Ask Liz Weston

Get smart with your money

Budgeting

Monday’s need-to-know money news

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Today’s top story: What a poor credit score can cost you. Also in the news: The worst money moves for the new year, how to cut next year’s expenses, and tips to get tax season started off on the right foot. Tax refund

What a poor credit rating is costing you
Your job prospects could be at risk.

10 worst money moves for the new year
What NOT to do in 2014.

14 Ways to Slash Your Expenses in the New Year
Do you really still need a landline?

7 unbeatable tax tips for year’s end
April 15th will be here before you know it.

Kids and Money: Advice for mastering finances in 2014
How to teach your kids to spend and save smartly in the coming year.

Holiday tipping: what you really need to know

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Holiday tipsWriting about holiday tipping for MSN was always a bit fraught, mostly because a fair number of people every year seemed to think I invented the practice–and resented me deeply for it.

Here’s the scoop, per the Emily Post Institute: Holiday tipping exists. It’s a thing, in every region of the country. Who you tip and how much varies by your situation, your budget and where you live (“Tipping averages tend to be higher in big cities,” the Post Institute advises.)

In the Weston household, we tip the people who make our lives easier throughout the year who aren’t regularly tipped at the time of service. That includes newspaper deliverers (yes, we still have those), the mow-and-blow guys (called “gardeners” elsewhere), our house-sitter and our cleaning lady. The tips generally equal the cost of one week’s service, with something extra for the folks who have been with us a long time.

I’d feel pretty weird about not tipping them, to be honest. If I can afford to pay for their services throughout the year, I can certainly come up with a little “thank you” at year’s end.

If your budget really can’t accommodate cash tips, the Post Institute says it’s okay to substitute a handmade gift or (at the very least) a handwritten note of thanks. It’s all about taking a minute to say “I appreciate you.”

But nothing says that quite like cash.

 

 

 

Single mom’s expenses leave no money for food

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Dear Liz: I’m a single mom with three kids. My mortgage is $1,700. My other monthly bills include $355 for a car loan, $755 for school tuition, $350 for utilities, $790 for credit cards, $200 for gas, $208 for braces and $235 for a 401(k) contribution. This leaves no money for food. I get no child support. How can I pay down my credit card debt? I don’t have any money for a baby sitter or I could get a second job.

Answer: The way you pay down credit card debt is by reducing expenses and increasing income to free up extra cash. If that’s not possible, you may need to consider bankruptcy, given the amount of debt you’re carrying.

If you’re paying only the minimums on your credit cards, that monthly bill indicates you have close to $40,000 in credit card debt. Since you can’t cover your basic expenses, you’re probably adding to that debt pile every month. That needs to stop.

You don’t say why you aren’t receiving child support, but if the father isn’t dead or disabled he should be helping to support his kids. Your state has an enforcement agency that can help you. Child support enforcement is often part of a state’s social services department, although it may also be offered by the state attorney general or its revenue (tax) department.

One obvious, if painful, place to trim is private school tuition. If the school can’t offer you financial aid, you should consider placing your kids in the best public school you can manage.

What you don’t want to do is trim your retirement plan contribution. You’re probably getting a company match, which is free money you’ll need to sustain yourself in retirement.

In general, your “must have” expenses — shelter, transportation, food, utilities, insurance and minimum loan payments — should equal no more than 50% of your after-tax income. If your must-haves exceed that level, it will be tough to make ends meet, particularly if you’re trying to pay off debt and save for the future.

Holiday triage: How to get ready when you’re not

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Christmas shopping woman holding giftsThanksgiving is so late this year that I’ve been drifting along in a lovely bubble of denial. Even my Jewish friends’ preparations for Hanukkah haven’t been enough to alert me that Christmas isn’t far off.

Today a TV crew from a local Chinese-language stopped by to record some tips for enjoying the holidays without creating debt. The key, I said, is planning. So now’s the time to take my own advice.

Holiday season is a busy and expensive time, one that for us includes entertaining, travel, several family birthdays and a bucketload of presents. So here’s what I’ll be doing this weekend to prepare:

Finishing the spreadsheet. I use an Excel spreadsheet to list who will be getting presents and a target spending amount for each person. The spreadsheet also includes an estimate of what we’ll spend on travel (airfare, hotel, gas, food), entertaining (drinks, food, centerpieces), decorations (tree and lights) and holiday tips for the people who make our lives easier (cleaning lady, gardeners, hair stylist and so on). I total everything up, gasp, and start making adjustments so that our spending won’t leave us with huge bills in January.

Going on a treasure hunt. I buy gifts throughout the year and stash them in convenient hidey-holes throughout the house. I’ll dig them out and add them in the appropriate cells on the spreadsheet so I don’t wind up buying duplicate gifts.

Cashing in. I’m not a huge fan of gift cards as gifts, but I love using them to buy real gifts. I also have a rewards credit card program that allows me to use points to get Visa gift cards that, again, can be used to buy gifts or given in lieu of cash as a holiday tip. My daughter and I will also take our coin jar down to the nearest Coinstar to get a fee-free Amazon.com gift card. (Coinstar also offers gift certificates to iTunes, Starbucks and a bunch of other retailers.)

Stocking up. I like to take advantage of holiday sales to buy an extra turkey (to freeze and use later), stock up on baking supplies and lay in a fresh supply of crackers, dips and other nibblies for drop-in guests. This is also a great time of year to double dinner recipes and freeze half for those days that are just too frantic to cook.

I plan to finish this weekend in much better shape for the holidays. How about you? What needs to get done now for you to be ready?

Automatic payments for charity: pros and cons

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Dear Liz: You recently suggested people consider putting their charitable donations on automatic. While I have automatic deductions for savings because I do not want to constantly remind myself to do it, I want to remind myself of all other expenses. For me, prudent money management requires attention to all expenses. Your thoughts?

Answer: Many people find that automatic payments make their lives easier. They’re able to meet their obligations (and avoid late fees, in the case of bill payments) while minimizing time spent in repetitive tasks each month.

But none of your expenses should be “out of sight, out of mind.” Automatic payments don’t eliminate the need to carefully review your credit card and bank transactions each month. Reviewing your bills periodically, and making adjustments as necessary, is an important part of responsible money management regardless of whether you take advantage of automatic transfers.

Creating a budget that works

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Dear Liz: I’m beginning to realize that I have no idea how to budget. I make plenty of money but always seem to come up short. I’m trying to find the best person to help me make a budget. Do I talk to a CPA or a financial counselor? If so, how do I find the right person?

Answer: Budgeting has three basic steps: figuring out where your money is going now, deciding where you want it to go in the future, and monitoring your spending to make sure you stay on track with those goals.

Just because something is simple doesn’t mean it’s easy, however. People often fail to account for predictable but irregular expenses, such as car repairs. Once those crop up, the budget is thrown into disarray and people often give up on the spending plan.

Budgeting also can be difficult if you’re overspending on your overhead. If too much of your income is going for basic expenses, you may not have enough left over to live a comfortable life, pay off debt and save for the future, regardless of how many other expenses you trim. People who spend too much on shelter (mortgage or rent) and transportation (car payments and attendant costs) in particular often find they can’t create a balanced budget. Your “must haves” — shelter, transportation, food, utilities, insurance and minimum loan payments — ideally should be 50% or less of your after-tax income to create a workable budget.

Some people find that online solutions, such as the Mint.com financial tracking site, are enough to get them started with a budget. Other people need hands-on help. If your tax pro or financial advisor has experience helping people create and monitor budgets, that’s certainly one place to turn. Otherwise, check to see whether your local community college offers basic money management courses. Another option is a nonprofit agency affiliated with the National Foundation for Credit Counseling at http://www.nfcc.org. Many of these agencies offer classes or hands-on help creating budgets.