- Elaine, CA

Dear Elaine,

It’s great that you both desire to live on a budget. But unfortunately it sounds like you stop at the “want to” phase. The good news is that getting to that place is already a big step in the right direction.

Creating and living on a budget is like exercising. We all know we should do it, but it’s easy to find excuses not to: not enough time, not enough energy, it’s not fun, etc… But you’re not doing it for the fun: You’re doing it because you want to accomplish something, like losing 30 lbs. or completing a 5k.

You and your husband need to sit down together and discuss why you need to live on a budget. What are your financial goals? Are they to get debt free? Save for kids’ college? Invest for retirement? Until you know why you need to do it, it will always be just another chore that’s easy to put off.

Here are a few tips to help you re-program your minds and develop the habit of budgeting:

• Determine which day of the week works best for you to create next month’s budget. For example, Sunday evening is the day that works best for Clint and me.  We do our budget the Sunday prior to month’s end at 6 P.M. sharp. This appointment is set in stone and it never catches us by surprise.
• Part of budgeting is tracking all of your actual expenses each month; don’t wait until the end of the month to enter them all into your budget. Doing that all at once makes it a big, time-consuming project that you’re more likely to put off. Instead, enter your spending as you go, on a daily basis or weekly basis. We enter our actual expenses into our budget each Friday. This breaks the project down into smaller, more manageable chunks.
• Once you determine the days/times you plan to work on you budget, protect that time. Turn off your cell phones and the TV during your budget meeting and refuse to make plans with friends. Put it in your calendars. Set reminders in your phone. Do whatever it takes to remind yourselves of this appointment.
• Anticipate roadblocks. Consider what might interfere with your plans to do your budget and come up with a back-up plan. For instance: If your budget appointment is set for Friday at 6 P.M. but it’s your sister’s birthday that night, you can re-schedule your budget meeting for Saturday at 7pm.
• Choose a reward for yourselves to enjoy once your monthly budget is completed. It might be 30 minutes of TV or a dinner out.  Eventually, budgeting will become second nature. In the meantime, giving yourself a reward might be the incentive that you need.
• Last but not least: Don’t beat yourselves up about it. When has telling yourself that you’re a failure ever motivated you to succeed? If this was easy, we’d all be rich and I’d be out of a job. Remember, managing your money is all about direction, not perfection.

I know you can do it!

- Katy

Have a tricky question Clint and Katy can answer about your finances?
Email it to Editors@PerkStreet.com

Clint and Katy Davis are PerkStreet Customer Columnists and founders of Davis Coaching. As financial coaches, their passion is helping people become and stay debt free! Their personalized coaching is designed to help you get your financial life where you want it to be. Like personal trainers for your finances, they can help you develop a specific plan to achieve your goals, and provide the expertise and accountability to get you there. If you’re ready to take control of your financial life, visit Davis Coaching online, check out the Davis Coaching blog, and connect with Clint and Katy on Twitter and Facebook.

You know that your monthly budget should be at the core of your financial plan (unless you enjoy the surprise of running out of money). What you may not realize is that it’s just as important to make a budget for the entire year.

Sizeable expenditures, household projects, and maintenance repairs can all be added to your yearly budget, making your finances all the more manageable. Having this plan will reduce stress and make sure you’re putting your money to its best use.

1. Create a “Master List”

This list should include everything you’d like to spend money on over the year: your kitchen remodeling, the new china cabinet your wife’s been “hinting at,” or the leaky toilet everyone complains about.

Obviously, these will be larger purchases or expenditures that fall outside of your normal monthly budget categories. If you like, download our free Yearly Budget Prioritized Spending Plan to make the process a little simpler.

2. Distinguish Between Needs vs. Wants

Separate your list into two categories: Items that are absolutely 100% necessities and items that are simply things you would like to buy if you can afford them. Most personal finance experts consider this a “Wants vs. Needs” method extremely useful, and I have to agree. Needs are expenses such as roof repairs, leaky plumbing or overdue and essential dental work.

My wife Katy wants a new carpet for the living room, and I just bought a $100 orthopedic neck pillow. Both of these are obviously wants, but we include them in our budget in order to make sure they’re covered and won’t impede our ability to satisfy our needs.

3. Prioritize Your Master List

Once you’ve categorized your Master List you should then prioritize it. Item 1 will have the highest priority, above Item 2, which has priority over Item 3 etc… In almost all cases, your “Needs” should obviously take priority over your “Wants.”

4. Determine Approximate Costs

Though it may be impossible to know exactly how much an item or project will cost, do the research necessary to make a practical estimate. Add this approximate cost in your budget line. Add all of your approximate costs together to determine your desired expenses for the year, then divide by 12: This is how much you’ll have to save monthly to meet all of these expenses.

For Example:
Total estimated costs = $765.
$765/12 = $63.75; meaning you would need to save $63.75 every month in order to afford everything on your Year’s Budget.

5. Putting Your New Budget Into Practice

Let’s say you’re saving $63.75 each month and the first item on your list costs $125. You’ll save $63.75 in January, $63.75 in February, and then you’ll be able to purchase the first item on your list. Continue saving $63.75 per month and make each purchase on your list once you’ve saved the full purchase amount. You simply continue this process through the year until you’ve purchased everything on the list.

6. Be Realistic

Here’s the key to making this work: Once you know the monthly amount, you’ve got to determine how realistic it is that you will actually be able to save that much. From the example above: Can you afford to save $63.75 per month? Will that leave you enough money each month to tenaciously dump your debt, build up your emergency fund, and/or invest for retirement?  If not, you probably need to scratch some items from your list, starting with the “Wants.” You might also decide to sell some things around the house in order to pay for some of the items on your list.

If you’re having trouble categorize your monthly budget well enough to free up money for these kinds of goals, here’s another free download that should help: The Davis Coaching Quickie Budget Worksheet.

One of the biggest keys to your financial health is learning to prioritize your spending. If you’re working feverishly to get Debt Free, there shouldn’t be too many “Wants” on your list. You can’t have everything you want in life, but by creating your budget for the year, you may find out that you can afford more than you thought.

Have a tricky question Clint and Katy can answer about your finances?
Email it to Editors@PerkStreet.com

Clint and Katy Davis are PerkStreet Customer Columnists and founders of Davis Coaching. As financial coaches, their passion is helping people become and stay debt free! Their personalized coaching is designed to help you get your financial life where you want it to be. Like personal trainers for your finances, they can help you develop a specific plan to achieve your goals, and provide the expertise and accountability to get you there. If you’re ready to take control of your financial life, visit Davis Coaching online, check out the Davis Coaching blog, and connect with Clint and Katy on Twitter and Facebook.

These sites, designed for the tech and web-savvy, will help you find ways to make your work and personal life more efficient and more productive, but they will also feed you content that is both interesting and entertaining.

MakeUseOf.com

This site brings the latest in things tech-related right to your desktop, and is truly designed for tech nerds. But while they address things like open source content management, they also point out fun websites and tools that anyone can make use of. Whether you’re looking for the latest in technology news or simply want to find ways to increase your daily productivity, this site has something for you. If nothing else, be sure to check out this article about how to save money using the Internet.

Lifehacker.com

These folks publish fun articles on a variety of topics, written in a down-to-earth style that I always find extremely refreshing. Lifehacker keeps a running sidebar of how-to, money saving, and tech-related articles. The breadth of the content is huge: You can find articles on topics such as videogames, how to protect yourself from identity fraud or how to “hack” your own body to solve common annoyances. While Lifehacker may host more op-ed content that others, the style, tone, and subject matter itself will certainly keep you reading. Plus, with money saving articles like this, how could you resist?

HowToGeek.com

This site is my favorite of the bunch: It spells out useful solutions for the average Joe and for the average geek to easily understand. Some of the most popular articles for the month include how to use your Android phone as a modem and how to increase your privacy on FireFox. But the site also hosts fun “tech” content, like what the Angry Birds look like after combat. You can search their archives by topic, most commented, most popular, etc… You can also ask questions if you have a specific worry or concern. If you use their advice well, you might find yourself saving in unexpected ways.

What are some sites you use to live a more efficient life? What do you think of the ones suggested here? Share your thoughts in the comments below.

Jessica Bosari is a PerkStreet Customer Columnist, as well as the Site Manager and Editor for billeater a blog with money-saving tips to lower your bills. When she’s not gathering money-saving tips, Jessica is feeding her geeky side with sci-fi movies, tech gadgets, useful apps and productivity tricks, just to keep things interesting. Read more of Jessica’s great financial advice on Perkstreet’s blog, or view her other money-saving tips at billeater.com.

Utility Theory

The economic theory under the most scrutiny by neuroeconomists is utility theory, which claims that individuals are rational human beings and will therefore make decisions to increase, enhance, and (perhaps mathematically) perfect their happiness and well-being. As rational beings, we’ll always be looking to “maximize” our utility, making decisions solely on the basis of which potential option is “best.”

Unfortunately, that’s not always the case. Neuroeconomics has uncovered fundamental flaws in the theory, but also offers explanations for these cases of irrational decision-making.

Financial Decision Making: Risk

Economists talk about “risk” as a state of uncertainty regarding a set of possible outcomes in which the probability of each outcome occurring is known. In Economics, “Utility Maximization” theory claims that we – us rational human beings – should always opt for an outcome with high potential and low risk. For example: It would make sense for us to choose a $40 reward instead of gambling for the potential of $100.

Neuroscience disagrees, admitting that risk is not a uniform beast. That is to say, we all perceive and conceptualize risk differently. Part of this is unavoidable: some people are inherently risk-seeking, others risk-averse. Some people would rather gamble for $100 than accept $40 up front.

Additionally, we’re pretty bad with probability. We rely on certain heuristics to determine these “known” probabilities; and while this can be a useful way to rely on what is known to determine the unknown, it can also lead to counterproductive cognitive biases.

Determining whether or not your naturally risk-seeking or risk-averse may help you better understand why you can’t climb out of debt, fix your budget, or make progress building your emergency fund; and being as honest with yourself about “realistic” outcomes and opportunities can help you better assess the risk behind your financial decisions.

Affective Forecasting and Intertemporal Choices

One assumption of utility theory is that we make decisions based on what will make us happy, and affective forecasting is our ability to judge our emotional states at some point in the future. Just like probability, we’re not very good at it. (And many of those cognitive biases are to blame, such as the impact bias.)

Many of the financial decisions we make everyday have long-term consequences, sometimes intentionally and others not. Economists study these choices using “discounted utility,” which assumes our preference for events or outcomes is not reliant on when they occur. Under this assumption, if you’d rather have 2 candy bars than 1, it shouldn’t matter when you get them.

But again, that’s not the case. Interestingly, one study showed that participants who preferred to receive 1 candy bar today instead of 2 candy bars tomorrow would rather have 2 candy bars in 101 days instead of 1 candy bar in 100 days. Patience, apparently, is relative and time sensitive.

Separating Financial Decisions from Emotions: It’s Harder than You Think

Part of the reason why affective forecasting has been implicated in intertemporal choice is at the very heart of neuroeconomics: the brain area associated with these intertemporal choices—the limbic system—is highly involved in emotional processing. So even when you think you’re making unemotional decisions about long-term financial choices, you’re still using the same part of your brain.

Instead of trying to remove emotion from your financial decision making, try being even more cognizant of your emotions. It’s hard – if not impossible – to eradicate your own emotions (unless your Dexter Morgan); instead, treat them kindly.

Think about why you want a certain item, what emotions you’ve attached to it, what emotions you expect to feel as a result of it, what emotions you expect to feel without it. If you truly consider your emotions without just acting on them, you might find that they’re a much better guide than anyone would let you know.

Brain science ain’t easy. Neither is economics. But understanding your financial behavior is as easy and as difficult as understanding yourself. If you watch for your own patterns, consider your own behavior, and try to learn from yourself as much as you can, you’ll find it’s easier to adjust your finances than you think.

How much do you think psychology plays a role in your spending and saving? How do you think about this impact? Share your own psychological musings in the comments below.

What Is a Financial Avalanche?

A financial avalanche is an accumulation of financial emergencies that build up and demand your resources all at the same time. Scary! They happen when you don’t pay your bills, when you accept a lower paying job, or when you build up debt. They are the residue of accumulated bad luck and bad choices.

It’s not hard to be buried by your finances. Bad decisions can pile on top of one another and, sooner or later, you’ll make one that brings everything crashing down. Yikes.

Avoiding a financial avalanche isn’t difficult. The first step, which never ends, is to constantly be a student of your finances, learning to make better decisions every day. The second step is to build your emergency fund.

How YOU Can Build an Emergency Fund

Building an emergency fund is like packing down the snow, blasting parts of steeper cliffs, or whatever else people do to prevent destructive avalanches. An emergency fund is like a massive concrete wall that blocks any avalanche headed your way.

Building that wall is as simple as following these basic steps:

1. Lower your expenses: In order to have enough money to build your emergency fund, you’ll probably have to make spending cuts, temporarily adjusting your lifestyle.
2. Raise your income: You might be able to find an extra part-time job that fits your current schedule. Work a bit harder than usual when you are building your emergency fund – you’re going to need the extra cash flow to build that avalanche wall. You can also raise your income by selling anything around the house you no longer want or need.
3. Actually start your emergency fund! That’s right, actually do it! Many people get discouraged when they realize how much money is recommended to have in an emergency fund, but don’t let this get you down. You can start with any amount — $100, $50, $10; the important part is getting started!
4. Review your budget monthly: Make sure that you are keeping your expenses low and your income high. The greater the difference between these two figures, the faster you’ll build your emergency fund..
5. Stay consistent: Keep your budget intact by not giving into big purchases. Stay committed to the goal – completing your emergency fund – and don’t stop until you’ve reached it.

One other way to help build an emergency fund is by getting cash-back perks through PerkStreet Financial. Throw the amount of money you’ve earned in perks into your emergency fund; if you spend $100 in perks, take that same amount from your bank account and put it into your emergency fund.

Don’t be overwhelmed: You can do it. And if you ever encounter a financial avalanche, you’ll be so glad you took these steps.

Related Reading: Why Every American Should Have an Emergency Fund

Do you have an emergency fund? How did you build yours? Share your advice in the comments section below.

John Frainee is a Customer Columnist here at PerkStreet, and the webmaster and a writer for the ever-growing blog, The Christian Dollar. John enjoys exploring how faith and finance interact, spending time with his wife and family, and meeting readers from all over the web. He has a Bachelor of Science degree in Bible and Christian Counseling and loves encouraging others in their financial pursuits. You can also find him on Facebook and Twitter.

Tax Preparation, Accounting, Auditing, and Bookkeeping

You said you wanted us to open this category up to other providers and we listened. Last month, we offered 5% PowerPerks on TurboTax®, but this month we’re offering PowerPerks on tax prep services from a greater landscape of preparers. Use any of the below tax services or any independent tax preparer, accountant, auditor, or bookkeeper (MCC codes 7276 and 8931) and receive 5% cash back — just make sure to pay for your tax prep before the end of February to qualify.

• H&R Block®
• Liberty Tax Service®
• Tax Slayer®
• Tax Hawk®
• TurboTax®
• Tax Club®

Kohl’s.com®

Valentine’s Day is this month. Get that special someone a handpicked piece of jewelry to show them you care or a new stereo. Either way, they will love it and you will love the 5% cash back you get in return. Just make sure you make your purchase online at Kohls.com, to ensure you get the bonus cash back!

And for the sports fans, gym rats, or if you are just looking for some family fun, we wanted to throw in a little something special…

Dick’s Sporting Goods®

Whether you’re like me and gearing up for Super Bowl Sunday or you just need new work out gear to get ready for beach season — go to Dick’s Sporting Goods in-store or online and receive 5% cash back. We were only planning to offer PowerPerks at the top 2 categories in the last PowerPerks Poll, but our customers are great! We couldn’t help but throw Dick’s in as well.

Details: The amount you can earn at the 5% cash back bonus rate is limited to $250 per household annually (starting on the day your account was opened). The total amount of cash back you can earn remains unlimited. Unless specific stores are named, qualifying purchases are determined by MCC codes. Non-PIN debit card purchases will earn 5% cash back in February at the following retailers: tax services (H&R Block®, Liberty, Tax Service®, Tax Slayer®, Tax Hawk®, TurboTax®, Tax Club®), tax preparer, accountant, auditor, or bookkeeper (MCC codes 7276 and 8931), Kohls.com® (online only), and Dick’s Sporting Goods® (online & in-store).

Dear Clint and Katy,

I lost my job 2 months ago after 12 years of employment and I’m trying to figure out what to do with my 401k. I’m a 42 year-old single mom. I have $83,000 in student loan debt (BA and MBA) and $98,000 in my 401k. I am having trouble finding a job with a similar salary since the economy in my small city is far from booming (like everywhere nowadays).

I’m considering cashing out my 401k and paying down the principal on my student loan, fully aware that I will pay a huge penalty and will not be able to pay my student loan in full. I am also thinking about either putting the money into an IRA, but I can’t decide between a Traditional IRA and a Roth-IRA. Any advice would be greatly appreciated!!

Carol, NM

Dear Carol,

First of all, I’m really sorry to hear about your job loss. That’s always a tough situation, especially being a single mom. But don’t allow yourself to slip into feeling sorry for yourself. You’re obviously very bright, have solid work experience and if you get out and network and hustle, you’ll be able to find a sufficient job very quickly. If you’re already doing that…Great! If not, it’s time to update your resume, dry clean your best suit and hit the streets. And don’t be afraid to take part-time or temp jobs while you hunt for your new full-time career.

I strongly advise against cashing out your 401K. Things may feel overwhelming right now, but there’s no need to panic and make rash choices. If you prematurely cash out a $98,000 401K, you’ll immediately pay a 10% penalty ($9,800) and income taxes on that money (approximately $24,000). That leaves you with only $64,200 to pay down your student loan. So now you’re 42, have NO retirement savings, and still owe $19,000. This will not make your life any easier.

What I suggest is a direct transfer rollover of your 401K into a Traditional IRA. If you roll it into a Roth-IRA, you will have to pay the taxes on the full amount. I also recommend putting any extra debt payments on hold until you land a new permanent job. For now, tighten your budget and put all your energy into finding your new job.

I know you can do this! Thanks so much for your question.

- Clint

Have a tricky question Clint and Katy can answer about your finances?
Email it to Editors@PerkStreet.com

Clint and Katy Davis are PerkStreet Customer Columnists and founders of Davis Coaching. As financial coaches, their passion is helping people become and stay debt free! Their personalized coaching is designed to help you get your financial life where you want it to be. Like personal trainers for your finances, they can help you develop a specific plan to achieve your goals, and provide the expertise and accountability to get you there. If you’re ready to take control of your financial life, visit Davis Coaching online, check out the Davis Coaching blog, and connect with Clint and Katy on Twitter and Facebook.

ParkAtMyHouse.com: Save Money, Make Money

ParkAtMyHouse.com is just gaining traction in the US but has generated a wide following in the UK. The basic concept? Rent your driveway, garage, or spare lot for people to park at. While city-dwellers may make the most off this opportunity, living near an airport or a stadium may be similarly profitable. Of course, everyone can benefit by avoiding the price of alternative parking solutions.

The site is free to use as both a lister and a renter. Unless you successfully rent a space you’ll pay nothing, but the service does charge a fee of 15% for every space successfully rented out. You can make your spot available when you want and for as long as you want, from 30 minutes to a year.

But before jumping the gun, consider these factors:

• Car Insurance: Car insurance varies by state, but in most cases leaving your car at an alternate location won’t affect your insurance. However, you still want to be sensible with where you leave your car for obvious safety reasons. If you have any questions, be sure to contact your auto insurance carrier.
• Homeowner’s Insurance: Like car insurance, home insurance also varies by state. Coverage also varies by carrier. To be safe, you should contact your insurance provider to confirm your policy covers renting out a parking space.
• Safety: The physical location of your space is not disclosed until the sale is final. Once you have agreed on the price, you have to download a parking-agreement contract professionally drafted by the services legal team. For caution’s sake, you should ask for the parker’s information, such as the make and model of their car, license plate number, and a list of any potential drivers or passengers.
• Contracts: There are six different contracts to download once your parking space has been confirmed for booking. While the site does not detail the differences between the six contracts, it is important to be aware that if you are under legal contract to uphold your end of the agreement.
• Earning Potential: Your earning potential is going to vary based on location, the length of time you rent your space, and the demand for parking spaces. If you are located in an urban area or near major event venues, airports or other popular transportation locations, you’re likely to see higher earnings. According the site, the average person can expect to earn about $46 per week or nearly $200 a month (based on UK figures). Demand and convenience are going to have the biggest effect on the price you can charge for your space. Browsing the website to see what spaces in your area are going for can help you to stay competitive and make a little bit more money.

The concept is still working its way to the U.S., but with BMW as one of its primary investors the site is likely to gain steam. And for those of us looking to bring in extra cash, why not jump on board? Passive income like this is the perfect way to help pay off your debt or build your emergency fund a little faster.

Does this sound like a service you would use? What do you see as the drawbacks? Share your thoughts in our comments section below.

Jenny Kerr is a PerkStreet customer and midwestern gal who loves yoga, her Blackberry, makeup and Apple TV. She’s a personal finance blogger at TheJennyPincher, where she shares financial tips for single ladies. Jenny is a former banker and currently works as a consultant during the day. She’s also taught budgeting in a classroom setting.