In This Section : Developing A Financial Plan : How To Improve Your Credit : Choosing A Professional : Avoiding Scams

DEVELOPING A FINANCIAL PLAN

Budgeting: How To Prepare a Workable Plan

A budget is an essential component of your financial plan. Not only does it force you to monitor your spending, it enables you to focus on which items (such as loans and credit card debt) you can pay off or pay down so that you can accumulate funds for retirement, education, or buying a home.

Here is a guide to effectively organizing and keeping a check on your expenses.

Step 1: Analyze Your Income and Expenses

The first thing you need to do is to review your income and spending for the past year. This “cash-flow analysis” will lay the groundwork for the budget you create. You’ll need your checkbook, your credit card statements (paper copies or online records), and your most recent tax return. This should give you sufficient data to analyze your spending and income for the past year.

Your Income

Using an excel spreadsheet, ledger paper, or even notebook paper (as long as it has lines), list your income for a one-year period, breaking it down by month and year. Include the following types of income:

Salary/wages

Income from self-employment

Retirement pay and/or government-source income (e.g., Social Security, disability, unemployment, annuity, and pension payments)

Interest and dividends

Alimony and/or child support

Rents and/or royalties

Income from trusts

Your Fixed Expenses

Add up your fixed expenses. These are expenses that generally do not vary from month to month. Again, break them down into month and year. Make sure you include the following categories, whether or not they’re immediately evident from the past year’s bills:

Taxes (federal, state and local)

Mortgage or rent

Insurance, including medical, auto, homeowners, life, and other

Utilities

Automobiles (costs of operating minus insurance cost)

Dues and fees paid to associations and clubs

Where the amounts vary by month, as with a phone bill, add up what you paid for the year and divide by twelve to get the monthly amount. For bills that you pay yearly or quarterly, add the total amount paid for the year and divide by 12 to arrive at a monthly amount. This will help you to arrive at a more functional budget. If you have large credit card debt, indicate the amounts you actually paid, not the minimum monthly payments.

Your Variable Expenses

Next, add up your variable expenses for the previous one-year period using your check book and credit card statements. Be sure to include the following:

Food

Clothing

Furniture and appliances

Entertainment

Gas, oil, and commuting costs

Medical care

Gifts

Vacations

Fees paid to accountants, lawyers, and other professionals

You’ll be able to tell whether you’re overlooking any variable expenses by subtracting the total yearly amount you arrive at for variable and fixed expenses from your yearly income figure. If this amount is the amount you put away in savings for the previous year, then you can be pretty certain that you’ve included all of your variable expenses. If there is a large gap between income minus expenses and the amount you saved, do some digging to try to find out where the extra money went.

Step 2: Set Budgeting Goals

When setting your budgeting goals, decide how much you want to put away each year and what you will do with the savings. Your saving goals will depend on the financial planning goals mentioned above as well as on your age and income level.

If you want to save more than you have been saving, then you’ll need to cut down on optional expenditures. To do this, you’ll enter an amount under “budgeted amount” that is less than “last year’s actual.

Step 3: Create Your Budget

Now it’s time to actually create a budget. The easiest way to do this is to use an excel spreadsheet. If you’re not computer proficient, then use ledger paper or 8-1/2 by 11-inch paper used in “landscape” format (used horizontally instead of vertically).

Each sheet of paper should be headed by the name of the month. Once you’ve come up with January’s version, you can photocopy that 11 times, since each month’s version will be the same. You will end up with one sheet of paper for each month of the year.

Each month’s budget sheet might have five columns:

Column 1, labeled “Expense,” will contain each of the items you listed under fixed and variable expenses.

Column 2, labeled “Last Year’s Actual,” will contain the monthly amounts you came up with for each fixed and variable expense.

Column 3, labeled “This Year’s Budgeted,” is where you will write in what you will allow yourself to spend on that item for the month. (It can, and probably will, differ from last year’s actual expense).

Column 4, labeled “This Year’s Actual,” is where you will write in what you spend on that item for the month.

Column 5, labeled “Increase/Decrease,” is where you will write in how much more–or less–you spent during that month than you had budgeted.

Here is a partial view (showing just two expenses) of what your monthly budget might look like:

Expense	Last Year’s Actual	This Year’s Budgeted	This Year’s Actual	Over/(Under) Budget
Electric	R11,310	R11,962	R11,200	(R762)
Groceries	R13,300	R14,000	R15,400	R1,400
Total	R24,610	R25,962	R26,500	R532

Arrange the items in whatever way is convenient for you, but make your budget easy to use because this will help ensure that you use it. If you prefer to categorize your expenses in an orderly way (fixed vs. variable or optional vs. mandatory), then do so. If you prefer to categorize them in the order in which they come up during the month, or by the manner in which they are paid (cash, check, or credit card), then do it that way.

It takes discipline to record each amount in your budget as you pay it, but the discipline will pay off at the end of the year when you will have a clear picture of your spending.

Step 4: Review Your Adherence to the Budget

At the end of each month and again at the end of the year, look at your monthly totals to see whether you’ve under or overspent your budgeted amounts. Performing a monthly and yearly review will help you to set or revise goals for next year.

HOW TO IMPROVE YOUR CREDIT

Getting Out of Financial Trouble: Steps You Can Take

If like thousands of others, you are having trouble paying your debts, it is important to take action. Doing nothing can lead to much larger problems in the future–and even bigger debts, such as the loss of assets such as your house, and a bad credit record. This Financial Guide suggests how you can help improve your relationships with creditors, reduce your debts, better manage your money and get a fresh start.

Getting Started

Here are some specific steps you can take if you are in financial trouble:

1. Review each debt. Make sure that the debt creditors claim you owe is really what you owe and that the amount is correct. If you dispute a debt, first contact the creditor directly to resolve your questions. If you still have questions about the debt, contact your state or local consumer protection office or, in cases of serious creditor abuse, your state Attorney General.

2. Contact your creditors. Let your creditors know that you are having difficulty making your payments. Tell them why you are having trouble–perhaps it is because you recently lost your job or have unexpected medical bills. Try to work out an acceptable payment schedule with your creditors. Most are willing to work with you and will appreciate your honesty and forthrightness.

3. Budget your expenses. Create a spending plan that allows you to reduce your debts. Itemize your necessary expenses (such as housing and healthcare) and optional expenses (such as entertainment and vacation travel). Stick to the plan.

4. Try to reduce your expenses. Cut out any unnecessary spending such as eating out and purchasing expensive entertainment. Consider taking public transportation or using a car sharing service rather than owning a car. Clip coupons, purchase generic products at the supermarket and avoid impulse purchases. Above all, stop incurring new debt. Leave your credit cards at home. Pay for all purchases in cash or use a debit card instead of a credit card.

5. Pay down debts using savings. Withdrawing savings from low-interest accounts to settle high-rate loans or credit card debt usually makes sense.

6. Find out if you are eligible for social services. Government assistance includes unemployment compensation, Temporary Assistance for Needy Families (TANF) formerly Aid to Families with Dependent Children (AFDC), food stamps, now known as Supplemental Nutrition Assistance Program (SNAP), low-income energy assistance, Medicaid, and Social Security (including disability). Other resources may be available from churches and community groups.

7. Try to consolidate your debts. There are a number of ways to pay off high-interest loans, such as credit cards, by getting a refinancing or consolidation loan, such as a second mortgage.

8. Prepare a financial plan. A financial plan can alleviate financial worries about the future and ensure that you will meet your financial goals whether they relate to retirement, asset acquisition, education, or just vacations.

Personal Bankruptcy

Bankruptcy is a legal proceeding that is intended to give people who cannot pay their bills a fresh start.

There are two types of bankruptcy available to most individuals:

Chapter 13 bankruptcy allows debtors to keep property which they might otherwise lose, such as a mortgaged house or car. Reorganizations may allow debtors to pay off or cure a default over a period of three to five years, rather than surrender property.

Chapter 7 or “straight bankruptcy” involves liquidation of all assets that are not exempt in your state. The exempt property may include items such as work-related tools and basic household furnishings, among others. Some of your property may be sold by a court-appointed official or turned over to your creditors. You can file for Chapter 7 only once every eight years.

Both types of bankruptcy may get rid of unsecured debts (those where creditors have no rights to specific property), and stop foreclosures, repossessions, garnishments, utility shut-offs and debt collection activities. Both types also provide exemptions that permit most individual debtors to keep most of their assets, though these “exemption” amounts vary greatly from state to state.

Bankruptcy cannot clean up a bad credit record and will be part of this record for up to ten years. Thus, filing bankruptcy will make it more difficult to get a mortgage to buy a house. It usually does not wipe out child support, alimony, fines, taxes, and some student loan obligations. Also, under Chapter 13, unless you have an acceptable plan to catch up on your debt, bankruptcy usually does not permit you to keep property when the creditor has an unpaid mortgage or lien on it. Bankruptcy cases must be filed in federal court.

CHOOSING A PROFESSIONAL

Are You Getting Good Financial Advice?

Don’t Just Look At Numbers; What’s Your Gut Telling You?

It’s not hard to find advice on how to manage your money these days. You can find plenty of it on the Internet, in books, magazines and newspapers, from well-meaning friends and relatives, and of course, from professional advisors.

But while finding financial guidance is easy, judging the worth of it can be a much tougher task. Even hiring a professional adviser is no guarantee you’ll get great advice. If you’re paying someone for a personalized plan, though, you especially want to make sure you’re getting your money’s worth.

The true test is whether you reach your goals. But if your goal is decades away – retirement, for example – you don’t want to wait until age 65 to see if you made the right moves.

An annual review of your overall financial situation is the best way to assess the quality of the service you’re getting.

So what things should you look at? Ask yourself these questions when gauging money advice:

What are the numbers? The most obvious way to judge investment advice is by performance. But make sure your expectations are realistic.

If you have a diversified portfolio, you’re going to outperform the worst asset class but under perform the best. With that in mind, don’t look at just your pure rate of return. You don’t have to be in the year’s highest flying mutual funds and stocks to succeed.

Instead, you and your advisor should quantify your goals when creating your financial plan.

That plan should include periodic, realistic mileposts to check your progress against. If your net worth isn’t growing as fast as you’d forecast, examine why. Maybe it was just a down year in the market. Or maybe you’ve been too cautions with your investments and need to make a change.

What does your gut say? Can you stomach the investment risk they’re taking?

The real key is to remain invested.

Remember, some discomfort is normal. You’re not going to gain anything without taking risks. But if you’re so nervous about the risk you’re taking that you cannot stay invested, you need to talk to your advisor. If you’re always buying at the top and selling at the bottom, you won’t build wealth.

You also should pay attention if your gut feeling is telling you that your advisor isn’t being honest with you.

If it doesn’t feel right, it probably isn’t. If your advisor doesn’t listen to you, doesn’t return your phone calls, does some kind of trading in your account that you didn’t know about, you need to raise your hand and say something.

Have you been following the advice?

If you haven’t put your plan into practice, what’s stopping you? If it is because the suggestions are too complex, and you don’t understand them or they make you uncomfortable, talk to your advisor.

Why pay for counsel you’re not going to use? If your planner won’t listen, you may need to hire someone else.

Is the advice clear to you?

I really believe that the way an advisor speaks to a client is very important. Sometimes people who aren’t confident about something use lingo to make themselves appear to be an expert.

Also, it’s crucial for you to understand the money moves you are making – and why you’re making them.

Is your financial advisor a good listener?

Responsiveness is key. Many people have questions. Are you getting good answers to those questions?

If your accountant says: “‘Don’t worry about those details. Just trust me,” consider looking for a new one. You should feel comfortable enough with your advisor to ask questions and are entitled to understand what he or she is doing.

AVOIDING SCAMS

Scammers: How To Spot and Stop Them

Make sure you and your family never fall prey to the schemes and cons that pervade all aspects of American life. Learn to recognize con artists and send them on their way before parting with any of your hard-earned money.

The successful con artist approaches victims with a nice guy approach. Behind this friendly exterior is a shrewd psychologist who can break down his victims’ resistance to his proposals. The typical con artist has a good sense of timing and sincerely believes his victims deserve to be taken advantage of.

Being well-informed and skeptical are your best means of protection. This Financial Guide tells you how to spot a scam. It provides lists of “buzzwords” used by con artists, strategies for knowing which sales pitches are legitimate, and ways to fight back.

Who Are The Victims?

Anyone can fall victim to a con game, even someone who thinks they are too intelligent or sophisticated to be conned.

Many victims share certain characteristics. Often, but certainly not always, they are older, female, and live alone. They trust others and either need or want more income. Loneliness, willingness to help and a sense of charity are characteristics a con artist will exploit to gain a victim’s cooperation.

The con artist exploits his victim’s life insurance benefits, pensions or annuities, retirement nest eggs, home equity, or other assets. And he will usually have the willing cooperation of his victim.

Buzz Words and Tip-Offs

It is difficult to spot a con artist by his looks alone. But his words or expressions often give him away. These buzzwords include the following. A red flag should go up immediately when you hear these:

It’s free! Few things are really free. If you are told it’s a free vacation, free cellular phone, free gift, investigate it. What else do you have to do to get the “freebie?” Pay shipping and handling charges? A gift tax or redemption fee? Get yourself to some distant destination? Sign up for a month or two of service? Buy three and get the fourth free?

It’s 50 percent off. Off of exactly what? The regular retail price or the manufacturer’s suggested price? The bulk price? The sticker price? Ask for written verification of the original price.

It’s a going-out-of-business sale. Stores along parts of Fifth Avenue in Manhattan have been going out of business for years…and are still in business. Be particularly cautious in the crowded tourist and shopping sections of any major city or resort. Even when a company is honorably closing its doors, they could be posting artificially high prices and then marking them down. Their incentive to unload merchandise is strong. If you find what you believe is a good deal, read the warranty carefully — if something goes wrong with your CD player or refrigerator, you cannot take it back if the store is closed. But can you take the item to a service center or other designated repair place?

It’s factory to you. We match lower prices. It’s the lowest price in town. You have been specially chosen. These are more often than not just come-ons to get you into the store. Will you really shop around to make certain it is the lowest price in town? Will you really ask management to lower the price because another store has a better deal? You need time and assertiveness to make these deals really work.

You’ve just won! Sweepstakes and vacation prizes cram everyone’s mailbox. Some are real, but many are not. If you are asked to pay a fee in advance in order to be a possible winner, don’t grab the bait. This practice is known as an illegal lottery. And those low-cost vacation trips generally come with extra charges or difficult-to-meet conditions; the Federal Trade Commission is constantly issuing warnings about them. You may be asked to join a travel club, be charged extra for in-season rates, or get airfare only one way. Be sure to inquire.

Areas in Which Con Artists Operate

The possibilities are infinite, but some of the more common con games you should be aware of involve the following (some of which are described in more detail below):

Home improvement: Home repair or improvements you don’t need that are recommended by a phony city inspector, or termites or pests you don’t have.

Bank: A false bank examiner, or a pigeon drop (false bank employee who takes your deposit or “tests the honesty of bank employees” and thereby gets his or her hands on your cash).

Investment: Franchises, vending machines, land frauds, theft of inventions, securities investments, work-at-home.

Postal frauds: Chain letters, magazine subscriptions, unordered merchandise, correspondence courses.

Others: Bait and switch, charity rackets, computer dating, debt consolidation, contracts, dance lessons, freezer plans, psychic fraud, fortune tellers, health clubs, job placement, lonely hearts, medical quackery, missing heirs, referral sales, talent scouts, pyramid schemes, fake officials.

Five Questions That Will Reveal a Securities scam

Here are five simple questions that will expose even the most clever of con artists.

How did you get my name? If you fail to get a believable answer, you can assume it was from the phone book, which suggests a randomness in the selection of your name that should make you suspicious.

What risk is involved? You know that every investment carries some risk and a 100% fully guaranteed deal does not exist.

Can you send me written information? Scamsters would rather hang up and risk losing you than put something in writing. They often try to get around this question by saying there isn’t time.

Will you explain your offering to my lawyer? You will either be told there isn’t time, or the caller will ask for your lawyer’s address and never send anything. You can, of course, check this out by asking your lawyer if he or she has been contacted by this person.

Can you give me references? Follow up on any you are given.