Tag Archives: Budget

Featured, Life, Money

Escape Financial Worries with Margin

One great solution that has helped to keep me from obsessing over my finances is the idea of margin. Surprisingly, I learned this at my church and my pastor used a great phrase to sum up the impact of margin. He said something to the extent of, “Relationships are made in the margin.” The idea at the time being all the great things we love about life – friends, hobbies, adventures, solving problems – are only possible when there is room for the unexpected.

What is Margin?

To some people, margin is the extra profit they make on a deal, but for now, think of margin as the extra room we leave ourselves for the unexpected. Here are some examples on how you can create margin financially.

  • Make sure your checking account has more money than you plan to spend each month.
  • Have a budget item called “margin” that goes towards unexpected causes.
  • Create an emergency fund (3-6 months expenses) in case you lose a job or have an emergency expense.
  • Don’t buy a big purchase on credit/debt.

How Does Margin Help?

No matter how you do it, leaving room for unexpected opportunities allows you to experience the best of life. Here are some examples on how financial margin can benefit you.

  • With a well funded checking account you no longer have to worry about over-drafting.
  • A “margin” line item in your budget frees you up for spontaneous activities like treating a friend who is in town or supporting a sudden crisis.
  • An emergency fund is like insurance for down times.
  • Avoiding debt gives you the ability to take on unexpected opportunities to invest in yourself or others.

How have you incorporated margin into your finances? Have you experience any unexpected opportunities that make you wish you had more margin?

(photo evilerin)
Featured, Life, Money

A Personal Credit Score Designed for You

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Many people rely on banks to tell them whether or not they deserve a loan to buy anything from a house to a TV. What people don’t realize is that credit scores are designed to tell banks how much money they can make off of someone.

From a bank’s perspective, credit scores tell the following.

  • Someone with a high credit score is a good guarantee of consistent profits
  • A medium score is potential for high profits through fees but with some risk
  • A low credit score is too risky to consider

We need a system for us to know when to get a loan or when to sign up for that credit card. A true Personal Credit Score will tell us (and not the banks) when a credit decision is best for us. I have started a score sheet below to help everyone out.  Let me know if you think this works for you or if something is missing.

Rules of Credit

My Personal Credit Score tool is based on some well known rules of money.

  • Managing money takes time and time is our most limited currency (not money or gold)
  • When you give money as charity, money loses its grip on your life
  • Spend less than you make (auto saving)
  • Don’t use a loan to buy something that depreciates
  • You earn the right to use a credit card
  • Credit makes it easier for people to spend beyond their means

Personal Credit Quiz

Now choose the answers below that best describes you and keep track of your points. At the end you’ll have a better idea of your true Personal Credit Score and when you should be using credit.

Do you consider managing money a fun hobby?

  • Yes, I love it and could spend hours each week! – 100 points
  • No, but I still spend a few hours monthly doing a budget – 60 points
  • No, I don’t look at bank statements ever or commonly miss bill payments – 0 points

How much money do you donate annually?

  • Greater than 10% of my salary – 100 points
  • Between 5-10% of my salary – 75 points
  • A little bit when something bad happens – 20 points
  • Sorry, I’ve got my own things to buy – 0 points

Do you spend less than you make?

  • Yes! I even have an emergency fund with 3-6 months expenses – 100 points
  • Yes. I have an automatic savings account – 60 points
  • Sometimes – 10 points
  • No, I’m living paycheck to paycheck or off my parents – 0 points

Do you currently have debts (including credit card bills not paid off monthly) ?

  • No, I don’t have any debt – 100 points
  • No, except for a house, student loans, or another appreciating asset – 50 points
  • Yes, I’m sorry but I just had to buy the car or TV via a loan/credit – 0 points

Do you have an income producing job?

  • Yes, it’s a full time job – 100 points
  • Yes, part of the time – 30 points
  • No, but I’m looking or volunteering – 5 points

Results

Great job! Now here are your results.

  • 500 – Congrats you financial all star! Feel free to use a credit card, but I’d be surprised if you really wanted one. Also, take some time to write a guest blog on Obsessed Analytic.
  • 420-499 – You’re financially sound. If you have the time, you’re allowed to get a rewards credit card, but keep looking for ways to improve.
  • 350-419 – Still hanging in there, but be careful you don’t lose track. Don’t get a credit card until your score improves.
  • 280-349 – Things are getting tense so make some time to get things in order. Don’t use any credit cards.
  • 150-279 – You’re good in some areas, but other areas can bring you down. Find the problems and do something. Obviously stay far away from any credit cards or loans.
  • 50-149 – Don’t panic. Just breathe. It could be worse, but time to sound the alarm. Start fixing one thing at a time and find someone to hold you accountable.
  • 0-49 – I’m not sure how you found this blog. Send me an email and I’ll help you get going, but this may take a while.

How’d you do? What is your first step to improving? Let me know, comment below, or tell a friend.

This post is featured on the Festival of Frugality: Time Passes Edition.

(photo credit frugallawstudent)
Featured, Life, Money

Billionaires Give Wealth Away in the Giving Pledge

Warren Buffett is famous for being one of the richest men in the world, but he is also known as a great example for his pledge to donate 99% of his wealth.  Over the past few years, he has been working with Bill Gates to challenge other wealthy businessmen and celebrities to relinquish the hold they have on their money for the greater good.

The Power of Giving

I have long been an advocate of giving away money and recommend it before any other financial decision including saving for retirement and establishing emergency funds.  Similar to spending money, giving supports those around us and is an investment in our community when done wisely.  Even for yourself, giving is beneficial as it allows you to prioritize more important things in life ahead of money by making you realize money is just an optional tool that we can use towards our goals.  If you really think about it, money has no direct value to you unless you are out of wood to burn and need paper to start a fire.

Joining the Giving Pledge

I remember as a kid wondering why it was so hard for rich people to give money away.  When I had $10 in a shoebox, I didn’t mind giving $1 away to help others so why couldn’t someone with $10 billion give a way $1 billion.  As I grew older and my wealth increased from $10 to $100 to $1000s, I began to realize how a modest percentage like 10% became hard to give away.  As the numbers get bigger, it’s hard for you to stomach the idea of giving that much away.  This is what makes Buffett’s ambition to get the wealthiest people in the world to give away at least 50% of their wealth so amazing.

Lately, Warren Buffett’s example and hard work has paid off (literally) as forty of the richest people in the world have joined his pledge.  The Giving Pledge list includes well known names like Ted Turner, George Lucas, and T. Boone Pickens among lesser known billionaires like Alfred E. Mann.  On NPR this week, Mann acknowledged that giving his money away is better than leaving it to his family since an inheritance often ruins people.  He also said that he hopes to give it all away before he dies so that he can see the benefit of his donation.

What’s Your Pledge

As more and more of the world’s wealthiest commit to giving away their wealth, I’m curious how much of the rest of us will follow suit.  It’s easy to say that these rich people still have plenty to live off of and that’s true, but at the same time, they may be the people most attached to their money.  If everybody who wasn’t a billionaire even pledged to give away 10% of their income, that would have a much greater impact on our world community.

So what do you think?  Do the non-billionaires have the ability to join the Giving Pledge or are we too attached ourselves.  Let me know your goals on giving and how it impacts your life in the comments below or on Facebook.

Featured, Money

Should I Worry About The Expiring Bush Tax Cuts

It’s always funny to watch people get jumpy over a fifty-cent coupon on their next pizza purchase and then not worry about the fact that their largest expenses (taxes and healthcare) may change by thousands of dollars one year to the next.

People definitely delight in the occasional saving.  It’s a personal “win” and makes you feel like you beat the system.  However, if your goal is to use your money a little more effectively, it’s worth knowing the impact of political changes so that you can react (and vote) accordingly.

What Are the Bush Tax Cuts

For starters, the tax cuts passed in the early 2000s had a few significant impacts.  Based on 2010 brackets here are the noteworthy numbers versus pre-Bush tax levels.

  • You will save 5% on the first $8375 you make (~$419)
  • Plus 3% on income over $34,000 (another $480 for someone making $50K)
  • Plus $500 per kid (raised child credit from $500 to $1000)
  • Plus 5% on stock gains and 25% on dividends

Remember that your taxable income is far less than your salary.  Just for breathing, the government exempts $3,650 (personal exemption), and because the government knows your a generous giver they assume you have at least $5,700 in deductions (granted if you have more you can deduct that too).  So to be taxed as a $50K earner you would really need to make at least $59,350.

What You Can Do

Nothing. It’s politics. Or stop having kids just to get the child credit (I’ve heard they cost more than $1,000 per year to raise anyway).

No, actually there are some worthwhile moves.  First and foremost, be knowledgeable.  If the tax cuts don’t get extended, you (the average American) will likely bring home $400-800 less in income next year.  For those of you who simply spend the amount of money in your bank account each month, you will be fine but you will end up buying less and continuing your saving achievements of zero.  If you have a budget on the other hand, you may need to make some minor tweaks, but you should be ok.

Second, read the news.  The Democrats basically control the situation right now in D.C.  They want to raise taxes but don’t want to mess with people making under $200K.  If that’s you, then you’ll likely see no changes in taxes (healthcare is another issue).  If you make more than $200K then be afraid, kinda afraid.  Your taxes will likely increase by a few thousand dollars and your inability to lavishly spend, donate, or save like you used to may hurt the economy, but that’s up for debate.

Sigh of Relief

So it looks like the pending doom of slightly higher taxes won’t hit/hurt most of us, yet.  Larger concerns for your immediate finances are healthcare changes, but I’ll save that discussion for next week.  Do be aware that the national debt is swelling quickly and the long term impact is unknown.  Even if taxes don’t go up this year, they will go up eventually.

Got a better question for me to answer?  Submit it here and I will forever thank you!

Photo Credit (alancleaver_2000)
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Carnival

The Best of Money Carnival #48: My Top 10

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To all my readers new and old, it’s a pleasure to be hosting the Best of Money Carnival this week. This carnival is one of the most well known in the personal finance blogosphere and always features a great collection of personal finance articles. After perusing a long list of outstanding articles, I have picked my favorites. Thanks to all the entries and continue to enter for a chance to be featured.

My Top 10 and Thoughts

Starting with the best, here they are.

  1. The Winner! 11 Great 40 Dollar Investments – A great simple list of ways to spend 40 dollars well. A nice article without all the overwhelming information you see in other blogs.
  2. It’s Never Too Early to Teach Children Good Money Habits – Teaching your children about finance should be a top priority today (or when you have them).
  3. How To Get More Value Out of Your College Education – Too many people go to college because everyone else is going. Understanding why college is important and how to get the most out of it can set you far ahead of the crowd.
  4. What is a 529 College Savings Plan? – In line with the last two articles, be sure to save for your kids college one day. Here’s a good summary on how to get started and what to expect.
  5. Wipe Away Debt Problems With Debt Snowflakes – An interesting micro version on the popular “Snowball” theory Dave Ramsey followers know of.
  6. 5 Ways to Ask Your Boss for a Raise – Learning how to get the most money for your work make improve your balance sheet than any other savings advice.
  7. When Your Dual Income is Cut in Half – In a recession it’s important to know how to react when you lose a job. Here are some ideas to consider.
  8. Costs In Buying A Home Besides Your Mortgage – Buying a house comes with a lot of responsibility. Be prepared with this great checklist before committing.
  9. Living frugally for early retirement – We often overwhelm are lives with too much stuff. Here’s a fun perspective on a simple life in retirement.
  10. Avoiding Online Money Making Scams – A few good reminders on what to avoid when walking through the financial world online.

Be sure to check out all the posts. If you would like to take part in a similar carnival that’s just getting started take a look at the Find Time, Save Money, and Have Fun Carnival page.

Featured, Life

Understanding Car Costs and When to Drive

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Flickr PhotoDu.de

In America, driving is one of the most popular ways of getting around. After trying out my local public transportation system recently, I realized that my car provides a ton of value in convenience and comfort. Often times though, we forget the costs of a car and how different factors impact the cost. We pay for gas and maintenance separate from each trip so it can be difficult to associate the two. I’ll try to provide a simple overview of the costs of driving so that you can make better decisions on when to drive and when to fly or even skip a trip.

Continue reading Understanding Car Costs and When to Drive →

Money

Learning What to Spend and Where to Save – Part 2

Last week, in Learn What to Spend and Where to Save – Part 1, I wrote about buckets to consider when setting up your budget. Although it’s different for everyone, it’s important to understand the types of saving you need for different goals in your life and how much you should constrain yourself on spending. This week I’ll offer some great places to put your money based on my research and own experience. If you have any suggestions you want to offer, feel free to help the readers by adding your recommendations to the comments below.

Continue reading Learning What to Spend and Where to Save – Part 2 →

Life, Money

Save Valentine’s Day and Your Budget

Alright men, next Sunday is when restaurants, card makers, jewelers, flower growers, etc. expect you to save them from a struggling economy and spend your past month’s worth of income on your girlfriend/spouse/date… This may sound like an overwhelming task, but you may be able to earn a few brownie points from the lady with some creative yet low cost ideas. Here are some ideas provided by women I asked about surviving Valentine’s Day without breaking the bank. Feel free to share your own creative ideas in the comments below.

Continue reading Save Valentine’s Day and Your Budget →

Activity CLUB, Life

Ways to Have Fun on a Budget: Dining Table Ping-Pong

Do you love the game of ping-pong, but you are too cheap or don’t have room for a table? Do all your friends play beer-pong but you don’t like cleaning up afterwards or spreading swine flu? The next best game to hit the market since Pro Thumb Wrestling is Dining Table Ping-Pong and it’s the latest cheap activity in our Activity CLUB

What Exactly is Dining Table Ping-Pong

Dining Table Ping-Pong (DTPP) is what every bachelor pad owner, apartment dweller, and dorm room needs. Just like the world famous Table Tennis, DTPP offers a competitive activity that is playable for all skill levels. All you do is whip out the adjustable net and tie it to some chairs, put on the hard core sweatbands, and start pinging and ponging until you crash on a nearby couch.

Continue reading Ways to Have Fun on a Budget: Dining Table Ping-Pong →

Money

Learning What to Spend and Where to Save – Part 1

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When you first get a job, change your income, or just start thinking about where to put your money it’s easy to get lost. It’s easy to spend, but if you’re reading this you probably know it’s wise to save. Where should I put my money? How much can I spend? Do I put more in Long term or Short Term savings? All are great questions.

Continue reading Learning What to Spend and Where to Save – Part 1 →