Ready, Set, Go!

Many of our clients ask us, “is there a better way to track our budget?” Our answer is “Yes!”

We often suggest  Mint.com for it’s ease of use.  The online tool is free, very secure and relatively easy to learn. We find that it is helpful for those that have tracked a budget for years as well as those that are just getting started with budgeting.

Here are a few points to help you get started.

Why should I use Mint.com?

Mint.com is a free, online account aggregation tool that can help you plan, manage and stick to your budget. Setup is quick and easy—you can expect to have your accounts linked to Mint within a couple of minutes! Security is good, being at or above most institutional banking websites.

Mint never asks for your account numbers, name or other personal identification information. Money cannot be accessed, moved or transferred within Mint, and all data stored at Mint is backed by bank-level data security protections.

How many categories should I use and what are they?

Some common problems we see are trying to over-categorize and coding a large amount of regular expenses as one time occurrences.  Simplification should be emphasized when creating your budget and categorizing each transaction.  We recommend using the following categories in a combination that fits your household:

• Auto & Transport
• Bills & Utilities
• Food & Dining (Groceries, Restaurants, Coffee Shops)
• Gifts & Donations
• Travel (Vacations, large trips)
• Everything Else (Cash, Fun, Church/Charity Contributions)
• Food (Dining Out, Alcohol, Groceries)
• Debts (Mortgage, Equity Line, Car Payments, Credit Card or Student Loan Payments)
• Education (Books, Private School, College Tuition)
• Health & Fitness (Gym Membership, Doctor Visits, Prescriptions, Insurance)
• Home (Maintenance, Home Improvements, Furnishings)

From these basic categories, you can create future sub-categories, but it is important to keep the bigger picture in mind when monitoring your expenses. Keeping broad categories may also help speed up maintaining the data that Mint is able to aggregate between your accounts.

Should I be trying to hit the same number every month?

Comparing expenses on a monthly basis can be another source of frustration as there are many fluctuations that occur throughout the year (Holidays, Summer Vacation, etc.).  Therefore, it is important to measure your progress against a rolling year period.

For example:  If the month of May has just ended, you will want to measure June 1^st of last year to May 31^st of this year against the calendar year amount of your budget.  If the amount is more, then you know you are a little ahead of pace and you should scale back.  Performing this exercise monthly or quarterly can greatly improve your overall financial picture as it allows you to have greater control over your regular expenditures.

If you are interested in learning more about starting a Mint.com account, or have questions about your current Mint.com account (transaction coding, setting the right categories for your household, etc) feel free to contact Heather Gudac at hgudac@financialsymmetry.com or by phone, (919) 851-8200 ext. 205.

Photo Credit: ingridesign

Ofunato, Japan

The tragedy in Japan continues to be the top news story and warrants international support.  While the human aspect of this crisis continues to be devastating, we can’t discount the economic impact as well.  Well respected international fund family, First Eagle Funds, was heavily allocated to Japanese investments before the tsunami hit.  To find out how they are reacting to current events and their outlook for the future in Japan, please read their recent Manager Insights.

Photo Credit: DVIDSHUB

Making use of the Gym

Why do we do this?  Until recently, researchers had no idea what made us act so strangely.  But now, a few studies are helping explain how we make decisions, and the results are funny.

David Laibson, an economics professor at Harvard, has conducted research which suggests that people do fairly complex mental accounting whenever they make decisions, and count future rewards (or efforts) as half as important as present rewards or efforts.

How does this work?  Suppose you get up in the morning and face the decision of whether or not to go to the gym.  In your mind, the effort of putting on your sweats and driving the health club on any particular day can be given a hassle factor of 6.  The benefits (being more healthy and in better shape) can be assigned a benefits value of 8.  But the future benefit is discounted by half, so it has an effective weight, in your decision-making, of four.  Since 6 (the hassle) is greater than the benefit factor of 4 (eight divided by two), your mind decides to skip today’s workout.

In mathematical terms, Laibson says the decision to exercise today can be defined by the equation (-6) + (8/2) = -2.  The negative result means that the future benefits are not worth the immediate investment.

So why do people buy memberships in the gym in the first place?  Laibson offered an analysis of the PLAN (or resolution) to exercise, and the numbers come out very different.  The intention to go to the gym three times a week costs nothing.  The future effort of going to the gym (-6) will be discounted by half, and so will the benefits (+8).  Therefore the mental equation you use when you buy the gym membership be defined as 0 [the "cost" of planning to go to the gym three times a week] + (-6/2) + (8/2) = 1.

“Planning to go to the gym is a win,” Laibson explains, “chiefly because the planning itself costs nothing.

In a confirming bit of research, two of Laibson’s students surveyed health and fitness facilities in the Boston area and found that the average cost of a gym membership is $75 a month.  Because people swipe their membership cards into the machines as they enter, there are fairly detailed records of how often members actually go.  The researchers found that the average person goes to the health club four times a month, which means the average cost per visit is $19.

But…  Laibson’s students found that these health clubs typically offered a $10 “pay per visit” rate.  Clearly, the people who bought their memberships intended to go at least twice as often as they actually did.  The mental equation around planning produced a very different outcome from the mental equation around execution.

Is there a way to change this mental accounting?  Laibson suggested that you hire a coach who will hold you accountable–adding a hassle factor if you don’t go to the gym.  Or arrange to meet a friend there three days a week, adding the hassle factor of disappointing your friend if you don’t show up.  Or, if you want to do it more positively, promise yourself that you’ll reward yourself with a fruit smoothie after you exercise, adding something positive to the mental equation.

This article was written by Bob Veres.  He writes for several national publications and publishes a monthly newsletter titled “Inside Information.”  You can find more info about him here http://www.bobveres.com/.

Photo Credit:  mjzitek

When checking up on your budget, it is important to look over a specific amount of time for comparisons to actual expenses. Comparing expenses on a monthly basis can be a source of frustration as there are many fluctuations that occur throughout the year (holidays, vacation, etc.).

Photo Credit: Jeff Keen

Therefore, it is important to measure your progress against a rolling year period.  For example, if you have been using a budgeting tool for one year or longer, you would want to compare from February 1, 2009 to March 31, 2010.  If you are just getting started, looking at smaller increments of time, like three or six months, can also be helpful.

No matter what your time frame is, here are a few tips to help streamline and update your budget:

• Budgeting software often has trouble correctly categorizing a few expenses.  Take a quick look at your transactions and identify and correct those that are mislabeled. If you are using Mint.com, be sure to take advantage of their easy to read ‘trend’ section.  You can see where you’ve spent money over specific categories in charts that allow you to drill down to the transaction level, helping to spot inaccurate transactions. If you don’t use budgeting software, compiling data from your receipts and statements will be a good way to get you started.  Remember, you are trying to identify how to spend less than you earn.
• Revisit the items you have budgeted.  Now that you have been tracking for a few months or longer, are your budgeted items realistic? Maybe some adjustments need to be made to common expenses like household utilities, food and dining, transportation costs (including gas and regular maintenance), and discretionary (misc. spending).
• It is common for your expenses to fluctuate over time and for some expenses to occur only during parts of the year.  Some items, like car insurance, homeowner association dues, and professional fees may be paid quarterly or semi-annually, so be sure to include those expenses in your budget now.
• If you are spending more than your budgeted amount on a regular basis, take some time to plan out ways to reduce your spending.  Little things like taking your lunch to work once or twice a week, making coffee at home, or planning errands around one trip can all add up over time.
• Have you had any lifestyle changes that should be reflected in your budget?  A home purchase, renovation or new child can increase (or decrease) spending and should be accounted for.  Adding new expenses to your budget while taking time to review your overall spending picture can help set you back on track.

On Tuesday, September 15th, Allison Berger, CFP® and Chad Smith, CFP®, both partners at Financial Symmetry, Inc., returned to their alma mater to speak to NC State’s Personal Finance Club, which is based in the College of Management.

The club was created for students who are interested in careers in financial planning, who want to expand their networks and their knowledge of personal finance.

Berger & Smith talked to the group of students about how they started their careers, the importance of managing their personal finances, and some advice on finding jobs in a tough economic climate.

“Be creative.” said Berger. “Everyone has to start somewhere. If you are interested in a specific field, be open to taking an internship or part-time position if you are not able to find full-time work. This could always lead to a more permanent situation or provide you with skills that make you a more attractive candidate to other employers.”

They also encouraged students to start a 401k plan at work, citing that “Starting a savings and investment plan early in your career can help you accumulate wealth more easily than someone who doesn’t start saving until their 30’s or 40’s.”

Chad Smith & Allison Berger are NCSU College of Management alumni, both receiving bachelor’s degrees in Business Administration with concentrations in Finance (in 2000 & 2004, respectively).

To read more advice given by Smith & Berger, and learn more about the Personal Finance Club, click here for the full article.

Looking for a way to better track your budget? Throughout the upcoming weeks, we will be bringing you personal reviews of some of the budgeting software available. Some will be free, online websites, while others will be computer software programs available for purchase or download.

Our first review comes from Heather Zaczek, our Operations Specialist, who has been using Mint.com for a little over a year.

What is Mint.com?

Mint.com is a free, online account aggregation tool that can help you plan, manage and stick to your budget. Setup is quick and easy—you can expect to have your accounts linked to Mint within a couple of minutes. Security is good, being at or above most institutional banking websites. Mint never asks for your account numbers, name or other personal identification information. Money cannot be accessed, moved or transferred within Mint, and all data stored at Mint is backed by bank-level data security protections.

How Do I Set Up an Account with Mint.com?

Setting up an account with Mint is simple. To get started, you will create a user ID, which is normally your email address, and create a password. Once logged in, adding accounts is simply. Your asset and debt accounts are aggregated by providing your institution’s user ID and password for the particular site and Mint does the rest. Mint has a search feature to find the correct login website for a particular institution, although some smaller, hometown banks and credit unions may not be available for connection yet. Once you have your accounts linked with Mint, simple, easy to read charts and graphs are available to create a budget and track spending. Budgets are set up monthly, and you are able to quickly view past months to estimate for the current month’s expenses. Your monthly budget appears on the homepage to show where your money has been spent so far, and how close (or away) you are from estimates through a color-coded bar graph.

What are Some Features of Mint.com?

Overall, the website is fairly easy to navigate, with tabs for transactions, spending trends, investments and ways to save on the homepage. For a better sense of security, Mint has established an alert system that you can customize for each linked account. These alert settings can increase your financial protection and awareness of suspicious activity within your accounts, a great feature that takes minutes to set up. Alerts can be created to notify you if large purchases are made, credit limits have been reached, or low balances exist within accounts.

Mint also tracks your interest rates, credit card reward programs and your credit payment habits to look for ways to save money. If your ABC card is costing you more money than say XYZ card, Mint will suggest switching your cards while estimating your savings on an annual basis. The great thing about Mint’s suggestions is that they are running in the background rather than popping up on your homepage. Saving strategies are located on a separate page and can include customized views for checking, savings and investment accounts.

Are There Drawbacks to Mint.com?

Since Mint.com is free, you can expect a few areas to be less than perfect. There is not a feature to download transactions from institutional websites directly to Mint, and transactions cannot be manually added. Cash transactions can be split into different categories if you have a linked ATM transaction, which enables you to track each cent spent from the cash withdrawal. Another drawback is associated with linking transactions between accounts. For instance, Mint has a little trouble sometimes tagging transfers between checking and credit card accounts, making it difficult to match payment transactions in relation to specific dates. Mint’s reports are simple and informative, without elaborate graphics. Time lines can also become an issue when comparing data over long periods of time; Mint’s standard time frames range only from the time you linked your accounts forward, so older transactions may not be reflected. This may work out as a benefit of Mint if you are just starting with a budget and are not too concerned with past expenses.

Are There Any Additional Features of Mint.com that Make Budgeting More Interesting?

There are a few neat features of Mint that can make budgeting a little more interesting. Mint compiles data from users’ spending patterns so that you can compare your spending habits to those in your location—either state or large city. Mint also has a regularly updated blog with easy to understand financial concepts in every day language. A few recent posts include “The Pros and Cons of Online Banks” and “15 Ways to Eat Out More Spend Less.” Most blog posts include “Mint’s TakeAway” to provide suggestions on how ideas presented effect spending. Overall, Mint.com is a great, easy to use, free budgeting tool, that beats will outperform spreadsheets most of the time.

If you have any questions about Mint.com, feel free to contact Heather at hzaczek@financialsymmetry.com or 919-851-8200 ext. 205.

New research has found that men are more likely to take larger risks in their financial decision making than women. Using a sample set of a group of MBA students the researchers looked for a correlation between higher levels of testosterone and a willingness to take a chance on a less likely outcome if the potential payout was greater. After graduation, more male students will follow a career path into investment banking or trading on Wall Street where the stakes are always high.

http://www.fa-mag.com/fa-news/4408-testosterone-may-affect-financial-risk-aversion.html

“Kids & Money

1:00 pm – 2:00 pm ET

Instructor Linda Leitz, CDP, CFP, EA,

NAPFA Registered Financial Advisor and

Author of The Ultimate Parenting Map to Money Smart Kids

How can you raise your children to be money smart? Linda wrote the book on raising kids to be smarter about money and will share her thoughts on steps you can take today to get your kids on the right money track.”

Click here to read more and to register:  Kids & Money Webinar.

Click here to view the August 7th webinar video, Money 101: Knowing the Basics.

Need a new appliance? You may be able to find the best deals on large appliances during September and October.

Sometimes certain purchases can put a strain on your budget, like a new refrigerator, furniture or computer. While there is not a ‘best time to buy’ guide for everything, there are certain categories of goods and services that regularly go on sale during specific times of the year.

We found a list on Yahoo! that breaks down items like used cars, holiday airfare and mattresses. Keep ‘best time to buy’ sales in mind when planning ahead for a special purchase, whether it is a new purchase or a replacement, and look forward to save as much as 75% off original prices.

Click here to view When Is the Best Time to Buy…? on Yahoo!.