My Money Wish

Family Finances

2011-08-21T05:09:00.000-07:00

If you are in RED it is always difficult knowing how you are going to make those payments without any issues or concerns. If you are dealing with creditors on a daily basis - the simple act of checking your mail or picking up the phone can be painful.

Dealing with this type of situation is possible, however it is not something that is at all easy. To change your financial situation there are some key steps that you need to take.

Budget

Without a budget in place you will not know where your money is going and where you can make changes to your spending so that you are able to increase your payments on your debt. A budget does not need to be difficult to build or maintain, but keeping an accurate track of your spending is essential.

There are many tools available to assist you in this - in fact some of the best are both free and online.

Debt Consolidation

If your debt is distributed over multiple credit cards, a good option to explore is the consolidation of those debts into one location via means of a Debt Consolidation Loan. This loan will give you one location to allocate your payments to and by cleaning and closing your other debts you are able to improve your overall financial situation and your credit rating.

2nd Job and Additional Income

There are many online resources that can help you obtain a supplementary income - in fact, done properly, it is possible that you can not only supplement your primary income but in fact surpass and supplant it! Other options of course are starting a 2nd part time role where the income you make is focused purely on paying off your debt.

Debt Settlement

Your final option - but one that you might need to consider - is contacting your creditors to discuss either a reduction in your payments or even the declaration of bankruptcy itself. While the impact to your credit rating is substantial - it is temporary and can be dealt with.

Finance Clippings: Groupon "the myspace of daily deals"

2011-08-17T09:07:00.000-07:00

As an established and satisfied user of Groupon I sincerely hope that Richard is incorrect in his statement of its imminent demise - however I do agree that they will definitely have an uphill struggle ahead of them if they expect to survive in the new Googleverse!

Finance Clippings: Groupon "the myspace of daily deals": "Groupon - the daily coupon company, is desperately trying to hang on until its investors can unload their stock via the firm's IPO in Septem..."

A Family Friendly Day Out

2011-08-17T08:31:00.000-07:00

Living close to London, England (as I do) and in fact working there too, I frequently take the train on my daily commute to work. However depending upon the time of day that you start this commute the price varies widely - peak travel is over £25/day return whereas off peak travel is only £14/day (over £10/day cheaper). This does however mean that you are not in the office for 9am which is both a blessing and a curse really as you are able to avoid the crowds but end up having to stay at work later so that you can clock in your hours. Fortunately where I live an alternative option is available - the bus! While it does take significantly longer (anywhere from 30 minutes to 45 minutes more) it is actually cheaper than the off peak train fare and gets me into the office before 9am!

From a family friendly point of view though - off peak train travel is available at significant discounts during the holiday period - in fact fare's are literally priced at 50% of the normal rate, making travel to London over the holiday period not only something that is an option, but one that the whole family can partake off! Added to the already mentioned discounts - you are able to combine the reduced rate with a Family and Friends rail card so that you can save another 1/3 off the total price of your ticket.

Now that getting to London is arranged, the next question is what to do when you get there! London is an extremely historical city and the plethora of family friendly activities available during the summer months simply cannot be discounted. These attractions range in price from £5/person to £65/person and cover the breadth of London's history and culture. Of course if simply site seeing is not your cup of tea, there are hundreds of shopping destinations available to you.

Managing Your Credit Card

2011-07-12T06:45:00.000-07:00

Credit Cards are not inherently bad. If handled correctly, they can not only be a crucial factor in your money management strategy, but can also help you accrue some fabulous benefits.

1. Find the Right Card!

Not all credit cards are created equal. Many have hidden fees and charge outrageous interest rates and fees. When selecting a new credit card, you want to look at the following areas:

interest rate,
annual fee,
cost of over-the-limit and late fees, and
where you can use the card.

Of course, a low interest rate credit card (one that sports anything below 9.9%) is going to be a better deal than one that carries a 14.99% rate. In addition, I would also suggest avoiding cards that have annual fees unless this can be justified by the rewards available.

2. Read your credit card statement every month.

Be sure to review your credit card statements every month. The great thing about credit cards is that everything is itemized and associated with a phone number if there is any question. If you find a charge on your statement that you do not recognize, simply call your credit card company and inform them so that you can dispute the charge. While it is not always an easy thing to do (and definitely not something you want to do regularly) if its not accurate, its better that the funds are in your pocket than someone elses!

3. Do not use your card for ATM withdrawals or cash advances.

If possible, you want to avoid using your credit card for ATM withdrawals or quick cash. Most credit cards charge higher interest rates and sometimes an additional fee when you withdraw cash from your credit card. In addition, when you are making payments to your card, the money goes to the debt with the highest interest last, meaning that small withdrawal could end up costing you significantly more than you thought it would!

4. Pay your balances in full each month.

Be sure to pay your balance in full every month to avoid paying interest on the balance. This is where most people fall into debt and get in over their heads. Before using my credit card, I always make sure that I can pay for what I am charging. If you are allowing your balance to roll over every month and only paying the minimum, then using your credit card as a financial tool may not be for you.

5. Get your just rewards.

A lot of readers here are big fans of credit card rewards programs, as I am. And I find that it bears repeating: one of the best ways you can cash in on the benefits of credit cards is to get a card that offers rewards or travel miles. This is a bonus perk for using your card. The key here is to pay off your monthly balance in full if you own a rewards card. Otherwise, paying the interest on a card that has rewards will simply neutralize the fringe benefits you get out of using that type of card. You may be better off just owning a low interest rate credit card if you intend to keep a (growing) balance.

Credit cards offer many benefits when used properly. Not only do you receive great rewards, but you’ll also enjoy the ease of itemizing your expenses each month. I particularly like the record keeping benefits afforded by credit card companies as they’ve made it ten times easier for me to keep my business and personal accounting in check.

Some Simple Tips on cutting your budgeting Expenses

2011-04-04T04:26:00.000-07:00

As mentioned in some of my previous posts (link, link), the most effective budgets are those that evolve over time and while budgeting is never a fun task, if done well the positives far outweigh the negatives.

If you don’t have a budget in place yet, I would suggest you read some of my other articles (here) on why this is important to you and your family and download this really useful budgeting template from Microsoft. It’s not only pretty it’s free and a really good and useful tool!

Once you’ve been using your budget for a couple of months, you’ll be able to see some larger patterns that were probably not evident to you initially. Evaluate each spending category on your worksheet and highlight some of the area’s that you feel you can make some reductions without impacting the quality of your life. I’ll give you some examples of what I’ve done that has helped me save quite a bit on a monthly basis.

Groceries & Eating Out – While I know that the money saving benefits of “brown bagging” your lunch are obvious to all of us, it is annoying and takes up valuable time in the mornings when you’re rushing around to get ready and making sure that the kids eat their breakfasts and other mundane trivia. However when you see how much you spend on lunch over the course of the month setting the alarm clock 5 minutes earlier really doesn’t seem as difficult to do! In addition groceries themselves were something that we really had a difficulty with as sad is it is to say, we ended up throwing out quite a bit of food on a weekly basis to get the fridge ready for the next batch. It was a horrid, vicious and wasteful cycle that we’ve solved somewhat by building a menu on a weekly basis – this simple step ensures that the food we buy is for items we’ll eat and by building the menu weekly once the following week rolls around we’ve still got some “inventory” left over that we can combine to make new dishes which ends up saving us some more!

Electricity/Heating/Water – not a simple fix here unfortunately but one that will hopefully help bring down my energy usage overall. In the UK the government has several initiatives and grants available to make homes more energy efficient. Basically this means the installation of insulation between the walls of the home (cavity wall insulation) and loft insulation – both of which are heavily incentivised so while I had a small upfront cost, the longer term benefits should be substantial. My next big expense to reduce my monthly outgoings is actually to replace the boiler in my home. Unfortunately its about 50yrs old and is definitely NOT efficient at all anymore. While the cost to replace this is in the thousands with the new pipework, the actual monthly costs to me will help me save quite a bit – probably about 30% per year.

TV/Broadband/Phone – while I’m not a big TV customer any more, I find that most shows I’m interested in can be found online through the multitude of streaming sites that are out there, my Internet usage is actually quite high. Fortunately when I spoke to my provider (who offers me a bundled service with free long distance) I was able to negotiate a really good rate/reduction by staying with them. However each person needs to evaluate the importance of “entertainment” vs. necessity and whether or not they need to keep Television or if it’s just a nice to have now.

Once you’ve been budgeting for a while you’ll find many different ways to save money and make adjustments on your own. The key thing to realize from your budget is that it is not a static document and not only should change, it must change!

How to make the lesson sink?

2010-11-12T07:39:00.000-08:00

I wrote in an earlier post that it is essential for you to educate your children on appropriate money management - Money Managment from Diapers - but what can you do to actually teach them how best to save and why it is useful to save?

As I said in that post, YOU weren't born with a realization of money and how savings accounts worked. What a mortgage was or even how to use (or not) a credit card. It took trial and (quite probably lots of) error on your part and while that is a time honored tradition of learning, if there is any way to make it easier for your kids its probably in your best interest to assist them. How has your education and view of money changed over the years since that very first instant where you finally figured out what money was and how (unfortunately) it really does make the world go around?

Once you have children - you are responsible for their education in this regard especially (and even if you do not now have any children or plan to have any in the future, the lessons you will learn here can be either beneficial in your own life or by helping your friends who do have kids). Remember - children are OUR FUTURE - and while its just as important that we give them a safe and environmentally friendly world, it is also necessary for us to give them the skills and tools that they will need to be able to navigate that world successfully.

Hopefully some of these suggestions and ideas will aid you in figuring out how best to educate them in this important area without having them completely tune out.

Sidewalk Shop

Let them have their own business. This could be delivering papers or shoveling sidewalks or even the good old fashioned lemonade stand! You need to be there to help them either with your time, your resources or your knowledge but the endeavor itself and the work that goes into it should be theirs. At a more advanced level have them start sourcing the resources (lemons, sugar, salt etc...) themselves and perhaps paying extra staff! Teaching them in a way where they have to manage something while focusing on a product and working with people is a great first step to exposing them to the business world.

Allowances and Chores

A time honored tradition, assigning chore's to children in exchange for an allowance is one we've all experienced or dealt with. Like all the good books say - you should run your family like a business - well, in this case your children are doing a job and they should get appropriately compensated for it! This really is a win-win situation as while you are compensating your children for their good work it is also a great way to do some of the menial tasks that do not require an adults skill. You can create a chore list with a sticker/star system for every one of your children, and at the end of every one or two weeks. you can then pay them what they earned. This is powerful because not only are you making your children more responsible, you are also communicating to them that you are respecting and appreciating their hard work. As your children grow and mature, the work that they do should also grow with them as should the rewards they can expect to "earn".

Watch The News With Your Kids

It might sound boring but as your children grow and mature, making them aware of how the world works is absolutely essential and watching the news is one of the best was to do this. Having them aware of the economics of the world and perhaps even an understanding of local government will do nothing but help as they grow.

Games

There are various games both for PCs and as board games that teach kids in a fun way about money. One of the most famous might be Monopoly. By giving them a set amount of funds and then letting them grow it into a massive property empire your children are sure to realize that building that hotel on Boardwalk was a great investment!! These games not only get your child thinking but also do it in a way that doesn’t pin them with the “real world consequences” of their decisions if they make a mistake in the games.

Shopping

You must let your children choose what they can spend their allowance on - this is their money and they should be able to spend it how and where they wish. However, you can have them involved in your regular spending - perhaps take them to the grocery store with you and let them choose the cereal from a limited selection. Having them make real world decisions is a great way to learn.

How to control your debt by dealing with your negative cash flow

2010-11-01T05:25:00.000-07:00

This is a guest post from Sirena Hurley.

Americans are very bad at saving money and this vouches the fact that US national debt level has reached an appalling level of $13 trillion. The reason behind this is that most Americans live beyond their means and are spending and borrowing money more than they have ever done. If you’re one such American who is trapped in the vicious cycle of debt, you must be in search of debt help. If your spiraling debt is left unchecked, it can increase to a point that may endanger your financial life. Follow the tips mentioned below in order to get back a grip on your finances.

Scrutinize your cash flow

The very first thing that you need to do is to scrutinize your cash flow, how much you owe to your creditors and how much of your income is going towards paying off your debt obligations. After determining the amount, if you see that your mortgage arrears, home insurance policy payments, property taxes and all other financial obligations surpasses 28% of your gross monthly income; this implies that you’re living beyond your means. You need to buck up and save money, especially if you have a mortgage with a huge interest rate to pay back. Analyze your spending in accordance with what you make each month and try to trim down your spending habits wherever possible.

Avoid the credit card interest trap

In addition to all the calculations mentioned above, also determine how much interest rate you’re paying on your multiple credit cards. Credit cards pose to be a major cause of financial problem in most people’s lives. As they make purchasing things easier, people start living beyond their means. Try to make purchases with cash and limit the usage of credit cards as much as possible. If you’re trapped in high interest credit card debt, try consolidating your debts with the various debt consolidation options that can provide you with debt help.

Shop for the best rates

While you’re shopping for any financial instrument like mortgage loans, home equity loans, auto loans, or educational loans, make sure that you do your homework. Shop around in order to settle with the best deals. Decide for your home loans and check what type and what length of time suits you the best. It is often seen that consumers remain ignorant regarding their financial products and end up choosing something where they lose a lot of money in paying huge amount on interest rates. This is why it is always recommended that you shop around before choosing any particular product.

Thus, you need to evaluate how much debt you are in and how much you can afford to pay off your debt affordably. Consider resorting to the above mentioned debt help options so that you emerge debt free and achieve financial freedom.

The Danger of Minimum Payments

2010-05-16T09:05:00.000-07:00

I've spoken often about the dangers of just paying the minimum payment on your card - the number that your credit card company tells you. However, I don't think its harmful to state it again as it bears repetition.

We've all been conditioned and gotten comfortable with just paying the minimum balance - after all if you do this, you won't get any threatening calls or knocks on the door and you can spend your money elsewhere, so whats the harm - right? The thing that everyone seems to forget or just not pay enough attention to is the fact that the minimum balance mainly goes towards servicing your interest outstanding and in most cases has little or no impact on your actual total amount still owed. In a nutshell this could mean that you would be paying decades later for a purchase that you made and would have ended up paying multiples of the total cost of the item in interest payments alone!

By increasing the minimum payment by a small fraction, you would be able to make a dramatic impact on the term of your loan and would save yourself a whopping load of interest. To see what I mean, take a look at this simple calculator:

Credit Card Payment Calculator

As an example see some numbers below:

* Credit Card Interest Rate: 18% (pretty standard).

* Outstanding Balance: £1,000.

* Minimum Payment: 3% or £5 (whichever is greater)

Date	Balance	Interest	Min Payment
March 2010	£984.83	£14.83	£30.00
March 2011	£816.98	£12.30	£24.89
March 2012	£678.08	£10.21	£20.66
March 2013	£562.51	£8.47	£17.14
March 2016	£321.29	£4.84	£9.79
March 2020	£151.13	£2.28	£5.00
March 2023	£18.44	£0.28	£5.00
July 2023	£0.00	£0.00	£3.82

It'll take you 161 months (that's over 13 years) to pay back £1,000 if you only pay the required minimum of 3.00%. Over that period of time, you'll pay an additional £848.01 in interest.

If you could afford to pay an extra £10 a month towards your credit card debt, it would mean you'd repay it in 57 months (just over 4 years) and you'd save yourself £483.98 in interest. In fact, if you could afford an extra £25 a month, you'd repay it in 31 months (just over 2 years), and save £647.54

As you can clearly see, the fact that you're paying less money each month means that that the interest owed isn't just adding up, its compounding! Over the course of that 13 year period, you have actually paid almost as much in interest as the initial debt itself!!

You may find these related posts of interest:

Making Money - Budgeting

Savings and Spending

2010-05-07T01:46:00.000-07:00

What are you spending?

How much do you actually have at the end of every month? Are you getting paid weekly, bi-weekly or monthly for that matter and do your funds see you to the end of the month or are you constantly overdrawn? If you do have some funds left over – how much and is it every month or only once in a while? If infrequently, add up how much over the course of the year and divide by twelve to get your monthly "abundance".

Once you know how much you have extra every month, you can plan how to spend it! Your options are as follows:

Pay off outstanding debt

Add to your savings

Spend it in the shop

So which did you choose? I hope it was #1 ... that should always be your first point of call with any extra monies that you have, as the anchor of additional debt is the biggest thing holding you back in your life. Once you've taken care of #1 though, you should definitely try to have at least the equivalent of 3months salary socked away in #2 and finally once this is in place you should be doing #3 ... if it is actually extra money, there is no reason NOT to enjoy it assuming that you have taken care of the necessities. I could tell you to increase your mortgage payments or car payments and while this is definitely good advice and something that you should do, you also need to be able to have some fun with your money – heck that's why you've been working so hard isn't it?

Remember though – if you don't know how much you have left over, that is your first step – you need to track your finances and budget properly and get a realistic grip on what and how much you are spending and where. Once you know this, you'll also be able to determine what can be "cut back" to increase your level of available funds even greater.

Reducing Debt – Budgeting by Snowballing

2010-05-01T05:39:00.000-07:00

As I've frequently mentioned, one of the key steps to debt reduction is the creation of a budget. However once this is in place what's next? Perhaps you've budgeted for all of your expenses including your credit card payments but you're just not seeing any impact? Well firstly you need to exercise patience ... just as it took you a while to get into this state, getting back out of it – just like losing weight – takes time and is not an overnight process.

If you've built your budget properly and have included all of your expenses and income correctly then rest assured that you are on the right track. However a good way to accelerate this is by using something called a "Debt Snowball". While not new information it has been presented in a very clear and concise manner by financial guru Dave Ramsey and I would recommend that you read his book(s) for ideas on this and other ways to reduce debt.

The Debt Snowball works in one of the following two manners (different in terms of starting point but similar in terms of execution). Determine your credit card debt and sort it either by highest interest rate or by lowest balance.

Lowest Credit Card balance Option – focus as much of your payments onto the card with the lowest balance as possible and pay the minimum balance on all of the others. Aside from the (hopefully) quick win you will get when you've cleaned out one card, the added benefit is that when this balance is gone you can take that same amount + the minimum balance you were previously paying and use that to pay the card with the next lowest balance and so on. In this manner a snowball effect (hence the name) where your payments will continuously increase to each card in sequence will be realized and you will be able to pay them off at an accelerated rate.

Highest Interest Rate Option – the lowest balance is definitely the easier to realize method of doing this, but by only focusing on the lowest balance cards, you could potentially end up paying more in interest over the course of your payments, so the 2^nd option is to actually focus on paying the cards with the highest interest payments first – regardless of the balance outstanding. This could potentially take longer as the snowball won't start taking affect until you've paid that first card off, but it could actually save you more in terms of overall interest.

Whichever of the two methods you choose – you must ensure that you remain committed to it and also, once you've cleared a card, DO NOT use it again. If you can, cancel the account, if you cannot, put it out of your reach. If you spend money again on the card you've cleared you will NOT be able to appreciate the full impact of the snowball method as you will need to GO BACK to the other card again.

Now if you are in the enviable position of having little or no debt on cards, this can still work for you as you can use a similar method to pay down your outstanding car loan or even your home mortgage. Any interest bearing vehicle that you have obtained or are using should be tackled as soon as possible as any money paid out in interest payments alone does nothing to reduce your principle and its basically just throwing money away.

Credit Checks, Credit Score and Credit Reporting

2010-04-17T01:48:00.000-07:00

As a prior user of the site and service Credit Expert (link is here) I am familiar (now) with the whole credit reporting system in the UK and the way in which it works to some extent - well as familiar as someone not working in that industry could be I expect.

In a nutshell though, companies like Experian (Credit Expert who I mentioned earlier) and Equifax and others maintain a database of records relating to your past behaviour with regards to payments and defaults on any credit cards, loans or anything else financial in nature. In addition to this, the database contains details regarding the total amount of credit that you have and also how long you've lived in your current property. With all that information a "score" is generated that is used by other lenders to determine your suitability for any further financial products. As you can imagine, any incorrect information in these reports could have a severe and detrimental long term impact on your overall score. In addition, the action of applying for credit from/through other companies will also impact your score as just having these companies "check" your credit, leaves a "footprint" on your record. If you would like a more detailed explanation of how Credit Scores and the systems work please click on the links below:

I have summarized some of the key points from the 2nd link as they are currently most applicable to me (I think I mentioned in an earlier post, that my own rating currently due to moving countries and lack of history is currently not as good as I would like it to be?) and something that I will be working towards over the coming months/years in a very determined fashion to correct.

To Improve your score:

Get on the electoral roll - In the UK this is one of the checks that is also carried out. I have done this so at least I can check this one off my list.
Time applications correctly - OK in my case this is going to impact me ... as I've only recently moved homes (and countries) the amount of history I have is limited at this time - in addition to which a new mortgage application is definitely going to leave a big footprint on my file. However time heals all wounds so now that I have something for them to record plus a mortgage, this will gradually work in my favor - I just have to ensure that I don't get impatient and make applications for loans/credit cards or anything until it has done so.
Building a good credit history/repairing past problems - as mentioned I now have a mortgage and have also obtained 1 credit card, so I'm on the way to fixing this issue, but it will take some time.
Keep up payments and never be late - fortunately this has never been an issue. With the budget I've built for myself and some forward thinking and planning I'm always able to ensure that at the worst the minimum payments are paid (have I mentioned to you before how much I hate minimum payments???) and in most cases am able to pay minimum + more so that the principle is impacted also.
Marriage doesn't hurt, joint finances do - hmmm ... this is one that I wasn't aware of before and is definitely something that is going to skew my score downwards. Due to my immigration and the way UK banks work, its very difficult to get a bank account unless you are paying a bill and you cannot pay a bill without a bank account - I know stupid catch-22 but you have to play with the hand you are dealt. With that being said, some of the bills that I am paying are currently in mine and my spouses name - I shall see what I can do about changing that situation ASAP.
Get a 'quotation search' not a 'credit search' - OK, another new one to add to the list. During my search for a mortgage my spouse went to several brokers and banks directly. Each of these added a footprint to my (joint) account which I was unaware would be the case until afterwards. The banking and financial system here is quite different to what I am used to and it has unfortunately impacted me to some extent. Again time is my friend here and as I'm not planning on selling my house in the near future I should be fine in that regard - however as I will be refinancing in a couple of years I shall have to ensure that I take charge of this element at that time so that there is no recurrence of this behavior.
Evidence of stability is good - homeowner (check), landline (check), employed (check) ... however homeowner only for 7 months or so and (new) job (due to immigration) for only 13 months ... time ... sigh, sometimes it goes too fast, and sometimes not nearly fast enough!
Check the address on all active accounts - OK, this is another one that I can do something about. I expect most of them are fine but doesn't hurt to check and make sure and will not be too much of an effort.
Avoid the ‘rejection spiral' - so far not applicable which is a good thing.
Dealing with defaults on your file - also not an issue as mentioned previously. My biggest issue is lack of history.
Cancel unused credit cards, debts and accounts - as mentioned I hope to clear out some of my spouses debt in the next little while and after doing so I will either cancel the credit or reduce the amount of available credit
Use any savings to pay off debts - already done prior to my earlier post

So somethings are on track and somethings I definitely need to look into. Martin (at moneysavingexpert) has some very good ideas and its always worth a look at this site to get an idea of how things are done in the UK. I only wish I'd found his site sooner as I'm sure I would have been able to address some of the issues even earlier.

Its important to keep an eye on your credit report and your credit score and if you don't already have an account somewhere make sure you get one. Check out "checkmyfile" as they seem to be the most competitive in terms of price and services ... I'm going to be moving to them myself as soon as I can cancel my Credit Expert service which has already been paid for.

Some Simple Ideas to Help you Save

2010-03-26T07:58:00.000-07:00

OK, not a huge post this time, but some good ideas here on how you can save some money and stop impulse buying - and remember, just like I'm trying to help you stop impulse buying - there are companies and organizations dedicated to increase the amount that you do!

Time - give yourself some time and don't impulse buy ... try to set aside at least 24hours from the time you've seen the thing you want to purchase till the time that you actually go out and buy it. More often than not you'll find that while you "want" it ... you don't "need" it!
Cash - give yourself a monthly allowance of cash that you can use for luxury purchases. Put it in an envelope and as you get through the month you'll have to naturally cut down on your purchases to accommodate this. Another way you can use cash however is to help with impulse buys also - if you only have enough cash on you to actually purchase whatever it is you are going to get you will not be able to buy other items that aren't in your budget/agenda.
Online - shopping online is so easy and its really great too ... however you need to ensure that you are actually getting the best price for your item. While it is simple to go to the BestBuy or Comet websites, you could potentially find the same thing significantly cheaper elsewhere. Make sure that you are checking out the major comparison and shopping sites - froogle or google shop is really good but there are many more - sites like shopzilla for example. Of course e-Bay and Amazon are great options too!

One final point to make ... realize the difference between "want" and "need" ... if you buy what you need and not what you want, you'll do better in your finances.

Simple Steps to Clean Up Your Debt

2010-03-18T07:28:00.000-07:00

Unfortunately as easy as it is to say that you want to lose some weight, its just as easy to say that you want to get out of debt. However just like yo-yo & fad dieting doesn't work, neither does debt managment unless you do something and make some changes. To continue the weight loss analogy, to really lose weight, you need to eat less than you are burning off (in money terms this would be spend less than you are earning!).

If you're able to burn more calories through exercise and thereby accelerate your weight loss this is even better - a similar money analogue would be that you are able to accelerate your payments through improved debt management and budgeting allowing you to access funds that you didn't know were there perhaps.

While I'm sure I could continue to think up money/diet analogues, the point of this discussion is how do you get out of debt - if anyone does have a foolproof diet though ... let me know - I'm still looking!

Studies have shown that over 65% of people who say they want to get out of debt never create a plan. This is an absolute essential and must be your first step - perhaps immediately after your budget itself. While your budget will be able to show you exactly where your money is going (if you don't have any idea of budgeting, check out my previous post here) your plan itself is a bit of a bigger picture and should not only comprise your budget but also the little progress steps that you can take along the way to ensure that you eventually reach your goal. For example if you are generally "over budget" by £200/mo - your plan would tell you about the things that you need to cut down but perhaps also what else could you do with your life to fund that shortfall?

Once your plan is in place its incumbent upon you to actually understand your debt. You need to sort your debt by the amount outstanding, the term and also the interest. Generally with regards to debt repayments you have two main ways (never just pay the minimum balance - see here for the reasons why) to "attack" the debt (see my post on Snowballing and Debt Management) - the first is by hitting the debt with the lowest outstanding balance first, giving you an easy "win" when you get rid of one debt and allowing you to then focus on the next lowest OR you can hit the debt with the highest interest rate first - while this might take you longer to pay off, in the long run it might actually cost you less due to the amount that you would be paying in interest charges anyways. However if you don't UNDERSTAND where your debt is in the first place neither of these options will be available to you.

Credit Card Payment Calculator

Now this all sounds quite complicated, however there are quite a few tools available online and as software packages that will assist you in doing this in a clear and concise manner. One of the better ones is Quicken although you do have to pay a fairly substantial one time fee to purchase the package it will give you a very easy to understand plan which you can update as you progress through it (and while Quicken online has gone - Mint is available for free and it too includes a budgeting /debt management component - again not as powerful as the main Quicken product, it is free and worth a look).

For a simple - no cost first look though, check out this calculator available from CNN.

Finally a really good and useful online tool that you should check out is a site called DebtGoal - while it costs $11.95/mo the potential savings of having everything done for you makes it probably worthwhile in itself.

Dealing with Debt – Credit Cards III

2010-03-15T19:20:00.000-07:00

Continuing my posts on Dealing with Debt - Credit Cards

Dealing with Debt – Credit Cards

Balance Transfer Cards

Another way of "dealing" with Credit Card debt is through the use of a balance transfer card. Now similar to what I have mentioned with regards to Debt Consolidation Loans (see here) by using a Balance Transfer Card you are NOT actually getting rid of any of your debt. All you are doing is restructering it in such a fashion so that you are minimizing the interest payments that you have to fork over. Remember as I've said before (and probably will again!) interest payments are the great bugbear that you want to avoid. Find as many ways as you can to reduce or remove paying interest as you're basically throwing your money away at that point!

Now Balance Transfer Cards work by shifting your high interest debt to a low interest credit card. Lots of cards offer introductury 0% offers for 12-15 months and what that basically means is that all of your payments are going towards the principal vs. the interest. As you can hopefully imagine, this has a cumulative and profound impact and can significantly enhance what you are able to do with limited funds at your disposal. Some things to remember though are:

That the introductory rate is just that ... it will end and you need to ensure that you are aware of when it will end so that you can either move your remaining debt to another card (if possible) or so that you can increase your payments appropriately.
If you do not make your minimum payments on the card at any time YOU WILL lose your introductory rate and have to pay at a higher rate! Be very careful with this.
Any purchases you make on this card will probably NOT be at the same rate as your transfer. In addition, your payments will actually be applied against your LOWER interest amount first so you will end up paying interest for longer on your purchases. It is smartest and safest to NOT use this card for purchases until the full amount you have transferred has been cleared.
See point 2 above!!!

In the UK - a couple of great sites to review to check out the lates deals on Balance Transfer Cards are:

One final thing to remember with regards to Balance Tranfer Cards is that once you've moved the debt from one card to another one - make sure you cancel or get rid of the old card! You DO NOT want to accrue new debt at a higher rate!

You may find these related posts of interest:

Dealing with Debt – Credit Cards
Budgeting 101
Making Money - Budgeting

Dealing with Debt – Credit Cards II

2010-03-09T05:58:00.000-08:00

Continuing my posts on dealing with debt and your options to clearing it out.

Dealing with Debt – Credit Cards

Debt Consolidation, Personal Loans and Overdrafts

While obtaining a debt cosolidation loan isn't necessarily a way to eliminate debt - basically all you are doing is moving it around from higher interest credit cards and store cards to lower interest loans - it is a smart way to accelerate the process of clearing out your debt. If you recall in my previous post on this topic (here's the link just in case) high interest rates should be avoided like the plague and by moving your debt to a lower interest "vehicle" it is only in your best .... interest! (sorry, I just couldn't resist the pun).

From an interest point of view, debt consolidation loans make really good sense. However something you should consider is that this is a loan and most loans have a fixed timeframe - after all this is how banks make their money and why they are offered. As such you generally will not be able to pay it off faster than the set timeframe allows and while this might not be an issue for most, it is something to consider as if you do - somehow - come into that magical lottery win, you will still be stuck paying this off until its clear.

Another important point to remember with regards to debt consodilation loans ... once you've cleared up the debts on your credit cards using this make sure you DO NOT use those cards again! If your bank is in any way looking to do this right, part of the process of obtaining a debt consolidation loan is to clean out and close the accounts. However if for any reason they do not do this, do not get into the same place you've just left by spending on these cards again.

Personal loans are generally very similar to Debt Consolidation loans and the key thing to mention again is to consider the interest you are paying as well as the term of the loan itself. As previously mentioned, early redemption charges and fees might be levied if you wish to pay this off in advance and you should ensure that you read the fine print if you think this might apply to you.

Overdrafts - not really a loan at all but the funds available to you in your account. Banks generally charge interest on the amount that you are overdrawn (some banks do offer 0% overdrafts for a certain period of time). Check your interest rates as using your overdraft to pay off your card might sometimes make the most sense but it also does limit your access to further emergency funds which is really what you should consider your overdraft for.

With thanks to Garv Financial

Snowballing

Another way of dealing with credit cards (& debt in general) is to use a process called "snowballing". There are two ways of doing this which I'll describe briefly below but you can see this post for a full description of the technique.

Pay of the card with the lowest balance - as you pay of this card, gradually move the amount that you are paying down to the one with the next lowest balance and so on.
Pay of the card with the highest interest - focus on the card that you are paying the most to use and as you clear it move on down the line based on the interest that you are paying.

You may find these related posts of interest:

Dealing with Debt – Credit Cards
Budgeting 101
Making Money - Budgeting

Snowballs and Credit Cards

2010-03-03T07:34:00.000-08:00

I know its winter & cold and how can snowballs possibly be related to debt management in any way??

Well if you recall from my earlier post (see the links below) you would remember that credit cards are one of the worst ways of carrying a debt. One of the strategies for paying off your card quickly is through a process known as snowballing. Now you can do this is in one of two ways depending on your financial situation and the level of debt that you are currently carrying.

Option 1 - Smallest Card First
Your first option is to concentrate on your card with the lowest outstanding balance. Pay the minimum payment on your other debts and the maximum that you can afford on the one with the lowest balance. Keep up this pattern until this card is completely cleared out and then move that same payment to the card with the next lowest balance. The maximum amount that you were paying before + the already in place minimum payment will work to clear out this debt in as timely a manner as possible also. As you clear out each debt and move your focus from one card to the next, the impact that you are having gradually snowballs and grows larger and larger. *REMEMBER - ONCE A DEBT IS CLEARED YOU CANNOT ACCRUE FURTHER DEBT ON THAT CARD!!!* Now aside from the psychological impact of seeing your debts disappear due to this method, it works - give it a try!

Option 2 - Focus on Interest
Now, this is not as easy but might over the long run actually save you more money. If you take all your credit cards/store cards etc... and line them up based on the interest rate that you are charged for the "privilege" of borrowing money you can then focus your maximum efforts on the card that is charging you the most. As the minimum payment required on the other cards would be lower anyways (due to the lower interest rate) this would generally allow you to make a fairly decent impact in a reasonable timeframe. The obvious issues are that this card might have the highest balance and as such you wouldn't be able to snowball your payments as you progress from debt to debt nor would you actually receive the same thrill when you get rid of one card in a timely manner as you would with Option 1.

A good site that you might want to visit - Trees Full of Money. On this site, the author has created a debt snowball calculator written in Excel that you can download and use for your own use! Best of its free. The link is here.

With thanks - you can also find this article plus other debt related posts in the Carnival of Debt Reduction. Check it out here!

You may find these related posts of interest:

Dealing with Debt – Credit Cards

Budgeting 101

Making Money - Budgeting

Budgeting 101

2010-02-08T03:43:00.000-08:00

The dreaded "B" word. Ugh ... a brand new year (well 1 month in anyways) and another resolution that you feel you must accomplish. Saving money! Sounds great, but how do you do it? You've heard that budgeting is the way to do it, and books like the Wealthy Barber have "shown" that even those on lower incomes can amass fortunes and become financially well off, but do you have to budget? Scrimping and not getting what you want ... its almost as bad as Dieting isn't it (which is another New Years resolutionthat will be discussed at another stage!)?

OK, the first thing that needs to be changed is your mindset (this is probably only something that will happen once you've done this for a while so don't expect an immediate change from yourself). Many people hate budgeting, because they think that it will limit their freedom and restrict their enjoyment of life, however it has been shown that those who do budget find the reality is completely different and knowing where you money is going gives them a greater degree of freedom than they imagined possible.

How do you start?

Well, the first thing that you need to determine is how you are going to record this? There are many simple (and complicated) tools and resources available to you. Web based tools abound as do spreadsheets - a simple search on Google, will find many free templates and if you've never had a budget before this is probably a good starting step for you. Heck, pencil and paper worked for our grandparents and it can work for you too! Now there are many different types of budgets out there - I am a proponent of the "Envelope Budgeting" school myself and will discuss that in the future, but for those just starting out, your first step is recording information and that is the same regardless of the budget tool/type that you choose.

What categories?

Now, one thing you will notice depending on the spreadsheet or tool that you have determined to use is all the categories that are out there ... while this is extremely useful for knowing EXACTLY where your money has gone, for a starting budget it is not 100% necessary. Start with some simple - broad - categories. For example, you could bundle Drinks & Restaurants into one larger category called Dining. This is up to you, but is recommended if you've never done a budget before as it will get a bit too much otherwise.

Salary & Income

As the song goes - "Money makes the world go around" - so you definitely need to ensure that you have documented correctly your salary and income. Without something coming in - your budget will simply NOT work!!!

Now you can make this complicated or easy (just like everything else!) ... either document your gross pay and then all your deductions so that you can track this too, or take the easy way, and write down your net monthly pay. As you might imagine, I'm recommending the easy way as it just makes more sense ... if you need to see all your deductions, your paystub has them listed and for budgeting purposes, they just aren't relevant.

Your net pay will obviously be impacted depending on whether or not you are paid on a salary basis or are a contracter and paid hourly - for the sake of this discussion I will assume that you are a salaried employee and paid the same amount monthly (for the hourly employees, please just try to come up with an estimate for this - your past paystubs are probably a good place to look). Note: if you are paid bi-weekly, then you will get one extra pay in a yearly cycle ... keep that one extra one aside (think of it as a bonus) and use the others for your budget.

Starting the Budget

Think of your budget as a "living document" ... this means that it will change based on different things that happen in your life, but your goal should be to try and anticipate as many of these as possible. Your budget should be split into three main categories:

Essentials - what do you need to survive? A simple question and also fairly simply answered to be honest. Food, Heat, Water, Electricity & Housing. If you have nowhere to stay and can't heat it or feed yourself you're in trouble so this should always be the first point that you look at in your budget. Your money should always go here first and then to some of the other expenses.
Fixed Cost - expenses that stay the same. This would be things like Television and Internet costs, Gym memberships (this could optionally go into the Discretionary Costs category as you don't really NEED a Gym membership do you?), Car and Loan repayments etc... anything that you know will cost you the same amount every month and will leave your account on the same day every month.
Discretionary Costs (Luxuries) - Eating out, buying clothes anything that is a "choice" would fit in here. These costs will vary on a month to month basis & unfortunately for most people this is where the "Savings" category ends up which is the wrong place. Remember, there is only so much coming in and after the 1st two expenses have taken their chunks, this is what you have left to "play" with.

Using your Budget

OK, now you've determined what each of your expenses are and you have an idea of your monthly income. The next step is plugging in the numbers. Write down what you think your expenses would be in each of the categories that you have designated, and then start tracking it through the month. See if your estimates are accurate or not by keeping track of each purchase and bill. Its actually worth doing this for a couple of months before you "lock it in" as you've probably forgotten something or missed something out that won't come to light until you've run through the month. Doing it this way - trial and error - is by far the best way as familiarity will teach you things in itself and you'll also be amazed at where you're spending your money!

Once you have a budget that you're comfortable with however, you should actually try living towards it. This means that if you reach your budgeted amount, you cannot spend any more in that category and if you choose to do so you will need to reduce the amount available to spend in another category to compensate.

Your final budget should actually leave you with $0 in the bank - all of your funds should be allocated towards a category and if you have a surplus than create a category called Savings or Emergency Fund and put that money in there. Don't leave your money without a home.

Hopefully this has been a good starting point and those of you that have not done a budget before - don't be frightened its actually a fairly simple process as you will find out when you start doing this and as time goes on.

Some links to other articles and sites that discuss this in additional detail are provided below:

Making Money - Budgeting

Saving now so your Kids don't have to worry

2010-02-01T07:27:00.000-08:00

Now, the first thing you should be thinking of is education. Depending on the age of your child inform and teach them the true value of money. Make sure that they are on an "allowance" - it doesn't have to be much (& really shouldn't be) and that they get rewarded for doing some work. Let them learn what they can and cannot buy with the money that they have earned. This is perhaps really "old school" but at the same time its very worthwile. Having to save your pennies for that new toy car or comic book really makes you appreciate it all the more and will not only show them the value of their purchase but might also have the added benefit of ensuring that they take care of it as they know how long it took to get it!

Investments:

If your children are not yet at the age to educate them and it only seems like an endless cycle of feeding, changing and sleeping, you can still invest for their future. Most governments around the world offer specific vehicles for saving funds tax free for a child's education. This is a great thing to really look into, as not only are you saving for an expected future expense, you are doing this without tax implications which is a savings in and off itself!!

In Canada you would be looking at RESP (Registered Education Savings Plans) which are distinct from RRSP (Registered Retirment Savings Plan) and in the UK, you would be looking at something called a Child Trust Fund. In both of these cases, not only are you able to invest tax free, but you are also able to have other family members (grand parents, uncles, aunts etc...) invest in the funds too. If you pitch it correctly instead of your childs grandparent buying a new toy for your childs birthday - maybe then can throw $20 towards their future!! Its really a win-win.

The funds themselves are generally mutual funds or shares/stocks with an additional savings element for security and stability. Now, despite what you might think, investing in the stock market - FOR THE LONG RUN - is actually fairly safe! Even with all the economic disruptions we've seen over the past couple of years, by investing in the "whole of the market" vs any one specific stock you would be well protected and able to take advantage of the power of compounding (which I shall talk about in greater depth at another time) and time itself.

If you invest in shares, for example, the value of investments may vary wildly over two or three years, but over the 18-20 years or so of the investment, in the vast majority of cases, shares will significantly outperform cash.

Depending on how you actually do decide to allocate your investment most fund companies offer you an aggressive option (mainly stocks/shares) all the way down to a safe option (mainly cash). As you can well imagine the aggressive option has a lot more risk but at the same time the potential of a greater reward and with the time frame you are thinking about, this might actually work in your interest, especially if you look at your distribution every couple of years and reallocate funds based on the current life stage that you and your children are at.

Savings & Budgeting:

Now obviously this is something you can do and invest into the funds mentioned above anyways, but perhaps you thought that the kids were going to get the house anways so why bother saving anything else? Well as a child of the "sandwich generation" I can tell you that your kids probably don't want your house anyways - heck you're going to live forever right! - and they will want to start their own family too. So, unless you've got a spare wing on your mansion, they are going to want to have their own property.

Investing in their education is all well and good, but if property prices continue to increase in the future in a similar manner to the last twenty years, you are going to need to help them get on that ladder for at least their first property. This is where time works in your favor again - trying to find that 10% deposit chunk all at once isn't easy for anyone, however finding £50/month is actually not as hard. Take a look at the calculations below for an example of how much £50/month at 1% interest (which is really low but useful for the sake of this example) for 25 years comes out to.

Year	Amount (£)
1	602.75
2	1211.57
3	1826.49
4	2447.60
5	3074.95
6	3708.60
7	4348.61
8	4995.05
9	5647.99
10	6307.49
11	6973.61
12	7646.43
13	8326.00
14	9012.40
15	9705.70
16	10405.96
17	11113.25
18	11827.65
19	12549.23
20	13278.06
21	14014.21
22	14757.75
23	15508.76
24	16267.32
25	17033.50

See what I mean? £17,000 is not a number to be sneezed at and if you can increase your initial investment amount (I used £0) also your monthly investment - perhaps through bonuses or your partner/spouse working or maybe when the kid is old enough, some of his paper money! - this is only going to go up even more. If you haven't started yet - do so immediately - from the point of mind of your kids peace of mind, its an investment that will pay dividends in and off itself! Remember though that if you are doing this, it is NOT your money anymore unless its the direst of emergencies. This is and should be a heartfelt gift with no strings attached. Do not remind your kid that you helped buy his house - that's NOT how family works!

If you're in the enviable position of being able to save for the long haul - take advantage of it and enjoy the satisfaction you will get from helping your kids ... after all that's why you had them - isn't it?

New Boiler (part 2)

2010-01-05T05:01:00.000-08:00

Continuing the post about a new boiler, a site that breaks down the costs really well is here ... its good because he shows how much it would cost if you did it the right way vs. "on the cheap" and also the potential impact to you further down the line from a cost and repair perspective if you did do it on the cheap!

Now based on the posts on Money Saving Expert ... the costs even from a registered installer can vary wildly ... so we could be looking at quotes from £2500 - £4000 depending on who we went with. The one thing that they all agree on though is that British Gas is the most expensive installer, so even though we should use them for a quote, we probably shouldn't use them to do the work.

The types of Boilers are also many and varied ... based again on the forums though the ones they say are good are listed in order below. I'll have to see if I can price out each option for a decent comparison.

1.Vaillant
2.Worcester
3.Baxi/Potterton/Myson, Ideal, Glowworm, Keston
4.Biasi Ravenheat Saunier Duval Chaffoteaux Ferrolli Vokera

Boiler Replacement

2010-01-05T04:20:00.000-08:00

Looks like the Boiler is something I am going to have to address in a fairly quick fashion as aside from the amount of money we are paying, its not giving us enough hot water for 2 showers back-to-back. Now I suspect that this is limescale buildup in the tank vs. the boiler itself, however based on my research, by replacing my boiler with a new Combi one I will be able to replace the hot water tank in my airing cupboard as well as the water storage tank in my loft.

Now the cost for a new combi-boiler with all the labor etc... is probably going to be in the £3K - £4K range based on what everyone is telling me. The bolier itself is under £1000, but the replacement and extra work involved is where the big charges are.

The first thing is going to be getting some quotes from some reputable builders/installers though so that I have an accurate estimate in hand. Once I have this information available however I can do one other thing to bring down the cost and that is apply for the Boiler Scrappage Scheme that is currently under offer. Assuming that I am approved for this I will be able to get back £400 (so basically 1/2 the cost of a new boiler). If the installer that I am using is a reasonably large company maybe I can do this + get a 0% interest rate for a couple of years to pay it all off? Will need to see how much we're talking about of course but by replacing the boiler I should save almost £250/yr which in the long run does pay for itself.

My Money Wish

Family Finances

Finance Clippings: Groupon "the myspace of daily deals"

A Family Friendly Day Out

Managing Your Credit Card

1. Find the Right Card!

​2. Read your credit card statement every month.

3. Do not use your card for ATM withdrawals or cash advances.

4. Pay your balances in full each month.

5. Get your just rewards.

Some Simple Tips on cutting your budgeting Expenses

How to make the lesson sink?

How to control your debt by dealing with your negative cash flow

The Danger of Minimum Payments

Savings and Spending

Reducing Debt – Budgeting by Snowballing

Credit Checks, Credit Score and Credit Reporting

Some Simple Ideas to Help you Save

Simple Steps to Clean Up Your Debt

Dealing with Debt – Credit Cards III

Dealing with Debt – Credit Cards II

Snowballs and Credit Cards

Budgeting 101

Saving now so your Kids don't have to worry

New Boiler (part 2)

Boiler Replacement

2. Read your credit card statement every month.