I am a federal employee and I get my paycheck every two weeks but all of my bills are monthly. What’s an easy budgeting system?

This is a pretty consistent problem, actually. Many employees receive their pay on a weekly or biweekly schedule. Meanwhile, most bills come on a monthly basis, some even less frequently.

How do you easily reconcile the two and take on a budgeting plan?

This is a problem I had to deal with in the past. Prior to 2008, I was employed in a situation that paid me every two weeks. It was a bit of a struggle to find a good balance between the paycheck and the monthly bills. My wife was also on a biweekly system, but her paydays were on different days than mine.

Here’s how we handled it. This system works well regardless of how often you’re paid, as long as that pay is consistent.

First of all, we mostly just used a very straightforward monthly budgeting system. We didn’t do anything strange or unusual in terms of our budgeting. We actually used something very similar to the budgeting templates found in The Total Money Makeover or Your Money or Your Life to get us started. Similar budget templates are found in many other personal finance books.

We made a few adjustments in accordance with the specific needs of our lives, as everyone does when they try to take on a ready-made budgeting scheme. We had to figure out how much we needed to save each month for our irregular bills, for example.

Still, that straightforward kind of budgeting system really worked well for us. So, where did the biweekly (or weekly) checks come in?

Our total amount that we budgeted with each month was the total of just two of each of our checks. Since we were each paid on a biweekly basis, we used two of my paychecks and two of her paychecks as the basis for our budgeting. Our monthly spending and saving plans were all based on that amount.

Of course, over the course of a year, we received more checks than that. A person who is paid biweekly receives 26 checks per year, whereas a person who is just budgeting using two of those checks every month only accounts for 24 checks. That leaves two left over. Similarly, a person who is paid weekly receives 52 checks per year, whereas a person who is budgeting using four checks per month is only accounting for 48 checks, leaving four left over.

Those “left over” checks were used strictly to push us ahead financially. At first, we used them entirely for debt repayment. Four times a year – twice due to my “extra” check and twice due to her “extra” check – we made a giant extra payment on a debt. This did not affect our normal monthly budget except for how it paid off debts, because we accounted for a certain amount each month as our “debt snowball.”

This system works regardless of how frequently you’re paid as long as you’re paid a consistent amount. What if your pay is inconsistent? I’d suggest reading a book that focuses on that specific challenge, because it can be really tricky, especially at first.

The post Monthly Budgeting for Non-Monthly Wage Earners appeared first on The Simple Dollar.

As I’ve improved, I’ve come to realize that revision is at least as important as completing that first draft.

The first draft can be extremely rough. Words are poorly chosen. Charaters are poorly developed. The plot meanders and doesn’t stick to the action.

The reason for that is simple. You’re constantly throwing in ideas as they come to you, and those ideas may or may not have anything to do with your overall vision for the book. You might think of a number of great details about a character, but those details do nothing at all with regards to advancing the main narrative.

A financial plan follows this same pattern (as does a budget… or a career plan… or a business plan…). The first time you write it all out, you’re throwing in lots of ideas as they come to you. Usually, you’re incredibly optimistic in terms of the changes you believe you can make in your life and that ends up creating a financial plan that’s unrealistically positive.

Guess what? Most people fail at this juncture. A hermit’s life isn’t for most people and they end up failing along the way.

It’s not a personal failing. It’s the failure of an overly ambitious plan.

What’s the best way to fix it? Revise it. Take what you’ve learned from your failure and dive back into your plan. Give yourself more breathing room and extend the timeline of events a bit further into the future. Reduce some of the spending cuts.

You’ll likely find it much easier to progress along your financial journey, but this is only the second draft, after all. More can be done.

Look for big things to cut from your life, ones you didn’t even think of before. Cancel the cable and throw out the television. Move to a completely new location. Sell your cars.

The more time you spend evaluating the goals in your life and looking seriously at the daily choices you make, the closer you’ll get to the right balance for you.

Keep revising. Keep adding and subtracting from your plan. It’s a living document, one that’s not set in stone. Keep thinking about your goals and keep asking yourself what you could be doing in a better way to achieve those goals.

Yes, your plan will change over time. It will adapt to how you actually live your life. The rough spots that made things challenging will be chopped away, while aspects of your life that don’t matter much at all will begin to disappear. Your first attempt at a plan to reach your goals will begin to seem hopelessly naive and overly challenging.

Personal finance is personal. Don’t expect your financial plan to exactly match anyone else’s, much as your life doesn’t match anyone else’s life. It’s all about you and finding a path that works for you to achieve your goals, and that doesn’t happen overnight.

Revise, revise, and revise again. That’s how you’ll find a plan that actually works well in your life.

The post Revising Your Writing, Revising Your Plan appeared first on The Simple Dollar.

A Childhood of Ill Health

I don’t know how often I’ve mentioned this on here, but I spent much of my childhood in and out of hospitals. I had a long list of pretty severe surgeries attempting to correct eye problems, ear problems, a hernia, and several other medical issues.

My parents were largely unprepared for this. They had pretty good health insurance, so the medical costs didn’t bury them, but they had previously raised two very healthy sons. Having a relatively unhealthy child was an experience they didn’t know how to handle.

After a recurring medical scare involving a head tumor, my parents began to really worry about the costs if I were to pass away suddenly. I was undergoing a lot of medical procedures, and although you never want to think of a child of your own passing away, I know it was at the forefront of my parents’ mind.

After asking around, they did eventually find someone who would place a universal life policy on me, though it came with a hefty premium. It was an overpriced policy and it was one that was probably far from the ideal choice, but they needed some protection in the event of something unthinkable happening.

As I reflect back on all of this as an adult, two things come to mind:

First, if you have a dependent and you’re unsure how you would be able to afford things if they were to suddenly pass away, you need some form of life insurance. I would be the last person to specifically recommend a policy, but I do know the kind of precarious financial position many people find themselves in (and I know what kind of position my parents were in at the time) and an unexpected passing can be financially devastating. Don’t let it happen to you.

Naturally, if you can afford those expenses out of pocket for a dependent and you’re sure that the future finances of your household would be secure without that person, then life insurance isn’t a requirement.

Second, get your children insured early if you’re going to do it. If you can’t afford the expenses that would be incurred if the unthinkable would happen, each day that passes is a risk. It’s a risk not only of that kind of event happening, but it’s also a risk of a medical condition appearing that could make it difficult to insure them. It nearly happened to me.

an unexpected passing can be financially devastating. Don’t let it happen to you

A Dodgy Salesman

When Sarah and I had children, we began to realize how important it was for us to have life insurance, so we started shopping around for policies. We looked online for various quotes and we also met with agents.

One agent we met with was recommended to us by a friend. At first, he seemed to be paying attention to our concerns. We only wanted term policies for ourselves (we didn’t want an investment policy of any kind, as we prefer to invest independently) and we were pretty confident as to the amounts.

After some nodding, the agent moved in for the hard sell. He pushed us hard to buy a type of policy that we had no interest in. He spent at least half an hour making a strong case for the policy.

Sarah gave the salesman the benefit of the doubt, as the agent was recommended by one of her friends. She listened to his pitch. On the other hand, I was annoyed from the start. It was clear to me he was just trying to sell us whatever package earned him a good commission – a good money-saving rule is to always expect agents to push policies that might not be the best for you.

We walked out of the office and, on our way out, I tossed the agent’s card and the documentation he gave me right in the trash can.

Two things to note here:

If you’re going to shop around for insurance, know what the insurance types are and figure out on your own what’s right for you. Know what you actually need and know what you’re looking for. Start out by defining exactly what problem you want the insurance to solve, then look for policies that solve that problem. Know the terms that might be thrown at you. The best way to do that is to do your research, in my opinion. Go to your library and check out a book on insurance, turn to The Simple Dollar experts, Google what’s going on in the insurance world. Don’t choose a policy without doing your homework; know what everything means and what you need.

If someone ignores what you say your needs are and tries to sell you something else, walk away. It doesn’t matter how good it sounds and how perfect the salesperson tries to make it sound. If you’ve researched the question, you know what it is you’re looking for, and if they’re trying to push you into something else, walk away. There are plenty of other policies in the sea, many of which don’t involve pushy salespeople.

If someone ignores what you say your needs are and tries to sell you something else, walk away

An Unfortunate Death

A person I respect and care for very deeply passed away not all that long ago. This person had a number of descendants, who gathered together to go through the person’s belongings. They knew he had a large life insurance policy, so they called the agent to find out more.

What they discovered was pretty shocking. The beneficiary of the policy was a person that was still living, but was actually estranged from the family. That person showed up, pocketed a pretty sizeable check, and then vanished into the woodwork.

There were other assets in the estate, of course, but the whole experience resulted in a very upsetting period for the whole family and a strong sense that the true final wishes of this person was not actually followed.

(Yes, I’m being vague here, on purpose – I have friends and family that read this site and there’s no reason for a story to be spread around.)

When I heard about all of this, my initial reaction was shock, but then it turned to concern about my own policies and the policies of those I care about.

Two key lessons here:

Stay up to date with your policies. Check them regularly – say, once a year – and make sure the beneficiaries and other options are exactly as you want them. After all, life insurance is something you won’t have a chance to make right when it’s too late.

Be involved with the estate planning of those you love the most. If you have a strong relationship with your parents or grandparents, offer to help them make sure that their estate is as they wish it to be. Make it clear that you don’t care who the beneficiaries are, just that you want to help them make sure that their wishes are taken care of. This can make a world of difference.

A Final Thought

Life insurance is something that no one wants to think about. However, it is something that we need to think about and, if we take care of it, it is actually something pretty life-affirming.

For me, it feels good to know that if something were to unexpectedly happen to me, my children would be well taken care of. Sarah would be able to handle raising them on their own without major financial worry.

Simply knowing that provides a great deal of value and relief to me now. Knowing I’ve studied the issues and have the right kind of insurance for us (in our case, term life insurance) helps, too.

It simply means one more little worry is erased thanks to being responsible and being proactive.

The post Three Life Lessons About Life Insurance appeared first on The Simple Dollar.

In day to day life, we make tons of quick risk assessments all the time. Jumping down from this ledge is too risky. Speeding a little is worth the risk, but speeding a lot is not worth that added risk. Is it worth the risk to our friendship to tell my friend what I really think?

However, the more complicated the situation, the worse we tend to get at such quick risk assessments, but we still rely on them far too often.

Is the risk of this car loan worth it in order to get that shiny new car?

What about the risks associated with buying this not-really-necessary item and raising our credit card balance?

Should we put our money into stocks or leave it in a savings account?

So often, the reader mailbag questions I get boil down to a simple question of risk assessment. A person is having a hard time determining which path in their life is more risky and they’re asking for my input.

In the end, what I usually do is put myself in their shoes and use the same simple rule for risk assessment that I use for myself when I’m unsure of a situation.

Here’s that rule. Whenever you’re thinking of taking some significant risk, ask yourself this simple question: is the worst (reasonable) case scenario tolerable for me? If it isn’t, find a more conservative option. If it is tolerable, then that risk is acceptable.

Of course, actually knowing what that worst case scenario is and how likely it is requires some research in most cases.

For example, if you’re trying to make a decision about an investment of some kind, it’s good to know the history of such an investment and the history of such similar investments. This way, you can understand what the worst historical scenario is, and I usually assume that the worst case scenario for me is about 10% worse than the worst historical period of the same length.

Another example: if you’re trying to make a decision about life insurance, imagine that you pass away two days after getting the insurance. What happens to your family in that case? Is the money you’re leaving behind via the insurance and your estate enough to cover their needs with some room to breathe?

I’ll give you a third example from my own life. My wife and I have been struggling with various health care options as she returns to work, since she has something of an open enrollment period now. One of my assessments of the options – perhaps the most important assessment – was a scenario in which one of the members of our family had a very long illness, such as cancer, that required extensive care. What would happen to us under each health care plan? Would we be able to survive? We eventually chose a plan that offered a high deductible for individual treatments, but great coverage for such long-term illnesses, as that plan offered a benefits package that matched what we could do for ourselves financially.

The worst case scenario is a spectacular guide for every major financial decision you need to make in your life. What happens to you in that worst case scenario? Is it something you can financially live with or not?

The post A Simple Rule for Risk Assessment appeared first on The Simple Dollar.

My parents don’t have a large estate, but they do have a number of personal items that different individuals are going to want. Some of these items have significant value. I am almost sure that there are going to be some hurt feelings by the end of this meeting and, frankly, I wouldn’t be surprised if the discussion was quietly postponed.

But not by me.

Having watched this process begin to unfold – and having watched similar processes unfold with other families that I care deeply about – and coupling that experience with a lot of personal finance reading, I’ve come to a number of conclusions about this process that I thought I would share with you today. Perhaps, during the coming week, this will give you food for thought as you meet with your family.

Don’t put it off. Don’t. This is going to be a difficult discussion for many families, and it’s often tempting to postpone the discussion so that the day can be pleasant instead of challenging. Don’t. Every time you postpone, you put your estate at risk of being handled by the court system instead of according to your wishes. Not only that, you’re allowing the concerns of others in your family to go unresolved, too. Don’t let the problem just sit there – solve it, together.

Don’t exclude anyone. Everyone who has a stake in the situation should be involved in or at least aware of the decisions involved. This can be quite difficult, but the ramifications of not doing it are worse. By excluding some, you’re ensuring infighting, mistrust, and anger among those involved. While doing it face-to-face is not a perfect antidote, it at least can minimize the problems that can arise.

At the same time, don’t be afraid to talk about this beforehand with the people you care for the most – and trust the most. Let these people be your advisors and help you to come up with a plan for your estate. Yes, some of them may have a stake in it, but if you’re concerned about them giving you false ideas out of a desire for a bigger chunk of your estate, are they really worth bequeathing things to? Seek trusted people while you’re hashing out your ideas.

The relationships post-estate have value. One big factor that many people don’t consider during this process is the state of relationships after the estate is resolved. Will siblings and other family members be able to get along, or will they not be on speaking terms and only see each other in court? Will they embrace each other and help each other after the funeral, or will they be mourning not only you but the loss of their relationships with their siblings?

Your estate doesn’t just contain financial assets. It also contains a great deal of impact on the feelings and relationships of those left behind. Those have significant value – in my eyes, in many situations, the value of those feelings and relationships are more valuable than the items left behind.

If someone makes an unusual offer or claim, get it in writing or ignore it. These situations can be emotionally charged and people might make statements along the lines of, “I want no part in this.” If you hear things like that, wait for the emotions to cool, then ask them to state their wishes in writing so that it’s recorded and clear for everyone. If they won’t give that to you, then it’s clear that their statement was merely blowing off steam and should be disregarded. If you insist on emotional responses being binding, you’re doing nothing but damaging long-term relationships.

This is the estate holder’s property; they can do with it what they choose. If you’re involved with such a process, recognize that the person or people making the decisions about the estate are human beings. Just like you, they have lots of feelings about lots of different things. They are close to some people and not as close to others. They have human failings, just like you do. What they choose to do with their estate is their decision and it’s based on all of these factors. If you’re angry about the decision, remember that in the end it’s their decision – no one else is responsible for it. Don’t let jealousy of what someone else is getting cloud your vision of the situation. Most of the time, it’s due to either the flaws of the estate maker or due to a lot of time and care shown by the person getting more that you could have done – but you made a different choice.

(At this point, it might be clear to reader that I’ve seen some very messy estate situations.)

Do it correctly. Once the plan is in place, do it correctly. Have the will or trust properly executed and notarized and leave the documents with a trusted individual, such as a family lawyer. Make sure that it’s binding and that there won’t be questions after the estate holder passes on.

The big thing is to keep the process as open as possible. If you set things in stone or make changes, make those actions clear to everyone involved who may be impacted by the choice. This will offer the best route to long-term family peace.

The post Handling the “Estate Meeting” appeared first on The Simple Dollar.

Yet, whenever I look at the whole mess, I get the feeling described in the title of this post. Instead of dealing with it, I feel a bit overwhelmed – and I also feel like there are more urgent things pushing at me to get finished. Like writing this article, for instance.

So many of the projects that we feel overwhelmed a bit by are ones that fall into that “important but not urgent” category. Things like starting a good filing system, switching our accounts to a new bank, keeping in regular contact with old friends and key work associates – all of them are things we know we ought to be doing, but we put them aside.

Don’t.

Those things that are important but don’t feel urgent are the very things that are the keys to building the life that we want. It is the special person – the one on the path to success – who can put aside the countless “urgent but not important” things in life – like the new season of American Idol, the interrupting phone call, the latest social event in a long series of them – and replace them with the “important but not urgent” things.

Instead of going on and on with a lot more words, I’m going to stop this article right now and take my own advice. I’m going to go clean the entire office. Since this article is a nice, short one, why not take the few minutes you might have otherwise spent reading a longer article here and get a real start on that project that overwhelms you a bit.

See you later.

The post “The Thought of Starting This Project Overwhelms Me” appeared first on The Simple Dollar.

When I made that choice, I was exposing my own idiocy in several different ways.

First, I was demonstrating a complete lack of commitment to a goal. Rather than making small sacrifices to fulfill a big long-term dream, I let the dream fall by the wayside in the name of instant gratification.

Second, I didn’t step back, revise, and rework the plan. When I realized I wasn’t making the goals I had set, I didn’t sit down and re-evaluate things. Instead, I acted like an idiot again and just spent the money with reckless abandon.

Third, I allowed that failure to define myself more broadly as a failure at money management. I just believed I didn’t have what it took to be successful at saving. I let myself believe I was a broader failure just because I couldn’t handle that goal.

Setting a big, audacious goal for yourself is inspiring. It makes you feel good about yourself and pushes you to accomplish things beyond what you believed to be possible for yourself.

I’m going to be debt free in three years.

I’m going to have six months’ of emergency fund in the bank by the end of this year.

I’m going to have seed money for my business idea an a year.

We conceive of these great goals, we plan for them, we sacrifice for them.

And then they fail.

Something changes along the way. An unexpected event occurs. We make a few bad spending choices. We overlooked some key element that completely alters the picture.

And we’re left with that empty feeling of failure. We didn’t make that goal. Instead, we just messed it up, like countless other things in our lives (yes, everyone messes up – a lot).

I could sit here and list my own goal failures all day long – as if the one starting this article wasn’t bad enough – but one thing this failure has taught me is that failing at a goal doesn’t mean you’re a failure or even that the goal or the plan was a failure. It just means you need to go back to the planning stage for a bit. Here’s how.

First, never define yourself as a failure because you failed to accomplish a goal. The inability to accomplish a goal is, yes, in part due to your mistakes, but there are usually countless other factors involved as well. A breakdown in a plan merely means that you need to step back, look at what went wrong, and re-work the plan.

Second, look for the root cause of what went wrong. There’s usually an obvious answer, but that’s not the one you want. I suggest using the “five whys” game when figuring this out. State why it seems that the plan failed, then ask yourself why. When you answer that, ask yourself why again. Repeat it until you get down to a root cause that can’t be broken down again. Often, it takes five or so “whys” to get there.

Third, address that root cause. It might be something you can take care of immediately. It might be something that you’ll have to slowly modify over time. Whatever it is, figure out a plan for addressing that specific root cause and focus on changing that.

For me, the real root cause of many of my financial troubles was a lack of persnal control. I would constantly sacrifice the long term for the short term, because I loved the rush of instant gratification. So, the first step for me towards completing a lot of my bigger goals was to simply break that addiction to instant gratification. I mostly did this by utilizing the other changes in my life (having a baby, mostly) and finding ways to get that gratification rush without spending money (like snagging a hot book on reserve at the library, for example).

You may find that your bigger goal has to be delayed a bit while you deal with the more immediate problem. Maybe you need to work on your own behavior, or maybe you found you need a bigger emergency fund. Get the smaller goal finished first – the bigger goal can wait.

Fourth, ask yourself if the big goal was something you really wanted in the first place. You may find that, after fixing the root problem, your perspective has changed. The long term goal you had in the past doesn’t reflect the new understanding of yourself that you now have. If that’s the case, great. It’s a powerful sign that you’re growing as a person. Don’t be afraid to abandon a goal that no longer matches what you want or the person that you are.

Finally, try again. Start over on your modified goal or give some thought to a new goal. A failure doesn’t mean that you should give up on your big dreams. Instead, it’s just more insurance that you’ll make great progress towards your goals.

The post Revising and Reworking a Failed Financial Plan appeared first on The Simple Dollar.

There were several big reasons that finally made me transition completely. What I found, though, is that most of those reasons actually directly helped me manage my personal finances, believe it or not. It turned out that my money was one of the biggest reasons to finally make that transition.

Here are nine ways I use Google Calendar to make my personal finances that much easier. Many of these can be done using paper calendars, but in most cases, GCal makes it easier to do them.

1. Keep track of bill due dates
This is perhaps the most obvious use of using a calendar for personal finance. When you know a bill’s due date, add it to your calendar, then pay the bill when you see it’s coming close to its due date. So, for example, our mortgage payment is due on the 28th of each month, so on my calendar, on the 28th of each month, there’s a note that our mortgage payment is due. It helps me keep track of our payments.

How can I do this? It’s simple. Log onto Google Calendar. First, I recommend creating a new calendar specifically for bill due dates if you haven’t already – this makes it easy to highlight them. Then, click on the day the bill is due, create a new event, and add the appropriate information – the amount and the type of bill, at the very least. If this bill recurs on a regular basis, make the bill a repeating event. You might also want to add an event reminder so you’re emailed a few days in advance of the bill due date.

Free from Broke offers a nice visual guide to adding a bill due date to your calendar.

2. Plan ahead for gift-giving occasions
My family has always been really into gift-giving and it’s considered a serious faux pas to forget someone’s birthday. In order to make sure I don’t forget a parent or a niece or a nephew, I schedule all of those important days right into Google Calendar.

How can I do this? I use almost exactly the same technique as for the bill due dates. I have an “Important Personal Days” calendar and I add birthdays, anniversaries, and the like to that calendar, scheduling them to recur every year. I also have two email reminders for each one – one about twelve days in advance, and another about five days in advance.

3. Pencil in key dates for sales
Let’s say I’m shopping around for a washing machine, and I’m looking for the best deal I can get. I discover that the local appliance store is having a sale on washing machines next month and given that their prices are already decent, I want to take a look at their numbers. But I might forget the sale! Not any more – I just pencil in the dates of the sale in the calendar, reminding me to check out the sale during that time frame.

This works for any sale that you come across. But, as with any sale, it’s important to distinguish between buying something because it’s on sale (bad) and buying something you already need and taking advantage of a sale to do it (good).

How can I do this? Again, this is just a simple scheduling of an event, except that I set the event as a multi-day one, with the start date and the end date matching those of the sale. Since this isn’t too regular, I have a “Miscellaneous” calendar where I put such events.

4. Keep track of milestones for big goals
As I’ve mentioned a few times on here, I have a handful of pretty big goals: finishing my second book (here’s my first one), running a 5K, and saving for a van. For each of these goals, I have some milestones along the way. I try to make my best attempt at a 5K each week, for one, and I have a word count goal on the first draft of my book each week, too. So I schedule these milestones. I just create an event each Friday saying something like “Book word count target: 30,000.” On Sundays, I have a “Walk/run your best 5K” penciled in.

How can I do this? Just pencil in your milestones whenever they occur. I have a “Goals” calendar that I put these under. Why so many calendars? It allows me to make groups of things appear and disappear at will when I’m looking at the calendar, which makes it very easy for me to keep track of what’s going on.

Dal, Chilean style, with chickpea curry, which I discussed in this earlier article.

5. Schedule meal plans intelligently
Remember my post about making multiple casseroles? As I mentioned there, it’s usually worthwhile to eat those casseroles within two months or so. So, in that example, I made four casseroles on a Thursday afternoon. We ate one that Thursday night, then I actually scheduled the casserole again for three weeks, six weeks, and nine weeks later. Then, when we sat down to plan for the week, my calendar would show me that we already have a meal in place for one night that week, meaning we can plan for fewer meals and save money at the grocery store.

If you do these in multiples, it gets really neat. Let’s say you cook six pounds of chicken breasts on a Tuesday in a slow cooker and freeze four and a half pounds of them. You’ll want to use these within a month or so, so I’ll mark down the following Tuesday, the Tuesday after that, and the Tuesday after that that we have 1 1/2 pounds of cooked chicken that need to be used. This keeps us from “wasting” food in the freezer. You can do the same thing with any frozen item you buy in bulk – for example, we often buy beef in bulk from a local butcher because of the quality and low prices, so in order to avoid freezer burn, I’ll pencil in when we should use the meat. Again, having this information right there drastically reduces our grocery bill and fits in perfectly with planning ahead for meals, which is itself a huge money saver.

How can I do this? I use a “dinner” calendar to manage these things. I just create recurring events for both of the cases above, and when we plan meals once a week, I create events with what we plan for meals those days. I usually label any ingredients we need to use by saying “Ingredient: ” right in the name of the event. That doesn’t mean that we’ll use the ingredient on that exact day, but it works as a reminder when I sit down to exactly plan meals that we have, say, chicken breasts to use that week already in hand. I schedule a meal each night and include the recipes in it – we even usually pencil in a “leftovers” night about every third or fourth night. This really works well.

6. Plan ahead for scheduled maintenance
Home maintenance saves you money, period. Taking a bit of time on a regular basis to do things like change furnace filters, check fire alarms, check vents for clogging, and so on can make an enormous difference in the life of your appliances, the appearance of your home, and the energy efficiency of your home.

I speak from experience here. When we first moved into our home, we didn’t realize that our dryer occasionally ejected a very small amount of lint into the ventilation, which led directly outside the house. After several months of use, our dryer seemed to not work very well. We had to run it two or three times to dry a reasonably-sized load. We puzzled over this and considered calling a repairman, but my two year old son actually figured it out. He came walking over to me with some lint in his hand one day. I asked him where he found it and he walked me straight to the vent. A few finger sweeps later and the dryer suddenly ran as good as new.

The problem is remembering the numerous little home and auto maintenance tasks you need to take care of. The solution? A home maintenance calendar, which tells you when you need to change filters and when you need to do a walkthrough to check on things – and, yes, when you should check vents. I made a big list of home and auto maintenance tasks – picking out the ones you use and scheduling them can save you some serious change over time.

How can I do this? Again, with a “maintenance” calendar. These are almost all recurring events on different schedules – some every month, some every three months, some every six months, some every so many weeks (so that I don’t have days LOADED with tons of such tasks). If I see some maintenance tasks for that day, I just do them and then I know that things are being maintained.

7. Take control of your portfolio planning
I often encourage people to just put their retirement savings in a “target retirement” fund and just forget about it, but many people like to have more control than that. They want to balance things themselves. Perhaps they want more risk than those plans give, or maybe they want less risk. They might also want low risk investments in their retirement accounts but very high risk investments in their taxable accounts.

Either way, rebalancing those investments regularly is key. On a regular basis, it’s important to sit down and think about whether or not your investment allotments match up with what you really want to be doing. You might change your contributions significantly – or you might even actually move your investments around.

It’s important to do this regularly, and that’s what a recurring event is very useful for. I “rebalance” every three months or so, mostly by just altering my contributions. I’m fine with using a “target retirement” fund, but I actually enjoy digging in and tinkering with things myself.

How can I do this? If you’re involved enough in your investing to rebalance it regularly, just set up a recurring event with a reminder of what you want to be doing, as a note. So, you might have a “Rebalance my Roth IRA” event, with a note that says “I want to have 10% in this fund, 20% in this fund, 30% in this fund, and 40% in this fund.” I actually keep mine on my “maintenance” calendar.

8. Set up seasonal reminders
Different times of the year bring different things we should think about with our personal finances. Charles Schwab has a very useful article listing many of these seasonal concerns, some of which may apply perfectly to you.

Some things we all might want to do: get a copy of our credit report every four months from the FTC at AnnualCreditReport.com (you get one from each of the three agencies each year for free, so just get one from one agency in January, another from another agency in May, then again in September), start budgeting for the holidays in the spring or summer, plan seasonal charitable giving or volunteer work, and so on.

How can I do this? I put these in my “miscellaneous” calendar, but many of these are recurring. For example, I remind myself a few times during the summer to look for Habitat for Humanity dates, and I also prod myself regularly to put aside money for and shop ahead for Christmas. I also snag my credit report like clockwork and I also remind myself to occasionally touch base with my parents about their financial needs (a will or a master information document or anything else like that).

9. Remind yourself of the things that really matter
If you’re putting forth this effort into saving money, you ought to be doing it for a great reason. For me, my children are my big motivation – I want to make a truly great life for them. Of course, a great life means that I spend a lot of quality time with them, so I plan ahead for that. Aside from the “evening block” that’s devoted every day to family time, I often pencil in other events. Some of them are known – soccer practice and the like – but others are surprises, like whisking my kids away for a long afternoon at the Science Center of Iowa or going to story time at the library.

Make sure you’re taking time out for the things that actually matter in your life. It’s easy to see the big reasons before we get started, but often when we’re involved with projects and get so drawn in, it’s sometimes hard to remember to take time for the reasons why we’re doing this.

How can I do this? I have a calendar called “Family” where I schedule things like this. When I look at the week ahead and see a trip to the library or a trip to the Science Center or something like that, I feel like my week is more … complete.

An effective calendaring system has almost unlimited uses. Just remember that it’s a tool – the calendar doesn’t have meaning, your life does.

The post Nine Ways I Use Google Calendar to Keep My Money Straight appeared first on The Simple Dollar.

My mother took the loss even worse, especially since she was the one charged with taking care of my grandmother’s affairs in the days after her passing. Unfortunately, we came to find out that my grandmother’s papers and information were incredibly poorly organized, with my mother finally resorting to digging through boxes of old papers and calling numbers just to put the pieces together.

With such organization, it was really clear that my grandmother’s financial organization relied entirely on her ongoing health and sharp state of mind. If she had fallen into poor health, either physical or mental, it would have been impossible for someone to step in and take care of her affairs. In her passing, she left a lot of confusing papers in her wake, adding up to a lot of painful hours for the people left behind, sifting through all of this information to take care of such things.

After this experience, I realized that I never want my family – my wife, my children, my parents, or anyone else – to wind up in this situation. I resolved to go far beyond my old master information document and create a resource that my family could turn to in any painful situation – my loss of life, my loss of good mental or physical health, and the potential loss of our property in a disaster.

I’ve been collecting all of this information in a binder of my own design. I took a serious look at several prepackaged solutions for this type of situation – Life.doc, Know Where You Are, and several others – but all of them failed in some respect. They left out something I considered important. They weren’t customizable enough. I couldn’t just print off more forms. So, I decided to assemble my own.

What follows is a detailed description of the document I’m still assembling with enough detail that you could easily make your own. My advice? Copy and paste all of the text below into a Microsoft Word document, then start filling in the blanks. I would turn each section into a big header – perhaps on its own page – so that it’s easy to find, and I’d use separators to keep the sections apart.

If you have the same kind of worries that I do, assembling this binder will take a big load off of your mind.

Ready to dive in? Let’s get started.

What You Need
To assemble this, you’ll need several items.

A three-ring binder Since you’ll be moving pages around, a three ring binder is the best way to go. Although you may save this documentation electronically, you’ll want to have a hard copy sitting in a safe place (like in a deposit box at a bank) so that you can turn to it in times of need.

A computer with a printer This is optional, but highly worthwhile. Recording all this information in an electronic fashion makes it much easier to make updates later.

A three-hole puncher This makes it easy to punch holes in the pages so that they’ll easily fit in the binder.

Dividers You’ll want 15 to 20 section dividers for the binder to make it easy to flip to the place you want.

A camera, preferably a digital one You’ll likely need to take pictures of many of your items. A digital camera makes this quite easy, though a film-based one fills the need, too.

A writing utensil and some notebook paper As you prepare this document, you’re going to take a lot of notes along the way. Be prepared.

Plenty of time This will take quite a long time to assemble. Don’t expect to do it all in an hour or even in an afternoon.

A Basic Emergency Plan
Every family should have an emergency plan. Where will you meet in times of disaster? What key people do you need to call? What key items should be extracted from the home? Where are the shut-off valves in your home? It’s worth your effort to start this process by developing a simple emergency plan and keeping a copy of it in your home as well as in this binder. Here’s what you should include.

Immediate emergency plan Identify two locations where you will meet in the event of an emergency. One place should be about 500 feet from your home. The other place should be a location outside your town that all family members can easily locate – say, the home of a grandparent. That way, all of you know where to go if there’s a disaster at your home – or a disaster in your area.

Emergency item list You have five minutes. What do you grab out of your home? Spend some time thinking about this and make a list of five or so items that you (or family members) could quickly grab in the event of a disaster. Old photos, a backup hard drive, and a portable safe might be good things to list.

Household shut-down information What do you need to do to effectively “shut down” your home? Know where the turn-off is for the gas and the water and note them here, as well as fire extinguisher locations. If you keep emergency food or water stored somewhere in your home, note that here, too. If you have a burglar alarm in your home, make a note of this, too, as well as any plans you have related to that (such as calling an alarm phone).

Three (or more) emergency contacts Who should be contacted in the event of an emergency? You should have their contact information at the ready, particularly every possible phone number for them. Good people to consider for this role include your parents, your siblings, your lifelong friends, and your pastor/clergy.

Who possesses keys for your home? Keep a list of the people who have keys to your home/automobiles, as well as their contact information. If you keep a key hidden outside, I would not note this in the document.

Key contacts You should keep a list of key contacts – work, school, and organizations where you (or your spouse) hold leadership positions are good to note here. You should also include contact information for your primary care physicians.

Key Information About Each Family Member
You should maintain some basic information for each person who is dependent on you – you, your spouse, your children, and any other people who you’re responsible for (such as disabled or elderly relatives). What information is worthwhile for each person?

Key personal information Full legal name and birth date should be recorded as a minimum. Social Security number is optional – it could be very useful, but it’s also something of a security risk. Perhaps just write it on the copy stored in the safe at the bank.

Home, work, and school addresses, phone numbers, and emails In other words, the most complete contact information you can assemble for each person.

Key work contacts Such information as your work identification number(s), your department at work, and any other key data from your job should go here. You should also note the name and contact information for your work supervisor, any key assistants or subordinates that you have, a human resource contact, and a pension/401(k)/403(b) contact. If the person is a student, contact information for the school and any school identification numbers are key.

Health insurance information Make absolutely sure you have health insurance information for each person – the policy number, the provider, and contact information for the provider.

Medication list What medications is the person actively taking? What dosages? What pharmacies? What doctor(s) prescribed the medication?

Diseases or other health concerns A simple list of the diseases and other major medical conditions of the person is useful, as is an allergy list. Blood type can also be useful, as can whether or not the person is an organ donor.

Complete physician and pharmacy list with contacts Every doctor that a person sees on any regular basis should be noted (name, specialty, contact information).

Other medical history A medical history can also be useful in a medical emergency, such as surgeries and past conditions.

Copy of will, living will, power of attorney, trust documentation A copy of all of these documents is useful. These can be photocopies, as long as the location of certified versions is identified.

Details on All Insurance Policies
For each policy that you have of any kind, make a list of the insurance type, the insurance company (and contact info), the policy number, the agent’s name, and the agent’s phone number. A copy of the policies can also be useful, but at the very least, you should jot down a quick summary of each policy under the contact information.

Types of insurance to remember: homeowners’ insurance, automobile insurance, renters’ insurance, other property insurance, life insurance, health insurance, dental insurance, disability insurance, long term care insurance, liability insurance, pet insurance, and mortgage insurance. There may be others.

Details on All Accounts
A complete listing of all of your accounts is essential.

Banks You should maintain a list of all banks where you or anyone in your family holds an account. You may want to note account holders as well. Account information is optional here – I would perhaps write it in by hand on the copy in the safe, but not keep it electronically.

Investment accounts The same information should apply to all investment accounts, retirement or otherwise. This includes pensions and any other potential sources of income.

Key property title locations The location of the titles of all homes and automobiles you or your spouse own is useful.

Legal partnerships A list of all legal partnerships that the person is involved with is vital, along with a contact person for each one.

Key financial personnel Contact information for your accountant, your stock broker, and/or your financial planner(s) is key here.

Mortgage and other debts A full list of every organization with which you hold a debt is also useful.

Credit cards Keep a list of every bank with which you have a credit card, as well as the phone number for that card. Don’t include the account numbers – they’re not necessary and are a bit of a security risk.

Real estate holdings A full list of your real estate holdings is very useful, along with the location of any and all deeds.

Legal representation You should also have contact information for your lawyer.

Location of other legal documents Depending on your situation, you may need to note other legal documents of importance. You may want to note the location of any birth certificates, adoption papers, custody agreements, divorce agreements, military papers, lease documentation, passports, real estate deeds, pre-nupital agreements, marriage licenses, wills, trusts, living wills, contracts, powers of attorney documents, and any other contracts that may be relevant.

You can include copies of any of these as you see fit, but you should keep all of the original documents gathered somewhere (preferably in a safe in a bank).

Service Providers
This piece is simple. Every business or individual that provides a service to you should have their contact information listed in a central place (so that they can quickly be contacted to postpone or eliminate services).

Services to remember: your child’s caregiver, your housekeeper, your baby sitter, your pet sitter, your gardener, your pool maintenance company, your gas company, your telephone company, your cell phone provider, your electric company, your cable provider, your garbageman, your lawn service, your pest control service, your computer repairman, your building superintendent or landlord, your alarm services, your cleaning services, and any other services you might have.

A Thorough Inventory of Your Possessions
This will perhaps be the most time consuming part of all. For insurance purposes, it’s incredibly useful to have a thorough inventory of all of the possessions in your home (and elsewhere). Here’s the exact procedure I would follow.

First, make a list of every room in your house, all external buildings, and any other key locations where there’s a significant amount of your property. This is essentially a location checklist, to make sure every place where you have property is accounted for. Don’t forget the attic or the basement or the shed in the back!

Next, go to each of these rooms/locations and make a careful list of all of the items with significant value in the room. Don’t worry about specifics – just make sure you’ve actually noted all of the valuable items in the room. It’s more important to hit all the big things than to get bogged down in items worth just a dollar or two that prevent you from ever getting this done, so I propose a rule of thumb: only note things with a value of $20 or more. If you want to note more items, come back later and do this again, but don’t write down the items on the first time through if the value is that low.

Don’t forget drawers, jewelry boxes, under beds, in closets, or other such locations that are easy to overlook. Take your time with this process.

Once you have this big list of possessions, document it as much as possible. Write down any serial numbers you can identify. Take photos of as many items as possible (including large collections, like books, DVDs, and so on). If you have a digital camera, this isn’t a problem – thoroughly document your items. Make estimates as to the value of the items. For larger items (anything worth more than, say, $100), note the date and place of purchase, the purchase price, and keep a copy of the receipt (you can scan the receipt and save it in the document if you wnat).

This will take a long time. Don’t sweat it. Take your time and do it right.

Updating Your Document
I recommend several avenues for maintaining and updating the document.

First, keep both an electronic and a hard copy of the document in a safe place. I recommend keeping them in a safe deposit box at your bank. Keep the electronic copy on a CD or on a memory stick.

Second, update your local copy of the document electronically every time you notice a change. You can print off updates for each change if you like, but don’t sweat it too much.

Every six months or so, review the document carefully for changes. Add new possessions and remove ones that have been sold or given away. Then, print out any updated pages and replace them in the binder that’s in your safe deposit box, as well as replacing the electronic copy.

You’ll Be Glad You Did It
Even aside from the peace of mind that will come from having this document, there will come some point in your life where having all of this information at hand will come in handy – your house burns down, or your spouse passes away suddenly. During those times of crisis, having all of this data available easily to you will make all the difference in the world, taking a healthy dose of stress away from that painful and challenging moment.

The post Preparing Your Information for Disaster appeared first on The Simple Dollar.

And you’re left wondering what’s next?

I dealt with this question in my own life in late 2007 and early 2008. What was next for me was changing careers and doing something I had always dreamed of doing – writing for a living, and doing it with enough flexibility that I could spend tons of time with my family, particularly with my children while they were young. That was my dream. Before that, writing for a living and having such huge schedule flexibility was a seemingly inaccessible dream.

So I did that. I had good enough spending habits (and no big debts breathing down my neck) that I could afford the steep pay cut that went with quitting my full-time work. I walked away from the office on March 15, 2008, and I haven’t really looked back.

What’s next for me now? What big dreams am I pursuing today? Right now, my focus is on enjoying my children’s youth and improving as a writer. I read voraciously and write voraciously – The Simple Dollar is only a portion of what I write in a given day. (I’m a big believer that the only way one can become good at something is by doing it a lot and admiring and studying the work of people who do it well.) I block off huge chunks of the day to spend it with my family, too – every evening is an adventure of reading books, exploring nature, playing in the park, asking questions, trying new foods, and so on.

As my children grow older, what do I want then? As my skills grow as a writer, I fully intend to branch out publicly into other topics. I also intend to travel with them quite a bit so they can see the world (meaning we’ll go to different places and go off the beaten path), and I would genuinely like to have a house in the country, with a big barn in the back and the tools to do a bit of small-scale farming, with some chickens and a huge vegetable garden.

What’s next for you? Most likely, it’s something different than what I want for my future. I know the people around me have a lot of interesting plans. One of my close friends wants to spend his time building houses. Another friend wants to start a winery.

Whatever your dream is, it likely has a lot in common with what’s next for me:

What’s next seems almost like a mirage right now. It feels unreal, something that you really can’t attain from where you’re at right now, mostly because you see all of the obstacles in the way.

What I find is that many people just simply accept that their vision is unreachable, so they settle into a steady day-in day-out life, doing the same old thing over and over. They let their spending fill up their income and abandon the dreams of anything else, secure in the small comfort of a nice car and a few escapes.

If you choose that route, what’s next will just be more of the same. For some, that’s the right answer – for me, it’s not.

What’s next will require quite a bit of money in the bank. If nothing else, a major life change demands a healthy emergency fund – cash to get you through the transition. Most of the time, the dream requires some serious pocket money.

That means saving. It means spending as little as you can and putting the rest away into some sort of investment. It often means being fairly aggressive with your investments.

What’s next will require some sacrifice and difficult choices right now. This summer, our family’s vacation will be a camping trip to a state park. We drove our previous car almost into the ground, to the point where there were so many necessary repairs coming up that we were afraid to drive it very far.

What’s next for you? What are you doing to get there?

The post What’s Next? appeared first on The Simple Dollar.

For a long time, my wife and I discussed making out a will. Who would we leave our children to should something unexpected happen to us? Where would our assets go? After a lot of soul searching and discussion, we figured out what we wanted and created a will stating these things.

However, that didn’t cover all of our bases. I wanted to make sure that several personal items of mine would go to specific people in the event of my singular death. Although I completely trust my wife to handle this for me, I still desired to have a clear and legally binding explanation of what I wished to happen to a handful of personal items.

Upon hearing about this, one of my wife’s relatives suggested that I make a simple holographic will for those things. “Sure, all you have to do is write down your instructions and sign it in your own handwriting. It’s foolproof!”

It seemed to simple to be true – and it was, for my case. It turns out that I live in Iowa, where holographic wills are not legal (I eventually decided to trust my wife with the disbursement of such items). However, in twenty-five of the fifty states, a document as described above does actually function as a legal will.

You’re kidding, right? According to Lawchek, a holographic will is in fact legally binding in many U.S. states. Some states require a witness, while other states do not require anything of the sort. Check that site to find out the specifics in your state. It may also be useful to call a lawyer in your state just to be sure of the specifics – this is a great question to ask if you have access to free legal counsel at some point.

How exactly do I make a holographic will? All you have to do is write out, in your own handwriting, specifics on how you want your estate (or specific elements of your estate) to be disbursed to people. For example, you may want to explicitly list that certain personal items go to specific people and so on. You may also want to direct that all remaining assets go to someone in specific. You must also sign it at the bottom.

In some states, you may have to have a witness who also signs the document – consult the rules in your state for more information.

It is important that if you make such a will, you are specific and very clear with your wishes. It is probably worthwhile to include a blanket statement leaving the remainder of your estate to someone you trust so that if there are issues of ambiguity, you can have some faith that the person you trust will act in your interest anyway.

When might a holographic will be useful? The most obvious situation is when you are in imminent danger of losing your life. For example, if you’re trapped in a cave during a snowstorm and you’re concerned you might not make it out alive, you may want to write a holographic will. A person might also write one out if they are terminally ill and want to make sure that their wishes are recorded because they believe the end is near.

Should I go this route for making my own will? In short, no. Although it’s something very useful to know if you are in a desperate situation, the inconsistent legal nature of a holographic will makes it something not worth trusting your estate to unless you’re in that desperate situation.

A much safer route would be to write out your wishes in the form of a holographic will as a draft of your real will, but then follow that exercise up with the creation of a true will with those principles. This way, you can be sure that it will be legally binding.

The post Making a Holographic Will appeared first on The Simple Dollar.

The closest experience I had to this was during the first week of January 1996, when over a three day period the son of a family friend killed himself, an uncle I was very close to passed away from cancer, and a cousin of mine that I had practically grown up with hung himself. I don’t remember much of that period – it was kind of a haze – but I do remember going back to school and just withdrawing from things for a week or two.

Thankfully, my life was easy in those days. I went to school. I participated in some extracurricular activities. I went home. That was pretty much the cycle of my life, so there wasn’t anything too bad going on if I didn’t quite live up to my responsibilities.

Now, as an adult, things are much different. If something devastating hit my life, I’d have to rebound quickly for the sake of my family – and for the sake of my career. Plus, when those extra expenses that happen during a personal crisis hit, I’d be much happier in the long run if they didn’t have to go onto plastic.

Here are some basic steps you can follow to keep yourself always ready for the unexpected but inevitable bad hands that life deals to us.

Keep an emergency fund.
More than anything else, an emergency fund can help you through tough times in the future. Keep a savings or a checking account somewhere stocked with a few months’ worth of living expenses, and keep a little bit of cash at hand for more specific emergencies.

Having easy access to cash without putting yourself in debt means that you don’t have to worry about the bills later on from the actions you need to take right now. You’ve got the cash to handle most issues, like sudden travel, meal expenses, and other short-term costs that are often related to sudden emergencies.

I usually recommend keeping some cash nearby, too, in an intelligent hiding place in your home. I have $300 in $20 bills hidden in my home, waiting for the right opportunity to be used. When I need it, I can just grab it and go.

Keep a “work buffer.”
Keeping a “work buffer” can be vitally important for enabling you to deal with day to day life. It allows you to walk away from your work for a short while with minimal stress, and the less stress you have during an already-stressful situation, the less likely you are to spend money needlessly and make rash decisions. Here are some great methods of giving yourself a work buffer.

Get ahead – and stay ahead – on basic work tasks. For me, this takes the form of having several days’ worth of articles written in advance, so if the vagaries of day to day life catch me off guard, I can just walk away and know that the basics of my job are taken care of.

Have a well-trained backup. Make sure that there’s a person who can handle the mission-critical aspects of your job, or at least knows how to assemble the pieces so that these tasks get done.

Prepare solid documentation of your daily routine. This way, a person can fill your shoes with minimal training in a pinch, making it possible for you to back away with minimal stress at important moments.

Have a list of key contacts ready to go.
If you’re suddenly pulled away because of a personal emergency, there are likely several people you’ll need to contact to make them aware of the situation. Have these people already entered in your cell phone and listed somewhere where you can easily find them.

Contacting all the right people when an emergency happens can be the difference between an easy exit from your responsibilities and a disastrous one. Make sure you’ve covered your job responsibilities thoroughly, as well as the most challenging of your personal responsibilities.

Don’t run yourself out of leave at work.
Many people have a tendency to use their work leave as soon as they get it and fail to accumulate a buffer of leave for later on in the year, then when an emergency strikes, they’ve got to juggle a lot of things in their life and likely alienate their boss in order to be able to handle life’s emergencies.

A better tactic is to hold on to at least a week of your leave and use it only when you have to use it. This way, if a personal crisis strikes, you can quickly tap into that leave and utilize it for something truly important. Coupled with a strong work buffer, adequate spare leave can often make a quick job sabbatical go by with nary a worry.

Develop a strong social and professional network.
If you invest time and energy into consistently helping out others without anything in return, most of those people will be there for you when you really need it. Don’t hesitate to help out people when they ask and never ask for a thing in return unless you truly have a need.

Then, when you’re in a situation where you need help, these people will almost always step forward and give you the help you need, stepping up to the plate for you in pinches and taking some of the workload off your backs. They may also be a personal help, lending you emotional support or other specific things that you may need.

The time spent building up relationships with others pays dividends when you’re in a pinch, so spend some time now building up those relationships before you ever have to call things in.

Keep your master information document (and related documents) up to date – and help others prepare theirs.
There may even be some situations where you have to delve into your own personal finances or into the personal finances of others. For example, if you’re facing a major liability situation, you’ve been critically injured yourself, or a close family member is critically injured or has passed on, it may be important to know what wishes are in place and how people want their assets to be handled.

You can make this easier right now by preparing your own master information document which contains all of this information about you, so if someone needs to access it to help you out in a major emergency, you’re ready to go. Similarly, you should encourage the people you’re closest to to prepare similar documents – your parents, your spouse, your children, and perhaps your siblings or closest friends – so that you can step up to the plate for them in a pinch without having to waste a lot of time or use an attorney and incur a bunch of unnecessary fees.

A little preparation now can make a huge difference when you need it later on. Take some time to get a few things in order and when something disastrous happens, you can focus on the things that are really important and not worry so much about your personal, professional, and financial obligations.

The post Dollars and Sense When Life Hits You Hard appeared first on The Simple Dollar.

Why worry about it? In the most generic sense, you don’t have to. Each state has intestacy laws (intestacy refers to laws that determine what happens to your property in the absence of a will) that will determine, based on a simple set of rules, who would have the opportunity to claim custody of your children. Often, grandparents, aunts, and uncles are options, and in most loving families, the people will come together and find a solid and workable solution for your children.

The only problem with this is that you have no voice in the matter. Your extended family and the state will be making this decision, not you and your spouse. Given the deeply personal nature of the decision, you’ll likely want some input on that decision.

How to Pick a (Possible) Guardian for Your Children

There are many different guides available on this topic, with drastically different advice. What I’ll offer is the criteria we used in coming to this decision.

Does the potential guardian share your values? In other words, does the potential guardian believe in the same things that you believe in and have many of the same philosophies about raising children that you do? To borrow from Les Miserables, you don’t want your little Cosette put in the hands of the Thenardiers, even if you believe they have the means necessary to raise your child.

Do you believe the guardian will raise your child in accordance with those values? Is that potential guardian a good person? If you’re not confident of their character, then you might not want to have your child raised by that person. For example, the guardians we selected for our own child have vastly different interests than we do, but I know their character – our children will be in good hands with them.

Does that potential guardian have a strong family network around them to help with the burden of having unexpected (and likely traumatized) children? Likely, if you die suddenly, the lives of the guardians you selected will be turned upside down. Does your guardian have the appropriate network of support around them to ensure that your child’s life doesn’t quickly descend into chaos? It’s often a good idea that the potential guardian lives near your child’s grandparents (or perhaps are their grandparents).

Will that potential guardian teach your children the basics of success in life? In other words, you wouldn’t want to turn your children over to someone who would be incapable of teaching your child basic life skills. Can the guardian manage their own life effectively?

Does that guardian have the financial security to ensure that your child’s needs are met? In other words, if they’re struggling to make ends meet right now, dumping two children into the situation might not be good unless you’re adding your own financial support (in the form of large life insurance benefits, for example).

Will that guardian have an expected natural lifespan that will allow them to remain as guardian until your child enters adulthood? Your children have already gone through the trauma of losing both parents. Why would you want them to go through the trauma of losing a guardian as well?

The relative values of each of these questions will likely vary a lot depending on your personal values, but they’re all worth considering. These are the exact questions we used when determining who we wanted as a guardian.

When making our decision, we actually made a giant list of everyone who we would even consider as a guardian, then gradually eliminated people one at a time, eventually winding up with three strong candidates. After a lot of discussion, we decided to choose guardians that had the best access (by far) to grandparents for support in raising our kids – that was our “tiebreaker.”

Planning for the Situation

Likely, if there’s a scenario where you and your spouse have both passed on and your guardian gains custody of your children, you’ll want your estate to be used to ensure that your child has every success in life.

First of all, your will needs to specify your guardianship plan. You may even want to specify multiple guardians, so that if your first choice is somehow unable to take on the responsibility, your second choice is clearly stated. Consult a lawyer and ensure that your will is set up properly and legally so that your wishes will be carried out.

The most effective method of ensuring your children get their assets may be to set up a living trust right now, so that if you do pass away, your property is considered part of that trust and can be distributed by the trustee. Within that trust, you could specify rules for disbursement to your children at certain periods in your life. You’ll need to identify a trustee to handle this – someone you deeply trust that you are confident could handle this task with good faith.

If you don’t have significant assets and your primary gift to your children is your life insurance, you can specify in your will that these cash assets are placed into a trust for them. Again, you’ll need a trustee that you really trust, and again, you really should contact a lawyer to get the specifics worked out.

Your children are some of the most valuable things you’ll ever give to the world. Take the time right now to ensure they’re well taken care of if something happens to you.

The post The Guardianship Question appeared first on The Simple Dollar.

Because they offer all of these useful tools, over time, I’ve begun to use ING Direct as my primary budgeting tool. I can set aside money in specific small pools, automatically transfer money back and forth, set up automatic bill payments, and so on. These tools allow me to effectively manage my money.

Here’s a walkthrough of how I do it.

Step Zero: Get An Account
You don’t necessarily have to have ING Direct as your bank to do the following. You merely have to have a bank that has online checking and savings access and online bill pay. Many banks offer this – Washington Mutual and E*Trade Financial are two well-known national banks that offer similar services, and your local bank may offer it as well.

Switching to a new checking account is easier than it might sound. I’ll quote the steps you need to take from an earlier post:

1. Open the new checking account. The first step is the most obvious one. Open the account and get the information you need: account number and routing number. Order checks if you need them. In other words, be prepared. Your new bank may also need the information for your old checking account so you can transfer money from the old account into the new.

2. Make a list and check it twice. Make a detailed list of all automated withdrawals and deposits from your current primary checking account. The best way to do this is to simply watch the account for a period of two to three months so that you pick up as many of these as possible.

3. Balance your checkbook. Make sure you’ve accounted for everything outstanding so there are no nasty surprises during the transition. Figure out what you have in the old account down to the cent so that you can avoid overdraft dangers.

4. Switch over all deposits and withdrawals at once. I find this is easiest to do by switching over the deposits a bit earlier than the withdrawals, so that there is money already in the new account when deposits begin to be set up. I’m also incredibly careful about such things.

5. Leave the old account open for a while with a balance in it to catch any missing deposits or withdrawals. Even though it might feel like the balance in the old account is just sitting there wasting time, it’s actually there to protect you against your own poor memory. Just be patient and give it several months; you might surprise yourself.

6. Close the old account. Be sure to leave a correct address behind. You might also want to end other services at that bank, such as a safety deposit box.

If you’re switching to ING’s Electric Orange checking, it may be useful to skip step #6 and leave the old account open, especially if there are no fees on it. I’ve kept my old checking account open for two conveniences – cashing checks with a teller and the ability to write paper checks (on the rare occasions when I do this any more, maybe once every three months).

Step One: Set Up Automatic Bill Payments For Monthly Bills
For every regular monthly bill you have, you can set up an automatic bill payment for that bill so you don’t have to worry about paying it on time. It’s quite simple.

First, click on the “Electric Orange” tab on the top, then click on “Free Bill Pay.”

Add a new business (with the name, address, and account number) by clicking on the appropriate link, then add that bill in below. You can specify the amount, the date to pay it, or the regular date to pay it.

Once you’ve done this, the next scheduled payment shows up in your basic checking account screen, so you can easily see what’s coming up and when.

Step Two: Set Up A Sub-Account For Each Irregular Bill and Savings Goal
What about the other bills, the ones that only come around every several months and seem to always crunch the budget, like homeowners’ insurance or car insurance? For those, it’s useful to set up a sub-account to slowly set aside money so that when the big bill comes, you’re ready. Here’s how.

Once you’re logged in, in the upper left, click on the “Open Account” option. You can see it clearly in the picture above.

Choose to open a new savings account on the next screen The “Open Now” link in the image above is where you should go.

From there, the process is really straightforward – you can call each account you create whatever nickname you like to identify it as a distinct fund: an emergency fund, a “house maintenance fund,” a “vehicle replacement” fund, a “house insurance” fund – whatever works for you.

After that, you should set up an automatic transfer into that account. You can do that by clicking on the Transfer Money tab along the top.

Then, fill out the information below. As with the automatic bill payments, these will appear on your default checking account view so you can quickly see the money that’s going to be automatically withdrawn from your checking account.

My recommendations? I leave the amounts for the regular but varying monthly bills in my main checking account – things like the cell phone bill and the electric bill just come straight out of the checking. Other bills, especially large ones with longer periods like car insurance and homeowners’ insurance, are handled by having a tiny weekly deduction from my checking account into a special fund just for that purpose. For example, our car insurance is about $400 every six months, so I transfer $15 a week into an account just for that. This way, I don’t really notice that $15 going away, but when the big bill comes, it’s not a panic time – the money’s just sitting there. So I transfer it back into my checking and pay the bill, all online.

Step Three: Pay Your Bills As They Come In
After this is all set up, your only real responsibility is to pay the bills as they come in. I usually pay all outstanding bills once a week, on Sunday afternoon. Keep on top of these bills, so that you’re not dinged with a late fee. With many of the bills handled now by automatic transfer, you won’t have that much to deal with – I usually just have one or two bills a week to pay attention to.

Step Four: Use Your Debit Card as a Mastercard and Use It For Regular Purchases Like Groceries
If you wish to completely centralize all of your spending until you get things under control, ING’s Electric Orange checking service will issue you a debit card that also functions as a Mastercard. If you’re just getting your budgeting under control, it may be useful to spend a few months just running all expenses through that card, so you can keep a careful eye on what you’re really spending. Once you have a strong grip on your spending, you can move on to using other mechanisms for your expenses, but sticking with a check card for a while is a great way to make sure your spending is under control.

These steps, all together, create a centralized view of your day-to-day finances and also form the basics of a budget. This is exactly how I do things right now in terms of day-to-day money management. I use ING Direct to do all of those things, and it’s done wonders for keeping my money in line.

This plan requires you to do some basic math with a calculator. Since you’re already at the computer, using the simple calculator tool on your computer for addition and subtraction should do the trick quite nicely. I tend to use Excel because I usually already have it open in order to update my net worth calculations.

Good luck!

The post How to Budget Using ING Direct (Or Another Full-Service Online Bank) appeared first on The Simple Dollar.

What’s often not asked is whether or not estate planning really even applies to you at all. Does it? Let’s take a look.

The first question you need to ask yourself is if you passed away tomorrow, would you leave anyone else behind in a financial pinch? Do you have dependents on your income tax? Are you helping out your parents as they get older? Look through your life and ask yourself if anyone would be in a significant bind if you suddenly vanished (and the people you work with professionally don’t count here).

If you can identify people who would need help (or may need your help in the near future, like a future spouse), then you should have some sort of life insurance. There are many tools online for estimating how much you’ll need – this MSN Money tool is particularly good.

If you can’t identify anyone, you probably don’t need life insurance at all. A tiny policy – just to cover your funeral expenses so you don’t burden your parents with the cost – might be appropriate, but if no one is left hanging by your passing, life insurance isn’t really a necessary expense for you.

Another worthwhile question to ask is do you have any specific sentimental property or small assets you want given to specific people when you pass? If you do, then a proper will is in order, so you can specify your wishes. If you don’t care what happens to your stuff for the most part, then you can either not have a will at all (and allow the court system to distribute your assets) or have a very will that assigns everything to one person.

What if you have a lot of assets you want to pass on to people? In that case, you’ll probably want to set up a living trust of some sort – consult a lawyer. You’ll probably also want to prepare a financial preparedness document for your survivors, so they know where everything is and can easily access it.

To put it simply, if you’re a young and unmarried professional without any kids or other challenges, you likely don’t need to worry about estate planning at all. Instead, focus your energy and your money on building a strong career and preparing yourself for the other challenges and goals in life, and revisit this question if you decide later to get married and/or have children.

If you’re young and are married (and/or have young children), but haven’t accumulated significant assets yet, you should have life insurance and a basic will. Life insurance will ensure that your surviving spouse and children are taken care of, and a will may specify any other specifics you may want to label, particularly in the event of the death of both you and your spouse with surviving children.

If you’re later on in life and have accumulated significant assets, that’s when a living will comes into play. Consult a lawyer and get one set up properly so that your wishes are clearly carried out after your passing.

Estate planning is a perfect example of how the same old financial advice doesn’t apply to everyone. People at different stages in life have different needs.

The post Do You Need to Leave an Estate? appeared first on The Simple Dollar.

Defining the Biggest Goals
The first step for my wife and I was to sit down and identify our biggest goals in life. What do we really want to do with the rest of our lives? What do we dream about? It really came down to three big dreams.

Raise our two (and likely more) children with every opportunity in the world and lots of growth experiences. This means a lot of things: saving for college, providing them a top-notch education, giving them everything they need to discover and explore their passions, traveling extensively (and off the beaten path, too, to observe how a diversity of people live), reading a lot, and so on. If there’s an educational opportunity that works for our children, we don’t want our finances to stand in the way of it.

Buy a significant patch of land, mostly forested, out in the country, and build a reasonable house on it. This is something we’ve always dreamed of – a nice, large house out in the country for our kids to finish growing up in and to come home to, with plenty of space for them to sleep when they come back and bring their own children. My wife’s grandfather has this, and it’s so pleasant that it’s even come to feel like home to me – I look forward to visiting there, playing cards with my in-laws, and just enjoying pleasant and relaxing company. We both really want to have such a place for our own children and grandchildren to come back to. We want to be able to purchase the land and commence construction before our children are out of eighth grade, intending to stay in our current school district.

Retire as young as possible and commit the rest of our lives to community volunteerism. Our third major goal in life – likely the one taking center stage when the first two are complete – is to retire young and focus on community and political volunteering for the rest of our adult lives. Running for local political offices, serving on boards, doing volunteer work, and campaigning for other candidates sounds like a wonderful retirement for us.

Our Plan
We actually sketched out a year-by-year plan with specific goals reaching through our youngest child’s high school graduation, setting targeted goals for each year. We attempted to define flexible goals that could still be met even with significant life changes. Here are our goals for the next three years.

By the end of 2008, we intend to have fully eliminated my wife’s student loans, contributed $1,200 each for the year to our children’s 529 plans, and increased our retirement savings to 1.3 times our combined annual living expenses.

By the end of 2009, we intend to have fully eliminated all of our student loans, contributed $1,200 each for the year to our children’s 529 plans, and increased our retirement savings to 1.45 times our combined annual living expenses.

By the end of 2010, we intend to have $20,000 in our portfolio saving for our country house, contributed $1,200 each for the year to our children’s 529 plans, and increased our retirement savings to 1.6 times our combined annual living expenses.

Some Additional Notes
Obviously, this raises a lot of questions, so I thought I’d address some of the more obvious ones right away.

Acceleration We are intending to accelerate this as much as we can. For instance, I’m hoping that my wife’s student loan will be gone this July, so we can focus in on eliminating my own student loan, which might be done in early 2009. This lets us go ahead and start with our investing plan in early 2009 instead of in 2010.

Our current mortgage Our mortgage has a low enough interest rate that we’ll just continue to pay it off, a payment at a time, until we’re ready to move on, at which point we’ll use the proceeds from the house sale to pay off the remainder of the current mortgage.

Retirement planning Not only are we doing much better than many metrics suggest that we should be doing at our age, we’re also trying to set up sources of passive income to help guide us through.

Educational opportunity savings Right now, with our children so young, the educational opportunities are somewhat limited. In the future, we plan on budgeting a notable portion of our annual budget to such expenses, particularly travel and educational costs.

Comments? Questions? Fire away in the comments.

The post Planning for the Long Haul: My Family’s Lifetime Financial Plan appeared first on The Simple Dollar.

First: Life Insurance
Ask yourself three questions: are you married? Do you have children or other dependents? Are you planning on marriage or children in the near future? If any of those have a “yes” answer, you should have a life insurance policy of some sort.

Life insurance really isn’t a complicated game. Most of the options out there are beneficial only in certain situations – whole-life insurance plans, for example, aren’t a bad choice if you’re buying for a young child. For most young and middle aged adults, however, the best option is term life insurance. Just shop around a little bit for a good policy and get one with a 20 or 30 year term (covering the period where you might have children under your roof).

How much should you get? An actuary friend of mine made a good suggestion. Take the number of people in your household, multiply that by five, then multiply that by your annual salary. From that, subtract your net worth.

So, let’s say you have a total of four people in your household, you make $40,000 a year, and you have a net worth of $100,000. Multiply the number of people in your house by five, giving you twenty, and multiply that by your annual salary, giving you $800,000, and subtract your net worth, giving you $700,000. That’s how much your term life insurance benefit should be.

That’s a good way to estimate and will give you a very strong number to ensure the security of your family over the long term. Be wary of life insurance loopholes that insurance companies may try to dupe you with.

Second: A Will
A will is basically a simple document stating what you want to happen to your property in the event of your passing. After you pass away, the will is used in public court in a process known as probate to make sure your wishes are handled fairly. For most people, a will is an essential document – if you have an executor you trust and a well-written will, your stuff will go where you want it to go.

Wills are quite simple to set up, but you still should consult an attorney to make sure you’re following all of the procedures that apply in your state.

Key things to think about:
Who should be the executor? It should be someone you trust deeply.
Who should have my assets? Also, how should they be divided up?
Who should have my personal heirlooms?
Who would gain custody of my children? Talk this over with the people you have in mind and make sure they’re okay with it.

Third: A Durable Power of Attorney
A durable power of attorney is a document that you sign giving someone else the power to handle your finances and legal affairs should you become incapacitated, but it expires upon your death. Basically, you’re saying to everyone in the world that you’ve designated a particular person to represent you if you’re incapacitated for some reason. The person you designate, called an “agent,” is legally bound to act in your best interests, and you can revoke this person at any time, so you can’t just get ripped off by someone.

If you’re married, by default your spouse has power of attorney if you’re incapacitated. The only benefit of such a document is if you’re unmarried or if you want to be covered in the event of an accident that incapacitates both you and your spouse.

In truth, this is most useful simply to designate one person that’s in charge of things should you become sick. Without it, lots of people can potentially try to claim power of attorney and a legal mess can ensue while you’re incapacitated. If things are basic and straightforward, this document is perhaps not vital, but if you have a lot of assets and a lot of interested parties, it’s probably worthwhile to designate someone. As with other documents, contact a lawyer and get it done right.

Fourth: A Living Will
A living will states the health care directives you want to be followed should you be unable to tell the doctors yourself. Do you want to be on life support for a long time at the desire of your family, or do you want to spare them the anguish of a long and drawn-out scenario? What about methods to save your life? Some people have strong feelings on these issues and should have a living will – others can simply trust their spouse or whoever they’ve designated to have power of attorney over them. If you want to be certain your specific wishes are fulfilled, make sure you’ve prepared a living will.

Fifth: A Master Document for Your Survivors
A few days ago, I wrote about creating and maintaining a master financial document for your survivors. Basically, this is a document explaining all of your assets and debts and everything that needs to be done to close them out and get the assets in your accounts to the people that should have them.

It’s a great thing to have – I know from experience that such documents can be an enormous help to a family burdened with grief. Take the time to prepare such a document and make sure the important people in your life have a copy.

What About a Trust?
Many financial advisors speak lovingly about setting up a living trust in order to help with the process of transferring an estate after you pass on. These can be very effective because they allow you to avoid the court system and have your estate directly transferred to your beneficiaries upon your passing without the costs and waiting required with probate, but there are some costs – mostly legal fees – in setting one up.

Basically, if you don’t have children or you don’t have any significant assets (a net worth of less than several hundred thousand or so), a living trust probably isn’t worth the effort. However, if you do have children, particularly adult children that you wish to transfer your assets to when you pass on, you should definitely think about a living trust. As I have two young children, I have been researching the pros and cons of doing this and am considering setting one up simply so that if something happened to my wife and I, they would be very well protected.

My advice if you’re considering this? Get a few quotes from various lawyers on what they would charge to set one up for you. Don’t do this with a “create your own living trust” package – this is important enough to make sure it’s done correctly by a legal professional.

One Last Thing…
Write a few letters. Write one to your wife telling her how much you love her. Write one to your husband telling him that you loved him every day of your life. Write one to your kids telling them how much they mean to you every day. These things will mean so much when you pass away and they can no longer hear your voice – they all likely love you more than you think they do.

Doing all of these things feels rather grim, but remember you’re doing them to help your loved ones in the future. Think about how much you love the important people in your life and consider how much help your small effort now will be for them later. Then take the time and get these things done.

The post Personal Finance 101: The Basics of Estate Planning appeared first on The Simple Dollar.

A master document explaining what all of this stuff is This is mostly a guide to the executor of your estate, containing all important information not contained in the other documents and also explaining online account access and other such information, like where a safety deposit box key should be and such. This may also include personal letters to people for them to read in the event of your passing and so forth.

Think about this scenario: if you dropped dead right after reading this article, would your survivors – your kids, your spouse, your family – have any idea how to access your money? Would they even know where all of your accounts were?

For most people, the answer is a big fat no – and that’s an answer that can be very dangerous. It’s worth spending a few hours to put together a master information document – and updating it every year or so – just so your loved ones will have a much easier time with things in the event of your untimely demise.

How to Prepare a Master Information Document
Preparing such a document is pretty simple, actually. You just need to create a single document that includes all of the information your loved ones might need to settle all of your outstanding accounts and get all of the benefits they should be getting. Here’s a checklist of what you should include.

Account information for every account you have open. Everything from your retirement account all the way down to your library card should be included here. This will allow the person using the document to systematically go from account to account and, at the very least, have access to them.

A complete list of every benefit anyone is entitled to upon your passing. This means life insurance benefits, Social Security information, retirement accounts that may disburse, and anything else that might benefit people once you’re gone. This is the stuff that you’re paying for now so that they can have it later – make sure they get it.

A complete list of all debts and all assets. This will provide a complete financial picture for you. For each of these, provide plenty of information – the current balance as of your writing, how to contact that entity, and any account information that’s relevant.

A detailed description of how to handle any business assets you may have. This is only true for some folks, but it’s vital. If I were to have an untimely passing, I have a plan in place and it’s well-documented – all of the steps that someone needs to take to ensure that The Simple Dollar’s archives remain up and running and my other business interests are handled well.

A copy of your will, your living trust, and any other documents pertaining to your estate. You should have several copies of these documents, but be sure to include an extra one here just in case.

What Now?
Once you have the document prepared, what’s next? Here are a few steps worth taking.

Make sure everyone has access to a copy. For us, my parents, my wife’s parents, my wife, and our safe deposit box will all have copies of this document very soon. It’s currently saved on my computer’s hard drive and on my backup drive, too, so the information could be found if need be, but I intend to print it out and give it to each of these people so they’re sure to have one if it’s needed. You can distribute these electronically, but be very careful, as the document is larded with personal data that an identity thief would love to have.

Talk it over with them. Make sure they know what the document is and what they should do with it. It’s not useful if it’s not in people’s hands or if they don’t know what it’s for.

Update it regularly – at least annually. Just pull out your electronic copy, read through it, and update anything that needs updating. If it’s significant, print out new copies for everyone and distribute them.

Take a few hours and put this document together, especially if you have a family. You’ll feel much better knowing that one of your bases is covered.

The post Making and Maintaining a Master Information Document appeared first on The Simple Dollar.

You talk all the time about setting goals and measuring progress. Without a budget, how do you set personal finance goals for yourself and measure progress?

My wife and I use only one metric to measure our financial progress – net worth. No other single metric says so much about our financial state.

Defining Net Worth
To put it as simply as possible, net worth is the value of your assets minus the value of your debts. In other words, if you sold everything you owned, emptied out every account, and paid every debt, how much cash would you have on hand (or, possibly, how much debt would you still have)?

Over time, a household with their financial hat on straight will see an increase in their net worth. They’ll spend less than they earn and invest the difference in some fashion. On the other hand, if there are financial difficulties, a family’s net worth might decrease over time, meaning their debt is increasing at a rate faster than their earnings – a very bad sign.

If you’re interested in trying it out yourself, here’s how to build your own net worth calculator.

Using Net Worth to Track Positive Financial Progress
Using your net worth to keep track of your financial progress is easy. Just calculate your net worth each and every month and track it over time. You might not necessarily see a jump every single month, but over the long haul, if the general trend is upwards, you’re in fine shape.

This long-term approach is much better, actually, than a monthly budget in terms of seeing the benefits of lifestyle changes and smart financial moves over the long haul – it constantly forces you to see the big picture, not just the picture of that specific month. You might not think a change that saves you $10 a month is a big deal from just the view of a monthly budget, but that $10 saved every month over ten years creates quite a different picture – used properly with an 8% annual return compounded monthly, that $10 a month becomes $1,802.12.

Because of that, things like buying in bulk and investing in quality stuff with a long lifetime show up as beneficial on a net worth progress chart, but don’t look nearly as good on a monthly budget sheet.

Using Net Worth to Set Short-Term Goals
My net worth calculator is a constant supplier of short term goals. Each month, I look at the sum total of assets and of debts and use that data to set small goals for the coming month – an asset increase of 1%, for example, or a debt reduction of 1%. These short term goals force me to keep my eye on the ball – talking myself out of buying VMWare Fusion, for a recent example – and keep myself constantly motivated.

These little goals are achievable, but by themselves they don’t seem like a whole lot. But look at it this way – if I target a debt reduction of 1% each and every month for a year, 11.3% of my total debt goes away. If I then keep pushing myself – moving that goal up to a 1.25% reduction every month, for instance, and then to a 1.5% reduction and then to a 2% reduction – I can push all of that debt out the door in just a few years.

Not only that, achieving those little goals over and over again enable big goals.

Using Net Worth to Define Long-Term Goals
Let’s say I want to achieve debt freedom in five years without reducing my current assets – that’s a big, audacious goal for most people. If my total debt is $100,000, that means that my true goal is to increase my net worth by $100,000 in five years.

How can I do that? $100,000 divided by 60 is $1,333 – that’s how much my net worth has to increase on average each month over the next sixty to achieve debt freedom.

I then set that as my small goal each month – my net worth needs to go up $1,333 that month. How can I do that? I can pay down extra debt. I can invest smartly. I can buy in bulk, effectively investing now for the future. I can work hard for extra income.

All of these little goals spring from a big goal, and that big goal is all about the net worth.

The Net Worth Mentality
The idea of net worth as a primary method of figuring financial success is a concept explained very well in the wonderful book The Bogleheads’ Guide to Investing by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf – I reviewed this one a while back and loved it.

Here’s what they had to say about the net worth mentality on page 7 of the paperback edition of the book:

From the time we are old enough to understand, society conditions us to confuse income with wealth. We believe that doctors, CEOs, professional athletes, and movie actors are rich because they earn high incomes. We judge the economic success of our friends, relatives, and colleagues at work by how much money they earn. Six- and seven-figure salaries are regarded as status symbols of wealth. Although there is a definite relationship between the income and wealth, they are very separate and distinct economic measures.

Income is how much money you earn in a given period of time. If you earn a million in a year and spend it all, you ad nothing to your wealth. You’re just living lavishly. Those who focus only on net income as a measure of economic success are ignoring the most important measuring stick of financial independence. It’s not how much you make, it’s how much you keep.

It’s not how much you make, it’s how much you keep. That’s a very strong assertion, and one that a lot of big spenders would argue vehemently with. But it’s true. The money you keep is the money that will allow you to be truly financially free. The one true path to a future where you can do whatever you want is to have a high net worth – without it, you’re guaranteeing yourself a lifetime of work and limited choices. With it, though, you can walk away from your old career anytime you want and chase your dreams – that’s what I did.

The post From Budgeting to the Net Worth Mentality appeared first on The Simple Dollar.

A lot of major publications (The Economist being the biggest) have been predicting that the US will have a recession this coming year. My question has to do with preparing and surviving during a time of recession. Also, another idea would be how to work with the dropping in value in the dollar.

First of all, I think most mainstream articles on economic downturns are sensationalist. For most people leading normal, everyday lives, an economic recession doesn’t mean too much. Unemployment might rise some, but mostly it’s companies trimming fat – stable companies don’t fire good employees because of downturns.

If you’re worried about the economic downturn affecting your financial status in a significant fashion, there are one of several possibilities going on, most of which have more to do with your own choices than the market:

1. You’re concerned about your job performance and that you might be considered part of the “fat” at work. This concern usually comes from people who are underperforming at their job

Solution: Work harder, and keep track of what you do. Do what you can at all times to maximize your career and have a very good performance review. Here are fifteen things you can do right now to help, along with fifteen more.

2. You’re concerned about the long term health of your organization and you think a recession could kill it. Think about people working for Sears and K-Mart, for example. Those companies are sinking fast and could possibly go belly up in the next few years, triggered by even worse revenues from a recession.

Solution: Polish your resume and move on with your career sooner rather than later. It’s never a bad time to get out of a sinking ship. Figure out what you want to do with the rest of your life and move forward with that plan.

3. Your money is heavily in the stock market and another slide like the one from 2000 to 2002 would be devastating. You know from the past that recession means downturn in the market and you’re very worried about losing your investments you’ve built up.

Solution: Go conservative if this is keeping you up at night. Move heavily into bonds, for example, or into real estate by having your future buying go into these areas. Sell your stocks only if your ultimate sell date is coming in the next five or so years – otherwise, hold on for a roller coaster ride. During an economic downturn, a stock-heavy portfolio will not do well, but over the long run it will.

4. Your financial situation is so loaded with debt that if anything bad happens at all it collapses like a house of cards. People who are in debt up to their throats are kind of panicked right now, and deservedly so: if easy credit dries up and the economy goes down, their lives could be in deep trouble. If a job loss means you lose everything, you’re in deep, deep trouble.

Solution: Start living within your means. Build up an emergency fund, then start seriously tackling high interest debts. You need to buckle down now so everything doesn’t collapse later, so stop spending money and instead start eliminating debt and saving.

Here’s the real message: you control your economic future, not some Wall Street banker. If the economy goes sour for a while, you can make choices so that you sail right through it without a worry in the world.

Don’t let the fearmongering keep you awake at night – if you’re making sound financial and life choices, you’ll be just fine over the long run.

The post Preparing For and Surviving an Economic Downturn appeared first on The Simple Dollar.