cash flow http://www.wisebread.com/taxonomy/term/8062/all en-US How to Give Your Finances a Year-End Review http://www.wisebread.com/how-to-give-your-finances-a-year-end-review <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-give-your-finances-a-year-end-review" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/couple_paying_bills_168362659_0.jpg" alt="Couple giving their finances a year-end review" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>As one year ends and another begins, it's a natural time for reflection &mdash; financial and otherwise. Here are some suggestions for evaluating your financial progress in 2016, with the hopes of planning an even better 2017.</p> <h2>Net Worth</h2> <p>This is your financial big picture and it makes for a great starting point. In essence, the net worth calculation asks, &quot;How much are you worth?&quot; And the more important question for our purposes: Has your net worth increased or decreased over the past year?</p> <p>Assets minus liabilities (debts) equals your net worth. Calculate the value of all your assets (home, vehicles, retirement accounts, savings, investments, belongings, etc.) minus any liabilities or debt (mortgage balance owed, car note balance, student loans, credit card debt, medical bills, etc.). The difference between your assets and liabilities is your net worth.</p> <p>If you did this exercise last year, how has your net worth changed over the last 12 months? And what contributed to the changes?</p> <h2>Cash Flow</h2> <p>When it comes to using a budget, there are various tools &mdash; from a paper and pencil budget to the <a href="http://www.wisebread.com/a-comprehensive-guide-to-the-envelope-system">envelope system</a>, and from software to online tools. When trying to motivate people to use a budget for the first time, I often say that the best budget tool is the one you'll actually use. However, for the purpose of a year-end analysis, there's nothing like an electronic tool, whether that means budget software or an online service such as <a href="https://www.mint.com/">Mint.</a></p> <p>For your cash flow analysis, start with the big picture &mdash; total income versus total expenses. Did you live within your means this year?</p> <p>Then do a category-by-category analysis. If you overspent in a certain category, was your budgeted amount unrealistic, or do you simply need to do a better job of managing your spending in that category?</p> <p>Use what you learn from this analysis in crafting your 2017 budget.</p> <h2>Experiential Net Worth</h2> <p>Traditional net worth statements have one big shortcoming, though &mdash; failing to account for investments you've made in positive experiences. <em>Experiential </em>net worth includes things like charitable donations, investments in your or your child's education, or even a memorable family vacation.</p> <p>Sure, these are expenses. However, research shows that spending money on positive experiences tends to make us happier than material things, so it's appropriate to recognize the experiences we <em>invest</em> in each year.</p> <p>To analyze your experiential net worth, focus on some of the ways you've spent money in the past year that led to some of your most positive experiences. This doesn't need to be a highly detailed account. If you gave to charity, for example, you might just list the organization(s) that you donated to as your experience, and maybe include a few details about the organization or how much money you contributed.</p> <p>Keeping tabs on your experiential investments can help you be strategic in planning future spending.</p> <h2>Emotional Net Worth</h2> <p>Emotional net worth is an assessment of how you <em>feel</em> about your current financial situation. While highly subjective, it can still help you analyze your overall financial wellbeing. Are you stressed about debt &mdash; and if so, how much? Do you feel you're making positive progress toward financial goals?</p> <p>Give your emotional net worth an overall rating. Next, jot down some ideas that could help you improve in this area, such as debt reduction, better communication about money with your spouse, or building an emergency fund.</p> <p>Now, take a good look at your year-end financial review. Are you content with what you see? Imagine it's this time next year. What changes will you need to make in 2017 to end up where you want to be?</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/how-to-give-your-finances-a-year-end-review">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/12-personal-finance-skills-everyone-should-master">12 Personal Finance Skills Everyone Should Master</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/these-13-numbers-are-the-keys-to-understanding-your-finances">These 13 Numbers Are the Keys to Understanding Your Finances</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/does-your-net-worth-even-matter">Does Your Net Worth Even Matter?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-smart-money-moves-to-make-in-the-new-year">8 Smart Money Moves to Make in the New Year</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/plan-for-your-wants">Plan for your wants</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance analyzing budgeting cash flow experiences financial review investments net worth year end review Tue, 03 Jan 2017 10:00:12 +0000 Matt Bell 1865739 at http://www.wisebread.com Everybody's Wrong About How Much House You Can Afford http://www.wisebread.com/everybodys-wrong-about-how-much-house-you-can-afford <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/everybodys-wrong-about-how-much-house-you-can-afford" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/couple_moving_house_93431053.jpg" alt="Learning how much house you can really afford" title="" class="imagecache imagecache-250w" width="250" height="143" /></a> </div> </div> </div> <p>A home is one of the most expensive &mdash; and most emotional &mdash; purchases you'll ever make. That high cost and high emotion combination can be dangerous, tempting you to spend so much on a house that it ends up owning <em>you</em>.</p> <p>Instead, buy a house you can actually afford. What is a reasonable cost, you might ask? For starters, ditch the conventional homeownership wisdom, and consider this plan to help you buy a home you can truly afford.</p> <h2>A Reasonable Percentage</h2> <p>I've spent a lot of time crunching numbers to come up with <a href="http://www.mattaboutmoney.com/resources/">recommended cash flow guidelines</a>, showing how much various sized households with various levels of income can afford to spend on everything from clothing to vacations. All that spreadsheet time gave me more than a headache; it gave me a deep appreciation for the importance of keeping housing costs under control.</p> <p>Here's what I found: If you're going to be able to save for emergencies and near-term purchases, invest for longer-term needs such as retirement or your kids' college costs, live generously, and enjoy some financial breathing space, you have to keep your total housing costs (mortgage, property taxes, homeowner's insurance, and association fees, if applicable) to no more than 25% of monthly gross income. Preferably, no more than 20%.</p> <p>Even more radically, I recommend that two-income couples run the numbers on what they can afford based on just <em>one</em> of their incomes.</p> <p>I know this all probably sounds ludicrous, but hear me out.</p> <h2>But I Qualify for More!</h2> <p>Mortgage lenders will typically allow you to devote 28% of your gross income to housing costs. They assume you'll have other debts as well and will be fine with that as long as it takes no more than 36% to 40% of your gross income to cover your housing costs and these other debts.</p> <p>But mortgage lenders aren't the ones who'll be making the payments. You will.</p> <p>Keeping your monthly housing costs within the parameters I suggested, and holding no other debt, will do wonders for your solvency and stress level.</p> <h2>Why Not Use Two Incomes?</h2> <p>If you're a double-income household, think twice before basing your housing decision on both incomes.</p> <p>If you don't have kids but would like to someday, and if one of you would like to step out of the paid workforce for a period of time in order to be home with your kids, it'll be a lot easier to transition to that life if your home doesn't require two incomes.</p> <p>That was the single best financial advice my wife and I received before we got married. Following that advice meant renting for the first 10 months of our marriage and then buying a condo in what our realtor optimistically described as &quot;an up and coming neighborhood&quot; in Chicago.</p> <p>After our first child was born and my wife left her job to be home full-time, the financial transition wasn't very difficult at all.</p> <p>The key to getting acclimated to living on one income is not getting acclimated to living on two incomes in the first place.</p> <p>If you don't plan to have kids, or if you do but you both plan to continue working full-time, it can still be dangerous to buy a house that requires two incomes. What if one of you loses your job?</p> <p><em>Choosing</em> to transition from two incomes to one because one parent wants to stay home for a period of time is one thing. Being <em>forced</em> to make that transition because one spouse goes through an extended time of unemployment is far more painful.</p> <h2>What If You Already Have a Two-Income House?</h2> <p>Very often, when people say they can't afford to save, invest, or support charitable causes they care about, it's because they're spending too much on housing.</p> <p>If you're in that situation, consider something radical. Consider moving to a home you can more easily afford.</p> <p>There's nothing easy about moving. I realize that. But I know two couples that have sold homes they realized they really couldn't afford. In both cases, moving was difficult, time-consuming, and even embarrassing. But both couples are so happy to have made the move. It's been better for their finances and their marriages.</p> <p>Keeping your housing costs reasonable is an essential part of wise money management. That means keeping your housing costs to no more than 20% to 25% of monthly gross income &mdash; and preferably basing that on one income. It's a radical idea, but it may just enable you to enjoy your home without financial worries. And that's worth more than extra square footage any day.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/everybodys-wrong-about-how-much-house-you-can-afford">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-ways-to-buy-a-house-without-a-mortgage">4 Ways to Buy a House Without a Mortgage</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/house-hunting-these-features-will-save-you-big-over-the-long-haul">House Hunting? These Features Will Save You Big Over the Long Haul</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/23-hidden-costs-of-buying-an-old-house">23 Hidden Costs of Buying an Old House</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-things-millennials-can-do-to-buy-a-house-within-the-next-decade">5 Things Millennials Can Do to Buy a House Within the Next Decade</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-you-need-to-know-about-homeowners-associations">What You Need to Know About Homeowners&#039; Associations</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing affordability buying a house cash flow expenses incomes mortgages new house single income Wed, 09 Nov 2016 09:30:07 +0000 Matt Bell 1827232 at http://www.wisebread.com The One Personal Finance Skill You Must Master Before All the Others http://www.wisebread.com/the-one-personal-finance-skill-you-must-master-before-all-the-others <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-one-personal-finance-skill-you-must-master-before-all-the-others" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_happy_working_102244905.jpg" alt="Woman mastering personal finance skill before all others" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Recently, I detailed <a href="http://www.wisebread.com/12-personal-finance-skills-everyone-should-master">12 personal finance skills to master</a> to improve your happiness and quality of life.</p> <p>Mastering this set of skills will put you on the road to financial independence, but it's hard to master 12 things all at once. If you are looking to get your finances on track quickly, what is the first personal finance skill you should master?</p> <p>Start with budgeting.</p> <h2>What a Budget Can Do for You</h2> <p>A detailed budget holds the answer to one of the most important questions about your personal finances: &quot;Where is all the money going?&quot; When you understand where your money is going, you can find opportunities to better utilize your money to meet your goals instead of letting it slip away on things that are not important to you.</p> <p>And a budget can be a great motivational tool. For example, if you learn from your budget that you are coming up $100 short each month, you can be motivated to solve the problem. Having a specific goal and measurement of progress toward the goal helps you take effective action. Without a budget, you may have a general feeling that you don't have enough money, but this can be hard to turn into tangible results.</p> <p>&quot;Can I afford this?&quot; is another question that a budget will answer. With detailed knowledge of how much money is coming in and how much you need to cover bills and expenses, your budget will show whether you can handle taking on a new expense.</p> <p>Looking at the bigger picture, your budget tells you if you are heading in the right direction, or if your financial situation is a sinking ship and you need to make some changes. Without a budget, it may not be clear whether you are moving up, down, or sideways. But most people don't have a budget...</p> <h2>Why Most People Don't Budget</h2> <p>Clearly there are significant benefits from having a detailed budget, but Gallup's annual Economy and Personal Finance survey shows that only 32% of American households have a <a href="http://www.gallup.com/poll/162872/one-three-americans-prepare-detailed-household-budget.aspx">written or computerized budget</a> for monthly expenses. If having a budget is so useful, why do so few people actually do it?</p> <ul> <li>Some people have no idea how to prepare a budget.<br /> &nbsp;</li> <li>It takes too much work to quantify expenses and keep the budget up-to-date.<br /> &nbsp;</li> <li>Some people are afraid to know much they are spending. They don't want to change their spending habits, so they avoid facing the numbers.</li> </ul> <p>All of these reasons contributed to me not having a budget for years. I had plenty of other tasks on my list of things to do, and putting together a budget never made its way to the top of my list. Plus, I liked buying whatever I felt like buying and didn't want a budget to get in the way of being able to spend money however I wanted.</p> <p>I finally realized that I didn't really know where my money was going, and this was preventing me from reaching financial independence. Preparing a budget was my first effective step to getting my finances on track.</p> <h2>How to Start an Effective Budget Today</h2> <p>Getting started budgeting is easier than you think &mdash; the hardest part is deciding to do it.</p> <h3>Step 1. Where Is All Your Money Going?</h3> <p>The first step in budgeting effectively is to assess your current cash flow situation, figuring out exactly how much income you have and breaking down your spending by cost category. This may seem like a lot of work, but this will give you insight into where all of your money is really going. You may be shocked. (See also: <a href="http://www.wisebread.com/start-saving-more-with-this-one-simple-tool?ref=seealso">Start Saving More With a Spending Book</a>)</p> <p>First, total up all of your income during the month. Look at your pay stubs, or check your direct deposits from your bank account statement.</p> <p>Then, figure out your expenses. You will need to keep track of the cash that you spend as well as bill payments from your checking account and spending with credit cards. When I started my budget, I used colored highlighters to mark credit card statements and bank statements to sort the spending into categories such as food, clothing, pets, entertainment, transportation, housing, utilities, etc. I put these numbers into a spreadsheet along with my income, and I had my first budget. Or, you can try budgeting tools like <a href="https://www.mint.com/">Mint</a> or <a href="https://www.youneedabudget.com/">You Need a Budget</a>.</p> <h3>Step 2. Where Do You Want Your Money to Go?</h3> <p>After you know the good, the bad, and the ugly about where all your money is going, you might want to make some adjustments. I found that overall spending was too high, especially spending on food, car payments, and fuel.</p> <p>We started using a <a href="http://www.wisebread.com/a-comprehensive-guide-to-the-envelope-system">money envelope</a> to pay for all food to help control this expense category. On payday, I put cash for food in an envelope. When the envelope is empty, we know we have spent all we have available, so we wait for the next envelope to spend more on food. We also sold our most expensive vehicle and replaced it with a less expensive one that uses less gas, saving hundreds of dollars each month. Without a budget, I would not have been motivated to make these changes and get my finances on a better track. (See also: <a href="http://www.wisebread.com/build-a-better-budget-in-5-minutes-flat?ref=seealso">Build a Better Budget in 5 Minutes Flat</a>)</p> <p>For your budget to be effective, you need to monitor expenses and make updates to your budget as they change each month. In other words, making a budget is not a one-time exercise. Keep track of the budgeted amount for expense categories and how much you are actually spending every month. As you understand your spending and work to control your expenses, you will be able to create budget items such as &quot;emergency fund&quot; and &quot;retirement fund&quot; and consistently have money to fund your future.</p> <p>Wherever your life takes you on the road to personal finance mastery, it won't take you there if you don't master this skill first.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dr-penny-pincher">Dr Penny Pincher</a> of <a href="http://www.wisebread.com/the-one-personal-finance-skill-you-must-master-before-all-the-others">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-manage-your-money-no-budgeting-required">How to Manage Your Money — No Budgeting Required</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/11-budgeting-skills-everyone-should-master">11 Budgeting Skills Everyone Should Master</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/37-savings-changes-you-can-make-today">37 Savings Changes You Can Make Today</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/financial-iq-test-how-healthy-is-your-budget">FINANCIAL IQ TEST: How Healthy Is Your Budget?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-automate-your-finances">5 Ways to Automate Your Finances</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Budgeting cash flow expenses financial independence mint money management skills Wed, 02 Nov 2016 09:00:10 +0000 Dr Penny Pincher 1825228 at http://www.wisebread.com 8 Debt Reduction Mistakes Even Smart People Make http://www.wisebread.com/8-debt-reduction-mistakes-even-smart-people-make <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-debt-reduction-mistakes-even-smart-people-make" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_blindfold_money_000084064747.jpg" alt="Woman making debt reduction mistakes even smart people make" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Everyone knows it is a good idea to reduce your debt load. With less debt, you save money on interest charges and reduce your risk of financial catastrophe if your income is disrupted and you are unable to make payments. If you don't have enough to make debt payments, you can fund investments and build wealth instead of working to get back to zero net worth.</p> <p>Some people are much more successful at debt reduction than others. What key mistakes prevent people from paying down your debts?</p> <h2>1. High Interest Accounts</h2> <p>It is hard to pay down the principal on a debt when the interest rate is high. Too much of your payment gets burned up paying interest charges and too little actually goes to paying down the debt.</p> <h3>How to Fix It</h3> <p>Use a <a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards">balance transfer card</a> to move debt from a high interest credit card to a <a href="http://www.wisebread.com/the-best-low-interest-rate-credit-cards">lower interest credit card</a>, allowing you to pay off the principal faster and get out of debt sooner. (See also: <a href="http://www.wisebread.com/when-to-do-a-balance-transfer-to-pay-off-credit-card-debt?ref=seealso">How to Use a Balance Transfer to Pay Off Credit Card Debt</a>)</p> <h2>2. Negative Cash Flow</h2> <p>If your bills and payments are higher than your income, then you are not going to get out of debt! In fact, negative cash flow may be the reason your debt has built up in the first place. There are only two ways to correct negative cash flow: Lower your expenses or raise your income &mdash; or both!</p> <h3>How to Fix It</h3> <p>Consider debt consolidation to reduce your total monthly payments, find ways to reduce nonessential expenses, and look for side hustles to boost income.</p> <h2>3. Faulty Repayment Strategy</h2> <p>I was stunned the first time I saw personal finance advisers offering the advice to pay off your smallest debts first. This strategy for paying off debt is called the &quot;<a href="http://www.wisebread.com/a-comprehensive-guide-to-the-debt-snowball-method-0">debt snowball</a>.&quot; You make minimum payments on all of your debts and put the rest of your available money toward paying off the smallest debt. After that smallest debt is paid off, you use the money that would have gone toward that debt to focus on the next smallest debt. This process is repeated until all debt is paid off.</p> <p>The reason the &quot;debt snowball&quot; strategy is surprising to me is that it is not the fastest way to get out of debt. Simple math shows that you will get out of debt faster and spend less money by paying off your highest interest debt first.</p> <h3>How to Fix It</h3> <p>Having any debt repayment strategy is better than not having a strategy at all. Use the &quot;debt snowball&quot; strategy if this motivates you, but paying your highest interest debt first will save the most money and get you out of debt fastest.</p> <h2>4. Adding More Debt</h2> <p>It you are working to pay down debt, obviously adding more debt isn't going to help. Why would anyone add more debt when they are trying to get out of debt? One reason this can happen is if unexpected expenses pop up and you have directed all available funds to paying off debts.</p> <h3>How to Fix It</h3> <p>Put off taking on new nonessential expenses until after you have paid off debts. Keep some cash in an emergency fund to help avoid using credit.</p> <h2>5. Not Tracking Progress</h2> <p>There is a reason that successful business people are so interested in looking at every financial report that comes out about their business. Feedback is essential to spot problems early and find areas for improvement to get even better results in the future.</p> <p>If you do not check your total debt on a regular basis to monitor your repayment progress, you might not be making progress at all. In fact, your debt could be growing and you wouldn't know it! You need to monitor your total debt and track how well your debt repayment plan is working.</p> <p>Once you start making progress in paying down your debt, seeing the smaller debt total every month can be a good motivator to redouble your efforts and get the debt paid off.</p> <h3>How to Fix It</h3> <p>Add up your total debt every month and monitor your debt repayment progress.</p> <h2>6. Not Everyone Is On Board</h2> <p>Many households have more than one person who makes spending decisions. For example, if you are focusing on debt reduction and your spouse is not, then you will probably not make much progress.</p> <p>I think numbers can be a good way to communicate about debt. Instead of debating purchases and problem spending areas, focus instead on agreeing on the big picture monthly budget numbers. Let each person make their own spending decisions to fit within the budget.</p> <h3>How to Fix It</h3> <p>Get all spenders committed to debt reduction goals and work together to agree on a budget plan.</p> <h2>7. Irregular Expenses</h2> <p>Getting the routine monthly bills under control can be manageable since you know what to expect, but it is easy to overlook those occasional expenses that don't follow a regular monthly billing schedule. For example, budgeting for vacations gives a lot of people trouble. When vacation time comes around, a lot of people end up getting out a credit card to cover at least some vacation expenses. In my house, vet bills are problematic since we have a lot of pets and they need expensive vaccinations and treatments at times. Many years, the vet bill has ended up going on a credit card and moving us in the wrong direction on debt reduction.</p> <h3>How to Fix It</h3> <p>Budget to set aside money ahead of time to cover irregular expenses such as vacations, pet care, and medical expenses.</p> <h2>8. Delay Starting Debt Reduction</h2> <p>For a lot of people, &quot;next month&quot; is always the best time to start debt reduction!</p> <p>Paying off debts is hard work. You have to track and control spending, and you will likely have to sacrifice buying things you want in order to pay off debts instead. It can be tempting to take another month to plan out your budget and figure out your strategy before you start seriously working on debt reduction.</p> <p>But delaying another month doesn't provide any advantage to getting your debt paid off. Your debt will hang around and maybe even keep on growing until you take action to turn things around and get it paid off. The sooner you get started, the sooner you will have your debt paid off.</p> <h3>How to Fix It</h3> <p>Start debt reduction now. Don't wait until next month.</p> <p><em>Which of these debt reduction mistakes has caused the most problems for you?</em></p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F8-debt-reduction-mistakes-even-smart-people-make&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F8%2520Debt%2520Reduction%2520Mistakes%2520Even%2520Smart%2520People%2520Make.jpg&amp;description=8%20Debt%20Reduction%20Mistakes%20Even%20Smart%20People%20Make"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/8%20Debt%20Reduction%20Mistakes%20Even%20Smart%20People%20Make.jpg" alt="8 Debt Reduction Mistakes Even Smart People Make" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dr-penny-pincher">Dr Penny Pincher</a> of <a href="http://www.wisebread.com/8-debt-reduction-mistakes-even-smart-people-make">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-day-debt-reduction-plan-pay-it-off">5-Day Debt Reduction Plan: Pay It Off</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-prevent-a-debt-spiral">5 Ways to Prevent a Debt Spiral</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-day-debt-reduction-plan-dont-ever-stop">5-Day Debt Reduction Plan: Don&#039;t Ever Stop</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards">The Best 0% Balance Transfer Credit Cards</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-use-a-credit-card-for-an-emergency-without-drowning-in-debt">How to Use a Credit Card for an Emergency Without Drowning In Debt</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management cash flow expenses interest rates progress repayment strategies snowball method Thu, 07 Apr 2016 10:30:06 +0000 Dr Penny Pincher 1685087 at http://www.wisebread.com Find Extra Cash by Rotating Your Credit Cards http://www.wisebread.com/find-extra-cash-by-rotating-your-credit-cards <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/find-extra-cash-by-rotating-your-credit-cards" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/000061309940.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>I once took an accounting course taught by the owner of a retail toy store. It was a challenging course, but I have to say, it did impart some pearls of financial wisdom that I still remember and try to apply when managing my own finances. One was, &quot;A dollar in your pocket today is worth more than a dollar a year from now.&quot; This was his favorite &mdash; and for good reason. A toy store lives or dies based on how effectively its cash flow is managed because over 50% of annual sales often occur during a two-month holiday shopping season. So it has to survive the other 10 months of the year on a cash flow diet.</p> <p>The idea seems obvious. After all, a dollar in hand today could be deposited into a savings account or invested. The main point, though, is that having the dollar now gives you greater control.</p> <h2>Maximizing Cash Flow</h2> <p>The concept applies to receiving payments from others (accounts receivable, in accounting speak) as soon as possible <em>and </em>also to postponing payments to others (accounts payable) as long as possible. Basically, you're trying to hang onto your cash for as long as you can, and then use that cash to improve your financial situation.</p> <h2>Time Your Credit Card Billing Periods to Find More Cash</h2> <p>Here's an example of how to stretch your credit card accounts payable by at least a month and as much as a month and a half, <em>without incurring a late payment penalty</em>. This will require having and using two credit cards.</p> <p>Most credit card companies allow you to pick the end date of the billing cycle, so be sure your card company gives you that choice for each card. Now simply pick an end date of the 15th of the month for credit card #1 and the 30th of the month for card #2.</p> <h3>Card #1</h3> <p>Use card #1 only for purchases between the 16th and 30th of every month. The credit card company will close off the billing cycle for card #1 on the 15th of the following month, at which time they will issue you a bill, but give you another two weeks or so to pay it. Voila! You have 30&ndash;45 days of &quot;float,&quot; or extra time to pay.</p> <h3>Card #2</h3> <p>For card #2, pick the 30th of the month as the end date of its billing cycle. Then after the 30th and before the 15th of the next month, use only card #2. By doing so, you will stretch out the float period for <em>all </em>of your credit card purchases to at least one month, and as much as a month and a half.</p> <p>I admit, this can be a lot to remember, so to make it easier I just write &quot;Use 16th-30th&quot; on the back of card #1, and &quot;Use 30th-15th&quot; on card #2.</p> <p>It should go without saying that you benefit from this system only if you pay your card balances in full when they are due &mdash; otherwise interest will set you back much more than anything gained.</p> <h2>Here's What You Gain</h2> <p>Alright, so you now have 30&ndash;45 days of float at your disposal. That's enough time to receive an extra paycheck or two. How will you put this freed up cash flow to good use? You could keep the money in your checking account. But would that help you get ahead? Unlikely.</p> <p>Alternatively, you could use it in a way that provides some return. That's probably what a good toy store owner would do. For example, it might allow you to make an extra principal-only payment on a loan, such as a car loan or your mortgage. Or maybe make an additional <a href="http://www.wisebread.com/7-penalty-free-ways-to-withdraw-money-from-your-retirement-account">retirement account</a> contribution (a good example of the &quot;pay yourself first&quot; principle).</p> <p>Granted, this is a one-time cash flow bonus, and the benefit might seem small. Don't be fooled. Eliminating even a single monthly mortgage payment or trimming your balance on a car loan is <em>meaningful </em>progress toward your financial goals. But what&rsquo;s really important is that this system reinforces a mindset &mdash; a mindset in which you&rsquo;re always thinking of ways to stretch out or delay expenditures to free up cash. That cash can be put to use in positive ways that get you ahead. Over time, with each success you will gain a little more control. That's what it's all about &mdash; taking greater control of your finances, until you reach financial independence. Then you'll have complete control.</p> <p><em>What tips do you have to stretch out your cash? How do you use that freed-up cash?</em></p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <p>&nbsp;</p> <div align="center"><a href="//www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Ffind-extra-cash-by-rotating-your-credit-cards&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FFind%20Extra%20Cash%20by%20Rotating%20Your%20Credit%20Cards.jpg&amp;description=Find%20Extra%20Cash%20by%20Rotating%20Your%20Credit%20Cards" data-pin-do="buttonPin" data-pin-config="above" data-pin-color="red" data-pin-height="28"><img src="//assets.pinterest.com/images/pidgets/pinit_fg_en_rect_red_28.png" alt="" /></a> </p> <!-- Please call pinit.js only once per page --><!-- Please call pinit.js only once per page --><script type="text/javascript" async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/Find%20Extra%20Cash%20by%20Rotating%20Your%20Credit%20Cards.jpg" alt="Find Extra Cash by Rotating Your Credit Cards" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/keith-whelan">Keith Whelan</a> of <a href="http://www.wisebread.com/find-extra-cash-by-rotating-your-credit-cards">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/top-6-reasons-why-using-cash-only-rocks">Top 6 Reasons Why Using Cash-Only Rocks</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-reasons-why-i-prefer-credit-cards-over-cash">10 Reasons Why I Prefer Credit Cards Over Cash</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-budget-when-you-rely-on-cash-tips">How to Budget When You Rely on Cash Tips</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/do-you-spend-more-with-cash-or-credit">Do You Spend More with Cash or Credit?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-reasons-why-cash-is-still-king">6 Reasons Why Cash Is Still King</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Credit Cards cash cash flow managing debt paying bills rotating payments strategy Fri, 25 Mar 2016 09:30:23 +0000 Keith Whelan 1678305 at http://www.wisebread.com When Location Isn't King: How to Choose Income Rental Property http://www.wisebread.com/when-location-isnt-king-how-to-choose-income-rental-property <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/when-location-isnt-king-how-to-choose-income-rental-property" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_moving_house_000057031510.jpg" alt="Woman learning how to choose an income rental property" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>We've all heard the expression many times: &quot;When it comes to making a home-buying decision, the three most important considerations are location, location, location.&quot; But does that same rule apply to <a href="http://www.wisebread.com/turn-your-home-into-a-rental-in-9-easy-steps">rental properties as an investment</a>? Not necessarily. To illustrate, I'll provide an example from my storied past &mdash; in this case, the recent past.</p> <p>About five years ago I spent time looking at rental properties along the New Jersey shore. Over time I narrowed my focus to two neighboring towns &mdash; let's call them &quot;Poshtown&quot; and &quot;Middleville.&quot; Poshtown is a beautiful upscale community with quaint shops, large lots, and manicured lawns. Next door, Middleville is more of a mixed bag, with some very attractive sections, but also other areas crowded with seasonal rental properties often in need of some TLC.</p> <p>Next, I crunched the numbers. I gathered estimates of rental income and expenses for dozens of multi-family units listed for sale in both towns. Then I ranked each property from best to worst based on its monthly cash flow. Properties with the most positive monthly cash flow after all expenses rose to the top of the list. The following chart shows the highest ranked property in each town based on its estimated monthly cash flow:</p> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5171/Screen%20Shot%202015-12-18%20at%204.57.15%20PM_1.png" width="605" height="451" alt="" />&nbsp;</p> <h2>Why Cash Flow Is King</h2> <p>As you can see, the winner by far was a Middleville property with<em> positive</em> cash flow of $640 per month. By contrast, estimated cash flow for the highest ranked property in Poshtown was negative $1,365 per month. Adding to the rout, there were eight additional properties in Middleville with higher rankings (more positive monthly cash flow) than the highest ranked property in Poshtown.</p> <p>Why were the numbers stacked so heavily against Poshtown? The town's exclusivity added such a high premium to its home prices that rents couldn't make up the difference. Poshtown was a better location, but Middleville was a better investment.</p> <p>The lesson? For rental properties it's all about cash flow, cash flow, cash flow!</p> <h2>Other Factors Worth Considering</h2> <p>Alright, but surely &quot;location&quot; must be the second most important consideration, right? Sorry to disappoint, but in my experience the answer is still no. That honor goes to&hellip;condition, condition, condition. Here's why: If two properties have the same monthly cash flow at the time of purchase, but one requires tens of thousands of dollars in repairs while the other doesn't, then repair costs for the run-down property translate to more negative cash flow. Again, it gets back to the cash flow.</p> <p>Of course, there are other factors to seriously consider when looking into rental properties, and some of them aren't financial. For example, are you handy with repairs and making sure they're done in a timely manner? Are you willing to interrupt your evenings and weekends, even vacations, in order to address property issues? Perhaps most importantly, do you think you could effectively choose tenants and deal with them on a regular basis? If not, then becoming a landlord might not work for you.</p> <p>Before leaving this topic, I'd like to make one more point to illustrate the value of crunching the numbers prior to making a rental property purchase decision. This will require taking a look at two other properties, a $250,000 two-family house and a $150,000 condominium. I learned this lesson years ago when we purchased our first condo rental.</p> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5171/Screen%20Shot%202015-12-18%20at%204.56.49%20PM_0.png" width="605" height="448" alt="" /></p> <p>In the example above, monthly cash flow at the time of purchase for the two-family is slightly negative and would flip to a positive $1,000 after paying off the mortgage. But notice how negative the condo's cash flow is. It loses $650 per month. Even after paying off the mortgage, which would free up $645, the best you could hope for is break-even cash flow. That's a red flag. I wouldn't buy it.</p> <p>This comparison illustrates the importance of two &quot;all other things equal&quot; factors in determining the attractiveness of rental properties. First, all other things equal, properties with fixed monthly association and/or maintenance fees are more challenging to turn into positive cash flow than those without. Condos, townhomes, and other properties governed by an association typically charge homeowners in the community such fees. These often add up to hundreds of dollars a month,<em> every</em> month.</p> <p>The second factor is, all other things equal, more rental units in a property is better than fewer. You are more likely to achieve positive monthly cash flow with a two-family than a one-family. And a three-family will usually do better than a two-family. Why? Because each additional unit brings in additional income, but not proportionately higher expenses. For example, the price of a three-family (and therefore its monthly mortgage payment) is rarely three times higher than that of a single family on the same lot. Also, property taxes and insurance won't be three times higher for a three-family than a one-family. Nor would monthly maintenance and repair costs.</p> <p>As you can see, rental properties have a different set of rules than those for a single family property used as your primary residence. And the most important of these rules is &mdash; you guessed it: cash flow, cash flow, cash flow!</p> <p><em>Have you considered investing in rental property?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/keith-whelan">Keith Whelan</a> of <a href="http://www.wisebread.com/when-location-isnt-king-how-to-choose-income-rental-property">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/everybodys-wrong-about-how-much-house-you-can-afford">Everybody&#039;s Wrong About How Much House You Can Afford</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-times-you-shouldnt-rush-to-pay-off-your-mortgage">5 Times You Shouldn&#039;t Rush to Pay Off Your Mortgage</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-simple-way-to-decide-how-much-rent-you-can-really-afford">The Simple Way to Decide How Much Rent You Can Really Afford</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/heres-how-much-life-in-the-big-city-will-cost-you">Here&#039;s How Much Life in the Big City Will Cost You</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-debt-reduction-mistakes-even-smart-people-make">8 Debt Reduction Mistakes Even Smart People Make</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing cash flow expenses investments location rental properties Tue, 22 Dec 2015 14:00:07 +0000 Keith Whelan 1623601 at http://www.wisebread.com This One Mistake Could Delay Your Retirement by 10 Years http://www.wisebread.com/this-one-mistake-could-delay-your-retirement-by-10-years <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/this-one-mistake-could-delay-your-retirement-by-10-years" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/senior-couple-budget-177715864-small.jpg" alt="senior couple budget" title="senior couple budget" class="imagecache imagecache-250w" width="250" height="147" /></a> </div> </div> </div> <p>A while back, during a housing boom (remember those?), I watched a TV news segment about homeownership. The reporter was interviewing a young married couple shopping for a house and the wife said: &quot;My parents told me to buy the biggest house you can afford, so that's what we're doing.&quot; After all, her parents probably saw the value of their home rise to many times its original price, eventually becoming one of their biggest assets &mdash; just in time for retirement.</p> <p>In fact, on average home values do rise &mdash; by about 4% per year, keeping pace with inflation &mdash; and over the long term this growth can be substantial. So on the surface, this &quot;buy the biggest&quot; strategy seemed to make sense. A bigger purchase price must lead to a bigger ending price, right? Maybe so, but something bothered me about this advice; a piece of the puzzle seemed to be missing, but I just couldn't put my finger on it at the time.</p> <h2>Buy the Biggest You Can Afford?</h2> <p>Fast forward a few years later. My wife and I and our two infant sons were squeezed into a one bedroom unit of a 2-family home. It was time to find something a little roomier. But why buy something only a little roomier? Why not buy the biggest? That's what we did&hellip;we purchased a McMansion. The parents of that young couple from the news report would have been proud of us. Just think how big our home's ending price would be after 30 years!</p> <h3>My Big House Ate My Cash Flow</h3> <p>What I failed to realize was that 30 years was a long way off. It was time to live in the present, and that meant making an enormous mortgage + property tax + homeowner's insurance payment every month. Add to that the ongoing maintenance, utility, and repair costs and what at first seemed to be a golden nest egg turned out to be a money pit. Our McMansion drained every last cent of our monthly income.</p> <p>That's when I discovered that the missing piece of the puzzle I had been looking for was cash flow. Sure, a house is a large asset that grows in value; that's the good side. Unfortunately, there's also a flip side: It can be a cash flow killer. The bigger the mortgage the more negative your monthly cash flow.</p> <p>In our case, over the full term of the mortgage we would have paid an <em>extra</em> $420,000 on this super-sized house compared to a more modest one! That's money we could have used to repay other loans or to invest in our retirement account, enabling us achieve financial independence many years sooner.</p> <h2>Downsize for Better Cash Flow</h2> <p>What did we do to correct the mistake?</p> <p>We downsized. And it worked. Suddenly we had a comfortable monthly positive cash flow cushion. What a nice feeling that was.</p> <p>Ah, but sometimes even a good decision can take a bad turn. We soon realized that we over-corrected and downsized to a house that was too small and inadequate for our growing family. So what did we do next? We approved plans for a $120,000 addition. After that came the bathroom renovations. I think you know where this is going. The lesson this time was that a small house can become a money pit, too.</p> <h2>The Goldilocks Principle</h2> <p>The key, then, is to apply what I like to call The Goldilocks Principle to home buying: Look for one that's not too big or too small, but just right. How? Run the numbers beforehand, when you're shopping. To help with this use the following table, which allows you to compare the monthly negative cash flows associated with homes you're considering. Your goal is &mdash; all other things equal &mdash; to find a house with the lowest (or nearly the lowest) negative cash flow.</p> <p><img width="605" height="336" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/Whelan's Housing Chart 2.png" alt="" /></p> <p>I've pre-filled this chart with hypothetical numbers but the template is universal and you can use it to compare actual homes you're interested in purchasing. As you can see in this example buying Property 2, a bigger single-family home, would cost an additional $425 every month compared to Property 1, the condo. Over the term of a 30 year mortgage that adds up to an extra cost to you of $153,000. Ouch!</p> <p>Now take a look at Property 3.</p> <p>It's also a more expensive $250,000 house but is a two-family rental, which means there's some positive monthly cash flow (from rent) to offset all those negative numbers. In fact, because of the rental income from just one of the two units the total negative monthly cash flow is $655 lower than the single-family house having the same purchase price, and it's even $230 per month lower than the condo!</p> <p>So rental properties give you an opportunity to buy a higher-priced property (which translates to a much higher ending sales price over time) while also reducing your monthly negative cash flow. The rental income can even be used to help pre-pay your mortgage, which might then create a net positive monthly cash flow after all expenses. So it offers an opportunity to have your cake (or porridge) and eat it too.</p> <h2>Don't Forget Other Costs</h2> <p>One other thing to consider, though. In addition to these estimates of cash flow at the time of purchase, you should also estimate repair costs and future improvement costs after moving in. As I learned first-hand, those large lump sum future expenditures can make all the difference between a good and a not-so-good home choice, so be sure to also give them careful, honest consideration.</p> <p>Purchasing a home is a big, complicated decision. Emotional considerations are part of the equation, and they should be. After all, your family's comfort and your choice of a community are part of the package. But try not to let your emotions overwhelm the financial considerations. You'll want to get the decision right the first time rather than learn the hard way as I did. A bad decision on this one item, if uncorrected, can delay your progress towards financial independence by as much as a decade. So to help ensure a balanced review, filter your decision with immediate and longer-term cash flow considerations and let the numbers guide you to the choice that's best for your budget and for your long-term financial security.</p> <p><em>Was monthly cash flow a consideration for you when you purchased a home? Please share in comments!</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/keith-whelan">Keith Whelan</a> of <a href="http://www.wisebread.com/this-one-mistake-could-delay-your-retirement-by-10-years">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/should-you-pay-your-mortgage-off-early">Should You Pay Your Mortgage Off Early?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/everybodys-wrong-about-how-much-house-you-can-afford">Everybody&#039;s Wrong About How Much House You Can Afford</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/home-reverse-mortgaged-heres-how-to-sell-it">Home Reverse Mortgaged? Here&#039;s How to Sell It</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-money-moves-that-will-ruin-your-mortgage-application">5 Money Moves That Will Ruin Your Mortgage Application</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-ways-to-buy-a-house-without-a-mortgage">4 Ways to Buy a House Without a Mortgage</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management Real Estate and Housing cash flow mortgages rental income retirement Mon, 07 Jul 2014 09:00:06 +0000 Keith Whelan 1153953 at http://www.wisebread.com It's 10 pm: Do You Know Where Your Net Worth Is? http://www.wisebread.com/its-10-pm-do-you-know-where-your-net-worth-is <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/its-10-pm-do-you-know-where-your-net-worth-is" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/dollar-158181164.jpg" alt="dollar sign" title="dollar sign" class="imagecache imagecache-250w" width="250" height="170" /></a> </div> </div> </div> <p>Have you ever wondered how you're doing financially compared to others? If you're like me, it's pretty hard to pass on those articles that show the average earnings of U.S. workers by occupation type. Usually my first thoughts are:</p> <ul> <li>Am I doing better than others in my field?<br /> &nbsp;</li> <li>Which occupations tend to pay more? Which pay less?</li> </ul> <p>But is salary the best measure of how well you're doing financially? It certainly is a good, quick measure of how much money you're taking home at this time in your life, but isn't what you do with that money even more important? (See also: <a href="http://www.wisebread.com/why-you-shouldnt-stress-too-much-about-spending-money?ref=seealso">Why You Don't Need to Stress About Spending Money</a>)</p> <p>Case in point: Our oldest son recently graduated from college and was fortunate enough to land a real job in the education field. After six months or so he complained that some of his other friends were making a higher salary than him. So I asked, &quot;What are they doing with it?&quot; Hmm. That one caught him off guard. Turns out that our son has a tidy (and growing) amount stashed away in savings and even some in stocks. His friends did not have as much saved.</p> <p>So maybe adding up your savings and investments and the other things you own &mdash; your assets &mdash; is a better measure of how well you're doing. After all, these are the things you've acquired over the years with your salary. (See also: <a href="http://www.wisebread.com/the-basics-of-asset-allocation?ref=seealso">Asset Allocation Basics</a>)</p> <p>But don't forget about the flip side &mdash; the debts, or liabilities, associated with some of those assets. Things like education loans, car loans, credit card debt, and mortgages should be part of the equation, too.</p> <p>In fact, the full equation is:</p> <p><strong>Assets &ndash; Liabilities = Net Worth</strong></p> <p>Net worth measures your wealth, and that's an even better measure of how well you're doing financially than your salary. Take a few moments now to sum up all your assets and subtract all your liabilities and determine your net worth. This <a href="http://www.aarp.org/money/investing/net_worth_calculator/">net worth calculator</a> will help you do the math.</p> <h2>How Does Your Wealth Compare?</h2> <p>So, how wealthy are you relative to others? After you've calculated your own net worth, fill out the box below. Select the combination of age, total household income (yours plus your partner's if you have one), and homeownership status that most closely matches your situation in the box.</p> <script src="//code.jquery.com/jquery-1.9.1.js"></script> <script src="//www.cashflownavigator.com/js/cashflownavigator-mywealthcompare.js"></script> <table cellpadding="3" cellspacing="0" border="0" width="100%" style="font-family:Arial; border:1px solid #808080;"> <tr> <td> <strong>How does my wealth compare?</strong> </td> </tr> <tr> <td style="color:#ff0000; text-align:center;"><span id="sMessage"></span></td> </tr> <tr id="trCriteria"> <td> <table cellpadding="3" cellspacing="0" border="0" width="100%"> <tr> <td width="60%">Homeowner or renter?</td> <td width="40%"> <select id="ddlHR"></select> </td> </tr> <tr> <td>Age of the head of your household</td> <td> <select id="ddlAge"></select> </td> </tr> <tr> <td>Household income from wages (before taxes)</td> <td> <select id="ddlWages"></select> </td> </tr> <tr> <td>&nbsp;</td> <td> <input id="bSubmit" type="button" value="Submit" onclick="validateNetWorth();" /> </td> </tr> </table> </td> </tr> <tr id="trNetWorthResult"> <td> <table cellpadding="3" cellspacing="0" border="0" width="100%" style="border:1px solid #ff6a00;"> <tr> <td style="text-align:center;"> <strong>Total Assets</strong> </td> <td>-</td> <td style="text-align:center;"> <strong>Total Liabilities</strong> </td> <td>=</td> <td style="text-align:center;"> <strong>Net Worth</strong> </td> </tr> <tr> <td style="text-align:center;"> <span id="sTotalAssets"></span> </td> <td>&nbsp;</td> <td style="text-align:center;"> <span id="sTotalLiabilities"></span> </td> <td>&nbsp;</td> <td style="text-align:center;"> <span id="sNetWorth"></span> </td> </tr> <tr> <td colspan="5" style="font-size:10px; padding-left:50px;">Sources: Federal Reserve Board Survey of Consumer Finances,<br />U.S. Bureau of Labor Statistics Consumer Expenditure Survey.</td> </tr> </table> </td> </tr> <tr id="trCashFlow"> <td> <table cellpadding="3" cellspacing="0" border="0" width="100%"> </table> </td> </tr> </table> <script> $(function () { initNetWorth(); }); </script> <p>How are you doing? Ahead of the pack or falling behind? If your net worth is lower than you'd like, don't be discouraged; the race is far from over, and tools are available to help you make up lost ground.</p> <h2>So How Do You Get Ahead Faster?</h2> <p>Okay, now you know where you stand financially compared to others like you. Whether you're a little ahead or have some catching up to do, it wouldn't hurt to accelerate your progress on the path to financial independence. But how?</p> <p>There are many tools and strategies at your disposal, but I'd suggest starting with three.</p> <h3>Tackle the Expenses First</h3> <p>First, don't just rely on increasing your income to &quot;catch up&quot; to your expenses. Make it easier on yourself &mdash; reduce your expenses. That means:</p> <ol> <li>Lower your monthly living expenses, and<br /> &nbsp;</li> <li>Reduce your debt (pay it off early).</li> </ol> <h3>Use The 80/20 Rule</h3> <p>Next, pay particular attention to the few &quot;biggest bang for the buck&quot; financial opportunities. Making good choices &mdash; and just as important, avoiding big mistakes &mdash; on these high impact items can speed your financial progress considerably. For example, a high-impact asset is a house. It's an asset that increases in value over time, so it can increase your wealth. But choose carefully, because mortgage debt comes along with this asset, and so do taxes, insurance, and repair costs &mdash; all negative monthly cash flows. So when shopping for a home, one of modest size and cost that doesn't require many repairs is preferable to a palace or a money pit. (See also: <a href="http://www.wisebread.com/use-the-8020-rule-to-maximize-your-financial-opportunities?ref=seealso">Use the 80/20 Rule to Maximize Your Financial Opportunities</a>)</p> <h3>Seek Out Positive Cash Flow Opportunities</h3> <p>Finally, understand both the wealth and the cash flow consequences of every important expenditure you consider. Use this knowledge to seek out and take advantage of &quot;good wealth&quot; opportunities &mdash; those that grow wealth while also generating positive cash flow. Some examples of &quot;good wealth&quot; assets &mdash; ones that can increase in value and also generate positive cash flow &mdash; are rental properties, a business, and stocks that pay dividends. (See also: <a href="http://www.wisebread.com/2-things-you-must-know-before-making-a-major-spending-decision?ref=seealso">2 Things You Must Know Before Making a Major Spending Decision</a>)</p> <p>And one last piece of advice: Don't worry so much about how well you're doing compared to others. Instead, just focus on improving your own financial situation. That's all that really matters, and that's all you can control.</p> <p><em>Has the comparison with your neighbors inspired you to take actions that will improve your net worth and cash flow?</em></p><br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/keith-whelan">Keith Whelan</a> of <a href="http://www.wisebread.com/its-10-pm-do-you-know-where-your-net-worth-is">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-give-your-finances-a-year-end-review">How to Give Your Finances a Year-End Review</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-celebrities-with-shockingly-low-net-worths">6 Celebrities With Shockingly Low Net Worths</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-ways-to-increase-your-net-worth-this-year">10 Ways to Increase Your Net Worth This Year</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/self-sufficiency-self-reliance-and-freedom">Self-sufficiency, self-reliance, and freedom</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/you-got-a-raise-now-what">You Got a Raise! Now What?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Career and Income cash flow net worth wealth comparison Fri, 11 Apr 2014 08:36:24 +0000 Keith Whelan 1135033 at http://www.wisebread.com This Is How Donald Trump Builds Wealth (and You Can Too) http://www.wisebread.com/this-is-how-donald-trump-builds-wealth-and-you-can-too <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/this-is-how-donald-trump-builds-wealth-and-you-can-too" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/cash-164176162.jpg" alt="cash magnet" title="cash magnet" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>For most people the name Donald Trump conjures up many images &mdash; the hair, the pout, the Tower, the casinos. And, of course, &quot;The Apprentice.&quot; He is certainly one of our culture's most recognizable personalities, and since the 1970s he has accumulated enormous wealth. But has that wealth made him financially independent? Not necessarily, at least not until recently. To see why, let's take a brief look at how his financial investments and priorities have evolved over the years. (See also: <a href="http://www.wisebread.com/5-money-lessons-from-millionaires?ref=seealso">Money Lessons From Millionaires</a>)</p> <h2>1970s to 1980s: The Asset Accumulation Years</h2> <p>In 1971 Donald Trump moved to Manhattan, where he quickly established a name for himself as a leading New York City real estate developer. At first, he focused on multi-unit residential complexes, but he then expanded into commercial properties, including hotels and office buildings. By the 1980s Trump's assets from real estate holdings, development activities, and property sales had grown significantly. There were liabilities (mortgage debt) associated with these assets, but at first they didn't appear to be excessive. As a result Trump had substantial net worth, or wealth. (See also: <a href="http://www.wisebread.com/real-estate-investing-is-cheaper-and-easier-than-you-think?ref=seealso">Investing in Real Estate</a>)</p> <h2>1990s: The &quot;Bad Wealth&quot; Years</h2> <p>By 1990 Donald Trump had broadened his investment interests to include football, airlines, and casinos. It was the latter, in particular the Taj Mahal Casino in Atlantic City, that together with increasing debts on his other properties led to a serious debt problem. In fact, by the early '90s his personal debt had grown to $900 million and his business debt was nearly $3.5 billion.</p> <p>The problem? Despite having substantial assets, the liabilities were excessive. To make matters worse, the assets weren't generating sufficient cash flow to cover the debt payments. On paper, Trump might have still been a multi-millionaire, with total assets several million dollars more than total liabilities; so he had wealth. But negative cash flow meant he was far from financially independent. In fact, he was on the brink of personal bankruptcy. Hence, the &quot;bad wealth&quot; years.</p> <h2>2000s: The &quot;Good Wealth&quot; Years: The Apprentice to the Rescue</h2> <p>In 2003, NBC launched &quot;The Apprentice,&quot; a reality TV show hosted and produced by Trump. During the first season Trump was paid $50,000 per episode, or roughly $700,000 for the year. These days, Trump is reportedly paid $3 million per episode. Calling this venture a cash cow would be an understatement. It is a great example of &quot;good wealth:&quot; an asset (in this case a business) that generates substantial positive cash flow.</p> <h2>The Lesson? Cash Flow Is King</h2> <p>&quot;The Donald&quot; knows how to take a good thing and make it better. Starting with his real estate activities and especially now with his media success, Trump has established and fully leveraged the branding of his name. And he's done so with a particular focus on relatively low cost (and therefore low debt) ventures that generate multiple income streams. Some examples:</p> <ul> <li> <p>Books and tours</p> </li> <li> <p>&quot;The Apprentice&quot; memorabilia and game items</p> </li> <li> <p>Speaking engagements, where he reportedly receives up to $1.5 million per presentation</p> </li> <li> <p>Allowing (for a fee) his name to be displayed on buildings owned by others</p> </li> </ul> <p>These specific types of activities are generally beyond our reach. But the financial principles they illustrate are simple and relevant to us all: Seek to develop a portfolio of assets that <a href="http://www.wisebread.com/just-saving-isnt-enough-how-cash-flow-allocation-helps-you-retire">generate positive cash flow</a>.</p> <h2>How the Rest of Us Can Learn From Trump</h2> <p>What are some examples of cash flow-generating assets available to common folk like us who don't have Donald Trump's resources? Here are a four.</p> <h3>Retirement and Savings Accounts With Matching Contributions</h3> <p>If your employer offers a 401(k), employee stock, or savings program that includes a company match, you are being offered free money. Where else can you find a deal like that? It's a no-brainer. Contribute an amount that gets you the maximum match from your employer. (See also: <a href="http://www.wisebread.com/6-valid-reasons-not-to-contribute-to-your-401k?ref=seealso">Valid Reasons Not to Contribute to Your 401(k)</a>)</p> <h3>Income-Generating Businesses</h3> <p>Yes, you too can start your own business without quitting your day job. The challenge, of course, is getting it to cash flow positive. Increase your odds of success by avoiding or at least minimizing the two biggest cash flow drags: paying employees a salary and paying rent. These two expenses are common to traditional retail businesses but not to service businesses, so think about providing a service.</p> <p>Some examples of service businesses include writing, conducting or coordinating webinars or live workshops, giving music or other lessons, and consulting. Or perhaps you have an invention, product, or service that can be licensed to multiple users, thereby creating multiple sources of income. (See also: <a href="http://www.wisebread.com/10-great-home-based-side-business-ideas?ref=seealso">10 Great Home-Based Businesses</a>)</p> <h3>Dividend-Paying Stocks</h3> <p>Stocks are one of two major asset types owned by the financially successful, because in general stock growth outpaces inflation. Stocks that increase in price and also pay dividends offer the added bonus of quarterly cash flow payments (which, by the way, can be reinvested to compound the growth).</p> <h3>Income-Generating Property</h3> <p>The other major asset type owned by the financial elite is real estate. But not just any real estate. Remember, we don't want to fall into the debt trap, with excessive monthly mortgage expenses and other carrying costs. Generating rental income from a property can offset, or in some cases exceed, the negative cash flow. Being a full-fledged landlord isn't for everyone, however, so keep in mind that renting a room, a garage, or a parking space can create a regular income stream with a little less responsibility.</p> <p>Other types of properties can be rented, too. For example, trucks or trailers. So can specialty equipment and tools. Have a boat or a classic car? They can also be rented.</p> <p>So, what kind of apprentice will you be? Will you take advantage of opportunities to create &quot;good wealth&quot; &mdash; the kind that generates cash flow? Or will you accumulate assets with debts that spiral out of control? Having been there himself, The Donald has an expression for people who let that happen: &quot;You're fired!&quot;</p> <p><em>Have you thought about how to turn your assets into cash flow generators?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/keith-whelan">Keith Whelan</a> of <a href="http://www.wisebread.com/this-is-how-donald-trump-builds-wealth-and-you-can-too">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-debt-reduction-mistakes-even-smart-people-make">8 Debt Reduction Mistakes Even Smart People Make</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/should-you-pay-down-debt-first-or-invest">Should You Pay Down Debt First or Invest?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-occasions-when-you-should-definitely-hire-a-financial-advisor">7 Occasions When You Should Definitely Hire a Financial Advisor</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-money-moves-to-make-as-soon-as-you-conquer-debt">7 Money Moves to Make as Soon as You Conquer Debt</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-ways-to-invest-when-youre-in-debt">6 Ways to Invest When You&#039;re In Debt</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management Investment cash flow trump wealth Fri, 14 Mar 2014 10:24:07 +0000 Keith Whelan 1130798 at http://www.wisebread.com Just Saving Isn't Enough: How Cash Flow Allocation Helps You Retire http://www.wisebread.com/just-saving-isnt-enough-how-cash-flow-allocation-helps-you-retire <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/just-saving-isnt-enough-how-cash-flow-allocation-helps-you-retire" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/cash-417690-small.jpg" alt="cash" title="cash" class="imagecache imagecache-250w" width="250" height="144" /></a> </div> </div> </div> <p>You&#39;ve probably heard the term &quot;asset allocation&quot; in discussions about retirement accounts and investing strategies. It&#39;s an important concept to understand and apply to your own finances. But don&#39;t be intimidated by the term or the complex definitions &mdash; the principle is a fairly simple one. (See also: <a href="http://www.wisebread.com/the-basics-of-asset-allocation">The Basics of Asset Allocation</a>)</p> <p>At its heart, asset allocation is about reducing your risk by not putting all your eggs in one basket. And that&#39;s achieved by diversifying &mdash; or spreading out &mdash; the number and types of your investments.</p> <h2>Define &quot;Assets,&quot; Please</h2> <p>OK, but what assets are we talking about, and what&#39;s the &quot;cash flow&quot; connection?</p> <p>The assets typically associated with asset allocation are stocks, bonds, and cash equivalents such as money market funds. These are the ones commonly included in professionally managed mutual fund retirement accounts like a 401(k) or 403(b). So the thinking is, if you effectively diversify within and across each of these three asset categories, you will reduce your investment risk and achieve a balance that matches your risk tolerance.</p> <p>And you will&hellip;at least among those assets.</p> <p>But do these three assets alone make for a comprehensive retirement strategy? Nope.</p> <p>For one thing, there are many other types of assets besides stocks, bonds, and cash that can &mdash; and should &mdash; contribute to your retirement plan. Which ones? Here&#39;s where the cash flow connection comes in. (See also: <a href="http://www.wisebread.com/boost-your-retirement-savings-fast-with-this-6-step-plan">6-Step Plan to Boost Your Retirement Savings Fast</a>)</p> <h2>Will Your Assets Pay the Bills?</h2> <p>If you think about it, your mutual fund retirement account will generate only one income stream during your retirement. From a cash flow perspective this stock/bond/money market mix essentially represents only one egg. And as we now know, relying on only one source &mdash; in this case only one cash flow source &mdash; is a risky strategy. Better to allocate across multiple sources.</p> <p>To see this more clearly let&#39;s step back and look at the bigger picture. A good place to start is with a definition of your ultimate retirement goal. The goal for most is financial independence, and that&#39;s measured by monthly income or cash flow. You will need enough non-salary monthly cash flow to pay your living expenses in retirement. The more &mdash; and the more diverse &mdash; your sources of cash flow, the more secure will be your retirement. (See also: <a href="http://www.wisebread.com/7-essential-truths-for-a-successful-retirement">7 Truths for a Successful Retirement</a>)</p> <p>Your 401(k), 403(b), IRA, or mutual fund retirement account portfolio of stocks, bonds, and cash equivalents gives you a good start. After you stop working you can use these assets to generate monthly cash flow in a number of ways:</p> <ul> <li>You can convert it to an annuity that pays you monthly for life.<br /> &nbsp;</li> <li>You can convert it to a savings account or CD and draw down a certain percentage of the account balance on a regular basis until it&#39;s exhausted.<br /> &nbsp;</li> <li>Or, if your cash flow needs are mostly met by other assets, you can keep the principal intact and just draw from the stock dividends and bond interest income.</li> </ul> <h2>Other Cash Flow Generating Assets</h2> <p>What other assets generate cash flow?</p> <p><strong>Company Pension</strong></p> <p>This usually takes the form of a monthly payment for life, but in some cases companies offer the option of a single lump sum payout. Your &quot;lump sum to cash&quot; conversion options are similar to those listed above for a traditional retirement account.</p> <p><strong>Rental Income From Real Estate</strong></p> <p>Unlike a company pension, you own this asset and can sell it at any time for a lump sum amount. But if it provides a steady stream of positive cash flow, you might want to keep it &mdash; for it&#39;s that rare asset that appreciates in value AND whose monthly income (from rents) can also grow to keep pace with inflation. (See also: <a href="http://www.wisebread.com/should-you-become-a-landlord-instead-of-selling-your-home">Should You Become a Landlord?</a>)</p> <p><strong>Business Income</strong></p> <p>Owning a rental property is essentially like owning a business. So owning all or part of a business provides similar options: sell your stake for a lump sum or retain an ownership interest that can provide a regular income stream (plus the added bonus of possible tax advantages).</p> <p><strong>Social Security</strong></p> <p>Like a company pension, you don&#39;t own this asset; your only choice is a guaranteed lifetime stream of monthly cash flow.</p> <h2>Plan Ahead to Create Multiple Cash Flow Streams</h2> <p>Some of these cash flow sources might not be available to you. Traditional company pensions, for example, are becoming a thing of the past. But all of the others are under your control, and it&#39;s not too late to include some in your retirement plans.</p> <p><strong>Seven Streams Into Our House</strong></p> <p>Our household&#39;s retirement goal, for example, is to include seven cash flow sources. My wife and I were fortunate enough to work for employers who offered traditional defined benefit pension programs. They will represent those sources of monthly income. We also have a 401(k) and IRA retirement account portfolio (#3), positive cash flow from a rental property (#4), two future Social Security payments (#s 5 and 6), and a business (#7). &nbsp;</p> <p>Looking ahead, I&#39;d also like to buy or share in the ownership of another rental property, which would raise our number to eight. So our goal, like yours, should be flexible and open to change. The important part is to set a goal &mdash; set your cash flow number &mdash; so you can start making plans to achieve it.</p> <p>And remember &mdash; as you move ahead with your plans that having multiple cash flow-generating assets is preferable to relying on only one or two, because it diversifies or lessens your risk. You can more easily absorb the loss of one out of seven sources of retirement income than the loss of one out of two. So seek opportunities to earn or acquire multiple sources of positive cash flow.</p> <p>Yes, practice asset allocation; but also practice cash flow allocation.</p> <p><em>Have you considered cash flow allocation in your retirement planning? Will you?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/keith-whelan">Keith Whelan</a> of <a href="http://www.wisebread.com/just-saving-isnt-enough-how-cash-flow-allocation-helps-you-retire">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-retirement-hotspots-that-are-cheaper-now-than-ever-before">9 Retirement Hotspots That Are Cheaper Now Than Ever Before</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-choose-the-perfect-country-to-retire-in">How to Choose the Perfect Country to Retire In</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-retirement-planning-steps-late-starters-must-make">7 Retirement Planning Steps Late Starters Must Make</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-incredible-places-to-retire-abroad-that-anyone-can-afford">5 Incredible Places to Retire Abroad That Anyone Can Afford</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/choosing-a-retirement-account-whats-available-and-what-s-best-for-you">Choosing a Retirement Account: What&#039;s Available, and What’s Best for You?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement asset allocation cash flow retirement retirement planning Tue, 22 Oct 2013 09:36:03 +0000 Keith Whelan 1028389 at http://www.wisebread.com Do You Know Your Retirement "Number"? http://www.wisebread.com/do-you-know-your-retirement-number <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/do-you-know-your-retirement-number" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/cash-3571500-small.jpg" alt="cash" title="cash" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>Have you ever seen the TV commercials with people strolling through town or the neighborhood carrying their retirement number? The numbers vary from person to person, but the general range seems to be between $1 million and $2 million. The implied message: &quot;Shame on you if you don't know your 'number'!&quot; (And of course, &quot;Contact us so we can help you figure it out.&quot;) (See also: <a target="_blank" href="http://www.wisebread.com/financial-independence-is-more-than-just-a-number?wbref=readmore-1">Financial Independence Is More Than Just a Number</a>)</p> <p>I like the ads because they focus our attention on a measurable retirement goal. But <a target="_blank" href="http://www.wisebread.com/11-ways-to-prep-for-guerrilla-retirement">what exactly is the goal</a>, and what role does this &quot;number&quot; play?</p> <h2>Assets? What Assets?</h2> <p>The number in the ads might represent total assets (the combined value of your house, savings and retirement accounts, and other things of value). Or perhaps it refers to only your investable assets (just the savings and retirement accounts, not the house). Still another possibility is that it represents your net worth (your total assets minus your total liabilities, or debts). Hmmm.</p> <h2>High Net Worth Is No Guarantee of Financial Independence</h2> <p>If I were to guess, I'd say it represents your net worth. But here's the problem &mdash; net worth is a measure of your wealth. That's an important measure, but your ultimate goal is really financial independence, and that's measured by monthly income, or cash flow. Let's look at an example to illustrate.</p> <p>Assume your household has a net worth of $1 million. Congratulations, you're a millionaire! Surely that's enough to retire on, right? Maybe&hellip;or maybe not. It depends on the composition of your net worth.</p> <p>If, for example you have $2 million in assets but $1 million in liabilities (mortgage, auto, education, and other debt), your net worth is still $1 million. But the cost of carrying so much debt might be, say, $6,000 per month. Despite being a millionaire, can you afford to give up your job and still cover a negative monthly cash flow of $6,000? And we haven't even addressed your other monthly cash flow needs to cover food, clothing, transportation, energy, health care, and other living expenses.</p> <h2>Cash Flow Is King</h2> <p>This example is a little extreme, but it illustrates a very real point: Your ultimate goal &mdash; your retirement &quot;number&quot; &mdash; should be measured not by wealth <a target="_blank" href="http://www.wisebread.com/shrinking-your-cash-flow-period-to-create-a-better-budget">but by cash flow</a>. Yes, your wealth contributes to your cash flow, but it's a means towards the end and not the end itself. And as illustrated by the example, there is bad wealth (which generates negative cash flow) as well as good wealth (which creates positive monthly cash flow).</p> <p>Let's try another example, one that moves us in a more favorable direction. Your household has $1 million in assets and no liabilities. Great &mdash; no negative cash flow from loans. But your house is valued at $600,000 and your total retirement savings is $400,000. If you invest the $400,000 in an account that generates 6% annual interest, that's $24,000 per year or $2,000 per month in positive cash flow. Ah, but the house. While it's mortgage-free, the insurance and property taxes create a regular stream of negative cash flow. And then there are still those nasty cash outlays for living expenses.</p> <p>OK, you've made some progress but haven't yet reached the promised land of financial independence. So let's give it one more try.</p> <p>You have no debts, $500,000 in retirement savings, a primary residence valued at $250,000, and a two-family property also worth $250,000 that generates net positive cash flow of $1,200 per month. Now let's see where you land. Positive cash flow from retirement savings (at 6% return) = $30,000/year or $2,500/month. And if you apply $700 of the $1,200 monthly cash flow from your rental property to pay taxes and insurance on your primary residence, you net a positive $500/month from that &quot;good&quot; rental property asset.</p> <p>So now you've managed to clear $3,000/month even after the monthly carrying cost of your real estate. If that's enough to cover your monthly living expenses, then you're on your way to financial independence. Add in social security and other supplemental sources of monthly income and you might even have a cushion to cover occasional lump sum purchases and unexpected expenses. Nice going!</p> <p>As with <a target="_blank" href="http://www.wisebread.com/5-steps-toward-financial-independence">any good plan</a>, a retirement plan starts with a clearly defined goal. After all, without one, how do you measure your progress or success? Unfortunately, this part of the retirement planning process is often lacking. Yes, accumulating wealth plays an important role, but it's a supporting role, and it's not the ultimate goal. The ultimate goal is financial independence, and that's measured by a different &quot;number&quot; &mdash; monthly cash flow.</p> <p><em>Do you have a retirement planning goal? What &quot;number&quot; do you use?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/keith-whelan">Keith Whelan</a> of <a href="http://www.wisebread.com/do-you-know-your-retirement-number">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/just-saving-isnt-enough-how-cash-flow-allocation-helps-you-retire">Just Saving Isn&#039;t Enough: How Cash Flow Allocation Helps You Retire</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/financial-independence-is-more-than-just-a-number">Financial Independence Is More Than Just a Number</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/you-dont-need-a-retirement-plan-you-need-a-financial-independence-plan">You Don&#039;t Need a Retirement Plan — You Need a Financial Independence Plan</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-one-personal-finance-skill-you-must-master-before-all-the-others">The One Personal Finance Skill You Must Master Before All the Others</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-is-keeping-you-from-a-life-of-financial-independence">What is keeping you from a life of financial independence?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement cash flow financial independence retirement goal Fri, 12 Jul 2013 10:24:33 +0000 Keith Whelan 980370 at http://www.wisebread.com 4 Ways to Inject Cash into Your Business http://www.wisebread.com/small-business/4-ways-to-inject-cash-into-your-business <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/articles/4-ways-to-inject-cash-into-your-business" target="_blank">http://www.openforum.com/articles/4-ways-to-inject-cash-into-your-business</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/4-ways-to-inject-cash-into-your-business" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000016167666Small.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>If you are a business owner you could probably use a bigger number on the positive side of your cash flow. Of course, the grand question is how best to accomplish that. You might think the answer to &quot;How do I get more money for my business?&quot; is &quot;sell more of the goods and services my company provides,&quot; and you'd be right. But employing the economic skills honed at the lemonade stand isn&rsquo;t the only way to succeed in business.</p> <p>There are other strategies for injecting cash into your business that don't involve praying for an uptick in sales to flood your coffers. You probably offer important things you hadn&rsquo;t thought of before that might be of keen interest to a buyer. And no, not your kidneys. We mean exploring options that you may not have considered previously.</p> <p><strong>1. Learn Your Grants</strong></p> <p>You&rsquo;ve undoubtedly heard all the ballyhoo about stimulus packages and other nice, shiny presents for the &ldquo;job creators.&rdquo; Well guess what, Mr. and Mrs. Q. Business Owner: you are one of those fabled job creators. The grants are there, and the federal government is just dying to give you one! Well, &ldquo;dying&rdquo; is a strong word. Let&rsquo;s just say &ldquo;possibly willing to consider doing so after you fill out the paperwork.&rdquo;</p> <p>A grant is a gift to you for moving your business into the future, as a job creator in a desired area, or maybe even as a business that employs cutting-edge energy saving measures. Just check it out&mdash;maybe your business qualifies for one of these gifts from <a href="http://www.grants.gov/aboutgrants/agencies_that_provide_grants.jsp" target="_blank">one of the 26 federal agencies that provide grants</a>. What&rsquo;s to lose in finding out?</p> <p><strong>2. Sell Your Debt</strong></p> <p>Banks love buying debt. Even today. Even after banks buying debt is what got the banks and the rest of us into the current, ongoing, global, catastrophic economic meltdown. But while banks have (mostly) quit absorbing the toxic loans that first sickened them, banks simply need loans to survive, especially good loans. And your loan&mdash;the loan made to a small business with good credit&mdash;might look mighty tasty to them.</p> <p>If you show a history of <a href="http://www.openforum.com/idea-hub/topics/money/article/accounts-receivable-an-unlikely-source-of-cash-1" target="_blank">having enough money coming in to pay off your loan</a> in a timely manner (banks have learned their lesson on that one!), you might qualify for a new loan that pays off your current small-business loan at a lower rate. Of course, shopping around for a new loan is not guarantee of a better deal, but, as with grants, the effort could be more than worth the cost of your time to investigate.</p> <p><strong>3. Talk to the City, Talk to the County, Talk to the State</strong></p> <p>The local government in which your business operates has an interest in seeing your business succeed and subsequently create more jobs. Thus, there is a chance that the community, the county, or the state would be willing to give you an ultra low-interest loan to establish, expand, or simply keep your business afloat. Or maybe the local authorities are offering tax incentives to encourage you.</p> <p>There are many possibilities&mdash; tax breaks for locating in gentrifying neighborhoods, resources for getting your store used as a film location, among others. Visit the websites of your various local government entities, call up the civic chain, and find out what&rsquo;s available.</p> <p><strong>4. Move the Dead Weight!</strong></p> <p>&quot;Dead weight&quot; here does not mean the employees who are actively dragging your business under, although, by all means, get rid of them, too. Dead weight means any and all inventory and equipment that is taking up space rather than producing income. If you need cash, move the stuff that&rsquo;s slowing you down.</p> <p>One truth for everybody&mdash;individuals and businesses alike&mdash;is the longer they stick around in one place, the more stuff they acquire. But you can break this habit of accumulation if you just remember that everything you have is wanted by someone. No business should go under when they still have stuff, even if it appears outwardly useless. Someone, somewhere will take it and pay you for the privilege. I have yet to find a single thing that cannot be <a href="http://www.craigslist.org/about/sites" target="_blank">sold via Craigslist</a>.</p> <p>Move that dead weight, upgrade your business with the cash you realize, and move forward, footloose and fancy free.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/jacob-harper">Jacob Harper</a> of <a href="http://www.wisebread.com/small-business/4-ways-to-inject-cash-into-your-business">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-easiest-items-to-flip-for-cash">10 Easiest Items to &quot;Flip&quot; for Cash</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/250-tips-for-small-business-owners">250+ Tips for Small Business Owners</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/find-extra-cash-by-rotating-your-credit-cards">Find Extra Cash by Rotating Your Credit Cards</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-credit-cards-for-small-businesses">Best Credit Cards for Small Businesses</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-i-got-over-the-hump-and-sold-my-blog-for-3-million">How I Got Over the Hump and Sold My Blog for $3 Million</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Small Business Resource Center business finance business investment cash cash flow craigslist grants inventory small business tax credits Sat, 10 Dec 2011 23:39:21 +0000 Jacob Harper 816779 at http://www.wisebread.com 4 Tips to Building Realistic Cash Flow Projections http://www.wisebread.com/small-business/4-tips-to-building-realistic-cash-flow-projections <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/articles/4-tips-to-building-realistic-cash-flow-projections" target="_blank">http://www.openforum.com/articles/4-tips-to-building-realistic-cash-flow-project...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/4-tips-to-building-realistic-cash-flow-projections" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000013362479Small.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>Businesses go under for pretty much one of the following two reasons: the business is either currently out of capital, or it is going to run out of capital in the very, very near future. As a business owner, making sure you and your company have money (or at least the ability to generate money someday) is the one true essential. Above all else, you must possess the ability to maintain a cash flow to keep the doors open. Everything else is window dressing.</p> <p>So how do you make sure you always have cash? By being more careful than the next guy. If I had a nickel for every over-optimistic, unrealistic cash-flow projection I&rsquo;ve seen from harebrained startups, I&rsquo;d have a lot of nickels, certainly more than they ever earned.</p> <p>How to keep from following in their nickel-less footsteps? Follow these steps to a sound cash flow projection and keep your business afloat&mdash;and your wooden barrel wardrobe in the closet for another year.</p> <p><strong>1. Make Eeyore Look Like a Sunny Optimist</strong></p> <p>A rule of thumb I was taught early on in business was, &ldquo;Pretend like you won&rsquo;t sell anything the first six months.&rdquo; Then why do so many businesses go under even quicker than that? Because they had completely unrealistic expectations about what kind of money would be coming in. As a result, they were playing with money they didn&rsquo;t have yet and likewise couldn&rsquo;t be sure they would get.</p> <p>So how do you beat the crap-out scenario? Like A.A. Milne&rsquo;s famous pessimist Eeyore, assume the worst and hope for the best. Assume everyone in the world will avoid your business like the plague, at least initially. Or just assume sales might dip severely for no apparent reason.</p> <p>For instance, at my old clothing venture we started making over-optimistic projections after a gangbusters first month of operations, forgetting about the whole &ldquo;new business sheen&rdquo; that would wear off after novelty waned. It nearly cost me my business. The next time there was an unexpected dip in sales, though, we were ready to take a hit.</p> <p><strong>2. Budget for the Occasional, Unexpected, Life-Path Altering Catastrophe</strong></p> <p>While budgeting for bad times is generally good management, budgeting for catastrophe is even more important. What I&rsquo;m talking about here are the big hits. A sudden bedbug infestation that hits right before Black Friday. A flood that somehow skirts your insurance policy. An employee who has embezzled their way into a palatial estate located in a country with lax extradition laws. You know&mdash;the really bad stuff.</p> <p>Rainy day funds are not an optional expense. You need to set aside a large chunk (a couple-few months operating budget) so you can weather an unforeseen catastrophe. Otherwise, you&rsquo;re always one virile bedbug away from shutting your doors. While building this set aside can be painful, especially if you&rsquo;re barely on your feet to begin with, being without reserves is not an option.</p> <p><strong>3. No Business is an Island: Follow the Economy at Large</strong></p> <p>Yes, we know, the economy is bad right now. Really bad. But even though we are in a valley right now, the week-to-week, month-to-month, quarter-to-quarter blips are essential to follow. Consumer spending really does change quickly, and you as a business owner can stay up on it if you pay attention. You can study harder than the next guy, anticipating how and when your customers will spend. Or what kinds of goods and services they are currently seeking. But to do so, you need to stay informed. And temper your projections in line with what is happening in the world around you.</p> <p><a href="http://www.economist.com/">The Economist</a>, <a href="http://www.bloomberg.com/">Bloomberg</a>, and <a href="http://www.slate.com/articles/business.html">Slate's Business</a> section are good places to start.&nbsp;</p> <p><strong>4. Consult Outsiders&hellip; Professional Outsiders</strong></p> <p>But most importantly, you don&rsquo;t need to do this yourself. When making realistic cash flow projections Get help <a href="http://www.openforum.com/idea-hub/topics/money/article/how-to-choose-an-accountant-for-your-small-business-1" target="_blank">from a professional</a> (unless you&rsquo;re an accountant, and even then&hellip; it almost never hurts to get another opinion.)</p> <p>And when I say professional, I don&rsquo;t mean enlisting a family member to manage your finances. I mean an honest-to-goodness real life impartial arbiter, someone who won&rsquo;t be afraid to call you a loon when you project to be able to build a Scrooge McDuck coin pool by year&rsquo;s end.</p> <p>A good accountant is like your business&rsquo; mechanic: he or she can take one look at your books and tell you what needs to be tweaked, repaired, or just flat out scrapped. Because while you might be a special snowflake who makes the best business decisions in the world, you can never underestimate the importance of fresh, well-trained eyes on your cash flow projections.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/jacob-harper">Jacob Harper</a> of <a href="http://www.wisebread.com/small-business/4-tips-to-building-realistic-cash-flow-projections">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/250-tips-for-small-business-owners">250+ Tips for Small Business Owners</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-quiet-millionaire-part-2-major-obstacles-to-financial-success">The Quiet Millionaire: Part 2 – Major Obstacles to Financial Success</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-credit-cards-for-small-businesses">Best Credit Cards for Small Businesses</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-grow-your-solo-business-without-hiring-employees">How to Grow Your Solo Business Without Hiring Employees</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-inspiring-stories-of-normal-people-building-a-thriving-online-store">4 Inspiring Stories of Normal People Building a Thriving Online Store</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Small Business Resource Center business failure cash flow cash flow planning cash flow projection small business Thu, 08 Dec 2011 21:20:29 +0000 Jacob Harper 804601 at http://www.wisebread.com Cash Flow Solutions for Your Bottom Line http://www.wisebread.com/small-business/cash-flow-solutions-for-your-bottom-line <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.theopenappcenter.com/improve-cash-flow/cash-flow-solutions-for-your-bottom-line/?intlink=us-apfuel-hpcontentarticlecashflowsol" target="_blank">http://www.theopenappcenter.com/improve-cash-flow/cash-flow-solutions-for-your-b...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/cash-flow-solutions-for-your-bottom-line" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/bigstock_Counting_Money_4398612.jpg" alt="counting money" title="counting money" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>Cash flow is the ebb and flow of money in and out of your business, whether you have the cash on hand to pay your employees, vendors and other bills as they come due (not whether you have money owed by clients or customers some time in the future). The following cash flow solutions can help get a better handle on your cash flow &mdash; and become more profitable.</p> <h3>Understand Your Cash Flow</h3> <p>Determine your money-in, money-out cycle. What is it that you do to bring money in? Do you sell goods or services? Do you also reap returns from investments? Are you getting any payback on loans you&rsquo;ve made to others?</p> <p>Whether your cash flows out by check, ACH transfer or international wire transfer, you must track where your money goes, which can be via four main exits:</p> <ul> <li>Paying expenses, including salaries and benefits for employees, overhead like rent and utilities, taxes, marketing costs and insurance.</li> <li>Investing in assets, such as buying equipment or other capital items needed for the business.</li> <li>Paying owners, including dividends to shareholders and draws to owners who are not employees (e.g., owners of limited liability companies).</li> <li>Servicing debt, such as paying interest and repaying principal on amounts that the business has borrowed.</li> </ul> <p>Note that not everything you pay out, which represents a drain on your cash flow, is a deductible business expense. For example, payments of an owner&rsquo;s draw and repayment of principal on loans (including credit card debt), use up cash flow but do not contribute in a tax-deductible way to your bottom line.</p> <h3>Monitor Your Cash Flow</h3> <p>Every business has its own cash flow cycle. For example, for a manufacturer, the cycle can run from the time that materials are purchased to make goods until the collection of receivables for goods sold; it could be many months from start to finish.</p> <p>Track all money going out in your cycle to determine whether you are keeping enough cash on hand to pay necessary expenses. Monitor your cash flow by working closely with your accountant or by using cash flow tools. Your accounting software probably has tools for this purpose. Also, SCORE has a <a target="_blank" href="http://www.score.org/resources/cash-flow-template-excel">cash flow template</a> that you can use to project your cash flow over the next 12 months (you have to register with SCORE, but this is free).</p> <h3>Improve Your Cash Flow</h3> <p>If you are having difficulty paying your bills on time, you&rsquo;ll need to improve your cash flow. There are only two ways to do this, increase incoming cash and reduce outgoing cash.</p> <p>Increase incoming cash by:</p> <ul> <li>Boosting sales. Use promotions, including discounts, to stimulate sales activities.</li> <li>Raising prices. Even though these are not the best of times, many companies are finding it necessary to raise prices to cover increased costs of health care, fuel and other rising expenses.</li> <li>Improving the collection of your outstanding accounts receivable for sales you&rsquo;ve already made. Simplify payment methods for customers by enabling them to make ACH transfers or international wire transfers from their bank accounts. Create a collections policy so that receivables don&rsquo;t age without your taking action.</li> <li>Changing your credit policies to obtain immediate payment rather than financing sales. For example, rather than becoming a banker for your customers and clients by invoicing for completed sales and then waiting to be paid, get paid immediately via check, credit card, or electronic payment.</li> <li>Borrowing money. Using a line of credit, tapping into a cash advance on a credit card or borrowing from suppliers can help with an immediate cash crunch, but in the long-run will cost you money in financing charges. Another way to raise cash quickly is to use factoring for your accounts receivable.</li> </ul> <p>Reduce your cash drain by:</p> <ul> <li>Cutting expenses. Except for fixed costs like rent look for any way to reduce every cost you have. Shop around to obtain the best premiums for insurance. Monitor travel costs to keep them in check.</li> <li>Reducing inventory. It costs money to carry inventory, so the less you keep on your shelves, the less money you&rsquo;ll need to devote for this purpose. But make sure you have sufficient inventory to meet customer needs.</li> <li>Delaying payments. When bills come in, you can pay them at the last minute to keep your coins as long as possible. Pay via electronic transfers to maximize this strategy. Don&rsquo;t, however, pay bills past due; this can hurt your credit rating and make it more expensive for your company to borrow money in the future.</li> <li>Bartering for the things your business needs. You can swap your services, for example, for goods or services, and no cash is involved in these trades, other than sales tax where applicable. Rule of thumb: Limit bartering to 5 percent to 15 percent of your revenues.</li> </ul> <p>Remember the old adage that &ldquo;cash is king.&rdquo; Just because you are ringing up sales does not automatically mean your cash flow is sufficient to cover your obligations. By implementing these cash flow solutions, you can stay on top of the money coming in and going out your door.</p> <div class="field field-type-text field-field-blurb-amex"> <div class="field-label">AMEX Blurb:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <p>This article originally appeared on the <a href="http://www.theopenappcenter.com/improve-cash-flow/cash-flow-solutions-for-your-bottom-line/?intlink=us-apfuel-hpcontentarticlecashflowsol">OPEN App Center</a>. &nbsp;Visit <a href="http://www.theopenappcenter.com/" target="_blank">www.theopenappcenter.com</a> for more information and resources for streamlining and growing your business.</p> </div> </div> </div> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/barbara-weltman">Barbara Weltman</a> of <a href="http://www.wisebread.com/small-business/cash-flow-solutions-for-your-bottom-line">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/250-tips-for-small-business-owners">250+ Tips for Small Business Owners</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-small-business-pitfalls-and-how-to-avoid-them-part-two">6 Small Business Pitfalls, and How to Avoid Them: PART TWO</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-small-business-mentors-you-can-access-for-nearly-free">6 Small Business Mentors You Can Access for Nearly Free!</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-credit-cards-for-small-businesses">Best Credit Cards for Small Businesses</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-grow-your-solo-business-without-hiring-employees">How to Grow Your Solo Business Without Hiring Employees</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Small Business Resource Center business administration business advice cash flow small business Thu, 24 Nov 2011 20:07:55 +0000 Barbara Weltman 790889 at http://www.wisebread.com Essential Tools to Maximize Cash Flow http://www.wisebread.com/small-business/essential-tools-to-maximize-cash-flow <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.theopenappcenter.com/improve-cash-flow/essential-tools-maximize-cash-flow/?intlink=us-apfuel-hpcontentarticlecashflowmax" target="_blank">http://www.theopenappcenter.com/improve-cash-flow/essential-tools-maximize-cash-...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/essential-tools-to-maximize-cash-flow" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000011602168Small.jpg" alt="receipts and profit" title="receipts and profit" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>Cash is King. Cash is your business&rsquo; life-blood. Happiness is positive cash flow. So many clichés about cash, yet so many businesses fail to maximize it. Deploying the cash flow formula to determine your cash flow projection will empower your business to use this precious resource more effectively.</p> <p><strong>Start with a Beginning Balance</strong></p> <p>A proper cash flow calculation starts with determining the beginning balance of your cash accounts. This is not just your collective bank account balances. Subtract any outstanding checks or other charges and add any uncleared deposits to arrive at your actual balance. Hopefully, it&rsquo;s positive.</p> <p><strong>Build a Cash Flow Projection</strong></p> <p>Next, complete a cash flow projection organized on a week-by-week basis for at least the next 13 weeks, or quarter, clarifying the most effective use of resources in the short-term:</p> <ul> <p>Do you need your cash to make payroll, or can you use it on more supplies and equipment?</p> <p>Should you pay down debt or let your bank balance grow for a while?</p> </ul> <p>A cash flow projection answers these and many other questions.</p> <ol> <li><strong>Account for Income. </strong>The first step to project future cash flow is to understand what cash is going to come in from customers during the next 13 weeks. Review your accounts receivable and other transactions that will turn to cash during each week. Then project your sales for the next quarter and when each of those sales will turn into cash in your bank account to complete your projection of cash inflows from customers. You&rsquo;ll also need to evaluate any other cash inflows, such as from a loan, sale of an asset, sale of stock and so on. Total these inflows to arrive at the total weekly cash into your business.</li> <li><strong>Account for Fixed and Contract Payments. </strong>The second step of an accurate cash flow forecast is an accounting of all of the fixed and contract payments scheduled for the next 13 weeks. This includes the fixed portion of your payroll, payroll taxes, benefits, insurance, rent, loan payments, advertising and all other bills that are or will become due. It is often best to list these by vendor or payee name. If you keep track of your bills and payments in an accounting system, then often a print-out of your current accounts payable is a good place to start.</li> <li><strong>Account for Variable Expenses.</strong> Step three calculates all of your variable expenses for each week of the next quarter&mdash;the outflows that vary based on your sales volume. Some of this information will come from your accounts payable, and some will be estimated based on the sales projections completed during step one. Add your fixed/contract outflows to your variable and vendor outflows to arrive at the total cash leaving your business, week-by-week, for the next quarter.</li> <li><strong>Do the Math. </strong>The next logical step, step four, in your cash flow projection is to subtract each week&rsquo;s total outflows from the inflows to see if you will generate positive or negative cash flow each of the next 13 weeks. Then add the first week&rsquo;s net cash flow to your beginning balance to see how your cash position will grow or shrink in the next week. Next, pull each week&rsquo;s ending balance into the beginning balance position for the next week, completing your analysis for the next quarter. It is often helpful to chart the total cash balance so you can visualize any areas of concern or reasons to celebrate.</li> </ol> <p><strong>Review and Update</strong></p> <p>This last step has two components. First, review your projection side-by-side with your actual results each week. Study variances and understand what caused certain things to happen unexpectedly in your cash flow assumptions.</p> <p>Second, update your projection with what you learn during your variance analysis as well as new items, bills, payments, or inflows that arose during the last week. You&rsquo;ll be amazed how accurate your forecast becomes after just a couple months of this weekly exercise. More importantly, your confidence in your projections as a decision-making tool will grow, and you&rsquo;ll start making better decisions with your short-term cash flow. Also, be sure to add an additional week of forecasted information each week, making sure you always have a forecast of your cash flow for the next 13 weeks.</p> <p>Most businesses fail to have a clear picture of their cash flow in the short-term, hoping they have enough to meet financial obligations and save a little extra for a rainy day. But if you build a cash flow projection, you will bring substantial clarity to your most vital resource and how you can best use it.</p> <div class="field field-type-text field-field-blurb-amex"> <div class="field-label">AMEX Blurb:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <p>This article originally appeared on the <a href="http://www.theopenappcenter.com/improve-cash-flow/essential-tools-maximize-cash-flow/?intlink=us-apfuel-hpcontentarticlecashflowmax">OPEN App Center</a>. Visit <a href="http://www.theopenappcenter.com">www.theopenappcenter.com</a> for more information and resources for streamlining and growing your business.</p> </div> </div> </div> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/ken-kaufman">Ken Kaufman</a> of <a href="http://www.wisebread.com/small-business/essential-tools-to-maximize-cash-flow">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/250-tips-for-small-business-owners">250+ Tips for Small Business Owners</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-helpful-tools-to-manage-your-small-business">6 Helpful Tools to Manage Your Small Business</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-small-business-pitfalls-and-how-to-avoid-them-part-two">6 Small Business Pitfalls, and How to Avoid Them: PART TWO</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-small-business-mentors-you-can-access-for-nearly-free">6 Small Business Mentors You Can Access for Nearly Free!</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-credit-cards-for-small-businesses">Best Credit Cards for Small Businesses</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Small Business Resource Center business administration business advice business tools cash flow small business Wed, 23 Nov 2011 19:36:11 +0000 Ken Kaufman 790888 at http://www.wisebread.com