Quick Budget

If you’ve never had to budget before it can sometimes seem like an overwhelming task.  There are all kinds of elaborate methods to create very exact budgets that track everything.  For most of us, this is probably overkill and prevents us from getting to the task of actually saving money.  To get started today you can do something very simple.  Take all of your absolute necessary expenses.  We’ll call these our fixed expenses.  These are the things that we can’t stop paying without making some major life changes.

Examples, include

Mortgage $1,000
Babysitting $500
Utilities $250

The next step is to list out your monthly income

Salary $3,000
Spouse Salary $2,000

Next you will need to think about how much you would like to save. You’ll need a cash buffer and to save for retirement. You may want to think about other goals such as your next car and whether or not you will save for your kids college education. This is the whole idea of pay yourself first. It represents a way to make sure you put your savings goal first.

The difference is then the amount you can spend on all the other things.
Obviously, you need to think about groceries, gas and everything else that you need day to day. I purposefully lump all of these items into one big general fund. Because they involve a large range of trade offs that you will need to think about. This is the opportunity to get creative.

You can think about what you truly value and use to make your life fulfilling. Personally, there is no way I could actually live without Internet access, but I could live without my NetFlix account. To save on gas I started carpooling and got a special fuel perks card. If I really want some purchase that I can’t afford perhaps I’ll find some coupons or cut back in other spots.

A great one we have started is cooking with our kids. We save money by not going out and our kids really enjoy it. I’m sure you can think of similar examples to help you cut back spending, but still enjoy life.

A Case for Cash

I’ve heard financial planning experts talk about cutting up credit cards and telling people to use a cash based system to manage their finances.  I’ve typically thought didn’t apply to me.  I always paid off my balance every month and had an excellent credit score.  Recently, I wanted to tighten down how much my family spends on various purchases.  We’ve always used credit cards for every day purchases, but the credit card bill tended to fluctuate every month based on the families desires.  I’ve tried various mechanisms for tracking.  I’ve said that we’re only going to spend X dollars a day etc.  It seems there was always some special 1 time event or purchase that ended up on the card.

The problem is that the mental accounting the family had to do to stay on track just wasn’t working.  Instead we switched to a complete cash based system.  Each family member was given an envelope with a certain amount of cash for everything.  If my wife finds bargains at the grocery store she can have a little extra the next time she goes to the beauty salon.  If she decides she has to have that certain something at the grocery store and doesn’t have enough money for the salon then she will just have to live with a few of the grey hairs a little longer before her next color treatment.

After using the system for a month it has worked well for us and allowed us to stay on budget.

What if You Can’t Pay Taxes Owed?

It is close to the due date
for taxes and you just prepared your return and realize that you owe
more money than you can pay. This year, more than ever, taxpayers
are coming up short on the taxes they owe. Since this is such a common
problem, you can be assured there are many options available for you.

The first thing you need to
do, even if you know you can’t
pay your taxes owed,
is to send in your completed tax return. The penalty for not filing
is more than the penalty for not paying. Once you have your taxes
filed then you can figure out what you are going to do about payment.
Below are some of the most common solutions for paying for taxes when
you cannot afford to pay. The right option for each person varies
depending upon their unique financial situation.

Find the Money Elsewhere

Many times you could easily
get together enough money to pay off taxes by thinking outside of the
box a little. Some options to pay in full when you don’t have
the money are the following:

• Credit Cards
• Home equity loan
• Friends and Family
• Pay advance from
  employer
• Sell old items on
  E-bay

Some of these options should
be used wisely. Even if you can borrow money, sometimes there could
be a better option. Consider some of the below options before borrowing
money.

IRS Installment Agreement

This is a very common mechanism
to pay back IRS taxes owed. The IRS will allow individuals to pay taxes
off in monthly increments (including interest) if they can pay off the
tax amount owed in 3 years or less. To apply for an installment
agreement you will need to fill out IRS form 9465 with the IRS. This
agreement will allow you to have money taken right out of your bank
account that will go towards the taxes you owe. This is a better
method to use than using a credit card because the interest rates are
typically lower.

Financial Hardship/Uncollectible
Status

If you cannot qualify for an
installment agreement, you may be able to get determined uncollectible
by the IRS. This will temporarily put you back on good terms with
the IRS and prevent the IRS from taking any actions against you.
They will check back every so often to see if your financial situation
has improved enough for you to pay back the taxes you owe.

Offer in Compromise

This is typically a last resort
option. The IRS will only consider this option if they think it
is very unlikely they will ever collect the taxes you owe. Under
this method you will pay a lump sum offer to the IRS for taxes owed.
The amount paid is typically much lower than the actual amount owed.
To apply for this you will be required to fill out a personal financial
statement and submit IRS form 656 to the IRS to be considered.
Very few of these filings are actually accepted and it is highly recommended
to consult a tax professional before attempting to make this type of
filing.

Picking the right method to pay back taxes is important. If the problem goes
ignored, penalties and interest on unpaid amounts will add up very quickly.
If you need help
with taxes and
help with picking the best resolution method, you should consult with
a tax resolution firm.

30 Year Fixed Hovers around 5%

If you don’t currently own your the place you live in you may be missing out on one of the greatest opportunities in your life.  Most of us are well aware that it is a buyers market and that homes are being sold dirt cheap.  The other opportunity is the incredibly low prices on 30 year fixed mortgages.  The last time they were even close was March of 2004 at 5.45%.  If you look at the charts since 1971 this has rarely happenned and could truly be a once in a lifetime opportunity to have a low monthly payment on a loan.  Even if you already have a home loan your payback period to refinance could be less than 2 years.  The reason for that is you typically have to pay some fees to refinance your home.  Let’s say you save $100 a month in mortgage payments by refinancing, but the fee is $2,400.  Even with the lower payment it will take you 2 years to make up for the difference.  If you plan on staying in your current home for more than 2 years it should certainly be considered.  Over the next 30 years you would save $36,000.

$100 Homes

Last night 20/20 featured an interesting segment on homes in foreclosure.  They interviewed some urban pioneers in Michigan who are rebuilding an entire neighborhood one house at a time.  The homes sold for $100-$500.  They were in terrible shape.  Most of them were either burned and partially destroyed.  While it will probably take 10’s of thousands to repair them and the area is awful the pioneers were doing something very interesting.  They were building a community.  Instead of trying to go it alone they found other people that wanted to renovate this area.  One by one they began attracting friends and family to come join them in their quest to rebuild this area.

I have no doubt that in ten years this will be some cool, hip part of Detroit that everyone wants to visit.  An interesting example of creativity during a tough patch in our economy.

VA or Military Home Loans

The LA Times recently featured a story on VA Loan Benefits.  For military members coming home and looking to purchase a home there are some tremendous benefits.  Without putting up any of their own money veterans can borrow up to 417k with a GI loan.  The limits increase in other areas such as California and Colorado where home prices are higher than the rest of the nation.  There are some pretty specific items you need in order to qualify

You Are Eligible For A VA Home Loan If:

• You have had 90 days or more of active duty service during wartime
• You have had 181 days or more of active duty service during peacetime
• You were discharged for circumstances that were not dishonorable
• You are currently active duty personnel and you meet the above service requirements
• You are the surviving spouse of a Veteran who died during service or because of service-related injuries and you have not remarried.

You will also need to show work history and ability to make payments for the loan you are applying for.  Lastly, there are three other reasons these loans are good for veterans.

No PMI Insurance is required.

VA Loans require no money down and you will see no penalty rates

VA Loans have lower rates than conventional loans.

Given the current economic environment this is a great option for those who have dutifully served our country.

Mentally Tough

After reading about the Navy Seals in Newsweek a week ago, I learned a little bit more from the DVD released from the History Channel called the Brain.  What was interesting was the segment about how the Navy was actually able to increase the pass rate of Navy Seals by employing some new mental toughness techniques.  Prior to the new techniques the pass rate was 25%.  After the change the pass rate climbed as high as 33%.

They found that in dealing with fear and stressful situations there are two important parts of the brain.  The amigdala and the frontal lobes.  The amigdala is the primal part that process information quickly and starts immediately getting other parts of the body involved. The frontal lobes involve higher reasoning, but take longer to use.  Essentially, when seals in training are confronted with a situation in the first impulse is for the amigdala to take over, but in order to succeed they need to use the other parts of their brain to execute their given task.

They outlined 4 steps used to create mental toughness and help trainees succeed.  I think you will find that you can use these same techniques to help you achieve other goals for yourself.  Basically, what they found is that the brain is very complex and lots of different signals are traveling all over the place.  By using these techniques the recruits were better able to accomplish their goals.

1. Have a clear goal – It seems kind of obvious, but what the more successful trainees did was take it a step further and break down their large picture goals into very small and specific goals.  For example, one former seal talked about his goal in the morning was to make it to breakfast and then his goal was to make it to lunch.

2.  Mental Rehearsal – The candidates were instructed to rehearse in their minds the steps they needed to take over and over again.

3. Self Talk – I’ve never recorded this for myself, but apparently you can say like 300+ words a minute to yourself.  This has a profound impact on your minds ability to reason and solve problems.

4.  Mood regulation – This is the ability to quiet some of those hormones and other chemicals that start to go running around.  They found one of the best techniques was to use controlled breathing.  Slowly exhaling could help reverse these trends.

Break up with Your Money

By Dr. Bonnie Eaker Weil

As we face an economic downturn unlike most of us have ever seen, what I call “breaking up” with your money can be an important step for your financial well-being, for your relationship, and for your sanity. We never know what the future may hold – things may start to get a lot better, or they may get worse – but creating healthy relationships with your finances and budget is something that will pay off no matter what type of financial situation we face as a nation or you face as an individual or couple.

The first step is to realize the areas in your relationship where money has “intruded” to create what i call a triangle. I discuss these areas in more detail in my book, Financial Infidelity, but here are some possible triangles, and how you can break up these patterns!

1. Family/Money/Relationship: Family legacies of money behaviors are not always contained in our subconscious minds – they can be very real! Demands of extended family members for financial support can be one way in which money can encroach and put a strain on a couples finances AND on their relationship.
2. Children/Money/Relationship: Nearly 70% of couples experience relationship stress after having kids. When a couple becomes contentious over spending on their children, the couple’s relationship can suffer – as can the family’s relationship.
3. Spending (or saving)/Money/Relationship: This can be a case of “opposites attract” in the extreme: the relationship then becomes at risk for damaging power struggles, sneaky “pay back,” and other deceit.

Hiding or denying the role money has in your life and in your relationship – as in any of the scenarios above, or other scenarios – has a toxic affect on a relationship. These types of “triangle” behaviors negatively influences your relationship with your partner. You may not think of it as cheating, but if you continue in this type of lop-sided relationship, it will take a toll. Attachment to your money can often ruin chances for you and your partner to build an intimate relationship.

Learning to prioritize the role of money in your relationship is an important step toward a healthy dynamic between your, your partner, and your money. I’ve come up with several ways to do this – here is one such exercise:

Withdrawals and Deposits:

Day 1: pretend you have suddenly been forced into bankruptcy. You are poor and have nothing – no money, no investments. Take your negative fantasies into the extreme – imagine yourself selling everything you have, being free of all your material goods.

Day 2: Visualize yourself with plenty of money, and all that entails. You are comfortable and able to do the things that are truly important to you.

Day 3 – and forever after: be consciously grateful. Each day, count the things you are grateful for.

Dr. Bonnie Eaker Weil (http://bonnieblog.significantauthors.com/) has been an internationally acclaimed relationship therapist for thirty years. New York magazine named her one of the city’s top therapists and Psychology Today named her one of America’s best therapists. Her most recent book, Financial Infidelity, is available on Amazon: http://www.amazon.com/Financial-Infidelity-Conquering-Relationship-Wrecker/dp/1594630453/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1217873178&sr=8-1

Watch her appearance on Jen and Barb Mom Life (JenandBarbMomLife.com), starting on March 5th, as she talks about issues affecting families and couples today. Join her Facebook group to keep up with events: http://www.facebook.com/group.php?gid=69563300615&ref=mf&nectar_impid=a328a6e23a72d33f318c4c51e1e44260&nectar_navimpid=a328a6e23a72d33f318c4c51e1e44260

Franchising in Response to Unemployment

Several years ago I found myself unemployed for the first time in my 30+ year career.  After the initial panic and rearranging of finances so that day to day expenses could be met, my partner and I started talking about options and decided that we would look into franchising.  Franchising offered the promise of  “being your own boss”, “90% of franchises are successful”, ”building for retirement”, and “doing something fun”.

Being my own boss was definitely attractive since I tend to have definite ideas of how things should be run.  I was also still on the rebound from the shock of unemployment.  Little did I understand at the time, what being your own boss really means.  You’ve got it all… the good, bad, and the ugly.  There is also the mind switch from working in the business to working on the business.   Give this some thought if you are thinking about starting your own business whether it is a franchise or an entrepreneurial venture.

As for the “90% of franchises are successful”, that may be true overall or may have been true in the past, but I would now take this with a grain of salt as opposed to “with statistics like those, how could we possibly be in the bottom 10%?”  A franchise is a great way to get a head start on your business, but it is not a sure thing.  You must be willing to follow the franchisor’s formula as closely as possible to help ensure your success.  Looking at success rates within your prospective market niche is also a must.

As we looked into franchise options the next hurdle was choosing a business.  The internet was a logical place to start and we did take a serious look at a fitness offering.  Being on a successful fitness program at the time, this seemed a logical fit for the “fun” portion of the equation.  It also appeared to be a real growth industry at the time.  We met with the regional manager, went over the “Uniform Offering Circular” and met with a couple of franchisees.

At the same time, we got hooked up with a franchise consultant through FranChoice.  This was probably one of the best moves we made during the process.  The consultant talked to us about our backgrounds, work style, financials, etc.  and then presented several options for franchises.  He also told us about a program through Guidant Financial whereby I could parlay 401(k) funds into capital for the business venture.  Shortly after starting our discussions with the consultant, we found a red flag with the fitness franchise… no “Discovery Day”!  This is like a day long interview at the franchise corporate headquarters with the executives of the franchise.  If a franchise doesn’t offer “discovery day”, be very suspicious.

We worked with our franchise consultant and went through the process of discussing our lifestyle, what we wanted out of the business, etc.  He provided several concepts that may have worked out better than the one we chose, but rather than really look at the business, we looked with our hearts and emotions.

After doing a phone interview and a “Discovery Day” visit, we were off and running with a commitment for one location under our belts and an option for a second location.  Little did we know what a ride we were in for.

Franchising can be a viable option when you find yourself unemployed, but several lessons learned need to be remembered:

• You need to think about working on the business as opposed to working in the business
• Find out the real success metrics for the business you are considering – not just revenue per day
• Understand what kind of employees you will have in your chosen business
• Choose with your reason and not your emotions
• Think about your investment risk and how your market niche is performing

Housing Price Declines 18.5% – Time to Buy?

If you are currently looking for a new home or have been on the fence about trying real estate as an investment option now could be a great time.

It is truly a buyer’s market. Home prices are low, there is a large selection to choose from and even new home prices are being driven down by builders eager to scrape up any business they can.

Even though everyone keeps talking about the credit crunch mortgage rates are extremely low. The graph below shows the interest rate of a 30 year mortgage over the last 30 years.

But wait there’s more. With the passage of HR 1 up to $8,000 can be used as a tax credit for first-time home buyers purchasing between 1/1/2009 and 12/1/2009. The credit does not require repayment and will be used to reduce the purchasers income tax liability. If any credit amount remains unused, then the unused amount will be refunded as a check to the purchaser.

From an investment standpoint the picture is a bit mixed. There are certain areas where home prices have been falling, but rents have been stable. This is an ideal situation for an investor to swoop in and make large profits.

However, large metro areas have also seen drops in occupancy rates. If you take the case of Salt Lake City the
apartment vacancy rate went from 3.1% to 6.8% year over year at the end of the fourth quarter for 2008.

As long as you can get renters in you are good, but with vacancy rates rising in some areas it definitely pays to do your homework before you invest.