Take control of your finances by creating a budget

It's clearly a budget. It's got a lot of numbers in it.  ~George W. Bush

I know you have to be thinking that I am kind of crazy posting the quote that I did.  However, in 2008, it seems like the Government took this type of approach when handling the finances of the country.  Not only are we currently in a recession, but the current steps taken to get us out of this predicament is highly flawed.  I mean after all, we have given over 300 Billion dollars to companies and have no idea about what they are doing with the money.

As much as we would like to blame the government for all of our problems, that would be ignorant to do so.  I mean in retrospect, 2008 was a year that most Americans paid for previously bad decisions.  Whether it was being caught in the "oil" rush, buying the biggest SUV possible, taking out an ARM loan to re-finance the house or even buying the big screen TV on credit, Americans have learned this year really how vulnerable our economy and personal finances are.  The Jones's are no longer the family to be and keeping up with them is for the birds.

We are far from the times of good job security as many people on Good Morning America reported that they feel like they were "disposable" once they were laid off by their job.  However, there is a silver lining, going through these times helps us to reconsider how we evaluate ourselves.  We learn new and improved ways to define ourselves and not tie ourselves down to nothing more than a specific job.  

2009 is a new year and the mood of America, based off the latest choices we have made as a country, demonstrates that it is time for a change.  We are moving from a consumerist nation to a nation who is re-taking control of our personal finances.  It is time to get back to making the choices that secure our financial future rather than impede it.  It is time to do what Americans do best: become innovative, make the best of what we have and change for the better.  

One of the best choices you can make to take control of your financial future is creating a sound budget.  Although this sounds like a daunting task, you can accomplish this by completing five steps:

1. Track Spending
   
• The most important step to developing a budget is tracking your spending.  This will allow you to identify holes of your income and help you isolate spending problems areas in your life.
• Steps to Track Spending
1. Each time you buy something, SAVE THE RECEIPT.  Even if it is a pack of gum, a utility bill or whatever, take the receipt and file it away in an envelope, a folder or a filing cabinet.
2. At the end of a 30 day period, collect each of the receipts and figure out general categories most of the receipts can be grouped into.
• Example of categories
1. Utilities
2. Mortgage/Rent
3. Eating Out
4. Gas
5. Groceries
6. Discretion Funds
7. Savings
8. Retirement
3. Once you have developed your categories, use a spreadsheet program like Microsoft Excel or Google Spreadsheets, put the date of the receipt and the amount into each category that is most applicable to.
4. Add the totals of each category and develop your estimated monthly expenditure for each category.
2. Prioritize
• For most of us, budgeting will require us to make sacrifices in order for us to abide our plan.  Whether it is cutting back on eating out so we can save more for retirement, or wearing sweaters in the home so we can lower our gas bill to spend more money at our discretion, we have to prioritize what is important to us.
• The most helpful thing you can do to help with prioritizing is develop a goal or an end point of what you hope to accomplish.
3. Be Realistic
• Although most people have good intentions with the initial development of a budget, a lot of time people fail due to having goals and expectations that are not realistic.
• Rome was not built in a day and neither will having the "ideal" personal financial situation.
• Patience is your friend and just by following a well thought plan, you will be able to eventually reach your goals.
4. Use Automatic Accounting
• Automatic accounting automates your budgets.
• Not having to worry to about your money and actively touching it can reduce the stress in money management.
• See the following article for more information about "Automatic Accounting".
• Automatic Accounting
5. Evaluate and Re-evaluate
   
• Although you may invest a lot of time to develop your initial plan, things change.  You may get a pay increase, you may lose your job or you even may take on a new financial responsibility.  
• There has to be a re-evaluation period that takes place to look at your current plan and make changes to accommodate whatever new changes you experience in your life.

Although many corporations are really hurting right now due to this current economy, some are still staying afloat.  They accomplished this by determining a budget that was tailored to their personal situation and stuck with a sound plan that continues to work for them.  In addition to that, they took the necessary steps to adjust to the current economic situation.  Unfortunately, many companies that tailored themselves to become more like their competition and did not change from their ways have caused them to fail.

Remember, 2009 is a new year and it is time for you to take control of your situation.  It is no longer a time to make excuses or blame our current situations on someone else.  We must hold ourselves accountable for the decisions that we make.  Starting today, make a decision to change for the better.

Stay Disciplined!

Leveraging your knowledge to make extra income

Have you ever thought that you could be making better use of your free time? I mean after all, you are a pretty smart person. You have a lot of knowledge about the field that you work in and there would have to be some way that you could make money using this knowledge, right? Maybe you are a little reluctant to start your own business because of all of the overhead that is required. Or maybe you do not have the investment capital to invest in yourself. Well...all that is about to change...

In addition to my interests in personal finances, I am also a huge computer enthusiast. During my usual brainstorming process, I was trying to think of a way to leverage my current knowledge and ability to make some extra income. I did a few searches online and found that there are a lot of sites that you can do freelance work and they pay you for it! Yes, you can actually work from your computer at home and make money.

For my skeptics out there, I know this sounds too good to be true, so let me go into further detail. There are two websites that I have come across that have great opportunities for freelancing. The first is Guru which is a site dedicated to match-making between freelancers and those who want to purchase their service/product. Below is a small excerpt from the website:

Guru.com is the world's largest online marketplace for freelance talent. Through our free service, employers find top freelance and contract talent locally, nationally, or globally. Our web-based marketplace directly connects businesses with more than 100,000 active freelance profiles specializing in over 160 professional categories including web design, programming, graphic design, business consulting, and administrative support.

Although I have not personally registered for the site, it is a great concept and a great way to help supplement your current income (especially during these times). I am still deciding on whether or not I am going to sign up for this site, but it is always great to have options.

The second (and my favorite) site is JustAnswer. Below is an excerpt on how the website works:

How JustAnswer works

1. Ask a question.
Enter your question, and create a user account.
2. Name your price.
You can pay up front or wait until an Expert answers. Prepaid questions are typically answered faster.
3. An Expert answers, often within minutes, usually within a few hours.
JustAnswer will send an e-mail notifying you of any answer or request for information from an Expert.
4. Accept the answer.
If you got great service, consider adding a bonus. Your acceptance pays the Expert and tells us you’re happy.

That’s all. We guarantee your satisfaction.

So how does it all relate to you? Well, I am so glad you asked...there's more:



More Expert Information Apply now to earn money for all of your answers that are accepted! New (4 or less accepts) or below average Experts earn 25% of what a customer is offering for an answer and above average Experts earn 50%. Once you have more than $20 in your account, just request payment and we'll Pay Pal the money to you on the first business day of the month.

Now, because I have signed up for this website and actually use it, I can provide for you my experience with it. After applying to the site (as a Computer Expert), I was given a test with 10 questions. I guess I answered them correctly because they made me an expert in computers rather quickly. (I had to wait one day before I could start answering questions)

Now, whenever I have free time, I log into the website and monitor a queue that new customer's send their questions into. I find questions that I know I can answer, answer them, and get paid. It's literally that simple. So far, after 3 days of being on the site and having 7 accepted answers, I have made $40.25. Now I understand that I will not be able to go out and buy that Mercedes Benz with it, however, in my eyes, that's free money for answering questions all from the comfort of my computer.

The great thing about this site is that there are many other experts that you can apply to become. Everything from answering math questions to being a business consultant, there is an expert position that you can apply for to make some extra income. Now, "not being able to find some work" is one less excuse you can use for this new year.

Stay Disciplined!

If you have trouble registering for the JustAnswer website as an expert, send me or email or leave your email address in the comments and I will send you an invite.

Setting Resolutions...better yet, Goals for the New Year

Our goals can only be reached through a vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success. ~Stephen A. Brennan

It is a new year and a chance to start over again. It is during this time that many people try to make "New Years Resolutions" only to realize that a month into the new year that the same old habits are still prevalent. Whether it is exercising, controlling spending or reducing debt, many of us find that we have good intentions when we start, however it is hard to stay consistent with our intentions.

At the beginning of 2008, I decided to set goals to improve my life (financially, physically and other ways). After spending about a week figuring out some of the things I wanted to accomplish, I decided to write them down. Now in retrospect, coming into this new year, I have looked at my previously written goals and feel a great sense of accomplishment due to the fact that I have completed most of the goals that I set for 2008.

During a recent conversation with my sister, I let her know of my sense of accomplishment due to the status of my goals for 2008. We discussed the idea of writing down these goals and she agreed 100% that writing down goals for the new year was the way to go. I know that sounds amazingly easy, however, there was a very meticulous procedure that was followed in order to ensure success in obtaining these goals. Below is the procedure followed:

1. Write the goals down.
• Writing down your goals helps you remember what exactly you want to accomplish.
• It allows for accountability of the goals.
  
2. Write a tangible metric to measure success on obtaining goal.
• How do you know when your goal is reached?
• Write down an expected outcome to measure the expected results once the goals has been met.
  
3. Give yourself a deadline.
• Just writing down goals without any deadline can make that goal last forever.
  
4. Write possible steps to obtain your goals.
• Jotting down some typical first steps for your goal can provide an immediate action plan to start on your goal.
  
5. Share your goals with a friend for accountability.
• Sharing your goals with a friend can help you facilitate discussions to double check that proper progress is being made on the goal.
• Your friends can offer a different perspective on obtaining your goals.
  
6. Check your goals monthly to note the type of progress being made.
• Always check your progress monthly to make sure obtaining your goal is on track to meet the deadline.
7. Remember, "It is Easy as P.I.E."
• Plan, Implement and Evaluate.

*Extra: Choose a theme for yourself that represents your ideas/goals for 2009* (My Theme: "No Excuses")

Creating goals can help you finally reach your financial situation that you have been wanting to achieve in previous years. In addition to your personal finances, settings goals can help with obtaining a more fulfilling life with accomplishing things that you set your mind to.

When discussing the previous year, a lot of my close friends looked back at 2008 and are very happy that it is over. In order to prevent experiencing the same feelings for year 2009, we have made sure to set appropriate goals, share them and go about the proper steps to accomplish them.

What are some of the recommendations that you have for setting goals? What other recommendations do you have to improve your life for 2009? Leave them in the comments below.

Stay disciplined!

Getting the Recognition you Deserve at Work

Don't worry when you are not recognized, but strive to be worthy of recognition. ~Abraham Lincoln

The onset of a recession has caused many people to have to worry about their job security. Keeping your job is enough to worry about in itself, but at the end of the year is the time that you most are evaluated based on the work that they completed for the year. Now, many employees do not want to seem to burden their employers by asking for an increase in pay during times where jobs are scarce and money for companies is hard to come by. However, companies want to retain their good talent, especially those who produce results and will usually try to work with employees to increase their compensation.

Employers can easily be compared to the average consumer. Most consumers typically like to get the best bang for the buck, and if they are going to pay premium price for a product, they want to make sure that it will last and continue to be worth the price.

Below are some of the principles I follow to try to get recognition at work:

1. Think outside the box to fix a problem.
• Always try to come up with three solutions to a problem.
  
• After determining a solution for a problem presented to you, think about whether or not it is the most efficient way to solve the problem.
2. Do the work no one else wants to do.
• Oftentimes, my management likes to request a volunteer to do an extra project before assigning it out to an employee. I volunteer for those requests frequently.
• Shows initiative and willingness to work.
• Increases your net value to the company.
  
3. Document the value of your accomplishments (as they happen).
• Many times people document what they do instead of how what they did positively impacted the company.
• Document the results of what you did and have it improved a process to the company.
• Use a format that is similar to listing your accomplishments on a resume
• Example: Provided great customer service to walk customer through initial setup of product resulting in less call volume for initial setup of product.
• Each time you complete a project or receive a kudos for a job that you had involvement in, archive the email under an "Accomplishments 2009" folder and write it down in a notebook. I use "Google Notebooks" for this.
  
4. Expand your network at work.
• Companies want employees that help create a comfortable work environment.
• Always try to be nice to your colleagues as well as help out those who are struggling.
• It may even be worth it to hang out with colleagues outside of your job to create trust as well as receive help from your colleagues when you are in a bind.
  
5. Increase your net worth
   
• In terms of accounting, you are either going to be a net asset or a net liability to your company.
• The company can make this judgement by determining the amount of assets you bring to the table versus the amount of liabilities caused by the company.
• Examples of Assets of an Employee:
• Employee Productivity
• Employee customer relations
• Employee skills
• Examples of Liabilities of an Employee:
• Paycheck paid to the employee
• Benefits provided to the employee
• It is always a good recommendation to make sure that your employer sees good value from your performance at work by your contribution to the company being worth more than what they pay you for it.
6. Less complaining/More resolutions
   
• Unfortunately, most work environments are not perfect. There will always be something to complain about. Rather than complaining to your boss over things that cannot change, try to deal with them.
• If there is something that needs to be changed, instead of just complaining alone, present a solution to resolve the problem.
  

By following these principles, you can increase your overall value (net worth) at work and give your employer more reason to provide you a pay increase after your evaluation at the end of the year. Even if you get turned down for a pay increase this year, you can start following these principles in the new year to request an increase at the end of 2009.

What are some of the other recommendations you have to get the recognition you deserve at work? Leave them in the comments below.

Stay Disciplined!

Cash Rebates for Shopping...Microsoft Live Search Cashback

Special thanks to Nate Lee who inspired this article. Thanks for the heads up for the readers to get a quick money rebate during the holiday season!

I am deciding to break away from my normal blogging schedule and share with you a quick and awesome program going on with Microsoft right now. Currently, Microsoft has created live search for products that you can purchase online. Now, while many search engines currently have this capability, the kicker with Microsoft is that they pay you instant cash back for certain qualifying items.

For instance, I just searched on the Microsoft Live Search site for "Dell 6000 AC" and purchased a Dell AC adapter for my brother on Ebay. I clicked on the link that had the little Microsoft Cashback symbol and received 8% cash back on my purchase. Not only did I pay less than retail for the adapter but I received a rebate also that will be deposited into my paypal account, that's too sweet of a deal to that I felt compelled to share. I have spoken with my friend who gave me the heads up about this program and he stated that his friends confirmed that it is legit as Microsoft has cut checks to people who have purchased through this program.

Ok, I'm convinced, sign me up!

To enroll in the program, you have to meet the following requirements (taken directly from their FAQ Page):

Who is eligible for Live Search cashback?

You are, as long as you:

• Provide us with a valid email address and password for account access.
• Are at least 18 years of age and reside in the U.S.
• Have a valid U.S. mailing address (a P.O. Box won't work).
• Create or have an active Windows Live ID and cashback account.
• Adhere to the Microsoft Service Agreement.

To use the program with Ebay, you will need a paypal account and ebay account that are both in "good" standing. Other points to mention is that it is required that you have at least $5.00 in your cashback account before the send you a check and there's a waiting period of at least 60 days in most cases before you can receive your rebate.

For more information about this program, refer to the Microsoft Cashback FAQ page.

Do you have any tips or secret gems you know about for getting the best deal online? Please share them in the comments below!

Stay Disciplined!

Accounting 102...Using the Double Entry System

To every action there is an equal and opposite reaction. - Newton

*To better prepare for the concepts explained in this article, please read the previous article "Personal Accounting 101...Understanding the Basics to Accounting"*

As mentioned in the previous article, I am planning on taking on my personal finances from a different perspective in 2009. I want to become my own personal accountant and understand my finances at a higher level to track each and every dollar that I spend. In order to do this, there are some accounting principles that must be understood to ensure proper accounting of my money.

The latest principle that I have learned about is the "Principle of Balance" in accounting. This principle seems necessary to me because I want to know where each dollar comes from and goes to in my personal finances. Knowing this information will help with identifying any kind of holes that my money seems to disappear into. In addition to that, it will help identify my spending trends and adjust finances according to the previous trend so that I can better eliminate unexpected expenditures.

The "Principle of Balance" is implemented in a accounting method called Double Entry Accounting. Below is a definition of what exactly this is:

Double Entry Accounting: A standard accounting method that involves each transaction being recorded in at least two accounts, resulting in a debit to one or more accounts and a credit to one or more accounts.

Although this seems like a lot of overhead for tracking your personal finances, it offers several benefits:

1. Accounting Trail
• Using Double Entry accounting allows you to track where the money originates from as well as where it ends up at. This way each dollar can be tracked and it is easier to identify when money is being wasted.
  
2. Automatic System of Checks
• Since every transaction is being recorded twice, it provides an automatic system of mathematical checks to make sure that all money is being accounted for. With this method, all credits have to match all debits in a transaction.
  

For further clarification, let's take real world example of this scenario. For instance, if an employee has their paycheck deposited directly into their checking account from an employer, then the money has been withdrew from the employer's account in the form of a paycheck and deposited in the employee's checking account in the form of increased funds. Using the double entry method of accounting, the journals that record this entry would look to be the following:

Income: Paycheck (-$500) -> Asset: Employee's Checking (+$500)

To make this a little more complicated, let's look at the terms debit and credit to understand this in more formal accounting terminology.

A quick explanation of how debit and credit works is listed below:

Debit
Money is recorded in the debit column, which is always the left column, when it is being transferred to an account. Also referred to as depositing into an account. (Citation)

Credit
Money is recorded in the credit column, which is always the right column, when it is being transferred from an account. Also referred to as withdrawing from an account. (Citation)

Applying this new terminology to our current real world example, you get the following:

Debit:Employee's Checking - 500
Credit: Income Paycheck - 500

*I know this seems a little backwards and is a bit to wrap your head around due to the nature of Credit and Debit cards, and how they work, but once you start thinking in terms of deposits and withdrawals, it will be easier to understand*

Now the previously referred to benefits of this method are obvious because all debits (deposits) have to equal all credits (withdrawals). However, recording each transaction and then performing calculations seems to be a complicated and tedious task. This would be true if we did not have computers, however there is free software that handles most of this for us. All that is required from the user is to save receipts and enter them into the software.

Doing a quick Google search for "Accounting Software" can turn up many choices, however I plan on using GNUCash. Not only is it free, but it is very feature rich allowing the user to create charts, graphs and reports.

What are some of the financial resolutions you are going to make for 2009? Do you have better ways for money management? Let us know!

Stay Disciplined!

Personal Accounting 101...Understanding the Basics to Accounting

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. -Thomas Jefferson (1743 - 1826), Letter to the Secretary of the Treasury Albert Gallatin (1802)

With the new year right around the corner, I have decided that one of my resolutions this year will be to track every dollar earned as well as every dollar spent in my personal finances. I am going to start up a new pseudo-company called "Jonathan Torian Inc." and become my own personal accountant. In order prevent failure and ensure a promising financial future, I am going to begin learning the basics in accounting and apply it to my every day life.

Two Types of Accounting

Cash Basis of Accounting

An accounting method wherein revenues are recognized when cash is received and expenses are recognized when paid. This method is inferior to the accrual basis of accounting where revenues are recognized when they are earned and expenses are matched to revenues or the accounting period when they are incurred (rather than paid). The cash basis of accounting is usually followed by individuals and small companies, but is not in compliance with accounting's matching principle. (Citation)

Accrual basis of accounting

The accounting method under which revenues are recognized on the income statement when they are earned (rather than when the cash is received). The balance sheet is also affected at the time of the revenues by either an increase in Cash (if the service or sale was for cash), an increase in Accounts Receivable (if the service was performed on credit), or a decrease in Unearned Revenues (if the service was performed after the customer had paid in advance for the service). (Citation)

Cash Basis Accounting is the most applicable to the individual consumer.

Main Financial Statements

1. Income Statement
2. Balance Sheet
3. Statement of Cash Flows

Income statements

Show how profitable you are during the time interval. Profits will be measured in the amount able to be saved after a given time period. This can be used to show what time of the year money is more likely to come in or go out. Profitability involves two things, amount of money earned (revenue) and expenses.

Revenues

The amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the "top line" or "gross income" figure from which costs are subtracted to determine net income. (Citation)

Expenses

The economic costs that a business incurs through its operations to earn revenue. (Citation)

Matching Principle

The principle that requires a company to match expenses with related revenues in order to report a company's profitability during a specified time interval. Ideally, the matching is based on a cause and effect relationship: sales causes the cost of goods sold expense and the sales commissions expense. If no cause and effect relationship exists, accountants will show an expense in the accounting period when a cost is used up or has expired. Lastly, if a cost cannot be linked to revenues or to an accounting period, the expense will be recorded immediately. An example of this is Advertising Expense and Research and Development Expense. (Citation)

Balance Sheet

A financial statement that reports the amount of a company's assets, liabilities. (Citation)

A "snapshot" of a individual's financial position at a given moment in time.

Previous Article about using Financial Snapshots

Assets

Assets are things that an individual owns and are sometimes referred to as the resources of the individual. (i.e. Personal vehicle(s), its cash in the bank, home, etc.)

cost principle

The accounting guideline requiring amounts in the accounts and on the financial statements to be the actual cost rather than the current value. (Citation)

Depreciation

Depreciation is required by the basic accounting principle known as the matching principle. Depreciation is used for assets whose life is not indefinite—equipment wears out, vehicles become too old and costly to maintain, buildings age, and some assets (like computers) become obsolete.

In accounting, an expense recorded to allocate a tangible asset's cost over its useful life. (Citation)

Liabilities

Obligations of the company; they are amounts owed to others as of the balance sheet date. (i.e. Loans, credit cards, etc.) (Citation)

Statement of Cash Flows

Shows how Direct Delivery's cash amount has changed during the time interval shown in the heading of the statement. Good for helping to determine your financial circumstance and whether or not things need to be adjusted.

The goal of these articles will be to get a basic understanding of accounting principles then determine ways to integrate them into my personal finance. I am hopeful in being able to become the Chief Financial Officer of my finances for 2009.

Too often we rely on others' book keeping to determine if our finances are balanced. How many times do you check your bank account after you receive a bill to make sure that the power company debited the correct amount? How many times have you been overcharged by a department store or did not receive a store credit for returning an item. Unfortunately, I believe we can attribute much of the economic woes today due to not tracking expenses correctly and understanding the underlying debt trap that many Americans laid out.

By tracking my expenses, I hope to avoid this trap and being in less debt than what I owe today.

What are some of the financial resolutions you plan on doing for 2009?

Stay Disciplined!