Monthly Archives: June 2016

Budget Planning For a Wedding

images-9I’m in the middle of wedding planning right now, and it has opened my eyes to just how incredibly expensive this whole thing can be!

 

I’m a frugal person at heart so the idea of spending a ton of money on one day seems a little silly to me. But it’s hard not to get caught up in all of it, and I’m finding that the costs are adding up quickly.

 

So, how do you have a wedding you love without spending more than you can afford? I’ve been thinking about this as I plan my own wedding. I’m fortunate that my parents have been very generous, and here are a few things I’ve learned along the way.

Plan Ahead

 

Yeah, I know. Big surprise that the financial planner is encouraging you to plan ahead. But there are two reasons why it’s helpful to make a plan before making any final decisions.

 

First, it’s amazing how quickly even the little costs add up. There are so many different pieces to a wedding that you can make a lot of seemingly reasonable choices and still end up with a big total bill. By planning ahead, you can see that happen before you’ve actually committed to anything and make decisions accordingly.

 

Second, it’s easier to get good deals when you’re on top of things early. Venues get booked, DJs aren’t available, and prices go up. The longer you wait, the less likely it is you’ll get your first choice and the more likely it is you’ll have to pay extra.

 

The Knot has a fantastic wedding budget calculator that can help you allocate funds across all wedding expense categories.

Get Creative

 

Your wedding doesn’t have to be like every other wedding. It can not only be cheaper to do things your way, but it can make for a fun and unique experience.

 

A friend of mine had a fall wedding and served pies instead of a wedding cake. This option was delicious and at least half as expensive; with pie at $2 per slice and wedding cake at $4 or more. Another one enlisted the help of her friends to make their own floral arrangements. I’m making small ornaments for wedding favors, out of paper (not expensive) and supplies I already had on hand.

 

Music, in particular a live band, is another expense that can be reduced, involve friends who have musical talents or crowd source a playlist from all your guests. There are an infinite number of ways you can get creative, save money, and make the wedding yours in the process.

Consider Your Guests’ Budgets Too

 

Your friends and family want to come celebrate with you, but for many of them it’s a big financial commitment. Doing what you can to make it easier for them will be much appreciated.

 

I have a friend who had a camping option, as one of the accommodations for her wedding. Not only was the price right, but it was a memorable experience. Suggesting accommodation options to guests with a range of prices is always appreciated.

 

For our wedding, we’re trying to make sure that people know how to enjoy themselves during the weekend without having to spend a ton of extra money, so we’re giving them a map of our favorite hiking trails in the area. Little things like that won’t make all the costs go away, but every little bit helps.

Be True to You

 

In the end, there’s no right way to do a wedding. You don’t have to be as fancy and extravagant as all the wedding magazines. But you don’t have to cut costs to the bone either.

An emergency fund

On the excitement meter, a “rainy day” fund might barely move the needle, particularly when compared with other financial goals such as saving for college, a retirement account, or a down payment on a new home. Yet investors who fail to include an emergency fund in their planning, do so at their peril.

Being unprepared for an emergency—anything from a flood to losing your job—can force you into a financial hole. The unexpected can happen to anyone, regardless of age or income level, and it can take years to recover if you are not financially prepared.

A study published by the National Bureau of Economic Research and the Brookings Institution found that 50% of Americans—and nearly 15% of households earning $150,000 or more a year—couldn’t come up with $2,000 in cash to cover an unexpected auto emergency, medical bill, or home repair.

This is why creating an emergency fund should be considered a priority. Maybe you’re just starting a career and are inclined to take your chances. Or maybe you think your net worth has grown enough to make an emergency fund unnecessary. The problem is, you may be wrong. Having a cash reserve can help protect you against unexpected financial difficulties that can have lasting consequences, even if you feel you are in good shape today.

How much do you need?

A.D. Financial Planning recommends the following emergency fund:

  • Single person: save and set aside 3 months of expenses
  • Two income family with stable jobs: save and set aside 3-6 months of expenses
  • Single income family or two income with unstable jobs: save and set aside 6-9 months of expenses
  • Self-employed family: save and set aside 9-12 months of expenses

This guidance may not fit everyone. You will need to take into account your expenses, liabilities, and other individual circumstances in order to get a dollar figure that suits your needs.If you’re single and on your own but have family backup, you might be comfortable with three months of savings. However, if you have a spouse, kids, and a mortgage to support, you might sleep better with six months or even 12 months of funding in reserve.

Remember to consider the full list of potential emergencies you could encounter, which might range from a disability or illness to a major housing repair or loss of employment. Make sure you check your disability insurance—either at work or as an individual—so that you know both how long your policy requires you to be disabled before benefits begin and how long they’ll last.

And when you are calculating your living expenses, keep in mind that if you lose your job, you’ll also lose your health insurance coverage. This means you’ll need additional emergency fund money to cover the cost of your health care coverage through COBRA.

Coming up with the cash

Once you’ve decided how much in emergency savings you’ll need, you’ll have to find the dollars to fund your cash reserve. A windfall such as an inheritance or a gift from a parent or grandparent is a great source of cash for starting a rainy day fund. Most people, however, will likely find that the process of building an emergency fund takes place while juggling other saving and spending priorities.

The 10 Steps to Financial Freedom recommended by A.D. Financial Planning gives you clear steps on your financial road for when to start and when to expand emergency fund. In order to build your emergency fund it must be part of your monthly budget. When you reach the target number for your emergency fund, you can start working toward saving for a down payment on a home, increasing your retirement savings in your 401(k) or 403(b) plan, IRA, or other tax-advantaged plan then saving for your child’s education.

Possible pitfalls

Some people view their 401(k) plan as a source of emergency cash, because you can borrow money from a 401(k) if your plan allows. This approach, however, comes with some real perils. If you leave your employer for any reason, you will likely have to pay the loan back within a maximum of 90 days. Moreover, if you fail to pay the loan back in that time, you’ll be subject to both income tax and a 10% early withdrawal penalty.

Others view their credit card as an emergency plan. Credit card balances that are not paid of monthly are fraught with fees, penalties and high interest rates. Using a credit card to bail yourself out of a financial hole is the equivalent of using a shovel to dig yourself out of a hole – you are only going to get deeper!

Keep your rainy day fund up to date

Once you have established your rainy day fund, resist the temptation to dip into it for non-emergencies. If you start to treat it as a backup when you’re running short, it’ll disappear before you know it. As your expenses grow, so should your cash reserve.

Financial Mistakes That You Should Know

There’s a lot of financial advice out there. Enough that your head starts to spin when you try to take it all in, understand it, and figure out which pieces are relevant to you.

I’d like to make it a little easier for you by pointing out some things NOT to do.

Here are five of the biggest mistakes I see people making when they first start trying to improve their financial situation.

1. Obsess Over Investment Strategy

There’s often this feeling that if you can just find the perfect investment strategy, your financial success will be guaranteed.

So you read articles, listen to the experts on TV, and tinker with your investments, all with the hope of finding an edge that puts you over the top.

But here’s the truth: the returns you earn, good or bad, have almost no impact on your bottom line until you’re a decade into the process.

What does matter, a lot, is your savings rate. It may not be sexy, but simply saving enough money is far more important than any other investment decision you can make.

2. Forget About Irregular Expenses

If you’ve tried budgeting before and it hasn’t worked, chances are you’ve been undone by all the unexpected expenses that keep popping up.

Your car needs a new tire. Your daughter has to go to the doctor. Your friend gets married in another state.

Here’s the thing: a good budget knows that these kinds of expenses aren’t unexpected. You may not know when they’re coming, but you do know they’re coming.

And you can make them a part of your regular budget simply by saving ahead for them each month. That way the money will already be there when you need it.

3. View Cutting Back as the Only Option

Cutting spending is often the quickest and easiest way to free up room in your budget for the big financial goals you’d like to achieve. Which is why it’s usually a great first step.

But it’s not the only option.

In fact, the biggest long-term results often come from finding ways to increase your income. So don’t be shy about asking for a raise or starting a side hustle. Those are powerful tools that can expand your world of financial opportunities.

4. Think That Credit Card Debt Is Normal

According to NerdWallet, the average American had $15,310 in credit card debt as of 2015. So I guess debt is normal in the sense that a lot of people have it.

But if you want to be financially healthy, you need to accept that credit card debt cannot be part of your life. It’s actually the biggest obstacle that’s keeping you from reaching your goals.

If you have credit card debt, getting rid of it is almost always a top financial priority. That may mean that other financial goals have to wait, but the sooner you get rid of your debt, the sooner you’ll be able to make real progress towards the things you care about most.

5. Look for Easy Fixes

Unfortunately, there is no easy button when it comes to your finances. The solutions are often fairly simple, but they take time, dedication, and hard work before they truly pay off.

For example, creating an account with mint.com and linking all your bank accounts is a great start to the budgeting process. But the app itself won’t solve all your problems.

You’ll still need to take the time to categorize your expenses, both up front and on a regular ongoing basis. And you’ll need to use that information to take action and make changes in how you use your money.

No single app or tactic is going to fix everything for you. You have to take ownership of your situation and do the hard work to make it better.

Finances Partner Tips

unduhan-16I work with a lot of new couples who are in the midst of merging their financial lives for the very first time. In fact, my fiance and I are in the process of doing it ourselves too.

It’s not an easy thing to figure out. There are logistics to handle, habits to change, emotions to manage, and often it feels like there is never enough time in the day for any of it.

But successfully managing money together is key to creating a happy partnership, so here are four pieces of advice as you go through this process yourself.

1. Focus on Joint Goals, Not Joint Accounts

It’s tempting to get caught up in the logistics of joining your finances. How do you create joint accounts? Which accounts should you join? What if you want to keep some money for yourself? Does that mean your relationship is in trouble?

Ignore all of that. It doesn’t matter. At least not at the start.

What really matters are your joint goals. What are you working towards? What is your shared vision for the life you’re building together?

Start having conversations about what you each value and want out of life. Listen to each other so you can truly understand what’s important to the other person.

Find the goals you already have in common and make those the priorities. And start talking about how you can find middle ground on the others.

This communication is the real key to successfully merging your finances. All the rest is just logistics.

2. Establish Shared Expenses

Now, about those logistics…

One easy place to start is with your everyday expenses. Things like cable, internet, electricity, and groceries.

Decide which expenses you want to share and how you want to split them up. For example, if one person makes significantly more, maybe they’re responsible for a bigger share of certain expenses. That way each of you is left with some free money at the end of it.

3. Create a System

There are two main ways you can start sharing those expenses.

The first is to create a joint bank account where those bills are paid. Then you each are responsible for transferring money to that account on a regular schedule to cover the bills. This lets you practice managing a joint account without having to join everything.

Another option is to put each person in charge of certain bills. For example, one of you could handle the cable bill while the other handles the electricity bill. This kind of system may be easier to get up and running quickly.

Also, create a system for long term savings. I know someone who gave half their paycheck to their partner to invest for the long term. This might not be the right move for you, but start by discussing each of your current habits and how you might change those or improve on them as a couple.

4. Plan for Extra Money

Here’s something my fiance and I have done that’s helped us a lot.

In addition to our regular expenses and savings, we each have a number of “wants” that our extra money could go towards. For example, I’d like to get curtains and my fiance wants gardening supplies.

So we made a list of these things and put them in priority order. And now any time we have some extra money, we simply refer to this list and put it towards the top item.

This makes these decisions easy, limits the opportunity for arguments, and ensures that we’re both able to indulge a little bit.