Step 3 – Balance Income and Expenses

As you think about what was spent in each of the categories and plan how much to spend now, ask these questions:

  1. Which expenses are essential to your family’s well-being?
  2. Which expenses have the highest priority?
  3. Which areas can be reduced to keep your family’s spending within its income?
  4. How much can be afforded in each category?

Subtract total monthly expenses from total monthly income. The result is the amount that is “extra” or must be “cut” from expenses. If cuts are necessary, adjust the amounts you plan to spend in each expense category.

Add up the revised expenses and compare the total to current income. You may discover you don’t have enough projected income to cover current fixed obligations, or to pay necessary living expenses. If this is the case, some difficult decisions must be made. What can be done if expenses are greater than income?

  • Increase income. What are the possibilities for part-time or temporary work to help supplement income. Can other family members seek employment?

  • Cut spending. You may be able to cut back on utilities, food, gasoline, clothing, recreation, contributions or gifts. USDA has low cost menus and other resources that help families reduce expenses (http://www.cnpp.usda.gov/USDAFoodCost-Home.htm).

  • Reduce your fixed expenses. If too much income is going to fixed expenses, such as housing or debt payments, there may not be enough money left to cover your other living expenses. This dilemma may make it necessary to refinance loans, move to lower-cost housing, or sell the property to reduce fixed expenses. 

  • Look at other assets. What savings, investments or property could be used or converted to cash to meet expenses?

What can be done if income is greater than expenses? Allocate the extra dollars to savings for future short-term and long-term goals (education, buying a home, retirement). 

Deposit Larger amounts

Most financial institutions offer different tiers of savings accounts to customers. The highest interest rates usually go to customers with the largest balances. This is because the more capital a financial institution has from customer balances, the more it can invest and claim as assets. Interest rates get even higher for customers who are willing to put money into savings accounts that are a little more access-restrictive, such as a Money Market account CD's. High interest rates are often a feature of high-risk investment savings accounts too.

Compound Interest

Interest can work upon interest when compound interest comes into play. This is what happens when the interest you earn becomes a portion of your balance and therefore starts to collect interest. In other words, you're earning interest off the interest the financial institution has paid you. Compound interest is a way to get the most out of interest-bearing savings accounts, and it's one of the main reasons why a higher interest rate can be such an effective means of making extra money if you have a substantial balance in a savings account.

A bank draft reminder record is a great way to make sure that all charges being taken out of our account(s) are legitimate and accounted for.  On several occasions, I have ran into charges that continued for several months after they should have been discontinued.  It is either impossible or, at the very least, a terrible hassle to attempt to retrieve money that has been withdrawn from your account dating back several months or more.  A bank draft reminder record will help you to spot illegitimate drafts immediately and take care of them before the situation is out of control! 

A bank draft reminder record also helps you to keep track of HOW MUCH money should be taken out each month for various expenses.  This allows you to IMMEDIATELY detect a draft amount that is extremely high and get that taken care of immediately.  A few years ago we had a cell phone bill that was extremely high for a few months in a row.  Little did we know that we were being charged for overage text messages when we thought that our plan was unlimited.  To make a long story short, we wasted several hundred dollars simply by losing track of our account.  We could have upgraded our plan to unlimited at any time for $10 a month!!

Step 2 – Your Monthly Expenses 

People frequently ask: What should our spending plan look like? How much should we spend for food, clothing, and transportation… and so on? Are we spending too much on housing?

Households are rarely alike – thus a “typical’’ spending plan will not apply to everyone. There can be no hard-and-fast rules for family spending, because individual needs, tastes and economic circumstances vary from family to family – even when they have identical income and the same number of family members. However, there are various sources of cost of living information that can be used as guidelines to compare how your family’s spending differs from the average spending pattern of others.

• Categories: If you have tracked your expenses, you know how much is spent monthly for family living expenses. If not, use records, such as canceled checks, bills, and credit card and other receipts to figure out how much is spent. List the amount for each category on the appropriate lines in Step 2 of the worksheet from Step 1.

– Housing: mortgage or rent payments, property taxes

– Utilities: electricity, gas, oil, phone, water, cable TV, Internet

– Household Operations and Maintenance: repairs, cleaning supplies, paper supplies, equipment, pets and supplies

– Food: groceries, eating out, school lunches, snacks

– Transportation: gas, car repairs, maintenance, parking, bus, taxi fares

– Medical Care: doctor, dentist, clinic, hospital, medicine, glasses

– Credit Payments: car payments, installment loans, credit cards, charge accounts (If you break out the credit payments into the appropriate family living expense category, you will have a more realistic idea of the actual costs for clothing, entertainment and eating out, for example).

– Insurance: health, life, property, car, disability, long-term care

– Clothing and Personal Care: new clothing purchases, laundry, dry cleaning, hair care, cosmetics, toiletries

– Education and Recreation: books, magazines, newspapers, lessons, tuition, hobbies, club dues, sports, entertainment, vacations

– Miscellaneous: child care, gifts, contributions, personal allowances, child support, alcohol, tobacco

– Savings: funds set aside for seasonal and occasional expenses, short-term and long-term goals (college fund, retirement).

Remember, not all expenses are monthly. Because some items, such as property taxes or insurance premiums, come once or twice a year, families often forget about them and do not have the money to pay for them when the bill arrives in the mail. Be sure to include your non-monthly expenses in the spending plan.

Monthly Spending Plan Worksheet
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File Type: pdf
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We all want to have savings and yet be able to take care of the bills that we have. Here are some ideas to help increase available cash.

1.  Change your Federal and/ or State tax withholding

Many people look forward to receiving tax refunds. they enjoy the "surprise" Money that arrives in the mail in late winter or early spring. This might seem nice, but the truth is that taxpayers would be better off reducing the amount of payroll tax withholding and investing the excess money out of each paycheck or using it to pay down debt. There are numerous reasons for this, but the main reason id that excess withholding represents and interest-free loan to the government. The excess withholding could have gone into an investment account or it could have been used to eliminate high interest debt. By giving it to the IRS, it will sit idle until you receive a refund, at tax time.

Tax withholding is usually set at a higher level than necessary, so why not change your federal tax withholding and make use of these funds right now? By increasing your number of exemptions, your Federal tax withholding will decrease, resulting in more cash in your pocket. True, this means your Federal refund will be smaller than usual when you file your taxes next year, but why give the IRS and interest free loan when you could be using this extra money to pay off high-interest debt? Increasing your exemptions for State withholding will have the same effect. However, since taxes tend to be much lower than Federal taxes, the impact will be minimal.

2.  Refinance your existing Mortgage at a lower rate

Interest rates are at an all time low. Mortgage rates are quite possibly a few points lower than they were when you obtained your original mortgage. Refinancing at a lower rate can have a noticeable impact on your mortgage payment and hence free up a large amount of cash each month. Generally speaking, the homeowner must have an equity position equal to twenty percent or more of the property value in order to refinance and there are usually closing costs to pay. However, there are some incentive offers available to encourage refinancing and the resulting mortgage payment can often be significantly lower than before. This adds up to some extra cash in your pocket that will continue from this day forward, until the loan is retired.

3.  Consolidate Debt using a Home equity Loan

If you have a significant amount of equity in your home, you may qualify for a home loan. With a home equity loan, the homeowner can receive cash-up front. This cash then can be used to pay off high-interest debt. The payback on these loans is usually spread over many years, resulting in a monthly payment that will likely be much lower than the payments made to the high interest debt. Not only that, but hoe equity loans provide an added advantage: The interest is tax-deductable much like the interest on a primary mortgage. This can result in significant savings over time as well as provide a much-needed boost to your monthly cash flow.

4.  Transfer credit card debt to a new card with a low introductory rate if interest

Credit cards can consume household cash flow with abandon and most financial experts agree that credit cards should be paid off as quickly as possible. Temporary relief can sometimes be found via transfers to other credit cards with lower interest rates. It is common to find credit cards with these deals that offer the cardholder a very low rate of interest for a specified amount of time, usually six months. Make sure that you evaluate the specifics before choosing this option.

5.  Request a lower interest rate from your existing credit card holders

it's easy. Call the customer service telephone number on your credit card statement and ask. It's that simple. They may say that you need to speak with a manager or supervisor; so agree. you may need to explain your reasons for doing so. You may also suggest to them that there is an offer on your desk right now for one year no interest for a credit transfer but you would like to continue doing business with your existing credit card company.

These are just some simple steps to help jump start your savings while still paying your bills.

For business owners with significant income and cash flow that are looking to SAVE ON TAX and also CONTRIBUTE HEAVILY TO A RETIREMENT PLAN, there are some wonderful options.  

The main obstacle is simply a lack of knowledge about what those options are.  Many simply set up 401k's or similar plans to keep employees happy but these plans only allow the employer to contribute very small amounts for himself that will do very little to produce the type of retirement plan that he or she desires. 

However, there are now plans available that allow business owners to benefit from the following features:

  • allows business owner to remove funds from his company for his personal benefit.
  • the company DEDUCTS the cost of the program as an ordinary business expense.
  • there is no regulatory limit on the funding for the business owner.
  • pension based plans rarely provide tax mitigation and have funding caps.
  • the program removes plan assets from the reach of company creditors.
  • the money in the program grows on a tax-free/tax deferred basis.
  • the business owner can later take income tax-free without income limitation requirements.
  • the program passes a death benefit onto the heirs income tax free.
  • the program is based upon tax code section 79 that allows for all of these benefits.

    Ya... I want more information on this!

401k Alternatives

The most common retirement options available to employees are through 401k's.  While these certainly have their place, many are not aware of alternatives that have significant advantages over the 401k.  For example, if an individual has a 401k option through their employer that matches up to 4%, but wishes to contribute more, let's say 10%, they should be aware of some options that will likely yield better returns in the long run and protect their money better as well. 

They can simply contribute the 4% that the employer will match, and take the other 6% and contribute that to a retirement vehicle that will protect the investment from any losses, and allow them to take the money TAX-FREE when they need it in retirement.  A 401k is a tax-deferred retirement vehicle, but if you are of the belief like I am that taxes are VERY LIKELY to increase in the future, the end result will be paying more taxes in the future than you would in the present.

This may seem a bit confusing, but a trusted advisor can help you to make sense of it all.  For now, suffice it to say that there are excellent alternatives to the 401k that protect your money better, allow for excellent growth potential, and have great tax advantages.  Please contact us for more details or a free consultation at info@prospersbs.com.

    Contact us today!

One of the most effective ways to fund a retirement plan for people in their 30's, 40's, or even 50's, is through indexed universal life insurance.  The concept is to simply overfund a life insurance policy to accumulate significant cash value.  The main advantages to using this vehicle to fund a retirement plan are the following:

1) Downside protection - Some IUL's guarantee a 3% return every year even if the market goes down and allow for returns up to 14% cap.  This concept has allowed for historical average returns with many carriers of around 8% and guarantees that the portion of your premium allocated to your retirement fund will gain over time! 

2) Tax free income-At retirement - You will have the option to take out annual tax free income!  This is a huge benefit as most of us believe that taxes are very likely going to increase in the future.  Let's assume that you are in a 30% tax bracket at retirement and your cash value accumulation allows you to take out a $70,000 tax free annual income.  This would be the equivalent of $100,000 that you have to pay taxes on!!

3) Death benefit protection - All along the way, you will have permanent death benefit protection to take great care of your family in the event that something were to happen to you prematurely or later in life!!

    To Learn MORE.... Contact us!

You are engaged!!!!!  Now what?!?!?  

First thing is first... you are so excited in the fact that you are engaged you hate to even think about starting to plan the Wedding. Yikes!!!! There are so many things that go into planning a wedding. Take a deep breath and start from the beginning… who is paying for the wedding?

Although tradition says that the bride's parents pay for the whole thing, this is frequently untrue for today's couples. If you can pay for the whole wedding yourselves, you've got it easy. If you want your families to help you out, or pay for it all, you need to have a sit down discussion with them about it.  You need to be prepared to answer some tough questions. First you need to know that the average wedding costs about $25,000, but you need to base your wedding on what is available to you.

There may be several options that arise after you have a talk with family.

* Parents can say that they are contributing a specific amount, and then the couple decides on a wedding budget and makes up the difference themselves.

* Parents say that they want to pay for specific items such as the bride's attire, the rehearsal dinner or catering. The couple then has to figure out how to pay for everything else.

* The couple can set a budget and then ask to split it evenly. This is particularly good solution for divided families. For example, the couple, the mother of the bride, the father of the bride, and the groom's parents will each contribute $5000, for a total of $20,000 wedding budget.

How much do you really need?

Depending on your area, budgeting about $100 per wedding guest will give you a good start. This allows for $50 a head for catering, and the remaining $50 goes towards everything else- Flowers, attire, etch.

We have attached a wedding budget worksheet.  This will help you determine what is important to you and what kind of money you want to spend where. Cross off things that you don't need and find a wedding planner. They will save your life and save you from a ton of stress. Remember this is one of the best days of your life!  So, enjoy every moment of it.

And…. CONGRATS!!!!! 

Wedding Budget Worksheet
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File Type: pdf
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We all know that if we have bad credit we can be penalized when it comes to interest rates on our loans.  This is true for mortgage loan as well.  Here are a few  little-known tips to improve your credit scores and give you a chance at better interest rates. 

First, you must remember that this is a process and won’t change your scores overnight.  It takes time and some diligence on your part.  If you’re planning on refinancing or purchasing a new home, you’ll want to use these tips 3-6 months before you start applying for a new mortgage. 

Second, be aware of credit repair scams.  There are lots of good and reputable companies out there that really can help you, but there are also plenty of scams out there.  The Federal Trade Commission website has plenty of information on the rules of credit repair.  You should get familiar with these rules to make sure you’re not doing more damage than good, and not being scammed. 

Third, get a current copy of your credit report.  You can go to www.annualcreditreport.com and request a report from each of the three major bureaus.  You want to keep inquiries to a minimum since each inquiry can impact your score by as much as 50 points (most won’t be that impactful, but some can be).  Mortgage and auto inquiries have a 14 day window before they get counted as multiple inquiries, so if you’re shopping lenders, do so within that timeframe so you don’t adversely affect your scores.

The last tip for the day is to not close all of your existing accounts.  If you have multiple credit cards, spread out the debt onto a couple of them so none of your cards have high balances.  Then, once debt is paid off, those long-term credit lines with balances available help boost your score.  These lines of credit show that you are able to have credit available to you and be disciplined enough to use that credit wisely. 

Taking the time to be up to speed on your credit, and using little tricks like these can save you thousands of dollars over your life time, so take a few minutes and make sure you are credit savy!