The trick to being successful with a budget is using a system that you can commit to.  The most expensive and sophisticated system will be nothing more than a waste of money unless you diligently use it.  I have a background in computers so I tried several types of money management software, but it wasn’t until I created a simple Excel spreadsheet that I found myself being consistent and able to track my spending over a long period of time.  Don’t be afraid to try different systems.  If one doesn’t work, move onto the next!

Do you need a budget?

The short answer is yes!  It is my personal opinion that everyone needs a budget to track where their money is going.  If you find yourself with not enough “money at the end of the month” then a budget will allow you to see where your money is going and where cuts can be made to increase your cash flow.

Budgets aren’t just for those with a negative cash flow.   In fact, budgeting is an act of financial discipline and awareness that when implemented properly can help you reach your financial goals.   

Starting a budget

• Set aside a date and time to get started.  This should be sooner rather than later.  Set aside a date and time within the next 2 weeks to get started.   Decide which budgeting system you are going to use:  spreadsheet, budgeting software, envelop system etc.
• Collect your bank statements from the past 3 months, document your income and expenses.  This will help you project your budget for the current month.

List all income & expenses

When starting a budget you want to include all income.  This includes employment, child support, alimony, and side jobs.

Listing expenses are a little trickier.  This is why the past 3 months of bank statements will help you to see where your money is going.  Here are some categories to guide you:

• Tithes &  Offering
• Mortgage or Rent
• Uilities
  • Electric
  • Gas
  • Water, Trash, Sewage
  • Phone
• Food \ Groceries (include money spent eating out)
• Car
• Insurance
• Gas
• Debts
  • Credit, Loans, etc.
• Savings
• Emergency fund
• House Maintenance fund
• Car Maintenance fund
• Retirement savings
• College savings
• Holiday & Birthday Budget
• Investments
• Cable
• Beauty budget
  • Hair, nails, etc
• Discretionary spending & Entertainment

Next to each item, write down the amount you plan on spending in that area.  Use the average spending from your last 3 bank statements.  The sum of these items is your total expenses.  Hopefully, this number is less than your total income.  If so, you have a monthly surplus.  That is a great place to be, because it leaves you with options.   You can sweep all leftover monies to savings, investments or charitable contributions or you can increase your discretionary spending.

However, if you find your expenses meet or exceed your income.  You are living in a monthly deficit.  You’ll need to find areas that you can decrease your spending or earn more income.  This may be an uncomfortable position, but having a budget in front of you allows you to visualize the problem and work on a solution.

What about you?  Do you budget?  Do you like to budget?  What system do you use?

Lakita Humber Lakita is an IT Systems Administrator by profession with a passion for the things of God, worship arts, and financial stewardship. She started Personal Finance Journey as a way to help and encourage those on the road to financial freedom. She has been blessed with the opportunity to minister throughout the U.S. and Internationally as a workshop speaker and presenter. Connect with Lakita on Twitter & Facebook.

I started thinking about these two different types of life insurance policies again when I recently received a letter in the mail from my insurance provider.  The letter was informing me I had the option to convert to a permanent policy from my 20 year term insurance.  Along with stating the benefit was like owning my policy there were some other benefits mentioned: 

Lifetime protection

Builds equity over time

Cash value accumulates tax deferred

Cash values can be accessed for emergencies, opportunities, to pay policy premiums

Supplement retirement income, pay for long-term care, provide for an inheritance or to pay estate taxes

What is the difference between whole life and term insurance?

So, what is the difference between these two types of policies, anyway?  I have David Bach’s Smart Couples Finish Rich: 9 Steps to Creating a Rich Future for You and Your Partner in my personal finance library and remembered it had a pretty good section on insurance and especially with describing the differences between term and cash value life insurance.  Here’s a summary of what it says:

Term Life Insurance

Term insurance is when you pay a company a monthly premium and the insurance company pays your beneficiary a benefit when you pass away.  Term insurance provides you with a set amount of protection at a set price for a set period of time.    The advantage is that it’s cheap, but the disadvantage is it doesn’t build a cash value.  Once you decide you no longer want the coverage you walk away with nothing.

There are a couple types of term insurance.

• Annual Renewable:  Your death benefit is the same, but your premiums get larger each year because there is an increased risk of you passing away.  The benefit is that it’s really cheap when you’re young.
• Level Term:  Both the death benefit and the premium remain the same for the period of time you selected when you purchased the insurance.

Permanent or Cash Value Life Insurance

Permanent life insurance is basically combining a term policy with a forced savings plan to help you build a nest egg or emergency savings you can use if necessary.  Some people use the savings to eventually pay their monthly insurance premiums [as suggested in the letter I received].  The important thing to keep in mind is permanent insurance is a lot more expensive than term life insurance.  According to Bach, permanent insurance can cost as much as 5 or 10 times as much as term insurance.

There are different types of permanent insurance important to mention.  Here is a quick run-down:

• Whole Life:  It’s much more expensive than term and your savings is placed in a money market account that seldom earns no more than 4-5 % per year (according to Bach).
• Universal Life:  Same as above, but the insurance company invests your premium for you typically promising great returns.
• Variable Universal Life:  You control how you invest your savings portion of your premium with different funds that are offered.

Which life insurance is right for you?

Bach says you should consider term insurance if you’re not buying life insurance as an investment and says in most cases this isn’t what you should be doing.  He also gives some good tips on when you should consider a permanent or cash value policy:

• You want to build cash value for retirement
• You have at least 15 years to invest in the policy
• You earn a high income (at least $100,000 per year)
• You are already maxing out contributions to a qualified retirement plan
• You understand the risks associated with mutual funds

Dave Ramsey also has an opinion in his The Money Answer Book on choosing between the two types of life insurance. 

I would buy term insurance  (10 times your income if you have a child).  The savings portion of a whole life policy is a total rip off.  The interest paid on it only amounts to 2-3 percent. 

There are a few other reasons why Dave prefers term life insurance which I found on his new Dave Ramsey Answers iPhone app. 

The big problem is that, when you die, with the savings insurance, they keep your money.  They will give your beneficiary the check for the face value and keep the savings for themselves.  Cash value is the biggest middle-class ripoff with the exception of maybe the car lease and the credit card.  You could put your money in a fruit jar and it would do better than this insurance!

Yes, Dave does have a way with words, doesn’t he?.  Essentially, Dave is recommending people buy the inexpensive term insurance and invest the difference somewhere else to where you have more investment options and can potentially get greater returns.  One of Bach’s recommendations is also important here.  He states you should max out contributions to a qualified retirement plan first.  In other words, don’t let your life insurance fund your retirement.

Will we switch from term to permanent life insurance?

Overall, I don’t think permanent life insurance is a fit for our family primarily for the reasons provided by Dave Ramsey.  Also, I couldn’t imagine my premiums increasing by as much as 5-10 times as Bach states.  There just isn’t any room in my budget for that type of increase.  But, if there was, I would prefer investing in some mutual funds in which my family could fully inherit upon me passing away.

So, what about you?  Would you switch to permanent life insurance?  Do you have permanent life insurance today?  If so, what were the reasons you felt this was the best choice for you?

I suppose irregular income is probably most common in sales oriented or commission based positions, personally owned businesses and seasonal type work.  For many such jobs the income each month varies by how well the business is doing or the time of year.  This is common for real estate sales professionals.

Budgeting with Fixed and Variable Income

Let’s first take a look at a situation in which there is both fixed and variable income.  If you have both fixed and variable income you’ll want to try your best to arrange your budget around the fixed portion because it’s predictable and easy to plan spending. 

Ideally, when the variable income income arrives, it can be used for purposes other than meeting the monthly expenses.  Since all or most of the expenses are hopefully covered with the fixed income, the variable portion can be used for helping you excel in other areas of personal finance.  These areas may include meeting financial goals such as emergency savings, debt reduction or even short – term savings for vacations.  Or, in building a cash reserve (mentioned below).

Certainly, if there is money left over after expenses from the fixed income it can and should be used for these areas too.

Budgeting with Variable Income Only

1.  Relax and prioritize your spending

Relax your spending and expenses as much as possible.  Commission only jobs are some of the most lucrative, but not typically in the beginning.  Your commission will be based on your hard work, networking and learning your product.  Until this time, keep your expenses low! 

Also, it’s important to make a list of your most important expenses as well as estimate your expenses.  If you have a low month and don’t have the cash reserves you’ll need to pay what’s most important first.

2.  Estimate your income

If you’re dependent upon variable income only you’ll want to first do some estimating based on the average of this income.  To budget variable income take your last 12 paychecks (or the best history you can get) and average them to get a starting point.

But, what if you don’t have 12 months of history because you’re starting a new job?  If you don’t have a lot of earnings history talk to people who do.  You might speak to your boss or others in the field and ask them what is reasonable or expected for the first year of your commission only job. 

3.  Refine with conservative estimates

So, now that you know the average or about how much you’ll make you can decide if you want to be a little more conservative with your estimate.  You might consider taking the average and reducing it a little further just to be on the safe side.  Take a look at dropping the number to 10% and see if you can still meet expenses and have money for giving and saving purposes.  If so, you’ll appreciate being on the conservative side when your paycheck is lower certain months.

4.  Create a reserve account

You need a reserve or short-term savings account to draw on to cover expenses for months when your paycheck is less than estimated (perhaps it’s a seasonal sales reason).  Ideally, you’ll want to save up one month’s income to cover such times.  Try using bonuses, tax refunds or extra money to quickly save up your reserve account.

5.  Refine your budget

Once you’ve been moving along for a few months you can determine if changes need to be made.  As with any budget, you need to monitor your spending and determine if you need to cut back in certain areas.  Or, perhaps you have to work a little harder to increase your variable income!

What do you think about these tips for budgeting when variable income is involved?

Of course, the news is telling you about the big issues, but what about the regular family out there that trusts all their retirement savings to someone who isn’t handling things in their best interest.  A Market Watch article identifies 7 mistakes people make when hiring an adviser.  Have you made any of these mistakes?

Interviewing just one candidate

No background or reference check

Focusing the search on cost or payment style

Expecting credentials and designations to make an adviser good

Setting expectations and viewing results based entirely on returns

Letting the adviser control everything

Hiring friends and relatives

Here are some thoughts about each mistake:

1. I think hiring an advisor can be intimidating for a lot of people.  Don’t just hire the first person you interview because you assume they are an expert.  I always recommend talking to at least three different people.
2. I never thought about doing a background check, but if you think about it, this adviser will be managing your retirement, children’s college savings and other investment matters.  You wouldn’t want to trust that responsiblity to just anyone.
3. Cost shouldn’t be the lone factor when making a decision.  I suppose the old saying – you pay for what you get probably holds true here.  I thought the advice from the article to find a reasonable balance of costs and services was good.  You shouldn’t be paying a lot of costs if you’re adviser is only helping you pick a few mutual funds.  Also, be careful not to choose your adviser based on your overall desire to avoid paying commissions.  Perhaps the commissions are worth it for some people who don’t have the time to invest on their own.
4. A great tip is to hire a person and not the credential.  Think about it related to finding the right doctor.  There are a lot of qualified physicians, but they may not be right for you.  Get to know the person, their story and approach for working with you.
5. Once you’ve found the right adviser, stick with the person through the long-run and don’t bail when the market doesn’t perform one year.
6. The worst thing you could do is let your adviser control everything.  It’s your responsiblity to manage money well.  Your adviser is just another trusted resource on your team.
7. Doing business with a friend or family member spells trouble for one big reason: You let your guard down.  That’s pretty good advice from the article.  I think it’s hard to mix friendship and financial management together because there is another added layer of emotion that may not be good for the friendship or your finances.  Still, some people make it work, but be cautious on this one. 

So, what are your thoughts on avoiding these mistakes when hiring a financial adviser?  Do you agree with the advice?

I picked up on three things Mr. Arends mentions in the video:

1.  Don’t be shocked when the unexpected occurs. As in soccer upsets and shocker moments, there will be such moments in the stock market and even in everyday finance.  Don’t let these moments rattle you.  Rather, continue sticking to your plan and also do what you can in preparing to withstand such shocks.  So, if the market takes a dive, diversification and staying calm will help you.

2.  Speaking of diversification, the World Cup is the one sport that gets us thinking outside of the US.  Every portfolio needs to have an international component which simply helps in further diversifying and helping withstand US economic impacts.

3.  The least interesting tip was around the rules of the game.  You can’t always depend on the referees to come through for you, but neither can you depend on the SEC to do everything (so says Brett) on the regulation front.  I suppose even the SEC isn’t a perfect organization either since the recent economic problems saw large financial organizations with questionable practices.

Overall, the idea of gleaming tips from a sporting event such as the World Cup is a great idea.  What other ways can the  World Cup help people on the personal finance front?

For those with multiple paychecks, you have to decide which bills get paid with the 1^st paycheck, 2^nd paycheck, etc. This is a common situation for family’s with multiple incomes or for someone who gets more than one paycheck from their job. It’s especially challenging to get started if the finances are disorganized, or if you’ve gotten behind on paying bills which requires paying double (and sometimes more) to get caught up.    But, don’t worry.  You can get things in proper shape with just a few simple steps. 

Steps to allocate your income

The best way to allocate your income is to use a spreadsheet or pencil and paper. Take a look at this income allocation spreadsheet example from Crown Financial Ministries.     

1. List out your bills in the first column. Examples may include the monthly mortgage, electricity, car payment, etc.
2. You won’t see this in the example, but create another column to identify the due date for each bill. You may have to look at statements you’ve received in the mail, or go online to determine the due dates if you don’t know them off-hand. This information is very important, so definitely pick up the phone and call customer service if necessary.
3. In the remaining columns identify which paycheck you‘re going to use to cover each bill . As an example, you could pay your car payment using the second paycheck each month and your mortgage with the first.

Don’t Forget Other Expenses

Determining which paycheck to allocate for bills isn’t as easy as guessing. You have to keep in mind all expenses (not just regular reoccurring bills).    So, make sure you include all your major expenses in the list as well and assign them a paycheck. 

Food is a good example. Let’s say your food budget is $400 per month. You could spend $200 a paycheck on food, or you could set aside $400 out of your first paycheck to fund your food needs for the entire month. In either case, you need to make sure you have enough money to pay regular reoccurring bills too.    You don’t want to be short on money and waiting frantically until the next paycheck arrives. 

Once you have a good understanding of all your expenses, your bill amounts and their due dates, you can determine which income source to use and feel confident you’ll have enough money in your checking account.     

I’ll note as you travel out on The Crown Money Map you’ll find that destination 5 tells you to begin investing wisely.  Investing in dividend paying stocks can be yet another way to build wealth.  However, if you choose to invest in indivdual stocks you need to commit the time and effort to thoroughly research your potential investments.  Overall, individual stock investing is more risky than mutual fund investing.  Zach does mention dividend paying mutual funds in this post which you’ll definitely want to consider if you’re at the investing stage of your journey.

It is not easy to work for a paycheck. Even for those that own their own business, the hours spent ensuring that everything is working perfectly can be challenging. However, income investing can be the solution for many.

Income investing is the ultimate source of passive income. You invest time or money upfront to create or buy something that will yield dividends for life. The best examples are stocks that pay dividends. Dividend paying stocks free up your life as they pay you an income in the form of a dividend payout. If the company is strong, the value of your initial investment increases.

You have to be careful to pick the best stocks that pay dividends. The best results come from companies that have a strong balance sheet. Find companies that have a low debt ratio. You do not want a company that pays dividends from debt.

Be wary of companies that pay more dividends than they earn. They may be paying dividends from debt or their assets. Such a situation may not last for long and they may end up cutting their dividends to stay afloat.

Canadian dividend stocks make excellent income investing vehicles. One of their major advantages is that they provide tax advantages for the investors. Thanks to the Canadian dividend tax credit, some low-income earners do not pay tax on Canadian stock dividends. In the long run, you may be better off investing in tax free investments than government bonds.

Look for Canadian stocks that have a good history of paying dividends. Most Canadian stocks that pay dividends pay between 2% and 6%. While higher dividend rates may sound good on paper, they represent a higher risk. If you are a conservative income investor and planning for the long term, choose lower yielding stocks as they are likely to pay off.

Key items to focus in on are the dividend growth rate and payout ratio. When a company reduces its dividend it indicates that growth for that stock is slowing or expected to slow down in the future. It also reduces the yield, which is ultimately why we wanted to buy that stock in the first place. Look for dividend stocks that have a dividend growth rate of 5% or higher.

The payout ratio is important because it measure the percentage of net income paid out as a dividend. If a company has a payout ratio of 100% then they are paying all of the income out to shareholders. In rare cases that is being done on purpose, but in general we want to find stocks with a payout ratio under 60%.

Most of us do not have enough capital to invest to live on . However, it is important to make a start. One of the ways to do this is to use ETF’s such as he iShares Canadian Dividend Index Fund. This allows you to make small investments in dividend yielding stocks with the little funds you have.

Dividend reinvestment plans or DRIP’s are another great way to build your income-investing portfolio. In this case, instead of receiving your dividend payment, companies allow you to buy more stock. You can also invest in dividend mutual funds. These will invest in dividend yielding Canadian stocks and pay regular dividends.

The goal of income investing is to reduce your reliance on working for a living. It may be difficult to build a Canadian dividend stocks portfolio but the rewards mean more time for your family.

Lack of a Match

With the recent economic down turn, many companies ended the company matching contribution. For some people this meant a loss of income up to $16,500 annually. That stinks. So did people stop contributing? Surprisingly they haven’t. Studies have shown that this had little effect on whether people continued to contribute. But should it have? I say likely yes. Here’s why…

Limited and Expensive Funds

The vast majority of 401Ks have a limited amount of funds to invest in. This is because 401Ks are typically managed by one investment firm. For instance, if Fidelity manages your 401K, then you will get to choose from around 5-10 Fidelity mutual funds for your portion of the portfolio invested in stocks. Some Fidelity funds are great. But wouldn’t you rather have a choice of funds from Fidelity, Vanguard, Schwab, T Row Price, and other investment firms? Sure you would. The more options you have, the more likely it is that you will find a low cost fund to meet your needs. Review your company’s 401K expenses with BrightScope.com.

It May Not Be the Best Tax-Advantaged Account for You

Another reason to consider moving away from the 401K is because the Roth IRA exists. The Roth IRA and the 401K have exactly the opposite tax treatment. A Roth IRA uses after-tax dollars to fund the account, while the earnings grow tax free. When you do a qualified Roth IRA withdrawal, you don’t have to pay any taxes. This makes the Roth IRA a great product for young people, who will likely be in a higher tax bracket when they retire. Also, a Roth is also not tied to your employer, and can be opened at any mutual fund company, online stock broker, or even at a bank. Thus, your choice of funds and other investment products greatly increases just by using a Roth IRA.

To sum all of this up, if you have a company match with your 401K, at least contribute enough to get the full match. If, however, you are young, have limited choice with your 401K, and you don’t get a match, then strongly consider starting your retirement investing with a Roth IRA. Once you reach your annual maximum of $5,000, then go back and start putting money into the 401K. And who knows, maybe by then the match will return.

This post was provided by PT of ptmoney.com.

However, there is one type of inheritance that I am looking forward to!

1 Peter 1:3-6 says:

Blessed be the God and Father of our Lord Jesus Christ, who according to His abundant mercy has begotten us again to a living hope through the resurrection of Jesus Christ from the dead, to an inheritance incorruptible and undefiled and that does not fade away, reserved in heaven for you, 5 who are kept by the power of God through faith for salvation ready to be revealed in the last time.

I’m sure we’ve all seen stories growing up of a family member who inherited a great fortune out of the blue from a rich uncle or cousin they barely knew.  I’ve seen various stories based on that idea and I’ll admit, I’ve often day dreamed of what it would be like to one day receive such a notification of a fortune just waiting for me.

Well, according to 1 Peter, I do have an inheritance waiting for me!  It isn’t coming from some rich distant cousin that I never knew, but it is stored up by my Heavenly Father!  How awesome is that!

There will be no need for a lawyer to execute the will.  It has already been established.  There will be no jealous family members to contend with, because everyone that is part this family will receive their share.  I won’t have to worry about someone taking it away from me.  It has been divinely assigned to me!

This heavenly inheritance is incorruptible

Nothing can destroy it nor harm it!

Just the same, we will be incorruptible:

For the trumpet will sound, and the dead will be raised incorruptible, and we shall be changed. -Cor. 15:52

The heavenly inheritance is undefiled

It can’t be tainted!  Heaven is a place that is free from sin and we won’t have to deal with the troubles of this life that may follow earthly inheritances.

The heavenly inheritance will not fade away

The glory of heaven will not diminish over time.  Earthly possessions will eventually erode, decay, or somehow lose their value.  As time passes so does the risk of loss value.  This is not so with our heavenly inheritance.  It is eternal.

It is reserved specifically for YOU (and me)

There will be no fighting over this inheritance.  This inheritance is waiting for those “who are kept by the power of God through faith for salvation”.  There is a “piece” of heaven carved out for you:

My Father’s house are many mansions; if it were not so, I would have told you. I go to prepare a place for you.  And if I go and prepare a place for you, I will come again and receive you to Myself; that where I am, there you may be also. John 14:2-3

For our citizenship is in heaven, from which we also eagerly wait for the Savior, the Lord Jesus Christ, who will transform our lowly body that it may be conformed to His glorious body, according to the working by which He is able even to subdue all things to Himself.  Phil. 3:20-21

While an earthly inheritance is nice.  I am content that there is a greater inheritance waiting for me!

Lakita Humber Lakita is an IT Systems Administrator by profession with a passion for the things of God, worship arts, and financial stewardship. She started Personal Finance Journey as a way to help and encourage those on the road to financial freedom. She has been blessed with the opportunity to minister throughout the U.S. and Internationally as a workshop speaker and presenter. Connect with Lakita on Twitter & Facebook.

Tip 1- Know which records to keep.

Before you can streamline your record keeping, you must first know what documents you will need when you file your 2010 tax return. With so many changes to tax laws, this can become a confusing yet not impossible task.  The following documents should be kept for use when you file your next tax return.

• Proof of income – The IRS wants to know exactly how much money you make each year, therefore it stands to reason that you want to keep records on all earnings.  This includes payroll records, 1099s, investment records, spousal support and any other taxable income.
• Deductions - There are certain expenses that can help you lower your tax liability which reduces the amount of taxes you are responsible for paying.  These deductions are important in that they either lower what you will owe the IRS if you have a tax bill or increase the amount of money you will receive back in the form of a tax return.  Common deductions include but are not limited to charitable donations, interest paid on your mortgage, tuition expenses, business expenses (for the self-employed), child care expenses and spousal or child support payments.  Keep any receipts that may be used to support a tax deduction.

Tip 2- Keep important documents organized.

While it is important to keep all of these documents, it is also recommended you do so in an orderly fashion.  Whether you intend on filing your tax return on your own or if you hire a tax professional, having your records organized will expedite the process and save time for everyone involved. Keeping and organizing physical records is necessary in the event you find yourself facing an audit after filing your tax return. You may also decide to keep electronic records by using spreadsheets or software that helps you organize your records. Here is how you can get started.

• Establish one place where you will keep all of your physical documentation. This can be accomplished with a very basic filing system. Label your main folder Tax Documents 2010.
• Make a checklist that includes all of the documents that you will need when you file your tax return, this way you will know which documents you need to keep.
• Create a separate file for each of the following: income and earnings, interest statements or other documentation from your bank or financial institution, personal expenses or deductions, business expenses and deductions, and any receipts or documentation that may be used to support tax credits.

These are the very basic files you would need to organize your taxes. The more complicated your situation in regards to taxes, the more files you may have to add to track and organize necessary documentation.

When the time comes to file your income tax return you will have all of the necessary documentation to either complete your return on your own or hand it over to a tax professional. Once your tax return is filed, take all the information you have saved throughout the year and place it inside one large envelope to be saved for future reference. Organizing your tax records as you go is the easiest way to avoid losing documentation that could cost you money in the long run.

This article is provided by Back Taxes Help LLC, a company designed to help you with various IRS tax problems. For self-help tax information or tax professional help, please visit BackTaxesHelp.com