Many attempts at budgeting end in frustration because the paycheck comes up short before the end of the month or it only barely lasts until the next pay day. The high failure rate of budgeting in general has given it a bad rap. Budgets are looked upon at best, as a waste of time and effort because the expected result is a collapse of all the abstract meas

ures that are temporarily erected until the guilt of the failed budget fades and they can be openly removed.

However, this kind of attitude breeds failure. A budget should be an earnest attempt to change spending habits permanently for the better, or lasting results cannot be expected. Take a look at the top 5 reasons why personal budgets fail.

1. Unrealistic Budget Expectations

A budget is not a magic formula. It will not pull $10,000 of savings from an income of $5,000. This may seem like an exaggerated example, but for some, setting up a budget means that they will suddenly have a lot of excess funds to move around. The aim of budgeting is to ensure that your income and expenses are distributed for the maximum benefit, so you can afford a comfortable lifestyle while providing for other goals. The savings targets set must therefore be realistic for your income and fixed expenditure.

2. No Planning for Irregular Expenses

To be effective a budget must include all types of spending. It can be easy to forget those expenses that crop up once a year, like medical or car insurance payments and membership fees, but it is important to cover all your angles when preparing your budget to avoid being caught off-guard.

3. No Slack Built in to the Budget

Another reason budgets fail is because there is absolutely no room to breathe. If your budget maps out spending down to the last cent you will be in severe trouble if the cost of anything increases above your estimate, or if something comes up unexpectedly. A budget should leave some excess funds to take care of incidentals or just to fall back on in case you made a poor decision along the way.

4. No Measures to Automate Payments or Account Movements

Budgets need to be automated to some degree to make success more plausible. A lack of time or discipline can seriously sabotage the best intentions to have money transferred from your current account to a savings account or to pay credit cards or bills on time. These small slip ups can cause cracks in the foundation of any budget and over time will result in the collapse of the entire structure.

5. Budgets are Not Tied to Personal Goals

Budgets should be linked to goals to make them effective. Saving is more difficult when it seems unconnected to real life desires. It is harder to put aside $1000 because saving is a good thing, than it is to put aside the same $1000 if there is a reward in mind. This could be a house, a car or even a vacation. Budgeted savings have a better chance of success if they are identified for specific purposes; from retirement and education to housing and entertainment.

If you identify your mistakes in these reasons for failure, take steps to correct them today and your next budget will be much more successful.

The Purpose of Debt Consolidation

Before you get that bill consolidation loan, it is important that you understand the goal. Once you have obtained it, you want to end up with a lower interest rate and you also want to have a longer time period to pay it in.

Start out by knowing what is the average interest on the debt you already have, and get a good idea of how long it will take to pay it all off. The length of time should be on the new credit card bills, which now reveal how long it will take to pay if off if you only pay the minimum payment each month.

If you should wait to consolidate debt after your credit score is being affected negatively, then it will be harder to get a better interest rate. The longer you wait, and the more that you get behind in your bills, the worse deal you will receive from a consolidation loan. Ideally, getting the best rate only comes if you get the loan before the financial strain begins.


Possible Problems with Debt Consolidators

A debt consolidator often promises to help their potential clients by enabling them to reduce their overall debt through debt settlement, and to give them one easy low payment each month. Many people are discovering, often too late, that the company may be taking their money for bills, but not actually distributing it where it should be going. Some have also learned too late that the company never talked to their creditors, and may even be paying late. This can only serve to damage your credit score even further.

While there are a number of good debt consolidation companies out there, they will need to be checked out carefully being using them. Many of them are fraudulent companies that are simply out to get your money.

Debt Settlement May Be a Better Choice

Obtaining debt settlement is probably the better choice, and this is something that you can do yourself. Creditors know that once their debtors get into financial trouble that it is probably in their best interest to at least try and get some of their money, since some is better than nothing. They will often be willing to downsize your overall debt, or at least give you lower payment options.

You do not need to go through any company to obtain these benefits. You can simply call your creditors and talk to them about your situation. Most of them will be glad to work something out with you. In fact, you are apt to be surprised with the results you get, which should take some of the strain of the debt off your shoulders.

Consider Your Debt Consolidations Carefully

You can obtain the debt solution you need yourself. If you should decide to take out a debt consolidation loan, be sure to shop around and go to two or three lenders before you accept a loan. Remember that you are looking for the lowest interest rate possible and a little longer term than what your bills will currently allow. Then, once it is obtained, pay down each month all you can in order to get the best benefit of your new debt consolidation.

The key to saving enough money for a first home is to pay attention to all the factors. Take a look at the following tips for some guidance on how much a new home buyer should save before getting a mortgage.

Save for a Sizable Down Payment

The first thing new home buyers think of when they are trying to figure out how much money they need to save for a house is the down payment and rightly so. Lenders require mortgage applicants to come up with approximately 20% of the purchase price of the home to secure the best possible mortgage terms. Of course, this is not to say that less of a down payment will mean home buyers will be unable to find financing, but those with fewer funds will have to sacrifice in other areas and may end up paying higher interest rates.

Remember to Cover Closing Costs

One of the things new home buyers often forget is the cost of closing. This can easily add up to a few thousand dollars depending on the price range of the house. Closing costs include loan origination fees, title search fees, and home owner’s insurance fees and so on. These costs usually add up to approximately 5% of the purchase price of the house, so the more expensive the house the higher the cost of closing. It is important to remember to add this amount to the liquid cash figure needed before finalizing the sale.

Factor in the Mortgage Term

Mortgage terms range from 15 to 30 years but a shorter mortgage is more favorable in general terms because it means that the interest cost will be spread over a shorter amortization period and will therefore be much less than the longer term mortgage. New home buyers don’t often relate this factor to how much they need to save because the decision usually comes up only during a mortgage interview, after most of the saving is already done. However, the more money a home buyer can put down upfront the better the chances of securing a 15 year mortgage, which can shave an outrageous amount off the interest payments over the life of the loan.

Think of Your Personal Preferences

Buying a house involves many personal decisions. Whether to search in the city or suburbs, how many bedrooms and even the condition of the home from ‘move-in ready’ to ‘fixer-upper’, all impact the final cost of the home. The purchase price is essentially the biggest indicator of how much a home buyer needs to save, but it is influenced by all of these smaller considerations.

An Emergency Fund is a Necessity

Having an emergency fund is not a requirement of securing mortgage financing, but it can certainly impact on the ability to repay the loan in times of unexpected crisis. Home ownership also brings with it new expenses such as maintenance which may be significant depending on the condition of the home.

All these factors combined influence how much should be saved before buying a house. The figure derived from using this equation may be much higher than new home buyers originally estimate, but the road ahead will be a lot smoother if these costs are faced head on.

PocketSmith Dashboard

We’ve always intended to have a dashboard – one area where you can get a top-down view of what is coming up, what is being spent, and how you are tracking against your budgets. It took a while to get there: the application has been evolving pretty rapidly, and the data we can show you has been changing too. With a stable feature set over the past 4 months, we decided to take the plunge.

This also solves a number of issues around the flow of PocketSmith. Previously, selecting what area to head to after login was needed, whereas a Dashboard means there is one solid consolidated area that people can go to. In keeping with the whole picture-thousand-words thing, here is the result (fresh from my personal account):

James' PocketSmith Dashboard. Isn't he trusting!

We’d love to hear what you think about the new Dashboard, get in touch with us at contact@pocketsmith.com, or even leave a note in the comments below.

This particular build has sparked off a massive amount of discussion between ourselves around how we display and process certain information in PocketSmith. As a result of this, we have some pretty awesome mockups that I am chomping at the bit to make reality. You’ll certainly hear more of this soon.

Cleaned Up Login Page

With the release of the Dashboard, we have been able to give the login page a spruce-up and strip-down to its bare necessities. We really like the new look, and find that logging into the application is a little bit more pleasurable now. There are some pretty nifty new animations in there, and we’ve also added in a few inspirational quotes into the login process as well. Have a quote you’d like to see in the mix? Just get in touch with us at contact@pocketsmith.com!

Out with the old...

...in with the new!

Persistent Login

Something else that has been added is the option to remain logged into PocketSmith if you so choose. This has been a long time coming, and we’re happy that we have been able to work around the technicals and deliver this to you. So if you select the “Remember me for 2 weeks” checkbox on the login page now, you will be remembered. If you return to a long-running session, you will be delivered to a loading page. This will load up your forecast balances and take you straight to your dashboard!

Transfers in the Transactions Calendar

Not so much a feature, but a tweak. Transactions which are assigned to a transfer Forecast Event are taken out of the straight income / expense totals in the transaction calendar now, and displayed in a separate area totaling your transfer transactions. Makes the numbers far more accurate in terms of what you have actually spent and earned.

Much more to come!

2010 is going to be a very large year. We have some great ideas, and some fantastic re-interpretations on how we currently display financial information. We’re going to be completing the two most requested features on Uservoice in the medium term, and releasing some exciting new ways of connecting your money to your life.

Stay tuned!

We’ve found ourselves shifting gears in the past 4 months, and are gradually reaching some sort of level of pre-pubescent maturity as a company.

After 14 months of the thrill of the unknown, moving the business forward at a rapid pace, I found myself heading towards stasis towards the end of last year. With the start of PocketSmith being so exciting, with each hour of ‘work’ taking us significantly closer to our end goal, developing and formalising a proper ‘plan’ in the past 6 months drastically changed the way that I looked at my days.

I felt like I was cruising along during the last quarter of 2009. Of course, we were still achieving great things, but I did feel that I had lost some of that eternal drive that kept me going for 12-16 hours a day for the first year. So why did this level of drive peter out?

In thinking about this over summer, I realised something. We now have a plan; a defined strategy. We know what we need to achieve, prepare, build, tweak and enhance. We have a great market strategy.

So all of a sudden, I was no longer working from hour-to-hour, achieving something each minute; I was working day-to-day, achieving something each hour. It would appear that I thrive on the unknown, and the ability to make a real difference quickly. And since we are now relatively established, everything is planned and mapped out for the medium term – there is less unknown for me to feed on now.

How did I fix this? I looked deeper into our strategy and plan. The unknown is now in the details – not in the future. And since starting to look at things in this light, I’m firing again.

So in conclusion, here is to a fantastic 2010, and indeed a fantastic decade. May the excitement of the unknown find you!

In the process of writing up those resolutions for the coming year, perhaps you should consider taking a step towards realising that idea you’ve been harbouring.

This summer, make the time to pour yourself a glass of something nice, sit back, and consider the possibility of making this idea a reality.

It may be the next big thing, or perhaps you’re simply looking for a change in lifestyle and some financial freedom. And sometimes, all that’s needed is a simple nudge to motivate you to start.

Once you overcome that uncertainty, the excitement kicks in and your reward is an adventure that lies ahead.

The sheer thought of being an entrepreneur was one that never crossed my mind in the early years. I had ideas, but the perceived challenges that lay ahead seemed too difficult.

My nudge, believe it or not, came from a fortune-teller vending machine on a quiet Tuesday evening in Monterey, California. There it sat, off a boardwalk, looking decidedly lonely, bearing a suspicious similarity to the Zoltar machine in the 80’s Tom Hanks movie, ‘Big’.

Not being of the superstitious sort I nevertheless slipped a quarter in with some trepidation, and while thankfully I didn’t age by twenty years, out popped a card with a fortune on it. Let me share it with you.

It says, “Now is the time to start that new project you have been contemplating.

Your deliberation will pay off in the long run because doubt is the father of invention and the key to knowledge. This new-found industry pays debts, while if you despair, you will only increase them.”

“The time is right to get going. If you are to move the world, first you must move yourself. If you find yourself working too hard to achieve your goal, you may find basic truth.”

“The great person with vigour would demand the rightness of things, timeliness of action, and propriety of method. In this way, power does not become sheer force. You will be surprised at what you will accomplish.”
A few years on, and with the help of my co-founders, PocketSmith is becoming an increasing reality.

Over the coming year, we’ll be blogging on entrepreneurship and starting up, because we think New Zealand’s a great place to realise your ideas, and we’d love to share our tips, thoughts and experiences, and engage in a conversation with you.

We’re also big believers of community and collaboration – so once you’ve considered that possibility, share it with some friends and see what happens. The feedback might inspire you to take the next step.

Remember: the time is right to get going! Start by talking to someone these holidays, you will find confidantes, critics, advisors, and best of all – allies. And as the fortune goes – you will be surprised at what you will accomplish.

Be safe these holidays, we look forward to seeing you in the New Year

There’s No Such Thing As A Free Lunch.

You might be thinking…I’ve snuck into a couple of free lunches in my time and got away with it pretty much scot-free, are you sure there’s no such thing as a free lunch???

Well yes, but I’m not gunna argue with you, you can take it up with Chris Anderson. In his latest book Free! Why $0.00 Is the Future of Business (download the free audiobook here) he acknowledges that even when the consumer is paying $0.00, somebody is still paying for it in some way, shape or form.

Who pays when its “Free Forever”…free forever could be more appropriately re-labelled as “subsidized”. With zero cost to the consumer, the cost is usually passed onto an advertiser or future acquirer. In some cases this can create a conflict of interest and almost always results in an indirect cost to the consumer.

Who pays under a “Freemium Model”…“Freemium” basically describes giving away a free version of a product with the hopes that a number of free users will love it enough to upgrade to the “premium” version. Simply put, the minority who love/need the service enough to upgrade to the premium version pay for the free users. Countless online businesses use this model simply because the marginal cost for hosting each free users is almost $0.00 – long live the longtail.

Who pays when there is absolute “Freedom To Pay”….also known as the donation model. This is where the generous consumers who actually uses the donate button funds the service for the huge majority who take the free version and run. In the case of free wordpress plugins this model sometimes leads to underpaid developers, poor plugin maintenance which ultimately costs the blogger in both time and energy.

Who pays for “Open Source”…loads of different people, in the case of the Mozilla Foundation, Google forks out for over 85% of their revenue. In the case of Linux there are a number of large organisations (e.g. IBM & Intel) that dedicate the time of their developers to making and submitting changes – don’t believe me then check this chart. Both Firefox and Linux also also sell T-shirts, mugs and other fan gear which gives the consumer the ability to (financially) support the cause. There is often also an additional cost to the consumer, this is the time cost associated with the additional hours dealing with bugs.

Um duh’…there are pros & cons for each form of free…when choosing between similar types of software each using a different free model you’re clearly making a trade off between the various pros and the sometimes not so obvious cons of each.

Free Beer vs Feer Speech

Free beer is supposedly the bait that is used to hook a consumer. Free speech is supposedly free with no strings attached. To some extent the same is true for the online world.

Free software is somewhat like free beer, as indicated above, someone is always paying. However, speech is now freer than ever. We can now publish what ever we want whenever we want. Your newly empowered consumer voice now gives you (along with everyone else) the ability to air your concerns, wants, needs, dreams and desires to the world.

Who Wins In The World of Free?

The real winner in the world of free is the uber-smart consumer who will take advantage of one or multiple forms of “free“. A truly savvy consumer will also maximise their bliss by using the web to supercharge their Free Speech and get more of what they want.

On the flip side of this it’s the companies who attempt some sort of free (as in $0.00) and are open, responsive and even encourage the free speech of thier consumers that will really excel in the world of free – Phil Osborne would call this Free/Style Business (video here).

If you’re interested; this is a great post about 3 variations of free from OnStartUps.com, and this is a great Trendwatching briefing about FreeLove – enjoy