Monthly Archives: February 2015
On Black Friday, I mentally high-fived myself when I used cash-back rewards money to buy several pieces of clothing I needed for my winter wardrobe. I thought to myself, “I just saved $100.” But really, I didn’t. While $100 didn’t leave my checking account, it didn’t go into my savings account, either.
We all routinely brag about a way we saved money. You’ll hear people wax poetic about cutting the cord and no longer paying for cable, or couponing to save a few bucks on groceries, or using credit card bonuses to pay for a vacation. But here’s the big question: are they really saving?
While we claim to be saving, is that extra $40 a month from cutting cable actually going into savings or just being reallocated to justify eating out or going to the movies?
A Penny Really Saved
Abigail Perry, founder of I Pick Up Pennies, realized her mistaken assumption about saving and decided to make a simple change.
Whenever Perry saves money, she doesn’t just pat herself on the back, she actually moves it to savings. She coined the term “saved savings” and opened an account of the same name where she deposits any money she keeps in her wallet from trimming expenses or using coupons.
She takes it a step further. “I use cash-back shopping and put any payments in the account,” she said. “I use rewards programs to get gift cards. When I use those gift cards to pay for things, I put in the money I would have spent.”
$1,994 and Counting
Perry started her saved savings mentality just over a year ago and has put away $1,994.
For the regular saved expenses, like a reduced monthly bill by cutting cable, Perry suggests automating the savings. These savings can be used to help you reach actionable goals.
“Personally, we use it to plump up savings,” she said. “Other people might want to fund a big vacation or save for their dream car. On a less frivolous front, it would be a great way to build up an emergency fund or a down payment for a house.”
She’s quick to point out it can help those in debt by adding an unexpected boost to their repayment strategies. And for those who struggle to make ends meet each month, Perry admits they’re often the most skilled savers, although the money is immediately allocated to another expense.
Or Challenge Each Bill
J. Money, founder of Budgets are Sexy, created his own version of saved savings with a “challenge everything” series.
The blogger decided to challenge every bill his family pays each month to see if they could reduce their costs without sacrificing quality of life.
“I’ve decided to hit the bills that have forever been the norm that I’ve just assumed were off limits,” he explained. Those “off limits” items included iPhones, car insurance and TV bills.
Two months in and he’s socked $406.60 into a savings account he created. But the challenge hasn’t come without a struggle. His hardest money saver was switching his cell phone carrier to Republic Wireless.
You Can’t Phone It In
“Not that the switch wasn’t smart in the least — we’re literally saving $100 every month by switching to Republic Wireless,” says J. Money. “But just that it’s more of a hassle to swap phones and platforms than, say, calling your cable company for 10 minutes and negotiating a lower cost.”
He also moved from an iPhone to an Android in the switch, which he admits took some getting used to, until he realized the Android saved him $1,200 a year.
He found his new strategy spawned other thrifty habits.
After two months, he hasn’t decided exactly what the challenge savings will be used for but thinks an contribution to his individual retirement account may be in his future.
He found his new strategy spawned other thrifty habits. “I’ve started forming some other new habits as well, such as listing one new item a week on Craigslist and diverting any unexpected income directly towards this same pot of savings.”
When he is tempted to spend some of his hard-earned (or saved) cash, J. Money uses a trick to deter himself by playing a game popular at pre-teen sleepovers: would you rather, except his version ends in early retirement instead of a pillow fight.
“I can’t tell you how much of an impact it’s been anytime I’ve asked myself if I’d rather have X vs. early retirement,” he said. “Nine times out of 10 I pick freedom all the way, which helps put things in much better perspective.”
Most of us, at one point or another, have blown our budgets.
We have a bad month, or we let ourselves run a little wild, and we wind up spending more money than we originally intended. (Sometimes much more.)
But if you find yourself running into this situation on a regular basis, it’s time to figure out what’s going wrong. Chances are you’ve fallen into one (or more) of these six common budget traps.
Here’s how to identify your mistakes, and how to set them right.
1. Your Budget is Too Strict
If you see your budget as an overbearing parent who won’t allow you to do anything nice, it’s no wonder you have trouble sticking to it.
Yes, a budget is meant to put some limits on your spending, but that doesn’t mean it should keep you from having any fun at all.
Build in some treats for yourself, even if they’re modest. You may not be able to afford to eat out at a posh restaurant every weekend, but maybe you can get takeout food on the occasional Friday night.
Perhaps you can’t spend $150 at the hair salon, but you can swing $30 at a nail salon. Maybe you decide you’ll skip the bars for a month, in order to save enough money to get a new snowboard.
Give yourself a break every now and then (within reason), and you’ll find it much easier to be disciplined on the whole.
2. It’s Not Realistic
Setting goals is great –- but don’t shoot for something that’s not within your grasp. Reducing your grocery bill to $150 per month (for a single person) is realistic; reducing it to $25 per month is not.
Make sure your budget allows for all the reasonable expenses you can expect to incur throughout the month.
Be realistic about how much money you’ll comfortably need for non-negotiable expenses like groceries, heat and health care. You can make up the difference in other areas that are more discretionary, such as clothing and cable TV, but you need to be honest about what types of costs you’re working with.
3. You’ve Left Off Irregular Expenses
You’ve remembered to budget for your monthly bills, but what about bills that are due quarterly or annually, such as your water bill, car registration renewal, holiday travel, summer camp fees, dentist co-pays,or birthday gifts for your children? 4. Impulse Purchases This is by far the easiest way to set your budget off-course — and it isn’t limited solely to shopping sprees. You can also commit an impulse purchase by grocery shopping without a list, giving into promotions that tempt you to buy things you don’t need, and failing to compare prices or shop around for the best bargain. The problem with impulse purchases is that they’re easy to rationalize. We find ways to convince ourselves that we either “need” an item, or that we’re “saving money” by purchasing this item. Oreo cookies and Coca-Cola (KO) are luxuries, not necessities, even if they broadly fall under the category of “groceries.” By redefining “necessity,” you can avoid the rationalization that allows you to make an impulse purchase. Don’t trick yourself into thinking that it’s okay to make these impulse purchases at the store, under the guise that you’re just spending on your “needs.” Similarly, you’re not “saving” money by purchasing a discounted item. If you score a 50 percent discount on an item that you otherwise wouldn’t have purchased, you haven’t “saved” a dime. (Glass half-empty, I know.) Redefine “saving” to mean money that’s still in your wallet – not the discount that we get by purchasing clearance items on impulse. 5. You Aren’t Prepared for Emergencies Another big way people blow their budgets is by failing to plan for the unexpected. You may not be able to predict when you’ll get sick or your car will start making odd noises, but you can anticipate that something unexpected is bound to happen sooner or later — and you can set some money aside so you’re prepared for it. Aim to build up an emergency savings fund of three to six months’ worth of your income. Hopefully you’ll never have to touch it, but if something unfortunate does befall you, you’ll be able to handle it without incurring a financial hit. 6. It’s Too Difficult If you absolutely hate budgeting, you won’t be likely to stick with it for long. Make sure you’re using a system that feels user-friendly and is easy for you to understand. If you hate dealing with numbers, use budgeting software that does the math for you. If you can never keep track of your receipts, use a program that connects with your credit and debit cards and tracks your purchases automatically. Play to your strengths and work around your weaknesses and you’ll find it much easier to stay on track.
A small finance company is one that specializes in making secured loans to consumers and businesses. Typical transactions include home equity loans, vehicle loans and installment loans for the purchase of major household appliances such as refrigerators and washing machines. Finance companies differ from banks in that they do not accept deposits from customers. Some small finance companies are independent and restrict their market area to one local area, while others have a nationwide presence, with branch offices throughout the United States. Each state regulates the finance companies located there.Instructions
- Study the market you intend to serve. It may be a city, a county or a larger area. To understand the potential loan demand in your market area, investigate the demographics (i.e., the characteristics of the area’s population, especially age and income) and identify potential business customers.
- Identify your state’s regulator of small finance companies. This government entity may be the same as the regulator of banking in your state. After you make contact, obtain the necessary information about how to qualify as a finance company.
- Hire outside professionals to assist you in founding your finance company. An attorney or a law firm with experience in financial services will guide you through the many laws and regulations you will encounter. A well-qualified certified public accountant or accounting firm is necessary for establishing financial controls, auditing your books and records, and producing financial statements.
- Form your business if you have not already done so. When you fill out the application form, you will have to indicate whether your business is a proprietorship, a limited liability company or a corporation.
- Complete your business plan. This will be necessary in case you plan to obtain funding from outside investors. Potential investors will require a suitable business plan that contains detailed financial projections over the next three to five years. It is customary for finance companies to fund their loan business with lines of credit from banks. Those banks will need to study your business plan as well during their approval process.
- Apply to the regulator for your license to conduct business as a finance company. Consult your business plan for the information you need for filling in the official forms. Be prepared to attach a check for the application fee. For approval to be final, you will have to obtain a surety bond or an irrevocable letter of credit to support your lending activity. The state regulator will inform you of the amounts.
- Locate, lease and furnish a suitable office for conducting business. Hire and train staff. Advertise your business and continue marketing. When you receive final, official approval from the regulator, you can commence business.