Category Archives: finance

Finance Your Franchise

This is it. You’re ready to begin your franchise dream. Only one thing is left: Finding the money you need.
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You’ve read the literature, done your due diligence, considered the statistics on success, and know a franchise is the way you want to get into business.

But before you sign on the dotted line, answer this question first: Where will you get the money to finance the franchise, royalty fees, inventory and working capital?

The first thing you want to do before approaching any lender is determine what your net worth is. To do this, use a personal balance sheet to list both your assets (what you own) and liabilities (what you owe). Under assets, list all your holdings–cash on hand, checking accounts, savings accounts, real estate (current market value), automobiles (whether paid off or not), bonds, securities, insurance cash values and other assets–then total them up.

The second part of the balance sheet is liabilities. Follow the same steps. List your current bills, all your charges, your home mortgage, auto loans, finance company loans and so on. Subtract your liabilities from your assets. Once you’ve worked up this sheet, take a good look at your credit rating. There are three common ingredients that all potential lenders look for in a credit rating: stability, income and track record.

Most lenders are interested in how long you’ve been at a certain job or lived in the same location, and whether you have a record of finishing what you start. If your past record doesn’t show a history of stability, then be prepared with good explanations. Not only is the amount of income you earn important but so is your ability to live within that income. Some people earn $100,000 a year and still can’t pay their debts, while others budget nicely on $20,000 a year.

Most lending institutions look at your income and the way you live within that income for one very good reason. If you can’t manage personal finances, the odds against you being able to manage your business finances are very good.

The third element lenders look for is your track record–how successful you’ve been in paying off past obligations. If you have a record of delinquent payments, repossessions and so on, you should get these squared away before asking for a loan.

Most lenders will contact a credit bureau to look at your credit file. We suggest you do the same thing before you try to borrow. Under the law, credit bureaus are required to give you all the information they have on file about your credit history. Once you have this tool, you should correct any wrong information or at least make sure your side of the story is on record. For instance, a 90-day delinquency would look bad, but if that 90-day delinquency was caused by being laid off or by illness, then that should be taken into consideration.

Business Plan

After you’ve determined your net worth and your credit rating, the final step to take before approaching lenders is putting together your business plan.

A well-thought-out business plan can make the difference between having your loan application accepted or rejected. A complete business plan should always include an intimate, technical study of the business you plan to go into; accurate pro formas, projections and cost analyses; estimates of working capital; an indication of your “people skills”; and a suitable marketing plan. It should also include certified statements of your net worth and several credit references.

Financing From the Franchisor

Traditionally, the first place franchisees turn for financing is the franchisor. Almost all U.S. franchisors provide debt financing only. Some carry the entire loan or a fraction thereof through their own finance company. We found fractions of 15 percent, 20 percent and 25 percent, all the way up to 75 percent of the total debt burden. The franchisors we talked to emphasized that these figures are simply guidelines and not hard and fast limits.

In addition, the loans made by the franchisor can be structured a number of ways. Some offer loans based on simple interest, no principal, and a balloon payment that’s due five or 10 years down the road. Others offer loans with no payment due until after the first year.

Instead of financing the entire start-up cost, franchisors may offer financing for portions of the entire cost. They may have financing plans for equipment, the franchise fee, operational costs or any combination thereof.

In addition to financing a portion of the start-up cost, the franchisor usually has made arrangements with leasing companies to lease the franchisee the equipment necessary to run the franchise. This can be a significant part of the financing, since equipment often makes up between 25 and 75 percent of a franchise’s total start-up costs.

If the franchise you’re considering doesn’t offer equipment leasing, look into nonfranchise, nonbank companies that specialize in equipment leasing for franchises. These types of financing companies will often provide asset-based lending to finance franchisees’ furniture, equipment, signs and fixtures, and will allow franchisees to purchase the equipment at the end of the lease. Keep in mind that you may lose some tax advantages under the current law if you lease that equipment.

Remember that a business is franchised for two reasons: to expand the business and to raise capital. So if you have a reasonably good credit record and pass all the financial requirements, most franchisors will bend over backwards to get you on the team. The help that franchisors provide to help you get financing usually includes assistance with business plans and introductions to lending sources. In many cases, franchisors serve as guarantors of loans you take out.

Other Sources of Financing

After you’ve determined the extent of financing available from the franchisor, make a working list of all other available sources of capital. Most sharp operators use the following sequence of contacts: friends and relatives, home mortgages, veterans’ loans, bank loans, SBA loans and finance companies.

Often, banks that aren’t willing to work with you based on your financial profile become more amenable if you suggest working with an SBA loan guarantee; these loans are guaranteed up to 90 percent by the SBA. Small businesses simply submit a loan application to the lender for initial review, and if the lender finds the application acceptable, it forwards the application and its credit analysis to the nearest SBA office. After SBA approval, the lender closes the loan and disburses the funds; the borrower makes loan payments to the lender.

Some franchisors report being approached by financial brokers–historically more interested in big deals–to put together large pools of money using SBA and private funds. These funds would be available to franchisees through the franchisors like a trust fund. Groups of smaller banks with funds to invest would contribute to the fund from all over the country.

Other options would be to take out a home-equity line of credit or a second mortgage on your home. Be careful when utilizing this type of financing, however. The home-equity line of credit and a second mortgage are secured by your home. If you can’t repay the amount you finance using this source, you risk losing your home.

You can also use assets such as stocks, bonds, and mutual funds to secure a loan as long as they’re not part of a qualified plan like an IRA profit-sharing plan. Also, if you are over age 59 and have a lot of money tied up in an IRA, you could use it for part of your financing requirements. Although you’ll have to pay taxes on the amount used, not to mention suffer the loss of income from interest, it can be a good financing tool.

If you are under age 59 and your IRA is one of your largest assets, you still may be able to take advantage of this avenue without accruing the 10-percent penalty associated with early withdrawal. By taking Substantial Equal Periodic Payments spread over a minimum of five years, based on your life expectancy, and a set of annuity tables published by the IRS, you can eliminate the 10-percent penalty, although the money is still taxable.

Tips to Consider

There are infinite sources of financing available to help you launch the franchise of your dreams. However, operating a franchise with no reserves and blinding yourself to unexpected business problems can lead to disaster. A good rule to remember: Never invest more than 75 percent of your cash reserves. If you have $10,000, invest $7,500. If you have $25,000, invest $18,750.

More important, remember that the price of a franchise doesn’t always reflect the actual cost of the business itself. Additional costs can include down payments on the land, building, equipment, fixtures and signs, and can cover inventory, leasehold improvements, training, opening promotional costs, administrative costs and even sales commissions.

Be sure you understand the requirements of your cash investment. You will need a “pillow” of working capital to properly guide the business through its ups and downs. If you do your homework thoroughly, and remember that financing a business is the most important sale you’ll ever make, then you’ll be head and shoulders above the competition.

15 Fast Franchise Financing Tips

1. Talk to your franchisor before searching for outside financing; get approved or pre-qualified.

2. The most common source of start-up capital is friends and family. Use them.

3. Seek out lenders that understand not just small business but franchising as well.

4. Be totally honest and upfront with lenders. Hide nothing. Be prepared to explain everything.

5. Neatness counts. Fill out your credit and loan applications clearly. Typed is better.

6. Don’t weigh down your loan application with attached documents.

7. Don’t exhaust your liquidity by paying off outstanding debts before filing a loan application. Lenders want you to have capital available.

8. If you lack liquidity, find a partner with money.

9. Consider equipment leasing to conserve start-up capital and improve the appearance of your balance sheet.

10. Keep debts and expenses to a minimum. Many business owners take on too much debt, forgetting that cash flow must pay that debt.

11. Consider buying used equipment, furniture, vehicles, etc.

12. Let your fingers do the walking on the Internet before wasting time, energy, gas and phone calls. You’ll find useful information. Some sites even allow you to file loan applications online.

13. Don’t overlook angel investors and venture capitalists.

14. Avoid dipping into your retirement money or your kids’ college funds. Any startup-even a franchise-is a risk.

15. Don’t give up.

“Life is what happens when you’re busy making other plans.” …and sometimes things get out of control. A bad credit rating can be gut-wrenching and humiliating as well as just plain bad news. Contact at your earliest convenience. Whether you’ve had a bankruptcy or your credit is only slightly bruised, you can obtain financing.

Saving $100 Now Is Better Than Saving $1,000 In 10 Years

“Someone’s sitting in the shade today because someone planted a tree a long time ago” is one of the most famous pieces of financial advice from Warren Buffett. Out of fear for current conditions of the stock market or a misguided belief that small amounts do not make a difference, few people take Buffett’s advice as seriously as they should. Review why it is better to start saving right now, even at a small rate, rather than just trying to catch up later on in life.

Power of Interest Compounding

The present time is always the best time to start investing and saving. Saving $100 now is better than saving $1,000 in 10 years because you are able to earn interest on every one of those 10 years. Consider the following scenarios:

If you were to deposit $100 every year for 10 years in a high-yield savings account with a 1.05% annual interest rate, you would have $1,054.55 at the end of the 10-year period. Some high-yield savings accounts require no minimum deposit, have no monthly maintenance or annual fees, and provide a boost to your interest rate if you make no withdrawals and you make deposits each month for a number of consecutive months. Such features increase your total investment at the end of the 10-year period.

If you were to make the same series of deposits for 10 years in an investment account paying an annual return of 4.5%, you would have $1,258.57 at the end of the 10-year period. The higher the interest rate, the better the payoff of investing $100 every year.

However, it is still possible to do even better. The historical average annual return for the S&P 500, adjusted for inflation, is around 7%. If you were to invest $100 every year in an index fund that mirrors the S&P 500 through your retirement account, you would have $1,433.48 at the end of the 10-year period.

Effect of Inflation

Inflation is another reason why you need to start investing now. Measured in terms of the Consumer Price Index (CPI), inflation chips away at the actual value of your money. Every year, retailers, business owners and just about everybody else raises prices of goods and services to account for higher costs. For example, assuming 2% inflation, if you were to leave $1,000 in a checking account that gains no interest, your deposit would be worth $903.92 in five years and $817.07 in 10 years. To maximize your purchasing power in the future, you need to start investing now.

List of Benefits From Retirement Accounts

Investing in retirement accounts, including 401(k)s and traditional IRAs, allows you to boost your investment by deferring applicable income taxes until retirement, when you are more likely to be in a lower tax bracket.

By contributing to your retirement account on a pretax basis every year, you effectively reduce your taxable income. For example, if you were to contribute $100 out of your $2,000 bi-weekly paycheck to an employer-sponsored 401(k), you would only pay federal income taxes on $1,900. When you are close to the upper limit of your tax bracket, contributing to a retirement account prevents you from paying more taxes.

Another benefit of contributing to a retirement account now instead of in 10 years is you are taking advantage of your annual contribution limit. In 2015 and 2016, you could contribute up to $18,000, or $24,000 if age 50 and over, to your 401(k) plan each year. If you do not contribute at least $100 each year, that chance is gone forever. And so are the potential returns that could have accumulated until you retire.

The Bottom Line

It is better to start saving now, even at a small rate, than just trying to catch up later. Even an annual contribution of $100 to your savings account, investment account or retirement account improves your odds of reaching your investment goals.

Top 4 Things to Do Before Retiring

Top 4 Things to Do Before Retiring

What are you supposed to do when you turn age 65, or perhaps even age 62? You’re supposed to retire. Age 62 is the magical year where you can collect early Social Security benefits. And age 65 used to be the age when you could collect full retirement benefits, although for those retiring now, it’s age 66. I’ll admit that getting money from Social Security when you’ve been giving money to it for so long is quite enticing. Insurance and investment companies add to this appeal by portraying retirement as lounging on the beach all day long sipping your favorite beverage.

But retirement is not always what it seems. In his book, The New Retirementality, Mitch Anthony cites an American Demographics poll. According to its research, 41% of retirees found retirement to be a difficult adjustment. In comparison, just 12% of newlyweds found marriage to be a difficult adjustment, and 23% of parents found parenting to be difficult. That’s pretty astonishing when you think about it.

A lack of purpose, lack of social stimulation, boredom, and financial constraints are just some of the reasons why retirees can find retirement a difficult adjustment. As with anything in life, proper thought and planning can make the transition much easier. So before you hand in your final notice and ride off into the sunset, you may want to do these four things.

Ask Yourself: ‘Why Am I Retiring?’

Is it health issues, stress, or long hours? Do you have an irritating boss or co-workers? Do you find your work lacks fulfillment? You need to focus on exactly why you want to leave the workforce. Perhaps you’ll discover that you actually don’t. Instead, you just need to cut back on hours or responsibilities. Or, perhaps you need to choose a new career path or start your own business.

I recently had a client who retired. She had been working in the same career for 30 years and just didn’t find it fulfilling any longer. She didn’t want to stop working; she just wanted to have a job where she could really help people. She is now working part-time as a health aide and loving it.

Get a Grasp on Your Financial Situation

Do you know how much income you need to live on? If you don’t, don’t stress, you definitely aren’t alone. One way to find out is to track your expenses. Quicken or an Excel worksheet can come in handy with this. The other way is what I call top-down budgeting. You start by taking your household gross income and subtracting Social Security and Medicare taxes, income taxes, savings, and anything else that won’t be an expense during retirement, such as employer-provided health insurance. You then add back in any health insurance expenses and premiums including Medicare Part B you will incur upon retiring. You also need to come up with an estimate of what your income tax liability will be in retirement as well. If you can’t calculate that yourself, your tax advisor or financial planner can do it for you.

The resulting figure is what you need to live on in retirement. From this, you’ll subtract the income you’ll receive from Social Security and any pensions. Any shortfall will need to be made up from investments or earned income.

Plan Your Retirement Lifestyle

What do you want to do in retirement? If you’re like me, your mind immediately goes to the activity that you love the most. Perhaps it’s golf, or reading, or playing with grandkids. But, do you want to spend all day every day just doing that? Mitch Anthony encourages people to come up with an ideal week in retirement. Ask yourself what you want to do each morning, afternoon, and evening in a typical week. A well-rounded schedule will certainly include time for relaxation and enjoyment, but may also include time for mental, physical, and spiritual improvement. Helping family, friends, and the community can bring a sense of fulfillment and meaning that many miss after they quit working.

Do a Trial Run

Finally, do a trial run. You wouldn’t buy a car without a test drive, why would you embark on your retirement journey without doing the same thing? Take a month or two off and model it after your ideal retirement week. You’ll probably love it – for the most part. But, you might discover that there are things you need a little more time to prepare for. For example, many people I have talked to didn’t anticipate how much traveling they would do. I’m not talking about trips around the world; I’m talking about trips to the other side of town. This impacts their gas and vehicle budgets. A trial run can help you spot these things sooner.

It might sound like I’m trying to talk you out of retiring – I’m not. Just about every retiree I’ve ever met loves it. But, as crazy as it sounds, retirees today may spend almost as much time in retirement as they did working. You owe it to yourself to go into it prepared.

10 Ways to Effectively Save for the Future

It is much easier and more enjoyable to take the income, the money we have earned and worked hard to receive, and spend all of it every month, purchase whatever we want and not think about the future. The future, for some people, is so far away that we think that it is not necessary to think about it. But in reality, there is no better time to think about it than now.

As a CNN Money article suggests, when it comes to money, we just aren’t doing it enough. A majority of people in the U.S. are saving from nothing to 5% of their income, when it is suggested you save 15% each month. Why? There are many reasons to save.

Savings Goals

Between today and the conclusion of our income-earning days, a lot can and will happen. We might lose our job(s), take a pay increase or decrease, move or become disabled and unable to work. Strategizing about the income we make now to make plans for the future is one of the best things we can do with our hard-earned money.

The future doesn’t just have to be retirement – the future is tomorrow. It is allowing a break from the paycheck-to-paycheck cycle or allowing for a big purchase down the road, like a vehicle, vacation or house. Living paycheck-to-paycheck cycle, surprisingly, isn’t just something that happens to those earning lower incomes, but to anyone unable to create a budget and follow it, and to make savings goals and reach them.

Saving for Retirement

Regardless of your age, if you are planning to retire at any time, it is important to save today, save consistently, and save wisely. Let’s review another top 10 list, this one for retirement planning. There are many options to save for retirement and ways to do it, including your employer’s retirement savings plan or an IRA. Examining your needs through a retirement calculator is also helpful.

Once you realize the importance of saving and the role that it plays in your life, creating goals is the next step to stay on track. Part of setting financial goals is making sure you can meet them. You can use an online savings calculator, for example, to make sure your needs align with your plan.

Specific Steps

Armed with the education and tools to create realistic goals for your money, it is time to find and dedicate the money to reach your goals.

1. The first thing you need to do is have a budget and stick to it. This includes being realistic about your household financial situation, and setting honest and attainable numbers corresponding to your spending, so that you can save. Saying you will save and thinking about savings is not enough. You will have to be intentional about what you do with your money.

2. You need to understand cash flow; what it is, how it works and what your personal household cash flow looks like. Review your income and expenses and see where your spending habits lie. Be intentional about making changes to things you can, to have money available to save.

3. If you are married, communication and team work concerning your household finances are crucial. To save, you both need to be on board with your desires, plans and resources. The best laid plans without everyone on board, will meet turmoil.

4. Understand the differences between needs and wants and identify yours. Be able to say no when something doesn’t align with your financial goals, today and in the future.

5. Automate savings so the money goes and stays. If you wait until the end of the month to save, the likelihood will be that there is not much left to save. Make it automatic and save when you first get paid. If you have a few savings objectives, you can track the money you put into each account and put it through one account or use a few different savings accounts open for various goals. When you see savings and its growth, you are more likely to keep it there.

6. Review everything you pay for. What are you paying for that you might not need? Is there a way to pay less? Sometimes we do not even realize what are spending each month until we examine it.

7. What expenses or items can you cut to enhance your savings goals? Bank rate gives 5 opportunities in your budget and spending to cut expenses, including energy and car gas, food and groceries, banking and credit, taxes and car insurance. All of these areas should be reviewed for opportunities.

8. Remember whatever your goal is, start now. Something will always come up and compete for your resources. Saving for the future should stay in the forefront of your mind (and your finances!) regardless of whatever else comes around.

9. Also, take into consideration your children. It is incredibly important to teach them about savings and spending. They mirror your behaviors and will take your lead on the role of money in their lives. Some essential lessons, summarized in this Forbes article, include waiting to purchase something you want, saving, identifying specific ways for children to save such as using jars or envelopes, making wise choices and understanding that when money is spent, it can not be spent somewhere else.

10. Recognize the importance of savings, but also enjoy life.

The Bottom Line

The above strategies will help you to stick to a budget and save for your goals all while allowing for some budgeted fun. Remember, a goal without a plan is just a wish. Write it down, create the time and opportunity and make it happen.

How Much in Savings You Need to Live Comfortably

According to the Federal Reserve’s study on economic well-being in U.S. households, published in 2016, Americans are satisfied with how they are doing financially. The number of adults reporting they are “living comfortably” or “doing okay” rose to 69%, up from 65% in 2014 and 62% in 2013. However, surveyors then asked a series of follow-up questions that called into serious question what most Americans perceive as comfortable. For example, 46% of study participants admitted that if an unexpected expense costing $400 arose, they would be unable to pay for it without selling property or borrowing money. Of the 22% of respondents who incurred an unexpected medical expense over the previous year, nearly half, or 46%, still had debt from that expense.

It’s difficult to rationalize the impressions most Americans have of their financial situations with actual numbers. Simple math indicates sizable overlap among those who claim they are doing fine financially, yet could not pay out of pocket for a basic car repair. This calls into question whether $400 in savings can support a comfortable existence. It also raises other interesting questions, such as how much in savings is truly sufficient to be financially secure, and how this number may vary based on a person’s stage of life and living standards.

Minimum Savings for Comfortable Living

Financial guru Dave Ramsey, who advocates debt-free living and financial security, advises $1,000 in the bank as a starting point for clients who are destitute or currently have no savings. This sum, though insufficient to live on for long if an income loss occurs, at the very least prevents a car breakdown or minor medical mishap from causing a financial disaster. Despite the high level of financial security self-reported by the majority of Americans, nearly half lack this basic first step for an emergency fund.

Three-to-six months of living expenses represents a more comfortable nest egg. Three months of expenses is a sufficient emergency fund in periods of low employment, assuming the person possesses high-demand skills. This level of savings is particularly secure if the person is willing to cut back on discretionary purchases and live a frugal lifestyle. Those with fewer marketable skills and those who have fewer expenses that they are willing to forgo should aim to keep a full six months’ expenses in savings.

Other Considerations

The exact amount that constitutes comfortable savings varies based on a person’s unique circumstances. A person with children requires a bigger cushion, since that person is responsible for providing for others. A single person with no children needs less in savings, particularly if he or she is willing to live a bare-bones existence or take any job that is available in a pinch.

A person who still lives at home with parents and has no expenses, or who shares a dwelling with several roommates and has minimal expenses, can more comfortably cut savings than someone who has a stack of bills to pay every month. Of course, many people in these situations find it an ideal time to put money away, perhaps saving up for a house down payment at a later date.

Similarly, a person’s debt load influences how many months of income represent sufficient savings. For example, if 30% of a person’s take-home pay goes toward debt payments each month, that person clearly needs more savings than a debt-free person.

Every person is unique when it comes to his financial needs. No matter the dollar amount of a person’s savings, what matters is the ability to stave off financial calamity for as long as needed in the case of a job loss or income reduction.

Secure Your Financial Future With These 3 Steps

Secure Your Financial Future With These 3 Steps

Life often seems like a mystery and while you may not ever figure it all out, you can make sense of your financial future. In order to do so, you’ll have to take a few steps to ensure you’ve covered all your bases. When you take the guesswork out of that, all the other pieces of the puzzle will fall into place.

1. Protection Planning

The first step in securing your future is protection planning. This lays the foundation for every other move you make. It’s never too early to prepare the right legal documents when in this phase.

  • A last will and testament is a must. It simply states where you wish your assets to go. If you have children under the age of 18 it gives you the power to appoint their legal guardian in case of tragedy. When you skip this step, you leave your affairs intestate…basically giving the government right to make those decisions for you.
  • The next important document in this phase is power of attorney (POA). There are two major types of POA to address, durable and healthcare. Durable gives someone the legal power to act for you financially and healthcare is necessary when you become incapacitated to the point where you can no longer make the essential decisions for your own care. (For related reading, see: Power of Attorney: Do You Need One?
  • While it may not always seem like a necessity, insurance is without a doubt a must. Almost all areas of your life need coverage for the catastrophic events that everyone hopes they’ll never be faced with. Determining the right types and amounts of life, home, health, auto, etc. will keep your family moving forward in the worst-case scenario.
  • Finally, the last initiative to take when in this phase is the accumulation of an emergency fund. If both you and your spouse work, three months of wages should help you cover most calamities. However, if you’re the primary breadwinner, a six-month umbrella will better shield you.

2. The Accumulation Phase

After you’ve completed this phase, you’ll move into the accumulation phase. There are two primary objectives in this chapter of your life.

  1. Paying down/off debt
  2. Building investment assets

Typically the biggest investment made during this phase is buying a home. Following the initial purchase, you’ll set a plan in motion to pay off your mortgage as quickly as possible. During this time, you’ll also begin investing for retirement. If you’re a business owner, you may expand your business. The key is to establish a sustainable income for the latter end of your life. The secret to doing so is minimizing debt and your tax burdens. Meeting with a certified financial planner to do so will help you defeat the enemy of building assets—debt.

3. Distribution Planning

The final phase is distribution planning. This is where the rubber meets the road and you begin your journey of retirement. Your income will flow from the financial portfolio you’ve built in the previous two phases. At this time you may want to revisit some of those legal documents you laid out in the initial stage to get your estate planning on the right path. Perhaps your kids are grown and you even have a few grandkids, so it’s time to implement a trust.

10 Savings Tips for Your Household Expenses

10 Savings Tips for Your Household Expenses

Becoming a millionaire may not be your ultimate goal. But everyone wants to enjoy financial freedom and learning where we can easily save money will help us on that journey. So whether you want to be the millionaire next door or just be able to have financial peace, these 10 tips will help you achieve your financial goals.

Clarity Money

Clarity Money is an app that works great if you pay all your bills with your bank account. It simply ties into your account and shows any monthly payments that you have. This allows you to see if there are any services that are no longer bringing you value or if you are not using anymore.

Cut the Cord

For those that have not cut cable out, it may be time. Cable can add at least $30 per month to your monthly expenses. This could be lunch, gas or even money invested for your future. With services like Sling, Netflix, Hulu and Amazon Prime Video it is making less sense to have cable anymore.

Call Your Internet Provider

If you have already cut the cord, you should still negotiate a lower rate for your internet. Every time my wife or I have called our internet provider to “switch” providers they have offered us a lower payment in the end. Recently my wife called and we actually received a lower payment than we were paying and with a faster speed than we had. Remember it costs more to attain new customers than to retain a customer, you have the leverage.

Bulk Purchase Household Goods

Everyday items should be bought in bulk. Toilet paper, paper towels, napkins, detergent (dishwasher and washing machine), toothpaste etc. It is cheaper for companies to package items in bulk which makes it cheaper for us as consumers. Take advantage of this.

Use Your Dishwasher

Dishwashers actually do save you time and money. They use the same amount of water every time you wash your dishes compared to washing dishes throughout the day. You don’t realize how much water and money is going down the drain.

Home Energy Audit

Many energy providers will conduct free energy audits to see if your house is running as efficiently as it could. Even if your energy provider doesn’t provide this free service you can conduct one yourself with this guide.

Install a Programmable Thermostat

Some may have to save up for this but it will definitely help out on your monthly expenses in the end. Smart thermostats are known to save up to $131-$145 per year which is at least $10 per month. That could be a simple lunch during the week or your bar tab at happy hour.

Start a Garden

Starting your own garden takes some manual labor. However, you can save a good amount, especially if you learn how to preserve your bounty for the winter when produce is more expensive. I started a baby garden this year and planted zucchini since we eat zucchini like candy at our house.

Rent Out Extra Home Space

If you have rooms that could be rented out you may want to consider it. Renting out your basement, having roommates if you’re single or even putting a room up on Airbnb will either pay for your mortgage or help out with it. I can only imagine the money we could put away if we could rent out our basement in a functional manner.

Unplug the Energy Suckers

Those small electronic appliances are sucking electricity out even if you’re not using them. Electricity is running through your walls unless you have switches. Unplugging your microwaves, TVs and coffee makers will cut down on your electrical bill.

These tips can go a long way in helping you build wealth and become that millionaire next door that nobody knows about. You can also try YNAB for two months for free, my wife and I’s favorite budgeting tool that can help you stick to these savings habits.

The Two Cheapest Days to Fly in August


If you haven’t even thought of a vacation yet – or are contemplating squeezing one last summer jaunt into the season – lucky you; you can save some money. All you do is fly on or after these two dates:

  • Domestic flights: Aug. 22
  • International flights: Aug. 21

Why Are These Dates a Big Deal?

The big deal is what these August dates represent: the start of the cheaper fall season. The airlines know that by these particular dates, kids are mostly back in school so demand slacks off significantly. Airlines still have to fill those empty seats, though, so they lower their ticket prices. Last month, for example, Southwest advertised a big sale for domestic travel, good for flights starting Aug. 22. Note: These cheap summer dates vary slightly year-by-year, but always occur in late August. In fact, this year’s Aug. 22 date may vary a day or so for some U.S. travelers depending on the departure city and route.

How Much Can You Save?

This, too, can vary. Generally speaking, travelers save anywhere from 11% to 20% off the peak summer airfares. The amount within that range will depend in part on where you take off, where you go, and whether you fly non-stop or on connecting flights. In almost every case, though, you will save something. Here are some examples of roundtrip fares found this week on FareCompare, my airfare comparison search site:

Los Angeles – New York, nonstop

  • Aug. 19-21 – $483
  • Aug. 26-28 – $403

Seattle – Dallas, one-stop

  • Aug. 19-21 – $381
  • Aug. 26-28 – $292

Boston – Dublin

  • Aug. 19-26 – $750. one-stop; $1,128, nonstop
  • Aug. 26-Sept. 2 – $590, one-stop; $979, nonstop

Note: The earlier Europe price of $750 may actually skew a bit high because it was found just a couple of weeks in advance of the travel date. Shoppers generally find the best Europe prices when they book three to four weeks in advance. Still, these fares offer a pretty good idea of what can be saved – which leads us to the next step.

When Should You Shop for These Cheaper Dates?

If you plan to fly on or shortly after Aug. 21/22, the time to shop is now. Again, 21 to 30 days in advance is ideal for booking flights on larger legacy carriers (including American, Delta, United). You have a little more leeway on the smaller, low cost carriers like Spirit and Frontier, which can offer deals one to two weeks before departure.

Are There Other Good Dates to Fly?

Flying throughout the fall is generally a bargain, especially if you stick to traveling on the traditionally cheaper days (Tuesday, Wednesday, Saturday; weekdays for international flights).

Cheapest fall travel period: Early November. As long as you avoid flying the days immediately surrounding Thanksgiving, you will find some genuine deals, especially in the first couple of weeks in November. Then, once the Turkey Day travelers come home you’ll see more good deals through mid-December.

Then What?

Suggestion: Make plans now for a winter vacation in January. If you can take off after the first week in January, the savings can be unreal (and this is true for a lot of international trips like Europe). Some Caribbean destinations might be pricey because that’s when people want to go.

If your first-choice destinations are too expensive, check out prices to Florida beaches like Miami or Ft. Lauderdale instead and you may find your bargain paradise.

How to Create a Budget You Can Actually Stick With

How to Create a Budget You Can Actually Stick With

Do you feel like your finances are out of control? Are you charging too much on credit cards each month? Do you feel like you are always strapped for cash? Do you sometimes wonder where you are going to come up with enough money to pay your bills? If any of these describe your financial situation, putting a budget in place may help you. Here are five easy steps to take to start the process of creating a family budget that you can stick with.

The best way to start developing a budget is to begin tracking your current spending. For the next month, track every cash and credit card expenditure – some people prefer paper tracking, but there are many online and app-based trackers available to help you. This will give you the most accurate picture of where your money is currently going and will be very helpful later on in deciding what spending habits you may be able to reduce or cut out altogether.

Get an Accurate Picture of Your Income and Expenses

This is truly the first step in developing a budget. You need to know how much money you have coming in each month and how much you have going out to pay bills. Write it all down, track it with an app, or use a spreadsheet, but you need to get a clear picture of your income and expenses. Make sure you also include quarterly or semi-annual expenses in your budget as well, for example real estate taxes, life insurance, and homeowner’s or renter’s insurance.

Figure Out Your Disposable Income

Your disposable income is the money that is left over each month after all of your bills have been paid. This is the money that can be spent on discretionary items. To figure out your disposable income, add up all of your income, add up all of your expenses, finally, subtract the expense total from the income total.

Total Monthly Income – Total Monthly Expenses = Disposable Income

Disposable income can be used for the items that are wants and not needs. If discretionary spending is too high, this is the best place to start cutting items from the budget.

Decide What Can Be Cut from Your Budget

Besides discretionary spending, such as eating out, shopping for unnecessary clothing, shoes, or toys, there may be some other line items on your budget that can be reduced. For instance, can you save money by choosing a smaller cable or satellite package for television? Is there a cheaper internet service provider, or a way to save on your home phone? Many times, you are even able to call these types of service providers and ask for current promotions that could save you money as well.

Include Savings as a Part of Your Budget

While savings are technically a discretionary part of your budget, you really should look at it the same as you would any other expense each month. Why look at it as an expense? Because it should be accounted into your budget every month.

It should be just as important to put money into your IRA or 401(k) as it is to pay your rent or mortgage. Setting money aside for retirement each month can be made easier if you have the money come directly out of your paycheck from your employer and go to your 401(k). If you are self-employed, you may want to set up a separate savings account that a set amount of money goes to each month to be invested. If savings are set aside even before you get your paycheck, it will be easier to keep this a priority.

Make Sure Your Budget Is Realistic

Don’t set your budget and yourself up for failure. Trying to trim your budget is good, but don’t try to trim it to the point that you won’t be able to live within that budget. For instance, if you don’t allow yourself any spending cash during the month for eating out, you may find it too restrictive. So instead of cutting this out entirely, budget it in – but at a lower level than before. So, if you used to eat out every day during your lunch hour, try cutting that down to only eating out once per week – it will save money, but you won’t feel so deprived.

One great way to help stay on track is to use an online budgeting tool that is linked to not only your banking and bill payment accounts, but that also incorporates your progress towards achieving your financial goals and plans. One of the most common reasons most budgets fail is the short term thinking and the instant gratification that comes from spending, rather than saving, for a longer term and more meaningful life goal. This is one key area a fee-only financial planner can help.

4 Painless Ways to Save

4 Painless Ways to Save

Benjamin Franklin once said, “A penny saved is a penny earned.” Unfortunately, the most difficult job I have as a financial planner is to get people to save money.

I think there are two reasons for this. For starters, median household income adjusted for inflation has stagnated over the last several decades. It seems that more and more of our income is needed just for the basic necessities of life. Secondly, we humans like instant gratification. For most of us, spending money is so much more natural than setting it aside to enjoy years from now. We all know we need to save for retirement – we just want to delay saving until next year.  Unfortunately, next year never comes until we reach our 50s, when time isn’t our ally.

Believe it or not, getting started is the hardest part. Once you start saving on a systematic basis, it gets easier and easier. Here are four painless ways to make that happen.

1. Get on Autopilot

If you have a hard time saving money, you need to make saving as easy as possible. If your employer has a retirement plan, use payroll deduction in order to start saving. If not, then use direct deposit from your bank account each month.

Some people get nervous about saving automatically because they worry about whether or not they’ll have enough left over to pay the bills. So, they decide to wait and see how much they have left in their checking account at the end of the month. The problem with that is, for most of us, there’s nothing left over. We find a way to spend that money. You have to build the savings into your budget, or you won’t save.

2. The 2% Rule

How do you start saving and not break your budget in the process? Start small. You wouldn’t try to run a marathon the first day you start jogging. Don’t try to start saving 10% of your income either.

My suggestion would be to start saving just 2% of your monthly income. For each $1,000 of income, you’ll be saving $20. Trust me, you won’t miss that money. Then, increase your savings rate by 1% of income annually until you reach the level necessary to achieve your desired retirement nest egg. So in year two, you would increase your savings rate to 3%, and then in year three to 4%. In year five, you’ll be saving 6% of your income.

The key is that you’ll be doing it in bite-sized chunks. For example, if you begin by saving $50 a month, you’d increase it to $75 the second year and $100 in the third. Could this actually make a difference since you are saving so little? You bet. If you begin saving $50 monthly at age 45, and bump your contributions up each year until the end of year five, and then maintain that amount until age 65, you’ll have $61,000 if the account grows at 6%. If you begin with $100 monthly, you’ll have $122,000.

If you’re age 35, those amounts would be $134,000 and $269,000, respectively. Granted, you won’t be living like Warren Buffett on nest eggs this size, but if you don’t start saving, you won’t even have this.

3. Always Take Advantage of Employer Matching Contributions

According to the Bureau of Labor Statistics, most employers who offer a 401(k) plan offer a 50% match up to 6% of salary. So if your salary is $50,000 per year, your boss will give you a $1,500 match if you save 6% of your income.

If you don’t take advantage of the match, you aren’t just walking away from $1,500. Over 20 years, that $1,500 annual match turns into $55,000 at 6% interest.  And that’s assuming you don’t get any salary increases over that time.

4. Adjust Your Federal Tax Withholding

Many people withhold way too much from their paychecks for federal income taxes. I get it. It’s nice to get a big refund in May or June and go on vacation. But by doing this, you are essentially giving Uncle Sam an interest free loan for the year.

Try this instead. Adjust your federal withholding so that you get a minimal amount back – say a couple hundred bucks. Take half of the freed-up take home pay and sock it into your savings account for vacation (or to pay Uncle Sam on April 15th if you mess up on your tax withholding). Take the rest and invest it for retirement.

These are just a few ways to make saving painless. There are many more. Do you have a way that got you started? I’d love to hear it.