Tag Archives: discretionary income

Life 101 for the New Millennium: Demolish Your Debt

May 9, 2015Advice, Budgeting & Moneybudget, budgeting, credit, credit card, credit score, debt, debt consolidation, debt reduction, discretionary income, eviction, loan, minimum payment, money management, plan, repossession, student loanKurt Kirton

debt reduction, budgeting, interest — Photo by Erwin Zueger

Some people may not think about recent grads when it comes to debt. After all, how many recent students have a house, luxury vehicle, kids, etc. But those graduates who didn’t have the benefit of scholarships or parents who paid their way through college most likely had no other choice than student loans.

The faster you pay off the debt you owe—be it on a car, student loans, etc.—the better. Unless there’s a prepay penalty on the loan, you’ll save in interest when paying it off early. And student loans and/or credit card debt are a great place to start this practice.

First, make sure you have a budget. This way you can make sure you are covering your needs before your wants each month. Live within your means, spending what you have and saving up for anything that costs more than you have the money for. Then list out all your debts: the creditor, the total, the interest rate, and the minimum monthly payment.

The preparation above will help ensure (or identify if) you have some discretionary income to apply toward debt reduction (always pay against the principal when paying more than the minimum payment). You can also pick up additional work on the side, be it freelance or a part-time job in the hours around your full time job. For example, my friend Jason bartends two nights a week.

Pay off the debt with the highest interest first, then on down the list. Obviously, don’t take out mini loans from your bank, do Cash Advance type loans, or go on shopping sprees with your credit card. You don’t want to add to your debt when the goal is to be as debt-free as possible.

You may want to investigate consolidating all your debt into one lower interest loan. This strategy may help reduce the amount of interest you accumulate monthly, providing you more cash to use toward paying off the balance.*

If you have a month where for some reason you will not be able to make the full payment, contact that creditor. Creditors are used to working with their customers and would rather you be proactive in working out an alternate arrangement than get behind on payments. Further, you may have more options if you get in touch before that month’s deadline rather than waiting until the payment is overdue.

If you ever see you cannot make, for instance, your car payments, contact the lender to discuss options. It’s far better to do this than to allow repossession…or in the case of an apartment, eviction. Eviction has many consequences, and just running from the aftermath of that situation will not absolve them.

Though having your debts paid off may seem like an ideal but distant goal, don’t give up. Chip away at that debt. Getting it off your plate can reduce stress, save you money, establish good money management habits, and help raise your credit score.

*“How to Pay Off Debt: Six Steps to Success,” 2014 Regions Bank article

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MOOLAH MONDAYS: 3 Ways You Should be Saving to Maximize Interest Earned

January 8, 2015Budgeting & Moneybudget, cash, discretionary income, Franklin Templeton, ING, Ivy Fund, money management, overdrawn, savings, savings account, spendingKurt Kirton

savings accounts investments — Photo by 401(K) 2012 at Flickr Creative Commons

Having some money in savings can be a great way to reduce stress, especially if you are self-employed. A cushion of a few thousand dollars to draw from when you need it can be a lifesaver in the months where you don’t quite make enough to cover your expenses. And it’s always good to have some money set back for emergencies or unforeseen expenses.

Consider different tools for your short, mid, or long term savings to maximize interest earned. Here’s an example of each type of savings and suggested funds.

Short Term – This is money you’ll need in several months, but not so quickly that you’d want to store it in your checking account. Examples: That vacation you’ll take in a few months, new furniture you need, or your upcoming move across town. Access to this money is pretty easy, but the interest earned is low.

I only keep a savings account as a small backup to my checking account. Something like a CapitalOne 360 (formerly ING) Orange account will usually have a higher interest rate than a traditional Savings Account (around .02% last I checked). The Orange account interfaces with your checking account for easy withdrawals/transfers.

Mid Term – This savings is more for things you’ll need the money for in a year or so–like renovating your kitchen or a project you’re eventually launching. You should also store your emergency funds in this type account. This fund may involve jumping though a few hoops to get the money out but with no penalties. It may also have withdrawal minimums or stipulations. Interest is higher than with the short term type savings account discussed earlier.

I recommend a Franklin Templeton Income Fund (class C) in conjunction with a Money Fund. The Money Fund is the one through which you can withdraw money from the Income Fund when needed.

Long Term – This is for money you should not touch until retirement. Early withdrawals will usually involve penalty fees. However, interest here is the highest of all 3. I like the Ivy Fund I have—managed well and it has a good interest rate and performance history.

Meet with (or even better secure the services of) a financial planner for more suggestions and account information. Note: Financial planners usually make money on a small portion of the interest generated by your accounts which the firm is managing, so there’s not a cost to you to use a financial planner.

Always check out your prospective financial planning firm before making investments. Contact the US Securities and Exchange commission (www.sec.gov) to ask about any complaints or legal infractions. Make sure the firms is a member of the SIPC. Get written or emailed confirmations of your transactions. And (if you’re not making deposits directly to the respective fund like I do and you’re doing it through your financial planner) make sure any deposits are made payable to your SIPC member brokerage firm, not to your account exec. (“How Safe Are Your Savings,” by Armond Budish, Family Circle, January 14, 2003.)

What investments have you had good results with?

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MOOLAH MONDAYS: Workin’ the System Part II

December 4, 2014Budgeting & Moneybudget, cash, checking account, credit card, discretionary income, money management, overdraft, overdrawn, paycheck, receipts, spending, want list, wantlistKurt Kirton

budget, money management
Using this system, at the end of every month, or after your last paycheck for the month, do what I call “Paying Yourself.”

1. Total up your paychecks in the “Pay” section of your Tracking Budget. This is how much you have to work with for the next month.
2. Anything you paid for with cash – Handle this by referencing your ATM receipts and subtracting your ATM cash withdrawals from the Tracking Budget and on your checkbook register. (I recommend writing how much cash is intended for what on ATM receipts).
3. Sort your mountain of receipts into groups by the sections of your Budget (eg. Gas, Food, Me; and ATM separately), sum and subtract the totals of what you spent in each category from your Tracking Budget. See #3 below about credit card purchases.
4. Anything you paid for with your credit card – Subtract it from the respective section (for example, subtract the total of all your grocery receipts from Food), and add each total up to the “Credit Card” section. Then, I get a master total of all my credit card receipt piles and add that total up to the “Credit Card” section. When the cc bill arrives, I pay it out of the “Credit Card” section.
5. Get a new total for each section on your Tracking Budget. This way, you can see where you might have gone over/have a negative balance in that section. An example cause of this would be the shortfall from that leather jacket you bought, or that from spending more money on gas than you thought you would last month.
6. Now that you’ve dealt with everything you spent, reference your Planning Budget, and allot the amounts there by writing them into the respective sections of your Tracking Budget adding money to each. (Make sure to subtract all of the Pay section from itself. For example, $1800 – $1800=0 since you are distributing the full amount into sections of your budget.)
7. Ideally, you will have made more than the total of your regular expenses. Before you have a party about your discretionary (leftover) income, use the leftover cash to absolve any of the negatives we talked about in #5.
8. Anything you’ve got left after your negatives are taken care of is your final discretionary income. You can save that, spend it, or some combination thereof. Fun, fun, fun! Log how you’re using this money into your Tracking Budget. Time for totals…
9. Total 1 – You’ll get this from balancing your checkbook.
10. Total 2 – Get a full total by adding up the sections of your Tracking Budget.
11. Total 3 – Your Checking Account Statement total
12. Write total 1 and 2 on your checking account statement so you can see 1) Checkbook Register total and 2) Tracking Budget total vs. 3) Checking Account Statement total. Honestly, my 3 totals rarely equal, but as long as my Tracking Budget total is equal to or greater than my Checking Account Statement total, I’m happy since I spend based on my Tracking Budget.
13. If the total from your Tracking Budget is more than your checking statement shows, be careful as you spend for the forthcoming month. For some reason your budget shows more than your bank says you have. You may have subtracted something from one section and not added back to another. (For example, I’m guilty of subtracting something from say my Vacation Fund and forgetting to add it up into the Credit Card section of my budget.) Try to get these 2 totals to always equal since you’ll ideally want to spend based on your Tracking Budget not your current checkbook register total or online account balance.

WRAP UP – After “paying yourself,” put your pile of processed receipts in a different drawer, box, bag, etc., and at the end of that tax year along with your tax return paperwork, box them up, label, and store them. I like to group my ATM receipts together with any old checkbook registers and bank statements.

HOW OFTEN? – If you’re disciplined with your money, you can pay yourself and process receipts at the end of each month–this is by far the easiest way to do it. If not, you’ll need to do receipt subtractions more often to avoid overspending. For example, if you subtract what you’re spending on yourself in the “Me/Spending” section every week, you’ll easily see when you’re running out of pocket money for that month and can adjust. (Slow down spending on the fun stuff!)

FRESH BUDGET SHEET – When your Tracking Budget starts to get full, get a current total for each section, and start a fresh one, putting the date in the top corner. File the old one in with your processed receipts.

I know this process sounds very involved and may seem confusing, so check out this nifty to see the monthly “Paying Yourself” process in action!

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