5 Big Budgeting Mistakes Most People Make

Top-10-Big-Budgeting-Mistakes-in-Travel-2Some people take budgeting very seriously. They budget their money down to the very last cent. Others ignore the subject completely and don’t even bother to look at the big picture every now and then.

Regardless of the situation you’re in, there are five budgeting boo-boos that most people make — and they are big. Let’s review these pitfalls so you don’t fall into any of them.

1. Not Tracking Your Actual Expenses

Budgeting is great, but without tracking it against your actual expenses it’s a useless endeavor. The ultimate purpose of budgeting is to determine if your spending behavior is getting you closer to — or further away from — your life goals. A budget is a dream. Actuals are reality. The dream is nice, but it won’t change your life.  Your actual spending, if you track it and make critical decisions around it, can propel you forward in ways you could never imagine. It’s important to track your actual spending every month.

2. Neglecting Emergency Planning

There are two kinds of emergencies. The first kind are involuntary, as in, “Oh my gosh, my car needs a new transmission!”  The second kind are voluntary, as in, “Oh my gosh, I just have to go to Vegas this weekend!”

These are both examples of unplanned expenses that throw most people off track. But they don’t have to. Here’s why. If you look back over your records for prior years, you’ll probably notice that these kinds of emergencies (voluntary and involuntary) pop up about once or twice a year.  If it’s not one thing, it will be another. You don’t know what it will be or what the price tag will be exactly, but people get smacked with “unexpected” expenses in a fairly predictable manner if they view it on an annual basis.  That’s another reason why it really pays to keep good records.

Look at your past “emergencies” to get a sense of how much goes out more or less each year and divide that number by 12 and set that amount aside every month to cover these costs.

3. Forgetting to Allow for Non-Recurring Expenses

Of the people who do track what they spend each month, few put aside the bills that come in infrequently like property taxes and insurance. That’s why, when people are asked what they think they spend on average each month, they usually undershoot it by 30% or more. And that kind of miscalculation poses a huge danger.

If you retire thinking you spend “X” but actually spend 130% of “X” you’ll be back to work before you can say, “Flippy Burger.” Track everything that goes out. It doesn’t matter how you do it. It just matters that you know what it costs you to live on average each month including everything – even non-recurring expenses.

4. Not Expecting the Really Bad Stuff

Do you budget for the really terrible “what if” scenarios? Part of that includes a family continuation plan and that usually includes a discussion about life insurance. According to JD Power and Associates, 40% of the adult population in the United States has no life insurance at all. And according to that same study, 25% of all widows and widowers (35 to 50 years old) feel their deceased spouses didn’t have enough life insurance.

Make sure you know how much coverage you need, carve out a spot in your budget and then put the policy in place. Term life is very affordable. And don’t let health issues stand in your way.  Each insurance company views your health history differently.  Even if your doctor’s chart is really ugly, don’t despair.  You may be eligible for a guaranteed issue policy.  You have nothing to lose and your family to protect, so put the latte down and take care of this.

5. Not Budgeting Your Top Resource: Time

Regardless of how much money you have or don’t have – time is your most precious resource.  Are you budgeting and tracking it?  Don’t feel bad, most people don’t. Something you can try is to make a daily list of three things you need to get done. Only jot down three things because you want to set yourself up for success rather than failure. Keep that list by your side all day long and don’t unplug your computer until you cross each item off the list. Sticking to your list and plowing through it before doing anything else will yield powerful results. You’ll be more effective and feel less stress — it’s a win-win.

Take a look at the way you spend your time and money. Are you satisfied? If not, which of these budgeting tips offer the greatest potential for you? When are you going to start? Why or why not?

Click here to check out our free financial calculators that are conveniently located on our website. We also offer a number of free tools and low-cost services that can be helpful organizing your finances and getting yourself back on track, these include:

If you’d like to sit down and review your current finances with a First Financial expert, contact us to make your complimentary annual financial check-up today by calling 866.750.0100, email info@firstffcu.com, or stop into any branch and ask to speak with a representative.

*Click here to view the article source written by Neal Frankle.

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9 Ways You May Be Sabotaging Your Own Financial Stability

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As human beings, our brains contain psychological barriers that can stand between making smart financial decisions and poor ones. The good news is that once you realize your own mental weaknesses, it’s not impossible to overcome them. Here are nine of the biggest barriers…and some good strategies for fighting them:

Scenario 1: You’re about to buy an engagement ring so you do some research on prices. Most people say three months’ salary is the general budget, so you freak out and request a credit line increase.

What’s really going on: Anchoring.

Anchoring happens when we rely too heavily on the first piece of information offered when making decisions. After encountering the “three month” rule, you find it hard to make a logical decision based your own financial reality or your relationship. You may not have three months’ worth of salary to splurge on a diamond, but you decide to spend within that range because you are anchored to that idea.

Scenario 2: You’re 27 years old, in excellent health and just got promoted. You’re so high on life that you can’t fathom a time when you’ll no longer be young, fit, and financially stable.

What’s really happening: Myopia.

Because you are unable to picture yourself in old age, bad health, or cash-strapped, you’re less likely to save for unexpected events or your retirement. Myopia can be blamed for many depleted retirement savings accounts in the U.S. “Seduced by temporal myopia in their younger years, many people get around to saving seriously for their retirement far too late in their career, in their forties and fifties in many cases, which greatly reduces the amount of money they will have available for their retirement,” says Shlomo Benartzi, a behavioral finance economist and author of “Save More Tomorrow.”

If you’re lacking motivation, try this handy experiment: Use Merrill Edge’s Face Retirement generator, which will take a photo of you as you are today and generate an image of what you’ll look like in retirement. Benartzi’s own research has shown that this kind of reminder can actually give people the jumpstart they need to start saving for retirement.

Scenario 3: You’re watching the market closely and see that a certain stock has been tanking over the last few months. You give it another month, watch it drop again and decide to sell it off before history repeats itself.

What’s really going on: Gambler’s fallacy.

When investors rely on past events to predict the future, they’re shooting themselves in the foot. If a stock is flying or floundering for a year, that doesn’t mean it will continue to do so in the next year, or even in a few months to come. The same thing happens when you buy a lotto ticket because your buddy next door just won $10,000 in a drawing. Just because he won doesn’t change the odds of you winning at all.

Keep your decision-making grounded in the real facts. Analyze your investments before making any sudden moves or following trends.

Scenario 4: It’s open enrollment season for your company’s health care plan and the list of plans is so confusing that you put it off for days until, finally, the deadline rolls around. You give up, re-enrolling in whatever plan you already have.

What’s really going on: Avoidance.

This is a form of procrastination that could really cost you. There are a lot of meaty topics in finance, most of which are about as fun to research as it is to get a root canal. But if you miss a dentist appointment, you can easily reschedule. Mess up your health care election and you could be stuck with the wrong plan for an entire year and pay dearly for it.

Another area prime for avoidance: 401(k) plans. You know you’ve got to enroll so you just skip around until a decent plan name “speaks to you.” Not only could you have signed up for a plan with high fees or the wrong allocations for your risk tolerance, but you will only wind up paying more fees when you finally realize your mistake and have to switch plans.

In addition to a wealth of helpful tools and articles online, many retirement plan providers offer free advisors who are on call to help navigate you through the elections process. If they don’t, it could be worth it to book a one-time consult with a fee-only financial advisor.

Scenario 5: A tech company you love just went public and you’re dying to buy in. You decide to do your homework, but you skirt over the negative headlines, instead clicking on posts singing the company’s praises.

What’s really going on: Confirmation bias.

Investors aren’t machines. They’ve got feelings and like any normal human being, they can’t help but selectively filter out opinions that don’t mirror their own. In doing so, they create a false sense of security that can lead to some pretty boneheaded decisions.

If you want the full picture, you’ve got to seek out information that contradicts everything you thought you knew about a company before you can hope to form a balanced opinion.

Scenario 6: It’s April 2008 and the stock market has just hit rock bottom, taking half of your retirement savings down with it. Shell-shocked and devastated by the loss, you demand that your financial advisor pulls every last investment out of the market immediately.

What’s really going on: Loss aversion.

Loss aversion plagues even the most experienced investors, making them avoid potential gains because they’re too afraid to take a risk.

Anyone who ditched the stock market for fear of further losses after the 2008 crash can blame loss aversion. The average pre-retiree 401(k) balance actually doubled since the recession. People who fled the stock market and never rebalanced their portfolios only rebounded by 25%.

Loss aversion can also have the opposite effect, causing investors to cling too tightly to losing investments. Because it hurts to admit that they picked a losing investment, they focus on selling off winners and hope they’ll rebound over time. If they aren’t careful, they wind up with a portfolio full of flops.

Scenario 7: You’re a savvy investor and you know you’ve got the goods to beat the market. So you jump in and start trading like a madman, trusting your gut and your own due diligence not to lead you astray.

What’s really happening: Overconfident investing.

It takes seriously overconfident investors to kid themselves into thinking they can beat the market when even the people whose full-time job is to beat the market fail so frequently.

Terrence Odean’s oft-mentioned study, “Trading is Hazardous to Your Wealth,” isn’t just a cute bedtime story for investors looking to stroke their egos. It actually shows that frequent trading caused by overconfidence can kill your returns.

Of more than 66,000 households using a large discount broker in the mid-1990s, those who traded most often (48 or more times a year) saw annual gains of 11.4 percent, while the market saw 17.9 percent gains, Odean found.

Scenario 8: You’re still working on building up your emergency fund and you just got a birthday check for $100. Instead of adding it to your savings account, you treat yourself to a new coat or a haircut.

What’s really going on: Mental accounting.

Mental accounting takes place when we assign different values to money depending on where we get it from. If you had earned that $100 by working overtime one week, chances are you’d treat it more like regular income and save it.

Mental accounting is a big reason why we spend more money with credit cards than using hard cash. It just feels “less” like money to us and therefore it’s much easier to spend.

Instead, repeat this mantra: “Money is money, no matter how I get it.” And the next time you use your credit card, ask yourself if you’d be spending that money if you were using cash instead. If the answer is no, hold off.

Scenario 9: A housing development in your county just went belly up and you’ve heard investors are snapping up cheap plots for a steal. You’ve got no experience flipping houses but you’re not about to miss out on a hot ticket like that.

What’s really going on: Herd mentality.

You’ve spotted a hot trend and you don’t want to be the only one out there who didn’t book a seat on the bandwagon. As human beings, it can be very uncomfortable standing still while the rest of our peers head the other way looking like they’re having a ball. It’s in our nature to want to join the party.

This causes a lot of problems when it comes to investing. If you’re willing to change course every time the herd moves, you’ll end up trading a lot more frequently and seeing your returns nibbled to bits by transaction costs alone, not to mention what will happen if the herd leads you astray.

Cotton on to a trend too late and you’ll just lose out when the herd moves on to hotter territory later on and your stock plummets. It’s just a vicious cycle that will only lead to selling low and buying high. The only way to profit from a trend is to get there before anyone else and the odds aren’t in your favor.

To set up a no-cost consultation with our Investment & Retirement Center located at First Financial to discuss your insurance and financial questions, call us at 866.750.0100 option 6 today!*

Article by Mandy Woodruff of Daily Finance.

*A First Financial membership is open to anyone who lives, works, worships or attends school in Monmouth or Ocean Counties. Representatives are registered, securities are sold, and investment advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC , a registered broker/dealer and investment advisor, 2000 Heritage Way, Waverly, Iowa 50677, toll-free 800-369-2862. Nondeposit investment and insurance products are not federally insured, involve investment risk, may lose value and are not obligations of or guaranteed by the financial institution. CBSI is under contract with the financial institution, through the financial services program, to make securities available to members. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.

Back to School Shopping Strategies to Spend Smart

back-to-schoolSo here is the deal: it is impossible to avoid back to school shopping. The plain truth is you need to get certain supplies to make sure your child is prepared for back to school season. This can become quite expensive, as children seem to need more and more every year. But savvy spenders know that there are several tips and tricks you can follow in order to save big. You don’t have to be a shopping guru or expert in order to save, you just need to know where the deals are, and the places you can save a few pennies. Below, you will find back to school shopping strategies to spend smart and save big.

You will find that these tips are simple to follow and don’t require a great deal of know how or time. Give these tips a try and see how easy it is to shop smart and save big. Take a peek!

1. Get your child involved.

Explain to your child what the difference between wants and needs are. They won’t be able to get every single item they want and you should be able to tell them that. Before shopping, make a list with your child based on the list the school provides. Make sure your child understands what they will be getting to prepare them for school and what can wait.

2. Eliminate gimmicks.

Teachers will tell you that things like sparkly erasers, light up pencils, and other fancy items can be a distraction. They are not only a distraction, but they are more expensive than plain items. Instead, forget about these back to school gimmicks and keep things simple. It costs less.

3. Keep your supply list in the car.

While you are running your errands, you will want to keep your list on you should you run into any deals. If you don’t have your list, you could miss out on a hot deal. Keep your list in your car or in your purse so if you come across a sale or a free with rebate deal, you have your list to see if you need it or not.

4. Buy basic supplies in bulk.

You can buy basic supplies such as paper, pencils, and notebooks in bulk. Warehouse stores are perfect for buying these items for less and having enough to sustain you for the rest of the year. Do the math and make sure the bulk price beats the a la carte price before you shop.

5. Negotiate a group discount.

Gather the other parents at school and see if you can rally together to save. A group of parents may be able to negotiate a group discount from a local office supply store. Contact stores in your area and see if they are open to the possibility of this. Then, contact parents and get the ball rolling.

6. Stock up and set up a home store.

Buy items on sale, free with rebate, or in bulk and then gather them in a storage bin. Keep the bin in a safe place where they can be shopped during the year as they are needed. That way, you are not having to run out and buy items during the year, possibly spending more.

7. Help your school and yourself.

Ask if your school participates in a program like OneCause. If so you can shop for supplies often receiving a discount and special coupons. Plus with your purchase, your local retailer will donate a percentage to the school of your choice. It is a win/win!

See how easy it is to save money on back to school? With these back to school shopping strategies you can learn how to spend smart and save big. These tips will help you make the most of your cash and stretch your shopping dollar. Give them a try and see how quickly the savings add up for you!

*Click here to view the article source.

Quiz: Do You Know Your Life Values?

life-values-webWhat’s Behind Your Financial Decisions?

Have you ever wondered why you feel good about spending money on vacations, but avoid saving for retirement? Why you buy new golf clubs, but procrastinate when it comes to giving your kids an allowance? The answer may lie in your unique LifeValues and how they influence your financial decision making.

Most of us don’t realize what’s behind the thousands of financial decisions we make every year. And, if we are in a relationship, we are even less certain about why our partners make the decisions they do. If you want to demystify your money behaviors, start here with the LifeValues quiz.

Read about the Four Life Values before taking the quiz.

Now you are ready to get started! Bear in mind that there is no “wrong” answer. You are simply identifying your preferences. Remember that your answers are intensely personal—resist the urge to choose an answer someone else might believe is right for you. Quickly choose only one answer.

Start the Quiz!

Click here to view the article source.

*First Financial is not responsible for the content list on external websites.

Don’t Eat the Marshmallow! 4 Tips for Financial Self-Control

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The “Marshmallow Theory,” based on a landmark Stanford University experiment, has been used countless times to demonstrate the power of self-control in your financial and personal life.

The experiment followed children who were left alone with a marshmallow and told that if they didn’t eat it they would get a second one 15 minutes later. Some of the kids waited the full 15 minutes, some ate the marshmallow immediately, and others waited for a short period of time before eating it.

Years later, researchers tracked down the children and found that those with the willpower to wait to eat the marshmallow — 1 in 3 of the test subjects — grew up to become more successful adults than those who ate the marshmallow immediately.

Temptation Never Goes Away

Joachim de Posada, an author, motivational speaker, and adjunct professor at the University of Miami, has gotten a lot of mileage out of the marshmallow experiment. He’s written three books based on the theory.

His latest — “Keep Your Eye on the Marshmallow” — teaches readers how to take responsibility for their own financial, career and personal success by keeping their attention focused on long-term goals rather than instant rewards.

“One of the lessons we can learn from the marshmallow experiment is that among the 1 out of 3 kids that didn’t eat the marshmallow, some already had willpower and some understood they needed to use different techniques to avoid eating it,” says de Posada. “Leadership, like willpower, can be inherited, but it can also be learned through emotional intelligence.”

While the children in the Stanford experiment resisted eating the marshmallow by turning their backs on it or distracting themselves by drawing on the walls, de Posada suggests that adults can use similar techniques (defacing property notwithstanding) to avoid the allure of instant gratification.

4 Ways to Artificially Boost Your Willpower

If you lack financial willpower (e.g., the wherewithal to save your paycheck instead of spending it right away), de Posada recommends the following workarounds to help you delay gratification:

1. Choose an accomplice. Let’s say you have a goal of saving 10 percent of your paycheck until you have enough to cover six months of living expenses to stash into an emergency fund. If you can’t do this on your own, de Posada suggests you identify someone whose willpower is stronger than yours either to keep your money for you or be the person to whom you are accountable.

“If you trust them, send them the money and tell them they can’t give it back until you’ve reached a certain goal,” says de Posada. “Or have your mother or your brother or a close friend call you every 15 days and ask you how much you saved or what you spent your money on during the previous two weeks.”

2. Have your boss hide away part of your paycheck. If you work for a larger company, de Posada says you should have at least 10 percent of your income transferred into a 401(k) or other financial instrument before you ever see it. Just like the kids who looked away from the marshmallow, your money will be out of sight and out of reach.

The Investment & Retirement Center located at First Financial can assist members with saving, investing, and planning for retirement. Set up an appointment with Financial Advisor, Louis Paolillo by calling 732.312.1565, email Louis.Paolillo@cunamutual.com, or stop into any branch and ask a representative to schedule an appointment for you.*

3. Use a money planner. “You schedule your time with your iPad or your calendar, so schedule your money in the same way,” says de Posada. “Give yourself orders that you need to follow in your planner, such as saving a specific amount each week.”

Committing these money appointments to your calendar makes them more concrete, as opposed to vague, far-off goals.

De Posada suggests establishing your financial priorities as you would other activities, with the “A” level urgent actions that must be done today, such as paying a bill on the due date; “B” level tasks that are important but can be accomplished by a future deadline, such as reducing your debt by a particular amount; and “C” level long-term goals such as funding your retirement. He recommends checking your money planner weekly rather than daily.

4. Take action now for future rewards. Overcoming a bit of discomfort in the short term often accompanies actions that pay off in the long term. Investing in the stock market requires weathering the inevitable short-term gyrations and reminding yourself that over the long term the market has steadily risen.

“You need to understand who you are and your appetite for risk, but be aware that when you’re younger you can be more aggressive in your investments,” says de Posada.

De Posada says the most important part of the marshmallow theory is to understand how you would react to the experiment.

“If you know intrinsically that you’re a marshmallow eater, then find a technique to overcome that character trait,” he says. “Recruit someone to help you or put systems in place that will force you to wait for that second marshmallow.”

Click here to view the article source.

*Non-deposit investment and insurance products are not federally insured, involve investment risk, may lose value, and are not obligations of or guaranteed by the Credit Union.Representatives are registered, securities are sold, and investment advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC , a registered broker/dealer and investment advisor, 2000 Heritage Way, Waverly, Iowa 50677, toll-free 800-369-2862. CBSI is under contract with the financial institution, through the financial services program, to make securities available to members.

Financial Advice from Mothers and Grandmothers

mothers-day-subway-art-8x10We’d like to thank everyone who participated in our Mother’s Day Facebook Contest and posting the best financial advice their mother or grandmother ever gave them. Congratulations to our Facebook Contest winner, Susan Rubin, who earned a $50 Hand and Stone Massage Spa gift card for Mother’s Day. Here is what she shared:

“My mom taught me to embrace and live life to the fullest. Don’t skimp on your needs but you can live without all the ‘WANTS’.”

We received a number great financial tips and and we thought it would be nice to share them with everyone…

  • “My Mom is wonderful woman! She has always encouraged me to save my money and pay my bills on time. My Mom deserves praise and recognition for her efforts to raise good children with morals and scruples. I love my Mom with all of my heart and I am proud to be her daughter! Happy Mother’s Day Mom!” – Jeanie P.
  • “My mother told me to ‘always pay yourself first’. No matter how small a paycheck or how big the bills/debt, you need to put something away for that rainy day/emergency/retirement fund. You never know when you might need it!” – Michelle J.
  • “My Mother many years ago believed that a woman should always have her own account when married besides the household accounts.” – Claire D.
  • “My husband’s grandparents who were close to 100 when they passed away had a very simple way of life, Grandma always said to Grandpa even at 96 years old ‘You do not work you do not eat’.” – Yovone R.
  • “My mom taught me at a young age that all your change adds up quickly.”- Kimberly P.
  • “Mom taught me to live within my means — if you can’t afford it, don’t buy it.” – Susan H.
  • “My mom told me that the best and easiest way to save was to get the money removed directly from your paycheck. After two paydays you won’t even miss it! She was right!” – Michelle W.
  • “My mom taught me to explore new and different retirement options and savings plans to prepare for my future.” - Mike R. 
  • A dollar spent is a dollar gone; it doesn’t just recycle itself and it’s not some bottomless pit.” – Tina P.
  • “’When it comes down to it, the only person you can depend on… is yourself’ – helpful in regards to finances and life in general.” – Kori S.
  • “My single mom had been a member of the credit union all through my childhood. Although on a very tight budget, she used to have a separate Christmas account (Holiday Club) to save money all year long for the holidays so she could spoil my sister and I on her favorite holiday!” – Alison Z.
  • “Best advice is to strive to be independent, especially financially. Surround yourself with good people but at the end of the day, be able to rely on yourself!” – Margaret P.
  • “Make sure to think carefully about everything you spend. A dollar each day for coffee may not seem like much, but even the little things add up!” – Kelly B.
  • “Money doesn’t grow on trees!” – Kathleen G.
  • “Best financial advice my momma gave me was to spend wisely but also remember you only live once!” – Melissa D.
  • “Best advice from mom was to work hard, spend your money wisely, save and invest!” – Marina F.

Be sure to follow us on Facebook and receive the most recent information about First Financial including monthly trivia, seminars, financial tips, event information, promotions, and so much more! Thank you again for participating and on behalf of everyone at First Financial we wish all Mothers and Grandmothers a wonderful and happy Mother’s Day!