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Powerful Budgets Help You Get What You Want

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We all have them: Expenses we can’t sidestep, things we would like to have and long-term hopes and plans that require up-front planning.

Stretch Your Dollars By Budgeting
Budgeting Helps You Keep Your Dollars

That’s what budgeting is all about. It gives you a clear picture of what you have, what you must spend and what’s left over for those things that are only dreams in the making. For most of us, it’s clear that the “musts” will eat up most of the paycheck. Surveys show that the average American household spends 80 percent of its income on essentials. Sixty percent, right up front, goes to housing, food, gas and insurance.

The budget becomes the tool that keeps you within the boundaries of your available income and allows you to wisely plan for the “wants.” What it takes is discipline, planning and prioritization.

Use Budgeting Tools Online

First off, be aware that many financial institutions offer on-line or paper plans to help you create a budget. Use them.

Goal Setting

Where to begin? Setting a goal is a good idea as a prelude to making the plan. Clearly put down in black and white what your main financial objectives are.

Establish Your Exact Income

The next step, obviously, is having a very clear picture of your income. That’s essential to planning the outgo. Start with your net income. Get some concrete evidence of what the figure actually is by reviewing pay stubs or other records of income. Standard deductions are shown, such as insurance, taxes, 401K contributions, etc. That will give you a list of what’s being skimmed off before you get what actually goes into the bank. The latter figure is what you’ll work with as you plan how to spend.

Discover Your Basic Expenses

The next step is to look at your basic expenses. As a rule, these don’t fluctuate much from month to month. They include rent or mortgage payments, utility costs, car payments and expenses, insurance and regular payments on existing loans, such as education costs.

Establish An Emergency Fund

Ideally, you need a safety net, a reserve for those unplanned life events such as unseen medical expenses, car repairs, large appliance replacements, necessary upgrades to furnaces, water heaters, etc. etc. The list is long and, for most people, entirely unpredictable except in the fact that they inevitably happen. Try hard to build yourself a little cushion against the day that it’s your turn. That means creating a savings program that is backed by a firm hands-off policy. An automatic deposit into a bank or credit union savings account , mutual fund or other established savings program may reduce the temptation to dip into this reserve. Setting up a yearly CD account may be what it takes to reduce the temptation to dip into easily available savings.

Cut Back

Look for places where you can trim. Do you really need several hundred options for television viewing. How about a basic program? Could you save on meals by taking a lunch to work a few times each week? Public transportation? Car pooling? Eating at home instead of frequently dining out? Expensive personal habits such as smoking and excessive drinking might offer a source of savings, as well as reducing medical expenses down the line. Look online to find advice, such as practical tips on how to save money. There are dozens of them.

Plan a certain amount of cash to see you through each pay period. Knowing you have just $60 in discretionary spending money may make the desire for a $60 pair of shoes easier to bypass.

Pay Off Credit Cards

Try to pay off credit cards. Don’t accumulate a pocketful to begin with. Choose one, based on the best combination of offerings, and stick with it. If that advice comes too late, make a concerted effort to pay them off one at a time, starting with the one with the highest interest. Add a few dollars to the monthly payment on that one account until it is paid off, then go to the next one. With your budget firmly in mind, resist the temptation to use credit cards for “whim” purchases.

Include every person in your household in the budgeting process. If a wife is firmly committed to a budget and her spouse is bent on accumulating debt, or vice versa, the effort is usually hopeless. Children who see the figures concretely may make fewer demands on the family resources. And they’ll learn the fundamentals of money management into the bargain.

Continue Planning Throughout The Year

A budget isn’t a one-time effort. Ongoing planning and revision are essential as life circumstances affect income and spending. Routinely balancing the bankbook is part of wise budgeting. It’s easy to miscalculate spending if you aren’t certain what the bottom line is. Save receipts and write down where you spend money so you can’t become hazy about actual expenditures.

Allow Occasional Splurges

An occasional splurge isn’t fatal, but there is a calming effect in being in control of your income and outgo. Make a budget your friend and stick with him.

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10 Travel Tips To Stay Within Your Travel Budget

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A vacation is something that most people enjoy, but few are able to afford consistently. However, a fun vacation doesn’t have to break the bank. Whether you want to take vacation to the beach or to an exotic location you will need to plan ahead. By discovering your hidden thrifty streak and checking out these ten travel tips, you can make a vacation affordable for you.

Prioritize

Before you start thinking of where you’d like to go, consider what you want to do on your trip. If you’re after a five-star vacation, you’re likely going to need to save for it. However, if you just want to try new cuisine, see something historic or simply relax, it’s possible to do it for less. Try shopping at ethnic markets for new foods and cultures, or hitting the beach to relax.

Decide on a Travel Budget

It’s unwise to travel without a budget. Take into account your current financial situation and see how your vacation fits into it. However, you should allow for a margin of error. Few things ruin a vacation faster than realizing you’re out of money because you forgot to plan for something. Once your budget is set, don’t stray from it. These days, many websites are available that allow you to find options within your specific price range.

Take Advantage of Slow Periods

Depending on your schedule and preferences, you can shave hundreds off your costs by taking advantage of off-season trips. Prices tend to be considerably higher during peak travel seasons, like summer and holidays. Plus, you also won’t have to deal with crowds, long lines and other things that make traveling stressful.

Find Cheaper Accommodations

Even the cheapest hotels can cost a small fortune, so consider possible alternatives. Staying at hostels, rental properties, the home of a friend or family member and even camping are several alternatives that will cost you little or no money. Some travel tips even suggest couch-surfing.

Make it Short

A vacation doesn’t have to last for weeks. If you take a shorter trip, you could save a lot of money. Why not visit an area in your state, like a camping trip to a national forest or a weekend at the beach? Another benefit of this is that some services offer you a discount if you’re a state resident, making your trip even cheaper.

Wait Until the Last Minute

If you’re flexible, try finding some last-minute deals on fare and accommodations. If there are any slots left over by a certain point, companies want them filled, even at a discount. However, last-minute fares can change without warning, so book quickly.

Be Sale Savvy

Watch for sales on fare or hotels. This is especially helpful if you’re planning well in advance. You can sign up for alerts on a number of websites to let you know when a good deal has become available. Even if you book several months ahead, the price will still be good on the day of departure.

Group Vacations

If you have friends and family who also need a vacation, consider making it a group affair. Many airlines and hotels offer steep discounts for groups, which means you might pay a fraction of the cost of going solo.

Enlist the Crowd

Sometimes, a vacation can get staggeringly expensive. However, the Internet has revolutionized even this. Crowdfunding, enlisting others online to donate money for a cause, is one way to finance your trip.

Doing Volunteer Work During Vacations

If you like helping out and you need a getaway, why not try volunteering for a vacation? You still have to pay your way there and back, but many organizations will provide all other accommodations for people working for the greater good. Check with your local Habitat for Humanity, church groups and other charities to learn more.

Debit Card Pre-Authorization Holds

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You insert your debit card. You pump the gas. You cringe (the current average price- per-gallon for premium is $3.62) and you leave the filling station assuming the $40 total will be subtracted from the balance in your debit card account. Simple, right?

What you don’t know is that behind the scenes, computers are doing their thing and when they are done, your bank may have put a pre-authorized hold on your account. It may be larger than your actual balance, especially if you are chronically hovering about the edges of the account. That means that when you drive from the gas station to the grocery store, your $15 purchase there may not be covered by the debit account.

For example, this made-up scenario: You have $100 in your account balance. You purchase $80 worth of merchandise or services (restaurants and hotels may also use this approach, as well as gas stations). The bank puts a pre-authorization hold on your account for $80. So the $20 you thought you had in the account is not available and additional use of the card will not be honored, which could mean additional fees.  Some credit card users have found themselves in serious trouble with overdrafts, not to mention the embarrassment and inconvenience involved.

In essence, your “available” balance and your “actual” balance can be two different figures.  The amount of the hold is deducted from your accounts “available” balance but not from the “actual” balance until the transaction that triggered the hold is processed, which could be several days.  Paying attention to your  “available” balance will help, but given the time frames involved, may not always provide the needed information as quickly as necessary.

“I don’t think the average customer has any idea what goes on behind the scenes when they swipe a card,” said Jeff Lenard, vice president of communications for the National Association of Convenience Stores (which sell about 80 percent of the gasoline purchased in the United States each year.)  “The credit and debit card system is incredibly complex.”

The problems associated with pre-authorized holds are only part of the potential trouble with using cards for gas station transactions.  Financial gurus also point out that the stations are a “danger zone” for theft of card data for fraudulent uses. Julie McNellely, senior analyst for Aite Group, a Boston-based financial services research organization, describes how bad guys bent on fraud use the stations to achieve their ends.

While customers are using their debit cards to make purchases at the pump, a thief sitting in a car nearby, armed with a laptop, a pinpoint camera and an antenna, has skimmed off the vital information from the card, including, if the camera is able to get a good view, the PIN. Before the unwary customer has even arrived at home, the information may have been put to fraudulent use.

Experts familiar with the potential for fraud at the gas station suggest the use of cash or credit cards, rather than debit cards, when filling up.

Take a Good Look Before Refinancing Your Mortgage

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Thinking about refinancing your mortgage to pay off credit card debt? Don’t jump too fast. There are factors that make such a financial leap a very bad idea.

credit-card-trapOn the face of it, it seems a good idea to swap “bad” credit card debt for an extension of your mortgage, which is generally viewed as “good” debt. Among the arguments people use when making such a decision is the fact that mortgage interest is tax-deductible, while credit card interest — usually much higher, climbing up to 30 percent in some instances — is not. In fact, long experience shows that making such a change is seldom a wise step.

Trading Unsecured Debt For Secured Debt

The most compelling reason you should not exchange mortgage debt for credit card debt is that you are converting unsecured debt (the credit card balances) for secured debt. A credit card company doesn’t ask for security, only your word that you will pay the debt. If you fail to pay, you could conceivably be sued, although most credit card companies don’t go to that extreme unless your balances are very large. The company could put a lien on your home, but typically it could not force you to sell.

With a mortgage, your house becomes collateral for the loan. The lender has a security interest in your home.

Loan Costs

Refinancing is not free. You’ll likely have to pay for an appraisal and possibly a home inspection, as well as loan origination fees and closing costs. The cost will depend on your credit score, your mortgage lender and the amount of the mortgage. In 2008, the Bankrate Survey determined that closing costs to refinance a $200,000 home amounted to an average $3,118. Those costs may to a degree offset the costs of high interest rates on credit cards.

Longer Time To Repay

Refinancing extends the time you will be obligated to discharge a mortgage (and the credit card debt you have added to the mortgage.) In reality, you are only extending the life of the credit card debt to the mortgage. That may mean it stays with you for the usual 15- to 30-year term of the mortgage. It is possible you will end up paying more interest than if you chose to plug along and pay off the credit card debt as you are able.

Credit Score Damage

A refinance may damage your credit score. It will trigger a new inquiry on your credit report by shortening the average or y our accounts. The companies that do credit reports will note the higher mortgage and be nervous, particularly if the level or your income is marginal. The impact may be short-term, especially as large-balance credit card debt will no longer show up in the reports, but there will be some impact.

Difficulties Selling Your Home

Selling your home may become more problematic if there are additional mortgages. To sell, you must pay off the balance of the mortgage burdens, and most likely pay a real estate commission of up to 6 percent. Banks typically won’t let you refinance a home unless the anticipated mortgage amount is below 80 percent of the home’s value. And be aware that home values tend to respond to financial vagaries and can fall fast. Having to sell under pressure because of such situations as a new job location might force you into missing the optimum return for your property.

Little Changes Made In Decreasing New Debt

Too many people who use a mortgage refinance to resolve credit card issues don’t overhaul their budgets and change their spending habits to avoid racking up more debt. They pile debt upon debt at an increased risk of losing their home because the mortgage payment is now higher and there are fewer options available. A genuine commitment to avoiding credit card debt is essential to getting any benefit from a refinance.

Solutions

Better alternatives for dealing with high-interest debt include debt settlement, debt consolidation and  even bankruptcy. Putting your home at risk should be a last resort.

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How Your Spending Data Is Being Used By Banks

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Customer spending patterns are analyzed by algorithms.
Customer spending patterns are analyzed by algorithms.

Targeted advertising has reached a whole new level in the “Card Linked Space.” If you bank with one of the 400 financial institutions (including Bank of America, Regions Bank, PNC Bank,  Fiserv, and Intuit) that have partnered with Cardlytics, then every spending action that you make with a debit card is stored and analyzed to serve you with the perfect advertisement.

Shopping for groceries? Sporting Goods? Boutiques? Accessories? Home Improvement? You will receive ads that target items commonly sold by those types of merchants. If they had item level data on your purchases, you would see adds for individual items, but banks only get the total amount spent and the merchant names.

Understanding how the algorithms could work with your data takes a little imagination. Can your spending patterns lead them to the conclusion that you are a mom driving kids to and from school and after school activities. Can they tell if you are single or married? Can they tell if you are a baby boomer or senior citizen? Using this information can they predict what types of products you might be interested in?

Lynne Laube & Scott Grimes - Creators of Cardlytics - Photo from Forbes Magazine
Lynne Laube & Scott Grimes – Creators of Cardlytics – Photo from Forbes Magazine

Cardlytics, a company that analyzes $500 billion dollars worth of spending – over 11 billion transactions, seems to be able to accomplish this. They have been accurate enough that hedge funds call and ask to buy their data to predicts increases or decreases in sales. In fact, Cardlytics has patented (U.S. Patent No. 8,595,065) the spending algorithms calling them – Cardlytics Offer Placement System (OPS).

Is it all an invasion of privacy or is there some good to be found?

According to a recent article “Reading Your Financial Footprint,” in Forbes Magazine (Dec. 16, 2013), customers have saved $17,000,000. Sales generated were a staggering $700,000,000. Depending on how you interpret those results, it seems like the whole system actually saves you money.

Interesting to note is that the people that started Cardlytics, Lynne Laube and Scott Grimes had significant experience with the banking industry. Lynne Laube was the Vice President and COO of Capital One and Scott Grimes was their Senior Vice President and general manager. Both with finance, business and marketing backgrounds these two entrepreneurs look young enough to be included in the millionaires under 40 club.

For consumers, we are not likely to see this type of advertising go away. In fact, it will probably increase more as even more sophisticated algorithms are developed. The upside to consumers is not only saving money on products they would be purchasing anyway, but saving them time hunting for bargains, loyalty cards or bulk purchasing deals. Marketing certainly seems to be at the top of it’s game in 2014.

 

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