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The Importance of Having a Check Register

For today’s entry, I want to write about the importance of having a check register.  In the days before computers, people would record transactions using the check register that comes with their checkbook.  This would include checks written, deposits, and withdraws.  Once the bank statement comes at the end of the month, balancing the checkbook would mean reconciling the bank statement to your own check register.  I remember when I was a kid, my dad would have me tick and tie the checks written and cleared on the bank statement to the check register.  I’m not sure why he wanted me to do it but it helped me lay the groundwork for my own finances.

Today, with multiple bank accounts, credit card accounts, and electronic payments the task to reconcile becomes more complicated.  Fortunately, multiple personal finance software is available to simplify this important process.  Below are the reasons why it is important to have your own check register as opposed to relying solely on logging into your bank account to check your balance.

1). Run the risk of overdraft fees: For those that write checks, recording a payment on your check register already treats the money as gone out.  This is important because outstanding checks won’t be reflected in the bank.  If you base your budget on the bank balance, you are in danger of assuming you have more or less money than you actually have.  Plus, it’s never a good feeling when you find out months later that a check that was written was cashed.  Even worse, you could run the risk of overdraft fees.

2). Helps monitor fraud: When you reconcile your check register to your bank statements you are actively monitoring the accuracy of the transactions in your bank statement.  If you find a fraudulent transaction that was not recorded in your check register, you have a greater chance of discovering why there is a variance and thereby take steps to address the issue promptly instead of discovering it months later.

3). Helps keep your budget in sync: The numbers you have in your budget are only as good as the information you put into it.  By making a practice of reconciling your bank balance to your check register, you ensure you have the most accurate and best data possible to work with.

With developments in technology, reconciling becomes much easier and quicker.  You can even do a reconciliation on your phone with certain apps.  In terms of frequency, I would suggest reconciling once a week.  This is what I normally do myself.  This way, it helps reduce the amount of work at the end of the month; this might encourage some who already have a tough time with their personal finances to continue this important practice.  For those that do it every day, more power to you 🙂     

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Living below your means

In an age of selfies, like buttons, and Facebook-worthy highlights the desire to keep up with the Joneses has never been worse.  Social media has made us more connected and disconnected at the same time.  Seeing someone’s latest vacation trip, expensive purchase, or relational highlight doesn’t reflect true reality.  Life isn’t always photoshopped and made to look perfect.  This false sense of reality can create inadequacy, insecurity, and shame.  I find that if I’m on social media for a long period of time, I start to feel that I’m the only one struggling through life and if I am, there’s something wrong with me.

This can lead to increased spending to prove to the world that I’m somebody and that I matter.  I feel I have to buy certain brand names, eat at the trendiest places, or listen to the trendiest music to fit in.  Life is more than how many followers we have, how hot we look in our selfies, and how rich we appear.  There is beauty in the broken, in the ordinary, and in the simple; this can apply to our personal finances.

The concept of living below your means is one of the most important concepts in personal finance.  Spend less than you make – seems pretty self-explanatory but actually living that out can be challenging.  The only way to know if we spend more than we make is by developing more awareness.  More awareness comes from having a budget.  According to a 2013 Gallup poll, only one in three Americans prepares a detailed household budget.  This is a very eye-opening statistic because it shows most of us in America lack financial awareness.  Here are a few reasons why I think people should keep a budget:

1). Increased awareness: If you are aware of why you are spending more than you make, you can then take steps to address the problem.

2). Creates purpose in your finances: In my other post about budgeting, I mentioned that a budget is like a road map to get where you want to go.  When you connect your budget to your goals and to your overall values, this transforms budgeting for the sake of budgeting to a means to accomplish your goals and live out your values.

3). Brings stability: Once you spend less than you make and are moving toward your financial goals, it brings a greater sense of stability and peace over your finances which is priceless.

Once you are able to live below your means, you are creating more awareness of your spending habits, providing a plan to accomplish your goals, and bringing stability to your life.  Gradually, keeping up with the Joneses doesn’t sound so enticing because you know what you are living for.

 

Let’s talk about debt

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Today, I’ll be writing about debt.  There are two major schools of thought about debt, on one side is the view that debt should be avoided like the plague, on the other side is the view that debt can be good in some circumstances and can be used as leverage to build wealth.  As for me, I tend to lean more toward the view of avoiding debt with some caveats.

Here are my reasons for avoiding debt:

1). Increased stress – Having the feeling of owing somebody money is never a good feeling.  There’s the stress of interest penalties on your credit card bill if you don’t pay the entire balance.  There’s also the calls from creditors asking about payments.  Stress can wreak havoc on you physically and mentally.  Here’s a link to an article from WebMD on the effects of stress on the body.  Life is already stressful as it is with appointments, family, relationships, paying bills, and work; why need that additional stress of debt?

2). Puts a delay on reaching your financial goals – If your goal is to save for retirement, a vacation, or a down payment for a house, having to pay off debt means putting less money to your goals.  It’s like trying to run up a hill with added weight on you; it slows you down and tires you out.

3). Negatively affect your credit score – If don’t make your payments on time or handle credit cards in a responsible way, it can do damage to your credit score.  This can limit the amount of money you can borrow as well as increase the interest rate on the loan.

 

While I do lean more toward the view of avoiding debt, I do have some caveats.

1). Using debt for education – I had to take on school loans when I went to college. I kept in my mind the reality that I had to pay off my loan after I graduate from college so I was careful not to borrow too much.  I also did some work-study jobs in school and worked at a movie theater one summer during college.  Getting a bachelor’s degree did open doors for me to land a job so it was a good investment.

2). Using debt for a house – For many people, paying for a house in cash simply isn’t possible; especially if you live in a metropolitan area like me in Los Angeles.  However,  finding a mortgage that fits your income range as well as paying off your other debts before purchasing a house are important factors.  Renting is a very viable option until you are financially ready to purchase a house.

3). Credit cards can be good – Some offer rewards points that can be used to purchase items or gift cards, some offer cash back, and most offer insurance protection on purchases as well as a free credit score; it’s also useful to build credit if used responsibly.   If your finances are in order and you can pay the entire balance each month, credit cards can be helpful.  However, if you are deep in debt and aren’t in control of your finances, credit cards can push you further in debt and make your finances even more out of control.  Please handle with care and be honest with yourself if you can really handle credit cards responsibly.

 

 

My experience with a financial advisor

In this post, I want to share my experience in working with a financial advisor.  As a disclaimer, I’m in no way generalizing that all financial advisors are like this, I simply want to share my own personal experience.

I was early in my career in private accounting and never thought about seeking out a financial advisor to help me with my finances.  All I knew was to take advantage of my company match on my 401k and to focus on paying off my car loan and student loans.  In the church I used to attend, I was helping as a high school counselor for the youth group when a fellow counselor asked if I would be interested in seeking help with a financial advisor.  He recently became one and offered to look at my finances.  I knew him and his family well and he seemed like a trustworthy guy so I took him on the offer.  During the consultation, he recommended that I rollover my 401k plans from my prior employers to a traditional IRA (individual retirement account).  A year into working with him, he had to take a leave of absence as my financial advisor so someone else from the firm took over.

I was contacted by this new financial advisor and he wanted to meet with me in person to get to know me better.  We scheduled a meeting and I drove to meet him at his office.  He wanted to know what my goals were and my risk tolerance.  Based on what I shared, he recommended that I get a variable annuity plan because it offered a guaranteed return.  I liked the idea and signed up for it.  He then asked for names and numbers of my friends and family that would be willing to work with him; this is where I start to get uncomfortable.  He told me to give him a minimum of three names so that he can call them and see if they would be interested in working with a financial advisor.  I really didn’t want to give out those names and numbers but I didn’t have firm boundaries for myself back then so I complied and gave him the names and numbers of my family and friends.

A week later or so later, I got contacted by some friends and my brother asking who this person was that contacted them.  I felt terrible about it and told them they can ignore his request.  In the meantime, I started putting in money toward this variable annuity.  There was documentation for this variable annuity but I really couldn’t understand what it was saying.  I felt uncomfortable about this investment and contacted the financial advisor with more questions I had about it.  He gave me vague answers and it seemed like he didn’t quite understand it that well himself.  After a few months of putting in money to the variable annuity, I told him I want to cancel it.  As a result, I lost money in something I didn’t really understand and felt I was hustled.

Here are some takeaways to learn from my experience:

1).  If you plan on working with a financial advisor, ask them how they are being compensated.  Is it a commission?  Is it an upfront fee?

2). Ask your advisor if he or she is a fiduciary advisor.  Fiduciary means they are legally obligated to act in your best interests.  It would seem like this should be what all financial advisors should be but this is not the case.  They can also follow the suitability standard of conduct which means they can sell you a product if you qualify for it; not necessarily if it’s in your best interests.  There is a current debate going on in America over these two standards.  If you would like to read more about it, here’s a link.

3). Make sure your advisor is knowledgeable about the product he/she is recommending to you.  Your advisor should be able to answer the questions or concerns you have about the product.

4). Never ever feel pressured to give your advisor the contact information to your friends and family.  Contacts should be as a result of trust built over time, not as a result of high-pressure sales tactics.

5). When in doubt, walk away.  You will buy yourself time to do further research and come up with a decision that is more well-thought out and informed.

Even though I lost money because of working with this particular financial advisor, I’m glad I was able to cancel early on and learn from my mistakes.  To this day, I do not use a financial advisor but am open to working with one in the future now that I’m older and wiser.

 

Not If But When Part 2

On my last post, I wrote about the importance of savings.  In this post, I want to focus on the importance of having an emergency fund.  Some also call it a safety net or rainy day fund.  Regardless of what it is called, it is intended to be there in case a large unexpected circumstance happens.  So what would fit in this category?  Below are some suggestions:

  • Major car repairs
  • Job loss
  • Medical emergency
  • Home repairs

Life will throw curveballs at us; this is a given and highlights the importance of having an emergency fund available to be there to handle those curveballs.  Having an emergency is already a stressful situation but not having the funds to pay for it will exponentially increase that stress.  What would it feel like if you have funds ready for that emergency?  How much peace will you have in this emergency?  Isn’t that worth saving for?  Furthermore, having an emergency fund gives you options.  Say you lost your job or decided to quit your job, instead of finding the first job that comes your way out of desperation, you can be more thoughtful in choosing a job that is the right fit to your giftings and goals.

You might be thinking that you want to start an emergency fund now but how much should I save?  A good rule of thumb is to save enough to cover three to six months of your monthly expenses.  If you have trouble figuring out what your monthly expenses are, I suggest creating an account on Mint.com and input your credit card and checking accounts.  If you haven’t heard of Mint, it’s a website that helps track all your financial transactions all in one place.  As for security, this comes from their website, “We work to keep your information secure. All your data is encrypted with a 256-bit encryption level and the data exchanged with Mint is encrypted with 128-bit SSL.”  They are also owned by Intuit, the makers of TurboTax, Quicken, and Quickbooks.  In order to get a rough estimate of your average expenses, simply click on the “Budgets” tab.  You can see your monthly expenses or yearly expenses at a quick glance.  If you feel uncomfortable about giving information online here’s a suggestion for doing it manually:

  1. Write down your monthly recurring expenses
  2. Add in your variable expenses such as groceries, gas, entertainment, gifts, or dining out; this could be a rough average.
  3. Then add your fixed expenses and variable expenses and multiply it by 3 for three months or 6 for six months to get your emergency fund amount

Having an emergency fund as a goal in mind and having a specific number you want to save for will help focus what you are saving for instead of an ambiguous idea.  As Tony Robbins says, “Setting goals is the first step in turning the invisible into the visible.”

Not If But When Part 1

According to a report done by Bankrate, 66 million Americans have zero dollars saved for an emergency expense and only 28% of Americans have 6 month’s worth of savings.  Below are some of the common excuses people give for not saving:

I don’t have enough money to save, I’m living paycheck to paycheck.

  • While that may be a valid excuse, the truth for the majority of us is that we can reduce our expenses if we really looked hard enough at what we spend.  This could be eating out less and cooking more, it could mean cutting subscriptions for cable tv, Netflix, or other streaming subscriptions, or it could mean cutting down on impulse buys on items that are wants rather than needs.

I don’t think an emergency will happen to me, it’s never happened before.

  • That can be a very dangerous assumption to believe in.  Unexpected things will happen because as long as we are here on this earth, unexpected expenses will occur.  Rather than being caught by surprise when it does happen and digging yourself into debt, the prudent choice is to anticipate and prepare for them by saving.

I’ll get around to it.

  • Vaguely stating wanting to save and actually being intentional are vastly different.  If I get around to saving at the end of the month when I’ve spent all my money, there is no money left for savings.  The key is to pay yourself first by allocating a portion of your paycheck to savings and being consistent.  Over time, you will adjust to having less money to spend because you already know a set amount will be taken out.  A lot of banks offer automatic transfers each month.  You can make sure the transfers coincide with your payday so that you have one less thing to worry about.

The bottom line is we need to save more.  Not only will saving more reduce stress, it provides more options and freedom.  The best time to start is now.

Taking Ownership

Have you ever noticed that we tend to treat things differently when we know that it is ours as opposed to someone else’s?  For example, if you were to stay in a hotel suite would there be an incentive to make your bed or to tidy up the place?  What if you were to go to a restaurant, would there be any incentive to clear the table?  There is no need to do that because you know that someone else is paid to be responsible for making the bed and for clearing the table.

We tend to place special treatment over things that are our own.  Perhaps it is knowing that we own something, perhaps it holds a sentimental value, or maybe it is because you worked hard for it.  The challenge is learning to see our personal finances in the same light.

In recovery, people go to recovery groups for various reasons; maybe their significant other, close friend, pastor, or therapist told them they should go.  However, the ones that keep going and the ones that stay the course are the ones that decided for themselves that this is something they want to do; the same goes for personal finances.

We each have to decide on taking ownership of our own personal finances.  If we don’t, someone else will make the decisions for us.  This could be the advertising and marketing we see in media that makes us think we need to purchase a certain product, it could be relatives that want us to cosign for a loan, or it could be the IRS garnishing your wages to pay a tax debt that you owe.

The best time to start taking ownership is now.

Stewardship

According to dictionary.com, a steward is a person who acts as the surrogate of another or others, especially by managing property, financial affairs, an estate, etc.  As a Christian, viewing my finances as not my own is essential to my philosophy on personal finance.  The view is about seeing one’s finances as given by God and that he is entrusting the person to manage it well.  This means that not only are we responsible to ourselves and family about how we manage our money, we are ultimately responsible to God.  

The Bible gives this warning about money, “For the love of money is the root of all kinds of evil. And some people, craving money, have wandered from the true faith and pierced themselves with many sorrows.” 1 Timothy 6:10 (NLT).    Notice that money itself is not inherently evil, it is the love of money that is the root of all kinds of evil.  Money can be used to do incredible amounts of good but it can also do incredible amounts of evil; it all depends on the choice of the person.    

I know for myself, the lure of accumulating money and believing the safety and power it can provide can be very enticing.  I can see it as a security blanket or my identity.  At our most primal human nature, we are driven by fear.  Fear can lead us to find our security in things that won’t last.  I believe this is why the Bible verse above was written, for our protection and benefit if we heed the warning.   

One way to help curb the desire to love money is to give to others, whether it be to the local church, charities, or friends in need.  I include giving into my monthly budget so that it helps remind me that my money was provided to me from God and I want to use it to further his kingdom.  It is also a great feeling to know that the money is helping change lives.  Also, you don’t necessarily need to be wealthy to give.  You can give what you can according to your financial circumstance.

Some food for thought:

What would it look like if you started thinking of your money as not your own, that you are a steward of God’s money?  How would it change how you spend your money?  How would it change how you think about money?

 

 

 

Roadmap instead of prison

Today, I’ll be writing about the importance of having a budget.  Many of you reading this might start to glaze over because I said the “B” word.  Budgets have gotten a bad rap but I’m here to say that budgets are misunderstood.  People might see a budget as a kill-joy.  Why can’t I just spend my money on what I want when I want it?  Why do I need a budget to tell me what I can and cannot spend?  Or some have created a budget but get discouraged by going over budget in some categories and somehow think they failed.  I get it because I’ve been there and I’ve had those doubts.  In the past, I thought that having a budget felt like being in a prison; it felt so restricting and limiting and I wondered what’s the point?  Can’t I just check what my current balance is in my checking account and if I’m positive I’m good?

The notion of a budget feeling more like a prison shattered after I went to, of all places, my recovery group.  In the meeting, we shared the importance of having a personal recovery plan.  A personal recovery plan is a plan laid out for establishing proactive and protective boundaries and the consequences of a relapse.  One of the men who experienced a long period of sobriety shared that his personal recovery plan was the key to his sobriety.  He saw his recovery plan as a roadmap to stay sober and to get well.  That clicked with me in my recovery but also with budgeting.  What if we saw having a budget as a roadmap out of debt or a road map out of living paycheck to paycheck?  That shift in paradigm might be a game changer for you questioning the importance of a budget; I know it did for me.

Having a budget is simply a financial plan to help accomplish what is truly important in your life pertaining to finances.  It helps you say no to purchases that provide momentary satisfaction so that you can say yes to moving closer to what is truly important.  Suddenly, the Starbucks purchase in the morning might not be as tempting because you’re saying yes to putting that money toward an emergency fund.  Maybe that deal online that sounds really tempting to get isn’t so tempting because you’re saving that money for paying off debt.

For those that started a budget but got discouraged, I say keep at it.  Budgets aren’t meant to be a crock pot where you set it and forget.  They are living and breathing plans that adapt to the situations of life.  If you run over budget in a category, don’t beat yourself over the head.  Be flexible and move money from one category that you have funds left over to the one that is overspent.  Going over budget is also an important learning tool that indicates either budget more in that category or reign in the spending for it.

Some food for thought: take some time to write down what are your financial priorities.   Also, what are some of your reasons for not creating a budget?  What would budgeting look like if you saw it more as a roadmap instead of a prison?

Sowing and Reaping

You can call this one of the laws of life, we reap what we sow.  If we sow eating junk food, we reap health problems.  If we sow a life devoid of physical activity, we reap an unhealthy body.  If we sow careless and wasteful spending, we reap a life of debt.  All of us have experienced the consequences of sowing bad choices.  I certainly have had my fair share of them.  I’ve made some hasty purchases where I felt I absolutely have to have a certain item only to have it gather dust or get stored away to be forgotten.  We also can be influenced by others because of what they have or own which makes us envious or feel like we need to have what they have without seriously considering our financial situation and what is sustainable.  In a society and age of instant gratification and trying to “one-up” each other, have we stopped to think of the consequences of such behavior?  Have we stopped to think about what we are reaping?  I feel like we are missing out on what life has to offer if we forget about delayed gratification.  This can be applied to all facets of life but for the purpose of this blog, I’m going to focus on personal finance.

Temptations for instant gratification are everywhere.  I receive numerous mail advertisements from credit card companies wanting me to sign up for more credit cards.  Some even offer to provide 0% interest on purchases for a year in hopes of getting people to sign up; not to mention the tons of credit card emails that get sent to my inbox.  Now, I’m not saying buying stuff in itself is a bad thing but how does the stuff I buy align with my financial goals and my values?  How do they align with yours? I’ll use the example of the holidays, this especially can be tough when spending is at an all-time high.  If there are no savings for the gifts, then most likely you would have to use your credit card to pay for the purchases.  Things get busy during the holidays and you forget to pay your credit card bill or you can’t pay the total balance.  If this happens, there will most likely be a late fee along with the interest rate penalty kicking it; which can be as high as 29.99% according to credit karma.  Your credit score could be affected.  If you continue to be delinquent, creditors will start calling.  Often times they can be very aggressive.  This will add more stress and anxiety than you already have.  It might take you a while to pay off the credit cards and then the cycle starts all over again for next year’s holiday.

I’ve cast a negative tone on sowing and reaping but the opposite effect can be true as well.  What if you started saving for the holidays starting in January?  What if you started setting aside money each month to fund a holiday fund?  You will set a healthy limit on what you can or cannot spend.  The worry and stress of the holiday gift buying frenzy will be less because you set aside the money for it.  You don’t have to worry about your credit score being affected negatively, you don’t have to worry about paying the late fee and interest rate penalty, and best of all you don’t have to worry about those pesky creditors calling you asking for your money.  It will be tough not being able to spend as much during the year because of putting money into the holiday fund (delayed gratification) but the peace of mind of having the funds there when the holidays come is priceless.  So what small steps can you start doing today to sow something more beneficial for your personal finances?