Just because you receive a raise does not necessarily give you cause to immediately celebrate. Many people are still struggling with debts that make an above-average salary. There are a lot of millionaires out there that are hocked to the gills over and above their net worth. It is not so much what you make. It is how you spend it. By practicing frugality most of us could climb out of debt or save for the future. How much could you save for retirement or a down payment for a house if you did not have any credit card debt?

If you want to learn the art of frugality, then you need to understand it cannot be honed without a plan toward saving for a particular goal. Making more money does not end financial stress if you are not interested in saving and cutting unnecessary expenses from your monthly budget.

Therefore, learning to save and cut expenses are essential tools you need if you wish to gain control in your financial life. Unfortunately, society often depicts frugality as something akin to miserliness. Certainly there are those individuals out there who could relax a bit when it comes pinching every penny. Still, frugality should be considered more synonymous with financial practicality. Frugality can be an asset if you make it your aim to save for a specific reason such as buying a house, planning for retirement, or paying for a child’s education.

You will not be sacrificing a great deal of your current happiness by being frugal if you determine how to prioritize with respect to your budget. By doing so you can better determine where to save money and where your money is better spent. For instance, do you really need that extra latte that easily costs $3.00 per day? That may not seem like much. However, if you are in the habit of frittering away that amount each day, it would quickly add up to over $60.00 for the entire month or more than $700 per year! Think about what you could do with that money if you would just brew your own coffee at home and skip the gourmet coffee shop. This is just one example. How much do you spend on energy drinks, cigarettes, etc.?

Just by sacrificing one or more needless item from your monthly budget, you can pay down your debt and open the door to your other savings goals. It pays to understand the art of frugality. Give yourself a raise by learning to be frugal. It will never matter how much you make if you cannot put a rein on spending.

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If you decide to hire a financial planner to help you with your investments, there are several things you should consider when you first meet your adviser in order to start your relationship off on the best foot.

Initial Agreement. When you sign up and commit to this relationship you sign an initial agreement that stipulates the arrangements. Make sure you communicate effectively and your exact situation and future plans in detail. This means that you give details on your income, expenses, savings, future plans to save, major monetary commitments. Like sessions with your shrink, now is not the time to fib about how bad or good your financial situation is.

Types Of Arrangements. This relationship can be one of two types. Either the investment manager acts on your demands, invests where you want to invest and take out investments when asked. Or, you can give the right to place your money in the appropriate investments on your behalf to the manager. In the latter case, you have to be more vigilant to make sure that you are kept updated and that the actions taken on your behalf are in the best direction for you.

Goals And Needs. After this exchange of information, your manager should advice you on the overall direction that your investments should have according to your needs. Taking that advice and your own understanding, you both should reach to a conclusion on what you want from your investments. These goals and needs should also be reviewed every couple of years or when large life events happen such as the birth of a new child.

Specific Targets. You might also want to investment manager about specific targets or goals. You should know exactly where you are headed and what you need to do to get there. Keep the flow of communication a two way street so that you can have a realistic view of what will be possible and can express your desires.

Updates. Once the agreement is set and the targets talked about, you should be kept updated about the performance of your investments. Also, ensure that you are in the loop about where the investments have been made on your behalf. This is important because staying aloof will put you at risk of being exploited unnecessarily, cheated, or invested in financial products that are not right for you for that matter.

Stay Informed. Keep an eye on the market or discuss investments with your adviser as needed to have an understanding of how things are generally going and any possible upcoming opportunities. If you feel that you are not getting the best out of the relationship, that risky investments were made when you did not want any, or reasonable returns are not as high as you would like, then you might want to have a talk with your investment manager. In persistent situations, to avoid long-term disappointment, there is no harm in getting someone else to manage your investments.

More people than ever are choosing to trust their investments with a financial planner or an investment advisor. Choosing a financial planner to represent you and your investing goals is not a decision that should be taken lightly.

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In order to obtain wealth, it is necessary to know the jargon, so to speak. People who become wealthy and stay wealthy understand wealth-creating terms, such as assets, savings, retirement account, stock and bond accounts, and real estate. They also are well aware that big-screen TVs, boats, cars, or fancy vacations are not the basic words used for creating wealth. These words represent possessions that do not rise in value. Therefore, they do not factor into a wealth-building vocabulary.

Liabilities. Nevertheless, knowing the words associated with liabilities do factor into the creation of wealth, as you have to know what to take out of your portfolio or “vocabulary” in order to create a more substantial net worth (another wealth-building word). Liabilities include such items as loans for your home and car, amounts owed on your credit cards, health-related costs, and student loans. Therefore, it is important to be aware of the items or “words” associated with liabilities in order to reduce their impact on your overall net worth. In order to do this, you must understand wealth-creating terms and phrases, such as “market value,” “pay-off amount” and “debt elimination.”

Becoming Accustomed to the Language. By learning to speak the language of wealth, you will also become better acquainted with other wealth enhancing terms. Learning words and phrases, such a “budgeting,” “planning”, and “financial goal setting” can help you become acclimated to saving. By budgeting, planning, and setting financial goals, you will be able to design a plan to increase your net worth in specific frames of time.

Have Established Certain Financial Goals. You cannot build wealth overnight. The road to prosperity can only be taken by those who set goals and make plans to reach them. It is best to begin with short-term goals first before you broaden your financial horizons. Therefore, in order to speak the language of wealth and learn to live by it you must:

• Set a specific frame of time to reach a particular goal
• Create a wealth-building plan
• Be realistic in your financial assessment
• Be prepared to make adjustments

To realize a greater net worth then, write down your short-term as well as long-term financial goals. No doubt, you will want to include such wealth-building terms, such as assets, savings, retirement account, stock and bond accounts and real estate into your planning. You will also want to find ways to reduce the use of such words or terms as debt, loan, credit card, medical bill, car loan, mortgage and student loan so you can realize optimum results from your financial planning.

Beauty of a Budget. Therefore, in order to speak the language of wealth, you need to create a budget. This financial tool permits you to see:

• How much you are spending
• Curtails you from spending too much
• Helps you see ways to increase your wealth

The best way to set up a budgeting plan is to determine how much you generate in income on a monthly basis. From this calculation, you will be able to log your daily expenditures and obtain the amount you spend monthly. A budget can also help you see if you’re spending too much on items you really do not need, like that extra daily allotment of candies and chips from the vending machine.

Budgeting and setting financial goals all starts with becoming familiarized with the language of wealth. Make it your aim to learn the language. Use the words to create a better way of life for you and your family.

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A friend of mine recently e-mailed me to let me know that there was some lost money in my name waiting to be claimed.  It was sitting idolly in an insurance premium that had been refunded and never claimed.  I guess that she had been bored one day and just started searching for everyone that she knew.  It’s not a bad idea, and many people can find missing money that the government and other companies owe them.

You can look for lost money in your own name as well at the National Association of Unclaimed Property Administration’s (NAUPA) website.  MissingMoney.com is NAUPA’s comprehensive national database that was established in 1999 to help the states inform citizens about unclaimed property.  The website will also tell you the procedure and who to contact to begin the claims process.

Some of the most common types of unclaimed property that can be lost and then found are bank accounts and safe deposit box contents, stock certificates, mutual funds, bonds, dividends, uncashed checks and wages, insurance policies, CD’s, trust funds, utility deposits, escrow accounts, and others.  Many people, especially professionals who move around from job to job every few years open bank accounts and conduct transactions throughout the country.  Do you have money in an old savings account that you might have forgotten about?

You can also check your state’s office of your state’s treasurer to find missing money that is owed to you.  The NAUPA has a link to most states’ offices directly on their website.  Check every state that you have lived in.  It could well be worth your time. It was very quick and painless checking to see if I had any money left unclaimed in the six states that I have lived in throughout my life.

The money in question that my friend found in my name was actually my grandfather’s.  We share the same name, and the leftover money was for an insurance premium that was paid and eventually refunded the month that he died, over twelve years ago.  Thanks to my friends e-mail, my aunt (the actual next of kin) was able to retrieve her long lost $150, which was enough for a great night on the town.

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Have you ever had an electric bill that was higher than you were expecting? I tend to cringe every time I get the bill in the mail from my electric company. I have no idea what it is going to be, and I am paranoid that a billing error will cripple my monthly budget. I especially hate the winter because I hate to be cold. So, I do not really mind cranking up the heat in my house, but I dread paying for it.

Like most people, my monthly electric bill tends to ebb and flow based on how much heat or air conditioning my wife and I use in our home. Some months it will be a low as $80, and other months it can be as high as $300. I love comparing my bill with my coworkers in the hopes that I am not as worse off as they are.

So, what is a person to do??

Now that I have been a customer for over twelve months, my electric company let me sign up for an “equalizer” program. Most electric company has them, and of course they all have different nifty names for them. But, they are all the same. My company’s program is a free budget billing service that sets your monthly payments equal every month. It lets you plan your monthly payments and helps you keep your budget balanced and is designed to help you avoid unpredictable monthly electric bills. Your monthly bill is based on the average of your last twelve months. And, this is the amount that will be charged to you every month for the next year or so.

The good part is that your bill will be the same every month, and you can plan better and will not have your budget busted by an outrageous bill one month. The bad news is that some months you will be paying more than your normal monthly payment, but in other months you will pay less than what you had in the past. It will average out much like dollar cost averaging does for investors. For example, in the spring and fall my wife and I do not use much electricity because we leave a lot of our windows open, do not run the air conditioner, etc. So, our bill is usually around $90 during those months. And, this month, our electric bill was about $250 which is typical for my family in the winter and summer months with the AC/Central Heat cranking. When I signed up for the bill smoothing program, our new monthly payment is going to be $130 per month.

Of course you can see right away that I am going to be over paying the electric company in the spring and fall and underpaying them in the Winter and Summer. But, it will all even out throughout the life of the program. Another interesting point of the program is that the electric company will continue to read the meter every month, and your monthly bill will show exactly how much energy you used. The actual amount you owed and the difference of what you paid will be shown on your account, and you will eventually have to may any amount that you are over (usually every three months or so). The difference may be a credit or a debit amount.  For my bill every three months, it will be recalculated to reflect the average of your last 12 months actual bills and your deferred balance.

So, of course, it goes without saying that you must still save for any differences that are charged to your account. So, while this program may be a budget saver, if you do not budget for any differences from your monthly fee, you could be in for quite a surprise when your electric company recalculates your account.  So, what else can you do? You should consider making sure that you have a fully funded emergency fund to help you ride the ebbs and flows of your monthly electric bills. That might be the real answer to your budgeting issues.

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You do not have to be an accountant or financial analyst to manage your personal finances properly. All it takes is some commitment towards the cause and taking the first step. Remember, no one has your best interests at heart more than you do. If you do not take a hold the reins of your personal finances, who will?

The first step is to draw the picture, which basically means getting all the information down on one piece of paper or spreadsheet. What shape are your finances in? Nothing woke me up more than to actually write out all of the debts that I owed credit card companies. I had no idea that it was that much when I was trying to dig myself out of debt. Do you know your net worth? Tracking your net worth can be very beneficial to see where you are and how far you need to go with your financial planning.

Not only should you consider all of your bills and the amounts you owe on credit cards, but you should also take a serious look at where and on what you spend your money every month. You could either spend time at the end of each week recalling the major expenses made or make a habit of noting down sizable expenditures on a daily basis. A few recurring items will top each household’s list of expenses such as groceries, electricity bill, phone bill, rent, gas, public transport costs, children’s educational expenses, allowances etc. Some items will be non-recurring such as a car’s repair cost, new dining table, carpet cleaning, vacation costs, etc.

Once you have figured what you spent your money on last month, try to plan more carefully for next month by identifying where you need to reduce spending. This could be through reducing the recurring items such as saving on the electricity costs or non-recurring items such as buying new items for your home less often. At the end of the month, compare your actual expenses with the planned ones and see if you made it to your estimated targets. If you did not, then think about solid ways that will help your cause for the coming month. For example, by making sure no extra lights are left on and using the air conditioning or heating only when required to cut on those expenses.

You can do all of this with a piece of paper and a pen or you could use technology to assist you. Simple software and applications on websites can guide you through the planning and recording process and identify areas of improvement. My wife and I track our finances on a simple Microsoft Excel spreadsheet. There is also a lot of content available online with cost-cutting solutions for households in different areas.

Other areas of personal finance such as personal investments, retirement plans, and college savings can also be dealt with easily by making some time specifically to consider your options and the choices you will make. Many financial institutions provide investment advice and solutions that cater exactly to specific needs of individuals like retirement plans for people in your income group with a similar household. Many bases also offer services like financial planning and financial literacy classes to members of the military as well. All you need to do is to talk to an adviser, spend time understanding your possible options, making a plan, and then sticking to it.

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Do you often end up looking at your bank account to find less money that you had thought was there? I used to always pick on my wife when we were dating because she would check her bank account balance on the automated phone system. That is how she balanced her checkbook. She never reconciled her bank statements. It never failed that there was always less money in the account than she thought should be there.

Do you end up having to ask to borrow money from friends and family, just to end up in an even tighter situation to return it? Do you feel that although you can afford many of the things up for sale at the mall, you never seem to have enough cash to get them? If the answer to any of these questions is ‘Yes’ then your personal finances may be out of control. In addition to earning the money that you do, properly managing it is an important step towards living a life without any financial worries.

Here are a few simple steps that should help you start to dig out of an unseemly situation…

Start Budgeting. It might sound nerdy or unnecessary, but keeping an account of how much you can spend and where you plan to spend it is an excellent way of making sure that you are spending the money in the right places. Financial guru, Dave Ramsey, says that you should have a written budget every month where every dollar has a name on it whether it is for your electric bill or your car payment. You know where it is going before you even get it in your account. You do not have to call up your accountant friend to figure your way around this one. All you need to do is to note down all your expenses for a single month in one place. Write down your income next to this list and get a grip on where the money is going. After making some reasonable judgments on where you should be spending less and perhaps things that you should be spending more on, make a rough plan for the coming month. Repeat the exercise a month later to see how you really spent the money as compared to the plan.

Learn Self-Discipline. A simple and yet effective way of handling a personal problem such as a financial one is to learn to control yourself. We all have those moments of impulsive purchases and unnecessary spending, like getting a dress that is way out of your range or eating out at fancy places much too often. If you have recognized that there is a problem, start being conservative in your spending.

Cut Costs. Part of the budgeting exercise, is to look at your major expenses and compile your bills to find any part of them that have been unnecessary or a luxury that you just cannot afford. Get rid of unwanted magazine subscriptions and extra channels on cable. Get a payment plan for your phone that saves you the most money and find out ways of cutting your electricity bills.

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My wife called me the other day and said that the car dealership she had taken our beloved SUV to quoted her $100 an hour for labor costs to diagnose and fix a problem with its air conditioner. I, of course, immediately told her to walk away.

Now, granted, I know how expensive car repairs can be. I understand that fact, but I also have the benefit of having had worked for a local body shop while in high school. I know how maintenance shops charge their customers the national hourly rate for help which is currently around $50 per hour for local shops and about $75 or so for national dealerships, and then they pay their mechanics a set hourly fee far below that based on their experience and education level. So, the $25-50 per hour difference is pocketed by the company that owns the car repair business whether that be a mom and pop type of shop or a shop at a big dealership. So, $100 per hour is on the very high side of a dealership’s range and to seemed ridiculous!

I also benefited from having people in the company I work for who are certified mechanics. So, I sought them out and got a second opinion. Second opinions are one of the greatest sets of checks and balances that we have as consumers. But, not enough people get them because of a host of reasons. We usually think of getting a second opinion with respect to doctors and our illnesses, but it does not have to be limited to our health. You can get a second opinion on just about anything that you do not like at first glance.

Second opinions can be used in a wide range of businesses and industries. My favorite is to get a second opinion with respect to financial planning. I once went to a financial planner when I was right out of college who tried to sell me on a lot of different financial products that I did not need or were not right for my personal situation. The financial planner tried to get me to buy a whole life insurance policy instead of a term policy. He also tried to get me to buy a mutual fund with an upfront sales charge or load. He did not realize that investing was one of my passions in life and that I was fairly well read in the subject for someone right out of college. So, needless to say, I went and sought out a different financial planner (a second opinion).

Why do we balk at getting a second opinion sometimes even when it is obviously in our best interest? A lot of people do not like confrontation. We think that we might hurt someone’s feels if we tell them no or tell them that we want to think about it or that we are going somewhere else to double check. A lot of people do not want to bother checking around elsewhere as well. We often take the path of least resistance and just settle on something even if it might not be in our best interest. Especially when it comes to matters of money, we need to remember that no one has our best interest more at heart than we do. We care the most about our lives, our livelihood, and our future.

You would not accept questionable medical care because it is your life and health in question. You should not accept financial advice either that you do not feel comfortable with or which seems not right and does not have your best interest at heart. If things do not seem right, you should not be afraid to seek a second opinion with respect to your finances as well.

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This would not be a personal finance blog if I did not include a posting about New Year’s resolutions.  I always try to make several personal New Year’s resolutions every year including a few about money and my finances.   But, I don’t try and make too many resolutions. I do not think that I would be able to keep up with more than about three or four.

Last year, I vowed to beef up my emergency fund.  That of course did not happen as well as I would have liked.  This year, my resolution is to once again fully fund my emergency fund with three months of expenses or $10,000 in my family’s case.  My family and I also want to stop eating out as much. It is definitely one of our vices. We go out to eat a lot, a couple times a week. So, we have decided to try and limit ourselves to once a week.

2010 New Year’s Resolutions:

1) Fully Fund Emergency Fund ($10,000)

2) Go Out To Eat Less (4 Times A Month)

Are you making any financial New Year’s Resolutions this year?  What are they?

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A friend recently told me that he was having trouble making ends meet.  He let me see a copy of his most recent bank statement, and I was blown away by how many overdraft fees that he had been charged by his bank.  In the span of two weeks, he had six insufficient fund fees charged against his checking account.  One of the charges came when he used his debit card to pay $6 for a hamburger at a fast food restaurant.  That expensive burger should have come with its own white table cloth and tuxedoed waiter instead of the Happy Meal .

According to the Consumer Federation of America’s recent bank fee survey, the cost of a $100 overdraft repaid in one week costs $70 or the equivalent to a 3,640% APR.  Stop and think about that for a minute.  Overdraft fees are not calculated on an annual scale, but if they were the fees to “borrow” money because you bounced a check can equal over three thousand percent!  Even the horrible Payday loan villains only charge 456% annual interest on their two week loans.  At those rates, a 25% interest rate on your credit card looks awesome!

Many people have been burned by a bank that will let customers rack up a lot of small overdrafts instead of one small one to generate more fees.  Banks have been accused of shuffling the checks you write around, clearing the larger one first and letting you bounce the little checks in an effort to generate fees and subsequently their own revenues. 

45% of banks say that the revenue that they generate from overdraft fees is greater than their other sources of income.  The average overdraft fee is $35 per bounced check.  Banks brought in over $38.5 billion in overdraft fees this past year.  35% of checking account users have had at least four overdrafts on their accounts.  11% of all bank customers are chronic serial overdraft users.

There are several things you can do to prevent yourself from falling victim to the banks’ evil fee scams.

Use Direct Deposit.  Receiving you paycheck directly into your checking account can help you avoid the posting delays between when you deposit your paper paycheck and when your account updates.  Don’t play the float.  Almost all banks have changed how they post checks thanks to the power of computers, and the delay has been cut down drastically.  You will get burned

Keep Track of Your Balance.  Be cognizant of your pending transactions.  Pending transactions have not cleared your bank account.  You cannot withdraw month or write a check against a pending deposit.  The pending money is not technically in you bank account yet.  Do not spend that money until it is officially yours to do so.

Keep a Safety Net In Your Account.  I used to love the old checking accounts that actually had a minimum deposit requirement.  A lot of younger people will not remember this (my mom will think that it is amazing that I even do), but many banks required you to keep a minimum account balance in your checking account before they would let you have one.  There used to not be anything as free checking.  Free checking is an advertising ploy that was created in the last decade or so to bring in new business.  But, in the olden days of the 1990s and before, you had to keep a minimum, $1,000 for example, in your account at all times.  That was the rule, and everyone had to adhere to it.  You put that money in there and forgot about it.  It stunk having that much money tied up in your zero interest earning checking account at the time, but it kept you out of trouble.  You didn’t bounce many checks because you had a big safety net.  You should do the same with your free checking account.  Deposit $500 in there as a safety net and forget about it. 

Link To a Savings Account.  Many banks now offer overdraft protection for a very small fee or for free.  Overdraft protection will link your checking account to a savings account.  If you accidentally withdraw more money than your checking account has in it, then your bank will take money from your savings account to cover the difference.  While this is not the optimum solution, this will keep you out of trouble and keep you from racking up the overdraft fees.

There is a movement in Congress to reform the nasty fees banks levy on their customers.  But, until legislation passes and even afterwards, checking account holders must remain careful to ensure that they are not gauged by controversial bank fees that encourage consumers to fall into debt on their checking accounts.

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