Organizing the Chaos

When you think about it, money management is such a complicated task it’s almost overwhelming. Every day brings innumerable spending choices, as we confront the almost infinite variety of goods and services that can be purchased in our consumer society.

The overall goal is to align our spending with our income in such a way that some money is left over for saving, or at least debt reduction. This seems simple in principle but is confusing in practice, because there are so many decisions to make. How can we bring some kind of order to this chaos?

Spontaneous Decisions Don’t Work

With no overall plan, we make our spending decisions in a spontaneous way, making each choice as it comes up and hoping that, somehow, our spending won’t exceed our income. The one-decision-at-a-time approach results in a thought process like: “I really don’t feel like cooking tonight, and I’ll be driving right by that Chinese takeout place on the way home from work. I could get dinner for my family for about $40, which is not really a lot of money, so I’m going to do it.”

Of course $40 isn’t a big deal—by itself. But the question is, what whole is this spending a part of. If we do this type of takeout three times a week, that’s about $6,000 per year, and this amount of money could be a very big deal for a family trying to economize. So the question of whether it’s a good idea to get takeout today depends on how often we got it in the past and how often we will get it in the future.

If we make our spending decisions one at a time, there is a danger that each choice will seem reasonable in itself, but the sum total of the individual decisions might be unaffordable. When this happens, our credit card bills list a set of purchases that each seem okay, but the total at the top of the bill makes our stomach sink. It just adds up to too much!

Weaving Parts into Wholes

The solution to this problem is to organize our spending into categories and then set a spending limit for each chunk. This simplifies our financial lives enough so we can make a plan. Of course we can afford an occasional latte, but once a day or once a week? Of course we can buy new clothes from time to time, but would $75 a week make sense, or should that be $75 a month? This type of plan is called a budget.

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Making a budget presents us with a manageable number of questions that we can answer, such as how much money we should spend per month on takeout meals, clothing, entertainment, and so forth. Large, organized questions like these are answerable, while an endless series of individual decisions—should I buy this sweater, that bracelet, or this sushi special—cannot be answered in isolation from each other.

Decisions about spending in the present can be intelligent only if they are aware of spending in the past and planned spending in the future. This is how we can figure out the right amount of money to spend on the various areas of our lives.

A First Step toward a Budget

The way to make a plan is to think from the top down—from the general to the specific. Once you have budgeted a certain amount of money for a spending category, you are oriented; you have a frame of reference for making individual spending decisions. Now you have a basis for deciding whether or not to buy this latte or that sweater.

Making budgets can be complicated, too (although not as complicated as all our spending decisions made on their own). Future columns by your money doctor will explain how to simplify the budgeting process.

But I will offer my first suggestion right now: Pick one spending category, stroke your chin, decide how much money you can afford to spend on it per month, and commit to doing so starting on the first. One foolproof way to execute this plan is to put the appropriate amount of cash in an envelope labeled with your spending category. If this seems too labor-intensive, create a file in your phone for the category, and make sure to record each expenditure when you make it.

You do not need a comprehensive budget to start right-sizing your expenditures, and choosing one spending category to control is a good way to start. See how it goes!

Dr. GoodCents: Budget Your Money in Chunks was originally featured on Quizzle Wire

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In 2007, only 8% of adults between 18 and 29 didn’t have any credits; today, the figure stands at 16%, a substantial jump in only six years. Experts believe that the dip in young consumers’ credit card use is due to a combination of factors. On the one hand, it’s much harder for those under 21 to obtain a credit card than it used to be. This is a result of the CARD Act of 2009, which requires that those under 21 who cannot document a substantial income (i.e., college students) to have their credit cards cosigned. Without a credit-worthy parent or sibling to back up their applications, many young adults simply cannot get a credit card. On the other hand, interest in credit cards seems to have waned among young Americans who have seen the devastating effects that debt has had on older adults in their lives.

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The reduction in credit card use among Millennials is viewed as a somewhat mixed blessing by personal finance professionals. According to CNN Money, credit card debt among those in the 18-29 age group has decreased by over 30% since the onset of the recession, down to an average of $2,087 per person. This is clearly a positive development. However, credit cards are a valuable tool for building credit when used responsibly, and some worry that young adults are missing out on an opportunity to bolster their credit scores in preparation for other financial tasks, such as purchasing a home. Also, in lieu of credit cards, there has been a spike in usage of pre-paid debit cards among young adults, which often carry high fees.

What do you think of the decline in credit card use among young Americans?

Millennials Shying Away From Credit Cards was originally featured on Quizzle Wire

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After spending years pinching pennies as a money-starved college student, it can be very exciting to receive your first paycheck. And while it’s a great thing to be financially rewarded for all of your hard work, caution must be exercised to ensure you’re not squandering that money as fast as you’re earning it. When it comes to fiscal upgrades, this is not the time to jump from sesame flavored ramen to filet mignon!

Track Your Spending

When it comes to managing your money well, one of the most crucial habits anyone can establish is to track your spending. By tracking your money, you’ll know where your money is coming from and going to. This can be immensely helpful for identifying small issues before they become detrimental catastrophes.

Establish a system that works for you and utilize it—anything from recording expenditures daily in a notebook or your phone to doing a weekly reconciliation of transactions on your laptop.

Create a Budget

Budgeting, while not the most enjoyable way you can spend your time, gives you power over your money. A budget is a tool that helps you make informed decisions about your money, helps you set and reach goals, and is a way to stay accountable.

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To set up your first budget, you merely need to establish a list of financial priorities and assign dollar figures to each. Beginning with your needs (shelter, food, transportation, insurance), list all of your fixed monthly bills and payments. Next, list out the various debt, savings and retirement payments/deposits you’ll need to make throughout the month (student loans, 401K, Roth IRA, long-term savings). Finally, list your wants and variable expenses such as entertainment, dining out, etc.

Once you total everything up, the money going out needs to match what has come in.

Resist Lifestyle Inflation

With each shiny, new paycheck, the urge to spend will be every-present. You might see classmates buying brand new cars, donning designer clothes, and spending wildly when out at bars and restaurants. Resist urge to keep up with them; resist the urge to inflate your lifestyle just because you’re making more money. Doing so will afford you even greater opportunities in the future—and you won’t be saddled with maxed-out credit cards.

Spend Less than You Earn

On the surface, this is an easy one to say. What’s not so easy is actually doing it. But in order to have complete control over your money, you need to spend less than you earn. No matter how hard it might seem to be, there are always ways to cut back, earn more, or change your priorities in order to secure a balanced budget.

Invest in Your Future

Your youth is the absolute best thing working for you when it comes to saving for your future. Even if it’s only $50/month, open a retirement account (the best right now would be a Roth IRA to take advantage of the future tax benefits). Fund it consistently, and work to bump up your contributions whenever possible. Compound interest is a beautiful thing that will pave the way to a beautiful financial future if you get started now!

Look for part two of this series in the coming weeks!

The New Grad’s Guide to Building a Credit History and Budgeting, Part 1 was originally featured on Quizzle Wire

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Variable Parking Costs

According to the Los Angeles Times, convenience isn’t the only benefit associated with parking meters that accept credit cards and debit cards. It’s possible for the meters to also change parking costs quickly and easily. In fact, parking costs can change hour to hour.

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Because the parking meters are digital, and can register how many cars are parked, it’s possible to see how much demand there is for a parking spot — and adjust prices accordingly. If demand for parking spaces is going up, so, too, does the price. If you want a better spot, you might have to be willing to pay extra for it. This system also means that if you come at the wrong time, you could end up paying more for the spot than the person who had it before you.

These meters are popping up more and more, largely due to the fact that fewer people carry cash. It is easier, in many cases, just to swipe a credit card. This system makes it easy for you to pay for parking, even if you don’t have coins, and it also makes it easier for cities to collect payment for parking, and possibly even charge you more for it.

Can You Use a Credit Card with Your City’s Parking Meter? was originally featured on Quizzle Wire

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You’re not alone: nearly 40 percent of recent graduates are underemployed, and it’s becoming more and more difficult for twenty-somethings to land jobs that require a college degree.

That means it takes some extra effort to stand out – and that’s actually easy to do if you’re willing to take a different approach to landing a job.

By adjusting your strategy and taking an unconventional approach to looking for work after college, you can avoid resume-blasting and get a foot in the door at companies you’re actually interested in.

Here are three “outside-the-box” job-search strategies that can help get you gain the upperhand in a highly competitive job market:

1. Create your own internship

Applying to an internship can be just as competitive as applying to a regular job. So how do you get experience in your field if you’re competing with hundreds of other applicants for even the unpaid positions?

Skip the application process and create your own mini internship.

Try contacting an employer you’re interested in and offering to work on a short-term project for free. By approaching an organization with a specific project, you can create a win-win situation for both you and the company. It’s advantageous to the employer, since it’s free work and there is no commitment to train you or hire you as a regular intern or employee. At the same time, it will help you gain the valuable experience you need while avoiding competition for typical internships. And if your supervisor is happy with your work at the end of the project, you are perfectly primed to discuss future work opportunities. You’ll look a lot more attractive as a job candidate now that you have insider experience.

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2. Establish authority in your field online

One of the first things a hiring manager will do is search for your name online. And if all of the search results turn up photos of your fraternity days in college, you may lose some credibility with a prospective employer. So how do you create an online narrative around your expertise and professionalism? Starting your own website or blog is a great way to showcase your knowledge and build your career “brand.” Even if you don’t have real-world experience in the field you’re interested in, you can establish an authority by posting and writing frequently about topics and organizations that you care about. It’s a stamp of authority for hiring managers, and it may even attract recruiters.

3. Connect with influential (but not busy) people

Reaching out to the executives in charge of hiring decisions at a company may not always work – they’re busy people and they probably receive a lot of requests from job-seekers. Instead, try contacting “periphery employees” – employees doing the day-to-day work that have enough influence to put in a good word on your behalf. Reach out to a project manager or a program officer, someone involved in the organization’s daily work. They may be more likely to talk with you and may share critical insight around the trends they see at their company.

And who knows: maybe one day you can return the favor for another job-seeking graduate and build up some good career karma for the future!

Monday Motivation: How land a job after graduation (even with no experience) was originally featured on Quizzle Wire

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What are the best ways to save money for those known upcoming expenses that we all have quite often but not necessarily each month? Joseph Sangl has you covered with some great advice.

If you do your own investing, it would be worth your time to read Dough Roller’s article 5 Advantages of ETFs over Mutual Funds. In it, Rob talks about some distinct advantages that ETFs hold over mutual funds that make them a better investment vehicle in many circumstances.

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College student recently out of school for the summer? Chances are you may be looking for a summer job to put some much-needed cash in your bank account before fall. My Dollar Plan has some great advice for finding that perfect job.

Online streaming radio is used by millions of people, but are the premium versions of their plans worth the cost? Money Ning takes a look at Spotify Premium and fills us in.

Warehouse shopping clubs are often the source of debates over whether or not they save users any money. The Dough Roller offers up his tips for the 7 ways you can save money next time you’re in your favorite one.

Quizzle Top 5 Weekly Must-Reads – June 16, 2013 was originally featured on Quizzle Wire

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According to CNN Money, using data from the Federal Reserve, the average debt load carried by an American over 65 was $50,000 in 2010, which represents an 83% increase since 2001. The most common types of debt among senior citizens are mortgage and credit card debt.

The reason for rising debt levels among those 65 and older seems to be two-fold: on the one hand, many seniors, like other Americans, borrowed and spent too much in the years leading up to the recession. This means that their debt levels were already reaching unsustainable levels when the bottom fell out of the market in 2008. This put many in a tenuous financial position when they found themselves suddenly underwater on their homes and with limited access to credit. On the other hand, many of today’s seniors are retiring without employer-sponsored pensions, and some failed to save enough to make ends meet in retirement. This means that many have to rely on credit cards to cover even basic living expenses, pushing seniors into deeper into debt.

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Rising debt levels among any demographic is problematic, but experts are particularly concerned about senior citizens being in the red. Many older Americans are unable to work due to medical conditions, putting them in a difficult position when it comes to paying off debt they’ve accrued. Also, when seniors are unable to cover their costs, many begin to rely on adult children; this puts an additional financial burden on those in their working years. All in all, high debt loads among older Americans bodes poorly for both their families and the economy at large.

Are you concerned about rising debt levels among senior citizens?

Debt Levels Among Senior Citizens on the Rise was originally featured on Quizzle Wire

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With interesting and entertaining articles such as Saving for Retirement Reimagined Through the Lens of Beer and Female entrepreneurs reveal their business success, those readers looking for any kind of personal finance advice will find something here for their liking.

Adam is a full-time writer, entrepreneur and private investor, and he also blogs about US tax law at at Tax On Tax Off. You’d be well-served checking out both of his sites and saying hello!

Personal Finance Blog of the Week – Magical Penny was originally featured on Quizzle Wire

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Because different states levy different sales tax amounts, and because there are excise taxes attached to certain items as well. Among those items is beer.

Sin Taxes: Where Beer Costs More

Many states impose what are known as “sin taxes” on items like beer and cigarettes. That means that if you cross state lines you could save money — or spend more.

CNN Money reports that the state with the lowest the lowest tax on beer is Wyoming, with a tax of $0.01 on each six pack. That’s even lower than Missouri, where resides Anheuser-Busch ($0.03 cents per six pack). The highest beer taxes can be found in Tennessee, where the state levies $0.66 per six pack. Why? The assumption is that Tennessee is whisky country.

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You might also be surprised to find that some states add extra charges for bottle fees. Some brewers also pay more in taxes, which means that the costs are usually passed on to consumers. So, you might be paying a lot more for your beverage of choice, depending on which state you buy it in.

Why do states tack on these charges? In many cases, the revenue goes toward helping to pay for services related to the beer, such as costs associated with drunk driving, or health issues.

If you want to see how your state stacks up in terms of beer taxes, CNN Money offers an interactive map.

Why You Pay More in Some States: Beer Taxes was originally featured on Quizzle Wire

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That’s a lot of money.

Many workers decide to borrow money from their retirement accounts because borrowing the money from themselves seems like a better solution than borrowing from a bank. However, it’s also important to be aware of the drawbacks associated with borrowing from your retirement account.

Advantages of Borrowing from a Retirement Account

The main advantage of borrowing from a retirement account is that you are borrowing from yourself. You still have to pay interest as you repay the loan, but the interest you pay goes back into your retirement account, instead of being paid to a bank.

Another advantage is that you have relatively easy access to the funds. As long as you meet certain requirements, and your employer allows retirement account loans, it’s possible for you to access your nest egg. That’s often most workers’ largest source of relatively liquid assets.

Since the money is a loan, it’s not considered an early withdrawal, and you avoid the 10% penalty if you are under 59 ½, and you don’t have to report the amount withdrawn as income.

Disadvantages of Borrowing from Your Retirement Account

Of course, there are disadvantages to borrowing from your retirement account. First of all, when you borrow, you usually have to pay an origination fee — and that doesn’t go back into your account.

The biggest disadvantage to borrowing from your retirement account, though, is the opportunity cost. It’s true that you are paying interest to yourself, and returning your principal, plus the interest, to your retirement account. However, there is no making up for the time that your capital was no longer working for you. Depending on market performance, you might be missing out on better gains because you pulled your capital out of your account, and it was no longer earning a return.

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Another consideration is the repayment issue. Many 401(k) loans have terms of between three and five years. (Roth IRA loans have different rules.) However, things change abruptly when you leave your job, or if you are laid off. When you no longer work for your employer, your 401(k) loan becomes due almost immediately, usually within 60 to 90 days.

If you don’t repay the loan within the specified time period, the loan is considered an early withdrawal. This means you pay the applicable penalties and taxes. But, if you can’t afford to repay the whole loan so quickly, paying the penalty and the tax might be a more manageable option, especially if you have a few minutes to recover a little bit and save up to meet your tax obligation.

Should You Do It?

In the end, it’s up to you whether or not you decide to borrow from your retirement account. Make sure you understand the consequences, and that you are prepared for a worst-case scenario. For some workers, the retirement account loan is the best option of last resort when funds from other sources aren’t available.

Should You Borrow from Your Retirement Account? was originally featured on Quizzle Wire

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