For some of us, budgeting is second nature. For others, it seems a nearly impossible task. There are just so many things to consider that it’s hard to decide where your funds should go.
Setting priorities makes budgeting much simpler. But even this is difficult for many household money managers. Priorities are somewhat subjective, and those within the household often have vastly different priorities. Here are some ways that you can make priority setting a little easier:
1. Keep first things first. When it comes down to it, there are only a few things that we truly need to survive. These things include food, water, clothing and shelter. Transportation and other things that enable us to work and continue to make money also fall into this category. These should always come first in the budget, although it’s always a good idea to do our best to save money on them.
2. Keep savings in mind. We all need to put money aside for emergencies and set up a retirement fund. It’s also wise to set up a college fund for each of your children as early as possible. But many families push savings to the side, and it often ends up out of the picture altogether. Putting money away prior to any discretionary spending is crucial if you wish to meet your goals.
3. Evaluate your debts. If you have none, you’re in the lucky minority. Most households have large amounts of debt, including mortgages, car payments, loans and credit cards. By paying your debts off as quickly as possible, you can save lots of money in the long run. And once they’re paid in full, you’ll have a lot more wiggle room in your monthly budget. Putting as much money as you can afford toward paying off debt will help you reach that point much faster.
4. Set goals as a family. Maybe you would all like to go on a nice vacation next summer. Get everyone involved in deciding where to go, then calculate your expenses. Get everyone involved in saving money for this goal. Not only will you get to go on a family trip, you’ll also be teaching your children about budgeting and teamwork.
5. Review your budget periodically. A family’s needs change over time, and if your budget is no longer meeting your needs, it’s time for a change. Once again, you’ll need input from everyone in the family to make this work.
Priorities are at the heart of a successful budget. By keeping them in mind, we can resist impulse spending and make progress toward our financial goals. And by getting input from the entire family, you can gain valuable insight into individual needs and encourage interest in working together to keep your finances in good shape.
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Savings should be a part of everyone’s financial plans. We all need some money put back for a rainy day. Saving for our children’s college education is also important. And having a retirement fund is a must.
Putting our savings under a mattress isn’t a very good strategy. Not only could it be stolen or burned up in a fire, but it doesn’t earn interest. Putting our savings in the bank keeps it safe and allows it to earn interest, allowing us to come out ahead. But how far you come out ahead depends on the bank and the account you choose.
When it comes to general purpose savings, most people opt for a regular savings account. Such accounts earn rather low interest, but they give us quick and easy access to our money. Some banks allow us to link them to a checking account for quick deposits and withdrawals, and some even provide debit cards.
In order to earn higher interest rates, we must usually deposit larger amounts of money. Some accounts pay varying interest rates depending on the balance. Others have a minimum balance that must be met to avoid fees, but pay higher interest no matter what the balance. And then there are money market accounts and certificates of deposit, which are best suited to those who plan to leave a significant amount of money in the bank for several months or years.
For retirement savings, a 401K is usually the best option. These plans are made available through employers and allow employees to make pre-tax contributions from their earnings, and interest earned is not taxable. The employer may even match the contribution up to a certain amount. If a 401K is not an option, an IRA can be opened at a bank. Contributions are made with after-tax dollars, but the interest earned is not taxed.
There are a few options for college savings. A 529 plan is similar to an IRA, but is used for college expenses instead of retirement. The Coverdell ESA is often used in conjunction with a 529 plan, but there are some differences such as contribution and age limits.
When planning to open a savings account of any kind, it’s important to do some research. High interest rates are a definite advantage. But you also need an account that gives you the level of access to your money that you want. Fees should also be taken into consideration, as they can cancel out your interest earnings.
Credit unions are one of the best places to start your search for a savings account. These member-owned institutions usually offer competitive rates and many other benefits. Membership is usually restricted to those who live in certain areas or work for certain companies.
Online banks have been giving traditional banks a run for their money when it comes to savings accounts. They tend to offer more competitive rates, and may offer features that you can’t get from your local bank. But some local banks are more competitive than others, and they offer something that online banks cannot: face-to-face service.
Finding the right savings account can help you get the most out of your money. But it’s important to consider your needs carefully before you choose. The best account for your neighbor, sister or friend could be completely wrong for you.
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For some, investing is a way of life. For others, it’s an obscure concept that they’ve never explored. But if you have ever opened a savings account or put money into a retirement fund, you’ve dabbled in investing.
By definition, investing is using our money in certain ways with the hopes that it will make us more money in the long run. For businesses, this often involves purchasing equipment or inventory. For individuals and banks, it usually involves the purchase of financial products.
Take a basic savings account for example. We put money into the account, and the bank adds interest at a specified rate. If we deposit a certain amount of money and leave it there for a year, there will be more money in the account at the end of that year than when we started. This is investing in its simplest form.
There are many types of investments available. They range from very safe to very risky. Some require no minimum amount to get started, while others require thousands of dollars. Here are some of the more common types of investments:
* 401Ks – Most companies that offer employee benefits offer 401K plans. A 401K is a retirement savings fund. Employees agree to have a certain amount withheld from their pay before taxes and put into the fund. Employers often match employee contributions up to a specified amount, and all contributions are invested in a fund of the employee’s choice. The fund is intended to be maintained until retirement, but employees may be allowed to borrow from it. Early distributions result in tax penalties.
* IRAs – These are similar to 401Ks, but they are set up by individuals rather than employers. The money invested has already been taxed unless it is rolled over from a 401K, but there are still certain tax advantages.
* Mutual funds – These funds are made up of different stocks and bonds, and are under the control of professional money managers. This is how many investors get started in the stock market.
* Certificates of deposit – Certificates of deposit, or CDs, require investors to lend money to a bank for a specified period of time. When this time is up, the CD is said to have reached maturity and the investor can withdraw his capital and interest.
* Money market accounts – These are similar to CDs, but investors may withdraw money from their accounts at any time. Higher interest is paid to investors who make higher deposits.
Investing is not just for the rich. There are investment opportunities that virtually anyone can take advantage of, and they are not necessarily complicated. By starting out small and simple, you can get a taste of investing without a great deal of risk. Once you’re comfortable with that, you can move on to investments with greater potential.
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