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The Holidays are Coming!

I have yet to hear Christmas music in the store, but I’ve started to see commercials.  The holiday season is quickly approaching.  Are you ready?

Every year, I say that I am going to set aside money every month so that I have money to buy little gifts for everyone I want to treat at Christmas.  And every year, I fail to do this.  Throughout the year, I do pick up things as I see them, setting them aside for special people or just putting them into a general “gifting” box, knowing that they will make the perfect present for someone.  So it’s not as if I’m starting from zero.  But I have work to do.

Christmas obviously isn’t about gift giving and it’s certainly not about what you spend.  But I love being able to give gifts during the holidays.  I do it because I want to do it, not because I feel obligated.  It’s something that I love doing.  So it’s money that I’m happy to spend.

And gifts aren’t the only expense that comes with the holidays.  There are also special holiday events to attend, and in many cases, holiday travel to fund.

So if you haven’t started your holiday savings yet, now’s the time.  Even $10 a week will give you a bit of cash set aside come Christmas. Yes, it would have been great to start back in January by setting aside just $20 a month, but since no one has invented a time machine yet, this is where we are.

And if you don’t have the money, remember, gifts don’t have to be expensive.  Last year, I put together little baskets of candy and silly treats for my coworkers and only spent a few dollars.  They loved it.  A cute little bag of candy wrapped up with some pretty ribbon is a great way to treat someone at the holidays without breaking the bank.  It’s all about showing someone that you were thinking of them, not that you spent a ton of money on them.

Do you set a Christmas budget?  How do you decide what to spend on your friends and family?

October Net Worth Update

Another three months down, another Net Worth Update.

For the first time all year, I’ve had a drop in my net worth.  This quarter, my net worth went down 4.35%.  That’s a pretty substantial drop.  So where did the money go?

The first check is the investments.  That’s the obvious solution.  And there it is.  Every single one of my investment accounts, including my 401k and Roth IRA, has dropped this quarter.  Not a surprise – the markets are down.  But that’s not going to change anything for me.  I’m going to continue to invest as I have been, continue to contribute to my retirement accounts, and continue to treat my investments as long term enterprises.  I can’t do day trading, so all of my investments are longer term.

What about my cash accounts?  My day-to-day accounts are only about $300 less than they were last quarter.  I wish I were saving more, but I’m pretty pleased with that.  I would like to increase those numbers, however.

Credit cards are around the same.  But I pay those off monthly, so no concerns there.

I’m slowly whittling away at my mortgage and my car payment. Right now, I’m only paying the minimum on my mortgage, but I’m paying extra on my car payment.  I’d like to get that paid off sooner rather than later, but I’m making sure to not throw too much money at it.  But it’s pretty easy to round up to the nearest hundred and not notice the difference in my day-to-day.

I’ve got a few trips coming up in the next few months, so the goal is to try to keep those expenses as low as possible.  I’ve also decided to make a bigger investment in my health, so my grocery expenses are significantly up this month.  On the other hand, my restaurant expenses are way down, so on some level, it does balance out. I don’t care what anyone says, it’s much more expensive to eat healthy.   So I’m just going to continue to keep my eyes on the numbers and make smart spending choices.

Getting Started with YNAB

YNAB is my preferred budget method.  I’ve talked about it plenty of times, and I hope some of you have checked it out.  I’ve been using YNAB since it was an Excel spreadsheet.  Now that it’s a full application, with a mobile app to go along with it, I love it even more.

But it’s not about the program.  It’s about the method.

YNAB has four rules that you are supposed to live by.

1.  Give Every Dollar a Job

2.  Save for a Rainy Day

3.  Roll with the Punches

4.  Live on Last Month’s Income

A lot of people can get on board with the first three rules, but that fourth rule is what turns them off.  So while I will talk about all four rules, this week, I’m going to focus on the one that sends people away.

How can I live on last month’s income?  I already SPENT last month’s income!

This is true.  And if you’re living paycheck to paycheck, the idea of saving a full month’s worth of income seems impossible.  But if you follow the first three rules, you’ll get there.  YNAB says that it takes the average user 4 months of faithfully following the plan to save up a months’ worth of income.   It took me longer than that.  But it’s been so worth it.

What are the benefits of living on last month’s income?  Well, you know what you have available to budget at the beginning of the month.   If you have a steady paycheck, you can estimate this, but if your paychecks vary based on your hours or if you have additional freelance income, it might be tough to predict what you’ll have coming in that month.

Another benefit is that not only do you have the money to budget, but it’s already in your bank account.  On October 1, you should have money in your account to pay all the bills that are coming due in October.  You won’t have to wait for a paycheck to clear to pay the power bill.  Sounds glorious, doesn’t it?

For me, another benefit has been the ease of which I can handle surprise expenses.  I do have an emergency fund, but let’s say that this month, I discover some weird bugs in one of my trees.  I call the tree guys and they tell me they can spray for $200.  Well, I hadn’t budgeted $200 for bug elimination.  But if I can’t move funds around, what I can do is overspend this month.  It’s not how the plan is supposed to work, but overspending just means that I will have $200 less to work with next month.  I can then tighten my budget next month and have the bill paid without ever touching the emergency fund.

I know, it’s a lot of work to get there.  And you don’t need to save up a full month’s income – the goal is to get to the point where you can save up a full month’s expenses.  It takes baby steps, but it’s worth it.

Digital Entrepreneurs: How Do They Make Their Pennies?

The entrepreneurs of today seem to emerge from nowhere, as fresh-faced as foetuses and as self-assured as a long-serving CEO.

Mark Zuckerberg of Facebook is a perfect example. He might look awkward in his hoody and t-shirt, but his success has relied upon an all-encompassing vision that is bolstered by his ballsy confidence.

Not every internet success story has a happy ending, however. Despite the millions of pounds at their disposal, some of the latest batch of entrepreneurs have expressed mixed feelings about their positions of power.

Markus Persson, creator of multi-billion pound videogame Minecraft, took to Twitter to discuss the loneliness that comes after being plucked from obscurity. Your friends are suddenly intimidated by your wealth, while the added list of responsibilities dominates your every day, sapping your creative energy and turning you from an ideas-person into a businessperson.

They’re understandable concerns, and difficult to avoid. But they could turn your successful business from a hero to zero within six months.

The Simple Sections of Business

Fresh-faced, swaggering entrepreneurs need to understand the basics if they want to stay afloat. And, despite the proliferation of digital media, very little has actually changed on a foundational level when it comes to making cash.

Simple sectors of business have to be catered for. The HR department requires digital payroll software that’s complex enough to automate payment, track employee absences and appointments. Employees, in turn, require regular morale boosts and the kind of working environment that fosters creativity.

Moreover, a leader of a burgeoning company has to show some kind of charisma. Perrson, Zuckerberg and most of the successes of the digital age convey an impression of affable everymen (and women), giving their leadership a relaxed air that (they hope) boosts confidence in their products.

Gone are the days of Alan Sugar and Donald Trump, when a CEO had to have an avuncular, almost threatening persona to motivate their staff. This is the age of digital communications, where the public face of business is inherently friendly.

A Leaf from the Book of Success

These are examples that have helped creative people top rich lists and make them household names. And while there’s not a one-size-fits-all approach to business, theirs is a good template to emulate if you want solid PR, respect from employees and a lot of cash.

Small businesses regularly struggle online, be it because they own a poorly designed website or don’t understand the basics of search engine optimisation. These are hurdles that any SME has to surmount – especially if they want to rake in cash.

Most successful entrepreneurs in the modern day have earned their cash with their wide-spanning knowledge of technology and interpersonal skills. Find this balance for your small business and you’ll sky-rocket into a world of profit.

My Self-Escrow Plan

This month, the first half of my property tax bill is due.  The second half will come due in December.  For many people with mortgages, this date passes without a thought.  As part of their mortgage payment, they also pay into an escrow account.  Every month, they pay 1/12th of their property tax and insurance bill, and then when the bill comes due, the mortgage company takes care of those bills for them.

I opted to self-escrow.  That means that the money I pay to my mortgage company every month is simply for the mortgage itself.  Instead of sending the extra money to the mortgage company, I put it into a separate budget category for use at the later date.  This year, I’m considering taking it one step further and actually setting up a direct funds transfer so I don’t have to think about it at all.

What’s the benefit of paying into an escrow account?  Well, sometimes, you can get a lower mortgage payment.  My credit score was high enough that it wasn’t an issue, but if I could have been paying less interest, I probably would have had an escrow account.  Also, it’s one less thing you have to worry about.  You don’t have to worry about setting money aside every month so that you have the funds when the property tax bill comes.

What’s the benefit to my method?  Well, I keep my money in my control.  And I earn the interest, not the mortgage company.  With rates as they are, I admit, it’s not a ton of money, only about $20, but I’ve got over 25 years left on my mortgage.  Rates may increase.  Rates will probably increase.

Also, one trick that I do is that when I come into “extra” money, maybe a bonus at work or a three paycheck month, I put a chunk of that into my insurance and property tax budget.  The money wasn’t part of my normal budget, so I don’t even notice it missing.

Really, though, the question is what works best for you.  If you still aren’t good at budgeting and are worried about being able to set aside the money, then by all means, go for the escrow account with your mortgage company.  If they’re giving you a better rate, take it.  And they may not give you an option.

But if you’re good with budgets and you like seeing interest add up, then see if it’s an option for you.