Monday, October 19, 2020

When choosing a credit card ignore the interest rate

Using credit cards correctly does not involve paying either interest or fees. Therefore, when choosing a new credit card, the interest and late fee rates are not a consideration.

There is only one fee that should affect your choice.

What to look for

  • Is there an annual fee? If yes, drop the card from consideration. Paying an annual fee whether or not you use a credit card is an unnecessary expense that adds nothing to how you use a card.

  • Can you change the payment due day? This is important for aligning the credit card payment with one of the monthly days on which you pay bills in Income Companion. Having credit card due days the same as one of your bill paying days can simplify the handling of refunds and, more importantly, your credit card payments will be correctly planned and paid.

  • Does the credit card company offer automatic payments? Setting an automatic payment equal to the statement balance is helpful for two reasons. First, when the credit card company is responsible for your monthly payments you will never pay a late fee. Second, paying the statement balance each month is how you avoid paying interest. In addition, the more automatic payments you have, paying your bills in Income Companion will be easier and quicker.

  • How does the credit card company handle refunds? Most companies handle refunds as a partial payment if there is an unpaid statement. Otherwise, refunds are posted as a transaction that will appear on the next statement. This dual approach to refunds makes it harder for you to correctly handle refunds in Income Companion. Optimally, choose a credit card for which the company always posts refunds as a transaction to be listed on the next statement regardless of whether or not there is an outstanding, unpaid statement.

  • Does the credit card company offer email statements? In addition to saving trees, reconciling email statements in Income Companion is easier than with paper statements.

  • Would you know how to dispute charges? Reconciling monthly credit card statements ensures your information in Income Companion agrees with the credit card company's records. Of more importance is finding charges on your statement that you did not make or authorize. When you do not identify and dispute fraudulent charges within the allotted time frame, you become responsible for paying those charges. It is important, therefore, that you reconcile your statements each month in a timely manner. (In the United States, how to dispute invalid charges must be printed on statements. You will usually find this information in the fine print on the back of each statement.)

Using your credit cards correctly

Following the 4 step method in Income Companion for using credit cards is easy. Once the steps become habit, you will find that the time you spend correctly managing your cards is negligible compared to the interest and fees caused by handling the credit cards carelessly.

When used correctly, credit cards are a convenience that can simplify your life without the unnecessary stress and strain of dealing with debt.

Monday, August 10, 2020

Are you are living paycheck to paycheck? Here's the sensible way to stop.

Do you live paycheck to paycheck? If so, the reason may simply be that you've not been shown how to live any other way. This is perfectly normal since you probably didn't receive any effective training on everyday money management while you were in school.
After school you entered the workforce with the idea of getting a paycheck. When the paychecks started coming in, you defaulted to the obvious steps for handling your income.

  1. Get a paycheck
  2. Pay the bills that are due
  3. Use what's left over for spending money until next payday
  4. When money runs short between paydays, use credit cards
After accumulating some debt, you may have begun to wonder how best to get debt free. From your searches on the Internet, you learned that monthly or paycheck budgeting and expense tracking are the preferred ways to get control of your finances. So you decided to give it a try.
It wasn't long before you realized that deciding in advance how you will spend what's left of each paycheck is unrealistic. Keeping track of every penny you spend, after paying the bills, is way too difficult, time consuming, inflexible and just plain frustrating. You discovered the truth that micromanaging your spending money (3 above) each payday does nothing except add stress to an already stressful situation.

So, like most people, you gave up. You are not alone in your opinion of monthly and paycheck budgeting. There are over 40 million households in the U.S. that live paycheck to paycheck because the budgeting of spending money and the tracking of expenses don't work for them either.

My story

Lois and I were married in 1964. Our finances followed the same pattern for the first eleven years. We entered marriage with no idea how to effectively manage our income to support a growing family. We ended up with a sizable debt load. I tried budgeting. I tried consolidation loans. I pestered relatives. Nothing worked.
Then, in 1975, I had an epiphany. While paying bills one month it occurred to me that what I had been doing on scratch paper each payday could possibly be organized into a set of forms. After experimenting for a couple of months, I developed a pencil and paper system that quickly smoothed out our spending money and helped me pay our bills on time. My new system helped several other families as well.
Fast forward to 2000. After a friend asked for help with her finances, I got the idea for writing a program to make my system available to anyone. I had no idea about the sheer complexity of the task that I was undertaking. It took me 20 years of trial and error to fully understand how everyday money works and to create software that works the same way. With no reference material or mentors available, designing the program took much digging, reflection, learning and creating new technology.
For me, it's been a long journey. For you, not so much. The program that I developed, Income Companion: Incredibly Cool Budgeting, has everything you need to correctly manage your household finances yet is easy and simple to use. To get you started, we will take a look at your everyday money and how changing a couple of your money habits will set you firmly on your path away from living paycheck to paycheck.

Your everyday money

A discussion of everyday money starts by listing its six parts in the optimal order that you will want to be doing them.
  1. Receive income
  2. Pay for out of pocket expenses (spending money)
  3. Pay bills
  4. Manage credit cards
  5. Set aside sinking funds
  6. Set aside short and long term savings

These are the basic elements of anyone's everyday money. Without exception, these six parts apply to everyone regardless of their level of income.

When you are living paycheck to paycheck, typically not all of the six everyday money elements come into play, nor are they done in the optimal order.

1. Receive income
3. Pay bills
2. Pay for out of pocket expenses (spending money)
4. Use credit cards

In addition to the steps being out of sequence, credit cards are only used instead of being managed. This is the typical cause of continually increasing debt when you are living paycheck to paycheck.

Doing step 3, paying bills, before step 2 is a critical issue. The primary reason people get into trouble financially is that they do not control their spending. By first paying bills and then putting whatever is left in their pocket to spend, the amount of spending money is dependent on the amount of bills that have to be paid. In addition to making the amount of spending money variable between paydays, like a roller coaster, it is normal for all spending money to be spent before the next payday.

Each payday becomes an independent event in which the entire paycheck goes to paying bills and spending money. There is no holding over of cash from one payday to the next.

Changing money habits

Making the switch from living paycheck to paycheck to not living that way is not a matter of changing what you do. Adding monthly or payday budgeting and tracking expenses is not the answer. Neither of those methods are a natural fit for the way your everyday money works. Getting out of the paycheck to paycheck habit is, instead, a matter of changing both how you view your money and then changing your habits to match your new view.
You stop living paycheck to paycheck by making three simple changes to when and how you handle your money.

1. Sync income and outgo

There is no standard schedule for paydays. Every business and government agency sets their paydays to best fit the organization's needs. This means that when you receive money could happen at any time depending on who is issuing your paychecks. Your income can happen whenever.

On the flip side, your outgo (bill and credit card payments) are on a monthly schedule. The businesses to whom you owe money tell you on which monthly day your payments are due. All of your outgo events, therefore, are on a dependable, monthly based schedule.

This mismatch between the scheduling of income and outgo is one of the symptoms of living paycheck to paycheck. The bills that are due on any given payday could be different every payday. Planning becomes difficult, if not impossible, when the bills you have to pay come due on different paydays each month.
The solution to bringing your income in sync with your outgo is to switch your planning from when paydays happen to when bill and credit card payments happen. In other words, you plan your finances on a monthly schedule just the way that the people you owe schedule your due days. You do this by scheduling when you will be paying bills each month.
Paying bills once a week does not work because the number of complete weeks in each month varies. And paying bills monthly is too infrequent for planning purposes. Paying bills twice a month, on the 1st and 15th, works out to be the best compromise for scheduling payments. 

  • On the 1st you pay all bills that are due on the 1st through the 14th.
  • On the 15th you pay all bills that are due on the 15th through the end of the month.

This twice monthly bill paying schedule gives you a solid foundation for also planning the other five parts of your everyday money as shown below. The Look Ahead page in Income Companion is where all of the money events in your Incredibly Cool Budget are automatically scheduled twice monthly. (The "New cushion balance" row is your bottom line that shows you if there are any coming shortfalls (e.g. in the 9/15/2020 column) that might need attention before they become immediate problems.)

An option on the Look Ahead page lets you change the 1st and 15th monthly days to better fit your lifestyle.

2. Ignore paydays

With your bills scheduled for payment twice monthly, when you get paid is no longer important. What matters is how much money you will have available on the two days each month when you pay bills.

Income Companion automatically calculates and schedules your expected income receipts. The AutoDeposit feature alerts you when a receipt is due by displaying the Deposit dialog box at right when you start the program. After verifying that the deposit amount is correct, two clicks records the deposit. (The program maintains the transaction register for your checking account.)

The "Expected to be available" row in the above Look Ahead graphic shows the total in each column of:

  • How much on hand, non-earmarked cash is expected to be in your checking account,
  • How much cash has been earmarked for specific bill and credit card payments, and
  • The total of all expected income receipts since the previous column date (less any percent of income saving set asides).
When your bottom line number in a Look Ahead column is black (positive), you will have enough money available to pay the scheduled bill and credit card payments as well as set aside the scheduled amounts for your sinking funds and saving plans. There is no reason why you cannot make all the scheduled payments on the column date.

3. Control spending

After you start ignoring your paydays, you will no longer be getting spending money from each paycheck. You are free to set a schedule for your spending money that works best for your lifestyle that is not only independent of paydays, but, can also happen more frequent than paying bills twice a month. You can give yourself a weekly allowance on a weekday and in an amount that works best for you.

How you spend your allowance is entirely up to you. In addition, you neither budget your allowance nor keep track of how the money is spent. The goal for a weekly allowance is simply to have just enough money that lasts you until you get your next allowance. If you consistently have money left over each week, your allowance is too high. Conversely, running short each week means you need a larger allowance.

With a consistent allowance amount, the impact of your spending money on your cash flow becomes consistent. You will no longer be draining your checking account between paydays by spending your entire paycheck. With your spending controlled, you could begin to see two beneficial side effects.

  1. Since you will never be more than six days from your next allowance, you may see a decline in your credit card usage.
  2. You may start to see your checking account balance growing month to month.

In Income Companion you set up your allowance as shown in the Allowance dialog box above right. In this example you can see that Lois and I give ourselves an allowance of $250 each week normally on Thursday. Our total amount of allowance money for each coming month is set up to be automatically set aside by the program on the 1st as part of paying bills. Since there are normally 4 Thursdays in each month, the normal allowance set aside amount is $1,000. However, there can be 5 Thursdays in a month which increases the allowance set aside amount to $1,250. (See the "Allowance set asides" row in the Look Ahead graphic above.)

With the allowance set asides being done automatically for each new month, my part of the allowance feature is to get our allowance each week. In the Get Allowance dialog box at right, I have all the options needed to take a week's allowance and move it where needed.

Lois normally writes a check for our full weekly allowance amount. She puts the cash in her wallet. To record the check, I use the "Amount for which I wrote a check" textbox.

Get started

If you live paycheck to paycheck and would prefer to live a more authentic money life, click here to download Income Companion: Incredibly Cool Budgeting and get started. It only takes an hour or two to add your everyday money information. In that amount of time you will begin to see, probably for the first time ever, a clear picture of your future cash flow. That's a powerful picture that can help you find and make any changes in your spending plan that will bring your plan more in line with your dreams and goals.

Making the changes in your money habits as discussed in this post will come to you naturally when you start using the only software product on the planet that works the same way your money works. Within three months of using Income Companion: Incredibly Cool Budgeting you could be well on your way to living the life you love with a money management tool that will support you all the way from now to retirement and beyond.

So ... are you ready to stop living paycheck to paycheck? The ball is in your court.

Tuesday, June 23, 2020

What Is Incredibly Cool Budgeting?

A budget is an estimation of income, bills and savings over a specific future period of time. Budgets are usually compiled and re-evaluated on a periodic basis. Personal budgets can be based on paychecks, each month or, with the advent of Income Companion, the next 12 months.

Your continuously updated Incredibly Cool budget on the Look Ahead page

Paycheck and monthly budgeting differ only in the length of the period covered by each budget.

Paycheck Budgeting

To prepare a paycheck budget, you use paper, budgeting forms, an online service, or an app. There is no standard tool for paycheck budgeting.

You prepare a new budget before receiving each paycheck.
  1. Write down the expected amount of the paycheck
  2. Write down your expenses from this paycheck until you receive the following paycheck
  3. Write down your seasonal expenses from this paycheck until you receive the following paycheck
  4. Allot the amount left over after expenses to budgeting categories (give every dollar a job)
  5. Adjust expenses and budgeted categories so that income minus expenses equals zero
Starting on payday, keep track your of spending until the day before you receive your next paycheck.
  1. Record every penny spent
  2. Compare spending with budget categories to ensure the budget is being followed
Monthly Budgeting

To prepare a monthly budget, you use paper, budgeting forms, an online service, or an app. There is no standard tool for monthly budgeting.

You prepare a new budget before the beginning of each month.
  1. Write down the total amount of income you expect to receive during the month
  2. Write down your expenses for the coming month
  3. Write down your seasonal expenses for the coming month
  4. Allot the amount left over after expenses to budgeting categories (give every dollar a job)
  5. Adjust expenses and budgeted categories so that income minus expenses equals zero
Starting on the first of the month, keep track your of spending throughout the entire month.
  1. Record every penny spent
  2. Compare spending with budget categories to ensure the budget is being followed
12 Month Budgeting

Budgeting for 12 months is very different from both paycheck and monthly budgeting. Instead of preparing a new budget before each paycheck or month, with 12 month budgeting you collect all of your day-to-day financial information in Income Companion to initialize the program. After that, the program continuously updates your 12 month budget for you. Your part is to keep up with changes and pay bills twice a month.

Getting Started
  • Download and install Income Companion (free)
  • Do the initial, one time setup
    • Describe when you get paid
    • Set up the amount and weekday for your weekly allowance
    • Add your bills
    • Describe how your credit cards work
  • Pay bills the first time
    • Initialize the balance in your checking account
    • Add all credit card activity since the last statement
    • Pay bills
Spend 4-5 hours per month using the program
  • Add short and long term saving plans plus needed sinking funds
  • Use built-in calculators to create custom payoff plans for debt
    • Payoff plan for one debt
    • Snowball plan for two or more debts
    • Amortization plan for high balance credit cards
  • Keep your information current such as
    • Entering deposits into your checking account
    • Entering changes to income
    • Entering changes to bills
    • Entering and scheduling payments for credit card charges
    • Balancing checking account statements
    • Reconciling credit card statements
  • Pay bills twice a month
  • Get your weekly allowance
  • Monitor your 12 month budget
  • Play "what if?" with anything to help you make good money choices

Both paycheck and monthly budgeting focus on deciding how you will spend the money you have left over after paying your bills. This amounts to micro management of your left over cash. Doing any long term planning or playing "what if?" before making a financial decision is not supported. You have to find other ways of managing your future money. You are also on your own when balancing your checking account statements and reconciling credit card statements.

When you use Income Companion, all of your household finances are managed in one place. Everything you need to do to keep up with your everyday money is included in the program. A common belief is that with budgeting there is no one solution that fits all. That is no longer true. Income Companion works for everybody. The program's flexibility lets you manage your finances your way using a standard, teachable tool.

That's why using Income Companion is doing Incredibly Cool Budgeting.

When choosing a credit card ignore the interest rate

  Using credit cards correctly does not involve paying either interest or fees. Therefore, when choosing a new credit card, the interest and...