* Organize your financial life
* Plan for the future
* Manage your credit wisely
What is The Consumer Almanac?
This is the fifth edition of the Consumer's almanac. Many people have used the Consumer's almanac to help organize their daily lives and manage their money. It's a useful tool no matter what your financial situation may be.
It's a well documented fact of life that many people simply don't manage their money. The emotional meanings that people may attach to money can hinder clear thought and rational action in times of financial stress. An orderly and detailed accounting of your income, savings, living expenses, and credit obligations can help you manage your money more efficiently.
The Consumer's Almanac will help you gain control of your financial situation by:
How to Use The Almanac
Annual Income, Savings, and Expenses Chart
The purpose of this chart is to help you plan ahead. Fill it in so you can anticipate and plan ahead for your income, savings, and expenses. You may find it helpful to use last year's bills, receipts, and checking account information to complete this form.
If this month's balance shows a negative amount, make adjustments by cutting back on variable expenses.
|What Is Your Net Worth?|
Determine your net worth before you figure your actual monthly living expenses and credit obligations. The balance sheet is designed to help you calculate your assets and your liabilities.
are your physical property (such as your home of car) or intangible rights (such as money someone else owes you) that have value. Assets are useful to you because you can either spend them, sell them, or use them as security on a loan.
are your debts, or amounts of money you owe to someone else. Liabilities are expressed as either short-term or long-term and as secured or unsecured. Short-term liabilities are generally paid off within one year. Long-term liabilities usually take longer to pay off. Secured liabilities, such as mortgages or auto loans, require you to pledge a specific asset to ensure payment of the debt. Unsecured liabilities are based on your personal creditworthiness.
Take the time to calculate your net worth several times a year. This helps you to gauge your financial progress and provides a good first step to assuring your future is financially sound.
|Actual Monthly Income||$||Health Care||$|
|First Earner||$||Physicians and Dentist||$|
|Total - Actual Net Income||$||Vacation||$|
|Saving - Total||$||Sports and Hobby Costs||$|
|Rent/Mortgage||$||Gifts & Contributions||$|
|Taxes (if not in mortgage)||$||Religious/Charities||$|
|Gas/Heating Oil||$||Special Occasions||$|
|Water and Sewer||$||Family||$|
|Telephone/On-line Services||$||Child Support/Alimony||$|
|Garbage/Pest Control||$||Day Care/Camp||$|
|Lunches||$||2nd Mortgage/Home Equity||$|
|Snacks and Sodas||$||Automobile Loans/Lease||$|
|School Lunches||$||Secured/Unsecured Loans||$|
|Transportation||$||Credit Card Payments||$|
|Repairs, Tires, Lube||$||Tuition/Books/Supplies||$|
|Bus/Metro/Tolls/Carpools||$||Expenses - Total||$|
|License Tags/Taxes||$||Net Income Total||$|
|Insurance||$||(Less) Savings Total||$|
|Automobile||$||(Less) Expense Total||$|
|Home Owners/Renters||$||Balance or Debit to Carry Forward Next Month||$|
|Life and Disability||$|
TOP 10 WAYS TO PREPARE FOR RETIREMENT
1. Know your retirement needs.
Retirement is expensive. Experts estimate that you'll need about 70% of your pre-retirement income. Lower earners will need 90% or more to maintain your standard of living when you stop working. Understand your financial future.
2. Find out about your Social Security benefits.
Social Security pays the average retiree about 40% of pre-retirement earnings. Call the Social Security Administration at 1-800/772-1213 for a free Personal Earnings and Benefit Estimate Statement (PEBES).
3. Learn about your employer's pension or profit sharing plan.
If your employer offers a plan, check to see what your benefit is worth. Most employers will provide an individual benefit statement if you request one. Before you change jobs, find out what will happen to your pension. Learn what benefits you may have from previous employment. Find out if you will be entitled to benefits from your spouse's plan. For a free booklet on private pensions, call the U.S. Department of Labor at 202/219-8776.
4. Contribute to a tax-sheltered savings plan.
If your employer offers a tax sheltered savings plan, such as a 401(k), sign up and contribute all you can. Your taxes will be lower, your company may kick in more, and automatic deductions make it easy. Over time, deferral of taxes and compounding of interest make a big difference in the amount of money you will accumulate.
5. Ask your employer to start a plan.
If your employer doesn't offer a retirement plan, suggest that they start one. Simplified plans are available to certain categories of employers. For information on simplified employee pensions, order Internal Revenue Service Publication 590 by calling 1-800/829-3676.
6. Put money into an Individual Retirement Account.
You can put $2,000 a year into an Individual Retirement Account (IRA) and delay paying taxes on investment earnings until retirement age. If you don't have a retirement plan (or are in a plan and earn less than a certain amount), you can also take a tax deduction for your IRA contributions. Withdrawals prior to age 59 may be subject to a 10% penalty tax.) IRS Publication 590 contains information about IRAs.
7. Don't touch your retirement savings.
You'll lose principal and interest, and you may lose tax benefits. If you change jobs, roll over your savings directly into an IRA or your new employer's retirement plan.
8. Start now, set goals, and stick to them.
The sooner you start saving, the more time your money has to grow. Devise a plan, stick to it, and set goals for yourself. Start saving now, whatever your age.
9. Consider basic Investment principles.
How you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you'll have saved at retirement. Know how your pension or savings plan is invested. Financial security and knowledge go hand in hand.
10. Ask questions.
Talk to your employer, your bank, your union, or a financial advisor. Be sure the answers make sense to you. Get practical advice and act now.
General Shopping. Most retailers hold winter sales around the holidays. Prices are reduced to bring consumers back into the store after the holiday-spending period. Also, it pays to be knowledgeable about the item or service you're about to purchase. Take the time to polish your comparison shopping skills:
Internet Shopping. The world has become your personal in-home shopping mall. You need to be cautious when buying online.
Instead of money, spend time to plan and prepare.
COPING WITH POWER OUTAGES, FLOODING, AND PROPERTY DAMAGE
How long does food keep in a refrigerator or freezer when the power goes out?
What precautions do I take if my basement floods?
Who is responsible for paying for damages when a tree falls?
If a street or park tree falls, it's the government's responsibility. If a yard tree falls, it depends: If your tree falls on a neighbor's house, the neighbor's insurance will pay. If it falls in your yard, it's your responsibility.
How do I prevent being ripped off in contracting repairs?
When selecting any contractor, ask for proof of current insurance. For home repairs, ask to see their license. For all contractors, check references and get three bids. If the price seems excessive, call your insurance company for advice. Prices rise during emergencies. Wait several weeks, if you can.
Check your standard homeowner's insurance policy to determine if you're covered for damage to your property from a storm.
Money is the number-1 problem couples fight about. It's often the spark that ignites bickering about ambitions, fears for the future and the inevitable power struggle. Communication is vital. Talking about how you plan to earn, spend and save money is easier when you agree on the priorities. Regardless of income levels, couples benefit from forming and adhering to a spending plan that includes discussion about making major purchases.
Financial advisors encourage wage earners in two-income households to design a plan that maximizes the benefits of the second income. For lower wage earners, the costs of child care, income taxes, and workrelated expenses may outweigh the income benefits of a second job. Even for high wage earners, without proper planning the maximum benefit will not be realized, and in some instances, the additional salary can be a tax liability.
Planning tips for dual-income households:
PAYING FOR YOUR CHILD'S COLLEGE EDUCATION
This is probably the most intensive short-term cash drain on any family's finances. Unlike most other big- ticket items, such as homes or automobiles, that can be paid off in monthly installments, college tuition must be paid out over a relatively short period of time. With tuition at staggeringly high levels throughout the nation, a family's commitment to provide higher education for children can be overwhelming.
Ideally, a long-term plan for college education was initiated from the birth date of your college-bound student. There is no better way to ensure a child's education that a systematic savings plan. But this is not an ideal world, many of us must finance part of the college education out of the monthly family budget.
Before selecting a college, parents need to:
Cost is not the only factor to be considered when selecting a college. While private colleges are generally more expensive than public colleges, they often have a wealth of financial aid programs that will make the tuition bite less severe. Many state and community colleges also have scholarships and loans available.
Libraries and bookstores carry many excellent college guides that give detailed information on individual college tuition charges academic programs. Keep in mind that most colleges have a financial aid office to assist students in determining when financial assistance may be available.
Tuition and associated fees increase by 6% each year.
If you're finding the purchase of a new home an overwhelming prospect, you're not alone. For many people, an affordable alternative to buying a new home is to stay put and remodel their present house by adding more space or renovating. Home remodeling is a multi billion-dollar industry in the United States.
While remodeling can be less expensive than buying a new home, it still represents a considerable investment. As with most worthwhile projects, planning is essential. Please consider the following tips before starting your remodeling project:
Deal with a qualified and reliable remodeling contractor. It's best to get at least three estimates. Check each contractor's references with local home building and/or remodeling associations and previous customers. Avoid contractors who can't furnish a list of satisfied customers. Ask references the right questions:
Do not sign a contract until you are absolutely confident you understand all the fine print. When possible, consult an attorney on contracts for major renovations. Default on a legal contract could result in a lien on your properly, and , even worse, possible loss of your home to satisfy the debt.
Arrange the financing carefully. Few families pay for remodeling in cash. Many financial institutions offer second mortgages and home equity loans secured by your house. The interest charges on second mortgages and home equity loans are an income tax deduction.
Structure your contract so that the contractor will be paid in stages: 30% prior to the project's start; 30% when the work is half done; and the remainder upon completion. Many states have statues that require contractors to warranty their work.
Inspect the work in progress; ask questions. Remember, It's your home that is being remodeled.
HOW MUCH CREDIT CAN YOU AFFORD?
Before making the decision to add more debt, you need to make sure that you:
1. Start with your monthly take-home pay.
This is the amount you have left after taxes and other deductions have been made.
2. Subtract the amount you need for necessities and fixed expenses.
This includes savings, your mortgage or rent payment, utilities, food, transportation, child care, medical care, clothing, and recreation. Include payments made on a quarterly, semi-annual, or annual basis, such insurance and taxes.
3. Subtract monthly payments for existing loans and credit cards.
4. The balance is the amount you can safely apply to debt repayment.
Avoid thinking you can spend all this amount, since emergencies do occur, and you may not wish to use your regular savings account to cover small, unexpected expenses.
HOW TO MANAGE CREDIT CARD USE
Many people find themselves with credit problems because they don't keep track of purchases they make with their credit cards. A simple method of keeping track of monthly credit card charges is to:
1. Determine the total amount you can responsibly charge on all your credit card accounts during that month.
2. Keep track of your credit spending in the same way you maintain a running balance of your checking account.
3. Subtract each amount charged from the monthly charge limit you set.
4. Stop using your credit cards if you draw this balance down to zero.
DO YOUR HOMEWORK BEFORE BUYING OR LEASING A VEHICLE
If you're in the market for a new or used car this year, you can save money by doing your homework before buying or leasing. It will be helpful to consider the following before selecting and financing your next vehicle:
1. Determine how much you can afford and how much you will pay for the car. Cash is the least expensive, but two of every three car buyers must use credit. Evaluate terms offered by automotive finance companies and other lenders. Compare financing terms as well as car prices.
2. Make as large a down payment as you can afford and plan to repay the loan as soon as possible.
3. Select a car model within your budget that will meet your needs. Loading a car with options might double the original base price, so decide which options are essentials and which ones you can live without.
4. Buy during the late summer or early fall, just before the next year's models arrive.Dealers offer discounts on last year's inventory.
5. Compare various dealers' discounts on a particular car's list price. Don't be afraid to negotiate. Evaluate the manufacturers' warranties. Compare what they cover and what they don't.
6. Read your sales agreement before signing it. Make sure it is approved by the sales manager and that all oral promises made by the salesperson regarding special services or adjustments are included in the contract.
Many consumers are considering leasing rather than purchasing a new or used car these days. If you're thinking about leasing your next car, here are four tips to keep in mind:
1. Shop and compare. As in any contract, the terms in lease agreements are negotiable. Check around for the best deal.
2. Know your driving style. Consider factors like how much you drive and how often you change cars.
3. Be aware of any costs involved if you end the lease early.
4. Remember that leasing a car is different from buying a car. When you buy, you're the owner. You pay for the car, you keep the car. When you lease, pay to drive a car owned by someone else. At the end of the lease, you give it back.
A carefully selected used car can provide as reliable transportation as a new one. Seek the expertise of a mechanic for checking out a used car.
CHILDREN AND MONEY
You can give your child a boost toward becoming a good money manager if you manage your own money well. For better or for worse, children learn how to handle money from their parents. Also, like parents, they are tempted by advertisements.
What you tell a child about money depends on his or her age and ability to understand the information. Money discussions can begin as early as pre-school and continue right through the late teens. With today's home computers and the availability of programs that teach children about money, children can learn the basics in an enjoyable way at an early age at school and home.
Giving children an allowance helps them make spending decisions. It teaches the child the benefits of saving money today for important goals later in life. Having a voice in establishing family goals will help children realize that the family is working together to set priorities and solve any financial problems that might occur.
In determining an allowance for your child, follow these suggestions:
Set an example for your child. Manage your money. Don't let your money manage you.
Many financial institutions are making loans through an automated loan machine (ALM). These machines are being placed in financial institutions, large retail outlets, and shopping centers nationwide. ALMs allow credit-worthy consumers to obtain loans in amounts ranging from a few hundred dollars up to $10,000 without having to face a loan officer. Generally, the interest rates for loans made through ALMs are the same as for conventional loans. Using an ALM is relatively easy:
Automated teller machines (ATMs) use computer and electronic capabilities as a substitute for checks and other transactions. This provides the convenience of 24-hour access to cash by allowing you to:
ATMs help save time. Remember, a convenience fee may be charged if you're not a customer of the bank.
Save in advance.
It sounds simple, and it is. You must discipline yourself to save a few dollars from each week's paycheck during the year. If you aren't disciplined enough to save regulary on your own, consider joining an interest- paying holiday savings club at your bank or credit union.
Taking on a part-time job for a few months, or working overtime, is a great way to earn extra spending money in time for the holidays. Even better, work a little extra here and there throughout the year, saving most, if not all, for holiday expenses.
If your list of family and friends is long, suggest this approach to gift giving.
Take advantage of seasonal bargains.
Many stores begin their year-end sales during the holiday season. Be alert for bargains, especially if bad weather causes sales to be slow.
Consider shopping by catalog.
Many find that catalog shopping helps them stick to a budget. They're not seduced by the millions of choices available in stores. An added advantage is shopping from home and avoiding crowds. However, shipping charges will need to be included in your budget.
Allow time for planning and comparison shopping.
Keep your budget in mind and shop carefully to get the best selection and price.
Borrow wisely.Credit cards and loans are frequently used to make uyp for a lack of holiday cash. Both allow you to repay the amount owed over a period of time, althought you pay for this advantage in finance charges. Remember to budget for the credit card and/or loan payments you'll have to make.
Budget your purchases.Contact the AFSA Education Foundation for a free holiday budget chart to keep track of who's on your shopping list, how much you've budgeted, gift ideas, and estimated expenses.
Taking control of your holiday spending helps you avoid seasonal stress, and allows you to enjoy this time of year with family and friends.
The American Financial Services Association Education Foundation (AFSAEF), an affiliate of the American Financial Services Association (AFSA), was established in February 1990 as a non-profit 501(c)3. AFSA, founded in 1916, is the national trade association for providers of financial services to consumers and small businesses. AFSAER's mission is to develop education materials promoting consumer awareness of personal mney mangement skills and to provide a forum for research on issues impacting consumer finance. The purpose of these materials is to help the public to understand the credit process, sek help if credit problems occur, and realize the benefits of responsible mooney mangement.
|AFSA Education Foundation
919 Eighteenth Street, N.W.
Washington, D.C. 20006
Phone: (202) 466-8611 Fax: (202) 223-0321
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