Monthly Archives: January 2017

Tips and Tricks to Manage your Grocery Budget

For most families, the grocery budget seems to be the hardest to control. Busy seasons might mean more wasted money on food waste and fast food, whereas the holidays could mean higher grocery bills for hosting social gatherings. How can a person save in the kitchen?

Address Food Waste

One way to manage your grocery budget is to take a good look at your food waste. How much food are you wasting each month? If you frequently throw away produce and other fresh goods, it could be a sign that you need to buy less. A lot of wasted food may also be a sign that you need to be more disciplined in the kitchen and actually prepare and eat the food you buy rather than ordering a pizza at the last minute. Every time you have to throw food away, it’s like throwing away a few dollars here and there. According to USAToday, “American households throw away about $640 each worth of food every year.” Who wouldn’t want an extra $640 at the end of the year for holiday spending or a small family vacation?

Meal Prep and Plan

The number one reason why most individuals and families don’t plan meals is because they believe it’s too time consuming, but it does not have to be. Even if it took you one hour a week to plan – which could help you save about $640 or more a year on food waste and other costs – that would save you about $12 an hour. For individuals making $12-15 an hour, the savings are like taking a paid week off of work.

To make life even simpler, look for pre-made meal plans. Several are available for free on the Internet, while other paid meal plans can cost about $10 a month. Specialized meal plans, such as 5 Dinners 1 Hour or Once a Month Meals, give shopping lists and instructions on how to prepare food in advance. For 5 Dinners 1 Hour, instructions are given for five meals to be prepped at the beginning of the week. The meals are then quickly cooked each night of the week with very little time and mess. Once a Month Meals offers instructions on how to prepare meals that can be kept in the freezer, reheated and eaten all month.

Even if you do not want to pursue a formal meal prep and plan, try to double one meal a week for the freezer. The best meals to double – and even triple – are lasagnas, casseroles, chili, soup, carnitas and meatballs. This method will slowly build up your freezer stash, affording you minimal grocery shopping some weeks.

Eat Less and Eat Simpler

As a whole, America has issues with overeating. If you’re struggling with the scale and with your grocery bill, eating less might be the solution you need. Blindly serving food onto plates for your family can mean that each person is eating one-fourth to one-half of a cup more than they really need. That little bit of extra food each night adds up.

Along with eating less, try eating simpler. Making delicious gourmet meals is great, but save the filet mignon and lobster recipes for special occasions. Instead, turn to simpler foods, such as beans, rice, chicken and eggs for meal staples. Two of the cheapest meals to prepare are bean burritos and eggs and toast. Meals don’t have to be fancy, just filling and healthy.

Here 5 Ways to Manage Wide Income Swings

According to a survey by the Pew Charitable Trusts, more than half (53%) of American families experience wide income swings. From 2014 to 2015, 34% of U.S. households had income shifts (up or down) of 25% or more. There’s a good chance that you, too, will experience some degree of financial inconsistency during your lifetime. Therefore, knowing ways to manage income volatility should be a priority for you and your family. (For more, see Surviving on an Irregular Income.)

Reasons for Wide Income Swings

If you are about to get married or divorced, your household income is going to change. Getting a job, changing jobs, receiving a raise, taking a leave of absence – all can affect pay and benefits a little or a lot. If you are self-employed, subject to fluctuations in the number of hours you work each week or dependent on commissions for much of your compensation, income inconsistency is a never-ending fact of life.

Step 1: Create a Budget

The first step in solving the problem is to list your monthly household expenses in one of three columns on a sheet of paper. The first column is for recurring bills, such as a car payment, utility bills and so forth. In the second column list all of your discretionary spending, including groceries, dining out, cable TV, etc. The third column should contain savings, investments and known future big-ticket expenses, such as medical procedures, home or car repair and so forth.

For anything that tends to fluctuate, use past invoices or receipts to find an average. Always err on the side of the “worst case scenario” if you are not sure. At the end of this step you should know how much you need on a month-to-month basis. (For more, see Budgeting Basics.)

Step 2: Create Steady Income

When money comes in, deposit it in a savings account – not your checking account. Each month transfer exactly enough to cover your budget expenses for the upcoming month. The idea is that your income will fluctuate, but the amount you draw out each month will be the same. You will be paying yourself a set monthly salary, with any extra income remaining in savings, so you can draw on it in lean income months.

Step 3: Pay Bills and Get to Zero

The concept involved here is known as a zero-sum budget. You will start each month with exactly what you need in your checking account, and you will spend or designate all of it, eventually ending up with very little in your checking account .

Your budget should include both investment and debt repayment. It should also include saving (for those known big-ticket expenses). As almost all money has to leave the checking account each month, big-ticket savings should either go back into the savings account (and be accounted for) or into a separate savings account.

Step 4: Adjust – Rinse – Repeat

How you track your spending is up to you. You can use a pencil and paper, do-it-yourself spreadsheet or software such as YNAB (short for “you need a budget”). If you have discretionary funds left over, put them somewhere – debt repayment, big-ticket savings, investment or back into regular savings. It might take a few months before you know exactly what salary to pay yourself. Track and adjust as you go.

Step 5: Prepare for an Emergency

No matter how well you plan, there will always be unexpected expenses. You can plan to replace car tires when they wear out in six months but not a transmission that breaks down while you’re on vacation. Most experts suggest having three to six months “salary” set aside for emergencies or sudden temporary unemployment. Alternatively, a home equity line of credit or something similar can provide you with access to emergency cash if needed.

Ways to Improve Your Finances by Tracking Expenses and Net Worth

I hate the word “budget.” It reminds me of being on a diet. For some reason, In this day and age our human nature struggles with limits. So when I speak with people about their cash flow, I don’t talk about budgeting, I talk about expense tracking. I don’t care what you’re spending your money on, I just want to know how much money you’re spending and if those will costs be the same in retirement. Having this information is crucial to better understanding your financial position.

Tracking Monthly Expenses

I am old-school. I don’t use a pencil and graph paper, but I do use a spreadsheet and I store it in Google Drive, so at least the next time my hard drive crashes I will be ok. I started a perpetual spreadsheet that has nearly eight years of columns—a lot of historic information. Each month I can see how much my total expenses are because I enter the actual cost of living into my spreadsheet. I put the months across the top, and the categories on the side. At the bottom of the sheet, of course, I total up the cost of living and then also add in income to see if our household had a profit or a loss for that month. It is very powerful to be able to look at one row of data and see years of results, particularly if you’re running a surplus. I tell nearly every client they need to be doing this each month. But how many actually do the work? Pretty much nobody, which is sad, because it only takes an hour per month.

Tracking Personal Net Worth

It’s not just the expense tracking. From Gary Keller’s book, The Millionaire Real Estate Investor, I got the idea of buying a million dollars worth of real estate using other people’s money. I read the book in 2005 and 2016 and it was an excellent read both times. It was a little funny reading it in 2016 knowing about the 2008 crash, but nonetheless, the fundamentals are rock solid. In this book, Keller talks about how he met with his friend each week for breakfast, and each week they updated their net worth statements together and asked themselves, “What am I doing today to increase my net worth?”

In my opinion, updating your net worth statement weekly seems like overkill. However, I do suggest people track their net worth each month—similar to the expense tracking. What’s neat is that you can look at one row over years and years and see your progress. Of course, mine starts in 2009 since the last hard drive crash, and everything has been pretty darn good since then because it was the low of the recession. I like to track liquid assets, real estate, investments and liabilities. Each month you can see if your net worth increased or decreased.

Having this data, either in the form of an income statement or net worth statement, is what every business must have. But only 1% of households have this type of data. Data can help you understand what is actually going on, and help you make better decisions going forward, which is ultimately my mission. A lot of people make terrible decisions because they don’t have the understanding of where their money is going. Grow your net worth! Start by following the suggested exercises.

The Financial Planning It’s About More Than Money

Life planning is different than traditional financial planning because the focus is more about who you are and who you want to be than it is about money.

Unlike people engaged in the traditional planning process, people engaged in the life planning process don’t look ahead to figure out how to maintain their current lifestyles in retirement. Instead, they look at how to change their current lifestyle to achieve the lifestyle of their dreams.

Read on to discover how you can use this approach to financial planning.

The Ideal Lifestyle

Many people credit the baby boomers for this trend – former flower children who grew up and were absorbed by corporate America, but who never lost their ideals. Just as the boomers redefined their “golden years” as a time to be more active than their predecessors were, some want to go a step further and redefine themselves.

For these people, the concept of money is intertwined with the concepts of spirituality, creativity, family, service and other emotional aspects of personal satisfaction. Happiness is measured in more than just dollars and cents. It’s not, “he who dies with most toys wins,” it’s, “he who gets the most out of life wins.”

For many, it’s more of a lifestyle change than anything resembling the retirement-planning process most of us are familiar with from 401(k) seminars at work or meetings with a financial advisor. The doctor who wants to be a painter, the law clerk who wants to be a poet and the city-dwelling office manager who longs for a cabin in the mountains are all increasingly turning to financial-service professionals for help in making those dreams come true.

Of course, the money plays a big role too.

SEE: Retirement Plans

Money and Sacrifice

There’s just no escaping the money (or the lack thereof). The mailman who wants to become Bill Gates is probably out of luck. However, the attorney who wants to trade in her suit to pick up a hammer and open a repair shop might be able to do it in cash. The others have to make choices, so they work with a financial advisor in order to determine how to develop the financial plan that will allow them to realize their personal goals.

Rather than trying to earn more money or build a bigger nest egg, a significant number of people need to make do with less in order to achieve their goals. Giving up the big house, trading in the BMW and skipping the month-long trips to Europe can help decrease expenses and enable people to trade in their day jobs for lower paying, but personally-fulfilling, professions and past-times.

If living in a small apartment frees up enough cash to increase time spent on the golf course, some people are willing to make the trade. In order to exchange the stress of corporate management for the quiet bliss of a career grooming pets, some people are willing to take a significant cut in pay. When you don’t like what you’re doing and know how you’d rather spend your time, life planning can help you make the transition.

It’s Your Life

If your goal is simply to retire, still be able to pay the bills and maybe a take a few trips each year, that’s one thing. If your goal is to trade in your spot in cube city for a spot behind the counter at your own bakery, that’s another thing entirely. Instead of asking yourself, “How much do I need to save,” ask yourself, “How am I willing to change my lifestyle in order to achieve my goal?”

From there, it’s more about the mechanics of orchestrating a transition than it is about saving a certain amount of money or earning a certain rate of return on your investments. Just as each person has his or her own definition of happiness, the decision to pursue a lifestyle change is highly personal. It can involve enormous upheaval, but it can also result in enormous satisfaction.

Prior to taking the leap, you should carefully examine your motivation and your financial resources. Then all you have to do is come up with the plan that will get you there.