Take Control of Your Finances: Part 4

Get Out of Debt (Article #4 in a Series of 5) 

Taking control of your finances is more than just spending less and earning more money.  You must save effectively and get out of debt (and stay out).  There are five critical steps to follow to help you gain more control of your finances, which are: 

  • Track Every Penny You Spend
  • Develop a Useful Budget
  • Start an Emergency Fund
  • Get Out of Debt
  • Focus on Your Future

In this article, we will focus on the fourth step in the process, which is:  “Get Out of Debt.”

Debt is a killer when it comes to managing your finances.  Maybe you struggle with heavy credit card debt or student loans.  There is a method to help you eliminate the debt you have, but you will need to be patient and consistent in this effort.  To start, pay off your debts beginning with the lowest balance first.  Let’s take a look at how this works:

  1. Order your debts from the lowest to the highest balance.
  2. Pay the minimum balance on all debts, except for the lower balance, where you can make a higher payment.
  3. Using your budget, designate a fixed amount you will pay monthly toward each debt.
  4. When the lowest debt is gone, work on the next lowest debt, and so forth.

When you pay off your debt, you will feel an accomplishment that may motivate you to continue the process.  Furthermore, once you get out of debt, don’t get back into it.  Limit your credit cards and other loans to “emergency only” use.  You should also consider using credit only for larger purchases (e.g., vehicles, homes, etc.), but make sure you are getting the best deal all the way around.  The key is to spend less than you earn each month.

A great way to stay out of debt is to make sure you understand the difference between needs and wants.  A need is something that is required for you to survive, such as water, electricity, a vehicle (for many), food, etc.  A want is something that is not necessarily critical to your survival, but you enjoy having it.  For example, wants could be things like attending a professional sporting event, buying a Corvette, getting a morning coffee every day at the local coffee shop, etc.  Stick to using your money to cover your needs. Then, when you have some extra money in your budget, you can then start getting some of your wants.  

Getting out of debt is a critical way to take your life back.  You will feel freer and happier because you will not have the stress of bills and other expenses weighing you down. 

Take Control of Your Finances: Part 3

Start an Emergency Fund (Article #3 in a Series of 5)

Taking control of your finances is more than just spending less and earning more money.  It is also about preparing properly for your future by saving effectively and having funds available in case of emergency.  There are five critical steps to follow to help you gain more control of your finances, which are: 

  • Track Every Penny You Spend
  • Develop a Useful Budget
  • Start an Emergency Fund
  • Get Out of Debt
  • Focus on Your Future

In this article, we will focus on the third step in the process, which is:  “Start an Emergency Fund.” 

Many people live paycheck-to-paycheck and figure they cannot save. That’s just not true. Everyone can save…it just takes discipline.  As part of your budget, you need to develop an emergency fund for things like unexpected medical or vehicle expenses.  Many financial experts suggest that once you have safely put together an emergency fund of at least $1,000, you can then move on to attacking your debt.

But, how can you create a fund when you are living so tightly month-to-month? 

Pay yourself first!  Make having an emergency fund something you must do to survive, at least as important as paying the rent, mortgage or electricity bill.  The rule of thumb is to save approximately 10 percent or more of your gross income. However, many experts recommend saving three to six months worth of monthly expenses that can be easily accessed in case of an emergency. 

To calculate your current savings rate, divide how much you save each month by your monthly income.  For example, if you earn $5,000 each month and you save an average of $250 each month, your savings rate is 5%, which is low.  Of course, saving some money is better than nothing, but you may want to adjust to save a little more each month.  Remember, you want to have an emergency fund set up prior to paying down any other debt.

Be sure the money you save for your emergency fund is liquid, or in other words, you must be able to access it.  For example, you should consider a basic savings or money market account for this purpose.  While these accounts do not yield the highest rates, they do allow you to access your money easily. 

To learn more about the savings options available at Central National Bank, click here.  Or, if you prefer, you may call one of our representatives at (888) 262-5456, or stop by one of our branch locations for more information.

Take Control of Your Finances: Part 2

Develop a Useful Budget (Article #2 in a Series of 5) 

Everyone wants to have complete control of their finances and be able to live comfortably and happily. There are five critical steps to follow to help you gain more control of your finances, which are:

  1. Track Every Penny You Spend
  2. Develop a Useful Budget
  3. Start an Emergency Fund
  4. Get Out of Debt
  5. Focus on Your Future

In this article, we will focus on the second step in the process, which is:  “Develop a Useful Budget.”  Budgets are a necessary evil.  They are the only practical way to get a handle on your spending and make sure you are using your money the way you want to.  Creating a useful budget requires three key steps:

#1:  Identify how you are spending your money.

The easiest way to track your spending is by using a software program, such as Quicken or Microsoft Money, because they have built-in programs to help you review everything you have earned and spent simply by clicking a few buttons.  The more often you download transactions and categorize them, the more updated information you will have and the easier your review will be at a later date.  However, if you prefer, you can keep track of your receipts and write down everything you have spent over a period of time for evaluation.

#2:  Evaluate your current spending and set goals.

Now that you have tracked your spending, it is time to sit down and determine your financial goals.  Do you want to own a home in two years?  Do you want to buy a car at the end of the year?  What types of things does your family need for home improvement purposes?  How old are your children and how much can you save each month for their college education?  What does your retirement investment strategy currently look like?

All of these things must be considered as you establish your household budget.  Budgeting is usually not a very fun process because you have to figure out what you should cut.  In fact, sometimes it can lead to some frustration within the home.  However, if the goals are established, cuts will have to be made.  And, your goals will only be accomplished if everyone is “on board” with the created budget.

You must also consider things such as medical expenses, recreational or sports team fees, insurance costs, etc., as you develop your budget.  It is wise to make sure you have developed an emergency fund should you have car problems or a major medical issue.

Go through everything you spend money on and analyze why you spend that money and if it is possible to spend less in that category.  For example, John and Alice were reviewing their household spending and found that they spent nearly $400 each month dining out, whether going out to lunch or dinner.  In conversation, they committed to only going out to dinner once a week and out to lunch twice a week.  They felt this was a realistic option and would save around $200.

Once you go through every expense item, you need to write down exactly what you think you will spend in the coming month, or establish a budget for your family.  If you use Quicken or Microsoft Money, you can actually create your budget right in the system.  Then, each month when you review your budget, you simply print the budget-to-actual household budget, which is done automatically.  Focus on the things that you are trying to control more than every single penny you are spending.  For example, in John and Alice’s case, they would pay special attention to the food budget because they are trying to control that area of their spending.

The idea is not to deprive because no one will follow that budget.  A budget should be something that is in the forefront of everyone’s minds when they are making purchasing decisions, yet doesn’t create hostility within the home. 

#3:  Track your spending to make sure you fall in line with your goals.

It is a good idea to monitor your budget on a monthly basis.  Have a meeting with your spouse, significant other, and/or other members of the family to review where you stand.  Do you need to make more cuts?  Are you on track with the goals you have established?  Why were certain things purchased that may not have been budgeted?  

Whatever the case may be, this is the time to discuss financial goals and keep the budget “top-of-mind.”  We all know that anything not measured will not be obtained; household budgets are no different.  You may find that the budget may be a little too stringent in one area and maybe not stringent enough in another.  This is also when you discuss modifying any portion of the budget and recommitting to make it work.

Your Budget

Creating a budget is a not usually a fun task.  You have to review how you are spending your money; much less how other members of your family are spending as well. You have to “get real” with your finances, which can be a painful process for many.  Just be sure to keep your eyes on the goals you have established and work toward a better tomorrow.

Take Control of Your Finances: Part 1

Track Every Penny You Spend (Article #1 in a Series of 5) 

Would you like to have more control of your money? More than ever before, Americans are drowning in debt.  According to Experian’s National Score Index, at least one in ten consumers has more than 10 credit cards in their wallets. The overall average number of credit cards per consumer is four.  And, the average balance for the American family is approximately $7,400 in credit card debt. 

How can you avoid being in this situation? There are five critical steps to follow to help you get more control of your finances, which are: 

  1. Track Every Penny You Spend
  2. Develop a Useful Budget
  3. Start an Emergency Fund
  4. Get Out of Debt
  5. Focus on Your Future

In this article, we will focus on the first step in the process, which is:  “Track Every Penny You Spend.”

One of the first things you need to do to get your finances in order is to track everything you spend…down to the last penny.  It doesn’t matter how you track your spending, you just need to do it. 

Some people track expenses automatically using a computerized money management program, such as Quicken or Microsoft Money.  Others track their spending manually by saving receipts and entering them into a cash notebook or on a computer spreadsheet.  Whichever method you choose, stick with it, make it a habit, and record your transactions as soon as possible. 

For example, every morning as part of her daily routine, Jane downloads her checking transactions on her computer through Quicken and then categorizes them.  That way, she only has to categorize a few transactions from the day prior rather than many transactions from a week or month ago. She does the same with all of her credit cards and any other accounts she has.  At the click of a button, she then knows exactly how much she has spent to date, how she is doing in comparison with her monthly budget, and most important, how much she has available in her accounts.

This step in the process is all about gathering data, not judging how you spend your money or making drastic changes to your current money management habits.  When you see something written down, you may be motivated to live within the budget you have created.  You may find that you are spending too much on fast food, or maybe the cost of commuting is much higher than you thought due to higher gas prices.  Whatever the case may be, it gives you the first step in taking control of your finances. 

You should gather data regularly and keep record of what you are spending for at least 30 to 60 days so you will know what your tendencies are in terms of monthly spending.  Then, you will be ready to move on to the next step in the process, which is:  “Develop a Useful Budget.”

Reference:  http://www.nationalscoreindex.com/ScoreNews_Archive_13.aspx, http://www.indexcreditcards.com/creditcarddebt

Improving Your Credit Score

This is the second article in a two-part series about credit score information.  Our [previous post] showed you what information is included in a credit score.

 

Now that you know a little more about what goes into your credit score you may be wondering what you can do to improve it. Here are a few simple tips:

 

Pay Your Bills!

First, and foremost, pay your bills ON TIME, EVERY TIME. You can pay them a few days early to make sure they process on time. Being even one or two days late affects your score the same as being 30 days late. Over 30 days late? You are hurting your score even more.

 

If you can afford it try and make more than the minimum monthly payment on your credit cards. It will save you money, in the long run, because you end up paying less interest. It will also show lenders that you take your debt seriously and work hard to repay it.

 

Close Unused Accounts

Close unused accounts. If you have paid off a loan or a high interest credit card and you no longer intend to use it, close it. You do not want to close every line of credit offered to you because another thing credit bureaus look at is your used credit versus your available credit. Bottom line: If it is a card with a high rate then have it closed.

 

Get a Free Credit Report

You can always get a free copy of your credit report once a year from all three major credit bureaus. It’s simple to call and request your report. Then you know what lenders are looking at when they evaluate you as a borrower. Looking at your free credit report can also help you determine where you can improve.

 

To request a free credit report, visit http://www.annualcreditreport.com

Winning Ticket

 

I almost won the lottery last night. I’m not kidding.  I bought my very first lottery ticket ever, I was nice to people all day and in my head I promised to give the nice man who sold me the ticket 5K of the winnings. Karma was on my side, I was going to win!


I’ve never played the lottery before and I wasn’t quite sure of all the details. So I got on the Kansas Lottery website, found out when the winning numbers would be posted and how to claim my prize when I won.

When 9:10pm rolled around I was hitting refresh on my computer screen frantically waiting for my winning numbers. It was a rush I had spent all evening calculating all the money left over after paying off my bills. I was even taking out 40% for the taxes I would have to pay. I’m realistic I knew Uncle Sam would want his share, but I’m not greedy.  


I was going to be responsible with my lottery money. I was only going to give myself one good shopping day and after that putting the rest away for my son’s college and retirement. I wasn’t going to buy a new house or new car just pay off the ones I have and debt free I would get to DECIDE if I wanted to have a job!!


Sigh. Needless to say as I write this I didn’t win the lottery. I didn’t even get two numbers right that would have won me my dollar back that I spent. The numbers were posted at 9:16pm and they were not my numbers. I was a little disappointed that karma did not pull thru for me but I also hope that the winner somewhere out there would have been as responsible as me.


If this turbulent year in politics and finance has taught me anything it has been pay off the good times you already had so in the future you can have interest free good times. (I think those will feel better!)

 My short term goals have changed from leave the state of Kansas to live a fabulous life in Paris or Toronto to drive my car until it is paid off, then keep driving it until I can buy my next car with cash.


But one thing is for sure, someday I will buy another lottery ticket. All that dreaming was worth the dollar I paid for it!

FDIC Insurance Limits

As part of the FDIC’s temporary liquidity guarantee program, participating institutions get full FDIC coverage for non-interest bearing transaction deposit accounts, regardless of dollar amount, until December 31, 2009. For purposes of the rule, the FDIC’s definition of a non-interest bearing transaction account is a traditional checking account that allows for an unlimited number of deposits and withdrawals at any time, and pays no interest.

Central National Bank is participating in this program, so our customers get full FDIC coverage on every dollar in their non-interest bearing checking accounts, regardless of the account balance. Business accounts and personal accounts qualify for the unlimited coverage, as long as they are transaction accounts that do not earn interest.

To clarify: all of our bank deposit account types are FDIC insured up to the $250,000 limit per depositor. The unlimited coverage is only offered on our non-interest bearing transaction accounts.

 

FDIC’s Press Release: http://www.fdic.gov/news/news/press/2008/pr08105.html

What’s the Deal with Credit?

This is the first article in a two-part series about credit score information.

When applying for a loan or a credit card it can seem kind of strange where that three digit credit score comes from? What are these strangers looking at that decides if you get a loan or not.

So what is a credit score? It is in essence your grade on how you have handled credit or debt in the past. It is not a random figure but more a formula that credit bureaus provide to lenders to help them assess the risk in giving you money.

What Information is Included in a Credit Score?

Chances are you were affecting your credit score before you even knew it. When you got your first bill all in your name with your social security number attached to it your repayment history was getting a score. Was that payment on time, was it paid in full? All these things contribute to your credit score-and more! Here are the 5 major pieces of information that comprises a credit score:

  • Payment History (35%)
  • Length of History (15%)
  • New Credit (10%)
  • Types of Credit Used (10%)
  • Debt (30%)

Something you might find strange is that your income is not figured into your credit score. Another thing to keep in mind is derogatory information can only stay on your credit report for 7 years. However, a Chapter 7 bankruptcy stays on your report for 10 years, but good information stays for life!

Where Do You Fit In?

The majority of the population have a credit score between 300 and 800 with only 13% of the population having a score higher than 800.

If your score falls into one of the categories below, here is what your credit score says about you:

  • 300-500: This score range usually means there is a pattern of late payments on bills. There might be one or more accounts that have gone to a collections agency for payment. There is usually other information on your credit report that shows you are a risk to lend money to and that is how lenders justify charging a higher interest rate or declining you new lines of credit.
  • 600-700: Means most payments have been made on time and no accounts have gone to collections. A score of this magnitude implies you are a dependable customer likely to pay the money back that you borrow.
  • 700+: A score this high shows lenders that you are financially savvy and do not take on more open credit than you can handle. People with scores this high can get credit quickly and easily with the lowest interest rates a lender can offer.

Tune in next week for information on how to improve your credit score!

Rule of 219

It’s that wonderful time of year again, TAX TIME!  Hopefully those of you who will be receiving a refund have a plan in mind for your money, if not, I recently heard some figures that will definitely make one stop and think.  At last week’s bank meeting, one of our financial advisors told us about the ‘Rule of 219.’  This rule involves determining the cost of eating for two people during retirement.  Let’s say two people eat three meals a day during retirement and each meal costs $5.  You then take that times 365 days a year, then multiply that by 20 years of retirement.  Here’s the math;

2 x 3 x 5 x 365 x 20 = 219,000

In this situation, it will cost two people $219,000 to eat during retirement. This doesn’t even factor in dessert! Throw in other costs, such as bills, transportation, travel, etc… and the number grows even greater.  One may argue that it will not cost $5 per meal for them, but even at $3 a meal, two people’s cost of eating would be $131,400!  Also, note that this is estimating for only 20 years of retirement.  With life expectancy increasing, it’s easy to raise that number another 10-15 years.

So when sitting down to determine what to do with your tax refund, it may be helpful to visit with a professional.  A financial advisor can help you reach your long term financial goals. They can assist you in making sure you get to spend your golden years eating steak instead of reverting back to the college days of ramen noodles.

 

A Tax Free Distribution For The Holidays

 

A lot of people are worried about their required minimum distribution (RMD) taking them into another tax bracket, or pushing them to a point that they are going to have to itemize their taxes. Are you or someone you know in this situation: a parent or grandparent maybe? If you’re at least 70.5 years old, you now have the option of making a tax free distribution. You have the opportunity to distribute some savings from your IRA to a charitable organization available (http://apps.irs.gov/app/pub78). When you take your RMD and donate it to a charity you don’t have to report this money as income for the year.  Another option is if you are supposed to take a $3000 RMD which may take you $1000 into your next tax bracket, and instead you could take $2000 towards your reportable income and the other $1000 given as a charitable distribution. This is an excellent opportunity for those who are interested in giving to charity. But you may want to act now, the government has designated these guidelines until December 31st, 2007 when they expire, so act quickly!Another option is to use the money from the RMD as a gift to a grandchild’s college education fund (529 plan). You’d still have to pay taxes on the RMD; however, the money can go to the grandkids income tax free.  The money is no longer in the giver’s estate and the giver of the gift still controls the spending of the money in the future. The grandchild never becomes the “owner” of the funds. 

 

·                    IRA owner must be age 701/2 or older

·                    Cannot exceed $100,000 per year per IRA owner

·                    Effective for distribution on or before December 31, 2007

·                    Have a check made payable to charitable organization

·                    IRA owner may hand carry the check to the charitable organization

·                    A qualified charitable distribution offsets an IRA owner’s required minimum distribution

·                    IRA owner addresses taxation on federal income tax return

 

*Contact the Central National Bank Trust Dept. for further information

 

*Info provided by Allison Gowing and Joe Karnes