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Money 101:

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Money 101 
SEPTEMBER 15, 2012

Howdy! 
Gary Silverman, CFP

 

It's probably nothing more than a memory now, but I hope you all had a great Labor Day weekend. I came across this story, about the history of the 8 hour workday. Enjoy.

 

Last issue, we discussed a bit about net worth. This time, I touch on some important basics when it comes to money management: understanding your cash flow. It's also time for the Eaton Vance Monthly Monitor and Review, so you can get a great amount of market information.  
 

--Gary
Gary's Soapbox: Go With The Flow 
 

Cash Flow. Nope, this isn't just for businesses. You need to understand this concept for the running of your household as well. There is tons of information available in books, classes, and on the Internet, but today, I just wanted to touch on a few basics to get you thinking about managing your money better.

Step One: Know your Income

Income is any money that flows your way. This might be money you earn through a job or a hobby. It might be from your investments in the form of income or dividends. Income, then, is more than just your monthly or annual salary from your employment.

Step Two: Know your Spending

This is the money that flows away from you. You may think of your bills, but it's more than that. Other expenses, including your day to day spending need to be included. How much do you spend to eat every day? What about entertainment? Money also leaves you by way of taxes. How much are you paying in property, personal and business taxes? The final type of spending is giving. This includes the money you donate to charities, your church, and other worthwhile endeavors. You can do this throughout your life as well as have a plan to give when you die, by providing rules for your money in your estate plan.

Step Three: Compare Income to Expenses

Here's the test. Compare your income to your expenses. They should be pretty close to equal. After all, all the money that you made is going somewhere. If you're not spending it, then you are saving or investing it. If you notice you are having a tough time making ends meet, try looking back at the last 12 to see where all your money went. Keep tweaking your income and expenses lists until they come within about 5 percent of each other.

Now, consider the following:

  • Savings: for anticipated future expenses
    • Even if you don't need to spend money on something every week, month, or year, you need to anticipate future spending and include that amount when calculating your expenses. For example: home appliances, car repairs, new car, medical costs, home repair, education (yours or your children's), retirement-all of these may be worth putting a bit aside for every month, before the big expense comes up.
  • Debt: cash-flow killer
    • Debt is savings in reverse. With savings you save, earn interest, then spend. With debt you spend, pay interest, and then save (or not).
    • Credit card and other means of borrowing may make things easier at first, but you are essentially stealing from tomorrow's income today...with interest. To make up the difference, you would have to lower tomorrow's spending. If you were willing to do that, you wouldn't have the amount of debt you have now, so you will probably have a tough time doing so in the future. This creates a vicious cycle. Reverse this trend. It is difficult, but possible.
  • Budget: just do it
    • Unless you always have money left over after paying all of your expenses and funding your savings and retirement accounts, you need to work on a budget. By taking a hard look at where your money is going, you will have to ask yourself some hard questions and make some difficult sacrifices. Choose what to cut back on now; otherwise you may not have a choice in the future.

Good luck to you! I hope you find the best way to understand and manage your cash-flow. It seems like a struggle to do the work, but once its done, the relief that comes from certainty is worth it.

 

--Gary Silverman, CFP

Gary's Latest Articles 
From Times Record News and Biz to Biz


2016: What's the story?

Gary gets many questions about the future of the economy, especially now that it's an election year. Take a look into his crystal ball, by clicking here... 

 

Risky Business

The same things that made our country great can help to make it better today. Read More... 

 

Investors Must Look Beyond Recent Performance

There are times to dump an investment, but just because it went down and another went up doesn't mean the time is now. Read more... 

Money 101: 
September Monthly Market Monitor


The most recent Monthly Market Monitor includes charts and graphs showing recent economic developments worldwide. Click here... 

 

For additional information about the markets and investing, please take a look at the August 2012 review. Click here... 

Election Year

With all the political half-truths, I thought we'd bring you the other side of a political story from long ago as told in this little classroom conversation:

TEACHER: George Washington not only chopped down his father's cherry tree, but also admitted it.
Now, Louie, do you know why his father didn't punish him?

LOUIE: Because George still had the axe in his hand.
 

 

 Have a great week!

 

Sincerely,

 


Gary Silverman
Personal Money Planning
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