 20, 30, or 40 years to invest, you should be sitting pretty at that finish line.

For example, say you have two investors. One investor starts contributing $1,000 per month to an account and invests in a stock market index ETF, starting out at 25 and stops contributing after 10 years.

Another investor starts contributing $1,000 and that same index ETF, starting at 35 and they contribute until they turn 65. At age 65 person A ends up with 1.49 million, and person B ends up with 1.26 million.

Compounding truly works wonders. Start early and give compounding a chance to work its magic.

Make every move with the future in mind

Every decision that you make needs to be a slow and thoughtful one. It’s particularly important to make decisions with your future self in mind. Delayed gratification is HUGE when investing for the long term.

For example, you have your debts paid off and now have a little extra money each month. You decide that you want to buy a boat. You save up and pay $20,000 for a nice, new boat.

Here’s the flip side. Say it took you three years to save up for that boat. Instead of saving, you deposited $5,500 per year into a Roth IRA (max contribution amount). This is invested in a stock market index ETF we mentioned earlier.

Now, let’s go out 10 years. You still have that boat and have taken good care of it. However, it’s lost over 50% of value over that time period. Conversely, that $16,500 that you invested has grown to $33,600.

Buying the boat may have felt good before, but investing that for the long-term is by far the better financial decision.

Invest in what you know

Peter Lynch famously said, “Invest in what you know and know why you own it.” This is such an important principle within investing. If you are competent in the consumer staples sector, stay in the consumer staples sector.

At times you may see technology stocks return far more than your sector, but you could have easily invested in a technology company that went bust. You don’t know the industry so how would you know what’s good and what isn’t.

By sticking with an industry that you are knowledgeable about, you increase your chances of success.

Contribute regularly

Contributing at regular intervals does two things.

One, you’re saving and investing more, which increases the size of your nest egg.

Two, when the market ebbs and flows, you will continue to invest the same amount each month/year. You’ll buy more when it’s low and buy less when it’s high.

This is called dollar cost averaging. It effectively reduces your cost basis for your entire position, which effectively increases your gain, if your investment is up when you sell it.

Diversify

One of the most effective ways to reduce how much your portfolio reacts to dramatic shifts in the market is to diversify. Hold some stocks, some bonds, some cash, some gold, and some real estate. There are other investment products you could own, but these are usually the big ones.

Be objective

Try to take your emotions completely out of it.

When the market starts to sell off, you need to objectively look at your positions. Look at the characteristics of the business. Has anything changed? Or is it just declining due to a broader market selloff?

If it’s the latter, take some of that cash you have and buy that baby at a discount.

Use stocks

Over the long-term, stocks are the best investment to a) outpace inflation and b) effectively appreciate the money that you’ve saved.

Utilize various products

There are a variety of vehicles out there for your investments. Take advantage of as many as you can.

401(k) is an employer-sponsored retirement plan. Money saved in it can lower your taxable income and investments grow tax-deferred.

Traditional IRA – Individual retirement account. You open it up and save in it. Tax-deductible contributions. Investments grow tax-deferred.

Roth IRA – Similar to a Traditional IRA, except money contributed is not tax deductible, but money withdrawn is tax-free (money withdrawn from 401k and IRA is taxed).

These are just a few of the vehicles that can be used to save for retirement.

Next week I will dive deeper into the various products available.

Say no to penny stocks

These are stocks that cost less than $5 per share. More often than not, these are very risky and the companies themselves have a much higher probability of going out of business than other companies with higher stock prices.

Don’t invest via “hot tips”

Your friend says, “A stock I invested in last week is already up 100%, you need to get in on this before it goes any higher.”

When you hear this, just let it filter out of your brain. Odds are, the dramatic increase in price is pure behavior related, and no stock can sustain that kind of growth. That stock will come crumbling down at some point.

Think of the tech bubble from the 2000s. There were companies with literally no information about them, and they were going from $10/share to $200/share within a matter of weeks.

Just 48% of companies from the dot-com bubble survived past 2004. (Source)

Conclusion

Investing for the long-term is your greatest chance for financial success. Starting early, contributing regularly, and ignoring the noise are only a few great tips discussed here, but they are probably the most important.

If you would like to hear more about long-term investing and/or for our disclosures visit www.crgfinancialservices.com.

Rates of return are hypothetical, are provided for illustrative purposes only, and do not reflect the performance of an actual investment. All investments involve the risk of potential investment losses and no strategy can assure a profit. Past performance does not guarantee future results. Diversification seeks to reduce the volatility of a portfolio by investing in a variety of asset classes. Neither asset allocation nor diversification guarantee against market loss or greater or more consistent returns.

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Ultimate Estate Planning Guide

July 25, 2018 by Jacob Sensiba Leave a Comment

Estate planning is a very important step in the financial planning process.

What does it mean, what are the steps, and what’s the most effective way to plan?

Let’s dive into these questions in this estate planning guide.

What is it?

Estate planning is the process of figuring out what you would like to happen to your assets when you pass away. Assets include retirement accounts, non-retirement accounts, and physical assets (house, cars, etc.).

What should I do?

Get an inventory – physical and non-physical items. Physical items can include property (primary residence, rental property, land, etc.), vehicles (cars, boats, recreational vehicles, etc.), and precious metals (gold bullion, silver bullion, etc.).
Make a list of all debts – Mortgage, personal loans, car loans, credit card debt, etc.
Make a charity list – Organizations and/or charities you would like to leave a specific amount of assets for.
Make a few copies and send these lists to your estate administrator (more on this below)
Review retirement accounts – Retirement accounts include traditional IRA, Roth IRA, Rollover IRA, and employer-sponsored plans like 401(k), SIMPLE IRA, SEP IRA, 403(b), and 457. (Click here to learn more about these plans). Whichever account(s) you have, make sure the beneficiary information is up to date.
Review life insurance policies and annuities – Same go for any insurance policies/annuities you may have. Make sure the beneficiaries are accurate and up to date.
Assign Transfer on Death (TOD) designations to non-retirement accounts. A non-retirement account includes individual brokerage accounts, savings accounts, money markets, CDs, etc.
Create a will or a trust (more on these below)
Get a list of accounts and passwords – any online account you may have, create a list of accounts, usernames, and passwords. This makes it easy for the person in charge of your estate (executor) to cancel all these accounts.
Visit some professionals – Meet with a financial professional and an estate attorney so they can review your plan and help you with any corrections or things that you’ve missed.
Consolidate your accounts – If you have several bank accounts or retirement plans from past employers, consolidate them into one account. This makes it much easier on the executor.
Select who you want to get what – Specify who you’d like to give your house too, cars, other physical assets, and money. You like to think that your family won’t fight over who gets what, but it happens very often, so take your time here.
Write a living will – A living will is a document that you put together that states what medical treatment you would like to have done and what medical treatment you would not like to have done if you are incapacitated and/or unable to make any decisions.
Establish power of attorney – A power of attorney is someone that you trust to make decisions for you. There is a medical power of attorney and a financial power of attorney.

Estate administrator

The person in charge of your estate. If you have a will, this person is called the executor. If you have trust, this person is called a trustee. If there is no person named in the will as executor and/or there is no trust/trustee named, the courts will appoint a personal representative.

This person collects assets, pays debts, and pays out any remaining assets. If a will or trust has been drafted, then the executor or trustee has to act in accordance with the will or trust.

Wills

A will is a legal document created by you and your estate attorney that specifies who will be your executor, the beneficiaries that will receive the assets that haven’t been specified yet (retirement accounts and TOD designations), and when those assets will be transferred.

Trusts

A trust is similar to a will in regards to it being the “playbook” on who is in charge and where your assets will go. It is different, however, because you can transfer ownership of assets to a trust and any asset owned by the trust will avoid the probate process.

Probate

A court-based process where the will (if one was written) is verified of its validity. If it is, the court then goes ahead and appoints the executor named in the will as the estate administrator. This gives that person the ability to act in accordance with the will to distribute assets.

If there is no will, then the deceased died intestate. The court then appoints an estate administrator and they distribute the deceased assets in accordance with state law. They are also tasked with tracking down heirs of the deceased.

This can be an expensive process, however, so planning ahead to avoid probate as much as you can is always beneficial.

Conclusion

As I said in the beginning, estate planning is an important step in your financial planning process. Hopefully, you’ve learned a lot about what’s involved and what you need to do to sure up your estate plan.

For more information about estate planning and for our disclosures, visit www.crgfinancialservices.com.

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Everything You Need to Know to Set Up Your Own Emergency Fund

June 13, 2018 by Jacob Sensiba Leave a Comment

How many of you have had an unplanned expense recently? How much was it $500? $1,000?

Unplanned expenses are anything but, unplanned. Sure, we don’t know when they will occur, but they will occur.

Being able to “plan” for those expenses will save you a lot of grief, and will probably save you money.

If you don’t have a rainy day fund, how do you pay for an unexpected expense? Your credit card?

Having an emergency fund has many benefits, and having one set up can make a big difference in your life. But how do you save for emergencies? What characteristics does an emergency fund have? And when should you use it?

What is an emergency fund?

It’s exactly how it sounds. It’s an account, usually a savings account or a money market account, that you designate for emergencies.

You set this up to “plan” for unexpected expenses. For example, you set aside money for the future in case your car breaks down or your furnace stops working.

Why do you need one?

The emergency fund is designed to save your monthly budget. Unexpected expenses can be expensive and can do significant damage to one’s monthly budget.

If you have money set aside for a rainy day and something unexpected happens, you can use the money from your emergency fund to pay for that expense. Your monthly budget isn’t affected at all.

What are the characteristics of an emergency fund?

There aren’t really many characteristics of an emergency fund. Here’s essentially what you need:

You need an account separate from your checking account.
This separate account needs to be easily accessible and liquid.1
You should have 3-6 months worth of expenses saved in this account.
You can have too much.
1. Having 3-6 months, or even a year is fine, but anything else should be saved and invested for your retirement. (Savings accounts earn next to nothing in interest)

What strategies can you implement to save for an emergency?

There are many things you can do to save money for your emergency fund.

Create a budget
1. List your income
2. List your necessary expenses (housing, transportation, food, etc.)
3. List your discretionary spending (fun money)(keep this to a minimum)
4. Compare income to expenses and adjust as necessary
Reduce your expenses
1. Cut the cable, use subscriptions instead
2. Eat out less, or don’t eat out at all
3. Rent movies, TV shows, and books from the library
4. Walk or ride your bike instead of driving (when applicable)
5. Control your utilities (open windows during summer, layer up during winter)
Automate your savings – Set up automatic transfers from your checking to your savings. Have it take place at the first of the month or every Monday. If this happens first, you can’t spend it away.

When should you use it?

You should use your emergency fund whenever you have an unexpected expense that could disrupt your monthly budget.

Here’s a small list of examples:

Car repairs
Home repairs
Emergency, short-notice flights
Life expenses post-job loss

When shouldn’t you use it?

Your emergency fund shouldn’t be used on large once per year costs like:

Property taxes
Owed taxes
Holiday spending

Conclusion

Unplanned expenses can wreak a person’s monthly budget. It helps and makes a dramatic difference to have money set aside for a rainy day.

Besides the financial aspect of having an emergency fund, you also have a psychological benefit. Peace of mind knowing that you have money available if a large expense were to come into your life.

For more information about emergency funds and for our disclosures go to www.crgfinancialservices.com

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Things in Your Finances That are Worth Automating

October 23, 2017 by Emilie Burke Leave a Comment

Automating your finances can make your life so much easier. You don’t have to worry about missed payments, late fees, disconnect notices, etc. The more you automate, the easier it will be to stay on budget because you will know that payments are already made and you won’t get hit with fees that can knock your budget off course.

Some payments may not be able to be automated due to varying costs, but many can be. Here are a few you should set up for automatic bill pay either through your bank account or through the individual accounts:

Yourself – First and foremost, make sure you’re paying yourself first. This will ensure that you have money in your emergency fund and retirement accounts. Set up an automatic transfer from your checking to your savings and/or investment accounts with every paycheck. Whether it’s $10 or $1000 doesn’t matter. It only matters that you are setting something aside for your future needs.

Credit Cards – Set up an automatic payment each month for the minimum payment due for each card. If you want to pay more than the minimum, you can always make an additional payment. But setting up your minimum payment by automatic billing ensures that you won’t be charged additional late fees and interest if you miss your payment due date by just one day.

Cable/Internet Bill – Your cable and/or internet service should be the same amount each month so setting up an automatic payment should be easy. Check your current bill for the due date and the amount, then just set your payment up to be sent the day before it’s due.

Cellphone – Just like your cable/internet bill, your cellphone should be the same amount monthly unless you go over your data usage or have roaming charges. Set up your bill pay for your regular monthly payment. You can always pay additional charges separately if there are any.

Electric – While your electric bill probably varies monthly, most electric companies allow you to get on a budget pay plan. This plan reviews your usage from the previous 12-month period than determines an average cost per month based on your annual usage. Using this plan allows you to pay the same amount every month regardless of how much or how little electricity you use. And getting on this plan allows you to automate your monthly payment

Car Payment – If you have a monthly car payment, like most of your other bills, it’s the same amount every month. Set it up to pay automatically so you don’t get hit with hefty late fees.

Insurance – Whether it’s home, auto, life, or health insurance, they all come with a monthly premium that remains the same each month. Set these up for automatic payment to avoid late fees, or worse, cancellation. For most types of insurance, if you miss a payment, they will cancel you and you will have trouble getting a new policy.

While you may not be able to automate your grocery shopping, many of your other monthly budget items can be set up for automatic payment and relieve you of the stress of making sure everything is paid in a timely manner.

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Things You Need to Do to Protect Yourself from Identity Theft

October 16, 2017 by Emilie Burke Leave a Comment

Identity theft is a real threat to everyone, no matter what your credit score is or how many credit accounts you have. Once a thief has your personal information (name, address, date of birth, and social security number) they can start applying for credit in your name, damaging your credit rating.

The threat is even scarier when large credit reporting agencies, like Equifax, announce they’ve been hacked and millions of people have their information at risk. Shouldn’t it be a top priority for these companies to protect your information? Yes. And no. While they should have protection measures in place and do everything possible to protect your information, the ultimate responsibility for your credit is on you.

A regular check of your credit report is a good way to ensure that your identity hasn’t been stolen, but there are ways to protect yourself before you’re at risk. Here are a few ways to protect your identity from falling into the wrong hands.

Never give your personal information, especially your social security number, to a stranger. Whether they call, text, or email, if you don’t know the recipient don’t give them any information. Unless you’re paying your taxes to the IRS or your state, don’t write your social security number on your checks. If your SSN is your account identification, the last four numbers should be enough for them to find your account. And never write your social on any forms or anything that is not credit related.

Don’t keep your social security card in your wallet. Likewise, don’t carry any infrequently used credit cards or notes of passwords and PINs. Make sure your wallet and/or purse is always within your site or locked up tight in the trunk of your car, out of site for strangers.

Don’t post things that could be used to identify you on your social media accounts. These things would include your mother’s maiden name, your full date of birth, your pet’s names, or any other answers to your account’s secret questions. Better yet, check your privacy settings so that only people you choose to friend can see any of your personal information.

Set up mobile alerts with your credit and bank accounts so that you are notified of any transactions. This will help you know quickly if someone has stolen your card so you can contact your bank or credit company.

Photocopy the fronts and backs of all of your credit cards, reward cards, driver’s license, and any other cards you carry in your wallet then place it in a secure place within your home. If your wallet is ever stolen, you will have all of the phone numbers and account numbers you need to cancel your cards.

Place credit freezes on your credit reports through the credit reporting agencies. This will keep any identity thieves from obtaining credit in your name.

Keep your devices protected with a password. This includes your cellphone, laptop, desktop computer, tablet, and any other devices you use to log in to your financial accounts, social media, and emails.

If you have small children, place a credit freeze on their social security numbers as well. Identity thieves love to steal the information of minors because their reports are usually clean and no one ever checks them.

These simple tasks will help you to keep your identity safe and your credit secure.

Money Management Is Essential For Freedom In Day-To-Day Life

September 20, 2017 by Ashley Leave a Comment

You May Have More Resources Than You Realize

Money management isn’t easy, and it’s hardly taught in schools. Wise allocation and utility of resources can make a rich man out of a meager income. It can even turn something like debt into a “good” thing.

Student debt is often characterized as “good” debt, because if appropriately pursued, it can lead to gainful employment. It can also lead to a lifelong expense perpetually hanging over your head; so be careful to study something that will actually get you employed down the line.

Bad debt would be something like credit card debt, or that which usually develops from getting stuck in a payday loan cycle. This debt drags you down, is usually unnecessary, and can be disastrous to your personal autonomy in terms of finances.

It can be hard to get out of debt if you’ve made a few money management mistakes in your life. But there are techniques, strategies, refinancing options, and consolidation solutions available; you’ve just got to seek them out.

Ways To Overcome Debt

Seek out extensive, experienced, and insightful debt-liberation advice from professionals, such as those at Debt Academy for example. Using services available through agencies like this can provide you information about debt that you likely wouldn’t find on your own. You can get solid advice that helps you make your next step. For example: what kind of expenses can you cut from your regular budget to help pay off existing debts more quickly?

Do you eat fast food, or have a penchant for pricey coffee? Cut that out. If you buy one $5 Starbucks coffee a day, that’s $35 a week, and $140 a month. In a year, you’ve spent $1,680 on coffee. Meanwhile, you’ve got a $200 a month car payment. Between the two, you’re spending $4,800 annually you don’t need to.

Sell the car and turn that money into a more cost-effective used vehicle. If you can recoup $5k from your car, then you can go on Craigslist.com and find a very good vehicle that will last you at least five years if you take care of it. Now you’re saving $4,800 a year that you can use to pay off debt.

Sustainable Energy And Mortgage Sale

Depending on your situation, you may sell your property. If you’re in debt, but have a good piece of property and the ability to spend several thousands before selling, you could increase the money you make in the sale. Firstly, you’ll want to find an organization that can sell a mortgage note.

Once you know who can help you sell your property, it’s time to upgrade it. A $5k investment in solar energy can get you a $5.1 kWh solar energy system which will increase property value between $15k and $20k depending on the state you live in. You may also get a tax break, but collecting on that will depend on when you sell the house.

With the money you make from selling the home, you can pay off your debts and downsize until you can afford a larger property once again.

Everyone’s situation will be different, but one thing is sure: by getting rid of certain lifestyle costs, you can free up resources and transcend debt more quickly.

Best Free Financial Advice

September 18, 2017 by Emilie Burke Leave a Comment

Growing up, I was never taught about personal finances. Sure, I knew that money could buy you things, but that was the extent of my financial knowledge. When I graduated college, I had to teach myself everything about finances from scratch. Living on a small post-graduate income, I didn’t have lots of money to invest in financial courses and books. Thanks to the wealth of information on the Internet, I didn’t have to! Here is a list of the best free financial advice that I’ve learned in the years since graduating.

Spend less than you earn and get on a written budget.

Before you can become rich, it’s absolutely critical that you spend less money than you earn and get on a written budget. Ideally, you would not want to be living paycheck-to-paycheck but have some extra money in your budget each month.

Minimize debt.

Some people believe that debts such as mortgages and student loans are “good” debt, while some do not. Either way, any debt you have means you owe money to someone else and will (most likely) be paying interest on that debt. The less debt you carry, especially the high interest ones such as credit card debt, the more money you will have to invest. I personally am working towards being 100% debt free.

Save for emergencies.

It’s a fact of life: hard times are going to come. Be prepared for them by saving money in an emergency fund so you won’t have to go into debt to cover the emergency. I was so thankful I had my emergency fund when my car broke down recently. Financial guru Dave Ramsey recommends having $1,000 in your emergency fund ($500 if you’re low income), but I’m personally not comfortable with less than $1,500-$2,500 in a starter emergency fund. My eventual goal, once I pay off debt, is to save 3-6 months’ worth of living expenses in my emergency fund.

Diversify your investments.

When I was younger, I heard an elderly neighbor say something along the lines of “Don’t put all your eggs in one basket.” I always thought it was about just planning on only one outcome, but as I learned more about finances I realized the saying applies for it as well. I’ve heard stories of people who invest entirely into one stock, and when the stock market crashes their investment is entirely wiped out. Spreading your investments across a variety of assets is less risky.

Think long-term with your investments.

You know the saying “Rome wasn’t built in a day”? Well, the same is true for your finances. You won’t become a millionaire overnight, but by investing in retirement funds and mutual funds and thanks to the magic of compound interest, over time you can build up your net worth. I recommend investing 10-15% of your income into retirement and other investment accounts. If you can’t start with that much, start with as much as you can afford, even if it’s just a small amount. If your employer offers a match for a 401(k) or 403(b), I definitely recommend investing the maximum matching amount– otherwise, it’s like turning down free money!

Earn more.

I decided to work part-time in addition to working my full-time job (aka “side hustling”) when I decided I wanted to get out of debt. I love it! It allows me to gain work experience outside of my day job, plus it allows me to pursue something I’m passionate about—writing and inspiring others (through my blog.) Side hustle money can be used for anything from investing to paying off debt to travel.

Money isn’t everything.

Billionaires Warren Buffett and Bill Gates created the Giving Pledge, which encourages other billionaires to give away half of their earnings to charity. Buffett even went so far as to pledge to give away 99% of his wealth in his lifetime or within 10 years after his estate is settled upon his death. I love that idea. As much as I love finances, at the end of the day, it’s just money. You can’t take it with you when you pass away. This is why I believe in giving a portion of your income to charities and others in need.

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