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How to Maximize Your Income and Reduce Your Expenditures

If the past few years have taught us anything, it’s that we need to be taking out less debt and building up more savings. And certainly, it’s where the public seem to be heading – levels of mortgage overpayment and personal savings have rocketed in the past year amongst those who have the luxury of being able to put income aside.

For many of us though, finding money to save is a real struggle. After the bills and living costs are taken out of a monthly salary payment, there’s not always a lot left to play with. So what do you do?

The answer lies in getting tough with yourself, carrying out a review of your current spending patterns and working out a sensible budget. Essentially you need to both maximise income and reduce expenditure – both sides of the coin. There are plenty of ways to do this when you start thinking, so be creative and start thinking outside the box.

Here are a few top tips to get you started:

Ask for a pay rise – it seems like an obvious option, but so many of us never do it. Take a look at the market and see what similar companies are offering for your job role or profession. This will give you an idea of whether you’re currently being paid enough for your skills level and experience.

Ask your manager in a calm and prepared manager and come with facts and examples to back up your request. If the request is turned down, try again in a few months time, with more evidence. Also, ask HR for advice about your job salary banding and progression, so you show that you’re serious.

Get a new job – the obvious option when your pay rise request is denied. You may find that you can earn more elsewhere in the same profession, or flex your skills into a new career entirely. See a professional careers advisor for guidance.

Get a second income – more people than ever are opting for this route, by becoming self-employed on a part time basis. There are numerous industries that rely on an army of part-time staff, often self-employed. Examples are party-planners, sales people, freelance designers, coders, copywriters and researchers, market researchers, bar and restaurant staff and plenty more.

Take in a lodger – if you have a spare room, then the government allows you to take in a lodger without paying tax on rental income (up to £4250 pa.) This can be an effective way to make the use of your home to bring in income. Do your research first though on how to select the right lodger and make the relationship work.

Look for opportunities to earn – examples include signing up for overtime during busy periods at work or selling unwanted items on eBay. You could also sign up with the local council to count votes during election period, or help steward at large events. There are various agencies offering links to such opportunities if you search online.

On the other side of the coin lies spending reduction. This is a bitter pill for some to swallow, but there really is no point in earning more if you’re not going to make good use of it!

Food shopping – when it comes to food shopping, start using grocery coupons/vouchers and sign up for reward schemes. Downgrade your brands when you’re out shopping, so that you save money on you shop each time. Look at bulk buying offers, local grocers, markets and other opportunities to slash monthly grocery bills.

Travel – identify ways to save on travel, firstly by walking when a journey is a mile and under. If you’re doing this regularly you’ll save on petrol and you can cancel your gym subscription! With train tickets, book well in advance to take advantage of special deals and with holidays, look for cheap holiday offers and promotions via online search sites – these check the whole of the market to find the best prices and options for your requirements. Holiday extras such as car hire and airport parking can also usually be arranged via these online travel sites so be sure to compare prices to save yourself some money.

Clothes shopping – instead of shopping expensively on the high street, channel your passion for fashion into eBay. Many of your regular brands will be on there already and you can sell last season’s purchases to make way for the current season of items. Get savvy with bids and set yourself limits – you’ll find some great bargains if you’re clever about it!

Entertainment – when it comes to entertainment, sign up to group buying schemes for special offers and look more broadly in your area for things to do that don’t cost a lot of money. Things like local leisure centres, museums, parks, libraries, city parades and exhibitions are often free or subsidised by the council and you can enjoy time with the family without spending a lot of money on more commercial entertainments.

Hobbies – rather than taking up yet another expensive sport that you’ll buy all the equipment for and then never see through, find low cost hobbies to enjoy and cultivate. Walking or running, painting, music appreciation, gardening, racket sports, debating groups, local social clubs – all of these can be enjoyed without necessarily parting with too much cash. And it will broaden your horizons too – thinking more broadly about what counts, such as spending time with loved ones, rather than throwing money at free time like there’s no tomorrow!

This post brought to you by MoneySupermarket.

Your Budget is Worthless

Finance

When you realize that you’ve buried yourself in debt and decide to get out from under that terrible burden, the first thing you’ve got to do is build a budget because, without that, you’ve got no way to know how much money you have or need. After you’ve got a budget, you’ll start spending according to whatever it says. Hopefully, you’ll stay on budget, but what happens when an emergency does come up? What do you do when your car dies? When you suddenly find out your kids needs vision therapy? How do you manage when your job suddenly gets shipped off to East De Moines?

Your budget isn’t going to help you meet those expenses. Most people don’t have enough money in their bank account to make it all the way to the next payday, let alone enough to keep the lights on and food on the table. How can you possibly hope to deal with even the little things that come up?

You whip out your emergency fund.

The problem with a budget is that it does a poor job of accounting for the unexpected. That’s where an emergency fund comes in. An emergency fund is money that you have set aside in an available-but-not-too-accessible account. Its sole purpose is to give you a line of defense when life rears up and kicks you in the butt. Without an emergency fund, everything that comes unexpectedly is automatically an emergency. With an emergency fund, the things that come up are merely minor setbacks. Without an emergency fund, your budget is nothing but a good intention waiting to get shattered by the next thing that comes along. With an emergency fund, you are managing money. Without it, it’s managing you.

How much money do you need in an emergency fund?

Every “expert” has their own opinion on this. Dave Ramsey recommends $1000 to start. Suze Orman says 8 months. The average time spent looking for work after losing your job is 24.5 weeks(roughly 6 months), so I recommend 7 months of expenses. That’s enough to carry you through an average bout of unemployment and a little more, but that’s not a goal for your first steps toward financial perfection. To start with, get $1000 in a savings account. That’s enough to manage most run-of-the-mill emergencies, without unduly delaying the rest of your debt repayment and savings goals.

How do you build an emergency fund?

Let’s not kid ourselves, $1000 is a lot of money when can barely make it from one check to the next. Unfortunately, this vital first step can’t get ignored. If you really work at it, you should be able to come up with $1000 in a month or so. Here are some ideas on how to manage that:

Cut. Drop every possible expense. If you drop cable, your cell phone, Netflix, and a weekly dinner out, you will already be saving $400 that month. You’d be almost halfway there.
Sell. How much stuff do you have that you don’t need, want, or use? I’d be willing to be there’s more than you realize. Last spring, I had a garage sale that brought in about $1300. Everything we sold was just crap we don’t use any more. We sold candles and candle-holders, DVDs, books, clothes, toys, electronics, games, and anything else we could find. I spent a month going through every room in my house to find my inventory. Craigslist is a good way to sell just one or two things at a time.
Work. Have you thought about delivering pizza or working weekends in a gas station? If you have some technical or writing ability, you could pick up some part time work on oDesk or eLance. Your opportunities are only limited by what you are willing to do.

Stop at a grand?

Dave Ramsey’s advice is to get your fund up to $1000 and then leave it alone until your debt is paid off. Screw that. I’ve got money going into my fund every month. It’s only $25 per month, but over the last two years, it has almost doubled my fund. Don’t dedicate so much money that you can’t meet your other goals, but don’t be afraid to keep some money flowing in .

Using the fund?

When can you pull the money out? That is entirely up to you. I have ju st two points to make about withdrawing from your emergency fund:

Don’t keep the money in an easy-to-access account. If your fund is in the savings account that serves as your overdraft protection account, it’s too easy to spend it, and it will go away. I keep it in my INGDirect account. I don’t use the checking account for anything in person, so I don’t carry the card. If I want to spend that money, it will take 2-3 days to transfer into my main bank account.
Never decide to spend the money on the spur of the moment. There are very few major financial decisions that can’t wait until morning to be answered. Sleep on it. If it’s still necessary tomorrow, you can spend it without guilt.

An emergency fund makes your life easier and your budget possible when the unexpectable happens. Don’t forget to fund yours.

How much money do you keep in your emergency fund? What would it take to get you to spend it?

ING Rocks

Finance

I just got an email from INGDirect. To celebrate Independence Day, they are having a sweet, sweet sale.

You can:

Open a checking account and get between $50 and $126 for doing so.
Open a Sharebuilder account and get $76 to start buying stocks.
Get $1776 knocked off the closing costs of a mortgage.
Get $76 in a new IRA, to give you a little boost for retirement.

Take advantage of all of that and you’ll get $2054 in cash or discounts.

Seriously, this deal rocks. If you don’t have an INGDirect account, get one. There are no overdraft fees and no monthly fees.

The sale ends tomorrow at midnight, so hurry.

Make a Budget

Finance

: Image by r.lovewell via Flickr

In the past, I’ve gone through a detailed series of budget lessons demonstrating how to make a budget and showing my personal budget spreadsheet template. If you weren’t here to see them develop, you probably haven’t seen them at all. I’ve never built an actual index for those posts.

This is the master index of my budget planning resources. As I develop more, this will grow.

Budget Lesson #1 – In this lesson, I go over how we handle discretionary income and I explain our modified envelope system. The discretionary budget contains things like our grocery bill, or the clothes we buy. We have near-total discretion over what is purchased, hence the name.

Budget Lesson #2 – Lesson #2 contains the details of our monthly bills. These are the ones that are consistent, predictable, and actually due each month. Most people take these for granted as the bills they have to pay, but it’s not true. You can get almost all of your regular bills reduced just by asking. You would also be surprised what you can do without, when properly motivated.

Budget Lesson #3 – This is where I explain how we deal with the non-monthly bills. That is, the bills that have to be paid, but are not due on a monthly basis. I also share the personal budget spreadsheet template I developed. I am working on a few sample templates to match various imaginary scenarios. If you’d like to be an anonymous case study, and get free help setting up a budget, let me know, please.

Budget Lesson #4 – In this lesson, I describe our “set-aside” funds for things that will need to be paid eventually, but not on a set schedule. Sometimes, they are never actually due. We set aside money for the parties we throw, for car repairs and for a number of other things. A few of these items are outright optional, but they are part of what makes life fun. You can’t make a budget without including some of the extras.

Budget Lesson #5 – This is the companion piece to lesson 2. Learn how I’ve reduced–or attempted to reduce–each of these bills. For the better part of two years, I called Dish Network every few months to ask for a discount. For almost 2 years, it was granted. Then one, day, they told me they were putting a note on our account to keep us from getting any more discounts, so I canceled. 100% discounts help us save more.

Budget Lesson #6 – This is the reduction companion to lesson 3. These bills are harder to reduce. Have you ever successfully gotten your property taxes lowered?

Budget Lesson #7 – This is the reduction companion to lesson 4. Notice a pattern, yet?

Budget Lesson #8 – Here, completely out of order, is the reduction companion to lesson 1. Watch as I magically reduce–or rationalize–our discretionary budget.

So, dear readers, what part of budgeting should I address next?

How to Have a Perfect Life

Life

A few years ago, my wife and I were discussing life improvement, the options in front of us, and our future goals. She said she felt trapped by the scope of our goals and didn’t know where to start. That led to a discussion on

achieving our goals, which led to this.

Examine your life. Take stock of every aspect of your life. What pleases you? What upsets you? What do you do that adds no value to your life? Or worse, removes value? What do you do that adds the most value? What would you like to change? Eliminate? Improve? Count the small things. Nothing is insignificant. Write it all down and be specific.

Analyze your list. Are there any obvious patterns? Is there a single thread that is making you miserable or affecting multiple other items? Would eliminating 1 factor improve 90% of the rest? Is there a bad job or a toxic relationship ruining your happiness? Be honest and be critical.

What are your dreams? Where would you like to be in six months? A year? 5? 10? How would you like to retire? When? Write it all down. This is now your life plan.

Set goals. Set concrete, definable goals. Set goals that have an obvious success point. When you reach your goal, you want to be able to point it out. “Lose weight” is not a goal. “Lose 50 pounds in the next year” is a measurable, definable, concrete goal. Set incremental goals to reach your larger goals and, more importantly, your dreams.

Here’s an example:

Dream: Retire at 50.

Incremental Goal: Get a 10% raise within 6 months
Incremental Goal: Eliminate debt within 3 years
Incremental Goal: Max out 401k contribution
Incremental goal: Save 150,000 within 10 years
Incremental Goal: Save 45k each year after that.
Retire

When you are setting up your goal plan, make sure to include the analyzed items mentioned earlier. These are the things that will make today happier for you.

Now, you have examined your life. You have analyzed the results. You’ve gathered your dreams and compiled a goal plan based on your hopes, dreams, goals and desires. What’s next?

We’re going to take a page from David Allen. It’s time to Get Things Done. What do you have to do next to reach your goals? What is the next step? Don’t let yourself be overwhelmed by the scope of the entire list. Select one single item from your plan and look for the one single next step to make on the path to that goal.

Going back to the retirement goal plan, the next step towards a 10% raise could be researching salaries for your job description in your area to give you ammunition in the meeting with your boss. It could be updating your resume to hunt for a better paying job, or even just studying up on some resume tips.

If you want to run a marathon next year, the next step is to start walking every day to train your body.

If you want to improve communication with your spouse, the next step is probably to let her know.

If you want to eliminate debt, the next step may be setting up a budget or canceling unnecessary services like cable.

Every goal has a path leading to it. If that’s not true, you haven’t defined a concrete measurable goal.

Examine your life. Analyze your situation. Know WHAT you want. Know what you want to change. Set goals to get there, one step at a time. Take a single step towards your goals.

Then take another.

What are you doing to reach your goals and improve your life?

Money Problems – Day 8: Insurance

Finance

Today, I am continuing the series, Money Problems: 30 Days to Perfect Finances. The series will consist of 30 things you can do in one setting to perfect your finances. It’s not a system to magically make your debt disappear. Instead, it is a path to understanding where you are, where you want to be, and–most importantly–how to bridge the gap.

I’m not running the series in 30 consecutive days. That’s not my schedule. Also, I think that talking about the same thing for 30 days straight will bore both of us. Instead, it will run roughly once a week. To make sure you don’t miss a post, please take a moment to subscribe, either by email or rss.

On this, Day 8, we’re going to talk about insurance.

What is insurance? Insurance is, quite simply a bet with your insurance company. You give them money on the assumption that something bad is going to happen to whatever you are insuring. After all, if you pay $10,000 for a life insurance policy and fail to die, the insurance company wins.

A more traditional definition would be something along the line of giving money to your insurance company so they will pay for any bad things that happen to your stuff. How do they make money paying to fix or replace anything that breaks, dies, or spontaneously combusts? Actuary tables. Huh? The insurance company sets a price for to insure—for example—your car. That price is based on the statistical likelihood of you mucking it up, based on your age, your gender, your driving history, and even the type of car you are insuring. What happens if a meteor falls on your car? That would shoot the actuary table to bits, but it doesn’t matter. They spread the risk across all of their customers and—statistically—the price is right.

What kinds of insurance should you get?

Homeowner’s Insurance

For most people, their home is, by far, the largest single purchase they will ever make. If your home is destroyed, by fire, tornado, or angry leprechauns, it’s gone, unless you have it insured. Without insurance, that $100, or 200, or 500 thousand dollars will be lost, and that’s not even counting the contents of your home.

Homeowner’s insurance can be expensive. One way to keep the cost down is to raise your deductible. If you’ve got a $1500 emergency fund, you can afford to have a $1000 deductible. That’s the part of your claim that the insurance company won’t cover. It also means that if you have less than $1000 worth of damage, the insurance company won’t pay anything.

You can get optional riders on your homeowner’s insurance, if you have special circumstances. You can get additional coverage for jewelry, firearms, computer equipment, furs, among other things. You base policy will cover some of this, but if you have a lot of any of that, you should look into the extra coverage.

Auto Insurance

Car insurance is required in most states. That’s because the kind caretakers in our governments, don’t want anyone able to hit you car without being able to pay for the damage they caused. To my mind, I think it would be more effective to just make whacking someone’s car without paying for it a felony. If someone is a careful driver or has the money to self-insure, more power to them.

Auto insurance comes with options like separate glass coverage, collision, total coverage (comprehensive), or just liability. Liability insurance is what you put on cheap, crappy cars. It will only pay for the damage you do to someone else.

Rental

I’ve never had rental insurance. The last time I rented, I could fit everything I owned in the back of a pickup truck with a small trailer, and it could all be replaced for $100. Heck, I had the couch I was conceived on. Err. Ignore that bit.

Almost everything you can get homeowner’s insurance to cover will also cover renter’s insurance, except for the building. It’s not your building, so it’s not your job to replace it.

Life Insurance

If you care about your family, you need life insurance. This is the money that will be used to replace your income if you die. I am insured to about 5 times my annual salary. If that money gets used to pay off the last of the debt, it will be enough to supplement my wife’s income and support my family almost until the kids are in college. You should be sure to have enough to cover any family debt, and bridge the gap between your surviving family’s income and their expenses. At a minimum. Better, you’ll have enough to pay for college and a comfortable living.

Life insurance comes in two varieties: whole and term. Whole life…sucks. It’s expensive and overrated. The sales-weasels pushing it will tell you that it builds value over time, but it’s usually only about 2%. It’s a lousy investment. You’re far better off to get a term life policy and sock the price difference in a mutual fund that’s earning a 5-6% return.

Term life is insurance that is only good for 5, 10, or 20 years, then the policy evaporates. If you live, the money was wasted at the end of the term. The fact that it’s a bad bet makes it far more affordable than whole life. It doesn’t pretend to be an investment; it’s just insurance. Pure and simple

Personal Liability Umbrella

An umbrella policy is lawsuit insurance. If someone trips and hurts themselves in your yard, and decides to sue, this will pay your legal bills. If you get sued for almost anything that was not deliberate(by you!) or business related, this policy can be used to cover the bill.

If you call your insurance company to get an umbrella policy, they will force you to raise the limits on your homeowner’s and auto insurance. Generally, those limits will be raised to $500,000, and the umbrella coverage will be there to pick up any costs beyond the new limit.

A little-known secret about umbrella policies: They set the practical limit of a lawsuit against you. Most ambulance chasers know better than to sue you for 10 million dollars if you only have a policy to cover 1 million. They will never see the other 9 million, so why bother? They’ll go for what they know they can get.

The flipside to that is that you should not talk about your umbrella policy. Having a million dollars in insurance is a sign of “deep pockets”. It’s a sign that it’s worthwhile to sue you. You don’t want to look extra sue-able, so keep it quiet.

Insurance is a great way to protect yourself if something bad happens. Today, you should take a look at your policies and see where you may have gaps in coverage, or where you may be paying too much.

Search Results for: travel-expenses-why-i-splurge/subscribe-by-email/INGDirect/anchor-price-your-salary/a-budget-isnt-enough/ignore-your-budget/future-dreams

How much money do you need in an emergency fund?

How do you build an emergency fund?

Stop at a grand?

Using the fund?

Homeowner’s Insurance

Auto Insurance

Rental

Life Insurance

Personal Liability Umbrella