Common Mistakes When Creating a Spending Plan

Creating and using a spending plan is more about managing behavior than money. What the spending plan does is help you to reach your financial goals. Money is the tool a spending plan uses to achieve financial goals. Below are some common mistakes when creating a spending plan.

Starting to create a spending plan without clear goals.

Clear goals make it easier to prioritize spending and ensure you’re on track. A spending plan’s goal must be what you are spending or saving money for. Before you save for a house, you should know what the type of house in the neighborhood you want to live in will cost. If you are saving for retirement, you should understand what you need to have saved by the age you plan to retire to afford the lifestyle you want. When starting a business, you should know how much you will need to spend upfront. The goal should never be about dollars but the purpose and reason behind the dollars.

Creating a spending plan without first tracking spending.

Tracking spending allows you to know where your money is going. When you do not following how much money is spent can make it hard to stick to a spending plan. I believe that if you do not track your income and expenses, you are not successfully managing your money because you do not know where you are spending it; you do not know where it is going, and therefore you cannot – effectively manage it.Tracking your spending helps to make your money, and you’re spending more real. You will begin to see it come in and go out and see it as a tool to help you achieve your financial goals.

Forgetting about small expenses.

It’s easy to overlook small, recurring expenses that add up over time, like the donut shop or vending machine. Be more aware of transactions that are quickly forgotten. Some online transactions, transactions without a receipt, can be soon forgotten. Take special steps to remember these.

Get a receipt or find a way to track expenses, even the small ones. There are only so many places where you can spend money and not get a receipt. If they do not give you one, ask for one. Additionally, make it a habit of putting all your receipts or log of expenses where you can find them.

Creating a spending plan without having an emergency or contingency fund.  

Without an emergency fund, unexpected expenses can derail a spending plan. It may be the most significant difference between those who manage to stay afloat and those who are sinking into worse financial debt. Emergency savings of 3 to 6 months of expenses allows you to meet unexpected financial challenges. The emergency fund not only allows you to cover these expenses but also gives you the peace of mind that you are prepared for financial emergencies that will arise.

Not reviewing your spending plan periodically for needed adjustments.

The spending plan process is living and breathing, and your spending plan needs to be checked regularly to ensure it’s still doing what you want it to. As a financial coach and counselor, I encourage clients to pick a day, choose a time, and prepare a place to work on their money, and then consistently work on their money during the time and place they choose, creating a habit.

Changes in your family situation, such as a child, will significantly impact your spending plan, and It’s essential to adjust spending plans accordingly. Remember that your spending plan is an estimate of how you will spend your money, so as your situation and circumstances change, your spending plan should also change. Spend time working on your money and adjust your spending plan as circumstances change.

Building a spending plan without regular savings.

Your spending plan must include savings that connect back to your financial goals, such as retirement, emergency fund, or other long-term goals. Your spending plan should have two or three categories: fixed, variable, and possibly occasional expenses. Once you allocate money to your fixed expenses, your first variable expense should be savings. Your savings is a variable expense, so it could be more one month and less the next depending on other things going on in your life. 

What is your why? Determine why you are creating a spending plan as it will help you avoid the common mistakes when creating a spending plan. Often people will make a spending plan because they want to get out of debt, save for retirement, or manage money better, but a spending plan is about your current situation also. Your spending plan should also make sure the life you are living currently is fulfilling. Just don’t plan to purchase a house or plan for retirement, plan for the other aspects of your life as well.

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Kick-Start Your Savings

The saving rate in America this year has been between 5.8% and 5.1% thru June of 2022, however, it’s not where it needs to be. Start today and kick-start your savings. Saving for retirement and having adequate emergency savings for unexpected expenditures such as car repairs or medical expenses is a big part of being financially secure. 

Make Saving a Priority

The mindset of saving must change, and we must realize and make it a priority. Make saving a priority by setting saving goals and developing a plan to meet them. Then, continually assess progress and take action to meet goals when needed. You need a spending plan.

Below are five tips to kick-start your saving:

1. Pay off high-interest debt. The best investment most borrowers can make, is to pay off high-interest consumer debt. For example, if you have a $3,000 credit card balance at 19 percent, and you only pay the minimum payment of 1 to 3 percent of the balance or $20 – $35, whichever is greater, it will take more than 30 years to pay off the loan. With accumulating interest, you will pay more than the item cost in interest charges.

2. Buy a home and pay off the mortgage before you retire. The largest asset of most middle-income families is their home equity. Once you make the last mortgage payment, you will have far lower housing expenses. Further, you have an asset that appreciates and can be borrowed against in emergencies or converted into cash through the sale of the home.

3. Participate in a work-related retirement saving program. Many employees turn down free money from their employer by not signing up for a work-related retirement program such as a 401k plan. If you do decide to participate, with a dollar-for-dollar match that some companies provide, you could likely receive an annual yield of greater than 50 percent of their investment or more.

4. Outside of work, save monthly through an automatic transfer from checking to savings. A great way to start saving because what you don’t see, you probably won’t miss. These savings will provide funds for emergencies, home purchases, school tuition, or retirement. Most banking institutions will, on request, automatically transfer funds monthly from your checking account to a savings account, U.S. Saving Bond, or stock mutual fund. 

5. Earn up to 9.62 percent or more with U.S. Series I Savings Bonds. The composite or earning rate for I bonds issued from May 2022 through October 2022 is 9.62 percent. This rate applies for the first six months you own the bond. I bond earns interest monthly from the first day of the month on the issue date. The interest accrues until the bond reaches 30 years or you cash the bond, whichever comes first. The interest is compounded semiannually. Every six months from the bond’s issue date, interest the bond earned in the six previous months is added to the bond’s principal value, creating a new principal value. Interest is then earned on the new principal. You can cash the bond after 12 months. However, if you cash the bond before it is five years old, you lose the last three months of interest.

Final Thoughts on Saving

Once you realize the need to save, develop a savings goal and kick start your savings.

If you do not have an emergency fund, make this your first savings goal, and then commit to $300, and then $500 on your way to a $1000 emergency fund.  

Devise a plan, strategy, or vehicle to meet the goal. Create a spending plan. Try one or two of the tips above, and in time, you will be on your way to meeting your goal and improving your financial situation.

The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

Managing Money Well Creates Choices

Managing money well gives you more choices and options. You see, money is just a tool to help you reach your goals and dreams. It’s an asset and a help. It’s not a master, and it’s a terrible god.  

William Jennings Bryan, three-time Presidential candidate, put it this way in a speech in 1900, “There is a proper relation which should exist between man and money. Man, the handiwork of God, comes first: money, the handiwork of man, is of inferior importance.”

Our purpose is not to serve money, but for money to serve us and help us reach aspirations.

When money is managed well, good financial decisions are made and financial goals and dreams are moving forward. Some questions for you to consider are:

What are your goals for your money? When you make financial decisions, do you know the choices that you have? When you make financial decisions, do you make them based on your goals and dreams and do they support the financial life you want to create? Do you make financial decisions based on how they grow your assets?

These questions can guide you as you make financial decision and improve choices.

Assets Are Money Managed Well

The foundation of choices with money are assets and specifically, liquid assets.  Asset that can easily be converted into cash in a short amount of time are called. Liquid assets include things like cash, money market instruments, and marketable securities.

Liquid assets are often viewed as cash, and likewise may be called cash equivalents because the owner is confident the assets can easily be exchanged for cash at any time.

Overall, liquid assets are very important for individuals because they are the first source of cash used in meeting payment obligations, financial shocks, emergencies, and the other things that we all do with money. Managing money well creates assets and provides the choice to go back to school or to quit your current job to look for a better one or start your own business.

David Kolb, An educator, says this about choices, “The way we process the possibilities of each new emerging event determines the range of choices and decisions we see. The choices and decisions we make to some extent determine the events we live through, and these events influence our future choices. Thus, we create ourselves through the choice of actual occasions we live through, and these events influence our future choices.” (Kolb 1984:63-64).

You can create better choices for you and your family!

Can A Financial Coach Help you Manage Money Well? 

I am a financial coach/counselor and what I do is help people navigate financial choices to help them manage money better. I would love to help you manage your finances better.  Imagine, a year from now and you have a different outlook on life and different perspective about your future. Working with you as your financial coach, we can make this happen. 

The question is not can a financial coach help you, because they can, the question is, are you ready to be coached? Are you open to receive coaching so that you can make better financial decisions?  Contact me if I can help you. Take care.

Teaching Children about Saving Money

Children are great learners. Maybe it’s because they have not yet developed the attitudes and behaviors that many of us have. They control or have some input, as consumers, on a lot of household spending. They do not need as much help learning to spend as they do learning how to save.

Teaching children about saving money and giving children a better understanding of what is at stake is essential for their growth and development with money. Therefore, consider introducing saving and teaching your children about saving money, as early as elementary school or even sooner. Preschool-age children are curious about money and actually want to accept some responsibility and may welcome the opportunity to save money. There is never a better time to teach children about money and saving. Even if your kids are a bit older, there is no time like the present.

Setting kids on the path to becoming good savers is not difficult and can actually be fun.  The following are a few activities that parents can do with their children, even if they do not feel financially well informed themselves.

  • Buy or make a piggy bank and decorate it to help children save money. This can be an engaging activity for the parent and child. This activity can also get your children excited about saving. Let them get as creative as they like, this will help them feel connected to the saving effort. 
  • Help your children set and work toward a modest, short-term savings goal. For young children, it can be something like a special toy, or video game. Something that they can reach fairly easily. For teens, the goal can be more significant, like saving for a class trip or the prom. Resist the temptation of starting with goals that are too big and too far in the future. If you can afford to, offer your kids age-appropriate extra jobs to earn money.
  • Encourage your child to put coins and savings into the piggy bank. If the bank is transparent, the child will be able to track progress visually. Piggy banks are great for children because they enable immediate action, a place to save gifts or allowance right away. 
  • While you are teaching your children about saving money, consider setting a family saving goal for something like a fun vacation. This is a great opportunity for parents to set a good example, regardless of how they have managed money in the past.  Additionally, initiate a conversation with your children about money and finances. You and your family can also work together collecting loose change or maybe having a yard sale to help establish saving as a good habit and a family value. 
  • You can also help kids become good savers by reading money related stories and playing money games with them. Any experiences with money, and how to do good things with money will help teach children. Additionally, there is a wide array of financial education programs and resources available to help you teach your children about money and saving. 

Remember, when teaching children about saving money, if your children’s first saving experience is exciting and fun, they are more likely to want to do it repeatedly. And they can never be too young to learn something about money. Remember, they are great learners. Take care.   

Spending Plan Tips for Graduates

Congratulations! You finally made it and graduated, and now it’s time to face a different world. And that includes planning to spend your money. Keep the following spending plan tips for graduates in mind as you get out in the world and start working your first real job.

Use a Spending Plan and Plan your Spending

You are possibly going to have more money than you ever have. It’s going to be a smart move, on your part to plan to spend it. Money is good for three things, and spending is one of the three things, so it’s okay to spend just spend with a plan. 

Sit down with a piece of paper and a pencil and just write out where you are going to spend your money; how much, where, and what for. 

By doing this, you are creating a spending plan. Later you may want to move to a spreadsheet or app, but to start, use paper and pencil, keep it simple.       

Tracking Your Expenses helps You to Be More Aware

Track your spending if you want to manage your money better. There are lots, and lots of ways to track your spending…you pick one. You can track by app, spreadsheet, or on your phone, and it does not matter which as long as you track.

Record every expense every time.

Some expenses are just easy to forget. Here I am mainly talking about things automatically drafted, like the streaming subscription or maybe a credit payment. Car insurance payments every six months or once a year is another. Keep these expenses written down in your log so you do not forget them. And get a receipt from every place you shop or eat; this will help when it comes time to remember and record.

Also, contingencies and emergencies are going to happen. Do not forget to save for these. A good emergency fund will cover expenses for a couple of months and give you peace of mind.   

Again, congratulations! You have worked hard, sacrificed, and now it’s time to celebrate. After your celebration is over, start planning your spending and use these spending plan tips for graduates to creating a spending plan that works for you. It will benefit you as you grow in your career and life. Take care.