Now that you have tracked your expenses for the past year you need to create a budget for 2014.  Does your budget match up with your planned income?  Does your budget build in the savings you want to build in 2014?  Does your budget pay down your debt, as you would like?

If you answered yes to all those questions, congratulations?  If you answered no, your budget needs further adjustments.

Another rule of thumb is that 50% of your paycheck should go to essential purchases, 30% for whatever you want and 20% for savings.  How does your budget compare against this rule of thumb?

Some expenses are necessities.  You need a place to live, you need to eat, you need transportation, etc.  Just because they are necessities it does not mean that these expenses are untouchable.  Are you spending too much for housing?  Are you eating out too much?  Is your cable bill too high?

Remember the rule – start with small goals.  What changes can you make now and what changes can you make the next year?

Comment:  Today is a great day to make financial New Year’s resolutions.

Comment:  Did you receive money for Xmas or a work bonus?  Think about not spending it and deposit the money into your savings.

 

You have tracked your expenses in 2013 and now you are ready to create a budget for 2014.  If you live alone deciding how you spend money is your call.  If you live with someone and share some or all expenses, the budgeting task is much more challenging.

The next rule for MoneyYOYO is everyone spends money differently.  Some people care about where you live, others just want shelter.  Some people love eating out and other like to eat in.  Some love to go to the movies and others like to watch a movie at home.  The list goes on and on.

If you do share expenses with another person or persons, all of you need to track those shared expenses.  Do you share expenses for housing only or do you share other buckets of spending or all spending?

Now you need to create a budget for those shared expenses. It will be quickly clear if you are in agreement or disagreement.  If you find you are spending money differently, you need to spend an evening or an afternoon or both working out the differences.  Start with the big categories of spending and work you way down.  I am sure compromise will be a necessary tool.

These discussions take on a different vibe if it is your significant other.  Remember there is no right or wrong, it is just a preference for what is more important to you.

Financial fact:  U.S. revised growth was up 4.1% on an annual pace in the third quarter.  It is the strongest advance of growth in nearly two years.  (Commerce Department)

Comment:  For the last 15 years, there has been a downsizing, downscaling and re-evaluation of values and what constitutes the American Dream.  (John Zogby, “The Way We’ll Be:  The Zogby Report on the Transformation of the American Dream”)

Let’s review MoneyYOYO rules.  First, YOYO – you’re on your own when it concerns money.  Second, always save some part of your income.  Third, start with small goals.  Fourth, big and small sacrifices will be necessary to begin saving.

So, how do you get started?  The first step is to determine how you spend your money today.  If you rarely use cash it is simple to track expenses through your credit card, debit card and bank account.  Banks and credit card companies have expense tracking tools you can use on their websites.   PNC Virtual Wallet is one of many bank tools or you can build a spreadsheet of your own.  Review 6-12 months of spending to create a useful record.

If you use cash frequently, tracking past expenses becomes a little more difficult.  Track where your cash is being spent for the next month.  That will give you an estimate for budget purposes.  Going forward It is easy enough to track spending on your phone using a wide variety of apps like Virtual Budget or Spending Tracker.

Are you the kind of person that needs to know every detail of your spending or can you live with less detail?  How many spending buckets do you want to track?  Housing, transportation, food, insurance, entertainment and other are the primary buckets, but you can refine your spending in many more categories.

The end of the year is a perfect time to take on this task to help you create a budget and savings goals for 2014.

Financial fact:  Read about the U.S. Budget deal going through Congress this week.

Comment:   Other sources for financial literacy http://www.moneyunder30.com

http://www.bettermoneyhabits.com

 

Always save something.  The Fred Young rule – saving something is always better than nothing.

There are lots of categories of savings, but let’s start with savings for unexpected events or emergency savings.  These savings give you a sense of control over your finances and they give you options on how to handle whatever the financial emergency may be.

There are all kinds of rules of thumb for emergency savings:

*Save your age plus 2 zeroes every year

*Save your age every week

*3 months of your take home pay

*2% of gross income

*10% of your take home pay

Some of you may be saying – great, I am okay and others are saying OMG!  The important thing to remember is another hard and fast rule – start with small goals.  Take one of those rules of thumb and adjust it to something that you can achieve at this time.

What sacrifices are you willing to make to meet your savings goal?  Some sacrifices are tough to make, others are much easier.

Financial Fact:  If you save $50 each month starting at age 25 and you earn a 5% return, you will have almost $8,000 by age 35 and over $76,000 by age 65.  (USAA Magazine Winter 2003 – Power of Compounding)

Comment:  “A Penny Saved is a Partner Earned:  The Romantic Appeal of Savers” is a working paper from U of Michigan’s Ross School of Business.

 

How do you make sure that you can financially survive on your own?  Fred Young, a business acquaintance, began a successful second career on the speaking circuit with the simple premise, always save some part of your income, no matter what the amount.  Something is always better than nothing.

Saving money involves big and small sacrifices.  You have to stop spending money on something to begin saving.  But those sacrifices will provide you with a safety net of savings.

The Urban Institute published a recent study finding that adults under age 40 have accrued less wealth than their parents did at the same age.  During the recent economic downturn younger Americans have faced stagnant pay, a housing collapse, a brutal job market and soaring student loan debt.  So, building savings may take even more sacrifice than past generations.

In MoneyYOYO I will throw out hard and fast rules such as the Fred Young rule – always save something.  I will also use rules of thumb.  Rules of thumb are not intended to be accurate or reliable for every situation, but it is a good place to start.

Improving your financial literacy through hard and fast rules and rules of thumb will give you the ability to manage your savings more effectively and make sound financial decisions about how you spend your money.

Financial fact:  The unemployment rate fell to 7% in November, the lowest level since November 2008. (WSJ)

Comment:  According to the Pew Research Center 34% of Americans aged 18 to 32 lived at home this year.

Millennials and Gen Ys – YOYO – you’re on your own when it concerns money.  Everyone needs money and it is critical that you save for expected and unexpected events.

It is also important that you become financially literate.  You do not need to become a financial wizard, but you do need to learn to make sound financial decisions.

Studies have shown that Gen Ys and Millennials are woefully under informed about basic financial concepts with serious implications for managing your finances.  So I plan to blog to improve your financial literacy.

A recent paper by Professors Fernandes, Lynch and Netelmeyer concluded that financial education is not very helpful, but three efforts may be useful.

*First is just-in-time education.  My blog will rarely deliver information just in time.

*Second is delivery of rules of thumb and this blog will use them regularly.

*Third is to make the financial system more user-friendly.  I will try  to make it easier for you to understand the financial world. (NYT Oct. 6, 2013 Economic View, Thaler)

I will use my hard and fast rules, general rules of thumb and direct you to financial resources to help you become financially literate.

Why me?  I worked in the financial services industry for 30 years. I have two daughters who are 29 and 31 and hear first hand how they and their friends should know much more about financial matters.

Fact:  Last week the Nasdaq closed above 4000 for the first time in 13 years.  This stock index is up 33% for the year. (WSJ Nov. 26, 2013)

Comment:  YOYO comes from my friend, Tim.  He and his siblings would come home and ask Mom, “What’s for dinner?”  Mom would occasionally reply, “You’re on you own.”  Those nights became YOYO meals in Tim’s family.