The doctor is in: Time for a mid-year financial checkup
Summer will soon be over and the year is half done – it’s time for a mid-year financial checkup. You should take the time to assess your finances and make sure you’re ready for the rest of the year. Doing so at this juncture can give you time to make the corrections that could salvage your financial standing.
First of all, take a look at your spending. Compare your cash flow for the first six months. Did you allocate enough to cover expenses or are you falling behind in certain areas? If you skipped setting up a budget to begin with, remember that solid financial planning begins with having a budget. There are plenty of tools to help you get started. Check your bank’s Web site, or look to see if your smart phone has an application that can help you track your spending. Good, old-fashioned paper and pencil work, too. The key is to put a plan into place and stick to it.
Second, look at how much you are saving. Just a small amount of savings can play an important role in your overall financial picture. You should be saving for both long- and short-term goals.
Consumers have been paying down their debt, and banks have been writing much of it off. But there’s still plenty of debt piled up. Carrying high debt loads can have a big impact on your credit score, make monthly budgeting more difficult and leave you more vulnerable in an emergency. If you are only paying the minimum on credit cards or are, worse yet, skipping payments, you could be headed for trouble. The first step toward resolving these problems is to stop using plastic and chart a plan for paying off your cards. Seek help if you can’t do it alone.
The area of taxes is uncertain still, because Congress has not yet addressed a number of expired tax laws. Anything can happen before the end of the year. Tax rates are expected to go up for all but the lowest income brackets in 2011. You may want to get tax advice before converting a traditional individual retirement account to a Roth IRA. Those conversions are intended to reduce taxes when it’s time to withdraw the funds, but the uncertainty of the tax laws and individual circumstances means switching may not be the best move for everyone.
One of the biggest blunders most people make is not putting enough money into a 401(k) plan to meet the match provided by their employers. The flip side is putting so much in that you reach the maximum allowable too early in the year and miss out on company matching for the remaining months. A review of your retirement plan starts with your 401(k) but doesn’t end there. It’s important to go through the process of looking at all your retirement avenues, including Social Security and company pensions, and figure out how much you will need to provide for yourself and your loved ones. It’s much easier if you ask an expert for advice.
The goal is simple: make sure you’re on track. Be honest about where you are, and if you don’t already have clear, concise goals, both immediate and long-term, it’s time to set them.
Money
Question: How much money should our 8-year-old son get as allowance? Should we tie allowance to chores?
Answer: Allowance is the most important tool parents have for teaching their kids about money management, yet, only 60% of all parents give their kids a regular allowance. Parent’s reluctance to dole out the weekly dough might be one for any of the following reason:
• They’re uncertain how much money to give.
• They don’t know whether to tie the money to household chores.
• They don’t know much about money management themselves.
Fortunately, there are some generally accepted guidelines and suggestions to help answer these money questions.
Most advisers fall into one of two camps on the amount of money is appropriate for kids. Some believe the best solution is to give a child one dollar for each year of age. Every three or four year old kid who ever sat in a shopping cart or in front of a television is ready to learn elementary lessons about money, but $3 or $4 a week is enough to teach them at first.
By the time children are in elementary school, there needs to be a mutually understood agreement about how that money will be spent, with a parental insistence that a specified percentage of the money goes to spending, savings and sharing. Kids also need to know what expenses they’ll be responsible for. Will they pay for school lunches, or will their spending money be for only discretionary purchases?
By the time the kids are tweens, the savings portion should be further divided into short-term and long-term savings. Some parents agree to match their kids’ long-term savings dollar for dollar.
Parents who try linking money to household chores, though, learn pretty quickly that the system doesn’t work. First of all, once kids have enough money for the things they want, they no longer have an incentive to do chores. Secondly, children should be taught they have basic responsibilities to care for their own belongings and contribute to a smoothly running household. If that lesson is tied to financial remuneration, it’s seen as a reward and something they can decide whether or not to do.
That doesn’t mean, however, kids should never be paid for working around the house. For instance, when children want or need extra money to buy Christmas gifts or attend a special event, it’s not unreasonable to demand they do extra chores to earn the money by babysitting, doing additional lawn work, preparing meals or helping with errands. Younger children who want the latest and greatest electronic games can be required to wash the dog or car, or sort through the games they already have and trade them in at a used game store. By doing so they learn the value of thrift and simpler living.