TIPS: Managing Your Personal Finances

Tip of the Month

January 2007

TIPS: Managing Your Personal Finances

Many of us - regardless of how much we earn - struggle to make our money go further or to boost retirement savings, fund a new business venture, or buy that dream house. Here are some tips and ideas from leading financial planners to help you get the most from your money.

Pay yourself first, and that doesn't mean extra spending money for a shopping spree. If you're like the majority of working people in the U.S., you probably tend to spend as much as you get. If the habit of saving is tough, take your will power (or lack of it) out of the equation, and enroll in automatic investing plans through your bank or financial services institution. Just instruct the financial services firm to automatically shift funds every month into the investments you've chosen. Aim to sock away 10 percent of your income in a retirement account - if that is a dizzying amount - start at a lower percentage and work your way up.

Make full use of all tax breaks - including tax-sheltered savings plans. Consult your tax professional for advice, and don't procrastinate. Your tax advisor needs sufficient time to do the best job possible well ahead of filing deadlines.

Each month put money aside in 529 plans to fund your kids' education expenses. Aim to save at least $75 monthly for each child 12 and under. If your kids are older, adjust the monthly sum accordingly.

If you don't have an emergency fund you can tap into without incurring early withdrawal or tax penalties, start one now. Both your financial advisor and tax consultant can help you identify the right vehicle. Figure on having at least 6 months of expenses accessible to cover essentials (mortgage/rent, utilities, food, transportation, etc.) on hand.

Can you boost your income? Perhaps you can put your hard-earned expertise to work and take a consulting project. Can you turn a hobby into a second source of revenue?

Look at your investment strategy. Is it time to get professional advice to re-balance your investment portfolio to maximize your chances for high returns?

Track your spending. If you really don't know where your money is going, take a careful look at the year-end statements from your credit and debit cards and review your checkbook registry.

Determine where you can make spending cuts. Once you've seen which optional big-ticket items top the list, determine which you are willing to reduce or drop. If you are married or combine your income and expenses with a family member or partner, you must agree on a mutually acceptable definition of "optional." One person's idea of a "must have" may be someone else's idea of frivolous outlay. Without a consensus on this, little or nothing will change.

Draft a realistic budget. A spending plan and measurable goals are crucial to success. It is often helpful to set aside cash each week for specific spending categories (e.g. restaurant meals or movies etc.) and to commit to using only the cash allotment. This strategy forces you to plan your spending, and demonstrate restraint at the start of the week.

Schedule automatic payments to avoid late fees on credit card payments. Late fees have spiraled while the grace period for payments has shrunk - in some instances to a mere 20 days.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.