Wednesday, April 30, 2008

Creating Your Financial Plan - Step Three

If you are still with me now you are doing great!! I hope your plan is shaping up. The next steps will be a breeze because it is a little repetition and if you are anything like me you aren’t quite this far. Your plan on these steps will not need to be as detailed until you are. However these steps are just as important. If you don’t have a plan for what to do next when you finish paying off your debt you may wind up back in debt again!!

Okay, again let’s check out our old pal Julia’s plan.

Step Three- Continue Saving
Goal- Save 3 months worth of salary.

Plan- Current Salary $3000 per month. Total needed $9000. This plan will need to be updated once debt is paid off.
Continue using the debt money- $625 per month to save toward goal.

Maintenance- Same as with step one.

Possible Completion date- approx 1 year past completion of step 2.

Short and sweet. Julia’s plan is to save 3 months worth of salary. This is a good idea for a single person. My personal goal at this point is 6 months but I am married and have children. I also have a step before this one in my plan that is to save for a vacation. As I said on day one, this is YOUR plan. Make it for you. If you are on this step now, add more details as to how you plan to get more money to save. The more you can find to save the faster you will be finished with this.

In this step, list your current monthly salary and multiply it by the number of months you choose. Maybe you want to save up 12 months and take a year off to try to start your own business. It is up to you. However, the main purpose of this step is so in the event you loose your job or have to take an extended absence to care for a sick family member you have the money to do so without going into debt. This will also act as your new emergency fund… just a really big one. If you had a major problem… say your car, washer, dryer, and refrigerator all went out at once you would be covered.

Your maintenance step would be the same as step one. If you use any of the money once it is saved you have to put it back.

Your completion date will vary but all you need to do is take your goal, divide it by the amount you can save each month then divide by 12 if you get a number over 12. That will give you the number of years. If the number is less than 12 that is the number of months it will take.

Notice Julia adds a note to update her plan once she gets to that step. Her salary will probably be higher and she will need to save more money. Don’t skip the updating step. You need for it to be an accurate amount or in the event that you did lose your job you wouldn’t have the money to cover your expenses.

When you actually get to this step you may want to add more information. Maybe you can pull money from other resources at this point. The more money you can throw at each goal the faster it is completed.

Once again, I hope you are actually using this and creating your plan. If you haven’t started yet, what are you waiting for? Keeping it in your head just adds stress to your life. Write it down and join me tomorrow for the last day of writing.

Tuesday, April 29, 2008

Creating Your Financial Plan- Step Two

Yesterday we created step one of our financial plan. This was our plan to make an emergency fund so we could do without our credit cards from now on. Today we are going to work on step two, which is to pay off any debt you may have. (This does not include the mortgage if you have one.) Get out all of those credit card statements and let’s get started.

Let’s look at Step Two of Julia’s Plan

Step Two- Pay off Credit Card and Other Debt
Goal- Pay off all debt and stay out of debt for good.

Plan- Current Debts

Visa Card Total Owed: $5000 Minimum Payment: $200

Car loan Total Owed: $20,000 Minimum Payment: $400

Student loan Total Owed: $20,000 Minimum Payment: $150

Totals: Total Owed: $45,000 Minimum Payment per month $550

(This should actually be stacked to make it easier to add up but blogger does not allow that type of formatting, sorry:)

Add $75 to Visa Card payment now that Emergency fund is complete. Once Visa Card is paid off continue to implement Snowball by paying the $275+$400 ($625) on car loan. Once that is paid off continue with student loan. Any tax return money will go to debt also.

Possible completion date: 2014 – Probably sooner due to raises etc.

Maintenance- Continue with Step Three to stay out of debt for good.

The goal is simple. She wants to pay off her debt and stay out of debt. I am not advocating a certain method for paying off your debt. You can do this however you see fit. In this case Julia plans to use the debt snowball. She takes the money she had used to save for her emergency fund and adds it to the first minimum payment. Now she is paying over the minimum so it will be paid off sooner. For more on the debt snowball click here.

I like listing each debt and the monthly payment so you can see how much money is going toward debt each month. For me it is over $700 a month. I keep thinking to myself that once that is all paid off I will have an extra $700 a month just floating around. Won’t that be great? Now, back to her plan. You see she has listed out exactly how she plans to take care of her debt. You should do the same. This step is also pretty detailed because she is not far off from beginning it.

As for the completion date here she can probably finish this much sooner, but to get your own date take your debt total and divide by your monthly payment (hers is actually $625 adding in the $75 from step one). This will give you a number of months. Divide that by 12 and you will have the number of years it will take. This is just an approximation. It would take longer if we factored in interest, but if you are really grabbing every cent you can find and putting it toward your debt it will probably be pretty close or hopefully over your actual date of completion (again, if you have a lot of debt and don’t want to know…skip it.)

Finally, I am glad you have made it this far, but if you aren’t writing any of this down you are wasting your time. Start making your plan now, and join me tomorrow to discuss step three.

Monday, April 28, 2008

Creating Your Financial Plan Step One

Are you ready to begin your financial plan? Make sure you have all your supplies from day one! Let’s get started.

First I want you to meet Julia. Julia just graduated from college with $20,000 in student loan debt (let’s pretend she had some scholarships). She also has around $5000 in credit card debt because she liked to shop when exam week stress hit or when her part time job didn’t cover that month’s expenses. She just got her first job and bought her first new car with a payment of $400 a month. (These are just to give us some numbers to work with. Her actual salary etc. doesn’t really matter remember this is not a budget.) She hasn’t just been spending though. She realizes that she needs an emergency fund first so she has been saving. Right now she has $300 in the bank. Good for her.

Now, as I show you Julia’s plan you can begin writing your own. When you begin writing your plan make it a rough draft. You can go back later and write it all pretty, but don’t waste time doing that now because you may want to make many changes before it is all said and done.

According to Dave Ramsey in the Total Money Makeover your first step should be to create an emergency fund. This is extremely important. It cannot be skipped. Without an emergency fund you will constantly use credit for any unexpected expense. This just keeps you in debt. It is a vicious cycle. Here is Julia’s Goal

Step One- Create an Emergency Fund

Goal- Save at least $1000 for Emergencies ONLY.

  • Plan- Current savings $300
    Still needed $700
    Continue saving $75 a month. Try to sell old textbooks on Cash 4 books. Add birthday money from parents in May ($100).

    Possible completion date: Dec. 2008

    Maintenance- After Emergency fund is complete maintain it at $1000. If money is needed for an actual Emergency stop step two until the fund is replenished.

Notice how detailed this first goal is. That is because this is the goal she is working on. Get out your most recent statement and see how close you are to having an emergency fund. Now, $1000 is a good starting point. If you don’t own much that can break down however you may be okay with $500. You may feel you need more. This is one of those places where you need to customize your plan. I am finished with this step, so all my plan contains is the maintenance step. For any step in the plan that does not apply to you simply create a maintenance goal.

The possible completion date can vary a lot, and it is not a necessary part of the plan. I just put it here so you can see the light at the end of the tunnel… however if your tunnel is rather long you may want to omit this. Remember, if you are seriously committed to your goal you can probably make it happen much sooner. Julia has listed a number of ways to get EXTRA money for her goal. You should brainstorm and do the same.( Cash 4 Books is a great way to sell old books around your house. Click here for the site and here for more information.)

Finally, I am glad you have made it this far, but if you aren’t writing any of this down you are wasting your time. Start making your plan now, and join me tomorrow to discuss step two.

Feel free to share your own plan or your ideas for more savings below in comments!!

Ready for Step Two? Click here.

Sunday, April 27, 2008

Creating Your Financial Plan

The purpose of this series is for you to create a WRITTEN financial plan. Most of the information you will read here you have heard before. The point is for you to finally create a plan for yourself and use it to fix your finances.

A financial plan is NOT a budget. A financial plan is a roadmap to your financial future. The plan you create does not have to be set in stone and for reasons I will explain later it should not be. The plan you create should help you attain your goals for the near future and also goals for much later on. You need a few things to create your plan.

  • A notebook to write it in. (You can put it on a computer but I promise putting pen to paper will really help you get it in your head)
  • Your current savings balance
  • Paycheck stubs for you and your spouse if applicable
  • Credit card statements
  • Current balances on any loan

I use Dave Ramsey’s baby steps as a guideline to what you should do and when. I have lived these steps both having some of them done and having the same steps them NOT done. I really agree with his line of thinking here.

For each step you are going to create a goal. Even if you have completed the step you will still create a goal for that step.

I think it is important that you write a goal for each step even if you are no where near beginning it. Some of my goals are one short sentence. As I complete more goals I will expand on the goals that are further down the road. You can also add your own goals in between the ones I will suggest. This is your plan. Make it for you. One of my goals is that after I finish paying off all of my debt I will save for a vacation as a reward before going on to the next step. This will keep me from making my other goals as soon, but to me it is important to get to ENJOY some of my success.

The reason your plan should not be set in stone should be obvious, but just in case I will explain. Life happens. You may have an unexpected debt, lose a loved one, use all of your emergency savings in one fell swoop….. you get the picture. My plan has changed a lot in the past year, and I am sure it will change again. You cannot let this sway your efforts. Adjust your plan as needed and get back on track as soon as you can. As you will see, the plan should actually have some fail safes built in so that you are not thrown off course should things not go as planned.

Take some time to gather up what you need and come back tomorrow for the next step.

Step One - Creating Your Own Financial Plan

Step Two- Creating Your Own Financial Plan

Step Three- Creating Your Own Financial Plan

Step Four - Creating Your Own Financial Plan

Financial Plan Wrap Up

Saturday, April 26, 2008

Really excited about an upcoming series!!!

A few days ago I decided I needed to update my financial plan. It is just something I have always done to keep myself on track. Then I thought.... this would probably be useful to other people. So beginning tomorrow I will post the first article in the series. It should last all of next week. This is not a budget. It is a plan for the future of your finances. Come back tomorrow for the introduction. The rest of the plan will be broken down into steps for the rest of the week.

Friday, April 25, 2008

Trying out some frugal tips

I have been really looking into frugality stuff online. So far I am going to really try to give clipping coupons a try. I am getting a great deal on 1/2 off a regular subscription to the local newspaper on Sunday only so if I use at least one coupon a week it will pay for itself.

I also used a CD holder I got for free at a conference to make myself a little coupon holder. I was going to go buy something to keep them in but I though of this idea and am SO proud of myself.

Again though on people doing illegal things for frugality.... Some of these coupon people are nuts. One thing I read that was suggested was peeling coupons off of products with coupons on them. I think this is stealing. I have picked up things before because they had these "peelies" on them and gotten to the register to find one of the items had it already removed. That makes me really mad. I feel like these belong to the person buying the item.

Also apparently you can lie to managers and tell them they are out of something on sale and get a raincheck. Then you go back to the store and buy some of that item on sale and use the raincheck later when it is not on sale. Again, this is not exactly illegal but it is really dishonest. I just wouldn't feel good about myself if I did something like that.

So anyway, if you have any coupon or fugal tips to pass on please post them here!!

My most recent saving money blunders... oops!!

Sometimes the ideas on ways to save money are great, but the journey there... not so much!!

I recently got a haircut for the first time in 10 months..... yeah, I guess that saved me some cash. But, I asked her how much it would be to color my hair because I wanted to go back to my natural color so I didn't have to keep buying haircolor... thus saving that money each month or so. Well, it was going to be around $90 and I did not expect that my haircut was going to cost me $40 so I decided to just color it myself with a shade close to my natural color.

Umm... that was a disaster. My hair was gray on the ends because I had used an ash blonde instead of a golden blonde (later explained to me by the color advisor on the 1-800-help I messed up my hair line).... So, I ended up having to buy TWO more boxes of haircolor to fix it. Total cost... around $21. Better than the salon but still wasted money.

Then I decided that I would buy a water filter and stop buying bottled water each week for work. So I got one that went on the tap. Well, it ruined our faucet while we were trying to get it on so we had to buy a new set up for $90. The filter itself was $50 and was also ruined in the attempt to get it OFF said broken faucet. However, Walmart took it back as defective, because it was... the thing leaked from places it shouldn't have. And, I used that money to buy a $30 pitcher that fits in the fridge instead. Plus its filters are cheaper.

So, I guess I came out on top after all. The pitcher will probably pay for the faucet in about a year. Not coloring my hair will pay for itself in about a year as well (I probably only go through 4 boxes of haircolor in a year anyway) and now my hair is normal and we have clean water. I just wish it hadn't been such a battle!!!

Tuesday, April 22, 2008

Snowflaking... I finally get it.

Debt Snowball- paying off debt by making the maximum payment possible on your highest interest or balance debt (depends on your preference for paying it off) while paying the minimums on all other debt. As each debt gets paid off you put the same amount of money toward the next highest debt.

Snowflaking- putting little bits of money toward your debt as you get it.

Now, I never really understood snowflaking. I mean, do I save this money and use it at the end of the month? Do I write a check each time I have some extra cash? Do I have a garage sale? The answer is basically YES.

Snowflaking can take many different forms. I had heard of the concept before, but it wasn't until I read a discussion board post on it that I really understood.

Take me for instance. Today, I had to go get a few things at the grocery store. I really wanted to go to McDonald's and get a chicken nugget happy meal. However, the post was still fresh in my mind so I decided instead, I would go home, eat what was there and put $5 for the happy meal that I didn't buy into my credit card account. So that is what I did. (My bank has you transfer money into a seperate part of your online account then they take the money out and pay the credit card for you.)

Some other ideas I read online included saving change and adding that to your debt. Now, I do save my change, but I usually use it in the vending machine at work. (I know I should know better) Well, I am going to start taking whatever I have at the end of the month to the bank and putting that amount toward my credit card debt.

The ideas you can come up with for snowflaking are endless. I am sure my readers have some great ideas. Please add your ideas to the comment section!!

Sunday, April 20, 2008

Baby is here!!!

Wow, I have so much to update on. Let's see. I will put them all under headings and you can just scroll down to whatever you feel like reading.

Our baby was born on March 27th. So she is almost a month old already. THAT is why I have been missing for so long. She is doing well, she is a great sleeper, and is already getting HUGE!!!

Chester passed away this past Friday. We decided to have him put to sleep after a few months of trying to battle his tumor. He had gotten much better with the drugs the vet prescribed but the tumor came back with a vengance and we didn't want him to suffer anymore. Obviously we are still dealing with it right now, but it was the right thing to do.

I was so upset I missed posting for the one year anniversary for Picture of Wealth. I cannot believe it has been over a year since I started this blog. I have had many other blogs but none lasted as long as this. Finances are something I will never get tired of reading, writing, talking about. A special thanks to my subscribers. You help keep me writing. It is nice to know SOMEONE is interested in my blog, lol.

We were able to make our savings goal for our crisis plan!!! However, were it not for our tax refund, it wouldn't have happened. The problem now is over spending because of that fat balance. Anytime we need/want something for the baby we go out and get it without really thinking about it. That was one reason I wanted to get back to my blog. I want to make sure this stops before our savings is gone. I have to remind myself that any money left over once I start getting my full pay checks again can go to debt repayment.

Well, those are my updates. I hope to get to some more articles soon, but I never know when the baby will let me do that. In a few months it should get much easier again. Thanks for reading!!