How to Manage Family Finances

How to Manage Family Finances.

To live a happy and peaceful life with financial freedom, it's very important to manage family finances properly. Failing to manage spending or agree on financial decisions can cause a married couple to fall into endless arguing. To get through the many financial decisions present in married life, you have to coordinate a budget and financial planning with the whole family and keep an open dialogue going about the family's money.

Part 1 Coordinating Family Finances.

1. Talk openly about your finances. While this is important all the way through life, it is especially important to establish financial honestly before you get married. If one partner has a poor credit history or large debts that are not brought up before marriage, it can lead to resentment and problems down the road. Before getting married, you should meet with your loved one and discuss his current financial situation, including how much he makes, where that money goes, his credit history, and any large debts he is carrying. This sets the tone for financial openness in the rest of your lives together.

2. Meet regularly to talk about money. Decide on a time of the month to get together specifically to discuss your finances. Perhaps this meeting can coincide with the arrival of the monthly bank statement or the due date of monthly bills. In any case, use your time at this meeting to assess the previous month's expenditures, mark your progress towards long-term goals, and to propose any changes or major purchases that you want to make. Only by talking about money regularly can you make doing so a comfortable and productive experience.

3. Don't make one person the sole manager of the family's money. Many families choose to allow one person to take charge of all the family's finances; however, this places an unnecessary burden on that person and leads to others' being unaware of the family's current financial situation. In addition, if that person leaves through death or divorce, it leaves the others completely unaware of how to manage or even access the family's finances. Solve this problem by splitting up tasks between you or by managing finances in alternating months.

Both you and your spouse should attend any meetings with financial professionals, such as those with a loan officer or investment advisor.

4. Decide on an account setup. Families have options when it comes to setting up joint accounts. Some choose to keep everything together while others keep their finances mostly separate. At minimum, you should have a joint account to pay for household expenses and your mortgage payment. At the end of the month, you can split these expenses in half and each transfer in an equal amount of money into this account to pay these expenses. Having separate account can prevent arguments that might arise from one person's spending habits.

Just make sure to set limits to how much money each of you can spend each month so that one person doesn't end up spending all of the family's money.

5. Build up individual credit. Even though your finances will be combined, it is still important for each of you to have a strong credit score. Doing so will ensure not only that your credit will be good when you apply for credit jointly, but also that your credit history will remain intact if you split up. A simple way to manage this is by having separate credit cards, each established only in the name of the spouse who uses it.

Part 2 Using a Budget.

1. Choose a budget format. Before you create a budget, you'll have to decide how to keep that budget. While many people can get away with just using a notepad and pen, others find it easier to track their spending through a spreadsheet or financial software. There are a number of a free software platforms available online that you can use to establish and track a budget. For example, programs like Mint.com and Manilla offer free budgeting services. If you want full service financial software, try Quicken or Microsoft Money.

2. Assess your current spending habits. For a month, write down a note every time you spend money, even for very small amounts. Record the amount spent and what it was you paid for. At the end of the month, sit down with your spouse and total up both your spending. Add in major expenditures to get a clear picture of where the family's money went that month. Split up expenses by category (home, car, food, etc.) if you can. Then, compare that amount to your combined, after-tax income. This is your starting point for determining a budget.

It may also be helpful to work with your bank statement to make sure you didn't miss any recurring payments or online purchases when totaling your expenses.

3. Come together to create a budget. Look at your compiled spending habits. Do you have a surplus? Or are you spending more than you make? Work from here to identify areas where you can cut back, if needed. If at all possible, try to free up money that can be put into savings or into the retirement fund. Create spending limits on certain categories, like food and entertainment, and try to stick to them over time.

Remember to always leave room in your monthly budget for unexpected expenses, like small medical bills or car repairs.

4. Work to improve and change your budget as needed. Return to your budget regularly to eliminate unnecessary spending or to adjust your budgeted amounts as needed. For example, having a child may cause you to have to completely restructure your budget. In any case, constantly seek out areas where you can cut back and save more. You'll find that you can be just as happy while spending much less than you do now.

Part 3 Saving for Life Goals.

1. Decide on long-term goals together. Have an open conversation about your savings goals, including saving for a house, for retirement, and for other large purchases like a car or boat. Make sure that you both agree that the purchase or expense in question is worth saving for and that you agree on the amount needed. This will help coordinate your savings and investment efforts.

2. Create an emergency fund. Every family should strive to keep an emergency savings fund for when things go south. Who knows when one of you might lose a job or experience unexpected medical problems? An emergency fund can help you avoid future debt and provide some financial security and flexibility. The traditional wisdom is to keep three to six month's salary in a savings account; however, this would be more than enough for some families and not nearly enough for others. Luckily, there are several financial calculators online that you can use to calculate roughly how much you need to save to cover your expenses.

Try searching for emergency fund calculators using a search engine.

There is also an app, HelloWallet, that offers this type of calculator.

3. Reduce your debt. Your first goal should be to pay off your existing debt. Only by paying down student loans, car loans, and other debt can you qualify for more credit as a couple and move forward with saving for other goals. To eliminate debt, work together to pay more than the minimum payment on each loan (as long as there are no prepayment penalties for doing so). Work with your spouse to create a plan and schedule for paying off your outstanding debt. If necessary, have one of you in charge of making sure that debt payments have been made each month.

4. Save for retirement. Couples should start planning for retirement as early as possible. This is because, due to the effects of compound interest, money placed in a retirement fund at a young age will earn much more interest over its life than the same amount of money put in at a later age. Make sure to make every effort to increase your retirement savings, including seeking to max out your employer's 401(k) match (if they have one), maxing out IRS-limits for 401(k) savings, and regularly increasing your retirement savings amounts if you can fit it into the budget.

You should save for retirement before putting money into education funds for your children. This is because there will always be scholarships and grants available for education, but not for your retirement.

If you don't have a combined retirement portfolio, be sure to coordinate your risk profiles and asset allocations.

5. Plan for educational expenses. If you're planning to fund part or all your child's higher education, it's best to start saving early on. Start by investigating options like 529 savings plans, which have special tax benefits for students. Speak with a financial advisor to learn more and get started saving today. If you don't have much time before your child leaves for school, look into government loans and grants, as well as your option in earning federal student aid.

Part 4 Staying on Track.

1. Don't make large purchases without discussing them first. Establish a monetary limit for what constitutes a "major" purchase. Obviously, this will differ between families, but the important thing is that you have a set limit. For any purchases above this limit, decide that the spouse making the purchase must have the approval of the other before going through with it. If either of you ever breaks this rule, be sure to tell the other immediately. Keeping large expenditures private is just asking for trouble.

2. Avoid taking on unnecessary debt. Keep each other on track by avoiding taking on debt for medium-sized purchases like furniture or jewelry. Plan these purchases out beforehand with your spouse so that you can combine your resources and afford the full amount of the purchase. This will save you money on interest payments in the long term. In addition, always check in with each other about credit card debt. It may be in your best interest to help a spouse with her credit card payment if she can't make it; missing a monthly payment will hurt your combined credit, which you will need if you apply for a large loan like a mortgage.

3. Use software to monitor your finances. With all of the budgeting and financial planning software available today, you'd be a fool not to take advantage of these useful tools. For starters, try tracking your monthly budget in a shared spreadsheet like those available in Google Drive. This type of document allows both of you to access and change the sheet as needed. For budgeting, there is are apps available like HomeBudget or Mint, which summarize the family budget and assets into a simple user interface.

There are also apps for keeping track of financial paperwork, like FileThis.

Try a few of these apps out and decide which ones work for you. Most of them are free or inexpensive to use, or at least offer a trial period.

December 17, 2019

how to manage family finances

How to Manage Family Finances.

To live a happy and peaceful life with financial freedom, it's very important to manage family finances properly. Failing to manage spending or agree on financial decisions can cause a married couple to fall into endless arguing. To get through the many financial decisions present in married life, you have to coordinate a budget and financial planning with the whole family and keep an open dialogue going about the family's money.

Part 1 Coordinating Family Finances.

1. Talk openly about your finances. While this is important all the way through life, it is especially important to establish financial honestly before you get married. If one partner has a poor credit history or large debts that are not brought up before marriage, it can lead to resentment and problems down the road. Before getting married, you should meet with your loved one and discuss his current financial situation, including how much he makes, where that money goes, his credit history, and any large debts he is carrying. This sets the tone for financial openness in the rest of your lives together.

2. Meet regularly to talk about money. Decide on a time of the month to get together specifically to discuss your finances. Perhaps this meeting can coincide with the arrival of the monthly bank statement or the due date of monthly bills. In any case, use your time at this meeting to assess the previous month's expenditures, mark your progress towards long-term goals, and to propose any changes or major purchases that you want to make. Only by talking about money regularly can you make doing so a comfortable and productive experience.

3. Don't make one person the sole manager of the family's money. Many families choose to allow one person to take charge of all the family's finances; however, this places an unnecessary burden on that person and leads to others' being unaware of the family's current financial situation. In addition, if that person leaves through death or divorce, it leaves the others completely unaware of how to manage or even access the family's finances. Solve this problem by splitting up tasks between you or by managing finances in alternating months.

Both you and your spouse should attend any meetings with financial professionals, such as those with a loan officer or investment advisor.

4. Decide on an account setup. Families have options when it comes to setting up joint accounts. Some choose to keep everything together while others keep their finances mostly separate. At minimum, you should have a joint account to pay for household expenses and your mortgage payment. At the end of the month, you can split these expenses in half and each transfer in an equal amount of money into this account to pay these expenses. Having separate account can prevent arguments that might arise from one person's spending habits.

Just make sure to set limits to how much money each of you can spend each month so that one person doesn't end up spending all of the family's money.

5. Build up individual credit. Even though your finances will be combined, it is still important for each of you to have a strong credit score. Doing so will ensure not only that your credit will be good when you apply for credit jointly, but also that your credit history will remain intact if you split up. A simple way to manage this is by having separate credit cards, each established only in the name of the spouse who uses it.

Part 2 Using a Budget.

1. Choose a budget format. Before you create a budget, you'll have to decide how to keep that budget. While many people can get away with just using a notepad and pen, others find it easier to track their spending through a spreadsheet or financial software. There are a number of a free software platforms available online that you can use to establish and track a budget. For example, programs like Mint.com and Manilla offer free budgeting services. If you want full service financial software, try Quicken or Microsoft Money.

2. Assess your current spending habits. For a month, write down a note every time you spend money, even for very small amounts. Record the amount spent and what it was you paid for. At the end of the month, sit down with your spouse and total up both your spending. Add in major expenditures to get a clear picture of where the family's money went that month. Split up expenses by category (home, car, food, etc.) if you can. Then, compare that amount to your combined, after-tax income. This is your starting point for determining a budget.

It may also be helpful to work with your bank statement to make sure you didn't miss any recurring payments or online purchases when totaling your expenses.

3. Come together to create a budget. Look at your compiled spending habits. Do you have a surplus? Or are you spending more than you make? Work from here to identify areas where you can cut back, if needed. If at all possible, try to free up money that can be put into savings or into the retirement fund. Create spending limits on certain categories, like food and entertainment, and try to stick to them over time.

Remember to always leave room in your monthly budget for unexpected expenses, like small medical bills or car repairs.

4. Work to improve and change your budget as needed. Return to your budget regularly to eliminate unnecessary spending or to adjust your budgeted amounts as needed. For example, having a child may cause you to have to completely restructure your budget. In any case, constantly seek out areas where you can cut back and save more. You'll find that you can be just as happy while spending much less than you do now.

Part 3 Saving for Life Goals.

1. Decide on long-term goals together. Have an open conversation about your savings goals, including saving for a house, for retirement, and for other large purchases like a car or boat. Make sure that you both agree that the purchase or expense in question is worth saving for and that you agree on the amount needed. This will help coordinate your savings and investment efforts.

2. Create an emergency fund. Every family should strive to keep an emergency savings fund for when things go south. Who knows when one of you might lose a job or experience unexpected medical problems? An emergency fund can help you avoid future debt and provide some financial security and flexibility. The traditional wisdom is to keep three to six month's salary in a savings account; however, this would be more than enough for some families and not nearly enough for others. Luckily, there are several financial calculators online that you can use to calculate roughly how much you need to save to cover your expenses.

Try searching for emergency fund calculators using a search engine.

There is also an app, HelloWallet, that offers this type of calculator.

3. Reduce your debt. Your first goal should be to pay off your existing debt. Only by paying down student loans, car loans, and other debt can you qualify for more credit as a couple and move forward with saving for other goals. To eliminate debt, work together to pay more than the minimum payment on each loan (as long as there are no prepayment penalties for doing so). Work with your spouse to create a plan and schedule for paying off your outstanding debt. If necessary, have one of you in charge of making sure that debt payments have been made each month.

4. Save for retirement. Couples should start planning for retirement as early as possible. This is because, due to the effects of compound interest, money placed in a retirement fund at a young age will earn much more interest over its life than the same amount of money put in at a later age. Make sure to make every effort to increase your retirement savings, including seeking to max out your employer's 401(k) match (if they have one), maxing out IRS-limits for 401(k) savings, and regularly increasing your retirement savings amounts if you can fit it into the budget.

You should save for retirement before putting money into education funds for your children. This is because there will always be scholarships and grants available for education, but not for your retirement.

If you don't have a combined retirement portfolio, be sure to coordinate your risk profiles and asset allocations.

5. Plan for educational expenses. If you're planning to fund part or all your child's higher education, it's best to start saving early on. Start by investigating options like 529 savings plans, which have special tax benefits for students. Speak with a financial advisor to learn more and get started saving today. If you don't have much time before your child leaves for school, look into government loans and grants, as well as your option in earning federal student aid.

Part 4 Staying on Track.

1. Don't make large purchases without discussing them first. Establish a monetary limit for what constitutes a "major" purchase. Obviously, this will differ between families, but the important thing is that you have a set limit. For any purchases above this limit, decide that the spouse making the purchase must have the approval of the other before going through with it. If either of you ever breaks this rule, be sure to tell the other immediately. Keeping large expenditures private is just asking for trouble.

2. Avoid taking on unnecessary debt. Keep each other on track by avoiding taking on debt for medium-sized purchases like furniture or jewelry. Plan these purchases out beforehand with your spouse so that you can combine your resources and afford the full amount of the purchase. This will save you money on interest payments in the long term. In addition, always check in with each other about credit card debt. It may be in your best interest to help a spouse with her credit card payment if she can't make it; missing a monthly payment will hurt your combined credit, which you will need if you apply for a large loan like a mortgage.

3. Use software to monitor your finances. With all of the budgeting and financial planning software available today, you'd be a fool not to take advantage of these useful tools. For starters, try tracking your monthly budget in a shared spreadsheet like those available in Google Drive. This type of document allows both of you to access and change the sheet as needed. For budgeting, there is are apps available like HomeBudget or Mint, which summarize the family budget and assets into a simple user interface.

There are also apps for keeping track of financial paperwork, like FileThis.

Try a few of these apps out and decide which ones work for you. Most of them are free or inexpensive to use, or at least offer a trial period.

December 17, 2019

how to organize your personal year end finances

How to Organize Your Personal Year End Finances.

You should never organize your year-end finances all at once. Rather, you should be engaged in a steady process of organizing and reorganizing your financial documents and information throughout the year. The process you use when organizing at the end of the year will be basically the same process you use monthly or quarterly to evaluate your investments, insurance, and budget. Use the year-end financial organizational process to get the opinion of a financial planner to help you streamline your finances, identify areas of waste, and take corrective actions to save money.

Method 1 Getting Organized.

1. Select your organizational categories. Knowing how to organize your financial documents can be tough. Thinking broadly about the sorts of documents you ought to organize for your year-end finances will help the process move along smoothly. Some documents might need to be copied and placed in multiple locations. For instance, education loan payments might need to be in a “loans” folder and also a “taxes” folder. Depending on what sort of financial documents you have, you may or may not need folders devoted to each of the main financial categories, which include.

Financial management (bank statements and loan records).

Insurance and annuity documents (policies and statements).

Estate documents (wills, trusts, and powers of attorney).

Investments (stocks and bond).

Income tax information (tax returns and documents attesting to charitable giving).

Employment and military records (discharge papers and employee benefits).

Home records (appraisals, renovation receipts).

Medical documents (summaries of recent appointments and any medical bills or payments made).

Legal documents (passports, personal records, and real estate settlements).

2. Use the same organizational system for all your documents. You probably receive and pay some bills through regular mail, and some through digital outlets or automatic account debiting. In this case, it's important to impose a parallel structure on your analog and digital documents alike.

For instance, if you organize your vertical files containing utility bills, credit card bills, and other significant financial documents in order that they were received, you should not organize your digital files into folders containing payments, bills, and receipts according to the company or institution that you made the payments to.

3. Know what to keep. Retain anything tax-related for at least three years. Keep anything that demonstrates a financial loss for seven years. For instance, you ought to keep a bill of sale on a property that sold for less than what you paid for it. You should also retain receipts for transactions paid by credit card until you get the credit card bill that reflects them. Finally, keep all monthly account statements until you get the year-end reconciliation statement.

Conversely, you should know what to get rid of.When new insurance policies arrive, get rid of the old ones.

Err on the side of caution when disposing of financial documents. If you're unsure if you need to keep something, retain it.

For more in-depth guidelines on what you should pitch and keep, consult IRS Publication 17.

4. Use an app or website to help you organize. There are a variety of handy apps to help get your year-end finances organized. For instance, you might check out feedthepig.com, manilla.com, or mint.com.Apps that might help include Mint, Personal Capital, and Spending Tracker.

Method 2 Looking Ahead.

1. Set a budget. Find ways to save next year. Use your year-end financial organization time to identify sources that are draining your money. For instance, if you're paying for cable TV but never watch it, think about cancelling it altogether.

Overall, you should be spending about 35% of your income on home expenses (rent, utilities, and groceries), 15% on transportation expenses (car insurance, train fare, and auto repairs), 25% on entertainment and other miscellaneous expenses, 15% on paying off debt, and putting the final 10% of your income toward savings.

If you live in an expensive area or have a low income, you might need to contribute more money to home expenses and less toward debt or miscellaneous expenditures.

2. Simplify payments and financial data for next year. When you're done organizing your current year's financial data and documentation, look for ways to streamline the process next year. For instance, you can cut back on time spent searching for wayward documents by using automatic bill payments. You might also use debiting by tying regular payments like utilities and credit card charges directly to your bank account.

Cut back on the number of credit cards you use regularly. This will reduce the number of credit card bills you need to juggle. Use the credit card with the lowest interest rate as your day-to-day credit card, and use the other cards once a month in order to prevent their disuse from hurting your credit score.

For the same reason, limit your bank accounts. You should have one checking account and one savings account. If you have multiple checking and savings accounts, close the one with the most fees and least generous terms of service.

Consolidate your retirement accounts and investments, too. If you have several IRAs, transfer all the money into a single IRA. Use one brokerage firm to simplify investments.

3. Keep your finances organized throughout the year. Instead of putting all your receipts, account statements, and other financial documents in a stack and watching them slowly pile up over the course of a year, put them in the appropriate file or folder as you receive them. This will prevent confusion when trying to organize everything at year's end.

Use a three-ring binder with pockets to organize your financial materials in an orderly way. Move non-current financial records to your filing cabinet.

If you feel more comfortable printing out digital documents, print them out and put them in your vertical file or binder.

If you don't print out digital receipts and other documents, ensure that you put them in the appropriate folder according to your predesignated system as you receive them. For instance, when you get your digital W-2, immediately download it and put it with your other tax documents.

If you need to copy certain digital documents to make them accessible in multiple locations, don't be afraid to do so.

Method 3 Evaluating Your Financial Health.

1. Consult a financial planner or accountant. With the help of a certified financial planner or accountant, you'll be able to get your year-end finances under control. They can help you find ways to save when you file taxes in the coming months, and can explain some of the nuances of the tax code. For instance, you might want to ask.

Should I accelerate or defer income?

What losses or gains should I take this year?

Should I convert my traditional IRA to a Roth IRA so that my earnings will grow tax-free?

Are there any charitable donations I should make?

2. Total your year-to-date spending. You should have a column with all the payments, investments, and savings you have at the end of the year. Compare these numbers to their counterparts at the beginning of the year to get an overall sense of your financial health.

Your investment value should be greater at the end of the year than it was at the beginning of the year.

Your savings should be higher at the end of the year than it was at the beginning of the year.

Your spending should be less than the value of your savings.

3. Review your credit reports. Each year, you are entitled to three free credit reports, one each from the three major credit agencies (Experian, Equifax, and TransUnion). These reports will let you know if your credit score is good or if it needs a boost.

The best way to check your credit reports is not to check all three at once, but rather to space them out regularly over time. Ideally, you'd check one every four months.

4. Check your portfolio. Read the latest reports from your stock broker or financial planner to determine the relative health of your investments. If your portfolio is not doing well, think about investing elsewhere. Talk to a certified financial planner or stockbroker for advice about how to develop a robust portfolio.

Method  4 Finding Ways to Save.

1. Analyze your insurance coverage. If you have home, life, auto, or other insurance, contact some agents representing insurers in your area to find out if you have the best coverage you can afford. If you've made improvements to your home over the past year, you may have increased the value of your home, and that value should be reflected in your insurance policy.

Likewise, if you've welcomed a new family member into your family over the past year, you must check with your insurance provider to guarantee that they're covered under your insurance.

2. Review your tax data. Working with a tax professional, find ways to reduce your tax burden before the year is out. Charitable giving is the easiest way to do this. Look for reputable charities whose work you believe in through GuideStar (http://www.guidestar.org), CharityWatch (https://www.charitywatch.org/home) and Charity Navigator (http://www.charitynavigator.org).

You can also make in-kind (material) donations to thrift stores like the Salvation Army in exchange for a tax discount.

You can also qualify for tax deductions based on work-related expenses like travel or items of clothing you bought specifically for work.

3. Update your information where necessary. If you've had a change in your marital status you may need to revise your tax withholding and/or employee health coverage. If you're unsure if you need to update this information, contact a financial planner for assistance.

4. Empty your flexible spending account. A flexible spending account for healthcare should be used to cover outstanding claims from your doctor, dentist, or other health provider. If you have a flexible spending account oriented toward other types of spending like dependent care, employ the account to cover the appropriate expenses before the year is out.

Only $500 of a flexible spending account can carry over into the following year, so it's important to take full advantage of the account before the year ends.

January 22, 2020

How to Organize Your Personal Year End Finances

How to Organize Your Personal Year End Finances.

You should never organize your year-end finances all at once. Rather, you should be engaged in a steady process of organizing and reorganizing your financial documents and information throughout the year. The process you use when organizing at the end of the year will be basically the same process you use monthly or quarterly to evaluate your investments, insurance, and budget. Use the year-end financial organizational process to get the opinion of a financial planner to help you streamline your finances, identify areas of waste, and take corrective actions to save money.

Method 1 Getting Organized.

1. Select your organizational categories. Knowing how to organize your financial documents can be tough. Thinking broadly about the sorts of documents you ought to organize for your year-end finances will help the process move along smoothly. Some documents might need to be copied and placed in multiple locations. For instance, education loan payments might need to be in a “loans” folder and also a “taxes” folder. Depending on what sort of financial documents you have, you may or may not need folders devoted to each of the main financial categories, which include.

Financial management (bank statements and loan records).

Insurance and annuity documents (policies and statements).

Estate documents (wills, trusts, and powers of attorney).

Investments (stocks and bond).

Income tax information (tax returns and documents attesting to charitable giving).

Employment and military records (discharge papers and employee benefits).

Home records (appraisals, renovation receipts).

Medical documents (summaries of recent appointments and any medical bills or payments made).

Legal documents (passports, personal records, and real estate settlements).

2. Use the same organizational system for all your documents. You probably receive and pay some bills through regular mail, and some through digital outlets or automatic account debiting. In this case, it's important to impose a parallel structure on your analog and digital documents alike.

For instance, if you organize your vertical files containing utility bills, credit card bills, and other significant financial documents in order that they were received, you should not organize your digital files into folders containing payments, bills, and receipts according to the company or institution that you made the payments to.

3. Know what to keep. Retain anything tax-related for at least three years. Keep anything that demonstrates a financial loss for seven years. For instance, you ought to keep a bill of sale on a property that sold for less than what you paid for it. You should also retain receipts for transactions paid by credit card until you get the credit card bill that reflects them. Finally, keep all monthly account statements until you get the year-end reconciliation statement.

Conversely, you should know what to get rid of.When new insurance policies arrive, get rid of the old ones.

Err on the side of caution when disposing of financial documents. If you're unsure if you need to keep something, retain it.

For more in-depth guidelines on what you should pitch and keep, consult IRS Publication 17.

4. Use an app or website to help you organize. There are a variety of handy apps to help get your year-end finances organized. For instance, you might check out feedthepig.com, manilla.com, or mint.com.Apps that might help include Mint, Personal Capital, and Spending Tracker.

Method 2 Looking Ahead.

1. Set a budget. Find ways to save next year. Use your year-end financial organization time to identify sources that are draining your money. For instance, if you're paying for cable TV but never watch it, think about cancelling it altogether.

Overall, you should be spending about 35% of your income on home expenses (rent, utilities, and groceries), 15% on transportation expenses (car insurance, train fare, and auto repairs), 25% on entertainment and other miscellaneous expenses, 15% on paying off debt, and putting the final 10% of your income toward savings.

If you live in an expensive area or have a low income, you might need to contribute more money to home expenses and less toward debt or miscellaneous expenditures.

2. Simplify payments and financial data for next year. When you're done organizing your current year's financial data and documentation, look for ways to streamline the process next year. For instance, you can cut back on time spent searching for wayward documents by using automatic bill payments. You might also use debiting by tying regular payments like utilities and credit card charges directly to your bank account.

Cut back on the number of credit cards you use regularly. This will reduce the number of credit card bills you need to juggle. Use the credit card with the lowest interest rate as your day-to-day credit card, and use the other cards once a month in order to prevent their disuse from hurting your credit score.

For the same reason, limit your bank accounts. You should have one checking account and one savings account. If you have multiple checking and savings accounts, close the one with the most fees and least generous terms of service.

Consolidate your retirement accounts and investments, too. If you have several IRAs, transfer all the money into a single IRA. Use one brokerage firm to simplify investments.

3. Keep your finances organized throughout the year. Instead of putting all your receipts, account statements, and other financial documents in a stack and watching them slowly pile up over the course of a year, put them in the appropriate file or folder as you receive them. This will prevent confusion when trying to organize everything at year's end.

Use a three-ring binder with pockets to organize your financial materials in an orderly way. Move non-current financial records to your filing cabinet.

If you feel more comfortable printing out digital documents, print them out and put them in your vertical file or binder.

If you don't print out digital receipts and other documents, ensure that you put them in the appropriate folder according to your predesignated system as you receive them. For instance, when you get your digital W-2, immediately download it and put it with your other tax documents.

If you need to copy certain digital documents to make them accessible in multiple locations, don't be afraid to do so.

Method 3 Evaluating Your Financial Health.

1. Consult a financial planner or accountant. With the help of a certified financial planner or accountant, you'll be able to get your year-end finances under control. They can help you find ways to save when you file taxes in the coming months, and can explain some of the nuances of the tax code. For instance, you might want to ask.

Should I accelerate or defer income?

What losses or gains should I take this year?

Should I convert my traditional IRA to a Roth IRA so that my earnings will grow tax-free?

Are there any charitable donations I should make?

2. Total your year-to-date spending. You should have a column with all the payments, investments, and savings you have at the end of the year. Compare these numbers to their counterparts at the beginning of the year to get an overall sense of your financial health.

Your investment value should be greater at the end of the year than it was at the beginning of the year.

Your savings should be higher at the end of the year than it was at the beginning of the year.

Your spending should be less than the value of your savings.

3. Review your credit reports. Each year, you are entitled to three free credit reports, one each from the three major credit agencies (Experian, Equifax, and TransUnion). These reports will let you know if your credit score is good or if it needs a boost.

The best way to check your credit reports is not to check all three at once, but rather to space them out regularly over time. Ideally, you'd check one every four months.

4. Check your portfolio. Read the latest reports from your stock broker or financial planner to determine the relative health of your investments. If your portfolio is not doing well, think about investing elsewhere. Talk to a certified financial planner or stockbroker for advice about how to develop a robust portfolio.

Method  4 Finding Ways to Save.

1. Analyze your insurance coverage. If you have home, life, auto, or other insurance, contact some agents representing insurers in your area to find out if you have the best coverage you can afford. If you've made improvements to your home over the past year, you may have increased the value of your home, and that value should be reflected in your insurance policy.

Likewise, if you've welcomed a new family member into your family over the past year, you must check with your insurance provider to guarantee that they're covered under your insurance.

2. Review your tax data. Working with a tax professional, find ways to reduce your tax burden before the year is out. Charitable giving is the easiest way to do this. Look for reputable charities whose work you believe in through GuideStar (http://www.guidestar.org), CharityWatch (https://www.charitywatch.org/home) and Charity Navigator (http://www.charitynavigator.org).

You can also make in-kind (material) donations to thrift stores like the Salvation Army in exchange for a tax discount.

You can also qualify for tax deductions based on work-related expenses like travel or items of clothing you bought specifically for work.

3. Update your information where necessary. If you've had a change in your marital status you may need to revise your tax withholding and/or employee health coverage. If you're unsure if you need to update this information, contact a financial planner for assistance.

4. Empty your flexible spending account. A flexible spending account for healthcare should be used to cover outstanding claims from your doctor, dentist, or other health provider. If you have a flexible spending account oriented toward other types of spending like dependent care, employ the account to cover the appropriate expenses before the year is out.

Only $500 of a flexible spending account can carry over into the following year, so it's important to take full advantage of the account before the year ends.

January 22, 2020

How to Create an Investment Plan

How to Create an Investment Plan.

Creating a viable investment plan requires a little more than simply establishing a savings account and buying a few random shares of stocks. In order to structure a plan that is right, it's important to understand where you're at and what you want to accomplish with the investments. Then, you'll define how to reach those goals and select the best investment options to reach them. The good news is that it is never too late to create and implement a personal investment plan and begin creating a nest egg for the future.

Part 1 Assessing Where You're At.
1. Select an age-appropriate investment option. Your age will have a significant impact on your investment strategy.
Generally speaking, the younger you are, the more risk you can take. That's because you have more time to recover from a market downturn or loss of value in a particular investment. So, if you're in your 20's, you can allocate more of your portfolio to more aggressive investments (like growth-oriented and small-cap companies for example).
If you're nearing retirement, allocate more of your portfolio to less aggressive investments, like fixed-income, and large-cap value companies.
2. Understand your current financial situation. Be aware of how much disposable income you have available to invest. Take a look at your budget and determine how much money is left over for investments following your monthly expenses and after you have set aside an emergency fund equivalent to three to 6 months' worth of expenses.
3. Develop your risk profile. Your risk profile determines how much risk you're willing to take. Even if you're young, you might not want to take a lot of risks. You'll select your investments based on your risk profile.
Generally speaking, stocks are more volatile than bonds, and bank accounts (checking and savings accounts) are not volatile.
Remember, there are always risk trade-off's to be made. Often, when you take less risk, you make less. Investors are richly rewarded for taking significant risks, but they can also face steep losses.

Part 2 Establishing Your Goals.
1. Set goals for your investments. What do you want to do with the money you make from your investments? Do you want to retire early? Do you want to buy a nice house? Do you want a boat?
As a rule of thumb, you're going to want a diversified portfolio no matter what your goal is (buying a house, saving for a child's college education, etc.). The idea is to let the investment grow over a long period of time so that you have enough to pay for the goal.
If your goal is particularly aggressive, you should put more money in the investment periodically rather than opting for a more risky investment. That way, you're more likely to achieve your goal rather than lose the money that you've invested.
2. Establish a timeline for your goals. How soon do you want to reach your financial goals? That will determine the type of investments you make.
If you're interested in getting a great return on your investment quickly, and you are prepared to take the risk that you could also see a great loss just as quickly, then you'll select more aggressive investments that have the potential for significant return. These include undervalued stocks, penny stocks, and land that might quickly appreciate in value.
If you're interested in building wealth slowly, you'll select investments that generate a slower return on investment over time.
3. Determine the level of liquidity you want. A "liquid" asset is defined as an asset that can be easily converted to cash. That way, you'll have quick access to the money if you need it in an emergency.
Stocks and mutual funds are very liquid and can be converted into cash, usually in a matter of days.
Real estate is not very liquid. It usually takes weeks or months to convert a property to cash.

Part 3 Creating the Plan.
1. Decide on how you want to diversify. You don't want to put all your eggs in one basket. For example: Every month, you might want to put 30% of your investment money into stocks, another 30% into bonds, and the remaining 40% into a savings account. Adjust those percentages and investment options so that they're in line with your financial goals.
2. Ensure that your plan is in line with your risk profile. If you put 90% of your disposable income into stocks every month, then you're going to lose a lot of money if the stock market crashes. That might be a risk that you're willing to take, but be sure that's the case.
3. Consult a financial adviser. If you're uncertain about how to set up a plan in line with your goals and your risk profile, talk to a qualified financial adviser and get some feedback.
4. Investigate your options. There are many different accounts you might use for an investment plan. Familiarize yourself with some of the basics and figure out what works for you.
Set up a short-term emergency savings account with three to six months worth of living expenses. It's important to have this established to protect yourself if something unexpected happens (job loss, injury or illness, etc.). This money should easy to access in a hurry.
Consider your options for long-term savings. If you are thinking about saving up for retirement, you may want to set up an IRA or 401(k). Your employer may offer a 401(k) plan in which they will match your contribution.
If you want to start an education fund, think about 529 plans and Education Savings Accounts (ESAs). Earnings from these accounts are free from federal income tax as long as they’re used to pay for qualified education expenses.

Part 4 Evaluating Your Progress.
1. Monitor your investments from time to time. Check to see if they're performing according to your goals. If not, reevaluate your investments and determine where changes need to be made.
2. Determine if you need to change your risk profile. Generally speaking, as you get older, you'll want to take less risk. Be sure to adjust your investments accordingly.
If you have money in risky investments, it's a good idea to sell them and move the money to more stable investments when you get older.
If your finances tolerate the volatility of your portfolio very well, you might want to take on even more risk so that you can reach your goals sooner.
3. Evaluate whether or not you're contributing enough to reach your financial goals. It may be the case that you're not putting enough money from every paycheck into your investments to make your goals. On a more positive note, you might find that you're way ahead of reaching your goals and that you're putting too much money into your investments on a regular basis. In either case, adjust your contributions accordingly.

Community Q&A.

Question : Is 400, 000 dollars enough money to retire on?
Answer : If you own your own house and a new car, then possibly. If not, then no. Try to retire on 900,000 to a million at least.
Question : As a young investor, where can I find a reasonably priced, honest financial advisor?
Answer : See Hire a Financial Advisor and Select a Financial Advisor.
Question : Is it possible to invest with $500?
Answer : Yes. See Invest Small Amounts of Money Wisely and Invest a Small Amount of Money Online.
Question : Where do I start investing my money?
Answer : Ask this Question :  of a professional, fee-based financial advisor. If you don't want to pay for advice, open an account with a large mutual fund company. Fidelity, Vanguard and T. Rowe Price are excellent choices among many others.
Question : Can a kid make an investment plan?
Answer : Absolutely. Use the above suggestions. The younger you are when you start saving and investing money, the better off you will be later in life.
Question : Which business is less risky and more profitable?
Answer : Profit follows risk. That means that any business that's quite profitable probably involves considerable risk. To address your Question :  specifically, "blue chip" companies typically represent the chance for profit at less risk. They are large, well-established firms such as those on the Dow Industrials index or the S&P 500 index.
Question : Is it good to embark on an investment where $200,000 is needed as capital, while in return I get $100,000 as profit in a year's time?
Answer : It's not possible to say whether such an opportunity is "good" without knowing a lot more about it, but you're talking about a 50% annual return, which is probably not a realistic possibility.
Question : How do I select the kind of business I want to invest in?
Answer : Most people choose a business that they want to invest in based on what their gut instinct is telling them. Risk takers will most likely want to invest in stocks or assets that will yield more significant returns. "Safer" investors will stick to low-risk investments, wishing to gain what they will over a more extended period. Overall, identify the type of investor that you are and then do a bit of research about companies that offer you the returns that you are looking for.
Question : How can I create an account for a simple investment plan?
Answer : It is very easy to open an account with any brokerage firm or mutual fund company. Call them, and they will lead you through the process, or go to their website, and they will have all the instructions you need.

Tips.

Even the best investment plan may need tweaking as changes in the economy occur or your personal circumstances shift in some manner. See those situations as opportunities to rethink your strategy while still keeping your goals uppermost in your mind. Doing so will lend direction to your investment activities and make it easier to see the big picture even as you deal with what is happening today.

June 02, 2020

how to take a healthy approach to finances in your relationship

How to Take a Healthy Approach to Finances in Your Relationship.

If you've ever been in a relationship for very long, especially if you were married or living together, it is almost a guarantee that you've had a money fight. One of the biggest causes of problems in relationships is differences in values and goals and habits when it comes to money, and especially communication about money issues.

Money can't buy you love, but it sure can tear it apart.

The crux of this article is to learn how to talk about money, and learn to align your financial goals. If you can do those two things, you've done more than most couples, and you've done a lot to keep your relationship on solid ground.



Steps.

1. Sit down and talk about house, kids, college education for the kids, a healthy emergency fund, nice cars, travel each year, nice clothes, gadgets and computers, etc.

Then prioritize, and see if you can come up with things in common. If you want different things, it is important that you talk about why, and consider the other person's desires. If that's what makes the other person happy, you should want to make them happy - that's the basis of a good relationship. But relationships aren't one-sided, either, so you should be able to be happy too. The point is that both sides should be considered, and you should look for a win-win solution or compromise so that you can both be happy.

Discuss how you will handle assets and debts that were accumulated before the relationship began. If you are married in the U.S., your spouse's creditors can hold you legally responsible and pursue your assets if you don't keep your finances completely separated, or if you ever get divorced. Plus, your spouse's credit score will affect your ability to get joint credit, which is often necessary for large purchases (such as a home). So if you're married, the best route is to work together to pay off debt as quickly as possible, avoiding late payments. If you're planning on getting married soon, a pre-nuptial agreement can help protect one person's assets from the other person's creditors. If you're not married, you may choose to treat individual debt as a shared expense, or you may not - the choice is yours as a couple.

2. Remove emotions from financial talk. From your first meetings about financial goals to your subsequent weekly talks (addressed in a later step), it's important that the two of you stay calm, don't get hurt or angry over any of the issues, and try to look at these issues objectively. Often financial issues are tied up in all kinds of emotional issues, stemming from childhood, from issues of security to feeling like your way is better, to feeling hurt if your way of spending is criticized in any way, and much more. These emotional issues are all tangled together with financial issues, and it's important that you untangle them and just deal with financial goals and habits:

Don't use emotional, accusatory, or inflammatory language. Use nonviolent communication.

Don't blame the other person or even be negatively critical.

Simply talk about your financial goals, developing a plan for getting to those goals, developing a system for dealing with finances, and so forth.

Also, try not to feel like you're under attack if the other person talks about your goals or habits — let this be an open discussion, and if you feel under attack, stop and take a breath and remember that this isn't a discussion about you personally but about how the two of you are going to meet your goals. Again, think of this as a team effort, not as a you-vs-me effort.

3. Come up with a plan to meet your goals. Once you're able to come up with common financial goals (a huge step - celebrate!), you will need a plan to get you there. This will take into account your joint income, your debt, your savings, how much you can put towards debt and/or saving each month, whether you want to cut back on certain things in order to meet your savings goals, how long you want to give yourself to meet financial goals, and so forth:

Start by having a definite time frame for each goal, and then figure out how much you need to save (or pay towards debt) each month to get to your goals. Try to get into the habit of paying yourselves first.

Create a spending plan (if you haven't already) for each month, and see if you can adjust it to meet that monthly goal. You might need to cut back on some things, or earn extra income, or both. Or you might discover that your goals aren't realistic and you need to cut back on them, reprioritize, or push them back a bit in order to meet them. This plan to meet your goals is how you will align your daily and monthly spending with your long-term goals. It's also a great way to resolve minor short-term disputes - for example, "you should definitely buy fewer shoes, and I should buy fewer video games, so we can buy that house in three years and travel to Europe in two years". Spending plans will evolve as time goes by -- this is inevitable; be prepared to adjust and adapt to your changing situations (promotion at work, unexpected expenses like constant car repairs indicating an upcoming major expense, etc.) as needed.

4. Develop a system for finances that works for both of you. It may take some trial, error and tweaking before you get it right. Keep in mind that no one arrangement is in any way "better" than the other. The best arrangement is the one that creates the most harmony in your relationship.

Use the communal approach if you have very similar spending styles and saving goals. All of the income received by the couple goes into a single account, and all expenses come out of that single account. If you're not on the same page about spending, like if one person tends to make money decisions that the other person tends to disagree with, this approach can lead to frequent arguments. Communication, trust, and discipline are essential for this arrangement to work smoothly.

Use the individual approach if you have different spending styles. Keep separate accounts to which your individual incomes are deposited. Put money into a joint account only for shared expenses. Decide what those shared expenses are going to be (usually rent or mortgage, utilities, etc.) and what proportion each partner will pay. You can each put in half of the expenses, or you may decide to contribute a percentage that's relative to your individual income (e.g. one person makes twice as much per year as the other, so one person puts twice as much towards the shared expenses as the other). The remainder of the money in each person's account is theirs to keep and spend or save however they wish.

Use the allowance approach if it fits. This is a hybrid of the previous two arrangements. Put everything into a joint account, but then give each person an allowance to spend as they wish. The allowance can be in cash, or it can be transferred to individual accounts. Decide as a couple how much of an allowance each person should get. This works best for people who tend to spend money on different things, but who still want to pool their income.

5. Decide who will be handling the "administrative" aspects of your finances. In order to put your financial plan into action, you'll need to figure out how you're going to pay your bills, pay debt, deposit into savings, have money for various spending needs (like gas and groceries and eating out), and so forth. Someone will have to take responsibility for each part of the system (it's better if you're both involved, but you should find what works best for you as a couple). Usually there's one person who's more inclined to do the bookkeeping, and sometimes he or she doesn't mind carrying this responsibility. Otherwise, you'll need to define and assign responsibility. One person might go to the bank while the other updates your financial program (like Quicken or Money) or your checking register to make sure you're in balance, for example.

If one person will be handling the finances more than the other, what is his or her responsibility in consulting with the other before, say, moving money into the savings account or IRA?

If the person who normally handles these tasks can't do it (e.g. medical issue, away on a trip, etc.) does the other person know enough about the process to step in?

6. Have weekly financial meetings. This is very important, and it's a step that many couples overlook. Just because you have common financial goals and a plan and a system doesn't mean that everything is fine. If one person takes responsibility for the finances, for example, and the other is out of the loop, there will likely be problems down the road. You don't want to be in the situation where one partner took care of the finances and the other was blissfully ignorant...until it was revealed that they were way behind on payments and would soon have to file for bankruptcy. That isn't a good time in a relationship! To prevent problems like this, have a weekly meeting where you sit down and talk about finances. You can review your accounts, your spending plan, what is coming up in the next few weeks that you'll need to budget for, any problem areas, what to do with your annual bonus, where you are with your goals, and so forth. Make sure you're both caught up on everything, and that you're working well as a team.

7. Adapt as needed. You may need to adjust the allowances or proportions if a big expense arises, like one person loses a job, or suffers from a major illness or injury, or even takes up a new (and expensive) interest or hobby. For instance, let's say a couple uses the communal approach, and then one partner decides to take up golfing again. The couple may decide that the best way to accommodate this is to designate a "golfing allowance" so that one partner knows exactly how much the other partner is going to be spending on this hobby, and there are no surprises ("You spent how much on that golf club?!?"). (In the golfing example, additional expenses could be drawn from the person's personal allowance.) Many couples modify their arrangement significantly as their circumstances change. A couple may, for example, start off with the individual approach, then transition into the communal approach when they start a family or make a large investment together.

8. Above all, stay positive and be honest. Remember: you're a team. You have the same goals and you want each other to be happy. Team members can help each other out and encourage each other, or they can rip the team apart by being negative, by blaming, by working against common goals. If you always stay positive, you'll succeed as a team. Be encouraging, stay focused on solutions not blame, and make sure love is the foundation of everything you do.



Question : My fiance is always asking me to bail him out of his financial problems and I feel like it's too much for me. How can I approach him without hurting his feelings?

Answer : Tell it to him straight. Honesty is the best policy.



Tips.

No matter how you choose to handle your finances as a couple, you should talk about and dedicate money to an emergency fund of 3 to 6 months' worth of living expenses.

Just because you have individual accounts doesn't mean you don't trust one another. Sometimes it's not convenient to discuss every single purchase in real time, and this can occasionally lead to misunderstandings and even overdraft fees at the bank. It's possible to make individual accounts into joint accounts so that you can see each other's financial activities, but agree not to use money from the other person's designated account without discussing it first, or unless it's an emergency.

Even if you have a 'joint account', you should still have a separate account for yourself, 'cause it gives you independence from your partner.

February 25, 2020

How to Take a Healthy Approach to Finances in Your Relationship

How to Take a Healthy Approach to Finances in Your Relationship.

If you've ever been in a relationship for very long, especially if you were married or living together, it is almost a guarantee that you've had a money fight. One of the biggest causes of problems in relationships is differences in values and goals and habits when it comes to money, and especially communication about money issues.

Money can't buy you love, but it sure can tear it apart.

The crux of this article is to learn how to talk about money, and learn to align your financial goals. If you can do those two things, you've done more than most couples, and you've done a lot to keep your relationship on solid ground.



Steps.

1. Sit down and talk about house, kids, college education for the kids, a healthy emergency fund, nice cars, travel each year, nice clothes, gadgets and computers, etc.

Then prioritize, and see if you can come up with things in common. If you want different things, it is important that you talk about why, and consider the other person's desires. If that's what makes the other person happy, you should want to make them happy - that's the basis of a good relationship. But relationships aren't one-sided, either, so you should be able to be happy too. The point is that both sides should be considered, and you should look for a win-win solution or compromise so that you can both be happy.

Discuss how you will handle assets and debts that were accumulated before the relationship began. If you are married in the U.S., your spouse's creditors can hold you legally responsible and pursue your assets if you don't keep your finances completely separated, or if you ever get divorced. Plus, your spouse's credit score will affect your ability to get joint credit, which is often necessary for large purchases (such as a home). So if you're married, the best route is to work together to pay off debt as quickly as possible, avoiding late payments. If you're planning on getting married soon, a pre-nuptial agreement can help protect one person's assets from the other person's creditors. If you're not married, you may choose to treat individual debt as a shared expense, or you may not - the choice is yours as a couple.

2. Remove emotions from financial talk. From your first meetings about financial goals to your subsequent weekly talks (addressed in a later step), it's important that the two of you stay calm, don't get hurt or angry over any of the issues, and try to look at these issues objectively. Often financial issues are tied up in all kinds of emotional issues, stemming from childhood, from issues of security to feeling like your way is better, to feeling hurt if your way of spending is criticized in any way, and much more. These emotional issues are all tangled together with financial issues, and it's important that you untangle them and just deal with financial goals and habits:

Don't use emotional, accusatory, or inflammatory language. Use nonviolent communication.

Don't blame the other person or even be negatively critical.

Simply talk about your financial goals, developing a plan for getting to those goals, developing a system for dealing with finances, and so forth.

Also, try not to feel like you're under attack if the other person talks about your goals or habits — let this be an open discussion, and if you feel under attack, stop and take a breath and remember that this isn't a discussion about you personally but about how the two of you are going to meet your goals. Again, think of this as a team effort, not as a you-vs-me effort.

3. Come up with a plan to meet your goals. Once you're able to come up with common financial goals (a huge step - celebrate!), you will need a plan to get you there. This will take into account your joint income, your debt, your savings, how much you can put towards debt and/or saving each month, whether you want to cut back on certain things in order to meet your savings goals, how long you want to give yourself to meet financial goals, and so forth:

Start by having a definite time frame for each goal, and then figure out how much you need to save (or pay towards debt) each month to get to your goals. Try to get into the habit of paying yourselves first.

Create a spending plan (if you haven't already) for each month, and see if you can adjust it to meet that monthly goal. You might need to cut back on some things, or earn extra income, or both. Or you might discover that your goals aren't realistic and you need to cut back on them, reprioritize, or push them back a bit in order to meet them. This plan to meet your goals is how you will align your daily and monthly spending with your long-term goals. It's also a great way to resolve minor short-term disputes - for example, "you should definitely buy fewer shoes, and I should buy fewer video games, so we can buy that house in three years and travel to Europe in two years". Spending plans will evolve as time goes by -- this is inevitable; be prepared to adjust and adapt to your changing situations (promotion at work, unexpected expenses like constant car repairs indicating an upcoming major expense, etc.) as needed.

4. Develop a system for finances that works for both of you. It may take some trial, error and tweaking before you get it right. Keep in mind that no one arrangement is in any way "better" than the other. The best arrangement is the one that creates the most harmony in your relationship.

Use the communal approach if you have very similar spending styles and saving goals. All of the income received by the couple goes into a single account, and all expenses come out of that single account. If you're not on the same page about spending, like if one person tends to make money decisions that the other person tends to disagree with, this approach can lead to frequent arguments. Communication, trust, and discipline are essential for this arrangement to work smoothly.

Use the individual approach if you have different spending styles. Keep separate accounts to which your individual incomes are deposited. Put money into a joint account only for shared expenses. Decide what those shared expenses are going to be (usually rent or mortgage, utilities, etc.) and what proportion each partner will pay. You can each put in half of the expenses, or you may decide to contribute a percentage that's relative to your individual income (e.g. one person makes twice as much per year as the other, so one person puts twice as much towards the shared expenses as the other). The remainder of the money in each person's account is theirs to keep and spend or save however they wish.

Use the allowance approach if it fits. This is a hybrid of the previous two arrangements. Put everything into a joint account, but then give each person an allowance to spend as they wish. The allowance can be in cash, or it can be transferred to individual accounts. Decide as a couple how much of an allowance each person should get. This works best for people who tend to spend money on different things, but who still want to pool their income.

5. Decide who will be handling the "administrative" aspects of your finances. In order to put your financial plan into action, you'll need to figure out how you're going to pay your bills, pay debt, deposit into savings, have money for various spending needs (like gas and groceries and eating out), and so forth. Someone will have to take responsibility for each part of the system (it's better if you're both involved, but you should find what works best for you as a couple). Usually there's one person who's more inclined to do the bookkeeping, and sometimes he or she doesn't mind carrying this responsibility. Otherwise, you'll need to define and assign responsibility. One person might go to the bank while the other updates your financial program (like Quicken or Money) or your checking register to make sure you're in balance, for example.

If one person will be handling the finances more than the other, what is his or her responsibility in consulting with the other before, say, moving money into the savings account or IRA?

If the person who normally handles these tasks can't do it (e.g. medical issue, away on a trip, etc.) does the other person know enough about the process to step in?

6. Have weekly financial meetings. This is very important, and it's a step that many couples overlook. Just because you have common financial goals and a plan and a system doesn't mean that everything is fine. If one person takes responsibility for the finances, for example, and the other is out of the loop, there will likely be problems down the road. You don't want to be in the situation where one partner took care of the finances and the other was blissfully ignorant...until it was revealed that they were way behind on payments and would soon have to file for bankruptcy. That isn't a good time in a relationship! To prevent problems like this, have a weekly meeting where you sit down and talk about finances. You can review your accounts, your spending plan, what is coming up in the next few weeks that you'll need to budget for, any problem areas, what to do with your annual bonus, where you are with your goals, and so forth. Make sure you're both caught up on everything, and that you're working well as a team.

7. Adapt as needed. You may need to adjust the allowances or proportions if a big expense arises, like one person loses a job, or suffers from a major illness or injury, or even takes up a new (and expensive) interest or hobby. For instance, let's say a couple uses the communal approach, and then one partner decides to take up golfing again. The couple may decide that the best way to accommodate this is to designate a "golfing allowance" so that one partner knows exactly how much the other partner is going to be spending on this hobby, and there are no surprises ("You spent how much on that golf club?!?"). (In the golfing example, additional expenses could be drawn from the person's personal allowance.) Many couples modify their arrangement significantly as their circumstances change. A couple may, for example, start off with the individual approach, then transition into the communal approach when they start a family or make a large investment together.

8. Above all, stay positive and be honest. Remember: you're a team. You have the same goals and you want each other to be happy. Team members can help each other out and encourage each other, or they can rip the team apart by being negative, by blaming, by working against common goals. If you always stay positive, you'll succeed as a team. Be encouraging, stay focused on solutions not blame, and make sure love is the foundation of everything you do.



Question : My fiance is always asking me to bail him out of his financial problems and I feel like it's too much for me. How can I approach him without hurting his feelings?

Answer : Tell it to him straight. Honesty is the best policy.



Tips.

No matter how you choose to handle your finances as a couple, you should talk about and dedicate money to an emergency fund of 3 to 6 months' worth of living expenses.

Just because you have individual accounts doesn't mean you don't trust one another. Sometimes it's not convenient to discuss every single purchase in real time, and this can occasionally lead to misunderstandings and even overdraft fees at the bank. It's possible to make individual accounts into joint accounts so that you can see each other's financial activities, but agree not to use money from the other person's designated account without discussing it first, or unless it's an emergency.

Even if you have a 'joint account', you should still have a separate account for yourself, 'cause it gives you independence from your partner.

February 25, 2020

how to adopt habits to improve your personal finances

How to Adopt Habits to Improve Your Personal Finances.

To be comfortable enough to have the peace of mind to work on our various projects, we need to have money. Because when money is lacking it becomes a major problem that paralyzes us. To build a financially stable life, it is not enough to simply make more money. You must also build healthier financial habits by knowing how to manage spending and avoid pitfalls.

Method 1 Maximizing your Saving.

1. Automatically save a certain percentage of your income. Automate your payments to send 15% of your income each month into your savings account from your checking account. Set aside that money to save and live with the amount you have left. This way you save more easily and more regularly.

2. Adjust your spending to your savings and not vice versa. If you say you are going to put aside what you have left after spending what is necessary in a given month, you might never make it. Put aside money to save first, and calculate your spendings based on what you have left.

3. Set concrete goals for saving. For example, if you want to save € 50 per month, divide by 30 to get how much you need to save per day (€ 1.66). That's about the price of a cup of coffee - so have coffee at home rather than buying it. It is much easier to save € 1.66 per day than to save € 50 per month. Set a goal and deliberately adjust your spending to achieve it.

4. Invest in your future. The growth of your investments over time will be amazing if you start in your twenties. Create a pension account or a 401k, or pick another method of saving for your retirement. Do a little research to find out what will work best for you, but whatever you do, start now!

5. Don't be afraid to invest in yourself. A good education, though expensive, will help you find a better job. Investing in your knowledge and skills will be the best return you can get for your future. Remember to distinguish between investment and expenditure.

6. Eliminate existing debt and avoid future debt. Make paying off your debt a priority. If you're not careful, loans and credits can put you into a vicious cycle from which it can be very hard to escape. It is better to make efforts to avoid finding yourself in overwhelming debt in the first place.

Method 2 Minimizing your Spending.

1. Don't spend impulsively. It's tempting to fall into impulsive spending when you eat out or shop, especially online. This can be a major leak in your finances and the surest way to fall into a terrible financial abyss. Be aware of your spending impulses and try not to spend unless you absolutely have to.

2. Think before you buy. When you want to buy something, wait a few days or a week. If after that time, you still want to make that purchase, go ahead and buy it. However, if you find you no longer want or need it, you have avoided an unnecessary expense.

3. Evaluate your spending habits and cut out unnecessary spending. For 30 days, keep track of how you spend your money. Then consider each expense and decide whether it's absolutely necessary. Remove the unnecessary expenses to significantly cut down on your total spending.

4. Look for sales and other deals when shopping. Shopping for seasonal foods can be significantly cheaper than buying out-of-season fruits and vegetables. Off-brand items at supermarkets are significantly cheaper but of the same quality as their brand-name counterparts.

5. Make lists when you go shopping. Buy only from your list. This way you will buy items you need, rather than indulging in momentary whims. Supermarkets and other stores will try to make you spend impulsively, so sticking to your list can help you avoid this.

6. Don't let yourself put off changing your financial habits. If you say you'll start next month, chances are you'll find a reason to put it off again. The cycle of procrastination can be dangerous, so don't let yourself fall into it at all.

Tips.

The principle of enrichment is to earn more than we spend. So if you ever learn to control your spending, you can adjust whenever your income increase.

Be open to adapting your spending and your lifestyle as your income changes.

January 26, 2020

How to Adopt Habits to Improve Your Personal Finances

How to Adopt Habits to Improve Your Personal Finances.

To be comfortable enough to have the peace of mind to work on our various projects, we need to have money. Because when money is lacking it becomes a major problem that paralyzes us. To build a financially stable life, it is not enough to simply make more money. You must also build healthier financial habits by knowing how to manage spending and avoid pitfalls.

Method 1 Maximizing your Saving.

1. Automatically save a certain percentage of your income. Automate your payments to send 15% of your income each month into your savings account from your checking account. Set aside that money to save and live with the amount you have left. This way you save more easily and more regularly.

2. Adjust your spending to your savings and not vice versa. If you say you are going to put aside what you have left after spending what is necessary in a given month, you might never make it. Put aside money to save first, and calculate your spendings based on what you have left.

3. Set concrete goals for saving. For example, if you want to save € 50 per month, divide by 30 to get how much you need to save per day (€ 1.66). That's about the price of a cup of coffee - so have coffee at home rather than buying it. It is much easier to save € 1.66 per day than to save € 50 per month. Set a goal and deliberately adjust your spending to achieve it.

4. Invest in your future. The growth of your investments over time will be amazing if you start in your twenties. Create a pension account or a 401k, or pick another method of saving for your retirement. Do a little research to find out what will work best for you, but whatever you do, start now!

5. Don't be afraid to invest in yourself. A good education, though expensive, will help you find a better job. Investing in your knowledge and skills will be the best return you can get for your future. Remember to distinguish between investment and expenditure.

6. Eliminate existing debt and avoid future debt. Make paying off your debt a priority. If you're not careful, loans and credits can put you into a vicious cycle from which it can be very hard to escape. It is better to make efforts to avoid finding yourself in overwhelming debt in the first place.

Method 2 Minimizing your Spending.

1. Don't spend impulsively. It's tempting to fall into impulsive spending when you eat out or shop, especially online. This can be a major leak in your finances and the surest way to fall into a terrible financial abyss. Be aware of your spending impulses and try not to spend unless you absolutely have to.

2. Think before you buy. When you want to buy something, wait a few days or a week. If after that time, you still want to make that purchase, go ahead and buy it. However, if you find you no longer want or need it, you have avoided an unnecessary expense.

3. Evaluate your spending habits and cut out unnecessary spending. For 30 days, keep track of how you spend your money. Then consider each expense and decide whether it's absolutely necessary. Remove the unnecessary expenses to significantly cut down on your total spending.

4. Look for sales and other deals when shopping. Shopping for seasonal foods can be significantly cheaper than buying out-of-season fruits and vegetables. Off-brand items at supermarkets are significantly cheaper but of the same quality as their brand-name counterparts.

5. Make lists when you go shopping. Buy only from your list. This way you will buy items you need, rather than indulging in momentary whims. Supermarkets and other stores will try to make you spend impulsively, so sticking to your list can help you avoid this.

6. Don't let yourself put off changing your financial habits. If you say you'll start next month, chances are you'll find a reason to put it off again. The cycle of procrastination can be dangerous, so don't let yourself fall into it at all.

Tips.

The principle of enrichment is to earn more than we spend. So if you ever learn to control your spending, you can adjust whenever your income increase.

Be open to adapting your spending and your lifestyle as your income changes.

January 27, 2020

How to Create a Profitable Property Portfolio

How to Build a Diversified Portfolio.

“Don’t put all your eggs in one basket” is sound advice in life as well as in finance. Diversifying an investment portfolio can help cushion the ups and downs of the market and the broader economy. You can diversify by investing simultaneously in different asset classes. These classes include stocks (or "equities”), bonds, the money market, commodities, precious metals, real estate, gemstones, fine art and any of several other valuable assets. Because most growth in wealth comes from owning stock, equities also represent the most risk in a portfolio, so you will want to diversify your stock holdings. The following article presents a number of commonly acknowledged steps in building wealth through a diversified investment portfolio.

Method 1 Diversifying in Stocks.
1. Invest in many different companies. When you buy stock, you buy a share of the ownership of a company. You can buy stock in individual companies by using an online broker, such as E-Trade, Charles Schwab or TD Ameritrade (among many others). Do not, however, commit a large portion of your money to any single company. If such a company were to get in trouble, you could lose most of your money.
For example, Snap Inc. received a lot of press when it went public in March 2017 with shares priced at $27. However, by the following August the stock price had fallen to $11 per share. That's a drop of about 60%, which would have really hurt someone who had invested a large amount of money at the opening price.
To avoid such a disaster, limit your investment in any one stock to 5% or (preferably) less of your total portfolio.
2. Invest in different sectors. Entire industries often rise and fall as a unit. If the price of oil surges, most oil-related stocks will rise as a group. When the price of oil dips, oil-company stocks tend to fall together. You can protect yourself against this risk by investing in several different industries or sectors of the economy.
Major sectors include technology, health care, financial services, energy, communication services, utilities and agriculture.
The industries or sectors you choose should have a low correlation to each other. That is, invest in various sectors whose stock prices tend to fall at different times.  For example, technology and communication services might be too closely related. On the other hand, energy and health care are not closely related and might be expected to rise or fall separately.
3. Look at foreign stocks. As the economy in one country falters, the economy in other countries might be doing well. For this reason some experts recommend that you diversify by buying foreign stocks in addition to the domestic stocks you own.
Buying stock in multinational corporations automatically exposes you to international markets. For example, if you buy McDonald’s stock, you are already investing in foreign markets, since McDonald’s has expanded into more than 100 countries.

Method 2 Investing in Other Assets.
1. Diversify with bonds. When a company or government need to raise money, they may borrow it by issuing bonds to the public. A bond is a promise to repay borrowed money, accompanied by a certain amount of interest. Owning bonds is a good way to hedge against equity risks, because bond values tend to move in a direction opposite to stock values in general.
You can buy individual bonds or invest in a bond mutual fund. A bond fund holds a portfolio of many different corporate or government bonds. Research a fund to see how diversified its holdings are before buying shares. As with equities, bond diversification is very desirable.
Bonds are rated based on the issuer’s creditworthiness. Find bond ratings at Moody’s or Standard & Poor’s credit-rating services. A highly-rated bond will offer a lower interest rate but a higher likelihood of repayment. Choose bonds or bond funds that reflect your tolerance for risk. An aggressive investor (whose risk tolerance is high) might choose bonds with a higher interest rate but a lower safety rating.
2. Invest in U.S. Treasury bonds or bills for increased safety. U.S. Treasuries are the safest securities you can own. You lend money to the U.S. government and receive a promise for repayment. Treasury bonds often rise when the stock market falls, so they are a good way to diversify your portfolio.
3. Consider money market funds. Such a fund is similar to a savings account. The fund invests money in low-risk vehicles such as certificates of deposit and government securities. You can buy CDs and government bonds yourself, but a money market account can be more convenient, because it will do the investing for you at a nominal fee.
As an added benefit, some money market accounts let you write checks (or use a debit card) on the account. However, you will be limited in the number of withdrawals you can make per year.
4. Forget commodities. Some experts recommend diversifying by buying commodities such as oil, wheat, gold, and livestock. These commodities have no correlation to the stock market, so the value of these commodities should be unaffected if the stock market collapses. However, commodities are a poor bet if you are looking to buy and hold investments. Commodities are meant to be traded regularly and are therefore considered speculation (gambling) rather than investment.
5. Invest in real estate. One way to do this is to buy an apartment building and rent it to tenants. However, you may not have the time or energy to involve yourself in what can be a complicated endeavor. Instead you might invest in REITs, real estate investment trusts. With this option you invest in companies that own real estate. In exchange for your investment, you receive a share of the companies' income.
Many REITs charge very high fees, so they might not be the best way to diversify your portfolio.
Another option is to invest in a mutual fund that invests in REITs. This can save you a lot of research time by letting the fund managers do the research for you. You do pay for that service, of course, but it may be worth it to you if you value your time.

Method 3 Investing in Mutual and Other Funds for Diversity.
1. Diversify easily with mutual funds. A mutual fund is a portfolio operated by a fund manager. Buying into a mutual fund is a great way to diversify because each portfolio can hold multiple equities and other assets. For example, a mutual fund might hold stocks and/or bonds from 40 companies in various sectors. By buying into a fund, you can get instant diversification.
However, mutual funds are not automatically diversified. Everything depends on the assets held in the portfolio. Carefully analyze the individual holdings in the portfolio. Some mutual funds will be better diversified than others.
If you invest through an employer-sponsored plan (such as a 401k or an IRA), chances are you are investing in mutual funds.
2. Invest in an exchange traded fund (ETF). An ETF is like a mutual fund, except you buy it on a stock exchange, not from a fund. ETFs generally have lower fees than mutual funds, so they are a good option for investors.
As with mutual funds, an ETF is not automatically diversified. For example, you might buy an oil ETF, which is concentrated in one industry. Carefully analyze the underlying investments to make sure the ETF has the necessary diversity.
3. Consider an index fund. An index fund is a mutual fund designed to track an index, such as the Standard & Poor’s 500 Index or the DJ Wilshire 5000, which tracks the entire U.S. stock market. It is an easy way to get broad market exposure and thus diversify.
Remember that you want to diversify across asset classes. Don't forget bonds, Treasuries and the money market. Some funds do invest in these other assets.
Remember, too, that all mutual funds and ETFs charge fees for their service. Investigate the size of those fees before committing money. There are many good funds that charge total fees of less than 1% of your account balance, so there is no valid reason to pay more than that.  If you do your research, you should be able to find funds that are properly diversified.
With respect to equities, aim to hold at least 20 stocks spread across various sectors. You can invest by picking individual stocks, or you can more easily diversify by investing in a fund that contains hundreds of stocks and/or bonds.
4. Get expert advice. Every person’s situation is different, and there’s no one right diversification approach for everyone. Instead, you should meet with a "fee-only" financial advisor who can help you analyze your situation. Look for an advisor who is a certified financial planner (CFP). To earn this designation, candidates must meet certain experience, education, and ethics standards. The advisor should also be a fiduciary, someone legally bound to work primarily in your best interests. (Just ask, "Are you a fiduciary?" If you don't get an immediate "yes" for an answer, find another advisor.)
You can find a fee-only financial advisor through the National Association of Personal Financial Advisors. A fee-only advisor is one who does not earn a commission by recommending the purchase of specific financial products.
Discuss your investment goals with your advisor. Many people invest for retirement, and what qualifies as a well constructed portfolio will change over time. As an investor gets older, they will want to increase the ratio of bonds to stocks in their portfolio in order to diminish risk. (Some mutual funds can do that for you automatically.)

Method 4 Buying and Selling Intelligently.
1. Analyze your risk tolerance. How comfortable are you in taking financial risks? The more aggressive an investor is (the larger the rewards they hope to achieve), the larger the stock portion of their portfolio -- and the greater their risk tolerance -- will have to be.
A conservative portfolio might have only 20% in equities, 70% in bonds and 10% in cash and cash equivalents (including certificates of deposit, banker's acceptances, treasury bills and other money-market instruments).
A person more tolerant of risk might invest 70% in equities, 20% in bonds, and 10% in cash or cash equivalents.
2. Invest on a periodic basis. Let’s say you have $6,000 to invest in a year. If you invest all of that money at once, you might inadvertently buy into the market at a moment when equities are priced relatively high. A better option is to invest $500 a month. You would invest the same amount of money in a year's time, but as prices rise and fall, it's likely you would acquire a larger number of shares by year's end.
This type of investing is called “dollar-cost averaging,” and it allows you to take advantage of the inevitable price dips that regularly occur in the market.
3. Avoid market timing. You might dream of getting into the stock market at a price bottom and then selling at a peak. Many people who try to "time" the market in this way end up losing money, because recognizing a market peak or bottom isn't possible until after the fact.
4. Choose appropriate assets based on when you plan to withdraw investment income. For example, if you have 40 years before you plan on retiring, you can ride out peaks and valleys in the stock market. There’s less reason to worry if the market falls when you are in your 30s, because you have plenty of time to recoup your losses. A younger person can afford to be more aggressive in their investing than an older person.
5. Rebalance your portfolio when necessary. Building a diverse portfolio is not a one-time event. Instead, you may need to rebalance your portfolio periodically. Review your investments once a year, and see if they still align with your investment goals.
You might need to rebalance if some assets outperform others. For example, your equities might be on a hot streak for six years. Although they were 50% of your portfolio when you started investing, they now make up 70% through price appreciation. Assuming you still want stocks to form 50% of your portfolio, you’ll need to sell some stocks and replace them with bonds or other assets in order to maintain your preferred ratio.
Rebalancing might trigger tax consequences or transaction fees. Carefully analyze the process with your financial advisor before going ahead.
If you invest through a "balanced" mutual fund, they will typically do this rebalancing for you automatically. (A "balanced" fund invests in both stocks and bonds.)

Warnings.

Diversification can manage risk, but it cannot completely eliminate it. Diversification won’t save you if the entire market goes into a tailspin, as it did in 2008 and 2009. Nonetheless, diversifying is a critically important tool for all investors

April 01, 2020