Stressed From The Holidays? Top 3 Year End Actions For Financial Peace

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Running On Empty?

Santa has come and gone and you had a great time. But now you look at your bank statement and realize that not only are you tired from the parties but your bank account is running on empty and you don’t know where you are with your financial goals. What do you do to recharge your finances and prepare for the coming new year? Here are three excellent actions to take to prepare for financial peace in the new year.

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First: Prioritize Your Goals

Now that the holidays are over and we are preparing for the new year, we must prioritize our goals. This action recognizes that we usually can’t get every one of our financial goals done all at once. So, prioritize something like this:

  1. Got debt from the holidays? Make this your first priority and pay off your debt. Not only will this save you money in the long run, but most people feel a sense of accomplishment and relief when they retire debt.
  2. Review your budget. Did you spend more or less than you had budgeted for Christmas? Adjust your budget accordingly for next year to limit any negative surprises.
  3. With just one week until year end, review how you did meeting your savings goals for the year. Did you meet your goals in each savings area: retirement, college (for kids), future purchases, and emergency fund? If you met your goals, great! Start thinking about your goals for next year. If you did not meet your goals, do you know why? Take a moment and analyze why, then determine if you can overcome those issues moving forward and adjust your 2016 savings goals accordingly.

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Second: Find Your Joy

Take a moment now and reflect on what you liked and didn’t like in managing your finances this past year. Did you enjoy managing your budget? Yes? great, keep it up. Not so much? Then maybe find some tools to help you automate the process. Budget tools like YNAB, Mint and Quicken are just a few of the readily available tools, not to mention a simple old fashion spreadsheet. In any case, use technology to lessen the burden so that you continue to budget your spending and saving.

Don’t care to move money into savings accounts and retirement funds each month? Automate these actions too. Most banks provide powerful tools to automatically transfer money from your checking account into savings and investment accounts.

Last, a huge part of our joy in managing our finances is our ability to help others through generous charitable contributions. Review your giving for the year. Did you meet your goals? Did you find joy in helping others? Were you able to impact the lives of others in a positive way? Reflect on this and adjust your giving in 2016 to better meet your giving goals.

 

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Third: Learn, Adjust And Set The Course For Financial Peace

So, what do we want to do in this final week of 2015 to set the course to financial peace in 2016? It’s easy:

  1. Pay off our holiday debt, have a plan to pay off all your other consumer debt too!
  2. Update our savings goals for the new year
  3. Update our giving goals for the new year
  4. Revise our budgets based on actual 2015 spending and savings
  5. Find ways to make financial management easier or more fun. Automate!
  6. Now let time and the power of compound interest work together to help you meet your long term financial goals!

The last week of the year is a great time to reflect on holiday spending and the financial performance of the previous year as a way to prepare financial goals for the coming year. Get your financial house together so you can experience financial peace in 2016!

Free123: Freedom In Less – Thanksgiving Update

Freedom in Less

 

FREE123: Freedom In Less” is a monthly account of pursuing financial freedom by pursuing less: Less stuff, less complexity and less spending. The purpose is not deprivation but to achieve more financial goals while experiencing contentment and purpose. Take a look:

Less Is More – The Beginning

This series got started one day when I was daydreaming one day about my happy place and how I feel when I am there. For me that place is Kauai Hawaii, on a beach, with a 84 degree sunny day (every day seems 84 degrees and sunny to me there). When I am there, just experiencing the beauty, I am content, happy, joyful and grateful. To say the least, when I am there, I want nothing else. It is simple and I am content. Then I got to thinking: Why can’t I experience that simplicity and contentment more often? Like at home? In my everyday life? The answer is I can. And a simple contented life would greatly enhance my goal of financial freedom.

The Goal: Purposeful Simplification

For the next season in life, I am going to purposefully simplify my life by finding freedom in less. Less stuff, less complexity and less spending as a means to reaching my financial freedom goals and find more contentment and purpose. The hypothesis is that living on a frugal budget with clear goals and a renewed focus on reducing consumption will lead to more contentment and true freedom.

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Thanksgiving Update

This month my family took a three generation family vacation with a decidedly focused twist. Even though it was a travel vacation to Cabo San Lucas, which is beautiful by the way, we focused most of our time on spending time together. Yes, we did rent jet skis one day and went out to Land’s End another, but for the most part we just hung out on the beach and enjoyed each other’s company. We did this for three reasons: First, this was our first time traveling as a group and we wanted to make sure it went well. Second, with five people, including four adults, we did not have an entertainment budget to play/party hard every day. But most of all, we wanted to simplify the vacation to relax and enjoy simple things like laughing, resting and eating together. We had a blast! Take a look at some of the “Less Is More” decisions we made:

  • We ate out at a restaurant one meal a day. We had a condo that had a full kitchen so we took advantage of that and only went out one meal a day. This saved some money and a lot of time, giving us more beach time. And, it made the trip to the restaurant more fun because the infrequency made it more special.
  • We limited ourselves to one big activity a day. I normally want to go, go, go when on vacation but it is tiring to some of my family and can be very expensive. So we did one activity together each day and it was great: We really valued the activity and we had more relaxing time together to talk, read and laugh together.
  • We chose to walk instead of drive…everywhere. Our condo was literally on Medano Beach and within walking distance to the marina and downtown, so we skipped renting a car or taking a taxi and enjoyed walking everywhere. We had more time to talk, we saw more things and we saved a bundle. Also got a little exercise!

 

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FREE123: Freedom In Less Summary

This month we experienced a “Less Is More” vacation in Cabo San Lucas. We decided to take extended family, three generations, but vacation in a less-is-more style by doing/spending less and enjoying time together more. It was great! The things we did do were memorable and really felt special. The extra time we just hung out together was awesome and restful. And the laughs were endless. By limiting events/activities and excessive vacation spending, we didn’t break the bank and yet enjoyed the most important things: time with family and shared experiences.

The Working Backwards Series: How Much Vacation Can I Afford?

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The Working Backwards Series?

The Working Backwards Series takes a look at budgeting in each spending category from the standpoint of “how much can I afford given our income, lifestyle and choices?” In this case,  we are talking about a family of four living in Austin, Texas and making $74,000 a year (the average household income in Austin).

What are we trying to accomplish? We want to show what a balanced, sustainable budget looks like, and one way to do that is to “back into” the dollar amount for each budget category given life choices: Raising two children in a two income home. While we understand we can spend more in categories that mean a lot to us, and each family is different, we want to set expectations that the discipline of a balanced budget, (spending and saving less than we make), requires conscious decisions, sacrifices and tradeoffs to meet our long term goals and desires that include financial freedom.

To see more from the Working Backwards Series, read this previous Working Backward Series post:  Working Backwards Series: How Much Auto Can I Afford? 

Topic For This Post: VACATION EXPENSES

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Vacation spending, especially around the Christmas/New Year’s timeframe is normally one of the larger expenses in our budget at the start of the year, so “right sizing” our vacation costs is essential to living in financial freedom with a balanced budget.  How much vacation can we afford in our balanced budget? It is a tricky and emotional question. Americans are passionate about their vacations. The question has many variables too, including how many vacations in the year? And, do we vacation with or without the children or extended family? But, vacation spending is one of the biggest budget busters, mainly because we tend not to budget for them in the first place. The result: credit card debt. So we have to take a shot at properly budgeting our vacations to ensure there are no costly surprises, namely, debt! For the purposes of this exercise, we will look at a vacation budget for one large family vacation and one small couple-only budget in a given year

What percentage of our budget is allocated to vacations? In our balanced budget, the total vacation budget varies from home to home, depending upon how important vacations and vacation travel is to the family. For today’s budget exercise, we will start at 8% of our take home total income, or net spendable budget (NSB), after taxes and charitable donations).

What Does That Look Like – The Math

A $74,000/year household income equates to roughly $54,750/year after taxes and charitable donations, or $4,563/month. At 8% of our budget going to vacations, that’s roughly $365/month for vacation costs, or, $4,380/year. Total. I know, that is not very much when you figure the costs of travel alone eat up a large part of that budget. Let’s take a look at our budget by “backing into” the vacation budget to see if we can meet our balanced budget objective:

Let’s take a look at a balanced budget to see if 8% is reasonable: (% of NSB by category)

Housing (All Expenses)           30%

Autos                                       14%

Food                                        12%

Insurance                                  4%

Medical                                     2%

Debt Service                             5%

Savings/Investments           15%

Misc.                                          5%

Entertainment/Clothing      5%

Vacation                                     8%

Total:                                           100% of NSB

So from a budgeting standpoint, we can make a balanced budget where we have allocated all of the NSB, including savings at 15%, which is healthy.

But the real question is: Can we have two travel vacations a year on the amount set aside for vacations? In this case, that is $4,380 for two vacations.

The short answer is it is going to be really hard. We probably can’t have two fabulous travel vacations a year including one with the entire family because air travel alone will eat up a vast amount of that budget. Not to mention hotel, food, transportation and the ever important entertainment costs. But we could vacation very well if we can reduce our travel costs, i.e., no air travel. Maybe the family vacation is a trip to the coast or mountains, by car, staying in a modest hotel or with friends or family and enjoying what that areas has to offer. Maybe the couples vacation is a little more romantic or exotic: A short trip to a city, beach or ski resort with great food and fun.

So What Is All The Fuss?

The point is that a balanced budget for an Austin, Texas family of four on an average household income and with many essential budget categories like housing, auto, food, children’s needs, etc, does not have much room for vacation expenses. Plain and simple. While most vacations do not include exotic travel, it would be nice to have at least one of those trips every now and then. But the fact is, a family of four typically requires between $3,500-$8,000 for a moderate but nice vacation with air travel, accommodations and entertainment. We certainly can’t afford “cost is no object” travel vacations. Yet most of us are trying to do just that in the name of “we deserve it”. And I believe that is one of the major reasons we have more than 75% of households in America living paycheck to paycheck with no savings for emergencies, retirement, college (for the kids) or any money for dreams like new homes or cars or special events (think weddings or cars).

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What’s The Solution

There are really three or four viable options to keep within our budget for vacations: 1) Vacation locally or for shorter periods of time to reduce travel costs or housing costs.   2) We could vacation with friends or family to reduce the costs. 3) We could stay with friends or family who have accommodations at desirable locations.  4) We could use some variation of a “stay”-cation where we drastically limit travel and housing costs to allow for more money for entertainment and activities.

The reality here is that vacationing is expensive.  Let’s face it, borrowing money to vacation is even more expensive. What is the best plan if you want to have two nice vacations a year is really up to you and your family? But do everything possible to save your money in your budget so you can vacation without incurring debt.

Final Word

Vacation spending, and over spending,  is a huge component in family credit card debt because it is one of the biggest budget busters (with autos and entertainment, too) and can force us into an un-sustainable budget.  And that’s even before we get into vacation entertainment expenses. The best way to control your vacation expenses is to budget for those vacations and find vacations that are fun and rewarding without breaking the bank. Or get real creative in how we vacation, like stay with family, share costs with friends or make great “stay”-cations which drastically reduce travel and housing costs. If you must vacation bigger than 8% of your budget, and many of us want to, carefully consider where you can cut other expenses in your budget so you can do so without incurring debt.

Vacations are necessary for us and our families and therefore need to be budgeted for. A family of four must correctly size their vacations in order not to incur debt that can become a burden on the family and the family budget. Smart planning and setting proper expectations can prevent you from overextending and allow you to maintain a balanced budget that keeps you living in financial freedom!

 

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The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness