Financial Planning Stuff You Need to Know » Budgeting

Make Your X-mas Spending Checklist

Chris Long — Fri, 11 Dec 2009 21:52:09 +0000

Even affluent families can easily overspend at this
time of year. Although one year of overspending will
probably not affect your long-term goals
significantly, a pattern of over spending certainly will.
Plus, if you have children think about the messages
and values you will demonstrate to them with your
spending patterns.
Here are some quick ideas to help you stay on
budget.
1. Make an overall budget and then assign
certain amounts to each category (e.g. Presents, Decorations,
Travel, etc.).
2. Have a plan for how you will pay for your holiday expenses before
you spend the first dime. (Hint: borrowing money is not an answer).
3. Assign each person responsibility for a category, (tip – assign the
most frugal to the budget items most likely to be exceeded.).
4. Suggest a holiday grab bag for adults so you are not buying gifts for
siblings, parents, etc. who may not need nor want a gift; or consider
a card exchange only.
5. Put all receipts in an envelope and review them on occasion to see
who has been naughty or nice with keeping to the budget.
6. Resist the urge to splurge, even with all of the sales and media
attention to them. What the media isn’t focusing on is the damage
to your long-term goals that overspending creates, even when you
buy on sale.

Refinancing: Not All of Your Savings Are Real — “Shockingly” Most Mortgage Brokers Will Not Volunteer this Information

Chris Long — Tue, 25 Aug 2009 13:42:46 +0000

I know many people (including me) that have refinanced recently and lowered their monthly payments. However, not the entire reduced payment amount is real savings. Some of the lowered payment comes from stretching out the term on the loan. Below are the details of my recent refinance this spring:

Chris’ Mortgage Refinance:

Old Mortgage

Interest Rate: 5.875%

Amount Owed: $267,000

Monthly Payment: $1845

Terms: 30yr Fixed

Payoff Date: 2035

New Mortgage

Interest Rate: 4.875%

Amount Borrowed: $267,000

Monthly Payment: $1413

Terms: 30yr Fixed

Payoff Date: 2039

Lowered Monthly Payment: $432

Savings: ???

By refinancing it appears that I “saved” $432 per month, but how much did I really save?

New Mortgage (Shortened Term)

Interest Rate: 4.875%

Amount Borrowed: $267,000

Monthly Payment: $1412 $1671 (Includes $258 of principle payments to keep the same loan payoff date)

Terms: 30yr Fixed

Payoff Date: 2039 2035

Monthly Savings: $432 $174 ($432-$258)

In reality I was already making extra principle payments on the original loan to pay it off by 2026, which is 30 years from the date I bought my house. I recommend that you follow the same strategy when you refinance so that you do not inadvertently spend extra money by extending the period of your loan.

So be careful when you refinance. Although you will save, don’t use the opportunity to borrow more by extending your loan term. Make extra principle payments or save/invest that amount for retirement.

Long & Associates Clients Featured in the WSJ

Chris Long — Tue, 07 Apr 2009 20:34:32 +0000

Recently two Long & Associates clients were featured in an ongoing series in the Wall Street Journal called “Savings Strategies”. In December, 2008 Mike Casner and John Stryker were featured, and on April 7, Jody Feczko and Rob Lukens were featured.

I’d like to publicly thank these clients and the many others who have been willing to open up their financial lives so that others can learn from their experiences.

To Read about John and Mike:

To Read about Jody and Rob:

Higher Income makes it hard to Invest Enough for Retirement

Chris Long — Tue, 24 Mar 2009 18:15:49 +0000

It seems counterintuitive but having a higher income could make it harder for you to save enough to retire. Let’s look at two couples.

Couple 1:

Age: 45

Retirement Age: 65

Income: $400,000/year

Savings To Date: $500,000

Retirement Income Goal: $300,000/year (today’s dollars)

Less: Estimated Social Security $50,000/year*

Amount Needed from Investments: $250,000/year (today’s dollars)

Investment Income Needed 1^st Year of Retirement: $547,866**

Annual Investment Needed***: $177,000

% of income to invest to meet Retirement Goal: 44%

Couple 2:

Age: 45

Retirement Age: 65

Income: $80,000/year

Savings To Date: $100,000

Retirement Income Goal: $64,000/year (today’s dollars)

Less: Estimated Social Security $40,000/year*

Amount Needed from Investments: $24,000/year (today’s dollars)

Investment Income Needed 1^st Year of Retirement: $52,587**

Annual Investment Needed***: $13,000

% of income to invest to meet Retirement Goal: 16%

*Social Security could be reduced for higher income taxpayers in the future

** Assumes Inflation of 4%/year and Investment Return of 8% per year

***Increased by inflation rate each year.

The high income Couple needs to save 44% of their income vs. 16% for the moderate-income couple. Why? For the moderate-income couple Social Security will pay a much greater percentage of their retirement income. The Social Security tax is almost like forced retirement savings. The higher income couple is on their own to invest for retirement.

The message: If you have an income in this range or higher, it is even more important to invest a substantial portion of your income for retirement and not to let the fact that you can “afford” things now lead you to establish a lifestyle that will be unsustainable in retirement.

Could some Mint help keep Track of your Green?

Chris Long — Mon, 08 Sep 2008 14:10:00 +0000

One of the biggest challenges some of my clients have is tracking how they spend their money. I have been experimenting with an online service called Mint www.mint.com which claims to do just that.

Mint is a kind of online aggregator. It pulls together information from your online bank accounts, credit cards, investment accounts, and loans. It then analyzes and categorizes the information for you. It can also send you weekly tracking updates. It also allows you to create a budget or it will attempt to create one for you based on its analysis of your prior spending habits.

Setting it up was very easy. I just entered my login information for each of my accounts. I did spend some time reading Mint’s privacy and security information. You can check them out on Mint’s website.

Mint makes its money by offering you “better deals” on loans, credit cards etc. from it’s sponsors. For me none of these was really a better deal, but Mint has been excellent about not letting its partners bombard my inbox with spam.

Over time the Mint has been doing a better job categorizing my spending. You can correct any classification errors pretty easily and Mint will remember the change going forward.

I also like that Mint provides me with a net worth calculation (excluding real estate). I wouldn’t recommend looking at this too often if the stock market gyrations make you too nervous.

There are other services that provide similar benefits to Mint but after trying about four of them, Mint is the one that provided the best information, and appeared to have the strongest, privacy and security policies.