Tag Archives: Financial Planning

Creating a Budget

Posted on by

“A budget is telling your money where to go instead of wondering where it went.” John C. Maxwell

Spending within your means may sound like a simple rule to follow, but many Americans spend more than they save, which can result in debt. The good news is that it’s completely avoidable, and it’s reversible over time. With a little budgeting, planning, tracking and adjusting your spending, you can live happily within your means.

Keeping your personal finances in tip-top state does takes some planning, effort and time. Yet, many people live above their means and don’t even realize it. More than three-quarters of American workers (78 percent) are living paycheck-to-paycheck to make ends meet, according to survey conducted by Harris Poll on behalf of CareerBuilder in 2017. Thirty-eight percent said they sometimes live paycheck-to-paycheck, 17 percent said they usually do and 23 percent said they always do. 

To improve your financial health and money management awareness, the one piece of advice you hear most often from financial experts is to create a budget.

“Budgeting helps you better understand how you spend your money and shows you ways to manage your money, pay off debts and save for future financial goals.”

Budgeting is one of the single most effective tools for money management. Making a budget simply means examining your income and expenditures in order to determine exactly how much money you have coming in and where you’re spending it. Once you’ve got a clear understanding of your current budget – what income you’re receiving and what expenses you’re responsible for – take a closer look and find places where you can spend less.

A budget will help give you a clearer picture of how much money you have coming in (income) and how much is going out (expenses). It’ll set guidelines for your expenses that will help you understand how much you can set aside for those bigger ticket items like a house and long term goals, like saving for retirement or an emergency fund. A budget is a personal cash flow roadmap. It can span a week, month, quarter—three months—or any set length of time. They are created by individuals and businesses.

Begin planning your monthly budget by figuring out how much you have coming in versus how much is going out every month. Ultimately, you want to end up with a blueprint that specifically breaks down your cash flow (income minus expenses), so you know how much you can spend and how much you can save each month. Building a budget starts with a few simple steps.

Budgeting is Important

“When making a budget, the idea is to make sure your expenses don’t exceed your income.”

A budget is a foundational piece of a financial plan. If you’re serious about reaching your financial goals, making a budget and sticking to it can help you achieve them. Here are some of the benefits of making and following a budget:

  • Live within your means: If you haven’t been budgeting up to this point, you may often wonder at the end of the month where all your money went. It’s even possible that you’re running a deficit and taking on credit card debt to cover the difference. A budget can help you live within your means when you use it to set clear boundaries for your spending.
  • Pay off debt: Making a budget is about taking control of your finances. If you’re working to get out of debt, decide how to allocate your spending to prioritize paying more toward debt payments. For example, if you notice that you spend a lot on entertainment, you can set a budget to only allow yourself to spend up to a certain amount on that category. Then use the savings to pay down debt.
  • Save money: Long-term savings goals are also an important part of a personal budget. Think about setting aside money each month to save for retirement, a vacation or a home down payment. In the short term, make sure to save enough for an emergency fund. A budget can give you better control over how you spend your money, allowing you to cut back on spending and save more.
  • Reach financial goals: You likely have financial goals you’re working toward. But if you don’t have a budget, it can be tough to know where to focus your efforts and make meaningful progress. A budget can help you decide how much money to allocate for each goal to keep yourself accountable.

While these are general benefits of budgeting, take a moment to think about why you want to budget. Whether it’s due to a short-term need, long-term goals or simply to understand where your money goes, knowing your reasons for budgeting can motivate you to keep up with it.

Step 1: Look at your paycheck.

To create a budget, you first need to know your net monthly income, or after-tax income. This is your monthly take-home pay, not your total salary — an important distinction when figuring out how much you can spend on a monthly basis. Knowing this number is the first step to creating a spending strategy.

To start, make a list of all your sources of income coming in the door every month. Every paycheck you get. Maybe a regular side hustle. Do you get alimony or child support? What about income from investments? Everything.

Step 2: Distinguish your essential needs from your wants and discretionary spending.

Start listing your expenses. Start with the big stuff: rent, car payments or transportation, utilities, groceries, any debt payments you need to make — things like that. Now it’s time to make a list of your essential expenses. This involves separating your “wants” from the “needs.” Needs usually include things like:

  • Housing costs (monthly rent or mortgage payment)
  • Transportation costs (car payment, fuel, public transportation)
  • Utilities
  • Food
  • Insurance
  • Internet, cable, and phone bills

Once you’ve tallied those costs, add them up and deduct your needs total from your after-tax income. Make note of that number. What about everything you spend money on that you like, but maybe don’t need? Eating out, entertainment, that new pair of shoes. Add those as a list to your expenses. Treating yourself is great! But you want to do it within your budget.

Step 3: Calculate how much your wants cost you.

Next, outline all the things you spent money on that don’t fall into the “needs” bucket, and tally up the total. The easiest way to do this is to look at your credit card statements from the last month or two. If you use cash to pay for things, keep a log for several days (or better yet, a couple weeks) of all your expenses.

Once it’s all written down, use a critical eye and note where you’re being your own worst enemy by overspending or wasting money on things you don’t need (or even want). Strategize on how you can modify your behavior to reduce these unnecessary expenses.

While it’s a-okay to splurge on occasion, it’s important to do so in moderation.

Step 4: Add up all your costs.

Jot down the total amounts of your “needs” and “wants” and see how they stack up against a common rule of thumb: the 50/30/20 budget. This popular money management plan says you should spend 50 percent of your take-home pay on needs, 30 percent on wants, and put the remaining 20 percent toward savings, investments, and any debts you may have, like school loans or revolving credit card debt.

Don’t panic if your current financial picture doesn’t align with this ideal ratio. It can be difficult to stick to this plan, especially if you’re new to the workforce and possibly paying down student loan debt.

But that’s exactly why a budget can be so useful. Matching up how much you spend to established guidelines can be a helpful way to identify where everything’s lining up — and where you can put in a little more effort and reduce your spending.

Step 5: Keep it up.

Now that you have your budget created, here comes the harder part: sticking to it.

The primary part of your budget should always cover your needs. What’s left over is split between the things you want and your savings. When it comes to minding your numbers, try out some of these tips:

  1. Be a stickler and set aside some savings for an emergency fund. It’s smart to have it an intrinsic part of your budget.
  2. While putting 20 percent of your take-home pay toward savings and debt isn’t technically considered a “need,” you should treat it as one. Avoid dipping into that bucket to pay for “wants,” so you can pay down debts and afford future unknowns, should something arise. In fact, you could remove temptation by setting up monthly automatic savings transfers.
  3. Break it down. If a budget isn’t as manageable, try chopping it up into monthly or weekly segments. A shorter time frame can make it easier to stay on track. That way, you won’t discover that you’re already pushing the limit of your budget.
  4. Review regularly. Along those same lines, keep track of your purchases as they happen instead of totaling them up at the end of the month. Checking your balance online or reviewing your recent credit card charges is a great reality check for daily expenditures.
  5. Get everyone on board. If other people, like your spouse, are supposed to follow your budget, make sure they’re on board with the financial goals you’re trying to meet. To help create a comprehensive budget, most financial advisers recommend following the 50/30/20 model for budgeting. This model suggests you use 50% of your take-home pay for essential needs, 30% for wants or discretionary spending, and 20% for savings.

Trim your expenses if your budget proves your expenses outweigh your income. One of the easiest ways to trim your expenses is to evaluate how much money you’re spending on the things you want but don’t necessarily need. For example, a night out with friends costs an average of $81, which really adds up if you go out multiple nights a week. This doesn’t mean you can’t go out and have fun, but you may need to limit your spending to make your budget work.

Another way to cut your expenses and get control of your finances is to see if you can lower the cost of certain services. Contact cellphone, internet and cable television providers to see if a competitor offers a better deal or if you can save money by bundling. Consider dropping premium cable television channels and opt for an economical basic package.

Setting goals

Successful budgeting starts with aligning your spending with your priorities. Creating goals and rewards is a fantastic way to increase your chance of budgeting successfully. For example, set a goal to save a specific amount to pay off debts by spending less on unnecessary expenses like dining out, buying lattes or shopping. Put this money into a savings account to earn interest. When you meet your savings goal, reward yourself with a reasonable splurge on something fun. Typical goals and priorities include:

  • Planning and paying for college and post graduate educational expenses
  • Saving a down payment to buy a home or paying off the mortgage early
  • Paying off high-interest student loans and credit card bills
  • Saving and investing for early retirement

Budgeting doesn’t have to be the complicated or intimidating task that it’s often made out to be. Follow this simple process, and your monthly budget will help keep your finances in check.

Now you have the beginnings of your monthly budget! It’s most efficient to build this your budget in a spreadsheet or budgeting software. Then add new expenses as you spend.

Keep it Simple: The 50/30/20 rule

Tracking your finances doesn’t have to be complicated. A budget starts with a list of your income and your expenses, and following a simple strategy as the 50/30/20 rule.

The 50/30/20 rule is a popular budgeting method that splits your monthly income between three main categories. It’s pretty straightforward: You split your money between your needs, wants and savings, according to those ratios.

Here’s how it breaks down, according to NerdWallet:

Monthly after-tax income. This figure is your income after taxes have been deducted and the cost of payroll deductions for health insurance, 401(k) contributions or other automatic savings have been added back in.

50% of your income: needs. Necessities are the expenses you can’t avoid. This portion of your budget should cover costs such as:

  • Housing.
  • Food.
  • Transportation.
  • Basic utilities.
  • Insurance.
  • Minimum loan payments. Anything beyond the minimum goes into the savings and debt repayment bucket.
  • Child care or other expenses that need to be covered so you can work.
  • 30% of your income: wants. Distinguishing between needs and wants isn’t always easy and can vary from one budget to another. Generally, though, wants are the extras that aren’t essential to living and working. They’re often for fun and may include:
    • Monthly subscriptions.
    • Travel.
    • Entertainment.
    • Meals out.

    20% of your income: savings and debt. Savings is the amount you sock away to prepare for the future. Devote this chunk of your income to paying down existing debt and creating a comfortable financial cushion to avoid taking on future debt.

    How, exactly, to use this part of your budget depends on your situation, but it will likely include:

    • Starting and growing an emergency fund.
    • Saving for retirement through a 401(k) and perhaps an individual retirement account.
    • Paying off debt, beginning with the toxic, high-interest type.

    Making a budget can be an important step in the right direction for you. But budgeting for the sake of budgeting isn’t fun. As you work with your budget each month, remind yourself of the reasons why and purpose you’re doing it. Also, evaluate your progress periodically to make sure you’re on track to meeting your financial goals.

    References:

    1. http://press.careerbuilder.com/2017-08-24-Living-Paycheck-to-Paycheck-is-a-Way-of-Life-for-Majority-of-U-S-Workers-According-to-New-CareerBuilder-Survey
    2. https://www.thebalance.com/benefits-to-budgeting-453688
    3. https://www.ally.com/do-it-right/money/how-to-build-a-budget/?CP=135969424;274374394
    4. https://www.marketwatch.com/story/the-beginners-guide-to-building-a-budget-2019-08-09?mod=article_inline
    5. https://www.nerdwallet.com/article/finance/nerdwallet-budget-calculator

    Stay Invested – Time in the Markets

    Posted on by

    “Time in the markets, not timing the markets.”

    A common mantra in investing circles is ‘it’s about time in the markets, not timing the markets’. In other words, the best way to make money is to stay invested for the long term, rather than worrying about short term volatility or whether now is the best time to invest.

    Value investing guru Benjamin Graham once quipped that “in the short term the stock market is a voting machine” that measures the popularity of companies and the sentiment of investors, whereas in “the long term it is a weighing machine” that measures each company’s fundamentals and intrinsic value.

    Time in the market works because it takes this ‘guess the market bottom’ element out of the equation. By focusing on the long term, it’s easier to ignore the volatility of markets. Sure, it’s still scary watching the value of your share portfolio fall from time to time.

    Time in the market is really about harnessing the power of compound interest. Compounding is the best thing about investing. Albert Einstein once said “Compound interest is the most powerful force in the universe. Compound interest is the 8th wonder of the world. He who understands it, earns it, he who doesn’t, pays it.”

    With compounding, your money accumulates a lot faster because the interest is calculated in regular intervals and you earn interest on top of interest. Compounding is usually what makes investors like billionaire investor Warren Buffett wealthy. If you are able to achieve a consistently high annual rate of return over the long term, building wealth is almost inevitable. And Buffett has never tried to time a market in his life.

    But pushing and pulling your money in and out of the market stymies the compounding process. And all it takes is one massive mistime to end up back at square one given the fact that market can never be timed. Investor Peter Lynch said it best: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in the corrections themselves.”

    Compounding plays a pivotal role in growing your wealth. When using compounding, the results will be small at the start but over time, your wealth will accumulate fast. Warren Buffet is known to make the majority of his wealth later in his adult life and this is due to the compounding interest effect on his assets and invested capital.

    Missing the best days

    Timing the markets involves trying to second-guess the ups and downs, with the hope that you will buy when prices are low and sell when they are high. This can be lucrative if you get it right consistently, but this is very difficult to do and getting it wrong means locking in losses and missing out on gains.

    Not only is timing the market difficult to get right, it also poses the risk of missing the ‘good’ days when share prices increase significantly. Historically, many of the best days for the stock markets have occurred during periods of extreme volatility.

    Instead of trying to time the market, spending time in the market is more likely to give you better returns over the long term. It is best to base your investment decisions on the long-term fundamentals rather than short-term market noise and volatility.

    Value of $10,000 investment in the S&P 500 in 1980

    Source: Ned Davis Research, 12/31/1979-7/1/2020.

    This chart uses a series of bars to show that from the end of 1979 until July 1, 2020, a $10,000 investment would have been worth $860,900 if invested the entire period. Missing just the 10 best days during that period would reduce the value by more than half, to $383,400.

    Anybody who pulls money out in the early stages of a volatile period could miss these good days, as well as potentially locking in some losses. For instance, between May 2008 and February 2009 in the depths of the global financial crisis the MSCI World index dropped by -30.4%. By the end of 2009 it had bounced back +40.8%.

    References:

    1. https://www.edwardjones.com/us-en/market-news-insights/guidance-perspective/benefits-investing-stock
    2. https://www.fa-mag.com/news/retirees-are-leading-precarious-financial-lives-42426.html
    3. https://www.tilney.co.uk/news/it-s-about-time-in-the-markets-not-timing-the-markets
    4. https://www.fool.com.au/2020/10/06/does-time-in-the-market-really-beat-timing-the-market/
    5. https://www.fool.com.au/definitions/compounding/

    Black-White Inequality Wealth Gap

    Posted on by

    “Wealth is a safety net that keeps a life from being derailed by temporary setbacks and the loss of income.”  Brookings Institute

    The wealth gap for African Americans remains significant. A close examination of wealth in the U.S. finds evidence of persistent and staggering racial disparities and past racist federal policies, according to the Brookings Institute findings. Specifically, the disparities include:

    • At $171,000, the net worth of a typical white family is nearly ten times greater than that of a Black family ($17,150) in 2016.
    • Gap in stock market participation between the groups persists, with 55 percent of Black Americans and 71 percent of white Americans reporting stock market investments.

    This disparity means that Black Americans will have less money saved and invested for retirement, and less accumulated wealth to pass onto the next generation than their white peers.

    Figure 1. White families have more wealth than Black, Hispanic, and other or multiple race families in the 2019 SCF.

    Notes: Figures displays median (top panel) and mean (bottom panel) wealth by race and ethnicity, expressed in thousands of 2019 dollars.

    These gaps in wealth and investments between Black and White households reveal the effects of centuries’ of accumulated inequality, discrimination and racism, as well as differences in power and opportunity that can be traced back to this nation’s inception. The Black-White wealth gap reflects a society that has not and does not afford equality of opportunity to all its citizens.

    It is important to note that it was never the case that a White asset-based middle class simply emerged, according to research based on a study of historical and contemporary racial inequality. Rather, it was extraordinary government policy, and to some extent literal government giveaways, that provided Whites the financial assets, educational opportunities, land grants and infrastructure to accumulate and pass down wealth.

    In contrast, blacks were largely excluded from these wealth generating benefits. When they were able to accumulate land and enterprise, it was often stolen, destroyed or seized by government complicit in theft, fraud and terror.

    Federally funded racism in housing and labor unions

    In the mid-twentieth century, the government subsidized builders to construct suburbs of single-family homes  in scores of developments across the country on explicit federal condition that no homes be occupied by African Americans, according to the NAACP Legal Defense Fund. Over several generations, federally subsidized white homebuyers gained a quarter million dollars in home equity or more. In contrast, the government restricted African Americans, including war veterans, mostly to segregated urban apartment rentals where no wealth appreciated.

    White homeowners were able to bequeath some of this federally subsidized wealth to subsequent generations, after using it for retirements, children’s college education, care for elderly parents, or medical emergencies. African Americans had to use current income for such expenses, if they could do so at all, pushing many into poverty. Largely because of twentieth century federal segregation policy, while average African American income is about 60 percent of white income, African American wealth is only 7 percent of white wealth.

    Other federal policies forced African Americans into poverty, continuing for generations. In 1935, the government gave construction and factory unions the right to collectively bargain for higher wages and benefits. As proposed by Senator Robert Wagner, the law denied that right to unions that barred African Americans. Segregated unions lobbied to remove that provision and the Wagner Act was then passed, unconstitutionally empowering unions to exclude black workers — a policy that continued for over 30 years. Denied the best blue-collar employment, African Americans participated less in the collectively bargained income boom that raised white working class incomes in the three decades following World War II.

    Wealth

    “Black children are less economically upwardly mobile partly because of the multigenerational effects of federal and state government racist policies that purposely segregated their grandparents and great-grandparents into low-income communities and low paying jobs from which exit was difficult.”

    Wealth is the sum of resources available to a household at a point in time; as such it is clearly influenced by the income of a household, but the two are not perfectly correlated.

    Two households can have the same income, but the household with fewer expenses, or with more accumulated wealth from past income or inheritances, will have more wealth.

    As a result, high- and middle-income white families are much wealthier than Black families with the same incomes. A few reasons are that White families receive much larger inheritances on average than Black families. Economists Darrick Hamilton and Sandy Darity conclude that inheritances and other intergenerational transfers “account for more of the racial wealth gap than any other demographic and socioeconomic indicators.”

    For example, while 51 percent of white Americans say they have inherited wealth, just 23 percent of Black Americans have, according to an annual Ariel-Schwab Black Investor Survey.

    All of this matters because wealth confers benefits that go beyond those that come with family income.

    Wealth is a safety net that keeps a life from being derailed by temporary personal economic setbacks and the loss of income, according to Brookings Institute. This safety net allows people to take career risks knowing that they have a buffer when success is not immediately achieved.

    Family wealth allows people (especially young adults who have recently entered the labor force) to access housing in safe neighborhoods with good schools, thereby enhancing the prospects of their own children.

    Wealth affords people opportunities to be entrepreneurs and inventors. And the income from wealth is taxed at much lower rates than income from work, which means that wealth begets more wealth.

    Education a Way to Weslth

    Social science research indicates that blacks attain more years of education than whites from families with comparable resources. Essentially, blacks place a high premium on education as a means of mobility

    Yet, the racial wealth gap between Blacks and Whited expands at higher levels of post secondary education. In short, Black families where the head graduated from college have less accumulated than wealth than white families where the head dropped out of high school.

    One take-away…better mindsets regarding wealth and money alone can’t fix the legacy of unconstitutional and racist federal and state sanctioned economic policy.

    References:

    1. https://www.brookings.edu/blog/up-front/2020/02/27/examining-the-black-white-wealth-gap/
    2. https://www.aboutschwab.com/ariel-schwab-black-investor-survey-2021
    3. Source: Federal Reserve Board, 2019 Survey of Consumer Finances.
    4. https://www.marketwatch.com/story/heres-why-black-families-have-struggled-for-decades-to-gain-wealth-2019-02-28
    5. https://www.epi.org/blog/is-poverty-a-mindset/

    What Every Woman Needs To Know About Her Money

    Posted on by

    “The lion’s share of wealth, two-thirds of wealth in the United States, is going to end up in the hands of women by the year 2030.” Jean Chatzky

    The women that Jean Chatzky, New York Times Bestselling Author and financial editor at the NBC TODAY Show, has talked with “share a lack of confidence” regarding managing and investing their money. “Whether we’ve got one hundred, one hundred thousand, or one million dollars, we don’t always feel equipped to manage it, even when we’re doing exactly the right things,” she explained.

    In order to create a better world, Chatzky suggests women should, “…use this power that’s coming our way to improve not just our lives, but the lives of the people that we love and care about, and the causes that  we believe in. We really do have an opportunity through giving and investing to create the world we want.”

    Women…”have an opportunity through giving and investing to create the world we want.” Jean Chatzky

    Chatzky offers 15 tips to help you get a handle on your finances and to create the financial future you want for yourself.  A future that aligns with your goals, values and purpose in life.

    1. Talk openly about money

    Chatzky explains, “We gather groups of women who don’t make a habit of talking about money with the specific purpose of talking about money…and it’s really freeing.” One open ended question she asks is, “What do you want your money to do for you?”.

    2. Track your spending to see what you really value

    Do you want a clear picture of your spending? More so, do you want to uncover whether or not what you say are priorities are aligned with your expenditures?

    3. Determine what your ideal life actually costs

    “What do you want from your life?” This is a question Chatzky believe you need to consider so that you can determine what your ideal life actually costs. Write down what you want and next to each item, list the price to do or have it.

    4. Use money as a resource to buy you more time

    Money is a tool which creates freedom of time and choice. Chatzy shares, “The most important thing to realize is the opportunity that you’re wasting. Money we can get more of. Time, you absolutely can’t get more of…But by moving around some of our money, we can restructure our time in a way that feels much better, much more fulfilling, and much less stressful. We are so stressed, and using our money to swap for a little bit of extra time is one great way to reduce some of that stress.”

    5. Identify your money scripts

    “We all have stories around money which became ingrained as children. In some cases we mimic them, in others we rebel against them. In order to know where you’re going with your financial future, it’s helpful to identify the scripts that are overtly or subliminally impacting your views and habits around money,” advises Chatzky.

    6. Find financial harmony in your primary relationship

    Chatzy suggests, “Listening is the key to success within a relationship. You have to understand why your partner needs what they need as much as they need to understand what you need.”

    7. Don’t let money injure your friendships

    “Listen and read between the lines. We know an awful lot about our friends’ financial situations, even if they tell us not one thing. We see how they spend. We see how they manage. We know if they’re stressed financially. We just have to be a little bit empathetic and open-minded about the fact that they may not have the same choices or priorities that we have. And that doesn’t mean that we can’t be great friends,” shares Chatzky.

    8. Teach your kids early

    It can feel scary to talk to your kids about money, especially if you feel tentative about your own financial skills. Fortunately, it doesn’t have to be challenging: “Kids have to have money in order to learn to manage money.”

    9. Get paid what you deserve

    To charge or get paid what you deserve, “First, you must know what you deserve and once you know what that number is, you have to ask for it:

    10. Negotiating won’t hurt your outcomes

    The person on the other side of the table, they are waiting for you to negotiate, according to Chatzky. They’re not going to punish you for negotiating. You may not get the money. But asking is not going to hurt you.

    11. To be or not to be (an entrepreneur)

    30% of US businesses are women-owned, and that number is rising steadily.

    12. Spend on others

    Studies show that when you do for others, you’re guaranteed to feel happier. This includes when you spend on others. “There’s no sense in feeling guilty for spending money that’s not sabotaging our financial life”, says Chatzky.

    13. Talk with aging parents

    “If you haven’t had a conversation with your parents before you’ve hit age forty or they hit age seventy, it’s time”, she comments

    14. Have a little fun with your money

    Chatzky comes from a judgment-free zone when it comes to how you spend your money. But, “know how much it costs” since you earned that money and yours to do with as you want.

    15. Consider your legacy

    “You have to think about what’s important to you. That’s where a lot of us fall down when it comes to charitable giving”, Chatzky says.

    Building wealth

    If you want to build wealth, you need only do four things, according to Chatzky:

    1. Make a decent living.
    2. Spend less than you make.
    3. Invest the money you donʼt spend.
    4. Protect the financial world you build so that a disaster doesnʼt take it all away from you.

    Building wealth sounds easy, so why is it so hard, particularly for women?  “Because women according to Chatzky, “make excuses”. We tell ourselves that we’re “just not good with money,” or that our husbands “like taking care of the finances.”

    In short, “what successful women want from their money are: independence, security, choices, a better world, and–oh yes–way less stress, not just for themselves but for their kids, partners, parents, and friends.”

    To read more: https://www.vunela.com/jean-chatzky-on-the-top-15-things-every-woman-needs-to-know-about-her-money/

    References:

    1. https://www.vunela.com/jean-chatzky-on-the-top-15-things-every-woman-needs-to-know-about-her-money/
    2. https://www.jeanchatzky.com/books/

    Financial Wellness

    Aside

    Financial Wellness: Time to tune up your financial goals, plan and strategy.

    Tax season is upon us meaning that the 2020 filing season officially opens on February 12, 2021, and the final deadline is April 15, unless the IRS announces changes. For that reason, it is the time to assess your financial health, gather your tax documents and get your personal finance in order.

    Knowing where you stand financially before the tax filing deadline gives you time to adjust your current tax withholding and also figure out what you can contribute to accounts like traditional IRAs, Roth IRAs, and health savings accounts, based on your modified adjusted income and your overall financial picture.

    “People focus on the negative. They don’t like locating all the files, math is scary, and there’s this need to be very precise,” says Andy Reed, PhD, Fidelity’s vice president for behavioral economics. “The beginning of the year is a good trigger for taking stock of your financial situation, which is good to do once a year.”

    https://twitter.com/raininstantpay/status/1359117351124430853?s=21

    Financial wellness

    Knowing where you stand is a critical to financial wellness. “Financial Wellness” relates to thinking about and paying attention to your financial well-being. And, there is no better time than now to hit the refresh button and create a path towards financial wellness. Thus, having your financial plan and strategy in place can not only mean a great deal to you in the long term, but it may provide you some comfort in the short term.

    The first thing to do is to do a financial year in review by calculating your personal net worth (assets – liabilities) and assessing your cash flow (income – expenses). Once you know where you stand financially, you can plot out how you achieve your financial goals, according to Charles Schwab financial advisors. Consequently, thinking about what you really want financially, your goals, is the first step toward getting it.

    “Saving and investing wisely helps you work toward a more secure future, it also gives you freedom to focus on you.”

    Your primary financial focus should be earning and saving money, managing spending and debt, and setting up an emergency fund. Cash flow is financial oxygen of financial wellness, explained Berna Anat, a financial literacy educator and creator of financial education website Hey Berna. “Once you can breathe better, you can plan better.”

    To achieve a sense of financial wellness means having your financial plan, strategy and goals in place. Financial wellness can not only mean a great deal to you in the long term, but it may provide you some comfort in the short term.

    References:

    1. https://www.fidelity.com/viewpoints/personal-finance/getting-started-on-tax-returns
    2. https://www.become.co/blog/january-financial-wellness-month
    3. https://www.cnbc.com/2021/01/21/12-month-roadmap-to-financial-wellness.html
    4. https://equitable.com/goals/financial-security/basics/invest-for-retirement

     

    Investment Plan

    Posted on by

    “An idiot with a plan can beat a genius without a plan.” Warren Buffett

    Creating budgets and financial milestones are great, but you need an actual investment plan to help you stay on track. It’s one of the most critical steps to meeting your long-term financial goals. According to Warren Buffett, “An idiot with a plan can beat a genius without a plan,” and this is especially true in investing.

    Planning helps you focus on long-term goals, not short-term fears and market volatility. If your goal is 20 years away, a loss over one month or year probably isn’t all that important. Focus on your individual goals and time horizon. People who invest more time planning their finances invariably make better decisions, get better results, and achieve financial independence.

    It’s also important to know why and for what you are investing in because it will influence how and in what you invest. This is the basis of an investment plan. The best investment plan is one that is tailored to you, and includes an individualized strategy and goals that will set you on the path to success. That means a plan that takes into account your individual goals, situation, and time horizon—and one that’s diversified.

    “People who invest more time planning their finances invariably make better decisions, get better results, and achieve financial independence.” Brian Tracy

    Diversification doesn’t mean you won’t ever lose money. But owning a mix of investments can help reduce the risk. That way if some investments drop, others may rise, helping you reach your goals. And, you should always manage your risk—by choosing an asset mix that is appropriate for your current circumstances, and creating diversification within that asset mix to improve your risk/return relationship.

    Step 1: Evaluate Your Current Financial Standing

    The first step in creating your investment plan is to evaluate your current financial standing and determine how much you have to invest.

    Step 2: Define What You Want to Accomplish

    Your short or long term goals that you want to achieve in your life will impact your investing strategy. Where do you want to be when you retire? Do you want to own a house? Do you want to create passive income? Do you want to create generational wealth for your family?

    Defining what you want to accomplish will help you determine how much risk you can take and what type of investments to make that will help you achieve what you want to accomplish in your lifetime.

    Step 3: Determine How Much Risk You Can Take

    Rule #1 of Investing is to not lose money, but there is always some risk involved when investing in an unpredictable stock market. How much risk can you take based on what you want to accomplish (what we just talked about) and how much time do you have to accomplish it?

    If you want to earn money for retirement and retirement is 30 years away, you have a lot of time for your money to grow and recover from economic downturns, so you can afford to be more aggressive. However, if retirement is only a few years away, you will need to make more conservative investments that ensure you will have enough money, but won’t lose it.

    Step 4: Decide What Type of Investment to Make

    You need to decide what type of investments will help you accomplish what you have set out to accomplish. Consider building a mix of stocks, bonds, and short-term investment. You should learn about the different types of investments that are available before you start investing your money.

    Step 5: Establish Your Time Horizon

    Time Horizon is the period where one expects to hold an investment for a specific goal. The longer the time horizon, the more aggressive, or riskier portfolio, an investor can build.  Simply put, your investment time horizon is the length of time you need your portfolio to work for you.

    Planning and goals are really just the means to the end. The end being the tangible things (retirement security, house, generational wealth, etc.) you set out to accomplish. You should make a promise to yourself that you will accomplish that thing and make a plan to go after it.

    And monitor your investments per you plan and progress toward your goals on a set, not-too-frequent schedule—perhaps quarterly or twice a year, or if your goals or circumstances change.

    By developing and sticking to an investment plan that’s squarely focused on achieving your individual goals is essential in successful investing.

    Regardless of your plan, it is critically important to recognize that investing involves the risk of loss. Having a plan that aligns with your objectives and risk tolerance, educating yourself on investing and doing your research to know the risks associated with investing are all vitally important.

    Bottom line is that financial plans don’t fail people. Instead, people fail to plan.

    The only way to find financial security is to draw yourself a map. Folks who have specific financial plans that detail what they want save more than people who don’t…Why? Because human beings are easily distracted (especially by shiny new things). So unless you have a road map that tells you where you’re going, it is very, very hard to get there. It’s not that the map will never change.  Revising your specific plans for the future is far better than not having any plans at all.

    References:

    1. https://www.ruleoneinvesting.com/blog/how-to-invest/investment-planning/?utm_medium=cpc&utm_source=facebook.com&utm_campaign=investing-strategies&utm_content=interest&utm_term=cold&dclid=CID8g7PmzO4CFTEYwQod5T0EGw
    2. https://www.fidelity.com/viewpoints/personal-finance/financial-improvement?ccsource=email_weekly
    3. https://www.fidelity.com/viewpoints/active-investor/trading-guide-managing-investment-risks-and-opportunities?ccsource=email_weekly

    Habits for a more Abundant Life

    Posted on by

    Two most important:

    • Read at least thirty minutes everyday
    • Know and pursue a goal your passionate about

    Intelligence, talent and charm are great, but more often than not these aren’t what separate the wealthiest among us from the poorest.

    Instead, the differences are in our daily habits.

    Do you realize that these subconscious, second-nature activities make up 40 percent of our waking hours? That means that two out of every five minutes, all day and every day, we operate on autopilot.

    It’s true: Habits are neural pathways stored in the basal ganglia, a golf ball-size mass of tissue right in the center of our brains, in the limbic system.

    This neural fast lane is meant to save the brain energy: When a habit is formed and stored in this region, the parts of the brain involved in deeper decision-making cease to fully participate in the activity. However, we all know there are good habits and bad habits.

    5 habits

    We know that habits can either help or hurt your success in life. Bad habits can fester and grow into a lifestyle that takes you away from the things you want to do—and good habits can help you create a life that’s full of action and accomplishment.

    If you were to look at someone you respect, someone who’s successful, you would see that they spend each day doing the things that help them accomplish their biggest goals. This isn’t to say they’re perfect—because no one is—but despite the things that are not perfect in their lives, they continue to make moves that have a positive impact. And it starts with their daily habits.

    Now, while we can all study successful habits, it’s meaningless if we don’t implement that knowledge. So, according to Kimanzi Constable, here are five daily habits you can adopt to create the life you truly want to live:

    1. Plan out your day the night before.

    It’s easy to get off track when you don’t have a plan. Without planning what your day will look like, you wake up not knowing what you want to do or accomplish. Spend a little time the night before giving yourself clear goals for the next day. Life rarely works out as planned, but with a plan, you can adjust without losing momentum.

    2. Read books and novels to get inspired.

    Reading is an essential element in success—books contain so much knowledge. Forming a daily reading habit will expand your knowledge, allow you to learn more about your profession and help you on your journey to success.

    3. Make your health and fitness a priority.

    What you eat and how much you exercise affects every area of your life. Successful people use their exercise as a time to reset and reinvigorate. And they make smart food choices that will give them the energy they need to accomplish everything on their daily to-do list.

    4. Don’t get distracted by what other people are doing.

    Other people’s journeys to success can be inspiring; you can learn so much—about their mistakes, their victories, what to do, what not to do. But if you start comparing your progress to theirs, instead of using their stories as inspiration, you can lose focus and fail to keep your eyes on your own mountain top. Realize your journey is unique and can’t be compared. So don’t get stuck in the comparison trap—stay focused on your why.

    5. Live each day as if it were the last.

    Life is busy, it’s chaotic, and so you tend to want to focus on the future—we all do it, worry about what’s next. But while planning is important, so is living—being fully present.

    Life is short, and there’s no guarantee as to when it will end. Successful people live each day as if it were their last and make the most out of each moment—and so should you.

    When you look at a big goal, it’s common to get frustrated at the enormity of what you’re trying to accomplish. If you wake up each day determined to spend it forming good habits, you give yourself a better chance at success. So use these five habits as a starting place to build whatever a successful life means to you.

    Read more:

    1. https://www.success.com/16-rich-habits/
    2. https://www.moneycrashers.com/productive-habits-wealthy-successful-people/

    Social Security Retirement Benefits

    Posted on by

    Achieving the dream of a secure, comfortable retirement is much easier when you plan your finances.

    Social Security is part of the retirement plan for almost every American worker. It is considered to be one of the three “legs” of retirement finances (retirement plans and savings being the other two), and for some it may be the only source of retirement income. It provides replacement income for qualified retirees and their families.

    Planning is the key to creating your best retirement. You’ll need to plan, save and invest for decades to achieve your retirement goals. While many factors affect retirement planning, it is important that you to understand what Social Security can mean to you and your family’s financial future.

    As you make your financial and retirement plan, knowing the approximate amount you will receive in Social Security benefits can help you determine how much other retirement income you’ll need to reach your goals.

    Social Security replaces a percentage of a worker’s pre-retirement income based on their lifetime earnings. The portion of your pre-retirement wages that Social Security replaces is based on your highest 35 years of earnings and varies depending on how much you earn and when you choose to start benefits.

    How Social Security system works

    The theory behind the concept of Social Security was that taxes assessed on the wages, up to a statutory limit, of those who are gainfully employed will be used to pay the benefits to those who have left the work force due to old age. This, when you work, you pay taxes into Social Security. Social Security Admission (SSA) use the tax money to pay benefits to:

    • People who have already retired.
    • People who are disabled.
    • Survivors of workers who have died.
    • Dependents of beneficiaries.

    The money you pay in taxes isn’t held in a personal account for you to use when you get benefits. SSA uses your taxes to pay people who are getting benefits right now. Any unused money goes to a Social Security trust fund that pays monthly benefits to you and your family when you start receiving retirement benefits.

    You can work while you receive Social Security retirement or survivors benefits. When you do, it could mean a higher benefit for you and your family. But, if you’re younger than full retirement age, and earn more than certain amounts, your benefits will be reduced. The amount that your benefits are reduced, however, isn’t truly lost.

    Your benefit will increase at your full retirement age to account for benefits withheld due to earlier earnings. (Spouses and survivors, who receive benefits because they have minor or disabled children in their care, don’t receive increased benefits at full retirement age if benefits were withheld because of work.)

    Each year, Social Security Admission (SSA) reviews the records of all Social Security beneficiaries who have wages reported for the previous year. If your latest year of earnings is one of your highest years, they recalculate your benefit and pay you any increase you are due. The increase is retroactive to January of the year after you earned the money.

    When you begin receiving Social Security retirement benefits, you are considered retired for SSA purposes. You can get Social Security retirement or survivors benefits and work at the same time. However, there is a limit to how much you can earn and still receive full benefits.

    If you are younger than full retirement age and earn more than the yearly earnings limit, we may reduce your benefit amount.

    If you are under full retirement age for the entire year, SSA deducts $1 from your benefit payments for every $2 you earn above the annual limit. For 2020, that limit is $18,240.

    In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit. In 2020, this limit on your earnings is $48,600. They only count your earnings up to the month before you reach your full retirement age, not your earnings for the entire year.

    When you reach full retirement age:

    • Beginning with the month you reach full retirement age, your earnings no longer reduce your benefits, no matter how much you earn.
    • SSA will recalculate your benefit amount to give you credit for the months we reduced or withheld benefits due to your excess earnings.

    To Receive Benefits

    The age you begin collecting your retirement benefit affects how much you will receive. There are three important things to know about age when thinking about when to start your benefits.

    • Full Retirement Age – Full retirement age is the age when you will be able to collect your full retirement benefit amount. The full retirement age is 66 if you were born from 1943 to 1954. The full retirement age increases gradually if you were born from 1955 to 1960, until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67. You can find your full retirement age by birth year in the full retirement age chart.
    • Early Retirement Age – You can get Social Security retirement benefits as early as age 62. However, your benefit is reduced if you start receiving benefits before your full retirement age. Understand how claiming retirement benefits early will affect your benefit amount.
    • Delayed Retirement Age – When you delay collecting benefits beyond your full retirement age, the amount of your retirement benefit will continue to increase up until age 70. There is no incentive to delay claiming after age 70.

    In 2020, if you’re under full retirement age, the annual earnings limit is $18,240. If you will reach full retirement age in 2020, the limit on your earnings for the months before full retirement age is $48,600.

    Starting with the month you reach full retirement age, there is no limit on how much you can earn and still receive your benefits.

    Let’s look at a few examples. You are receiving Social Security retirement benefits every month in 2020 and you:

    • Are under full retirement age all year. You are entitled to $800 a month in benefits. ($9,600 for the year)
      You work and earn $28,240 ($10,000 over the $18,240 limit) during the year. Your Social Security benefits would be reduced by $5,000 ($1 for every $2 you earned over the limit). You would receive $4,600 of your $9,600 in benefits for the year. ($9,600 – $5,000 = $4,600)
    • Reach full retirement age in August 2020. You are entitled to $800 per month in benefits. ($9,600 for the year)
      You work and earn $63,000 during the year, with $50,718 of it in the 7 months from January through July. ($2,118 over the $48,600 limit)
    • Your Social Security benefits would be reduced through July by $706 ($1 for every $3 you earned over the limit). You would still receive $4,894 out of your $5,600 benefits for the first 7 months. ($5,600 – $706 = $4,894)
    • Beginning in August 2020, when you reach full retirement age, you would receive your full benefit ($800 per month), no matter how much you earn.

    When SSA figures out how much to deduct from your benefits, they count only the wages you make from your job or your net profit if you’re self-employed. They include bonuses, commissions, and vacation pay. They don’t count pensions, annuities, investment income, interest, veterans, or other government or military retirement benefits.

    References:

    1. https://www.ssa.gov/benefits/retirement/planner/whileworking.html
    2. https://www.ssa.gov/benefits/retirement/learn.html
    3. https://www.aaii.com/journal/article/13102-a-primer-on-social-security?via=emailsignup-readmore
    4. https://www.ssa.gov/benefits/retirement/learn.html#h2

    Purpose Driven Saving, Investing and Accumulating Wealth

    Posted on by

    Investing with a Purpose – “Start with the Why” regarding saving, investing and accumulating wealth.  It’s about your values and life goals.  It’s about keeping your eyes on the prize and on the why you’re saving, investing and accumulating wealth.

    There is an underlying reason why you invest your hard-earned money and it’s not just to earn more money.  While that may be the ultimate outcome, the “Why” or “Purpose” of investing is something completely different.  Simply put, you invest to achieve your financial goals in life. These goals are different for every person.  Maybe it’s retirement, a child’s college education, buying a beach house, or planning for the next generation. We all have our own goals, whatever they may be.  It’s your mission to plan out a clear path to achieve those goals. This is what is considered Investing with Purpose.

    Purpose-driven investing thrives by instilling a sense of purpose into any investment.  People seek to achieve real-life objectives such as saving for your kid’s college or your retirement.

    A firm purpose behind your saving for the future, investing for the long term and accumulating wealth will ensure that you are making the right money management decisions today to achieve long term financial success. Your risk will be optimized when your purpose for saving, investing and accumulating wealth matches your goals and timeline.

    People Invest to Achieve Personal Financial Goals

    “An investor without investment goals, objectives and a plan is like a traveler without a destination.” Anonymous

    Understanding your values and what you want to accomplish in life is essential to “Purpose Driven” saving, Investing and accumulating wealth.  Saving, investing and accumulating wealth are deeply personal undertakings, which is why you must always start with a discussion about what’s really important to you. This helps us shape your saving, investing and accumulating wealth strategy around three key dimensions of your financial life: liquidity, longevity and legacy.

    When people are asked why they invest, their answers typically are focused on family and future goals in life—buying a house, saving for emergencies, retirement, taking care of loved ones. Those are the big picture answers. But as in life, it’s often as much about the journey as the destination. Investors have specific expectations about the investment experience, as well as the outcomes.

    For example, some investors want long-term growth to build their retirement nest egg, but they don’t want to feel the volatility that can occur in the broader stock market. Others want regular income distributions after they reach retirement. Still others want investments that can help them manage through changes in the economic environment, or more personal economic challenges.

    Create the future you want for yourself and your loved ones. New to investing or an experienced trader. To be great and successful at any endeavor, you’ve got to sacrifice and put in the work, because anything easy is just average. To become great you have to make big sacrifices and work really hard — much above average.

    Wise spending is a subset of wise investing. And, it’s never too late to start investing.

    When you invest in assets over the long term, you are buying a day in the present that you don’t have to work several days in the future.

    I like this quote since it succinctly defines one of the primary reason for investing … “putting away money today so sometime in the future, you do not have to work to live”. And the seeds you sow today, will reap the financial harvest to live a life in retirement with dignity and financial security.

    Your actions dictate the consequences. Reaps what they sow, they suffer or benefit as a result of their own actions.

    Investments are the tools we use to make your financial plan successful.  With your plan as the guide, your stock portfolio should be designed around your personal situation, needs, and goals.

    Personal Emergency Fund

    Posted on by

    Emergencies—from a vehicle breakdown to a layoff—are a fact of life. When you’re faced with life’s unexpected events, you can be ready.

    When things are going well financially and monthly expenses are being paid, emergency savings can seem unimportant. Yet, emergencies are unpredictable and can quickly derail your financial stability. And, a recent FINRA Study finds that 56% of people in the United States don’t have a rainy day fund that would cover 3 months of expenses.(1)

    A sudden illness or accident, unexpected job loss, or even a surprise home or car repair can devastate your family’s day-to-day cash flow if you aren’t prepared. While emergencies can’t always be avoided, having an emergency fund can take some of the financial sting out of dealing with these unexpected events.

    Being prepared for the unexpected – ensuring you’ve done what you can to protect yourself and the ones you love – can reduce stress and provide a good feeling. Many people at some time in life find they need to dip into savings during a rough patch, so make an effort to open an emergency savings account and try to make deposits on a regular basis.

    An emergency fund are savings used to cover or offset the expense of an unforeseen situation. It shouldn’t be considered a nest egg or calculated as part of a long-term savings plan for college tuition, a new car, or a vacation. Instead, this fund serves as a safety net, only to be tapped when financial crises occur.

    It is a good idea to work toward an emergency fund equal to 3 to 6 months of living expenses. But anything you can put away is better than being unprepared. Saving up emergency cash can be easier if your financial institution has an automatic payroll savings plan. These plans automatically transfer a designated amount of your salary each pay period – before you see your paycheck – directly into your account.

    An emergency fund is useful for unexpected expenses, and to maintain personal financial liquidity and cash flow.

    Reasons why emergency savings are important:

    • Being prepared – Issues like car or home appliance repair are common occurrences. However, since they do not happen regularly, people often overlook these costs as they create a budget. By anticipating these costs, you can be prepared for these potentially expensive items.
    • Avoiding debt – Emergency savings give you the option of dealing with the unexpected without having to take on debt. Without the cushion of emergency savings, you may be unable to pay regular bills if you face an emergency, and are more likely to take on debt.
    • Having peace of mind – Having emergency savings will give you peace of mind. Even if you can’t save much, a little money set aside may make a big difference when you need it and reduce stress.
    • Emergency savings give you the option of dealing with the unexpected without having to take on debt. Without the cushion of emergency savings, you may be unable to pay regular bills if you face an emergency, and are more likely to take on debt.

    Thus, an emergency savings is a stash of money set aside to cover the financial surprises life throws your way. These unexpected events can be stressful and costly. Some of the top emergencies people face are:

    • Job loss.
    • Medical or dental emergency.
    • Unexpected home repairs.
    • Car troubles.
    • Unplanned travel expenses.

    Emergency funds create a financial buffer that can keep you afloat in a time of financial need without having to rely on credit cards or take out high-interest personal loans. It can be especially important to have an emergency fund if you have debt, because it can help you avoid borrowing more.

    The right amount for you depends on your unique financial circumstances. Most experts believe you should have enough money in your emergency fund to cover at least 3 to 6 months’ worth of living expenses in case of an unexpected financial emergency. This account should be relatively liquid.

    For your emergency or rainy day fund, you’ll want to choose savings or investments accounts that are:

    • Safe from market risk. You want to know that your money will be there when you need it—especially in times of market or economic turbulence.
    • Easy to access. This will ensure you’ll be able to take care of your emergency quickly
    • Interest-bearing. The point of an emergency fund isn’t to make money, but don’t turn down the opportunity to earn interest on your savings.

    If you lose your job, for instance, you could use the money to pay for necessities while you find a new one, or the funds could supplement your unemployment benefits.

    Start small, but start.

    Saving even small amounts such as $500 can get you out of many financial scrapes. Put something away now, and build your fund over time.

    An emergency can strike at any time, having quick access is crucial. But the account should be separate from a bank account you use daily, so you’re not tempted to dip into your reserves.
    Building an emergency fundCalculate the total that you want to save. To figure out how to add up your expenses for six months.

    1. Set a monthly savings goal. Get into the habit of saving regularly. One way to do this is by automatically transferring funds to your savings account each time you get paid.
    2. Keep the change. When you get $1 and $5 bills after breaking a $20, drop some in a jar at home. When the jar fills up, move it into your savings account.
    3. Move money into your savings account automatically. If your employer offers direct deposit, there’s a good chance they can help you break up your paycheck into multiple checking and savings accounts.
    4. If there’s no money left, cut expenses. See which parts of your monthly spending you can trim, so you’ll have cash left over to build your fund.
    5. Get supplemental income. If you have the time and willpower, get a side hustle or sell unused items from home to accumulate more money for your fund.
    6. Save your tax refund. Saving tax refund can be an easy way to boost your emergency stash. When you file your taxes, consider having your refund deposited directly into your emergency account.
    7. Assess and adjust contributions. Check in after a few months to see how much you’re saving, and adjust if you need to add more.

    An emergency fund is for emergencies only. Usually it’s something that affects your health, your home or your ability to earn money.

    What’s not an emergency?

    • Holidays, birthdays and mental pick-me-ups for yourself or significant others.
    • Vacations.
    • The chance to get a great deal on something you don’t need.
    • Expenses that aren’t surprises, such as car insurance.

    When saving, draw a line between emergencies expenses and everything else. In fact, once you’ve hit a reasonable threshold of emergency savings, it’s a good idea to open multiple savings account for irregular but inevitable items such as car maintenance, vacations and clothing.

    Everyone needs to save for the unexpected. Having something in reserve can mean the difference between weathering a short-term financial storm or going deep into debt. Emergency savings can help you handle unexpected events. With money set aside for emergencies like unexpected car repairs or sudden job loss, you can better take care of yourself and your family financially.

    Building an emergency fund

    Calculate the total that you want to save. To figure out how to add up your expenses for six months.

    1. Set a monthly savings goal. Get into the habit of saving regularly. One way to do this is by automatically transferring funds to your savings account each time you get paid.
    2. Keep the change. When you get $1 and $5 bills after breaking a $20, drop some in a jar at home. When the jar fills up, move it into your savings account.
    3. Move money into your savings account automatically. If your employer offers direct deposit, there’s a good chance they can help you break up your paycheck into multiple checking and savings accounts.
    4. If there’s no money left, cut expenses. See which parts of your monthly spending you can trim, so you’ll have cash left over to build your fund.
    5. Get supplemental income. If you have the time and willpower, get a side hustle or sell unused items from home to accumulate more money for your fund.
    6. Save your tax refund. Saving tax refund can be an easy way to boost your emergency stash. When you file your taxes, consider having your refund deposited directly into your emergency account.
    7. Assess and adjust contributions. Check in after a few months to see how much you’re saving, and adjust if you need to add more.

    An emergency fund is for emergencies only. Usually it’s something that affects your health, your home or your ability to earn money.

    What’s not an emergency?

    • Holidays, birthdays and mental pick-me-ups for yourself or significant others.
    • Vacations.
    • The chance to get a great deal on something you don’t need.
    • Expenses that aren’t surprises, such as car insurance.

    When saving, draw a line between emergencies expenses and everything else. In fact, once you’ve hit a reasonable threshold of emergency savings, it’s a good idea to open multiple savings account for irregular but inevitable items such as car maintenance, vacations and clothing.

    Sources:

    1. FINRA Investor Education Foundation National Financial Capability Study, 2012, pg. 13
    2. https://www.nerdwallet.com/blog/banking/savings/life-build-emergency-fund/
    3. https://www.thebalance.com/do-you-need-a-rainy-day-fund-and-an-emergency-fund-4178821
    4. Building Emergency Savings, UMBC