2012 Money Play

As a new year approaches, it is a great time to starting talking and thinking about your finances for 2012.  There are some things that you and I want to consider now for 2012:

Develop a budget

It is going to be important to develop a budget for 2012 and to stick to that budget as best as you possibly can.  Here are some things you can do right now to construct your budget. 

1.      Log onto your bank account.

2.      List all of the things you have spent money on from January 1, 2011 until now (include all the transactions in your accounts – checks, withdrawals, debit card usage, bank fees, etc.)

3.      Categorize all of your expenses into the following categories for each month: Housing (mortgage, insurance, real estate taxes, rent, utilities, repairs to home, etc). Transportation (automobile expenses including insurance, taxi/cabs, bus or train fare, etc). Meals (meals purchases at work, groceries, etc.). Entertainment (meals outside of work and home, movies, subscriptions – magazines, NetFlix, etc). Travel (vacations). Personal care – haircut, salon, spa, etc. Investments – any amount you spend on investments outside of job sponsored retirement plans, this includes savings and life insurance. Miscellaneous – anything else which does not fit in any of the above categories.

4.      List your monthly take home income.

5.      Subtract your total expenses from your total income.

6.      Are there any negative months?  What happened in those months? Was there some level of emergency? Were there any months that were profitable? Did you break even in some months? What happened in those months?

7.      Take another sheet of paper and a calculator and figure out how much of your annual take home salary is being spent in each of the eight expense categories. 

8.      Compare your results to what I call a typical budget: Housing should consume no more than 30% - 37% of your take home or net pay. Transportation – about 20%. Meals – between 15% and 20%. Entertainment – 3% to 5%. Travel – 5% to 10%. Personal care – 3% to 7%. Investment – 5% to 10%. Miscellaneous – 3% to 5%.

9.      If your percentages don’t match up with those in item 8, you should consider adjusting your expenses accordingly.

10.  Stick to the budget you created in 2012. Don’t go astray from the path.

Get out of debt

Debt grows faster than your income so it is a mandate to get out of debt as soon as you can.  With the rate that the world’s economy is going make it a priority to retire your debt as soon as you possibly can.  This includes student loans as well.  I would suggest opening a separate bank account where you pay your debt from and call it your DSA - Debt Shrinking Account.  Make extra payment if you can to shrink your debt faster.  Email me for more advice on this.

Develop a plan to save and invest

Now that you have your budget and DSA in place you will need to develop a plan to save and invest.  The 5% to 10% that is being set aside for investments should be split in half between investments and savings.  Your savings here would be your “rainy day” fund.  The way the world’s economy looks we are in for quite a few rainy days in 2012.  It is always best to be prepared.

Speak with a financial advisor on what you should use the other half of your funds to actually invest in.

Watch the markets

This doesn’t mean only the stock market.  But watch all the markets.  What are you looking for?  You are looking for opportunity, an opportunity that can catapult you and your family to the next level.  With the other three items, mentioned above, in place you now have the ability to not only watch the markets but also take advantage of some of the opportunities that are presented to. 

The Age of Terrorism

Terrorism officially was experienced by many Americans seven years ago on this very day. September 11, 2001 was a terrible day for many Americans, some lost family members, and friends while others were never the same after this tragic day. On that day, America entered what I’d like to coin as “The Age of Terrorism in the US”.

Never before did we have to take as many precautions entering a plane, building or opening something as simple as a bank account. Although The Age of Terrorism placed many of us in awkward positions, there were a multitude of individuals who have benefited from this new age. Think about all of the security and technology oriented companies that begin to sprout up after September 11th. The security / technology industry is a multi billion dollar industry (even if you exclude giants like Google and Microsoft).
What does that mean for you and I? Markets are constantly changing due to circumstances that are some times beyond our control. We have to be ready for these shifts and be able to take advantage of such shifts.

A good business person will get himself or herself into position to take advantage of shifting markets. Are you in a position to take advantage of shifting markets or are you stuck in what you are currently doing?

Take some time to contemplate the following:

Are you using your “downtime” to increase your knowledge of a particular area?
Are you saving some reserves to be in a position to take advantage of potential shifts?
Are you keeping your eye on the state of the economy or educational system?
Have you assessed your skills to see how they match up with the way the market is currently going?
What are you currently doing to make yourself better?

There will be more shifts in needs to come, will you be ready?