Magnum Opus Financial | Budget Planning

dollar signTimes are hard, I mean decide between food and medicine hard.  We get that, almost all of us (except the top 15% or so of income earners in the world) get that.  So what do we do?  Short of sitting down with us and going through your budget personally (which we can if you send us a message and set up an appointment), we want to give you some tips on what to do if we never get to talk.
 
1) DON'T SPEND LARGE SUMS OF MONEY AT ONCE!  This has always been the number one rule.  If you ever get an inheritance, a bonus at work, a huge tax refund, whatever it is...any amount of money that isn't your regular paycheck or earnings counts.  What do we mean by not spending it all at one time?  If you have a bunch of credit cards and you inherit $50,000; PLEASE do not run and go pay them off.  Instead, consider this, we want you to pay off only the card with your lowest balance (that will completely eliminate the need to make that minimum monthly payment).  Now, you're not allowed to use that card anymore until all your cards are paid off.  Now, take a look at the car loans you have, do you have a car you've been paying on for years but the payment is still $200 or $300/month?  That's a good target to pay off.  No doubt, between the card and the car, you now have hundreds more dollars a month from your paycheck BACK into your budget.  Put the rest of the money in a C share bond mutual fund (either Floating Rate, Municipal Securities, High Yield, even Emerging Markets Income Funds).  Now that you've got extra money in your budget, concentrate on paying off your next smallest balance, should only take a few months.  Once you get under $1,000; use some of your big check to finish paying off the credit card.  Then, repeat this and only use your stash of cash when your card is under $1,000 and you can pay it completely off. 
 
2) Save money EVERY MONTH NO MATTER WHAT!  I don't care if it's $50, $100, or $500 or more, just save money.  If you feel like you have a tough budget, find a broker you like and tell them you want to save $50/month in American Funds or Invesco AIM.  Save according to your risk tolerance and be sure if you're just starting to save money to use C shares, as you're likely to spend the money some day.  See, it's OK to spend money that you've saved.  That's why you saved it!  Most people think if you don't save your money in a bank you'll never get it back.  That's wrong, go get a broker, ask them a lot of hard questions, heck, go call T. Rowe Price or some do it yourself company.  The bottom line is that you need to start saving money.  For some picks that we like, you can visit the Research and Reports Section of our Investor Education Center if you need a place to start.  You have to have an emergency fund to keep yourself out of debt when things go wrong in the future.  Don't use your credit card next time something comes up, use your savings.
 
3) For now, eliminate ALL your spending that isn't food, electricity, water, or gasoline for your car.  Yes, I am including clothes.  Once you have 10 shirts, and 3 or 4 pairs of pants, you have all you need to dress yourselves, everything else is not necessary.  So, stop telling yourself that food, shelter, and clothing are the 3 essentials.  This does not mean you should spend as much on food and clothing as you do rent/mortgage.  That reminds me, pay your mortgage or rent too, as well as your car payment in those things you must pay.  In fact, if you have to skip everything else, please keep your car and your house.  Your house/apartment is number one.  If you are not able to live with family, make sure you have a place to live.  If this means walking places and going without food, make sure you have a safe place to put your head at night.  If you can live with family, please, suck it up and do it.  No one thinks you're a failure because it's hard to make it own your own, just find ways to lower your expenses and save money.  I don't mean live at your brother's house and go out every night drinking.  You missed the point if you're doing that.  Heck, drinking is NOT a must, so don't be doing that no matter where you live, it's very expensive and bad for your budget.  Divert money you will no longer be spending to paying off bills or saving money.
 
4) If you have not used the money you've saved over the year, contribute to your retirement account.  If you're eligible for a Roth IRA, get one.  You just can't substitute taxable income in retirement for money you have to pay no taxes on, regardless of how much it grows.  Don't turn down that chance.  If you haven't used your savings during the year, put half of it into your retirement account (unless you're going to break the guidelines on contributions, remember, under 50 you can save $5,000; over 50 you can save $6,000).  If you got that big check we talked about in section 1, you need to top off your contribution if that means you will still have money left over.  So, if you have $10,000 still from the big check, you really want to consider putting whatever you need to get to $5,000 in your Roth IRA for that year.  If your company does NOT match your 401(k), you need to save money in your own IRA so you can own whatever you want instead of some target retirement fund.  Please remember that planning for retirement does not mean picking one of these funds, do your homework and pick mutual funds that will get you the return you need to retire.  We recommend getting help from a professional you like if you need recommendations on what to own.

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