Use Monthly and Annual Spending Plans to get clear and stay focused your Financial Goals in 2007

“It’s like planning a vacation; if you don’t plan, you are probably not going to end up where you want to go.”

A spending plan includes is a list of categories for expenditures and a list of categories for income. When you fill in the various categories with amounts you plan to spend and earn it becomes a “blueprint” of your monthly and annual financial goals for 2007. The plans can be flexible and can be adjusted anytime during the year to help you stay focused on your financial goals.

To get the most feedback from your plans, try to get into the habit of tracking expenses and income daily. At the end of each month evaluate and compare what you actually spent and earned to your plan. Make adjustments when necessary.

Annual and monthly spending plans can help you:

• See the consequences of your spending decisions before the money is spent
• Meet your needs and financial responsibilities and still enjoy life
• Establish a plan to pay down or pay off debt and build savings/retirement
• Improve communication about money with family and friends
• Reduce stress and anxiety when dealing with money

Personal and business spending plans spreadsheets can be ordered and downloaded onto your computer. If you would like to order the spreadsheets or have question about planning and tracking expenses, please contact me from the website.

Barbara

Financial goal setting for some couples can be challenging especially when two people have different value systems. An example of this would be John and Mary’s situation.

John grew up in a family where lack of money was always an issue. He watched his parents work hard to support their family and still there never seemed to be enough money. John worked his way through college and law school. He is now a well paid attorney.

Mary grew up in a family where money was never an issue. She lived a comfortable lifestyle and got her first job after she graduated from college. Mary was used to shopping and not paying much attention to price tags because anytime she needed more money above what she earned she could count on her parents to help her out. After marrying John, Mary’s parents continue to gift money to them annually.

Even though John now earns a good income his value system is about saving money for future security. Mary has never experienced the lack of money. Her value system is about enjoying life today without worrying about the future.

Here are some steps John and Mary could take to get on the same page with short-term and long-term financial goals:

Step 1: Have a discussion about each others perceptions, feelings and beliefs of how money should be spent. This is not a time resolve issues about money but a time to try to understand each others view points. The outcome from this discussion is not necessarily to see eye to eye on everything, but to start looking at some compromises that will lead to mutually beneficial goals.

Step 2: Either together or with the help of a financial professional take the time to create a spending plan that incorporates the compromises and goals decided on in step one. The purpose of the spending plan is to give both spouses/partners a clear picture of what it will take to meet their goals and satisfy each others values.

Step 3: Decide who is going to oversee day to day money management which will include tracking expenses and income onto the spending plan and paying bills. Decide on how many checking accounts. Will there be three, “his, hers and ours” or one joint account? Decide on what is a major expenditure. Once the amount is clarified, then each spouse/partner should let the other know before making such a purchase.

Step 4: Set up a regular time to meet once or twice a month to review the spending plan and talk about ways to handle upcoming financial issues.

Each of the above steps are important but unless you have the discussion (Step 1) and formulate financial goals that meet the needs and dreams of both spouses/partners it will be difficult to stay committed to steps 2, 3, and 4.

The other day I was riding my bike coasting along not really paying attention or having a destination in mind. I was enjoying the warm balmy air and easy pace. Things were perfect until I turned at an intersection and started pedaling up hill. The natural thing to do is to shift gears to make cycling up hill easier. When I shifted I not only felt a resistance but also heard a disturbing “crunch” sound. The chain had popped off and I came to a dead stop. Obviously, something was out of synch on my bike and I wasn’t going anywhere until I could get the chain unstuck and back on to the chain wheel. After 15 minutes or so of pulling and tugging on the chain and getting my hands greasy I was able to get the chain on the chain wheel and head for home before it happened again. Hindsight told me I should have taken my bike to the shop several months ago when I first noticed my gears were not shifting smoothly. Fortunately, I was able to get my bike fixed and not incur any major expense. If I had taken care of the problem initially I never would have had my smooth ride interrupted.

A similar situation can happen with money. It is easy to coast along day-to-day and not pay much attention to money as long as there is money in the bank. Using ATM cards, credit cards and setting up automatic payments online makes it easy to use money. This works well until an overdraft notice shows up, a forgotten annual payment is due, late fees are added to an unpaid bill or the interest rate increases on a credit card. Then “crunch” it can feel like a smooth ride coming to a dead stop. Just like keeping up with bike maintenance to insure a smooth ride every time having a plan for day-to-day money maintenance will insure confidence, less stress and peace of mind. Here are some steps you can take for a smooth ride with your money:

Plan a destination: At the beginning of the month figure out what you are going to spend. Make a list of expense categories and fill in amounts you anticipate you will be spending. List income categories and fill in the amounts you expect to deposit. Ideally, the bottom line will be a positive number. If not, adjust the plan to get to the result you want.

Maintain tire pressure: For an optimum ride you will want to track (record) expenses and deposits on a daily basis. Tracking will help you stay conscious of and connected to your money. It gives you clarity so you can notice any habits or patterns that may keep you from attaining control of your finances.

Oil the chain: This is recommended to do twice a month. At midmonth add up all expenses and deposits tracked in each category. Are you on target with the original plan or do you need to make adjustments to continue on a smooth ride? Do not wait until the end of the month to review your plan. It may be too late to adjust for the result you planned at the beginning of the month.

Avoid potholes: Be aware of the subconscious messages that don’t want you to change, temptations to make purchases not planned for the month and the excuse of a busy life that makes it easy to procrastinate on daily tracking.

Apply the brakes: If expenses are greater that income every month it is time to apply the brakes or you will be rolling down a hill and gaining momentum that soon gets out of control – CRASH!

Yield to traffic: Pay interest only loans, refinance for purposes other than home improvements, by now pay later offers, discounts off purchases by opening a new credit card – these offers come fast and frequently. Be careful or you may get hurt big time!

Wear a Helmet: Avoid exposure if disaster strikes. A temporary job loss could be devastating if money has not been saved to cover living expenses while looking for a new job.

Get a bike lock: Keep your bike and future secure. Once you contribute to a retirement plan lock in that money for future security.

Now it’s time for a smooth ride uphill with your money cycle easily shifting into high gear!

Barbara Hause can be reached at 925-743-0518, visit www.barbarahause.com or Email Barbara

When I am asked, “What do you do? I answer by saying, “I am a financial counselor. I work with couples and individuals who want to improve their relationship with money.” Many times, the response I get is, “my son or daughter could use your help” I think what people are saying is they are concerned about how children as adults will be able to handle money so they can support themselves and no longer be dependent on family for financial support.

Children start learning about money and how they value it early in life. They learn to be stressed about money if the adults in their life are stressed about money. Or, they learn “money grows on trees” because they get everything they ever wanted and ‘then some’.

Recently, I had the opportunity to visit with friends whose children have grown into self-supporting adults. I wanted to know how they taught their children about money. It was interesting to hear each family tell stories about what they believed helped their children learn about money.

One couple helped their 8^th grade daughter open a checking account and had an allowance deposited (like getting a paycheck) each month. The amount of the allowance was jointly decided on by the parents and daughter. It was determined by money needed to cover clothing, activities and other routine expenses. Their daughter learned about balancing her checkbook, ATM fees and overdrafts while having guidance from her parents.

This same eight grader opened a credit card account. This was an opportunity to teach about late charges if the bill did not get paid by the due date and how interest can accumulate, all while these amounts were relatively small. These parents did make it very clear if the balance was not paid by the due date she would lose the card.

One family used eating at restaurants as a way to teach their children about the value of money. When the check came to the table, the children added it up to make sure it was correct and figured out the tip. Then the children would bring the money to the cashier.

In one family pizza was always the Friday night treat. Dad would only let them order pizza if they could come up with a pizza coupon. There were always pizza coupons to be found in desk drawer by the phone in this home.

Another family planned their vacations with their children. They let them in on how much they had to spend on lodging, transportation, meals and entertainment. They showed them choices available. This helped their children see the trade offs such as a week of camping versus a shorter visit to Disneyland.

To make saving money an incentive parents in one family offered to match savings. This worked well to encourage their children to save a portion of their allowance or save all or part of gift money from grandparents for something special they wanted.

On turning sixteen a son in one of the families wanted a car. His parents were agreeable, if he paid for it. After weeks of looking and not coming up with an affordable solution, their son thought of calling family friends who had recently purchased a new car and hadn’t sold the old one. The good news was, the car was for sale. The bad news was it wasn’t running. For a $1 and towing fee, the car was his. He used savings and his own income to get it running. The parents have fond memories of their son and his friends hanging out in the car parked in their driveway for a full day even though it was not drivable yet. The car became a family legend and the son learned about the value of money.

These stories show how life on a daily basis offers many opportunities to learn the value of money with regard to choices and trade offs. It is important to stick to boundaries originally agreed upon. It is easy out of love or just less hassle to take care of money mistakes children/teens make. Instead, acknowledge their dilemma and ask them for their solutions.

>Recommended reading for the next bedtime story is The Richest Man in Babylon by George S. Clason. This is an inspirational book about the secrets to acquiring money, keeping money and making money earn more money. This is a great story to share with children. Sweet dreams and prosperity!

Barbara House can be reached at www.barbarahause.com or Email Barbara

The Good
Minimum payments make sense when you need the flexibility and have a no fail plan in place to pay off the balance in a reasonable amount of time. Making minimum payments for a while to establish credit history may make sense. Making minimum payments for a period of time can also make sense for couples and individuals who seriously want to get out of debt. It is so easy to get caught in a debt cycle when paying off credit card balances becomes a priority and little attention is given to future needs and unexpected expenses.

Here’s an example. Hank and Sylvia Smith owed $22,430 in credit card debt. They earned enough income to cover their monthly expenses and pay more than the $580 a month minimum payment. During this time they also received a tax refund and decided to use that money to pay off even a bigger chunk of their credit card debt. It felt like they were making progress until the water heater broke and an insurance premium came due they had forgotten about. Since they were spending all their extra income on debt and hadn’t been saving any money at the same time, they had to use their credit cards to replace the water heater and cover the premium due on their insurance bill.

If Hank and Sylvia had paid the minimum payments each month instead of paying larger amounts and put their tax refund into a savings account, they could have paid for the water heater and the insurance premium without using credit cards. Even though they will be making minimum payments for a while, saving at the same time is a step to break the debt cycle and stop the use of credit cards.
At some point Hank and Sylvia will need to pay more aggressively to get out of debt. However, making minimum payments gives them time to figure out a spending plan to live within their means. This is also a time for them to look at what caused the debt and decide what they are willing to do to change behaviors. With a spending plan the Smiths will be able to determine what they need to save each month as well as what they can afford to pay above the minimum payments on their credit cards.

After working out a spending plan, the Smiths’ determined they could save money and pay $700 ($120 more than the minimum payment) a month towards credit card debt. With their new payment plan the Debt Reduction Planner calculated they would be debt free in 3 years and 4 months (vs. 25 yrs) and save over $14,000 in interest.

The Bad
Most of us know paying only the minimum payment each month on credit card balances will cost a bundle and take forever to pay off. According the debt reduction planner calculator found on the web a credit card balance of $6900 at 11.15% interest with a minimum payment of $190 will take 13 years to pay off and cost $3169 in interest. This means paying a total of $10,069 for purchases that originally cost $6900 which may have been for a vacation long forgotten about or items that are outdated or worn out.

The Ugly
Paying minimum payments on multiple cards cost even more and will take longer to pay off. According to the debt reduction planner calculator 3 credit cards with balances that total $22,430 with the average interest rate of 14.6% and total minimum monthly payment of $580 will take 25 years to pay off and cost $19,876 in interest. This means paying for a quarter of a century almost double the cost of the original purchases.

At the website, www.cnnmoney.com, you can find a calculator called the “debt reduction planner”. On the home page click personal finance, click calculators, click debt reduction planner. You will be able to type in the outstanding balances, percent interest, and minimum payments for one or more credit cards. The debt reduction planner will calculate the cost and time it takes to pay off outstanding balances by making minimum payments, by selecting a fixed payment of your choice or by setting a goal to pay off debt by a certain date.

Now pay off the credit cards. “Go ahead, make my day.”

Financial Counselor Barbara Hause counsels couples, individuals and entrepreneurs who seriously want to improve their relationship with money. You can visit Barbara on the web at www.barbarahause.com or Email Barbara.

Holiday Planning for No Stress and No Debt
By Barbara Hause, Financial Counselor

You probably noticed as the kids were getting back to school, Halloween costumes and decorations were in the stores.  Soon the stores will be fully stocked with Thanksgiving, Christmas and Hanukkah gifts and decorations.   For most of us, making the holidays special and fun is about decorating, party planning, food shopping, cooking, baking, gift-giving, traveling, preparing for house guests and for some, completing home improvement projects in time for the festivities.    There is a lot to do and all of it takes time and money. 

If you have already started your holiday planning, hats off to you!  If you haven’t given it a thought yet, now would not be too soon to get started by creating a holiday spending plan. 

Available Money:
The first step is to figure out what money is available to spend.  Ideally if you have been saving throughout the year you will have that amount available to you.  If not, you can still designate an amount that will work and spare you from going into debt come January. Be sure to account for normal fixed expenses and periodic expenses, like property taxes due before the end of the year.

Expense Categories:
The next step is to brainstorm all categories of expenses associated with the holidays that will be paid for by money available.  In addition to gift recipients and gifts, other categories could include decorations, cards, postage, brunch, party and travel.

Spending Plan:
Once you have a category list, start writing in the amount you plan to budget for each gift recipient and other categories on your list.  Total this list of expenses and compare it to the amount of funds available.  Does it work?

If the answer is yes, it is clear you have sufficient funds available to move forward with your plan.  If the answer is no, it is great to know that now so you can adjust the plan to make it work.   Go back and identify the things you really need versus the things you simply want.  Ask yourself, “Is there another way I can meet these needs for less or no money? Keep adjusting until you find a balance between the things you need and what you can afford.  If the plan still doesn’t work, think of ways to bring in some extra holiday cash.  Think of this process as a way of exploring possibilities and being creative.  

Some of the most meaningful gifts come in no package at all.  I know a woman who is very talented writer.  Instead of presents one year she chose to give family and friends a poem written especially for each one of them.    Another idea is a gift of love and service which could be a homemade gift certificate offering to wash the car or help with errands.

On a personal note:  one of our most enjoyable holiday seasons was when we had a reason to plan ahead.  It was the year one of our sons was born in November just before Thanksgiving.   That year I felt I did not have a choice to put off planning for the holidays if we were going to enjoy a stress free holiday season with our new son.  The plan made a difference - everything got done, gifts selected, wrapped and paid for before the end of the year.   Another year, because we were going to be gone for the month of November, we decorated, shopped for gifts and planned a holiday party for December 1 by the end of October.  All we needed to do was turn the holiday lights on when we got home and enjoy the festivities with our family and friends.

Not only did having a plan in place for what we needed to get done make a difference we also discovered this early planning helped us spend less as well.   It was great not to be doing our holiday shopping at the last minute which would often lead to making decisions under pressure and buying more.  
 
You don’t have to have a baby on the way or be leaving town to get things done.  Set your own deadline.  Then create a spending plan and take action for a stress free and debt free holiday season.

Financial Counselor Barbara Hause counsels couples, individuals and entrepreneurs who seriously want to improve their relationship with money.  You can visit Barbara on the web at www.barbarahause.com or call (925)743-0518.

Is having a Spending Plan always the answer?
Barbara Hause, Financial Counselor

Questions about financial decisions come up all the time.

Some decisions don’t involve a lot of money but over time can make a big difference.  For example, Melissa frequently purchases items just because they are on sale.  At the time of purchase they seem like great deals, but afterwards she realizes she either has more of the products than she needs or she may not want them at all.  Were these really bargains or just impulse purchases? 

Some decisions do involve a significant sum of money.  Tim and Sally are a couple who happen to be renting a condo that just came on the market.  They love the view of the Mount Diablo, the location, the size and it would be so convenient for them not to have to move.  It seems like they can handle a mortgage payment which is larger than the current rental payment.  But will paying more each month conflict with other priorities in their life even though the condo seems perfect?

Another financial decision is whether to save money or pay off debt.  Jennifer and Gary want to pay off their credit card debt.  They feel it would be reasonable to pay aggressively on their credit card debt because the interest they are paying on debt is significantly higher than the interest they can earn on savings.  Will making aggressive payments to reduce credit card debt and not saving money at the same time be their best strategy for paying off their credit card debt?
 
Is having a spending plan always the answer?  Yes!  Looking at the numbers will give you clarity.  A spending plan will let you look at the consequences of your financial decisions before the money is spent or the commitment is made.  A spending plan is more flexible than a budget.  A budget seems rigid and not to be violated.  A spending plan is power!  It allows for adjustments and keeps you on track for achieving your short-term and long-term financial goals.  A spending plan helps you meet your needs and financial responsibilities while enjoying things you have identified as priorities in your life.

A spending plan needs to be detailed enough to show all expense categories.  Melissa was always running out of money each month.  She could not resist a good bargain.  When she starting to plan and track her spending, she became more conscious of how she’d buy things she did not need. When Melissa was tempted to buy because of a sale it started to get easier to limit her purchases to the items in her spending plan, and to reduce her impulse purchases.

A spending plan can save you from making decisions that can be destructive in the long run.  Tim and Sally really wanted to buy the condo.  They could come up with the sizable mortgage payment each month.  Even though paying a mortgage provided a tax write off, on a monthly basis they would be making a major sacrifice of not being able to save for rainy day money and other priorities, not to mention having money to spend on fun.  They decided purchasing this particular condo at this time was going to cause stress and keep them from having the flexibility so Sally could continue to work part-time and complete her law degree. 

A spending plan is most effective when it becomes a habit and is not just a one time process.  Gary and Jennifer could not seem to reduce their credit card debt even though they sometimes paid more than the minimum payment.  When they received a small inheritance they decided to use all of it to pay down the balance on their credit card debt.  Things went well until it rained and the roof started to leak.  They did not have the extra cash to pay for the roof repair so they had to use the credit card again.  If Gary and Jennifer had been planning and tracking expenses regularly they could have had a better sense of how to allocate the sudden windfall and continue to reduce their debt.

“Having a spending plan is like planning a vacation, if you don’t plan, you are probably not going to end up where you want to go.” 

Barbara Hause counsels couples, individuals and entrepreneurs who seriously want to improve their relationship with money.  Barbara can be reached at (925)743-0518. Send general interest questions to:  Barbara Hause, 2723 Crow Canyon Road, Suite 211, San Ramon, Ca  94583 or send via the web at www.barbarahause.com.

Financial Goal Setting for Couples
By Barbara Hause
 
Financial goal setting for some couples can be challenging especially when two people have different value systems.  An example of this would be John and Mary’s situation. 

John grew up in a family where lack of money was always an issue.  He watched his parents work hard to support their family and still there never seemed to be enough money.  John worked his way through college and law school.  He is now a well paid attorney.

Mary grew up in a family where money was never an issue.  She lived a comfortable lifestyle and got her first job after she graduated from college.   Mary was used to shopping and not paying much attention to price tags because anytime she needed more money above what she earned she could count on her parents to help her out.  After marrying John, Mary’s parents continue to gift money to them annually.

Even though John now earns a good income his value system is about saving money for future security.  Mary has never experienced the lack of money.  Her value system is about enjoying life today without worrying about the future. 

Here are some steps John and Mary can take to try to get on the same page with short-term and long-term financial goals.

Step 1:   Have a discussion about each others perceptions, feelings and beliefs of how money should be spent.  This is not a time to resolve issues about money but a time to try to understand each other’s view points.  The outcome from this discussion is not necessarily to see eye to eye on everything, but to start looking at some compromises that will lead to mutually beneficial goals.

Tip:   When these discussions focus solely on financial matters and become a debate over who is right and who is wrong the outcome can be hurtful without much progress.  Instead start with “soul-to-soul” questions* that focus on individual and mutual benefits such as:
“What work do you both want to do to bring your talents forth?”
            “How do you like to take are of yourself—exercising or yoga, perhaps?”
            “How do you like to take care of each other?”
            “What activities are healthy and nourishing for your family?”
            “What makes life simpler and less burdensome?”