Dear Readers,
You'd think that if a reporter were calling for an interview on a financial topic, it would be about surviving financial volatility or the impact of the elections on portfolios or the upside of the low price of oil. But, no. In the past month I have been interviewed for my thoughts on...budgeting.
Here's a summary of what I've told the reporters.
You should construct a budget based on three components:
Fixed expenses (housing, insurance, taxes, car loans). Remember the PAYDAY rule (Part of All Your Dollars Are Yours). Put your savings in front of all the other expenses.
Variable but necessary spending (e.g. clothing, repairs, vet bills, uninsured medical costs)
Discretionary spending
Every time the economy gets funky, people begin worrying about lay-offs, furloughs, or drops in income from investments. Discretionary spending gets cut first, then variable gets deferred if possible. A good savings account or available credit can tide you through a rough spot.
Here are some ideas I encourage with my clients:
Give yourself a 10-15% pay cut right now, and stash the funds in a savings account. This is the PAYDAY referred to above.
If trouble is imminent, find out if a loan from the employer 401k/457/403b plan is permitted. Do this only if your job is not in jeopardy of being terminated, since loans must be paid pack in full upon severance.
Look at all subscriptions with phones, cable, etc., and call to see if discounts or fee reductions are available. Save those savings, as above.
Open a home equity line of credit (HELOC) if one does not already exist and if there is equity in your home.
Empty your pockets and wallets daily of change and singles. Fill a jar, then take the jar to the bank and add to your savings account.
Lower your credit card balances as fast as you can, paid off as soon as possible; the cards can tide you over an emergency or extended layoff. Try to keep each card below 50% of its individual credit limit.
You may be able to margin your non-retirement investment portfolio. Check with your financial advisor.
If your investment accounts have a gain of some pre-determined amount over your initial contribution (say 10%), sell the gain portion and park it in cash.
Hope this helps! Call me if you want a personal conversation.
Have a great weekend,
Ellen
Visit www.siegelplanners.com for more information.
