Stop panicking and get your finances under control
Lately all we hear about in the news is how dire the state of the economy is. Unemployment is soaring, job losses are reaching new heights daily, and large corporations are going belly up. Even with the assistance of the “Economic stimulus package”, it will take an extreme amount of time before we are able to reap the benefits of this program. Let’s face it, it’s up to us as individuals to take a stand and become in charge of our own financial destinies. We can no longer sit back and place blame all around us. Sure, some things are out of our control, such as the goings on behind the corporate board room doors, or even the high level decisions that impact the financial status of any company. What I mean is that within our own households, we can control our actions. So much so that any outside interferences are minimized.
For instance, one of the number one rules of personal financial management is to save at least 6 to 8 months of living expenses in an emergency fund. With the current level of job losses reported each month, now is the time to be able to tap into that emergency fund. The truth is that the majority of us are about 2 paychecks away from poverty. So what happened to that emergency fund? I’ll tell you, nothing. Nothing was saved or even considered, because the typical mentality is to spend now and worry about emergencies later. Well I’m here to tell you that emergencies do come, and when they do, they come harder than expected. I guess you could call this the ultimate procrastination. We wait until the last minute or until the problem spirals out of control. What’s happening in the economy is a revelation to us all. The economy has been managed like our own households; spending lavishly on goods and services that have no permanent value in our lives. We enjoy the momentum of wealth as long as we don’t have to be held accountable for its origins. Our habits must change in order to make a difference. Don’t get me wrong, I am just as sympathetic with the next person about the financial challenges many households are facing. However, I do realize that even with our limited resources, we can still make a difference by changing our spending habits. Create that emergency fund now. Every little bit counts. Even If you’re receiving unemployment, take some of the funds and put aside in a separate account for future use. Most importantly, don’t touch those funds. Treat it the same as when you borrow from a retirement fund. Pay yourself back an additional 10% for borrowing funds from the account.
What I’ve decided to do is summarize five of the most popular financial suggestions that many of us are familiar with. It helps to see these suggestions repeated, because repetition brings about a change in habit.
1. Pull all your financial skeletons out of the closet. All those past due accounts, turn off notices, judgments, etc. Next, create a spreadsheet of all your expenses separating them into categories such as household, vacation, education, etc. Compare this to your income to determine your status. From this create your budget and stick to it.
2. As I mentioned earlier, put away 6-8 months of your earnings into a savings account to build your emergency fund. Do not invest this money into risky ventures like the stock market. This money should be immediately available to you at no cost.
3. Live below your means. If you’re a two earner income family, get into the habit of living entirely on one contributors income. I know, it sounds a bit outrageous to pull this off, but you’ll be surprised when you realize that the majority of your purchases are “wants” and not “needs”.
4. Find unique ways to save money. For instance if you have cable TV consider canceling the service and signing up for Netflix. You can save about $50-$100 per month.
5. Get started today. Procrastination doesn’t serve any of us at this point.
Taking care of your financial profile is your responsibility. Not the government, not your employer, not your financial adviser, it’s yours. Take back your life and create a new financial future!
Partnering for your financial future
Jacqueline E. Williams
Financial Strategist
Bookkeeping is not only for Business
The term bookkeeping is enough to send people running for cover. Why is it that, of all the business tasks to perform, this one is the most popular when it comes to procrastination? We all know the importance of having a clear financial picture of our business activities. But what about our personal lives? In terms of bookkeeping from a personal perspective, many consider this to be simply “budgeting”. Actually this is not the case. Budgeting involves determining how much money you have, and where to spend it. Bookkeeping in a sense involves the same, however it’s more complex because it’s also about creating a system or process for managing the flow of your financial data. For instance, a simple household budget would not typically go any further than a spreadsheet consisting of “income in and income out”. Bookkeeping on the other hand shows the details behind what’s coming in, from where, so that you’ll be able to create trends and make decisions based on the cumulative data. Bookkeeping involves the process of not only the input of data but the manipulation and placement of that data. So, the next question is how would you set up an effective bookkeeping system for your household? Well, I’ll show you.
First, let’s start with the beginning, which is the source of this data. For instance, our major source of household income is from salaries or business revenue. A good bookkeeping system would have separate bank accounts to receive the income. Any expenses associated with the earnings would also flow through this account. It may seem a bit redundant, however, it makes for a cleaner process when it comes to tracking your sources.
Next, any information from these sources should be kept in their own files or folders. Items received in the mail should be immediately sorted and filed according to their categories. Thus far, you can already see the importance of an efficient filing system.
Once the data has been received, next you must enter this information into a spreadsheet. Today, most people use financial software to accomplish this task. I often refer to Quick Books, because it’s my software choice for both business and personal. Quick Books has a line of software products geared towards your specific need. Even on the most basic of levels, the software is easy to maneuver. For personal financial software, there is no need to understand debits and credits. This is where most folks get confused. You will work directly from your bank account. The software even has features to track other items such as investments, property, and retirement accounts. The biggest task here is making sure than you keep your files updated. Rule of thumb is to update based on the number of transactions you produce on a monthly basis. 0-100 transactions, you can update your files monthly. 100-250, you should update your files more often, probably weekly. After you have organized all your information, from receipt to recording, now is the time to analyze your data to make some key decisions.
Streamlining your household finances is an important process and must be handled with the same focus and energy as if you were conducting business. After all, your financial picture is the framework of your family.
Partnering for your success
Jacqueline Williams
Financial Strategist
Family financial season of change
Life’s cycles are wonderful & mysterious. Throughout each season we experience the changes that the earth brings us in all its wonderment & splendor. With great expectation we prepare our households. Gathering and storing throughout the fall to prepare for the winter. Clearing and planting in preparation for the spring & summer. The understanding of these events will determine our mode of preparation for them.
Spring is a time of renewal. As we clear the clutter in our home we should also clear the clutter in our financial lives. With tax season fast approaching, this is the opportune time to review & organize all records. Set up categories for all your expenditures & file your receipts based on these categories in a tickler file. The best approach is to automate your process. There are various programs, such as Quicken, Peachtree, & Microsoft Accounting, which are very user friendly and require minimum to no accounting knowledge. To manage the input of your receipts even further, utilize software for expense management such as Neat Receipts. This product will streamline the entire process and is easily integrated with other programs.
Another important financial area to review would be insurance policies & retirement accounts. For your homeowner’s /renter’s policy, spring is a good time to take inventory, especially after the Christmas holiday purchases. If your policy does not provide a manual inventory spreadsheet, create one in Excel. It’s a good idea to update your inventory sheet quarterly, to cover purchases made throughout the year. Let’s not forget auto insurance. With summer fast approaching, this is the time to consider major repairs, in preparation for summer travel. Check your policy to make sure you have adequate coverage. If your vehicle is financed and will be paid off this year, you may consider changing from full coverage to only liability coverage. Consider factors such as the overall condition of your vehicle, listed drivers, & total mileage. A change in your premium could have a significant impact on your monthly budget. As for your retirement investments, the best practice is to review your investments monthly for performance, but try not to make changes to your portfolio more than on a quarterly basis. However, expect an annual review from your insurance agent or financial advisor. As experts in their fields, your Advisor will determine the best possible balance of securities in their corresponding industries. Your investment style & history, which is generally gathered prior to you initiating the account, is the basis of all decisions made by your Investment Advisor. A good Advisor will operate under your discretion and comfort level.
What about your taxes? Because this subject can be very expansive, I will only mention briefly some important points to help you manage the “mayhem” during this period. Most people operate under the mindset to file their taxes in a manner to produce the largest refund. This is not necessarily a good idea. Don’t depend on your tax refund to cover living expenses. That’s what a savings account is for. The IRS does not pay you interest for the money it refunds to you. Technically, you are giving the IRS an interest free loan throughout the year. Wouldn’t you rather have those funds available to use at your discretion? Maintaining an effective budget will help to alleviate the stress of unwelcomed financial disasters. So, here are some simple guidelines to follow that can minimize your refund. Monitor your exemptions claimed on your W-4. The more exemptions you claim, the less taxes your pay into the system, and vise versa. If you decide to claim more than required exemptions for your situation, only do it for 6 months. Therefore, every six months you should be reviewing your W-4 exemptions. This may help to level the playing field a little. Also, be sure to maximize your deductions & tax credits. Most people miss out on common items such as educational deductions, capital losses on investments, retirement contributions, etc. The best way to gain a little knowledge and insight into taxes is to purchase a tax manual from your local book store, such as the “Dummies” series. These guides are an easy read, and clearly break down all categories of deductions & tax credits possibly available.
Well, now that we’ve cleaned out the ember s of our attics, let’s get to work on our financial success!
Partnering for your success
Jacqueline E. Williams
Financial Strategist
THE STOCK MARKET: AN EMOTIONAL ROLLER COASTER
There is no magic potion or hidden secret to a guaranteed method of making a killing in the stock market.
Let’s be real, every business is in the business to make money. Their method of doing so depends on their level of integrity. It’s believed that the stock analysts reports are the inside scoop as to how a company is performing and the expected projections of profits. But is that really how it works? Take for instance, when news comes out on a particular stock that causes the price to rise drastically. The enthusiasm by the average investor is to jump on the band wagon of this “hot tip”. Doing so will continue to drive the price up, making the stock look very attractive. In the meantime, those who already hold the stock may not even buy additional shares. Why? Because they are waiting for the price to max out so they can sell at a profit. Another question is who is giving this information to the market? I don’t mean to sound skeptical here but, we as investors need to be careful not to get caught up in the artificial enthusiasm behind hot stock tips. The corporate scandals of early 2000 are a prime example of this sort of activity. Many Wall Street analysts, brokers, and executives unfairly profited from activity such as this. Information was either acted upon in secret before being given to the general public or false information was given to the public, while executives secretly benefited from the information. Although the government has strict rules concerning the fiduciary responsibility of publicly traded companies, many of these regulations were side stepped intentionally for the sole benefit of profit. By the time the government found out, executives had already claimed millions in profits, and the general public or investor was left bankrupt. What’s the lesson to be learned here? When investing be extra careful about how you use the information you receive. Remember to stick to your investment strategy, which should be based on factors such as, income level, investment knowledge & financial goals. What I learned in economics 101 still holds true: prices are based on the laws of supply and demand. When the supply is fixed, the price will fluctuate based on the demand. If demand is high, the price will go up. If demand is low, the price will go down. And thus the stock market also follows this rule. So the next time you hear about a “hot stock tip”, do some research to find out who disseminated the information and why? You just might be surprised.
Partnering for your success
Jacqueline Williams
Financial Strategist
LOVE AND MONEY: TIL DEBT DO US PART?
The beginning stages of love feel wonderful. The first attraction that leads to those many romantic dates and eventually marriage, you wish could last forever. And then comes reality; living arrangements, family, careers, children, and the dreaded MONEY PIT. With song titles like “Gold Digger”,” Ain’t nothin’ going on but the rent”, or “Pay My Bills”, it’s amazing how we even manage to build healthy financial relationships with our partners.
The same energy and effort used to court our partner is needed tenfold when it comes to merging our ideas about money. Many of us float into our predicaments, romanticizing our way into an idealistic view about having it all, not being fully aware of what’s expected, or even wanting to face the harsh realities of having to deal with combining our finances. Unattended, love and money can mix like oil and water, leaving a difficult mess to clean up afterwards. On the contrary, choosing the responsible approach, love and money, handled properly, can reap great rewards and benefits for years to come.
I’ve heard many conversations about this topic from committed couples, married couples, and even dating couples. It’s amazing how brave everyone appears to be when divulging financial information to others about their situation. People tend to give the glossed over version of what they believe is control, when in fact, it’s typically done when the other partner is not even present. Ever had a conversation about someone who wasn’t present and that someone enters the room and everyone gets quiet? This is how it’s generally played out. If the situation was really under control, there would not be a need to cover it up.
It’s time to pull back those covers and expose some of these harsh realities. How do we expect to have a healthy relationship, when we can’t come to terms with one of the more important aspects of partnerships, which is combining resources. Love and money don’t have to exist at the opposite ends of the spectrum. They can co-exist successfully and even build a stronger union if handled properly. Just like a business, when combining resources, the ultimate goal is to benefit all parties involved by way of profit. Using the same concept, we should want to profit financially in our relationships. I’m not talking about living off the means of another. I’m talking about a genuine contribution for the benefit of the union. How do we achieve this?
Stop being selfish.
Unconsciously many of us operate in our relationships based on how it makes us feel. Ultimately this will cause separation and discord. The reason being is the focus is on Me, Myself and I, instead of We. When we don’t get what we want, the easiest solution is to leave. Audrey Chapman, a relationship expert and author, has cited the definition of love being: the act of being selflessly motivated for the complete emotional, financial, spiritual, and physical well being of another. Need I say anymore?
Treat your financial relationship like a business.
Operating a business can be very mechanical in nature but also proves to be very practical. Businesses are in operations for the sole purpose of profit. Management will organize, prepare, and plan to make it as successful as possible in order to reap the benefits. Your financial relationship with your partner should have the same goals. Organize, plan, and prepare yourselves for a profitable co-existence. Be sure to educate yourself on topics such as
• Life Insurance
• Health Insurance
• Retirement Plans
• Alimony
• Child support
Don’t let surprises throw you off balance. Do your homework up front. Schedule time on a monthly basis to have a discussion on finances. Create an agenda of topics to discuss and follow through with research. That’s right; this is your family financial board meeting.
Reveal your financial skeletons to your partner
There is nothing worse than finding out that your partner is financially defunct after you got married. This is where many of us make a mistake. Once you and your partner have made a decision to join in marriage, sit down and have a no holds barred discussion on your financial history. What you find out today can determine if you get married tomorrow. Don’t be ashamed, because this will demonstrate if your intended partner truly loves you in spite of your predicament. But be realistic about how to handle your problems. Create an action plan with milestones to achieve, to get you where you desire to be together.
Decide on ownership
Make the decision on who will be represented as owner on assets such as bank accounts, property, policies, & investments. This is very important. Depending upon your financial profile it may be beneficial to have only one person listed as owner. For example if your spouse has bad credit, it may be necessary to only list yourself on the deed for the property. Or, if your spouse has outstanding IRS liens or levies, all property owned by that individual would be subjected to the lien. Be very careful when making such a decision. Your best approach is to consult an attorney about the ownership statues of your particular state.
Decide if you need a pre-nuptial agreement
Do they create the air of defeat before the marriage starts? Are we preparing for the worst? Not exactly. Very wealthy individuals find it necessary to protect themselves and their legacies from potential unscrupulous activity. I have to admit that I am biased when it comes to this subject. My feeling is why would this be necessary if your partner is truly trustworthy? Although a controversial subject, it still needs addressing. Consult with an attorney before making any decisions, and good luck!
When it’s all said and done, remember the ultimate goal is to work together to resolve all financial issues whether they were created individually or together. Love and Money does co-exist with a lot of hard work, focus and most of all commitment!
Partnering for your success
Jacqueline Williams
Financial Strategist