Category Archives: Finance

Understanding the difference between a Payment Processor and a Payment Gateway

Are thinking of broadening your business horizons into the online market? You are likely deep in thought about the best method to employ to receive and process payments from customers.

Undoubtedly, the best option you have for seamless and secure payment processing is a merchant account. This account will enable you to accept credit and debit card payments online.

A merchant account from a reputable firm such as eMerchantBroker usually comes in a complete package that gives an online retailer access to a payment processor and an integrated payment gateway. Therefore, new merchants have to possess enough understanding of these two services to ensure they pick the right accounts provider for their business.

Payment Processing

A payment processing service handles transactions from credit and debit cards on behalf of the merchant. Upon receiving payment information from a customer, the processor forwards it to the respective card association, e.g. Visa or MasterCard. The card association directly provides a response of approval or decline which is relayed back to the processor. If verification fails, the payment processor can carry out anti-fraud measures against the transaction.

Payment Gateway

A payment gateway is the avenue via which a merchant charges customers’ credit or debit cards with the purchases they make online. As a merchant, a gateway will enable you to receive payment for goods sold directly from your website. Integrated to your website, the payment gateway provides the forms which a customer fills out with information. This information is then taken up by the payment processor for verification.

Afterward, the gateway provides you with an acceptance page where you can authorize the purchase and complete the transaction. Depending on your provider, your payment gateway can come equipped with security measures such as chargeback control and anti-fraud solutions. Moreover, the gateway’s connection to the payment server and the processor is encrypted and wholly managed by your payment services provider.

Both payment gateways and processors can exist as independent firms, which come together to provide their services directly to internet merchants, and use banks to provide merchant accounts. However, it is advisable to go for a company that provides the three services through one contract. Payment service companies vary in the subscription fees they charge, the type of gateways they use and the fraud mitigating measures they take, among other aspects. It is therefore vital to choose the right merchant accounts provider for your business.

The Essential for Financial Health

Why is it that a few four-letter words have given thousands of perfectly good four-letter words such a bad rap? It doesn’t seem fair does it? I took it upon myself to give them a break. Make a habit of putting these eight words into use, and your finances will be stronger than ever. They won’t offend anybody. You can even say them in front of your parents. How great is that?

Why eight? Well, I was reading an article about how we can be pretty hardheaded when it comes to making changes. The author suggested sometimes we need to get hit over the head with a (figurative) two-by-four to get a message. Multiply two by four and you get eight.

Essential Four-Letter Words

  1. Plan: It’s time to outgrow impulse spending. If you’ve got some exciting goals, and I hope you do, planning before spending will make those goals happen sooner. Whether it’s clothes, groceries or basic household matter, make a list before you head out to spend. You’ll get everything you need and you’ll be less likely to end up with three jumbo jars of peanut butter in the cupboard.
  2. Cook: Sure you’re busy, you’re tired. You come home and the last thing you feel like doing is cooking a meal from scratch. I get that. Take baby steps and make it fun. When you’ve got a little downtime, check out a few online cookbooks and find a new recipe to try. There are millions of recipes that don’t take long, don’t need many ingredients and make great leftovers. Aim for eating one less meal out and cooking one more meal each week.
  3. Swap: Tired of wearing the same scarves and belts over and over? Tempted to go out and buy a bunch of new ones? Host a swap party instead. Start simple. Invite a few friends to each bring five accessories they’re willing to give up for a while and exchange. It can be temporary or permanent – you decide. Everyone will feel like they got something new to freshen up their wardrobes but nobody spent a dime. This doesn’t have to be just clothing either. Sporting goods, furnishings, kitchen items, tools and electronic gadgets are great candidates for swap sessions.
  4. Safe: Do what you need to do to keep what you’ve got. If all your electronic accounts still use the same password you’ve had since seventh grade, it’s time to change. No matter how fond you are of CheetosRgr8t you need to come up with something new and tougher to crack. Don’t use just use one password either. Set up different passwords for different accounts.
  5. Save: You know I was going to put this in here, right? I am sure you are already saving, so bump up your saving percentage by 1%. Go ahead, you’ll be glad you did. Little increases add up to big results. (For more, see: 5 Painless Ways to Save More Money.)
  6. Roth: Start now. Open a Roth IRA and set up automatic transfers from your checking or savings account into it. You will be so glad you did. I promise. Ever wonder why it’s a Roth? That’s because the legislation was introduced by Senator Roth of Delaware. Just think, if you ran for Congress you could introduce a bill and have something named for you for ever after. Pretty cool.
  7. Debt: Yes, this can be a good four-letter word. If you’ve got debt of any sort, the good news is you are building a credit history. Make sure it’s a good one by paying your bills on time. At some point or another, you need to have a credit history in order to qualify for (more) debt. I know, that sounds a little strange but if you want to buy a house someday, you get a better rate if you’ve got a higher credit score. The score is based on how well you’ve done in the past with paying off debt so show those financial institutions you’ve got it together.
  8. Give: Almost all the healthiest, wealthiest folks all give time, money or both to help make the world a better place. If you haven’t done this before try it, you’ll like it. Start giving just a little bit and you’ll be hooked. And if you’re already a giver pat yourself on the back and keep on keepin’ on.

Take these eight four-letter words and make them a part of your life. You will be in a stronger financial place than you are right now. Want to learn more? Read Coin, a great four-letter word and a book that is guaranteed to make you the very picture of perfect financial health.

These Ten Habits Will Help You Reach A Financial Freedom

Achieving financial freedom is a dream for most people, but few make the dream become reality. The following are 10 key habits that help pave the way.

1. Set Life Goals

A general desire for “financial freedom” is too vague of a goal. What does it mean to you? Write down how much you should have in your bank account, what the lifestyle entails and at what age this should be achieved. The more specific your goals, the higher the likelihood of achieving them. Then, count backwards to the current age and establish financial mileposts at regular intervals. Write it all down neatly, and put the goal sheet at the very beginning of your financial binder.

2. Make a Budget

Making a monthly household budget, and sticking to it, is the best way to ensure all bills are paid and savings are on track. It is also a monthly routine that reinforces your goals and bolsters resolve against the temptation to splurge.

3. Pay Off Credit Cards in Full

Credit cards and similar high-interest consumer loans are toxic to wealth-building. Make it a point to pay off the full balance each month, and cancel all cards, save for one or two. Student loans, mortgages and similar loans typically have much lower interest rates, making them less of an emergency to pay off.

4. Create Automatic Savings

Pay yourself first. Enroll in your employer’s retirement plan and make full use of any matching-contribution benefit. It is also wise to have an automatic withdrawal for an emergency fund, with at least two to three months’ living expenses, that can be tapped for unexpected expenses and an automatic contribution to a brokerage account or similar account. Ideally, the money should be pulled the same day you receive your paycheck so it never even touches your hands, avoiding temptation entirely.

5. Ignore the Joneses

A braggart neighbor showing off a new car or his latest smartphone is no reason to do the same. Smile politely, nod, and take comfort knowing your reward is coming tenfold in the future.

6. Watch the Credit

A person’s credit score determines what rate is offered when buying a new car or refinancing a home. It also impacts seemingly unrelated things, such as car insurance and life insurance premiums. The reasoning is a person with reckless financial habits is also likely to be reckless in other aspects of life such as driving and drinking. This is why it is important to get a credit report at regular intervals to ensure there are no erroneous black marks ruining your good name.

7. Negotiate

Many Americans are hesitant to negotiate for goods and services, worrying it makes them seem cheap. Overcome this cultural handicap and you could save thousands each year. Small businesses, in particular, tend to be open to negotiation, where buying in bulk or repeat business can open the door to good discounts.

8. Continuous Education

Review all applicable changes in the tax laws each year to ensure all adjustments and deductions are maximized. Keep up with financial news and developments in the stock market, and do not hesitate to adjust your investment portfolio accordingly. Knowledge is also the best defense against those who prey on unsophisticated investors to turn a quick buck.

9. Proper Maintenance

Taking good care of property makes everything from cars and lawn mowers to shoes and clothes last longer. Since the cost of maintenance is a fraction of the cost of replacement, it is an investment not to be missed.

10. Exercise and Eat Right

The principle of proper maintenance also applies to the body. Some companies have limited sick days, making it a notable loss of income once those days are used up. Obesity and ailments make insurance premiums skyrocket, and poor health may force earlier retirement with lower monthly income.

News Is Investing $25 a Month Worth It

Any time you move money from your checking account to another account, whether it’s an individual retirement account (IRA), investing in stocks, mutual funds or savings account, you’re making an important step toward a financially secure future.

But what if you only have $25 a month to invest? Can you still secure your financial future? Or is it better to put it into a savings account until it’s large enough to counteract fees? This article will explain how to the evaluate fees involved in small investments.

How to Translate Fees Into a Percentage of a $25 Investment

Saving $25 a month will total $300 in a year, not including any interest. A $40 fee on an investment account equals more than 13.33% of your investment. Thus, this $25 investment would have to earn more than $40 in a year just for you to break even. This means that if the fee was taken out at year’s end, you would have to earn a 27% return on your money to break even. Why 27% instead of 13%? The reason is because your money grows steadily, and you earn interest on the amount you have in your account. For example, after one month you’ve invested $25, after two months you’ve invested $50, and so on. As your account grows, the principal on which the investment earns interest grows.

Therefore whether a fee is charged for buying stocks or mutual funds, maintaining or opening an IRA, or a savings account where your savings isn’t higher than the minimum balance, you have to consider whether the fee offsets the benefits of your investment. The easiest way to figure out if your fee is too high for your investment is to calculate how much money is necessary in interest or profit earned to offset fees. For instance, if you invest $25 per month, $3 equals 1% of your yearly total of $300 invested. Divide any fee by $3 to figure out the percentage you would have to earn to overcome the cost of having the account.

If you are investing a different amount, multiply your monthly investment by 12. Then, divide the result by 100. This tells you what 1% of your investment is.

Investing Directly With Mutual Funds Companies

Cut the amount of fees you incur by setting up an investment account directly with mutual fund companies. You can contact mutual fund companies through their websites or by phone and avoid the fees charged by brokerage firms or financial advisors. This is a good choice when you don’t have much money to manage.

A pitfall of investing small amounts through this investment avenue is that you are subject to losses. It is similar to investing in stock in that your principal can decrease, or even be lost, based on how the stocks or bonds in your diversified fund rise and fall. Therefore, make sure the amount you invest regularly, for example $25, isn’t money that you will need in the next two or three years.

Paying Off Debt

An alternative to traditional investing avenues is to invest in decreasing your debt load. For instance, you could add $25 to the minimum monthly payments you currently make on your credit card, which charges you a 12.9% interest rate. By doing this, you save roughly $3.23 per year for every $25 you pay off. When your debt is gone, you’ll be able to put more money into long-term investments and you won’t have to worry about a small fee eating up all your profits because your earnings will more than make up for the fee charge.

Decreasing Your Mortgage Balance

If your home is tied to a 30-year, $150,000 mortgage loan with a fixed rate of 6%, sending in an extra $25 per month with your mortgage payment will cut approximately two years off your mortgage repayment term. There are two reasons for this:

  • You’re paying down your principal. For every $25 you pay off, that’s $25 dollars less you owe on your mortgage.
  • The amount of interest you pay on the amount of principal you pay off is eliminated for the rest of the term of the loan.

For example, suppose that you have a balance of $148,000 on your 30-year home loan after your first payment, and you decide to send in an extra $25 this month. You now have a mortgage balance of $147,775. The $25 you just paid off will save you $143.59 over the life of your 30-year mortgage at a fixed 6% interest rate.

As a bonus, you’re essentially saving for retirement by helping to insure that you won’t have to make mortgage payments after you retire if you stay in the same home.

The Bottom Line

Putting aside $25 a month to invest in a savings account, mutual fund or individual retirement account is a worthwhile venture. However, pay extra attention to make sure profits counteract fees. Also, consider alternatives, such as reducing your credit card debt or amount owed on your mortgage loan, that will allow you to invest larger amounts in the future.

Tips Save More Money to Reduce Financial Stress

I’ve long held the position that even though we live in one of the wealthiest, most financially blessed countries ever, as a society, we also live a life of serious financial stress. I often joke that it’s probably less stressful to live in the rainforests of South America, hunting and gathering, than to live in our modern, tech-savvy society, paycheck to paycheck. A lot of this stress stems from the fact that, as a society, we just don’t save money very well. According to a past Marketwatch article, almost 69% of Americans have less than $1000 saved. That is an astonishing amount of us that are basically one paycheck away from homelessness, or at least raiding our retirement funds in case of an emergency.

Why Americans Have a Hard Time Saving Money

There is a plethora of reasons behind our insufficient savings habits, such as a lack of discipline and making bad financial decisions. Maybe, it is simply that good jobs and hourly rates just don’t exist anymore for the lower and middle class (which I would argue as a legitimate factor). We can even rationalize that the value of the dollar doesn’t go as far as it used to, therefore, neither will our paychecks. Regardless of the validity of these arguments, our financial habits have a direct impact on our ability to save and our overall financial well-being, regardless of the inflation rate or our income level.

How to Alleviate Financial Stress

If you find yourself significantly stressed out over money, there are several adjustments that can be made to alleviate that pressure and simplify your life. But it does require discipline and sacrifice, and a willingness to live with less. For example:

  1. Flip the “whip” – Many of us cannot legitimately afford the car parked in our garage; it’s possible we can’t afford the house it’s parked in either. If your car payment exceeds 15% of your monthly net income, not gross (we live off the net), then it’s time to consider downsizing or getting rid of your vehicle. I have done this before myself, and although it’s unpleasant, it’s better than living in stress and worry. Maybe 15% doesn’t sound like much, but if your mortgage or rent is near the recommended limit of 28-30% per month, almost half of your net income is being consumed by rent and a vehicle. The change is worth it. Alternative transportation could be used for the short term if available, such as public transportation, occasional ride-sharing with Uber or Lyft, and even carpooling to work. Assuming your car is not upside-down in value and you are diligent in saving in other areas, it shouldn’t take too long to buy a used, older car outright, completely eliminating a car payment. (For related reading, see: Options for When You Can No Longer Afford Your Car.)
  2. No cable – In my opinion, cable service is one of the biggest wastes of money. In the average household of three to four TVs, cable and internet services can run $200 per month or more. I recommend having only internet and purchasing a streaming device with no recurring monthly cost. These “sticks” allow you to stream movies or purchase programs or apps. I have recently done this myself, and eliminating cable alone is saving me close to $1500 per year. (For related reading, see: Alternatives to Cable TV.)
  3. Gym membership – these can easily cost $600-800 per year, depending upon how swanky the establishment and package that was chosen. With YouTube and DVDs, it’s so easy to get a quality workout at home without having a ton of money worked out of your wallet. Eliminate the membership, not the exercise.
  4. Side hustle – I have always been a huge proponent of a side hustle, or part-time gig. During my transition of leaving corporate America to go independent, I also had a part-time job while I built my practice. Even if you have a stable job or career and feel you could save more, find a good side hustle. Do something you enjoy and make some extra cash while doing it.

If you are feeling the monetary strain, downsizing your car, getting rid of cable and the gym membership, and finding a side hustle can have a dramatic impact on your budget. It takes a bit of courage, but one can transition from living check-to-check to having a net surplus per month, depending upon your situation. If you are having debt and/or budgetary concerns and you want to make some positive changes but are not sure where to start, reach out to a qualified financial advisor. If you change nothing, then nothing changes!

Info Buying a Car? Read This Financial Advice First

A few years ago when my son was in college, I gave him my old car to drive. Now, four years later, my son has a job and an apartment and uses this same old car to commute. The car is still reliable, but does need a little maintenance, and my son is thinking about buying a new car. He’s asking my advice, so I thought I’d share my advice with everyone. Buying a car is one of the priciest purchases you can make, so it’s definitely a subject that requires some financial advice.

Choosing the right car is very subjective. There are practical, emotional and aesthetical needs. Some people only care about a car as transportation. For some, a car needs to be comfortable. For others a car needs to project the buyer’s personality or be beautiful to look at. For still others, a car is the manifestation of sophisticated technology and needs to look and go fast. I think of a car as transportation, but I also want to be comfortable while I’m being transported. My son wants the car to fit his transportation needs and be fun to drive. When my wife bought her last car, her only need was a place to put her purse that wasn’t on the passenger seat or too far away. So how do you choose? (For related reading, see: The Complete Guide to Buying a New Car: What to Look for in a New Car.)

Make a List

You won’t be happy if you get a car that looks great and goes fast, but can’t fit your family or transport your dog or bottoms out on your driveway. So make a list of the most important transportation criteria and use this as a guide during your search.


I happen to think Consumer Reports is one of the best sources out there for car information. They have a lot of technical information on the cars, and they test drive every one. They collect information from their readers on reliability issues and even have a buying service to help you get a good price. Since they accept no advertising, their advice is unbiased, but remember, their criteria are not necessarily your criteria.

Here’s a list of good places for car research:

  • Consumer Reports
  • Edmunds – Good reviews and information on new and used cars
  • Kelly Blue Book – Pricing estimator for used cars
  • – Great pricing and configuration tool for new cars; also good car comparison tools
  • – Best pricing tool and best place to get quotes from local dealers

What Can I Afford?

Financially, the best way to buy a car is to buy it new with cash and keep it for a long time, preferably 10 years or more. You can get the best price, you don’t pay any interest and you can sell it at any time. A car is a depreciating asset that doesn’t depreciate in a straight line. New cars depreciate the most when you drive them off the lot. They depreciate rapidly in the first couple of years and then depreciation slows. Keeping your car a long time means the rapid depreciation when the car is newer won’t matter to you. (For related reading, see: Cars That Depreciate the Least.)

How much car you can afford is obvious if you’re paying cash, but not if you take out a loan or lease your car. Then you have a monthly payment. Don’t get into any deal that lasts over five years (or 60 months). If you do, you are likely to be under water (where you actually owe more than the car is worth) for at least part of the deal. Sure your payments will be lower, but you are locked in for way too long. Make a realistic budget and include the car payments, insurance and maintenance. Try to keep your debt-to-income ratio less than 15%. You should also be continuing to save 10% or more of your income. If your car payments cause your savings to go away, you’re buying too much car.

If you find that you can’t buy the new car you want, look into a used car. For as little as $2,000 you can get a used car that will take you from point A to point B, and if you spend more you can actually get a nice car. Just remember that any used car will need some maintenance, so put that in the budget. If you buy a used car from a dealer, you might be able to get up to a six-month warranty, but you will definitely pay more than buying from a private party. Always get a Carfax report on any used car you buy. Most dealers will provide it for free, just ask. For a private party purchase you will probably need to buy it. The Carfax report will give you the car’s collision, repair and purchase history. (For related reading, see: Retirees and Cars: New or Used.)

Lease vs. Loan

When you buy a car with a loan, you are actually buying a car you will own when you make the last payment. When you lease a car, you are renting it. At the end of the lease, you can buy the car at a preset price. Which is better depends on how long you plan to keep the car. If you like a new car every two years and don’t mind not owning your car, then leasing can be a great way to go. You will always have the latest and greatest, but you will never be done with that payment.

On the other hand, if you keep your car for 10 years and take out a 48-month loan, you have four years of payments followed by six years with no payments. With both the lease and a loan, you are responsible for any repairs or maintenance not covered by warranty. With a lease, you’re allotted a preset number of miles (often 12,000/yr) and if you drive more than that, you will be charged for them. (For related reading, see: New Wheels: Lease or Buy?)

Getting the Best Deal

You’ve decided on a car and how you’re going to pay for it. Now how do you get the best deal?

Separate price from all other factors – This tip works best when you are paying cash or are taking a loan. The car dealer will want to give you a price, based on how you’re paying and other factors like your trade-in. Ask for a cash price without a trade. You can always say you’ve changed your mind and now want a loan or have a trade-in later. This gets you a price for the car that you can compare with other places using TrueCar or some other service.

Arrange financing before going into the dealership – The dealer might have great financing deals, but sometimes those great deals mean you actually pay more for the car. Shop around for a loan before going and see if the dealer can beat it after you’ve negotiated the price of your car. Check your local banks and online to find the best rates. (For related reading, see: How to Get the Best Price on a New Car.)

Shop on the last day of the month – Dealers need to move a certain number of cars monthly to get incentives from manufacturers. Salespeople are measured monthly. So if you buy your car on the last weekend or better yet the last day of the month, you’re more likely to get a good deal. Better yet, try the last day of the quarter.

Make sure the dealer can get your car – If you find what you want on the lot, that’s the best way to make a good deal, but the chances of them having it in your color with the right features is pretty low. So dealers trade cars to get the car you want, but often ask for a deposit first. Always know where the car is and when it’s arriving before putting down a deposit; if the salesman doesn’t have a good answer, walk away.

Put your deposit on a credit card – Deposits on new cars are refundable if the dealer can’t get the car you want, but it’s a pain to get your money back. Being able to threaten the dealership with a chargeback on your credit card is a good way to make them refund your deposit if they can’t get the car you want.

Extras – The dealer will try to sell you all kinds of extras. Unless your particular model is very prone to mechanical problems, I would avoid the extended warranty. Many extended warranties are actually very poor and don’t cover things that you think they should. Dealers like to sell them because they make lots of money on them. Other bad deals are undercarriage coatings or rustproofing, fabric protection and paint protection. VIN etching is generally a good thing, but keep in mind the dealer is going to charge a lot for this: $200-$300. You can buy a do-it-yourself kit for $30. On the other hand, it’s pretty convenient to have the dealer do it for you.

The Common Budgeting Challenges to Overcome

The word “budget” has been known to make people cringe, cry and bury their heads in the sand, but budgeting challenges don’t have to keep you from getting the job done. Budgets are just a set of guidelines to help you manage your money. (Budgeting Basics will help you get started.) Once you set up your system, budgeting isn’t even that much work. If yours isn’t working for you, then scrap it and start again. But don’t be stopped before you start by challenges that you can easily overcome.

Budgeting Challenges

1. The All-or-Nothing Mentality

Many people are turned off by budgeting because most advice about creating one requires tracking every penny spent for three months. That is a lot of saving receipts and tracking, especially if you aren’t using an automatic system. The point of a budget is to get a picture of your expenses and plan for your financial goals – in other words, it is a tool for you and you alone – and if tracking every penny is a roadblock to get you started, cut yourself some slack. Perfect is definitely the enemy of good.

Having a general idea of your income and major expenses is a good first step toward creating a budget. Common spending categories include:

  • Rent
  • Utilities
  • Phone/Internet
  • Transportation
  • Insurance
  • Groceries
  • Car Payments
  • Childcare
  • Loans or Debts
  • Clothing
  • Entertainment
  • Dining Out
  • Travel
  • Charity
  • Savings

If you tally up roughly what you spend for each of these categories (or what you would like to spend) – and it is less than your income – then it is fine to track your large expense categories and leave out the occasional lunch or impulse purchase. If you find that you’re overspending, you need to reassess and set a stricter budget.

2. Labor-Intensive Tracking

As mentioned above, common budgeting advice requires you to track all of your receipts and spending for multiple months. You can do this on paper or on a spreadsheet, but there are easier ways. A variety of apps and computer programs exist that will track your spending, categorize it, help you create a budget and note progress toward your financial goals

Click on the 5 Best Personal Finance Apps for a list of first-rate free tools to try out. In different ways, these apps monitor your bank accounts, credit card transactions and even investments and retirement planning. Some also allow you to set spending goals.

3. Paying in Cash

It has been proved that people who use cash rather than credit spend less overall. The big hurdle is that spending cash makes sticking to a tight budget very challenging, because to track your spending you have to manually tally up receipts. There are a few ways to stick to a budget while avoiding credit cards.

One method is known as the “envelope” method. You take your spending money out of the bank at the start of the month and divide it into envelopes. When the grocery envelope is empty, that’s it for the month (although you can always borrow from the other envelopes in an emergency). A more wallet-friendly alternative to carrying around multiple envelopes is to paper clip bills together and attach a sticky note that designates what the money is for. Obviously, some monthly bills will be paid directly from your bank account – or by check, if you still do that – for example, rent, car payments, credit cards and utilities.

A less complicated version of this method requires designating a specific cash amount for variable expenses and miscellaneous purchases and putting that in a single place. Instead of tracking every cup of coffee or dinner out, use your cash on hand to guide your general spending. The fund can be designed for whatever time period works best for you: weekly, biweekly or monthly. Just coordinate it with the big monthly bills. This second approach could also work with a debit card, if you carefully track what you spend.

The Bottom Line

Budgeting can seem scary, labor intensive and challenging, especially for those who use cash. The most important thing to remember is that it is a tool for you, and if you go awry one month, you can just try again the next. And don’t be afraid to change your budget if it isn’t working. Use the above tips and you should be well on your way to finding a financial plan that fits your lifestyle.

Ways to Create a Successful Budget

Financial planning revolves around what is in our control. For example, we can’t control stock market returns, tax rates, or unexpected events, but we can plan to mitigate these risks through diversification, tax planning, and insurance. Of all the areas in financial planning, we probably have the highest degree of control over our income, expenses, and savings, making it extremely important to create a workable budget.

Here are some of the best ways you can create a budget you can actually stick to.

First, Know Your Resources

No matter how you are paid (hourly, salary, commission), it is important to make a projection of your take-home income each month to compare to your budgeted expenses. Your budgeted expenses should never exceed your income. If you are paid less than monthly, it’s important to know how long that income is expected to last, and to have a plan to spread out your resources accordingly.

No two budgets look the same. You can look online for budget templates, but none will contain the categories and level of detail that fit your needs. However, creating these three basic categories will get your budget off to a great start.

1. Monthly Needs vs. Wants

These are expenses that you need to survive every month, and should include your cost of housing, minimum loan payments, utilities, groceries, and other basic needs. Everyone’s definition of needs is different (e.g. I wouldn’t consider my gym membership a need, but some would). It’s ideal to keep these expenses to less than 50% of your take home pay.

As for the wants, these comprise the part of the budget reserved for the finer things in life—things that you could live without such as dining out, new furniture, entertainment, sports, etc. It’s ideal to keep these expenses under 30% of your take home pay.

2. Savings Goals

This is the part of the budget reserved for long-term goals such as setting up an emergency fund, vacations, buying a new car or house. For each goal you have, pick a date you would like to accomplish that goal, and divide that dollar amount by the number of months until that date to determine a monthly amount.  For example, if I wanted to buy a car for $18,000 in three years, I would need to budget $500/month ($18,000/36 months) to achieve my goal.

Because repaying credit card and student loan debt does not happen overnight, making additional principal payments towards any debt can also be lumped into the long-term savings goals category. By paying down loans, you are not technically savings funds, but you are reducing the amount of interest paid over the term of the loan. For debt repayment goals, it helps to set a desired payoff date, and use an amortization calculator to determine how much to budget for your goal.

You should also be setting aside a portion of your budget for retirement savings. This is especially important if you aren’t making contributions to an employer-sponsored retirement plan through payroll deductions. Using a retirement savings tool or seeing a certified financial planner can help you determine how much you need to save to achieve your retirement goals. (For related reading, see: 6 Steps to Prepare Financially for a Newborn.)

3. Track Your Expenses

I find that many people actually do have a budget, but not so many are budgeting. What’s the difference? Having a budget is a great start and provides spending goals to measure your expenses against. Budgeting includes regularly tracking your expenses and updating your budget as your income and expenses change. If you aren’t tracking your expenses, how will you know if you’re achieving your spending goals? Doing this with a pen and paper, or even an Excel spreadsheet, can be extremely cumbersome.

Fortunately, there are hundreds of software tools available to help track your budget and expenses. Mint, Quicken, and YNAB are a few examples of tools that can assist you in expense tracking. Although tracking expenses can be cumbersome, it is an imperative component of budgeting that cannot be overlooked.

Don’t Forget to Make Your Budget Flexible

You’ve projected your income, broken your expenses into categories, and are tracking expenses. What happens when you’ve gone over budget? One very important part of budgeting is making sure your budget is flexible enough to absorb the impact of overspending in a category (which will happen more than you think). Let’s say you had budgeted $500 for groceries, and you check your grocery expenses after your final grocery trip of the month, and total expenses are $600.

It’s important to adjust your budget by taking the $100 you had gone over budget and reducing another spending category, or goal (i.e. reduce the amount you will spend on clothing or save for your vacation). Making your budget flexible will also help you understand the consequence of each spending decision. Do you really need those $200 shoes? If you only have $150 left in your clothing budget, you will need to make sacrifices elsewhere.

And Dedicate Time to Track Your Progress

Creating a workable budget includes time budgeting. You should dedicate at least 20 minutes a week to working on your budget. That’s roughly three minutes a day. I take a half hour out of every Sunday night to update our budget. Carving out the time to track and update your expenses and income will make sure you keep budgeting, rather than just have a budget you set and forget.


This Key Tips for Budgeting Your Money

It’s almost a truism that budgeting is a critical step for anyone looking to get serious about money management. After all, you have to know where your money is going in order to make plans for the future. But if you haven’t ever tracked your spending, how do you get started?

Here are three tips that will help you set up a budget and start managing your money.

1. Determine Wants Versus Needs

The first step towards creating a budget is determining which expenses are wants and which are needs. Housing, utilities, groceries, transportation, clothing and childcare are generally considered necessities; entertainment, travel and dining out are thought of as “wants,” or what are known as discretionary expenses. That being said, there often is some gray area between a want and a need: You may need a car to get to work if carpooling or public transit is not an option, for example, but a flashy sports car may be a want. Everyone must buy clothes, but designer clothes are not requirements. If you can afford or have already purchased a luxury version of your necessary expenses, remember that downgrading is always an option if you decide that type of expense no longer fits with your lifestyle.

2. Figure Out Fixed and Variable Expenses

Fixed expenses – which, as their name implies, remain the same every month – are the backbone of every budget and should be the easiest to plan for. Examples of these might be your rent, car payment and student loans, which are likely to be the same, month in and month out. Variable expenses, no surprise, are the ones that change every month. Your grocery bills, consumption-based utilities (like oil/gas, electricity, phone service), clothing expenses, travel and car maintenance expenses are all variable expenses.

Budgeting for variable expenses, of course, is one of the harder parts of creating a spending plan. Here are a couple of tips to help make it easier:

  • Track your spending for three to six months, figure out the average over that period and, in the future, aim for the average every month.
  • Instead of tracking variable expenses monthly, try setting a six-month or annual budget goal. This is especially useful for expenses like car maintenance or travel, which might not crop up every month but still need to be considered in a budget as they can be big-ticket items.

3. Decide What Type of Money Manager You Want to Be

It’s important to determine whether you are a big-picture or a detail-oriented money manager. Some people like to know generally where their money is going but don’t want to have to track every coffee they buy; others like to know exactly how much they spend on their latte habit. Determining if you prefer a detailed or broad view of your money will help you decide what type of budget system will work for you. The one caveat: If money is tight, you may have to use a system that tracks every penny. Once your finances are more flush, you may be able to switch to a less detailed tracking system. Here is a closer look at each type of budgeting.

• Detail-oriented budgeting. This system helps you control the outflow of your funds and sometimes alerts you to wasteful spending that you weren’t aware of. You know the popular “you spend enough on coffee each year to buy a used car” scolding? This system will help you figure out exactly how much you spend on things like your java habit, and where you actually want your money to go – including into savings and retirement accounts.

While you can create a detail-oriented budget manually with receipts and spreadsheets, many people choose to use automated tracking tools such as those found at Mint or Personal Capital. These programs will track and categorize all of your spending, which makes it easy to see if you are overspending in different categories. An additional benefit: If you have expenses for your work that should be reimbursable (travel expenses, office supplies), an automatic tracker can help you keep them organized and make sure you get the full reimbursements you are due. 6 Best Personal Finance Apps will update you on good tools to try.

• Big-picture budgeting. If you have more financial wiggle room and less tolerance for tracking details, you may want to develop a big-picture budget. Create a list of all of the regular expenses that you consider “needs,” and include categories for savings, retirement, emergency funds, charitable giving and travel (if you travel often). If you choose to use a big-picture budgeting system, be sure to give yourself a sizable cushion for savings and an emergency fund. (For more on this, see Building an Emergency Fund and Why You Absolutely Need an Emergency Fund.)

Once you have determined your monthly necessary expenses, plus the additional categories included above, you can then spend the remainder of your monthly income however you choose. The only thing to track is the total spent from this “miscellaneous” fund, but you don’t have to track how much you spend on clothes or coffee. To make tracking easier, it can be helpful to have one bank account or one credit card that you use for your “miscellaneous” expense fund so that you can easily keep an eye on your total expenditures.

The Bottom Line

Budgets are a critical tool to help with money management, but ultimately they are just a general set of guidelines. If your current budget isn’t working for you, try another approach. The most important thing to do is to make a plan that works for you, and once it’s in place, to stick with it.
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The Financial Planning

While everybody’s financial situation is different, there are some options and strategies that can be used by all to get on the right financial path.

Financial Fundamentals

Develop a budget and stick with it: When making a budget it is important to develop a realistic one and stick with it. You need to decide how much you can afford to spend and what you should be saving each month. To be financially independent, it is important to start making wise choices early on in order to develop a habit of staying within your budget.

Figure out your credit score: Do you know what your credit score is and how much it can affect you in various areas of your life? How do you build credit in a responsible way to make sure there are no surprises down the road? There are ways for you to check your credit score. Visit one of the three reporting agencies for more information.

Money Saving Tips

Employee benefits: What benefits do you currently have and what benefits are offered at your job? Are you contributing enough to your retirement plan to get the full employer match? What other savings can you get by participating in the other benefits offered to you? Speak to your human resources department to make sure you understand all the benefits available to you.

Emergency fund: Do you currently have an emergency fund? Have you thought about what would happen if your car broke down tomorrow? What if it was something bigger? Most financial professionals recommend three to six months of your monthly expenses to be saved in a liquid account that you can access when you need it.

Pay back loans: When creating a budget, make sure you include any loans that you currently have. When looking at the amount to pay each month try to allocate a slightly higher amount than the required minimum payments. This could possibly save you money by lowering the amount of interest you could be paying.

Set up a savings account(s): Do you have a large purchase in your future? Think about setting up a separate savings account to start saving for any dreams or goals you might have. This helps to separate your money so you can see the progress you are making towards your purchase without tapping into your emergency fund. This can be beneficial if you are looking at purchasing a house as you will most likely need a down payment. (For related reading, see: 10 Ways to Effectively Save for the Future.)

Establish relationships with various insurance and financial professionals: In your 20s it is important to start developing these relationships because you will need various types of insurance and guidance to help you manage the risk that will be encountering on your own. Insurance professionals will ensure you and your possessions are covered, while a financial professional will help you with various financial strategies to help you achieve financial independence.

Set Long-Term Financial Goals

Start saving for retirement: Retirement might seem like a long way away, but it is never too early to start looking at the various retirement options you have. Taking part in the retirement options you have at work are a great start but for some people, it might make sense to look at alternative investments outside of work, such as a traditional IRA. If you qualify based on your income, a Roth IRA can be a great way to start saving for retirement outside of the workplace because it offers tax-free withdrawals during retirement.* You should talk to your financial professional about the different options that are available.

Develop goals and write them down: In your 20s everything can be changing so fast that you don’t know where to start. A great thing to do is sit down and start coming up with some goals. Break these down into short, mid and long-term goals. This helps by giving you some direction in your life. Focus on your goals and make sure what you are doing every day is keeping you on the right track to achieve them. (For more, see: Want to Be Financially Fit in 2017? Use These Tips.)

Guidelines to Achieve Success

Consider saving 30% of your income: This might seem like a lot starting out, but it is important to save for the various aspects of your life. Consider saving 10% for retirement, 10% towards your emergency fund and 10% towards any large purchases you might have coming up.

Have an emergency fund: It is extremely important to set up your emergency fund and not touch it unless needed for an emergency. This fund will help give you the peace of mind that if something were to happen, you can take care of yourself. Try to get six months of your living expenses saved up.

Minimize credit card debt: Credit cards can have high interest rates that can really cost you a lot of money in the long term. Try to pay off your credit cards every month or, if you have to carry a balance, try to keep it under your credit limit.

Buying a vehicle: When buying a car consider putting down a significant down payment. When financing the car consider doing so for no more than four years and spending no more than 10% of your gross income on car payments. If you are buying a new car, consider driving it for 10 years to maximize the car’s value and to limit the loss due to depreciation.

Buying a home: Like buying a car, put down at least 20% as a down payment on a new home. This will help you to lower the monthly mortgage cost, help your chances of getting a favorable loan and also make sure you don’t spend more on your home than you can afford. Some financial professionals will advise you to keep the total cost of your home under two or three year’s worth of annual income. (For related reading, see: Top 3 Secrets to Financial Planning.)

*Contributions to a Roth IRA may generally be withdrawn at any time without tax consequences. Earnings may generally be withdrawn tax free if the account is held at least 5 years and withdrawals are made after the account owner reaches age 59 ½. If earnings withdrawals are made before the 5-year period or age 59½, income taxes are due and a 10% federal tax penalty may apply.

Tyler J. Kruse, Registered Representative offering securities through NYLIFE Securities LLC, member FINRA/SIPC, A Licensed Insurance Agency, 330 Oak Tree Ln, Suite B, Dakota Dunes, SD 57049. Financial Adviser offering investment advisory services through Eagle Strategies LLC, A Registered Investment Adviser. Kruse Financial Group is not owned or operated by Eagle Strategies LLC, or its affiliates.  Neither Kruse Financial Group nor NYLIFE Securities LLC, nor agents or affiliates of either entity offers tax, legal or accounting advice.  For such advice, everyone should seek the counsel of their own professional advisors.