Establish and Manage Your Budget

Spending PlanWith regards to personal finance and your fiscal health, establishing a budget is a good place to start.

Before moving forward, I should note that I have recently started using the term ‘spending plan’ vice budget and I sometimes use them interchangeably as they refer to the same action.

However, for many, ‘budget’ has many negative connotations, representing constraints and speaks to what you will not, or cannot, do.

Conversely, a spending plan, is viewed more favorably, in a more positive light, as it speaks to what your values and goals are; and how money should flow in and out of the home.

A spending plan is an effective tool for controlling debt and serves as a financial guide. It lets you know if you are heading in the right direction and are on track to reach financial goals such as buying a home, sending a child to college, or preparing for retirement. In addition to being an effective financial guide, a budget allows you to measure your progress on a regular basis and implement changes as necessary.

The first step in establishing a spending plan is to track your expenses over a given time period; three to four months at a minimum. Doing so will reveal two critical pieces of information: your total expenses relative to your income and your current income allocation. With that information in hand, you are ready to gain control of your financial life.

Ideally, your income will exceed your expenses. If not, you should consider ways to generate more income and/or determine how you can reduce expenses. Once you have achieved a positive monthly status, you can look more closely at your current allocation.


Are you allocating enough money to areas such as savings or retirement accounts, and other vehicles that will help you reach your financial goals? If not, your spending plan will help identify the areas (e.g. entertainment, clothing, transportation) where you might be able to reduce expenses, making a shift to more desirable areas.

Integration of Strengths [TramueL]

As you might imagine, the budgeting process is not a once and done proposition; it is a very dynamic process that will change over time as your income changes, your debt is reduced, and numerous other factors. Therefore, you must be prepared to monitor your spending plan , and adjust as necessary, on a regular basis, continually looking for ways to reduce expenses and ensure that you are on track to reach your financial goals.

Microsoft offers numerous free Excel spreadsheets to assist with developing and maintaining a spending plan. My personal favorite, which offers a nice balance of detail and ease of use, is the Personal Budget Worksheet. Other budget spreadsheets, offering various levels of complexity and focal points (e.g. weddings, college, fundraising, etc.) can be found on the Microsoft Office page.

What tool(s) do you use to manage your budget?

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Looking for Change

Spent DocumentaryDocumentary: Spent: Looking for Change (2013). Sponsored by American Express and narrated by Tyler Perry, this short (39 minutes) documentary is a film about everyday Americans shut out of the finance system most of us take for granted.

Many of these Americans turn to pawn shops, check cashing services; and use payday and title loans to meet basic financial needs. Of course the practice is quite costly. It has been calculated that $89 billion a year goes to fees and interest for using these types of alternative financial services.

According to the Pew Charitable Trusts’ Safe Small-Dollar Loans Research Project, an estimated 12 million Americans take out payday loans each year. On average, these borrowers take out eight loans per year, averaging $375 each. The fees over the course of a typical two-week loan? They averaged $15 per $100 borrowed, amounting to a 391% annual percentage rate.

This film stresses that it is time for change. The idea is that new technology, new ideas and encouraging dialogue around this issue can help make managing money simple and more affordable.

The Unbanked: Offering Small Fees, Banks Cater to Low-Income Customers [NY Times]

In addition to sponsoring the film, American Express is also spearheading several initiatives to drive innovation in financial services to help improve the financial options available to those who are financially under-served.

Payday Loans

The film’s website,, encourages viewer to find out more and take action. Suggested actions include hosting a screening, supporting financial inclusion initiatives and advocating for veterans.

Hosting a screening provides an opportunity for family, friends and co-workers to view the movie together and then discuss the issue of access to the traditional finance system.

The Financial Inclusion Initiative will look for start-ups working on solutions such as: providing greater access to capital, developing new credit building models, enhancing personal financial management and promoting savings.

Like many young Americans, veterans receive inadequate support to deal with the new financial challenges that they face as they transition back to civilian life after service. This summer, American Express is working with The Association for Financial Counseling and Planning Education (AFCPE) to design a financial readiness program for transitioning service members, veterans, and their families.

Also available for viewing on the Spent Movie website and YouTube.

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I Don’t Plan to Retire


Control Your Destiny“I do not plan to retire.” As I have crept ever closer to my desired retirement age, 60, I have heard that phrase more often than I would have thought.

Numerous recent studies have shown that a majority of workers are planning to work past the age of 65, many are planning to work past age 70, and some have no plans to ever retire.

In writing the book, running this blog, talking with others (friends, family and co-workers), my experience has been that there are generally three reasons people give for not planning to retire (or working well past their mid-60s, traditionally a time when people retire). They are not sure what they would do in retirement, sincerely enjoy their work/career or are not financially prepared.

This post speaks to those that might fall into one of the first two categories. I should note that this topic was touched on tangentially in SavvyPoll Number Three and Thoughts on Retirement, a guest post by long-time reader Brian.

For those that are not sure what they would do in retirement, I would encourage you to start giving some thought to what you would do; and for those that enjoy working, I hope that is always the case.

However, to those in both groups, I would say the decision to work – or not work and in fact, retire – may not be up to you. Therefore, it is absolutely in your best interest to develop a retirement plan that not only considers the financial implications of being retired, but also what to ‘do’ on a daily basis.

Unexpected Early Retirement: Surprisingly Common [Nearly Retired]

Some sobering facts. The Retirement Confidence Survey from the Employee Benefit Research Institute (EBRI) notes that a large percentage of retirees leave the workforce earlier than planned (49 percent in 2014) and many who retire earlier than they had planned often do so for negative reasons, such as a health problem or disability (61 percent).

A 2011 study conducted by the Heldrich Center for Workforce Development at Rutgers University found that 35% workers over the age of 50 said they are not going to be able to work as long as they had expected.

Health Tops Reasons for Early Retirement [Life Health Pro]

Even if an individual is healthy well into their 60s and 70s, they may be the victim of layoffs, restructuring or downsizing. Other numbers from the study are equally sobering. Less than one in four workers (23%) over 50 years of age is working full-time; just under half (46%) expect to file for Social Security earlier than they wanted to; and another 18% already have done so.

The bottom line? Even if you love your job, are healthy and plan on working forever, the reality is that there are likely factors that will negatively impact your ability to do so. If your retirement plan is to work forever, I suggest you give the topic more thought. For everyone, a fully developed retirement plan is a must.

Are  you currently managing a well-developed retirement plan? Does your planning account for the fact that some things may be beyond your control?

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Living Frugally: Give Blood, Save Lives and Get Out of Debt

Donate BloodWhen someone asks me how they are supposed to get out of debt or get ahead financially, I give them several helpful tips including one that I think is underrated and often forgotten…Give Blood/Plasma.

I live about eight miles from a facility that pays around $25 every time I donate blood. Following the rules and regulations I can give blood twice a week without posing any danger to myself. (Side Note: It is very important not to give blood too often because you can do serious damage to your body and even die from it so please follow the guidelines of your blood donation center.)

Giving blood or plasma twice a week would yield $50/week to put towards getting out of debt or increasing assets. A maxed-out credit card with a $500 limit (+ interest) would be paid off in just over 9 weeks. A $50 weekly payment towards the principal of a car note would help pay off the vehicle sooner and help reduce total interest payments. Thinking of investing in stocks? Deposit that $50 into a brokerage account, like or, each week until you’ve accumulated the total amount you wish to invest. You’ve just purchased an asset without going into debt to do so.

FrugallyNot only does giving blood help you support a frugal lifestyle but you literally give the gift of life.

We are all familiar with the economic impact of a bread-winner dying. What if you gave blood, saved a bread-winner and therefore kept a family out of debt and above the poverty line? Imagine a child dying from loss of blood.

Not only is this emotionally traumatic, it affects work performance which then affects one’s wallet.

Giving blood not only saves physical lives but boosts the global economy as well. I challenge you to search for the blood donation centers near you. Ask if they offer payment for donations. Give blood/plasma, save lives & get out of debt!

What about you, SavvyReader? Have you ever giving blood/plasma as a way to help others and/or increase your income?

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Your Primary Residence is a Home, Not an Asset

HomeWhile there isn’t necessarily a great debate raging, there are strong opinions on both sides of the question, “is a home an asset or a liability?”

There are those that believe the home they live in should be considered an asset. However, there is a school of thought, popularized by Robert Kiyosaki (author of Rich Dad Poor Dad), that says a home, particularly one carrying a mortgage, is a liability.

Before we go any further, let’s look at Merriam-Webster’s definition of these two key words:

as·set [ˈa-ˌset also -sət] noun

  • A valuable person or thing
  • Something that is owned by a person, company, etc.

li·a·bil·i·ty [ˌlī-ə-ˈbi-lə-tē] noun

  • The state of being legally responsible for something
  • The state of being liable for something
  • Something (such as the payment of money) for which a person or business is legally responsible

Why Your House is an Investment, and an Asset, too [Monvator]

Looking at those two definitions, a case could be made for both. There is no doubt that many have sold their home at a great profit, supporting the idea that a house can be a valuable thing, an asset. On the other hand, when your home is carrying a mortgage, you are liable for the home and you are legally responsible for making payments. That would clearly make it a liability.

Something to consider. In the July 15 edition of Bottom Line Personal, a previous SavvyRecommendation, Diane Pearson (CFP, CDFA), notes, “Don’t be fooled by the recent real estate recovery – homes simply are not good investments. From 1890 through 2012, on average, home prices gained absolutely nothing in value after adjusting for inflation. Owning a home actually costs money – lots of it.”

I have adopted the belief that a home, a primary residence on which a mortgage is owed, is a liability and should not be viewed as an investment. I previously touched on this topic, at least tangentially, in a couple of other blog posts, The Value of my Retirement Portfolio and How Do You Stack Up.

5 Reasons Why I Don’t Know My Net Worth [Common Sense Millennial]

I noted that when considering preparation for retirement – the focus of this blog – I like to look strictly at portfolio value (aka financial wealth) – which excludes things like home and car values – which are traditionally included in net worth, which is determined by subtracting the total dollar amount of all liabilities from the total value of all assets.

Home as a LiabilityMy rationale? When you are ready to retire, who cares how much Kelly Blue Book believes your car is worth or how much Zillow believes your house is worth? Those numbers are largely irrelevant.

While having a significant net worth may sound impressive, it isn’t particularly helpful if the majority of that number is based on what you – or Zillow – believe your house is worth. In the 2007 time frame, prior to home prices crashing, there were a lot of people with inflated beliefs regarding their net worth, which was largely based on perceived home values.

There are lots of people out there that profit from selling the idea that a home is a valuable asset and you should do everything in your power to own one. That is not always the case and you shouldn’t.

Even if you do everything right (e.g. buy the right sized house, buy at a good price, get a fixed rate loan, etc.), you will be better served by viewing your home as a liability and not give it consideration when calculating your net worth (or at least understand the difference between net worth and financial wealth) and conducting retirement planning.

If you are interested in investing in real estate, consider purchasing a rental property or Real Estate Investment Trusts (REITs). With respect to retirement, and specifically generating retirement income, it is much more useful to focus on passive and portfolio income, not your home.

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