The Safest Place for Your Important Documents

My husband and I keep a small safe in our house for all of our important papers—from our passports to my son’s birth certificate to our social security cards. One afternoon last summer, not long after I had opened the safe to retrieve something, and left the top up, my husband decided to set a full humidifier on top of the open safe—and of course the inevitable happened.

where to store important documentsAfter that seminal moment in our marriage, I spent an interesting hour clothes-pinning all of our important documents up on a makeshift clothesline in our bathroom. I also started looking into whether our safe was the most secure place to keep all of our documents. Aside from the (admittedly unusual) issue of flooding, I needed to know which papers are better placed in a safety deposit box, and which ones are perfectly fine in your average fireproof home safe. This is what I discovered:

Safety Deposit Box

While the movies may have led you to believe that this is where people stash stolen jewelry, hundreds of thousands of dollars in cash, fake passports, and other illicit materials, the fact of the matter is that safety deposit boxes are the best place to store any paperwork that you would have trouble replacing.

That list of important documents includes birth, marriage, and death certificates, adoption papers, divorce decrees, citizenship records, military records, deeds, titles, wills, and stock and bond certificates. All of these items are of vital importance, and should be protected against the possibility of fire, flood (ahem), or burglary at your home.

The rent for a safety deposit box is relatively inexpensive, and it offers you security and privacy. (However, you should remember that the items in a safety deposit box are not FDIC insured.) Also, that privacy can end up being a Catch-22, particularly if you make the mistake of keeping your original copy of your will—or other important legal documents—in the box. Safety deposit boxes are sealed after the death of the box-holder, meaning your heirs may not have access to the legal information that proves they are your heirs.

This is part of the reason why every family should have a home safe as well as a safety deposit box. Then you have a safe place at home where you can keep information for your family about accessing your safety deposit box in the event of your death or incapacitation.

Home Safe

The most important information you can place in your home safe is information and instructions for your family regarding where you keep your safety deposit box and how to access it, as well as the contact information for your lawyer, your insurance agent, your financial planner, and your bank. This is all information that could be of vital importance to your family in the event of your death.

In addition to this information, your home safe is also where you will want to store other documents and records that you may need to access more often. Those documents include your social security card, passport, tax information, insurance policies, health records, education records, loan information, employment records, bank statements and other financial documents. The home safe is also a good place to keep photocopies of certain documents, like your driver’s license and birth certificate. Both of those pieces of ID could be important to show in case you lose the original of either. Also, having a photocopy of your child’s birth certificate means that you have his necessary identification for travel and other needs without having to worry about losing the original document.

Veterans should maintain a copy of their DD Form 214 in their home safe, along with the documents required for a military burial. Maintaining these in your home safe will ensure you have access to your proof of military service at a moment’s notice, and ensure your family can arrange for a military burial in the event you pass away.

You should also plan on keeping a copy of your will in both your home safe and your safety deposit box, in addition to keeping a copy at your lawyer’s office. This will mean that your family has all the necessary information available to them.

It goes without saying that your home safe should be fireproof and always kept locked (and not just because of freak humidifier accidents). In addition, make sure you stow the safe in an out-of-the-way spot in your house—the better to keep potential burglars from noticing it.

The Bottom Line

Organizing the paper beast, even when it is not waterlogged, can be overwhelming. But knowing that your important documents are stowed in places where they will be safe but accessible in case of emergency is worth taking the time to do.

Image credit: jovike

How Big Should Your Emergency Fund Be?

Most financial experts recommend an emergency fund equal to the size of three to six months of your salary.  That’s not a bad rule of thumb, but a better way to base the size of your emergency fund is on the amount you normally spend, not your income.

An emergency fund should contain enough money to hold you over financially if you should lose your job or otherwise become unable to earn an income.  Emergency funds are also useful when you have unexpected expenses such as large medical expenses, unexpected travel, or major car or home repairs that cost more than you budgeted for. Let’s take a look at how you can determine how much money you should set aside in your emergency fund.

Calculate Your Monthly Expenses

how big should your emergency fund be?First, sit down and figure out how much you pay out in an average month.  Only count expenses that are absolutely necessary, so for the purpose of figuring out how much money you need in your emergency fund, you can ignore almost anything in your budget that isn’t required.  For example, you may be able to temporarily postpone or eliminate expenses such as a vacation fund, cable television bill, gym membership, dining out regularly, entertainment, clothing expenses, and some other items.

Make a list of your monthly bills for your home, including rent or mortgage and utilities.  Include transportation expenses, insurance, debt payments, groceries, medical expenses, tuition, taxes child care, and other fixed expenses.

Once you have calculated your required monthly expenses, you need to decide how many months you want to have saved in your emergency fund to cover those expenses if you should lose your job.

Number of Months Emergency Fund Should Cover

While experts claim three to six months is necessary, each emergency is different. Many military members have very stable job situations, but that isn’t always the case for some members who are forced out of the service through a force reduction, or for many of the millions of veterans who are hit with layoffs and reductions in the civilian work force. Because each situation is unique, it’s hard to say how long it might take you to find financial security, especially in a struggling economy like we have now.

Keep in mind, if you have a spouse with an income – you don’t need as much money in an emergency fund as someone who is single or the only source of income for the family.  You and your spouse (unless you work in the same place!) are unlikely to both lose your jobs at the exact same time.

If you receive money from a trust fund, alimony, child support, self employment income, or other sources of income in addition to your job, you can modify the amount of your emergency fund by that much money.  So if you receive $200 a week in child support payments, you can reduce your monthly expenses by $200 per week (since you know you have that much coming in each week) and save less in your emergency fund.

If you have a CD ladder or other type of investment which is fairly liquid and could be removed if necessary, you may be able to keep a smaller emergency fund as well. Click here to learn more about online CDs.

Don’t consider your 401(k) or IRA type accounts as money you can access, because they are not easily turned into cash and are much too expensive to withdraw before you reach retirement age.

At a bare minimum, an emergency fund equal to your minimum monthly expenses for three months should hold you over long enough to find work (even if it pays less than your current job), and help you transition should you have to reduce your expenses to match your new income.

Financial Tips to Start the Year on the Right Path

The end of the year is a great time to review your financial situation and start planning for the coming year and beyond. This is also a great time to take advantage of some financial opportunities before the year closes, such as year end tax deductions and retirement plan contributions. You may also find that your personal and financial situation may have changed, so you may need to adjust your previous financial plans. Let’s take a look at a few things you can do to close out the year on a high note and start the new year on the right path.

Take Stock: Review Your Personal and Financial Situation

Path to Financial Freedom

Are you on the right path?

A lot can happen in a year – your employment situation may have changed, you may have moved to a new location, you have gotten married or had children, or you may have lost a loved one. These are all major changes and can affect the way we go forward. Take some time to reflect upon how your personal and financial situation has changed and think of ways you can create a new financial plan to meet your changing situation.

This is a good time to involve your family members and discuss your short and long term goals. This includes things such as buying a home, paying for education, getting out of debt, planning for retirement, or taking a family vacation. All of these things may be possible if you can plan for them in advance and create a plan to achieve them. This plan could include creating a budget, generating more income, relocating, finding a new job, paying off debt more quickly, investing more, or making certain sacrifices. Remember, your situation is unique, so you and your loved ones will need to create a plan specific to your needs.

More year end money moves

Taking stock of your financial situation and looking at the big picture is always a good idea. But there are also several smaller things you can do which can save you a lot of money in the long run and set you up for a brighter financial future. Some of these tips are below:

Prepare for Next Year’s Taxes

There are multiple ways you can save money on your taxes at the end of the year. Some tips include making retirement plan contributions, donating to charities, taking business deductions, selling investments to capture losses, prepaying deductible expenses such as child care, making certain home improvements, and more. Here is a list of year end tax planning tips.

Max out Retirement Contributions

One of the most important things you can learn about retirement planning is this: You only get one shot at contributing to your retirement plans. This message is important in two ways – the first is that you are only young once, and the sooner you invest, the longer you have for compound interest to work its magic. The second reason this is important is because retirement contributions are limited by the calendar year. Once the contribution deadline is gone, you can no longer contribute for that year. Take advantage of your opportunity to contribute to your retirement plans while you can. Here are the IRA contribution limits, TSP Contribution limits, and 401k contribution limits.

Review your insurance coverage

The end of the year is also a great time to review each of your insurance policies. You should consider the type and amount of each insurance policy, and think about whether or not it still makes sense for you. For example, you may need more or less insurance if you have gone through any major life events, including moving, getting married, getting a new job, etc. Once you determine the right level of insurance, it’s a good idea to compare insurance policies by getting free insurance quotes. These articles may be helpful: How much life insurance do military members need?, Save money on auto insurance rates, Save money on your homeowner’s insurance.

Start a Plan to Get Out of Debt

Debt is the number one killer of financial goals. Early retirement, buying a home, paying for college, and other large financial goals become more difficult, if not impossible, when you have too much debt. Getting out of debt can be difficult, but it isn’t impossible. It all starts with a plan, and the dedication to stick through the plan. If you don’t know where to start, then I recommend beginning with these tips for getting out of debt.

Do you have any other tips to end the year on a high note?

photo credit: monkeywing

Carnival of Financial Planning – Edition #205 – October 7, 2011

Welcome to the October 7, 2011 Edition #205 of the Carnival of Financial Planning.

The Carnival of Financial Planning takes a long-term view of personal financial planning for individuals and families. We focus on efficient and sustainable personal financial planning practices that can lead to lifetime financial security.

This edition is arranged by subject heading, so that you can browse efficiently.

Enjoy!

The Skilled Investor, Editor

Best Personal Financial Planning and Personal Investment Articles this Week from Personal Finance Blogs

Budgeting and Economics

Aaron Nguyen presents What makes a successful budget posted at Aaron Hung.com, saying, “Sometimes people ask me how much they “should” be spending in a certain budget category. The problem with this question is that there is no one-size-fits-all answer. There are plenty of websites that will make you a budget based on percentages of your income.”

Rogan Seager presents Retirement Savings Calculator posted at Retirement Savings Calculator, saying, “Valuable future investment portfolio assets and future investment returns slip through many people’s fingers at the checkout stand every day, because they spend beyond their long-term means.”

Financial Planning

Chelsea Prescotti presents Preventing and Stopping Identity Theft posted at CreditScore.net, saying, “Identity thieves can use your information to apply for loans, start businesses, and even traffic illegal drugs, all under your own name. As we use and store more information online, the threat of identity theft increases as cyber criminals have more ways to access your private information.”

DJ presents Ten Tips for Borrowing Wisely posted at The Family Wallet, saying, “Unless you’re born into an extremely wealthy family, you’ll probably end up having to borrow money. Whether for a vehicle, a home, or post-secondary education, you can expect a financial institution to be in your future. Here are ten tips for borrowing wisely.”

Frank Knight presents Investment Asset Allocation posted at Retirement Planning Software, saying, “When you are already there and invested in an asset class, you are following a passive asset allocation strategy. Tactical asset allocation strategy advocates suggest that you can anticipate the crowd, but flow-of-funds studies show that almost all tactical asset allocation fund flows are late money flows that chase performance after valuations have already moved.”

Matt presents Buy a Boat or Buy a House? posted at Living In Financial Excellence, saying, “My favorite question for the day came from Jackie. She and her husband are debt free and currently renting a house. They live near Lake Michigan and love to spend time on the water. Jackie wants to know if they should buy a house or if it’s ok to keep renting so they can buy the boat they want to live the lifestyle they want. They also have retirement and college savings in place, and her husband earns a great income.”

Marjorie presents How to Get a Higher Credit Limit posted at CardHub.com, saying, “This answers a frequently asked question concerning credit cards. There are a number of factors that can affect your credit line, and depending on your situation, there are a few steps you can take to try to raise it.”

Ciana Locke presents Market Index Funds posted at Best Index Mutual Funds, saying, “The dominant issue in choosing among passively managed index mutual funds and ETF funds benchmarked against the S & P 500 is that securities industry management and trading fees are all over the map from reasonably low to shockingly high.”

Echo presents 11 Steps To Financial Freedom – Record Your Cash Flow posted at Boomer & Echo, saying, “Over the past two weeks I have prioritized my goals and determined my net worth. Now it’s time for step 3: record your cash flow.”

Financing a Home

Roshawn Watson presents Should You Pay-off the House? posted at Watson Inc, saying, “Housing is one of the biggest expenses most of us have. Making the quality decision to greatly diminish one’s living expenses through owning a home outright can have reverberations throughout your entire financial world.”

Financing Education

Charles Chua C K presents 7 Effective Ways to Determine the Worth of a Stock posted at All About Living with Life.

Health Care

Linda Rodriguez presents Breast Cancer Awareness Month: How Will You Contribute? posted at Christian Dating Sites, saying, “The month of October has arrived and with fall knocking at our doors we tend to think of pumpkin patches, cooler breezes, apple cider and the color orange. Considering that October also means Breast Cancer Awareness month, instead of orange, we should change the color we normally associate October with to the color pink.”

Income

Jonathan from Debt Loans presents Give the Gift of Financial Finesse: Your Teenager posted at Wallet Watcher, saying, “Trust that even if your child spends wildly and makes poor choices in their teens or twenties, they will return to more moderate habits within a few years. Then, when they’re ready, you’ll be there.”

Investing

Investor Junkie presents optionsXpress Review posted at Investor Junkie, saying, “Now considered a top pick for on line trading, optionsXpress is the number one choice for many traders, serving the needs from beginner traders to the most seasoned investors.”

Mike Piper presents A Request for Vanguard (or Fidelity, or Schwab…) posted at The Oblivious Investor, saying, “Why don’t more brokerage firms allow for one-step rebalancing, rather than having to enter a separate transaction for each of your holdings?”

Frank Bertin presents Index Funds posted at Top Index Funds, saying, “Top ten no load index funds that track the Standard and Poors 500 composite index in terms of lowest costs.”

My Journey presents October 2011 Dividend Investment Portfolio Update posted at My Journey to Millions, saying, “About 18 months ago, I started my Perpetual Income Machine which then eventually morphed into my dividend investment portfolio. Now every couple months I update those specific stocks which are on my “watch list” for the following months to come.”

David Leeman presents Simple Investing With Little Money, Best Ways to Invest Money for Busy People posted at Financial Freedom Advantage, saying, “Are you looking for some simple investing ideas? Many people don’t have enough money to adequately fund an investment account. Others lack time or investing savvy to manage an investment portfolio.”

Craig Ford presents Mastering the Art of True Passive Investing | A Guide for Worry Free Investing posted at Money Help For Christians, saying, “Learn how to invest without all the stress and worry.”

Dividends4Life presents 6 Higher Yielding Basic Materials Stocks With Growing Dividends posted at Dividend Growth Stocks, saying, “The Basic Materials Sector includes companies involved with the discovery, development and processing of raw materials. This week week, I screened my dividend growth stocks database for Basic Materials companies with a yield above 3.0% and that have increased their dividends for at least 20 consecutive years. The results are presented below:”

Janet Russell presents The illusion of superior professional mutual fund manager performance posted at Personal Investment Management, saying, “If investment mutual fund managers were truly skilled at beating the market, then you would expect mutual fund manager performance prowess to persist over time. The effort to find those few supposedly superior money managers willing to sell their services sufficiently cheaply is a costly, time consuming, and futile, “Where’s Waldo?,” searching exercise for the individual investor.”

Mike Piper presents Evaluating Vanguard’s New LifeStrategy Funds posted at The Oblivious Investor, saying, “Vanguard recently announced major changes to their “LifeStrategy” funds. Are the changes positive? And what type of investors should be considering these funds?”

John Border presents Best Investments for the long term posted at Learn Stock market basics, saying, “The article describes the best investments for today as well as from a longer term perspective. It is all about time in the market as opposed to market timing when it comes to investments for the future.”

Mirelle Rowden presents Fixed Income Funds posted at Best Bond Mutual Funds, saying, “Vanguard dominates this low cost United States bond mutual funds marketplace for direct purchase accounts with both low and high minimum deposits.”

Mike Holman presents How To Buy Canadian Dividend Stocks posted at Money Smarts Blog, saying, “Guide to buying Canadian dividend stocks.”

John presents How to Buy and Sell ETFs Without Paying Trading Fees posted at Wallet Blog, saying, “If you are planning to invest in the market, you should consider the benefits of investing via an ETF especially when you can avoid paying trading fees.”

Managing Credit and Debt

Jeri Ford presents Best Cash Back Credit Cards with Mileage Transfer Options posted at Help Me Travel Cheap, saying, “If you love cash back credit cards and mileage credit cards you’ll love this list.”

MoneyCone presents Bank Of America To Start Charging Debit Card Fees posted at Money Cone, saying, “BofA has come up with a novel way to earn people’s trust after battling one PR disaster after another for the fraud perpetuated by the bank over the past few years. BofA has decided to charge a nominal monthly fee of $5 every month you use BofA’s debit card.”

Jason@LiveRealNow presents What Can Cause Damage to Your Credit? posted at Live Real, Now, saying, “Credit scores move up and down as new financial data is collected by the credit bureaus. Many factors can cause a credit score to rise or fall, but most people don’t have a clue what they are”

Madison presents New 4th Quarter 2011 5% Rotating Cash Rewards Credit Cards posted at My Dollar Plan, saying, “Oct 1 marks the start of the 4th quarter and that means there are some great new cash back categories to maximize your cash back strategy!”

Jacob presents Are You REALLY Doing Everything You Can to Save for the Future? posted at My Personal Finance Journey, saying, “When you sit down to do your financial planning, do you ever take a second to put the troubles the economy is currently experiencing in perspective? This post examines how we can use history as a gauge to help us plan for the future. ”

Miscellaneous

Jonathan presents 7 Ways to Put Your Old Clothes to Use posted at Frugal Living, saying, “Who says you have to throw your old clothes away when there are so many ways in which you can use them? These vary from easy to laborious, so depending on your time and how much effort you want to invest in the endeavour, you can resort to different alternatives. Here are 7 ways to put your old clothes to use.”

Tripp Danner presents No Load Funds posted at No Load Fund, saying, “There are over 60,000 different mutual fund investment share classes sold worldwide. Some mutual funds and ETFs must be better than others, but which ones are they? How can you tell before the fact?”

Jeremy presents Everyone Is Wrong About Bank Of America’s Debit Card Fee posted at Personal Finance Whiz, saying, “Everyone is up in arms right now because of Bank of America’s announcement that it is going to start charging $5 per month to use a debit card. But, I think Bank of America has every right to charge the fee. Further – I think it’s ridiculous if you’re upset about it.”

The Skilled Investor presents Market Timing Does Not Work posted at Personal Financial Management, saying, “Always stay invested to earn risk premiums. You must have your money invested and at risk to get risk premium returns. Jumping out and in or “timing the markets” doesn’t work.”

Retirement Planning

Moneyedup presents Early Retirement Planning posted at MoneyedUP, saying, “The fact of the matter is that an early retirement is not out of reach for most people. For people scrimping and saving throughout their working years, it’s not a slam dunk, but it is doable with discipline and a some creativity.”

FMF presents Financial Strategy #3: Setting Your Retirement Number posted at Free Money Finance, saying, “What specific amount of money do you need to reach in order to retire successfully? How do you determine that number? Twenty. Your number is 20 times the amount of money you are spending this year. ”

Walter Binkle presents Large Cap Mutual Funds posted at Mutual Funds, saying, “Retirees can save a lot by paying attention to mutual fund expenses. Each of these S & P 500 index funds is among the least costly on the market.”

FMF presents Financial Strategy #2: Social Security posted at Free Money Finance, saying, “If you want to retire well, you need to develop an overall financial plan with Social Security as just one part.”

Brockton Eaton presents Long Term Investment Strategies posted at Retirement Investment Strategy, saying, “The investment research literature repeatedly demonstrates that a fully diversified, low cost investment strategy is superior.”

Risk Management

Larry Russell presents Identity theft protection and prevention posted at Personal Investment Management and Financial Planning, saying, “As a threat to your financial security, you should take the potential for identity theft very seriously. Identity theft sometimes entails a loss of your money, but whether or not you lose money, it can take a very large amount of your time to rectify. Taking these steps to prevent an occurrence is prudent.”

Savings

Jon Elder presents Let Savings Fall Onto Your Lap posted at Free Money Wisdom, saying, “As a massive money-saver, I really enjoy the fact that my off-season vacationing can lead to a lot of savings, but most of all I appreciate dealing with a lot less crowds!”

Miranda presents 45 Money Saving Tips posted at Financial Highway, saying, “You can increase the efficiency and effectiveness of your personal economy by finding ways to save more money. Here are 45 of my favorite ways to save money. ”

Nathan Richardson presents As Debit Card Fee Caps Come Into Effect, Banks Raise Fees on Consumers posted at Deals & Tips, saying, “Are you ready for the next move in the war on consumers? Banks are preparing to institute debit card fees in response to the caps that are about to go into effect.”

Bradson Oakley presents Bond Mutual Funds posted at Best Bond Funds, saying, “Higher bond fund expenses tend to mean lower net returns to individual investors. It is not worth paying higher bond fund fees.”

Taxes

Steve Zussino presents The Great American Tax Hunt for Canadians posted at Canadian Personal Finance, saying, “The U.S. Internal Revenue Service is on a campaign to chase down Americans squirreling funds offshore to evade paying taxes. But the crackdown aimed at large-scale tax evaders is also hitting people of more modest means.”

Gregory Stokes presents Your Basic Guide to Child Tax Credit posted at Tax Credit Calculator, saying, “If you have children under the age of 16 you may be able to claim child tax credits. This post is a guide on how to make claim.”

Finley Merriwether presents Retirement Planning Calculator posted at Retirement Plan Calculator, saying, “Tax-advantaged retirement savings plans give you the opportunity to make investments with deferred taxes in 401k, 403b, 457, Keogh, Simple, or other employer sponsored retirement plans.”

Marie presents Filing Status Explained posted at Money Spending Mommy, saying, “There’s one really simple thing that can reduce our tax liability which many taxpayers overlook, and that’s choosing the correct filing status.”

That concludes this edition. Submit your blog article to the next edition of Carnival of Financial Planning using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

Is Your Frugality Actually Costing You?

One of the results of the recent recession has been a renewed interest in frugality. We all seem to want to know how to save money. However, sometimes being frugal can be costly in the long run. As you make an effort to be frugal, it’s important not to let the desire to save money in the short run cost you bigger in the long run. Here are some ways that you can be frugal to a fault:

Sacrificing Quality

For some things, it really doesn’t matter if you get a low-quality product. However, in some cases, saving a few bucks and sacrificing quality can add up to big losses. My husband’s shoes are a good example. We spend about $100 on his casual, everyday shoes. In an effort to save money once, we bought some lower-quality shoes for $45. In six months, those $45 shoes were worn out from all the walking he does. His $100 shoes last at least 18 months (and sometimes two years). If we spent $45 for cheaper shoes every six months, in 18 months we would have spent $135 — instead of $100 for better shoes.

Consider whether or not your penchant for cheap goods is actually costing you. If you find you are buying the same things over and over again, it might be time to spend a little more up front to save money down the road.

DIY Nightmare

You can save a great deal of money doing some things on your own. However, some projects ought not be attempted by the budding DIY-er. If you are trying to save money by working on something major, you could actually end up costing yourself a great deal. What if you mess it up? In some cases, you could mess up something serious, and then have to pay for it to be fixed. Fixing a botched project can be way more expensive than paying a professional in the first place. Know your limitations, and understand when a project is simply beyond you.

Skimping on Maintenance

There are some basic maintenance items that need to be taken care of if you want your home, car and body to last a little bit longer. Take care of home maintenance issues sooner in order to avoid paying more later when minor problems become big messes. The same is true of taking care of your car. Following regular maintenance schedules, such as changing fluids regularly, can help ensure that your car runs better, and that you spend less in the long run as major systems break down.

Finally, don’t forget regular maintenance on your body. A yearly physical is one way to catch health problems early — before they balloon into disasters. Take care of your teeth, and make regular visits to the dentist. My husband ended up with more than $1,500 worth of work on his teeth after avoiding the dentist for seven years. He could have had problems caught sooner, and the fixes would have been less expensive, if he had gone in for regular maintenance on his teeth.

Using Coupons as an Excuse to Buy Something

While coupons can be great money savers, sometimes they are just an excuse to buy something. Sure, I can save $1.50 on a $4.50 tube of new, expensive toothpaste. But if I stick with my regular brand, I’m only paying $2.50 a tube. If I use that coupon to get the more expensive toothpaste, I’m actually spending $3.00 — that’s $0.50 more! Instead of using coupons just to use coupons, have a plan. Make your shopping list, and then find coupons that match what you would buy anyway.

What other ways can frugality cost you in the long run?

Commit Your Budget to Paper or Pay a High Price

The first rule of personal finance has always been creating a budget. While some people don’t use any budget, others feel they’ve got their budgeting system stored in their head. They are satisfied to know they have a ‘good idea’ of how they spend their money.

It would be nice if we only had one or two financial matters to concern ourselves with each month but unless you are a teenage student with a part-time job, there will be multiple factors influencing your finances. The only tried and true way for developing a successful and useful budget is to commit it to paper.

Why Physical Budgets Matter

A budget is more than a list of numbers. It should be an interactive tool you use faithfully to determine your every money move. A budget spreadsheet is very simple to develop but in order for it to be effective, you must supply it with the right information. It can be easy to overlook certain aspects of your finances so if you are not confident you can map out a proper budget, there are many budgeting worksheets available that provide popular categories of expenses you may forget. By using a template version of a budget, you can customize the information to meet your needs.

By putting all of your financial data on paper, you actually get a true visual picture of the facts of your finances. For some people who are putting the data down for the first time, they actually experience shock at just how much they are spending and how much money they don’t really have.

A physical budget is also an essential part of family finances. Even if just one spouse/partner controls the cash flow each month, everyone in the family old enough to tackle family finances also needs to take an active participation in family budgeting. Without a proper paper or electronic budget spreadsheet, it will become impossible to express how the finances work.

Commitment to Your Budget Matters

It is not enough to fill in the blanks of a budget worksheet once, never to return. A budget should be an interactive and regular part of your week. You should continue to update and rework the numbers of your budget and eventually it will become habit for you to commit to progressive budgeting strategies.

When income changes, when bills increase or decrease, or when cuts need to be made to save more money, a budget that is kept up-to-date will help to accommodate these changes with ease. It will prevent you from having to start over from scratch time and time again. If a major lifestyle change occurs such as job loss or medical issues, a current budget will be able to show at a glance how to plan for the changes necessary.

Numbers in your head will never work. You need to first track where you are spending your income and then get to work on committing to a physical budget. It truly is the only way to stay in the know on all of your financial matters. Guesswork does not make anyone financially savvy or financially stable so it is in your best interest to sit down with your money matters and construct the start of your budgeting life today.

Debbie Dragon is a professional freelance writer, specializing in personal finance. She frequently writes for Vertex42.com which offers a large selection of free spreadsheet templates and financial calculators.

Your Actions Show Your Financial Priorities

Your actions show what is important to you in life, and your financial life is no different. Whatever you think is important, whether consciously or subconsciously, that is what you will spend your money on. We can say we value investing or saving for the future all we want, but if we do not put those words into action then they are just wasted and mean nothing. Looking at how we actually spend our money can be an eye opening experience to your financial priorities.

What You Need to Know About Setting Financial Priorities

Your Checkbook Register Reveals The Truth

Your checkbook register tells the tale of the flow of money through your household. What do you spend your money on? Maybe a checkbook resister is not the correct document, maybe we need to just look at bank statements. But, either one will reveal what our financial priorities are. Of course, we will all have the normal fixed expenses of mortgage or rent payments, car loan payments, insurance premiums, and the like. The variable costs that change every month show our true feelings about money. Do you like to spend your money going out to eat every week? Do you leak money out of your monthly budget by trips to the coffee shop? What does your checkbook register or bank statement say about where your money goes and what you subsequently value?

What You Value Subconsciously

We all say that we put a priority on financial goals such as saving for retirement, paying off our homes early, or sending our children to college without saddling them with too much student loan debt. But, do we really value that? Many financial planners recommend saving 15% of your income towards retirement. Are you at that level yet? Are you needlessly wasting money on frivolous things without realizing it when you could be allocating that money to a better use? Many people do not even realize how much money we waste on everyday purchases. Paying with cash also has a way of having money disappear rapidly without a trace. It is not that we rob our retirement accounts or child’s college fund on purpose. We often do not realize that we short change portions of our financial goals for immediate gratification. It is only through looking at the tale of the bank statements that we really find the truth out about our spending habits.

What You Can Do To Set Your Financial Priorities

The first thing that you need to do if you haven’t already is to identify what your priorities are in the first place. What are your financial goals? Do you want to send your children to college and pay their entire tuition bill? Or, do you want to retire from the military after twenty years of service and not work another day in your life? Both of those financial priorities are doable if you plan. You need to have a written monthly budget that dictates where every dollar will go. This will help prevent those sneaky ones leaking out and not being allocated towards your financial priorities.

We do not set out to miss our financial priorities or goals. Many times we minimize our financial priorities without even realizing what we are doing. You can get your financial priorities back in order by focusing on them and ensuring that they are receiving the attention that they deserve. Actions speak louder than words in all things including our financial lives. Make sure that your actions reflect your priorities with money.

The SMART Way To Accomplishing Your Goals

Now that the New Year is upon us, everyone has goals and New Year’s Resolutions that they have made. Some people want to get out of debt, and others want to exercise more and lose weight. No matter what your goals are, they will not be easily accomplished if you do not have a plan to stick with them. For decades, scholars and productivity researchers have been praising the SMART goal setting method. Robert Pagliarini even reminded readers in his book, “The Other 8 Hours”, that goals need to follow the SMART acronym. Goals need to be specific, measurable, attainable, realistic, and timely in order for you to have a chance in seeing them through.

Creating SMART Goals

Your Goals Have To Be Specific

Your goal needs to be as specific as possible. You should not have a goal or New Year’s Resolution to just “lose weight in 2011.” You should tell yourself that you are going to lose fifty pounds over the course of the next year or one pound a week and a set number of inches off your waist.

Your Goals Need To Be Measurable

You have to be able to know where you started, where you want to go in the end, and how you are doing along the way. So, for example, if you goal is to lose weight, it is easily measurable by getting on a scale in your bathroom every morning or night. You should not set a goal that is stated in a way that is immeasurable. For example, your goal should not be to find more happiness in your life. While that is an admirable goal, you need to quantify exactly what makes you happy and how to increase that metric.

Your Goals Must Be Attainable

I am a big fan a stretch goals. Goals need to be tough to reach, but they need to be reachable nevertheless. If a goal is totally unattainable, it will be easy for you to drop it without a second thought. I want to play professional baseball when I was a little kid, but my mother did not have the heart to tell me that it was unattainable since I could even hit another twelve year-old’s curveball.

Your Goals Have To Be Realistic

Writing a best-selling novel may not be very realistic if you have not been honing the craft of writing. If you want to keep your New Year’s Resolution or a goal, you have to be realistic. Are you going to wipe out $100,000 in credit card and other consumer debt in one year? Most likely not, and you need to be realistic so you do not get discouraged with your goals. Repaying $100,000 in debt is completely doable through programs like Dave Ramsey’s Debt Snowball, but it takes time.

And, Your Goals Should Be Timely

Timely, realistic, and attainable goals seem to go hand in hand almost. Your goals need to have a time frame for completion. If you want to lose weight or write the great American novel, you should have an end date in mind and preferably the shorter, the better. You should breakdown your goals into short-term, mid, and long range goals. This will help you focus your energy on the close targets, and your short-term goals can help provide you with baby steps that lead to your large long-term goal.

Like most members of the military, service men and women thrive on acronyms to help them remember ideas and concepts. Using the SMART acronym for goal setting can help you stick to your goals and even try to help you manage to buck the trend and keep your New Year’s Resolutions.

How Long Should You Keep Financial Documents?

For the financially conscious person, keeping good financial records is an important part of managing the household. It is generally a good practice when you observe some good rules about how and when you should dispose of certain financial records.

How Long Should You Keep Financial Documents?

Knowing which bills and other documents to file away and when to get rid of useless material makes managing your finances much easier.  The first step is to know what you have; then you can begin categorizing different documents. Then, once your determine which financial documents you keep, you should consider how long to keep those financial documents.

Which Documents Should You Keep?

Many of the financial documents you accumulate over time fall into a long-term category given their importance and relevance. Still, other financial documents are more ephemeral and may be subject to frequent change-overs, based on continued use or relevance.

Here is a list of some of the more common financial documents you may need to sort through in order to determine how long they should be kept:

  • Real estate documents
  • Receipts or records of personal property
  • Tax returns and related materials
  • Insurance policies
  • Legal documents
  • Credit card statements
  • Bank statements
  • Investment records
  • IRA/Retirement account statements
  • Loan statements
  • And other assorted documents like marriage license, car title, etc

How Long Should You Keep Them?

Titles and other ownership documents. You should keep all titles and real estate documents,such as a home title, the mortgage contact, property repair receipts, etc., for at least as long as you own the item. You may wish to keep the items longer if it may affect your taxes (for example, selling a home or other property for a profit). The same is true when you record personal property. More and more, insurers suggest taking photos of valuables to help protect your household assets in the event of a fire or theft.

Investments and similar documents. Investment documents such as annual statements, documents that prove cost basis for an investment, IRA/retirement statements, some checks like those used for home improvements, and related documents should be kept for as long as you own the investment.

Legal and personal documents. You should keep legal documents such as birth certificates, marriage certificates, death certificates, divorce certificates, legal documents (wills, powers of attorney, etc) , military discharge paperwork, articles of incorporation or other legal business paperwork, and similar legal documents permanently, or until they are no longer needed (such as creating a revised will or power of attorney).

Taxes. It is a good idea to keep your tax returns and other tax-related documents at least for 6 to 8 years because the IRS can audit you back at least six years.

Bank and credit card statements. You won’t need to keep most other bank statements, canceled checks, or credit card statements for more than a year or so. Be sure to review your statements for discrepancies when you receive them, then file them away for a year or so. With loan statements, you should just keep the statements that note you paid off the balance. It’s alright to dispose of the rest.

Set up a Physical or Digital Filing System

The best way to handle these documents is to set up a simple filing system, with hanging folders, or notebooks so you can easily place these documents into a file for future reference, if needed. Or, if you hare more high tech, set up a simple digital portfolio where you can scan your documents and bills – then be sure to shred anything that you don’t need a physical copy of. (for example, it’s OK to scan your bank and credit card statements and shred the originals, but you should always keep the originals for legal documents such as wills, titles, licenses, etc.).

How To Calculate Your Net Worth

A net worth statement is a great way to get an overall picture of your financial situation. A net worth statement can give you an overall idea of how much money and other assets you have, as well as list all your debts and other obligations. Let’s take a look at what a net worth statement is, how to create one, and how you can use it to better understand your financial health.

How To Calculate Your Net Worth

What is a net worth statement?

A net worth statement is essentially a basic accounting of all of your known assets (also called your gross value), minus any of your liabilities (which would constitute your net worth). The statement is a specialized financial tool that helps you identify your present financial situation, by removing all that you owe from everything you have. Such information, when evaluated regularly, can help track your financial progress.

Why a net worth statement is important

A net worth statement can help you visualize all your assets and liabilities in one place, to give you a good idea of how much money and other assets you have, as well as visualize all of your debts. This information is helpful whenever you need to make an important financial decision, such as deciding whether or not you can afford retirement, whether or not you should make a big ticket purchase, or other significant financial decisions. A net worth statement can also be used as a tool to help you eliminate debt or reach other financial goals, as you can visualize your progress as you go.

How to create a net worth statement

Determine which information to include. Let’s go back to the construction of the net worth statement itself. First,you should decide what to include in your calculations. Many people recommend only including liquid assets such as cash and investments, and big ticket items such as your house, cars, artwork, jewelry, and anything else you might be able to sell if necessary. You normally wouldn’t including items such as clothing, furniture, and other items you use for daily life.

The reason for this distinction may be clearer when you consider the complications that could arise from trying to appraise everything you own, particularly those items that may not have an applicable resale value. You may end up overestimating your net worth as a result. You really need to think this through and take the time to reasonably prioritize your assets.

Use realistic valuation. You should include the actual resale values of any items on your statement. For automobiles and other vehicles, you should probably go with a standard guide like Kelley Blue Book. (Of course, don’t discount the local market value either.) Use good sense and do some price research for each of these types of times.

List all assets and debts. Next, you want to gather all your financial information and list it on paper – using a two column sheet makes this easier – one for assets and one for liabilities. Add up all of your assets, then do the same with your liabilities. Once you are done, you subtract your liabilities from your assets:

Net worth = assets – liabilities

It is possible to have a positive or negative net worth.

How often should you do a net worth statement?

Many financial advisors suggest that people should conduct net worth statement at least once a year so it can be compared to previous years. You can do this any time of the year, but a good time to do it is when you’re fiddling with all of that financial information at tax time. You might consider creating a net worth statement more frequently if you are an active trader or investor, or if you are going through many financial changes, such as making new investments, paying of debts, opening or closing financial accounts, any time your see a major change in income or loans, or if you expect to see any significant changes to your net worth.