Budget Building

Projecting cash flow is only part of the battle. After finding a basis for my budget, I followed a simple system to manage my money. I recommend using two different bank accounts to make this work:
The first is your “business” account (without quotes for those of you who actually own businesses), which is where you deposit all of your income. My business account is a high-yield savings.
The second is your personal account, and it’s from this that you’ll pay your ongoing expenses. There’s no need to open a new account if you already have one that will work. I just use my existing credit union checking account.
Every month as you earn income, receive it (and leave it) in your business account. This is where you accumulate your cash. Because it’s in a high-yield savings account, it earns interest as it waits for you to use it. From this money, pay yourself as if you were an employee. Your monthly salary is whatever you calculated as your monthly budget, your minimum monthly income from the past twelve months.
First, you reset your salary. Based on the previous year’s numbers, your income might increase — or it might decrease.

Next, you use the “extra” money you’ve been accumulating in your business account to pay taxes. I could write an entire article on budgeting for taxes with an irregular income, but for now let’s just note that it’s very important that you remember to account for them, especially if nobody else is withholding them from your paycheck.
Finally, if you have anything left after paying taxes, you pull this money out of the business account as personal income. It is, in essence, a year-end bonus. You can use it for whatever you see fit: debt reduction, long-term savings, a Corvette.

Here is  display to better picture how things should come together.

At first glance, this system may seem complex. It’s not. It’s actually very easy. To summarize: I base my budget on my lowest monthly income from the previous year. When money comes in, it sits in a bank account. Each month, I pay myself based on my budgeted amount. The rest of the money is saved.  If there’s any left over at the end of the year, I get a bonus.

Whatever you do, remember: It’s easier to deal with a budget surplus than it is to deal with a budget deficit!
If possible, live off just one income. If you have an irregular income but you have a partner who makes steady money, explore the possibility of living solely on her income. Use your partner’s money to meet the necessities, and use yours to pay for savings and extras. This isn’t an option for most people, but if you can manage it, it’s a great way to budget.

snap shot at risk

You borrow something, let’s say from your neighbor – say a power tool, and at some point you return it. If you did not break it and returned it to its proper owner, next time, your neighbor will lend you the tool more happily. But if you broke it, did not bother to fix it, and returned it, you will make it harder for your neighbor to lend you the tool next time. Your credit works in an almost similar ways.

In essence, a credit score gives a snapshot of your credit risk at any given time. The higher the score, the less risk and more trustworthy you are to the money owner. Lenders, insurers, landlords, employers and utility companies use your credit score to determine if:

-you qualify for a loan,
-at what interest rate and
-at what credit limit.

It helps predict how creditworthy you are. It is weighted even more heavily when you apply for unsecured credit, or credit lines and credit cards that do not require collateral such as a mortgage.

Creditors collect information about you and your credit experience from your credit application and credit report. This information may include:

-Bill-paying history
-The number of accounts you have
-types of accounts you have
-Late payments
-If you have applied for new credit recently
-Outstanding debt
-How long you have had existing accounts
-Collection action
- any history of bankruptcy

Creditors can compare your information to the credit performance of consumers with similar profiles.

In a summary
Generally, negative information remains on your credit report for about 7 years, while bankruptcy filings typically stay for about 10. A negative rating can make it more difficult to get loans or credit, and often mean you will pay more interest because lenders consider you a high risk. However, taking steps to improve your score can help you qualify for better rates from lenders. To learn about these steps, please refer to my posts!

Thanks

Reasons people have to not leave a bank

With all the bad press and negative comments made about big banks, from the financial collapse and bailout through the latest round of fee increases, you’d think big bank customers would be fighting each other to push through the doors of community banks and credit unions.

I hear my people complain about the fact that they are still involved with a bank that they hate, yet keep justifying why they need to stay. This is what I have found.

My top five reasons why big bank customers are afraid or nervous to move their accounts to community financial institutions.

Extensive ATM Networks — The customers claim the smaller institutions don’t give them enough convenient access to their money. If your bank or credit union is part of an ATM network, you can see how important it is to get that fact in front of the public. If you have free ATMs or rebate ATM fees, be sure you point out those facts.

Easy Online Banking and Automatic Bill Pay — This one stumps me. Smaller institutions don’t sit with a hammer and chiseller to create statements. Sure, there might still be some online banking systems that aren’t as user-friendly, but I can’t see how big banks have an edge in online access and convenience over the majority of community institutions. Point out your abilities in your marketing materials and, especially, on your website.

More Locations — Most people choose a financial institution based on geographic affinity to the location. Close to home. Close to work. Along the commute. So arguing that a community institution doesn’t have enough locations seems like a bogus claim. But apparently, it exists. How do you counter it? Show all your locations on your website, for instance. Include a list in your marketing materials, or show a number, like “10 locations in the your area,” if space is short. If your credit union is a member of a shared network, point out the fact.

Lack of Services — Small business owners, to use one example I saw, say smaller institutions don’t have transaction services comparable to big banks. Other consumers simply think smaller institutions don’t offer as many services, although my guess is they never checked. Your acquisition promotions should include information about the benefits (services) your institution offers. Make sure you show your services on your website and point out what each includes.

It’s a Hassle — This may be the most precise reason of all, I think, and people make up other excuses so it doesn’t sound like they’re lazy. Anyway, these customers complain they need to switch their automatic payments, their debit card and credit card information with vendors, their bill pay data, and so on. Obviously, you promote your switch kit and the fact your staff will help, and even make the changes for these people. Offer to close the account at the big bank so they don’t need to — and avoid second thoughts.

It’s not impossible to overcome these reasons. Also, not every big bank customer will be bothered by these issues. But take steps to assure prospects that you offer them as much as the big banks…and maybe more.

4 Tips for the Holidays

4 Tips to Save this Holiday Season

Every holiday season, consumers find a way to spend than they ever wanted to by the end of the year. Some fall victim to the power of the “deal”, others are just tired of waiting to buy their item later, and all of these people complain about the debt they are in long after the buy.

“As we approach the 2011 winter holidays – the fourth straight season set against a condition of economic uncertainly – Americans remain fixated on finances: their own and that of the nation,” said Tod Marks, Consumer Reports senior editor and resident shopping expert. “So it’s not surprising that people are even more intent on watching their dollars, shopping on a set budget and, of course, bargain-hunting.”

Tips to help you stay on budget this holiday season:

1. Pay with cash
Shoppers who use credit cards spend more on holiday gifts than those who don’t, we’ve found time and again in our shopper surveys. Stores don’t have to pay a transaction fee for cash purchases, as they do with debit and credit cards, so you might be able to get a discount if you pay with cash, particularly on big-ticket items. If layaway appeals to you, Kmart, Sears, and Walmart have programs.

2. Be Careful with Credit Cards
Try to resist the temptation to charge more than you can afford or you’ll be nursing a debt hangover long after the holidays are over. Only take the bait for a store credit card and its one-time extra savings if you’re buying something expensive and know you can pay the balance on time and in full. Store credit cards typically carry interest rates of 20 percent or higher. To avoid lowering your credit score, don’t apply for more than one store card in a season.

3. Check the warranty
Extended warranties for most electronics and household appliances aren’t worth the money. Those items usually don’t break during their warranty period, and if they do, the average cost of repair isn’t much more than the cost of an average warranty. And extended warranties often have loopholes, such as not covering problems caused by wear and tear. However, a plan that covers theft or accidental damage might be worth considering for a laptop, netbook, or tablet you’ll use on the go.

4. Ship for free
Online shoppers can stay on budget by taking advantage of free shipping offers, many of which are listed atFreeShipping.org. The site also sponsors Free Shipping Day, Dec. 16, one of the last opportunities for online shoppers to get free shipping from popular retailers for delivery by Dec. 24. Merchants who have signed on include the Apple Online Store, Bed Bath & Beyond, Cabela’s, eBags, Kohl’s, Lands’ End, REI, Zales, and Ghirardelli and Godiva chocolatiers.

Gift Cards this Holiday

Before you buy or use a gift card this holiday season, check out the card for potential fees and restrictions.

Below are things you should watch for.

What to Watch for

• The fine print - First, look at the fine print on the card or call the toll-free number listed. You may find that some cards come with fees. A fee could be charged when you buy the card or make a high number of transactions. Fees can also be levied if you haven’t used the card for a year and then you may be charged a fee every month. Other fees may be applied when you make a balance inquiry, add funds to the card or replace a lost or stolen card.

• The expiration date - Next, see if the card has an expiration date. By law, gift cards issued after August 22, 2010 may not expire for at least five years after purchase. Also, money added to a card is good for at least five years after being added. If an expired card still has money left, find out whether the card can be reissued with a new expiration date.

• Replacement if lost or stolen - For lost or stolen cards, find out whether you can get a replacement. Is there a fee for the new card? If someone else uses the card after it’s lost or stolen, is that money credited to the replacement card? Keep the receipt for the gift card purchase and write down the card number. These may be needed if you or the person you give it to needs a replacement.

• Where you can use the card - Find out where you can use the card. A store gift card can often be used only at the store where it was purchased (or related stores). Other gift cards, such as those with a connection to American Express, Discover, MasterCard or Visa, can be used at many locations around the world. Some gift cards can even be used to withdraw cash at an ATM machine.

Holiday Budgeting.

It’s never too late to create a budget for the holidays. Remember to include more than just the presents you plan to buy. Money spent on wrapping paper, holiday cards, decorating, entertainment and travel adds to your overall expenses during the holidays.

Also don’t forget to include your upcoming expenses not related to the holiday. Will you be facing a tuition bill in January? Will you have more money deducted from your paycheck to pay for health insurance after the New Year as well?

One approach is to make a list of all the gifts you plan to buy and add up those costs. Remember to include the other holiday expenses, such as travel, and see if it comes to more than you spent last year.

“There’s no law against you spending different amounts on different family members. And if you go over your $50 budget for Mom and Dad, you can always spend less on someone else on your list,” said Sally K. Palaian, Ph.D, author of “Spent Break the Buying Obsession.” Just be sure to record all purchases made.

Remember what your intention is for the holidays. It’s probably not to spend $2,000.

Financial Marketing

I am still  amazed at when something revolutionary comes along it takes the majority of individuals a very long time before adopting it. The majority prefer to sit back – waiting to see if it actually delivers the results promised. By the time it becomes extremely obvious that it does, in fact, work, the early adopters have already grabbed more than their normal share of business.

This is true today when it comes to adding new account customers to your customer base. First off, most new account customers aren’t kids opening their first checking account.  Most new checking customers come from consumers either moving into your market area or changing banks for any number of reasons. Today the reasons are dropping free checking and new and higher fees for once free services. Sometimes, you can basically do nothing and get lucky.

In the four weeks following Bank of America’s announcement that it would begin charging a $5 monthly debit card fee, the Credit Union National Association (CUNA) reports that at least 650,000 fed-up checking customers joined local credit unions.  Accurate numbers for Bank Transfer Day are yet to be reported. Undoubtedly, many community banks also saw an influx of new checking account customers who are fleeing the mega-banks and a few large regionals.

Even though BofA and a few followers have backtracked on a monthly debit card fee, the decision is unlikely to stem the exodus of checking customers from these disliked large banks. After all, it’s now a waiting game to see what other new fees will be threatened and tested. While sitting back and doing nothing – waiting for the next fee announcement or social media event – is an option, it’s not best way to go about things. Now is the ideal time to consider allocating some of your bank’s or credit union’s scarce marketing dollars to what ACTON Marketing has labeled a “Disruptor Marketing Campaign.”

While many readers may be thinking that traditional direct mail is the “old school” approach to marketing, nothing could be further from the truth.  Unlike the mad rush to the cluttered social media channels where results are basically an unknown today, the traditional direct mail channel provides much less clutter and quickly trackable results – not to mention superior ROI.

I am not against social media marketing by any means, however I do not find it effective to force the tactic to individuals who are used to traditional methods.

Yes, some of your marketing peers may look down on you for using an old school marketing channel but in the end you’ll get the results your looking for.. Golden marketing opportunities don’t come along very often.  In fact, many marketers never encounter such an opportunity like the one available today to bank and credit union marketers.

This opportunity has been provided by the greedy, insensitive marketers working for the mega-banks and a few followers. Putting your marketing dollars into a disruptor marketing campaign is your chance capture a strong customer base. At a minimum, give it a test

A way to Lower your Credit Rate.

Did you know one of the easiest ways to ease the interest rates on your credit cards is to simply call your credit card company and ask for a lower rate? It’s true. You may be able to reduce your APR by many percentage points. You will need to be in good standing with your account for this idea to be effective, and the longer you’ve had your credit card account the more likely your chances of success. There really is no harm in trying. Creditors will do this because it is cheaper for them to lose some of your interest payments than to have to recruit a new customer.

These are some things that may help the idea:

Length of time with a particular card (longer is better)

Credit limit on that card (a higher limit is better)

Unpaid balance-to-limit ratio on that card – how “maxed out” the cardholder is (a lower balance, making a lower ratio, is better)

Unpaid balance-to-limit ratio on all cards (a lower balance is better)

Number of times an individual missed or paid late on a loan or a card other than the one for which they were calling (fewer is better)

These may seem like extremely obvious things, however I am surprised at the number of individuals I come across that find it difficult to achieve.

Volunteers participating in the survey called their credit card company and asked for a lower APR. The results from a national spot survey of 50 consumers were the following:
With one 5-minute phone call, 56 percent of consumers who called their credit card company lowered their APRs.
Those who were successful reduced their APRs by an average of more than one-third, from an average of 16 percent to an average of 10.47 percent.
Three consumers were able to reduce their APRs by 15 points.

Importance of Greece.

So why is Greece so important?

Well, there are two reasons why Greece is so important.

Number one, major banks all over Europe are heavily invested in Greek debt. Since several of those banks are also very highly leveraged, if they are forced to take huge losses on the Greek debt it could wipe many of them out.

Second, if Greece defaults, it shows the markets that Portugal, Italy and Spain would likely not be rescued either. Greece has its fingers in these economies as well. It would suddenly become much, much more expensive for those countries to borrow money, which would make their already huge debt problems far worse.

If Italy or Spain were to go down, it would wipe out major banks all over the globe.

Most Americans don’t spend a lot of time thinking about the financial condition of Europe.

But they should.

Right now, the U.S. economy is really struggling to stay out of another recession. If Europe has a financial meltdown, there is no way that the United States is going to be able to avoid another huge economic downturn.

If you think that things are bad now, just wait. After the next major financial crisis what we are going through right now is going to look like a Sunday picnic.

IRA s Simplified

Deciding whether to open a Roth IRA or Traditional IRA is a major decision with potentially large financial consequences. Both forms of the IRA are great ways to save for retirement, although each offers different advantages.

Traditional IRA

An individual retirement account. This allows the direction of pretax income. Taxes are paid on earnings when withdrawn from the IRA. The money can be invested in stocks, bonds, mutual funds, etc., and the earnings grow tax-free until the account’s owner turns 59 1/2 years old (if money is withdrawn before this age, a 10% penalty is incurred). At this time, the account holder is allowed to begin withdrawing money from the account to fund their retirement. The distributions are fully taxed by the U.S. government. Money must be withdrawn from the account no later than the April 1 following the year the owner turns 70 1/2.

Roth IRA

Subsequent legislation allowed employers to offer Roth accounts. The Roth IRA’s principal difference from most other tax advantaged retirement plans is that, rather than granting a tax break for money placed into the plan, the tax break is granted on the money withdrawn from the plan during retirement.

And for the Entrepreneur type:

 Simplified Employee Pension (SEP) IRA.

A SEP IRA is a source of income at retirement by allowing employers to set aside money in retirement accounts for themselves and their employees. It helps self-employed and small-business owners have access to a tax-deferred benefit when saving for retirement.

• Tax benefits Tax-deferred growth, tax-deductible contributions
• Fees No annual fees, no establishment fees¹
• Eligibility Must be sole proprietor, a business owner, in a partnership, or earn self-employment income by providing a service
• Contribution rules Must be made by the employer, can vary each year between 0% – 25% of compensation (maximum $49,000 for 2010), and each eligible employee must receive the same percentage.