The Free Financial Advisor

You are here: Home / Archives for money management

Poverty vs Frugality – It’s All About Mindset

by 1 Comment

While you may think that being frugal is the same thing as being poor or never having enough money, but that’s actually not true.  There’s a big difference between the two and it has nothing to do with how much money you have in the bank.  Instead, it has everything to do with your mindset.

You’re not alone in your situation. Look around you; people everywhere are living on a tight budget. And they all have the same choice to make that you do, decide that you’re “poor” and feel sorry for yourself, or know that you can make choices from where you and make the best of your situation.  While your financial situation may be challenging, you always have a choice as to how you respond to it.

What does the word “poverty” bring to mind? Homeless people begging on the street corner and eating at soup kitchens.  Or living in a rundown home and always having dirty and tattered clothes.

The key to it all is how you let your thoughts control you.  See for yourself:

  • “I never have enough” or “I have everything I need”
  • “We can’t afford to buy that” or “We choose not to buy that because other things are more important”
  • “How will we ever manage until payday” or “We’re challenged to figure out how make it to payday”

Can you see the difference?  It’s all in how you control your thoughts.  With the wrong mindset, you’ll never have enough and you’ll never be content.  You’ll always be wishing you had more.  A poverty mindset comes from being fearful that you’ll never have enough so you feel helpless to fix your situation.

But having a frugal mindset means you make “choices” about how you spend your money. This puts you in control of your financial situation and how you spend your money.  Instead of experiencing “fear”, you feel “challenged”, as if you have an obstacle to deal with.  Being in control is a much different mindset to feeling helpless, all with the same amount of money in the bank.

“Choosing” to budget and live on less gives you a sense of control. You are more careful about the choices you make with your money, but they are still your choices.  Your “wants” don’t have to be met right away. You can wait until you’ve taken care of your “needs”.  Instead of impulse shopping and spending your entire paycheck in a weekend, you make better choices and buy only what you need then take care of your other responsibilities like rent and utility bills.

Choosing to live on less means you’re in complete control of how and when to spend your money. This allows you to make better financial decisions about the best ways to provide for your family; even if you’re a little jealous of what other people are buying.

Even if you make a good living, choosing to spend frugally and saving money whenever you can could possibly be the difference between carrying a lot of debt and living debt-free.  And isn’t that a better way to live?

Choose a better mindset when it comes to your financial situation.  The difference is feeling helpless and out of control or feeling smart about your choices even though you sometimes feel challenged.

Create A Financial Plan Without Hiring A Professional

by Leave a Comment

You’ve probably heard lots of advice about how you need a financial plan for your future so that you can retire with a healthy bank account.  But have you listened to that advice and started investing?  If not, it’s time to get started.

Many people avoid investing because they think a professional financial planner.  And most of people don’t want to spend the time or money to hire someone.

But, if you do your research, the only person you really need is you. A financial plan is not as complicated as you might think; you can create one on your own.

In basic terms, a financial plan should include your current and future financial situations and a plan for getting from one to the other based on your income, expenses, and any assets you have.  Here’s how to get started:

Know your current status

Create a list of your income streams, monthly expenses, and current assets to get a clear understanding of where you are and what you can expect to have for the future.  Review your annual budget and the most current credit card and bank statements to get the big picture of your debts, income, and monthly expenses.

Plan for the future

It’s hard to know what the future will hold, but you’ll need to make a plan based on what you expect to happen.  Sit down with your spouse or a friend and talk about your financial goals.  It always helps to have someone to talk about these things with and bounce ideas off.

As you’re creating your plan, work toward 5-, 10-, and 15-year goals to start.  What do you want financial picture to look like at these marks?  For instance, if you’re planning on buying a home in 5 years, you can start making a plan now to save for the down payment.

Mapping it out

Once you know where you are and where you want to be, the hard part is done.  Now it’s time to do some math and make a plan.  Your plan needs to include the financial goals you’ve set for yourself and how much you will need to reach these goals so you can lay out your map.

What are some small financial steps you can take to reach your goals?  Determine how much you need to set aside each month to reach your 5-10 year goals.  Follow this same step for all your future financial planning.  Be sure to calculate about 5-8% a year for inflation.

Now you’re able to make smart choices about your spending and saving habits based on your goals and your financial plan.

Review the plan yearly

Make time to review your plan each year as your goals, income, expenses, and assets may change. The numbers you used last year may no longer be current. Your plan may need to be adjusted to account for these changes.

Having a plan for your future is important so that you make informed decisions about how you spend and invest your money. Without a plan, you’re just hoping for the best and you’re not able to make good decisions that will benefit you in the long run.

Two Ways to Automate Your Savings

by Leave a Comment

 

If you struggle saving money, or hate having to take the time and brainpower to save each week, automated savings apps have the potential to rock your world.

The apps are designed with the user in mind, making saving money so easy that you do not have to do a single thing. Saving is transformed from an impossible goal to a mindless everyday occurrence.

Digit

Digit is a savings app that links to your banking account to put aside money for you. Their slogan is “Save money, without thinking about it.”

Digit has become increasingly popular with younger generations and with individuals who struggle to save. Rather than having to decide whether you want to save or splurge at the end of the month, extra money is taken out in small increments throughout the month.

Digit is the perfect friend for heavy spenders; the app is able to track your spending habits and monitor your income. Then, they occasionally pull aside money (never large sums) that you will not need for your routine expenses. Typically, this removal happens once or twice a week. It is never so frequent that it will affect your budget. The money is then kept in the app in a savings account. The app is able to send out text updates so that you are aware each time saving occurs.

If you need quick access to the savings, a short text to digit can have the money back into your account within one business day. No harm done! They have a no overdraft guarantee, your money is insured, and there is no need to set up a new savings account when you sign up.

You’re probably wondering… “So how much is this going to cost me?”

Digit is completely free, and a great tool for getting a jump start on your savings. Although you don’t receive interest, Digit is now doing something called cash bonuses, which is basically the same thing.

Right now, Digit is only US based, and is not available with all banking institutions (although it is with many). If you do not have much money, you will not save as much, but it doesn’t hurt to give it a shot!

Acorns

Acorns is another automated savings app that works by rounding up all your transactions to the nearest dollar. It puts all the spare change into investments for you. They help you pick which portfolio you are putting your money into, and instead of hoarding your savings, you begin to invest.

Acorns is all automatic, virtually pain-free and easy, and has no transaction fees. It allows you to make money off of your money. Acorns is perfect for beginners who know little about investing; you do little, and they take care of the hard work!

However, Acorns charges a monthly fee: $1.00 per month for accounts under $5,000, and 0.25% per year for accounts over $5,000. Students and individuals under the age of 24 can have these fees waived.

As with any investment, there is always the chance of losing money, rather than making.

 

Give one of these two automated savings apps a try and reap the benefits. Saving money no longer has to be difficult and painful. Slow down your spending habits, better your finances and put away savings.

It is way too easy to spend money when it is just sitting around in our checking account. Take control of the situation and do not leave it there tempting you.

Blue Apron Company Profile and Review

by 1 Comment

Blue Apron is a meal delivery service that delivers fresh ingredients for three or your ordered number of meals to your door. Their motto is “Food is better when you start from scratch.” I think we would all agree!

Food quality makes a huge difference in the meals we eat. While preparing food from scratch can sound appealing, it can be time consuming. Especially in households with two working members, it can seem almost impossible. Blue Apron fills a market need. For slightly more than regular groceries, as low as $8.57 per serving according to their website, they provide a premium meal experience at a less-than-premium price.

Blue Apron was founded in 2012. Since its founding, the company has raised roughly 194 million dollars, with its most recent rounding being a $135 million Series D raised in June 2015. Some estimates say the company has between 500 and 1000 employees with its 3 founders still holding C-level executive positions. They have been featured in The Wall Street Journal, Good Morning America, Tech Crunch, and The Washington Post, as well as many others.

blue apron company profile and review

Blue Apron allows you to see what the price-per-serving cost of a meal is. This allows you to compare the price for Blue Apron to your groceries. Thing is, though, that Blue Apron can’t be compared to your groceries. You see, groceries are just food, but Blue Apron is a service!

You’re not only getting all the ingredients you need to make dinner, but you’re also getting the lack of a hassle- less groceries to worry about and less mind space to let dinner take up. Blue Apron, though, is not like going out to eat. You still have to do the cooking and the cleaning yourself.

The cost of Blue Apron reflects its middle ground between between going out to eat and just making a “regular” meal at home. The price, at $8.74 to $9.99 per meal, reflects that middle ground. It’s cheaper than $16/meal at some restaurants but nicer than the $4/meal you’re probably managing with your groceries when you make some dinner.

I got the chance to try Blue Apron myself! One of the three meals we tried was a Chipotle-Glazed Meatloaf with Crispy Potatoes. My significant other, Casey and I decided to make a Saturday date-night experience out of it. We were hoping it would fill that middle ground – a nice date night but one that didn’t require spending what going out to dinner. Casey enjoys cooking, but I’m not great at it. As a result, I don’t particularly enjoy it. Our Blue Apron date night let us spend time together in a great way, doing something Casey loved, and that supported our financial goals.

The following Sunday, Casey had to work the whole day. I prepared for us our second meal – Oaxaca Cheese and Plantain Tortas with Tangelo & Radish Salad. I was shocked by the prep time for this meal – nearly an hour – but it had less than 10 minutes of cook time. As a result, I was able to bring Casey a delicious meal and we got to share a not-so-picnic-lunch sitting in Casey’s office.

Blue Apron is a company growing in popularity, which is why you may have already heard of it. The company is set up for success and it has found product-market fix. You can see how it meets a need in real people’s lives. It meets a need in my life. That really says something.

You can try Blue Apron yourself and get $30 off your first order with this link.

Tell me more: Have you ever tried Blue Apron or another meal delivery service? 

I obtained free meals in exchange for reviewing Blue Apron. All thoughts and opinions are my own.

More Blue Apron reviews:

Financial Habits to Set Up in 2017

by 2 Comments

2017 is a brand-new opportunity to meet goals and start habits that we want to prioritize over the span of the year. Resolutions are made every year to stop smoking, eat healthy, or go to the gym. Although physical resolutions are terrific, it is also important to place focus on our financial habits as we start the new year. What type of financial goals do we have for ourselves? What habits should we form now to help us meet those goals? Here are five financial habits that will be beneficial for 2017.

Budgeting

Create weekly and monthly budgeting plans, and take time afterwards to review how well you are sticking to the budget. When you have a plan in place, it is much easier to save money and spend less. Reviewing how you are doing regularly will help you to evaluate where you are financially and what you should change.

Setting financial goals

Set some goals that are important to you and be vigilant in sticking to them. One goal may be to create an emergency savings fund of $2,000. Another may be to stay under budget for 6 months in a row. Whatever your goals are, write them down so that you can hold yourself accountable.

Avoiding debt

One of the greatest habits you can keep is to never create debt for yourself. This means always living beneath your means, and NEVER above. Can you create this habit for yourself for 2017? If so, you will be a happier you with healthier finances.

Contributing to retirement

Create a Roth or Traditional IRA and make it a habit each paycheck to contribute into the fund. It is never too early to start preparing for retirement. The sooner you start, the more money you will have saved up when the day comes.

Giving (some people may call this Tithing)

Make it a financial habit this year to give to others. This may come in the form of giving to a particular charity, tithing at church, or donating money to a cause you believe in. When we give to others, we are blessed in return. If allowed the opportunity, giving may do even more good in your life than you ever could have imagined.

Think of whatever habits are important to you financially this year and write them down! Writing down what we want is so important because only then can we continually hold ourselves accountable. Hang your list on the fridge or sit it by your bed. Every day make it a priority to continue these habits in your life.

If you think these 5 habits listed above could be beneficial to your own personal finances, then I encourage you to truly try to stick to them over the next 12 months. It is the small things that you do every day that bring about big change in your life. Healthy habits create healthy finances, and that’s the goal that we all should be aiming to reach. Good luck!

For more on forming habits, and ways to get rid of bad ones, check out these great articles.

5 Habits That Cost You Thousands
Increase Your Financial Stability by Taking Advantage of New Spending Habits
Sandy Smith Talks Gen Y Money Habits

 

Personal Finance Ratios: What You Need to Know

by Leave a Comment

I strive for healthiness in all areas of my life: physically, relationally, and financially. The signs of physical health and healthy relationships are obvious, but what about financial health? How do you truly know if you are on the right track financially? Enter: personal finance ratios. These are calculations that allow you to determine where your financial weaknesses are; once you know your score, you can then make changes to be on the right track. Here are some of the most important personal finance ratios that everyone should know.

creating-luxury-home-budget

Total debt to income ratio: Ideally 0%, but no more than 35% of monthly (net) income. Banks use this ratio to determine someone’s default risk on loans, especially mortgages. This would include all debt, such as mortgages, student loans, credit car payments, car loans, and personal loans. Most financial professionals consider student loans and mortgages as “good” debt and stress lowering at least the consumer debt, if nothing else. 

Savings ratio: Between 10-20% of net income. This should be composed of your emergency fund, retirement fund, and college fund for children (if applicable.) Popular financial guru Dave Ramsey teaches that if you are working to pay off debt, you should have a basic emergency fund of $500-$1000  until you are debt-free, which I don’t necessarily agree with (I think it should be a bit higher.) He also teaches that you should wait to contribute to retirement once you are debt-free, which I also disagree with; if your employer offers a 401(k) match, to not contribute while you are paying off debt is like throwing away free money.

Housing ratio: around 25%-28% of net income. This would include not only rent/mortgage and utilities, but homeowners taxes, insurance, homeowners’ association fees, and money for ongoing home maintenance. If you live in an area with a higher cost of living, you may have to increase this amount slightly. 

Liquidity ratio: Cash divided by monthly expenses. This is just a fancy term for “emergency savings.” In the event of an emergency, such as a job loss, how many months would you be able to stay current on your bills? Ideally, you would have a minimum 3-6 months’ of expenses available in liquid accounts, although I am more comfortable with 9-12 months’ emergency savings.

Solvency ratio: Net worth divided by total assets.  Ideally your net worth would be 50% or more greater than your total assets. For someone who is just starting their career, this amount would be lower because most likely they have student loans and few assets, but as someone gets closer to retirement this amount should increase.

Being properly insurance is important because you never truly know what could happen in the future and want to be protected for anything that might happen.

Disability insurance amount: around 70% of your gross income.  If you were somehow unable to work, you would need a way to pay your bills.

Homeowners’ and auto insurance: the cost of replacing them and the belongings inside. If something happened to your house or vehicle, you would also need a way to purchase new ones. Ideally, this would be by insuring them for the cost it would take to replace them. At minimum, you should insure them for their fair market value.

Life insurance: This one is a bit more complicated, because it depends on your life situation. For example, I’m a single woman with no kids, so I don’t need as much life insurance as my friends with kids. If you’re debt-free with a large chunk of money in savings, you won’t need as much insurance as a person with a mortgage

Yes, Someone Is Taking Your Money

by Leave a Comment

close up of a the hand of a thief stealing the dollars us to a woman

When we’re kids, the world of grown up finance seems distant and confusing. Bank accounts and mortgages are words we didn’t understand. Our only experience with money was the cash we carried to school, or the allowance our parents may have doled out to us every month or so. We might have lost a quarter while playing, or given up our lunch money to the bully at recess. Whatever it was, grown up money habits seemed safe and secure. We figured that once we got to be adults ourselves, we could lock away our savings in an impenetrable vault and live without worry that someone else might take it.

The thing is, though, people do take your money. Today more than ever, regular people are vulnerable to the predations of individuals and corporations who make it their business to steal or skim as many dollars as they can get access to. It’s not too different from the schoolyard bully situation, though today’s ripoff artists like to hide behind suits and expensive desks, or even cloak themselves in digital anonymity. For people looking to make their money go farther and last longer, it’s imperative to stop these characters before they start. It’s almost always easier to prevent theft than it is to recover funds. Here are some things to keep in mind.

  • PPI and Other Unwanted Subscriptions. PPI, or Payment Protection Insurance, is a fine financial product that was unwittingly foisted on many borrowers in England over the past couple of decades. It’s not that the insurance was bad. Most people just didn’t want it, and didn’t know that somewhere buried in their dozens of loan application documents was a contract they were signing for the coverage. Today there are many class action lawsuits in motion, and the PPI deadline is quickly approaching. There are examples of many similar ripoffs, but sometimes we’re our own worst enemies. Ever subscribed to entertainment or monthly shipments from Amazon or other providers? It’s easy to forget about these services and just let our funds slip away monthly.
  • Encryption and Anonymity. If I were to ask you which online passwords were the most important, which would you identify. No, not Facebook (though it’s not totally insignificant). No, not your HBO NOW account. Email and Banking? Yes! Totally! It’s getting easier than ever for hackers to crack weak passwords. When it comes to email, this is the gateway to all of the rest of the information available about you online. Most of us have our other passwords mentioned somewhere in our emails, so hackers often find financial passwords and move on from there. If they can get through a bank password without cracking your email, all the easier. Try Google 2-Step Authentication for your most important web accounts, and request that your institutions support 2-Step Authentication if they do not already.

It’s harder than ever to get through life without someone picking your pockets. In the digital world, it’s just like the old playground bully situation. Keep your stuff safe by paying attention and preparing for the worst. You might be able to keep your money to yourself.

What the recent stock market turmoil could mean for your finances?

by Leave a Comment

The-Stock-Market-Plummets!-What-Should-I-Do-

What Could Happen To Your Finances?

The financial markets are highly unpredictable at the moment. It seems that every day there is a news story about another crash just around the corner. It can be scary for those who have their money tied up in the stock markets. Even those who do not have a lot of money in the markets may be worried, as the impact of changing stock market conditions can have an effect on their financial health as well.

It is always a possibility that the markets could take a sudden downturn and cause real problems. There is little that any one investor can do to stop the forces of the market. The markets simply react how they are going to react, and the rest of us have to do our best to ride the waves.

Current issues facing the market include issues in China as well as concerns about the Federal Reserve and what it will do with interest rates. The Federal Reserve raised interest rates a quarter of a percent at the very end of 2015. It was the bare minimum that they could raise them, and the first time that they had raised rates in nearly a decade. However, this did not stop the markets from reacting in a big way.

Many fear that the Federal Reserve raising interest rates could lead to a lot of devastating outcomes for the economy. They worry about a global economic slowdown, and about inflation taking off. However, as Reuters reports, there is probably little to be too concerned about in the immediate future.

There is every chance that the interest rate issue will be a non-factor for most. However, those looking into getting a personal loan of some kind may want to take note of these changes and how they could play a role in their life. Consider looking at a personal loan calculator for more information about what the interest rates could mean for how much you can borrow and what amount you will have to pay back.

The best thing that anyone can do when faced with stock market volatility is to wait things out and continue to invest in the markets the same as before. Most of the time volatile moves in one direction or the other are temporary and something that can be easy to overreact to if given the opportunity. All people should try the best that they can to ignore such movements and carry on as planned into the future.

4 Life Hacks to Maintain Your Social Life While on a Budget

by Leave a Comment

Friends Eating

One of the first things to go in serious debt elimination or cash saving budgets is entertainment. When you’re used to an active social life, this can become the most challenging part of the whole process. After all, just because you’re on a spending diet (or fast) doesn’t mean your friends are. They are used to you doing things with them—things that, more often than not, cost money—and they aren’t going to stop inviting you to fancy dinners just because you’ve announced your allegiance to Dave Ramsey.

So how do you maintain you’re social life while strapped for cash? Balancing a budget while keeping your social life alive is not only possible, it can be fun. Your budgeting days offer the opportunity to switch up the social routine by adding creative activities to the mix. Here are four hacks to stay social without spending an arm and a leg.

For the Drinkers

Host a beer tasting party. Not as stuffy or expensive as a wine tasting party, and slightly classier than bring-your-own-PBR Scrabble night, a DIY beer tasting party will thrill your social group. Invite beer-loving friends to bring a six-pack of a unique brew and hold blind tastings throughout the night with homemade score cards. Vote on first, second and third place.

For the educational-minded, have participants explain the history and science behind their beers. If you’re lucky, one of your friends will bring something fancy like Guinness’s new Nitro IPA—a smooth, creamy pale ale made with Guinness yeast—and teach you all about nitrogenated beers.

For the Foodies

Throw a recipe swap party. Improve your foodie game, save some cash and hang out with your friends in a fresh way all at the same time. It’s the same idea as a potluck except you choose a theme for the dishes and everyone walks away with a bunch of new recipes. Themes could be anything from appetizers to culturally inspired dishes. Along with their dish, each friend brings a stack of recipe cards to hand out. As the penny-pinching host, your goal is to keep your dish as simple as possible by making something from ingredients you already have, or mostly have, in the house.

For the Fashionistas

Organize a clothing trade. If fashion’s your jam, organize a clothing swap with your chic friends. Send out an Evite a month in advance, being sure to note a precise amount of items each person should bring to ensure quality, fair selections. Depending on how insane your friends are about free clothes, you might need to implement some additional rules such as a lottery system detailing the order in which people “shop” for clothes. This event is a two-birds-one-stone situation: an innovative way to spend time with friends and a fresh new wardrobe—for free.

For Anyone, Anytime:

Propose anything nature-oriented. If you’re worried about telling the whole world that you’re broke—don’t. Simply become the friend who has taken a sudden interest in Mother Nature. Most outdoor activities such as hiking, camping and biking are free or extremely affordable. Even getting together with a friend to walk the dogs through the park or a nature reserve can set the stage for quality time at the best price.

How to Get a Vehicle Loan: Tips for the Credit-Challenged Car Buyer

by 4 Comments

Car Loan Paperwork

 

Buying a car is an exciting experience, one that everyone dreams about when they’re young. But when you’re an adult trying to buy a car with little to no credit, that experience is more like a nightmare. Although it may not seem like it is possible to get a good car loan with nonexistent credit, it is achievable if you ask the right questions and know where to look.

How long will the loan be active?

Before pursuing a loan, it is important to crunch some numbers and make some decisions. The first thing you should ask yourself is how much you can afford to pay each month and how long you are willing to pay it. You want to be sure the payments are reasonable and within your means. Don’t overestimate, but you want to pay as much as you can without setting yourself up to fail.

If you decide that a longer auto loan (more than six years) is best for you, know that your monthly payments will be lower, but you will end up paying more in interest over the life of the loan. Choosing a longer loan also means you run the risk of falling victim to depreciation. This means you could end up owing more on the car than it is worth, or the dreaded underwater scenario.

Do you have a co-signer?

If you alone do not look appealing on paper, adding a co-signer to the loan, like a spouse or parent, can make you look a lot more attractive to lenders. With a cosigner, the party lending the money has more options for recovery outside of the borrower. Essentially, if you have someone with good credit willing to vouch for you, you are more likely to drive away in a new or used car. However, you have now made that individual as equally responsible for the payments as you are.

Who will lend to you?

Don’t give up on a bank loan until you’ve actually tried. Know that you are more likely to be approved at an institution where you already have an account. If you are not approved the first time, it may be worth your time to wait and apply again a few months later, particularly if in those months you can demonstrate steady employment, change in income or steady credit payments.

If you have no luck at a corporate bank, try for pre-approval from a credit union. Credit unions are capable of making personalized decisions, especially if you bank there. A bonus is that credit unions tend to offer lower interest rates than banks, and they do not follow the bank’s tiered rate system, so your interest payments will be the same as any other credit union member’s, regardless of your credit score.

Another option is to go with a dealership that caters to customers with little to no credit, such as DriveTime. Its website states that it has approved over 2.5 million people and sold over 750,000 used vehicles to people with no or bad credit. It claims that it works with all credit types, so you are more likely to get approval.