Websites go down. In fact, websites go down pretty often and usually it’s not a big deal. However, if the website is your only interface with a bank, then it becomes a very big deal. That’s why I always recommend that you diversify your online savings accounts in the event something like this happens. I’m not a good example, because I recently told you about how I had a dozen savings accounts, but if all of your savings are in one bank, you might want to spread it out a little. (here are some high yield savings options)

If you don’t feel like dealing with more than one bank, here’s another suggestion. Make sure that you can withdraw funds from your online savings account through your main checking account. If you remember my financial network map, my main checking account has no awareness of my savings accounts.

I can’t go to my checking account and try to transfer funds from my ING Direct. That’s bad. If I could, then INGDirect.com going down wouldn’t bother me as much. Try to have that in place if you can.

Remember that nothing happens in real time with online savings accounts, so being down for an hour doesn’t really hurt anything. However, hours have a funny way of stretching into days whenever you least desire it.

Just a thought!

Diversify Your Online Bank Accounts

I would tell myself that it takes hard work, talent, and a little bit of luck to find success in this world, emphasis on hard work. When I was 18, I had a pretty high opinion of myself. I did well in high school, I got into the college I was aiming for and go into the program I wanted to. I went to college, had to adjust to my newfound freedom, and was immediately floored by the genius that surrounded me (it was Computer Science at Carnegie Mellon University, I was routinely the least intelligent person in the room and I’m not being humble in the least). After all was said and done, I survived the experience pretty much intact.

When I entered college, I thought I could out-smart and out-think everyone. When I left, I knew that I couldn’t out-smart or out-think people, I had to out-work them. If I only had known that from the beginning, I probably would’ve graduated with a few more A’s and B’s.

If you had a time machine, would you tell yourself ten years ago? Don’t feel like you have to stick to personal finance tips, it’s Friday Funday, so feel free to write whatever you want!

(Photo: jhoweaa)

Your Take: What Would You Tell Yourself 10 Years Ago?

Three sons were to be equal beneficiaries from their widowed mom’s estate. She had a modest home, about $100,000 in CD’s at the local bank, and $250,000 in an annuity. The mother named the eldest son executor of the estate. The family had always gotten along and the mother never imagined there would be an issue settling her estate, especially since her wishes were spelled out in the will - each son would get an equal third.

Sounds straight-forward enough, right? Wrong.

One minor item was overlooked and it proved to be the catalyst that drove the three surviving brothers apart.

The mother’s home and CD’s were divided without any problems in accordance of the will. It was the annuity that created the problem. When her husband had passed, she named her eldest son as the primary beneficiary on the policy. When she passed, the eldest son concluded that his mom had intended for him to receive the entire $250,000. So he kept all of the annuity to himself and as well as a third of everything else in the estate. Can that really happen? It can and it did.

Beneficiary Designation

Accounts that carry a beneficiary designation offer one of the simplest and most direct ways to efficiently get assets in the hands of loved ones after your death, but only if you have completed the paperwork properly and the information is up-to-date.

You might be surprised to learn that your will has no authority here. There are more accounts with beneficiary designations than you probably realize. IRAs, company-sponsored retirement plans (401k’s, 403b’s, TSP’s, etc), life insurance policies, Coverdell education savings accounts, and annuities, in trust for and pay on death accounts (TOD’s and POD’s), all have beneficiary designations.

Review Your Primary Beneficiaries

When deployed to Iraq, I almost forgot to change the beneficiary to my wife on my insurance policies. I had listed my parents as equal recipients because I set them before I was married. I would like to think that my parents would have done the “right” thing, but circumstances change when you receive a tax free check for $400,000. Don’t assume that your beneficiaries are correct – double check and make sure.

Contingent Beneficiary as Backup

Make sure you also have named contingent beneficiaries. These are the individuals or institutions who will receive your assets if your primary beneficiary is not available, either because they have predeceased you or because you wish to disclaim part of all your account.

Minors as Beneficiaries

Take care when naming a minor as a beneficiary. Unless the individual has attained the age of majority, which depends on where you live, they are not eligible to own financial assets. If you wish to leave certain assets to young children, such as grandchildren, you should appoint a guardian in your will to oversee these accounts until the beneficiary is no longer considered a minor.

Estate as a Beneficiary

If you don’t have a primary beneficiary or contingent beneficiary on your accounts, either because the individuals you named have died or because you simply specified anyone, your estate will become the beneficiary. In most cases, this outcome is not ideal. Assets left to your estate are subject to delays and costs of probate.  Unhappy heirs can contest the division of property, further delaying its distribution.

Trust as a Beneficiary

While naming a trust as a beneficiary of your account may seem like a simple solution, it can actually add a level of complexity when it comes to IRAs. If you want the beneficiaries of your trust to be able to stretch the IRA distributions  over their life expectancies.

529 plan.

A different but related issue is posed by 529 college savings plan. You should appoint someone you trust who can take over as successor account owner. This position is important because only the account owner of a 529 plan can change the beneficiary and authorize distributions.

It’s essential for you to review and update the beneficiary designations on a regular basis and whenever you have a major change in your personal circumstances, such as divorce, marriage, adoption, the death of a spouse, or birth of a child.

If you enjoyed Jeff’s post, read more of his stuff at Good Financial Cents, and subscribe to his RSS feed.

Why Naming Beneficiaries Is Important

She searched the internet for advice on what she could do, fully anticipating the answer was “nothing.” Then she stumbled onto a site that said she could exercise them and use the loss to offset some tax gains. She didn’t understand why that made any sense and so she asked me. I didn’t know why that made any sense either. Since she didn’t remember where she read it, we can’t be sure the advice was serious.

I don’t think exercising underwater options make any sense. If you have $100 in capital gains, you would pay $25 in taxes (assuming 25% tax bracket); leaving you with $75 in your pocket. If you were to exercise the options and have enough loss to offset the $100 in capital gains, you would have $0 in your pocket as you took the $100 loss. Sure, the tax man gets $0, but you get $0. I prefer the scenario in which the tax guy gets $25 and I get $75 any day. If you really want the shares of stock, buy them for less on the open market. If you really want to lose money, just send it to me!

This also underscores one important rule: don’t trust everything you read and interpret it for yourself. That includes anything you read here. I have been, on more than one occasion, been wrong and, as long as I’m writing, I’ll probably be wrong again in the future. Heck, just the other day I wrote about rain barrels and did not include a warning that watering vegetables with roof runoff could be potentially dangerous!

Is there any logic to exercising underwater options?

(Photo: nikonvscanon)

What To Do With Underwater Stock Options?

• $150 bonus for $50,000 balance
• $100 bonus for $40,000 balance
• $75 bonus for $30,000 balance
• $50 bonus for $20,000 balance
• $25 bonus for $10,000 balance

In terms of interest rates, WTDirect is within reach of the top spot but not quite. The best interest rate currently goes to Everbank, with their 3.01% three-month bonus interest rate followed by their 2.00% regular interest rate. WTDirect current sports a 1.76%, which coupled with this bonus, lags the leader.

The last time WTDirect offered a bonus the bonuses were richer. The maximum was $250 on a $50,000 deposit, or 0.5%. Of course, back then the interest rate was 3.06% APY.

It’s a nice promotion but it’s not enough to entice me to change where I put my savings.

WTDirect $150 Account Promotion Bonus

How To Simplify Incrementally

Take out your financial map and start looking for easy ways to consolidate and cut. Here are some ideas:

Find duplicates. I talked about how we had 12 bank accounts. We have so many because we could open a new account for free, I would review it for this site, and then we’d start putting our savings into it. We did this because new banks often offered high interest rates. We wouldn’t transfer funds from one online bank to another, because the transfer time would negate the interest rate benefits, so we slowly acquired accounts. Finding duplicates and consolidating them is the easiest way to simplify. Find the lowest interest rate bank and transfer the funds to the highest interest rate bank. Easy win.

Find obsolete and unnecessary accounts. An obsolete account is one that no longer has a purpose. When we replaced our windows, we took advantage of a 6 month same-as-cash financing offer. It was a line of credit with GE Money. After six months, the account was obsolete but I didn’t realize I had to actually close it. It wasn’t until I saw it actively listed on my credit report did I call and have it closed.

Find a better replacement. While this was the logic that led me to 12 bank accounts, it’s better applied to other financial accounts. If you aren’t getting free checking, you should go to a bank or credit union that will give it to you. If you’re paying $20 a trade, you should be going with a better online stock broker that charges you less than twenty bucks.

Do you have any tips for how to simplify your finances?

Incremental Simplification of Your Finances

You read that correctly, we have twelve accounts.

Ally Bank, FNBO Direct, ING Direct, HSBC Direct, Bank of America, M&T Bank, … the list goes on.

We also have a dozen credit cards. Citi, Discover, Capital One, … again, the list goes on.

We have so many accounts because we’ve slowly acquired them over the course of the last ten years. Our financial network map is an intricated mess despite our best efforts to simplify our personal finances.

That’s why we need to hit the reset button on our financial life.

How do you hit the hard reset? You wipe it all away and start over.

Drawing Your Ideal Map

You start by drawing your ideal financial network map. Imagine a world in which you have one or two credit cards, one bank account (checking and savings), and one broker (retirement or taxable account). How would that look?

Probably like this:

What is this simple system missing? Perhaps an online savings account with a higher interest rate? Add that in.

Anything else? Repeat this process until you have the simplest network you possible can, being as specific as possible (use bank names, use card names)

Now, how do you get your current financial network map to look like your utopian financial network map?

Create An Action Plan

Create an action plan to get from your current map to your ideal map. This will be a simple list of steps you’ll need complete to consolidate everything down to the absolute basics. It’ll look something like this:

1. Transfer all funds from Emigrant Direct to Bank of America,
2. Close Emigrant Direct account,
3. Call Citi and consolidate Citi Platinum Select card limit into Citi mtvU card,
4. …

Then do each step on the map until you’re done!

Some Helpful Tips

1. Closing bank accounts will not affect your credit score, so feel free to close without any negative impact.
2. In closing bank accounts where you have both a savings and checking, transfer all the funds into your checking before requesting closure. I ran into this problem with Washington Mutual when I closed my account there, I had to close the savings first, then the checking. Confirm with your bank first.
3. With an online bank, electronically transfer all your funds out, leaving only the minimum balance. When you close an account, they will want to mail you a check. By transferring it out first, you limit how much is stuck in limbo.
4. I recommend having two online bank accounts to diversify, in the event one is inaccessible for technical reasons.
5. Closing credit cards will likely reduce your score, so consolidate credit limits where you can. If you favor simplicity over a high score, close away. If nothing else, stick the card in your desk drawer (though the issuer may close it for inactivity). If you opt to “box” a card, keep it on your map but annotate it.
6. Rolling over broker accounts can be a great way to reduce your costs as well, as higher balances typically get more favorable treatment from the broker. I advise making transfers over holidays so that the time your investments are out of the market is limited.
7. If you are transfering and closing from one broker to another, take advantage of transfer promotions brokers may be offering. For example, TradeKing will refund up to $150 in fees if you transfer from another broker. Many brokers are offering this type of promotion.

I call this a hard reset because you’re starting from scratch. With this approach, you can build a system that is both simple and works for you. This afternoon, I’ll show another approach that is similar. I call it a “soft reset” because you don’t start from scratch, you simplify your network until you reach that ideal map.

How to Hard Reset Your Financial Life

Robert Pagliarini is a certified financial planner that wrote the Six-Day Financial Makeover and is a regular magazine contributor to Affluent magazine. In Plan Z, Robert writes about what you should do right now to help navigate the financial crisis and economic recession we are currently in.

If you’re concerned about how tenuous your finances are and you aren’t sure what you should be doing, I recommend that you read Plan Z. It’s an absolutely free ebook that doesn’t try to sell you on Robert’s services (though he does offer up his credentials to prove you should listen to what he has to say), so there’s no reason why you shouldn’t give it a look.

Plan Z: How to Survive the 2009 Financial Crisis [FREE]

Wait, that’s probably not framed in the best way. How about this:

Yesterday, my wife quit her job of nearly four years to pursue a doctorate at the University of Maryland.

Better?

Either way, neither one of us has a “traditional” job. As such, we’ve had to make a few adjustments in our life for the period between when she left her job (yesterday) and when she’ll start graduate school.

Health Insurance

Health insurance is the biggest change, since we were both one her employer provided health insurance.

Fortunately, her employer’s health insurance policy covers us until the end of July. In August, we’ll be using COBRA as a safety net until she starts school. When she starts, we’ll be on her student/staff health insurance. COBRA stands for Consolidated Omnibus Budget Reconciliation Act and gives you the right to get medical insurance under your former plan as long as you pay the full premiums.

What’s nice about COBRA is that you have 60 days to decide whether you want to active it. This gives you a 60 day grace period where you can get coverage but not pay for it. If you do elect it, it’s retroactive and you have to pay premiums for all the time that has passed. People usually only elect COBRA if they need it, otherwise it’s cheaper to find independent health insurance (generally). This will give us a safety net for August. If we need it, we elect COBRA for a month. If we don’t, then we won’t.

Medical Benefits

Regular Checkups. We scheduled some preventative care visits, like regular checkups and dental cleanings, right before she quit so that we could take advantage of the annual allowances included in the medical benefits. It’s always important to take advantage of medical benefits, especially preventative care, because it’s something you’re paying for, even if you don’t know it.

Flexible Spending Account. When you leave your job, voluntarily or involuntarily, you are still entitled to spend the full amount in your flexible spending account. It’s known as the FSA loophole. We spent the remainder of her FSA on some basic medical supplies, new glasses and contact lenses.

401(k)

Since she had to have applied to graduate school in the fall, we had an inkling that she wouldn’t be staying at her employer for the full year. While we weren’t sure she’d accept one of the programs she was accepted into, we figured we might as well plan for it by front-loading her 401(k) contributions. We contributed the full 2009 contribution of $16,500 in the first six months of the year.

This wasn’t a difficult call to make since the stock market was at historic lows and our time horizon is forty years. We’ll know in a few years whether this was a mistake or not, though I am willing to bet about $8,000, pre-tax, that it won’t prove to be.

We’ll be rolling her 401(k) over to Vanguard as soon as possible, in order to simplify our finances.

I think that about covers it on the financial front. Think I missed anything?

(Photo: fuzzcat)

My Wife Quit Her Job

The question that comes up most frequently from women who want to make healthier and eco-friendly choices in the makeup aisle is: “Where in the world do I begin?” It’s easy to simply hunt for the perfect new shade of lipstick. But when you stop and think about what is actually in that lipstick, it can be very scary indeed. We all know by now that anything we put on to our skin will ultimately, in some amount, end up in our blood stream affecting our health. If you don’t think this happens, just ask any doctor you know about medicated creams that are all the rage in everything from hormone creams to topical headache roll-ons.

Making the shift to reading each label and having ingredient awareness is like going to the gym for the first time after a long break. The hardest part is that first step in getting yourself up and going. Once you’re there and getting your body moving, you are ecstatic that you jumped over that first hurdle. That’s because you know it’s good for you! The same scenario rings true for making the leap to reading every label and gaining awareness for the extensive list of ingredients in the beauty and skincare products you buy.

Once you are aware of many ingredients, you will be hard-pressed not to freak out. At first glance, it can feel as if you need to become a bio-chemist to decipher the astoundingly confusing laundry list of ingredients found on a simple box of lip-gloss. However, you do not need to earn a degree in all things toxic to go natural and organic with your cosmetics. With a few easy tools in your (organic) bag, you will be able to stroll into the cosmetics aisle and make a sensible, healthy and fabulous pick.

Cosmetics Database To The Rescue

The Cosmetics Database is an incredible free resource founded by the Environmental Working Group. This diligent group of scientists created the Skin Deep Report, an online safety guide for cosmetics and personal care products based on the combined information from more than 50 toxicity and regulatory databases. At CosmeticsDatabase.com, you can look up the toxicity rating of beauty products you are already using or products that you are considering purchasing. The database analyzes and rates companies, brands and individual products on a scale of 0-10; 0 being least hazardous, 10 being the most hazardous.

To stay toxic-chemical free, only choose products that earn a rating between 0-3. At CosmeticsDatabase.com, you can also find a list of companies who have signed the Compact for Safe Cosmetics. This is the pledge not to use ingredients that cause cancer and/or disrupt hormones.

10 Ingredients To Avoid

1. Aluminum – blocks pores, trapping sweat and toxins in the skin; has been linked to lung disease and Alzheimer’s
2. Artificial Colors – F, D, and C are all derived from coal tar; low-level exposure is linked to cancer, allergic reactions, nausea, fatigue and skin problems
3. Dibutyl Phthalate – found in all people tested by the Center for Disease Control in 2000; causes birth defects in animal testing
4. Formaldehydes – used in the medical profession as a preservative; also listed as: Imidazolidinyl, DMDM hydantoin, Quaternium 15, Diazolidinylurea, 2-bromo-2-nitropropane-1, and 3-diol
5. Fragrances – this category contains up to 200 undeclared substances (scary!); fragrances are known to cause skin irritation and hyper-pigmentation
6. Isopropyl Alcohol – is made from petroleum and acts as a drying agent
7. Parabens– made from petroleum, parabens are thought to play a role in decreased sperm counts and increasing rates of breast cancer; used in 99% of all cosmetics; these petrochemicals are known to be estrogenic, carcinogenic and allergenic
8. Paraffin– made from petroleum and is used to block pores, trapping toxins in the skin
9. Phenoxyethanol- is a synthetic ether alcohol preservative; this ingredient can cause contact dermatitis
10. Talc– an extremely popular ingredient in makeup and baby powders; current research has shown that it can contain asbestos and has been linked to ovarian cancer

Signing off…EcoDiva

Organic Beauty & Cosmetics – Where Do I Begin?

Do you have plans for that money? If not, it should be in a certificate of deposit at your bank. If your bank doesn’t offer good CD rates, then you should open a CD with an online bank and take advantage of their better interest rates. If you don’t think you have enough money, you’re wrong. You can open a CD at an online bank with a single dollar.

One dollar.

In general, certificates of deposit are loss leaders for banks. They’re like the produce sales at the grocery store, they are designed to get you to open an account and start a relationship with the bank. Ever notice banks will give you free checking if you set up a direct deposit or start using billpay? It’s to solidify your relationship (because it’s a pain to change your direct deposit). The CD is that shiny apple just begging you to come in and check out the produce.

Best Bank CD Rates

I have a database of the best CD rates that I try to keep updated as regularly as possible, and with that database I’ll spit out the best rates for CDs with maturities of less than or equal to two years.

If there is a bank you’d like to see listed on this page, please let me know!

Longer Maturities, Higher Rates

Also, in most cases, the rates a bank will offer on a certificate of deposit will increase as the CD’s maturity length increases. A 7 year CD will always have a listed higher interest rate than one that has a maturity of 6 months. There are a couple reasons for this. First, there is a fixed cost with opening a new CD that is the same for one that will last six months or sixty. Part of that cost will be absorbed by lowering the interest rate and that makes a greater impact on shorter maturities.

The second reason has to do with inflation risk. Your deposit is FDIC insured against loss but it’s still at risk from inflation, which erodes the value of all the money that you have. Longer CDs will have higher rates because there’s a bias towards inflation. In the history of the United States, there have been periods of deflation, when your money has gotten more valuable, but they have been very rare. Inflation is not only expected, but encouraged for a healthy and functioning economy, and interest rates reflect that.

Bank CD Rates

If you haven’t yet joined the workforce but are planning to in the next few months, I wanted to give you five things you should do before you start working.

Learn to Budget

While you were in college, not budgeting was kind of OK. You didn’t earn a lot, you hopefully didn’t spend a lot, and so not having a budget was not as big of a deal. Now that you’ll be pulling in a larger paycheck and will likely be spending more money, it’s important that you learn how to budget.

Get A Credit Card

If you didn’t have a credit card in college, now might be a good time to start. Your credit history and credit score will be used in a whole host of unexpected places and will become more and more important as you get older. You probably won’t buy a house with cash, so your score and history will be important in determining your mortgage interest rate. The easiest way to build your credit history is with unsecured credit cards. It’s the easiest way to build credit, not the only way, but the easiest way.

Get A Credit Union Account

Credit unions are wonderful institutions. They are like banks but the “owners” are the credit union members themselves. This means that you’ll usually get higher interest rates on your savings accounts and lower interest rates on loans. Joining a credit union can also be very educational, many of them hold seminars teaching you basic financial ideas that can save you money down the road.

Understand Investing Basics

It’s important that you understand the basic concepts involved in investing, especially retirement investing. You probably won’t be investing directly in individual stocks on the stock market but you should be participating in your employer’s retirement programs, such as the 401(k). You’ll also probably want to open a Roth IRA if you’re eligible. Time is on your side and it’s important you arm yourself with knowledge so you can take advantage of your youth.

Read Foundation Posts

I’ve written several Foundation posts designed to explain the most basic personal finance concepts as comprehensively as possible. The How to Budget article linked to in the first tip is an example of one, as is the retirement investing article. We all need to start somewhere and I felt the Foundation series was a great way to explain personal finance for novices. If you have a topic you would like to see me cover, please let me know.

Those are my five, what things do you think new graduates should know as they enter the real world?

(Photo: wwworks)

5 Things to Do Before You Start Working

Against the credit card merchant policy? Maybe.

Did we really care? No.

We paid cash… and saved 2% on the price, rather than getting 1% cashback on the backend.

Why Cash Is King

Credit card rewards work on one simple principle. When you charge a purchase to your credit card, the company charges the merchant somewhere in the neighborhood of 3% of the sale to process the transaction. That fee is split up between the credit card company and various middle men processors. The end result is that the credit card company passes some of that back to you as “cash back” or “points.” The gas station offered two prices because they are willing to split their savings with you. Rather than pay the 3% (or higher) fee, they’re going to give you 2% off. They save 1%, you earn an additional 1% on top of the 1% cashback you probably get, and everyone except the credit card company wins.

In the cases where they offer 5% cashback, they’re using that category of purchases as a loss leader to get a “share of your wallet.”

Use Cash As Negotiating Tactic

Cash can be a very powerful negotiating tactic. There’s something about cash that makes a deal seem “more real.” Go to any market where negotiation is expected and see what happens when you actually pull out cash.

One of my best memories as a kid was negotiating with a vendor in China for a pack of post cards. I was a kid, maybe ten or so, and the thrill of buying the post cards was in the negotiation. To be honest, I didn’t know much about negotiation.

All I knew was that the price started at 30 RMB and by the time we were done, I paid only 8 RMB. I hemmed and hawed, saying it was too expensive, and let the seller lower the price to 10 RMB. Then I went to my parents for money and asked for only 8 RMB. I went back to the vendor and said I only had 8 and he sold it to me for that price. Cash is king!

So, forget cashback rewards, forget credit cards, starting using cash.

Forget Cashback Rewards, Go Cash

My wife and I will be spending the day at our friend’s house, playing games and having an old fashioned cookout; then going up to their rooftop deck to watch the fireworks in the Baltimore harbor. Hopefully the weather holds up! My wife is a huge fan of fireworks so we’re hoping that they make them especially good this year.

I’m curious, what are your plans for this weekend?

(Photo: shan1013)

Your Take: What Are Your July 4th Plans?

If you are like me and hate budgeting, I’ve got a stupid-proof easy way to do your budget. After getting setup, it requires about 10 minutes or less per week to maintain and will help you develop a fully functional budget.

What You’ll Need

1. A computer. Any computer will do.
2. An internet connection. You are probably reading this via the internet anyways.
3. Access to online banking. If your bank doesn’t offer this for free, get a new bank.
4. A Mint.com account. It’s free. Just head on over to Mint.com.
5. A good 2 hours and a lot of determination to get it setup. Don’t worry! Once it’s setup, it’s quick and easy from there.
6. Once you have all of these, you are ready to get started.

Step 1 – Get your Mint account up and running

Head on over to Mint.com and add all of your accounts. You can add checking accounts, mortgage accounts, credit cards, and even investments. Certain items may not have online access such as your mortgage, but do the best you can.

Once you put all of the information in, you should have a nice list of what you’ve got working for you off to the left, which will look like this:

You might also notice at the bottom that you can add Property. This will help you determine your Net Worth and help you stay focused on goals such as paying down your debt or increasing your wealth. It’s always nice watching your Net Worth increase (or at least go from negative to positive).

You will have to manually give an estimate on what these items are worth. You can use Zillow.com for an estimate on your house and Kelly Blue Book for your vehicles.

Now I should note that this Net Worth number may be inaccurate if you don’t have access to or choose not to add all of your accounts online. For instance, I have some investments with Fidelity that are not listed. The important thing is to watch this number get better as time goes on.

Step 2 – Create your rough budget

There are many great ways to start a budget. I won’t go into great detail as that would be a whole article in itself but here’s basically what I do:

First, pull out a pen and paper or use an Excel Spreadsheet to list your income and expenses. I throw all of my regular monthly bills (the type that usually come in the mail) into a big category. So my cell phone, electric, water, mortgage, etc all get lumped together. These bills might change slightly from month to month but overall they stay relatively consistent so I don’t worry about them at all.

Then I take the remaining income after my bills and divide it up into micro-budgets. These budgets are completely decided by me.

We decided to have a discretionary spending fund for my wife and myself each month. We like to go out on dates and have a date night category. We also take my wife’s little brother out to movies and such and have a category for that. You could use a more generic “Entertainment” category and throw all of those micro-categories into it if that’s what you like. It’s totally up to you however it’s better to be more specific than more generic.

You will obviously need “Grocery” and “Gas/Fuel” categories so don’t forget those but for everything else just make up a budget that works for you.

Step 3 – Categorize items on Mint

Now comes the really long boring part. Please bear with me through this because it’s very important.

You are going to go online and put every item for this month and last month into their appropriate categories. Under the “Transactions” tab on Mint is where you do this. You can create new sub-categories as needed. We put “CJ’s Shopping” under the main Category “Entertainment” as it’s an entertainment type of category.

I know this takes a while but you just have to grit your teeth and do it. Make sure you do last month’s as well. Last month’s spending will help you figure out if you were WAY off on a budgeted amount for a particular category and you can adjust accordingly.

Step 4 – Create micro-budgets

Now you go into Mint and create micro-budgets to watch these extraneous categories. This happens on the “Overview” page. This is where the “magic” happens.

Here’s an example of what my micro-budgets look like:

Now let me explain what you are looking at. You can see the category names on the left. Don’t worry if your categories are completely different. Do what works for you.

The numbers on the right are for the amounts I decided to put into each budget. I’m trying to stay below this amount each month.

The black line in the middle shows how far through the month we are with the date at the bottom. As you can see, when I was writing this article we were half way through June.

The colored bars show what percentages of my budgets I have spent with the actual amount I’ve spend on the end. Green means I’ve spent less of a percentage than the percentage we are through the month (I.E. We’re 50% through the month but I’ve spent less than 50% of the budget for that category). Yellow means I’ve spent higher than the percentage we are through the month. Finally orange means we’ve overspent in that budget.

Lastly note that although we are a bit overspending in a few categories, the Total at the bottom still shows we are under our spending limit. The ultimate goal is make sure that the Total bar never turns orange.

This should give you up to date information on how you are doing throughout the month. It’s OK if you slightly overspend in some categories as long as you make up for it in others. If you notice that month after month you overspend in a particular category, then increase the budget for that category and reduce another category.

Step 5- Maintain the budget

Mint.com puts certain items into certain categories well but doesn’t do much about custom categories. For instance, all of my Bashas or Safeway transactions automatically get put into the “Groceries” category but if I bought a book on Amazon.com, it won’t know to put that in “CJ’s Spending.” So each week (or day if you so choose) just take a few minutes and clean up the transactions to make sure they go in the proper category. It literally takes me less than 10 minutes each week to do that.

It’s important to schedule a time and date to go over your finances. Otherwise you will get complacent and forget about it. If you are married, make sure you and your spouse sit down together so you both are on the same page on what categories you can spend in and which ones are off limits (the dreaded orange categories).

When a budget turns orange or gets close to orange, STOP SPENDING!!! It’s really that simple. As you can see, my wife has no more discretionary spending left this month. She took a trip to Washington to visit her sister and spent her budget. That’s ok that she did that but she knows now that her spending is finished. You have to agree with your spouse and yourself that once a budget is full, it’s over. Nor more spending PERIOD!

If you stick to this, it will make budgeting very easy and straight forward. Trust me, I hate budgeting so anything to make it easy and painless is great by me.

One final note: If you own an iPhone or an iPod Touch, there is a great little app that will help you track your Mint budget from wherever you are. You can search for it in the iTunes App Store or click this link.

This is a guest post from CJ Perry at Wise Money Matters. CJ focuses on basics of personal finance with the intention of helping people get out of debt. You can visit him online at WiseMoneyMatters.com or subscribe to his podcast on iTunes via this link.

Stupid-Proof Budgeting