Tracking Where Your Money Goes With Sankey Diagrams

Sankey diagrams are a type of flow diagrams with differing widths of arrows that track where an initial amount goes.

They make for a great budget tool to see how your money ends up going. You can easily plug in your weekly or monthly expenses and paychecks or even put in your yearly W2 data to track our how your expenses and money have been going.

Sanekmatic.com is a great free tool to make your own charts.

Here is sample Sankey chart made using SankeyMatic:

Life Triangle – Work, Life, and Salary – it is your job to balance it

In the connect world today everyone looks so busy to in connecting these three dots called Work, Life, and Salary. To have a good life you need good salary and for getting the good salary you need to have a good job, which demands loads of time at work. If you spend loads of time at work, then where is time for life? Are you in a similar situation? Are you still running every day to connect these three dots? Not able to balance? Confused?

Don’t worry you are not only one with this problem, most of us get into this problem. The main reason is we focus on one goal and forget other. The mantra to achieve balance is knowing you. Pause the run of the life for some time and do deep thinking on what makes you happy? Absolutely there is no one answer.  Once you know the key to your happiness, you can prioritize the three dots to get the right balance.

If you don’t achieve the right balance it will lead to poor work-life balance which results in stress, unhappiness, and even reduced productivity. Here is a quick tip for achieving happiness by creating the right balance.

  • Spend time to understand yourself: pause your busy life sometimes and write answers for the key question of life Who I am? Do I know myself? What makes me happy? who I want to be?. Keep scribbling until you land on the stable and self-convincing answer. Remember there is no right or wrong answer, every answer is right until you are convinced.
  • Priorities the key goals of life: Once you know who you are and what makes you happy, you will understand pathway for happiness? What is your number one priority in life?
  • If you can’t track you can’t progress: As now you have understood where you need to be, it is equally important to get the correct measurement of where you are today. Start measuring the time you spend on different aspects of life. If you can’t measure you can’t improve. This is not your exam result, so no pass or fail, measure genuinely
  • Analyze and reschedule your days: Now you understand where you spend more time, start planning your day and assign more time to activity in the path of your balanced life. Nothing changes in one day, have discipline and dedication.
  • Have personal time: have some time blocked for yourself. Spending time with yourself is most important. Keep revisiting your goals and reprioritizing tasks. Remember no multi-tasking during your personal time.
  • Influencers: Understanding yourself and measuring yourself will let you understand key influencers.
    • Example less sleep leads to less productivity and more stress. Less productivity means more time you spend in the office. This cyclic process leads to poor performance and fewer chances of promotions or higher salary.
    • Health, as everyone says health is wealth, poor health leads to poor performance and poor work-life balance.
  • Social life is important: Build good friends circle, family relationships and dedicate time for your social life. You need to draw energy from society, end of the day you live in society, positive circle creates positive energy.

Finally, it is your life; you live the way it makes you happy. Never forget it is all about Life balance.

Save for the Days It Rains

An emergency by its very nature will strike at the most inopportune of moments. And the greatest fear that tags along with an emergency are the lack of funds. It is to overcome and be prepared for such unforeseen challenges that one should have a substantial amount of savings in place.

Warren Buffet had once famously quoted: “Savings in not what is left after you spent on your needs but it is the first investment you make before you spend on anything else.”

In today’s time of financial uncertainty and extreme competition, health and wealth are both victims. And after a point in time, there comes a situation where falling back on reserves, however unwise that would be, become a necessity. Let us list a few of them to see why people need and emergency fund or in other words, a saving.

  1. A loss of a job is a reality. Companies will restructure, downsize or maybe right size and the first casualty will be you. What would you do in that case? Jobs will never come on a platter and hence expecting one soon after you have lost one is simply wishful thinking. Also, even if you get one, there is no guarantee the salary currently drawn will be as attractive as the previous one.
  2. You or a family member has an illness. A debilitating one at that too. Where do you think you will have the funds to help you or the member get treatment? Also being too sick can make you lose your job. You would then be in a situation explained in point number 1. In addition to which the cost of treatment will add up.
  3. That property tax which you knew was under control for a long time has suddenly been raised. While previously budgeting for the taxes, you had never ensured some extra buffer for the future and now the future strikes back. It is again the savings which will come handy.
  4. You have been downsized and your hours rolled back. You are now a part time employee with very little cash in hand.
  5. An accident is a rude shock. Can happen to anyone of us at any time. Hence we call it an accident. The money needed for treatment needs to be saved from the beginning.

There is a myriad of reasons for people to start saving. The list is long and exhaustive.

If you haven’t started saving, this is the time.

Start now.

HSA: Guess Not Yet Time

Would the question rather be should you? Or would you? Now before we indulge in some plain talking, let us first know what HSA is all about.

What is HSA?

HSA or Health Savings Account, tax benefited medical savings account, which is available to taxpayers who are enrolled in an HDHP or High-deductible Health Plan. The funds invested in such an account will not attract Federal taxes at the time of deposit.

And now come back to the question, why shouldn’t we have an HSA?

Now let me be clear at the onset, that HSA does offer some great benefits and is not all bad. In fact, it should be a plan for the future for every young investor and savings aficionado. However, it really is not for everybody. Let us see the reasons:

  1. HSA needs time to have your funds build up. HSA is basically the combination of employees as well as the employer contributing towards that account, every payday. Now, given that kind of a rate and depending on the expense getting pulled out, it does take a fair amount of time for money to build up.
  2. Suddenly the drug prices begin to pinch. A $20 prescription drug can suddenly turn into a $120 behemoth. Now we know there is a reason for it but it usually is very confusing to understand the dynamics behind it all.
  3. The HDHP is named for a reason. High Deductible in an HSA is high. Period. Compared to most traditional health plans, the deductible here is absolutely in the north. The IRS has also asked for HSA plans to have a minimum family deductible of $2400. On the higher, this figure could touch $6500 for a maximum out of pocket payment of $12100. One look at the figure and you can understand that this entails a lot of cash in one go.
  4. One of the greatest reasons why HSA is not for everyone is primarily because of the confusion it creates. Now, as a rule, you can use your HSA card to pay for any 213(d) expense. There is a list of expenses which fall under the 213(d) expenses as per the schedule present in the IRS Code Section 213(d) Eligible Medical Expenses. The question is how many of us would actually know it. None carry a list and would probably ever do.
  5. As I had mentioned earlier, HSA has its fair share of advantages, but because of the lack of education, it becomes very difficult for most organizations to drive it among its employees. HAS does require a bit of self-research but when fully understood it does offer great benefits. Till such time, it would be an advice to look out for more traditional and simpler medical plans.

Why Shouldn’t I Use a Roth Ira as a Saving Account?

Investment account IRAs (Roth or Traditional), like other IRA items, are beneficial for a few people in specific situations. Somebody as of now said the amassing stage, holding up to develop the base beginning venture required for some common assets. Another awesome case would be money that is stopped, prepared to move without punishment, simply sitting tight for the correct venture openings, yet on which one needs an arrival and some kind of FDIC insurance while holding up.

Before the (practically) incomprehensible occurred in 2008- – amazing speculation banks (Lehman, Merrill Lynch, Bear Stearns, and so forth.) become bankrupt, Reserve Money Market Funds breaking the buck, TARP, Bernie Mad off- – the standard way of thinking was that exclusive the monetarily ignorant would need to keep any IRA cash in FDIC safeguarded accounts at banks. Now that we’re entering The Great Depression II, it can be one of the numerous reasonable decisions for those of us who still have cash cleared out. A 2% APR yield on a segment of one’s IRA resources amid market turmoil is greatly improved than a – 33% profit for the IRA portfolio.

Numerous speculations one can make outside an IRA can likewise be made inside an IRA. The trap is finding an organization that can help you make the ventures you need. A bank account isn’t generally proper for an IRA, nonetheless. In spite of the fact that it’s conceivable to pull back cash from your record under uncommon conditions, IRAs are intended for retirement, not for simple reserve get to henceforth it ought not to be utilized as a sparing record from where you can pull back sum according to your necessities now and again.

One ought to dependably imagine that it is the retirement finance which he had put something aside for harder circumstance when one begins their life after retirement. This sum is spared essentially for the different costs which is borne by different medicinal conditions and individual needs consequently sparing the piece of IRA can make mess at the later phase of your life.

One ought to want to proceed with the IRA and ought not to consider withdrawal till the person had accomplished superannuate, as the sum spared can truly be utilized when one gets dismissal from the general population because of their maturity. Indeed, even after retirement one ought to attempt to put resources into a wide range of things- – conventional stocks and bonds, as well as land, private stock, assess liens, contracts with an IRA. The points of interest being that you get more prominent broadening and can put resources into things in which you are well known/accept with the possibility to develop your cash tax-exempt in the event that you utilize a Roth IRA. Obviously, there are principles you have to take after. Yet, on the off chance that you take after the tenets there are brilliant opportunities to run the show. Thus utilize your Roth IRA sum admirably and put resources into productive ventures as it were.

Employee Stock Options: Do I Invest With A 10% Discount

In other words, this would mean that you have an attractive piece of cake placed right I front of you. It is laden with all the sweetness, you ever wanted have. However, the catch is, one piece of that and you can forget the rest of the dinner because your hunger can only take in that much.

The same analogy goes in for investments. You start investing in stocks and end up putting too many eggs in one basket, the risk automatically rises. Going by the current trend among organizations is to provide a discount to employees who buy their stocks. Now understandably this is done to make things more attractive for the buyer. However, there is a certain thing one needs to keep in mind before indulging in that cake. Even before that let me tell how this thing actually works.

A set amount is of your monthly income is debited off and put into an escrow account. Twice a year, and this may vary from company to company, the money set aside in that escrow account, will be used to buy stocks, either at their lowest prices at buy in or during close, whichever is deemed cheaper. Add to it the employee discount that can vary from 10% to 15%.

Now, you can go ahead and immediately sell it if you want to and earn a 15% bonus, but again these numbers do keep changing.

Now, the thing which you need to keep in mind regarding stock options and the way to hold it. The first one, which we discussed, is for immediate selling and is called an ESOP (Employee Stock Options) and the other one is called RSP (Restricted Stock Purchase). Now what happens in the latter is akin to what one will do to the usual stock and shares i.e. hold on to it for a period in time. Now, chances are that the value of your stock may fall below your discounted price and that you may be facing a loss. If you are willing to sell it within a year, then you do act a short term investor, which may always be a bright idea, especially with company stocks. You may want to hold on to it for a longer period, which again has its risks, but has benefits too. The idea is to keep on checking the prices and the profits you would make.

As for starting a dinner with a cake and missing out on the rest of the food, investment to needs to be diversified. Having a little of most is a much better idea than stuffing oneself with only very few.

Over The Cliff With A 401(K)

To begin discussing this subject let us be aware of all the facts we know about a 401(k).

What is a 401(k)?

A 401(k) is nothing but a retirement savings plan sponsored or paid by the employer. The employer lets the employee save and invest a certain percentage of their pay before it is taxed. Point to remember in a 401(k) is that you will only be taxed when the money is withdrawn and not when it is deposited.

So would it be worthwhile to contribute to 401(k) with a 3-year cliff?

Your question to me could be what exactly is a cliff? Is it the edge of a mountain or the end to nowhere? A cliff is nothing but vesting. A cliff vesting is when an employee becomes completely vested in a specified period in time. So for example, you have fully vested in a company sponsored pension plan only after 5 years of full service.

Now, coming back quickly to the intended subject, the money that you invest in a 401(k) is all yours. So for example, you work for 5 years and leave your job, there will not be any effect on the investment that you had made in a 401(k). The only thing that changes is the contribution of the employer because that depends on the vesting period. It is a good plan with good benefits. However, it is not something that is quickly recommended to young professionals.

To begin with, a 401(k) is ideally to be kept as a secondary hold. The idea is to maximize other resources and then fall back on this vehicle. My advice would be to begin investing in the Roth IRA and contribute to it till you do not reach the maximum limit. Once you have touched the limit, look towards the 401(k). This has a great advantage, the first and foremost being diversification.

There is a different school of thought who might suggest that given the pretax nature of 401(k), you will have more money to start with and then go ahead with your contributions to the Roth IRA.

Remember, most successful finances are largely behavioral. So a 401(k) being an automated process, really makes you keep aside a certain amount of investment, which otherwise would have been spent elsewhere. It actually is dependent on how you see yourself in 10 years time.

Would Refinancing My House Improve My Credit Score

Refinancing has often been used by many to avail lower rate of interest and pay off their housing loans without spending a fortune. However, what leaves most people confused is the impact of refinancing of house loans on their credit score. There’s no point in trying to understand credit score vis-à-vis the refinancing as that involves many complex metrics and calculations. Broadly saying, credit score does get affected but it definitely is impacted by every refinance or loan modification.

Your FICO score is bound to be affected by any loan modifications or refinancing moves you make. However, the quantum of impact depends on how the refinancing gets reported to the credit bureaus. Your refinancing can be reported as the same loan with just a few modifications or it can be reported as a completely new loan.

If the refinancing is reported as the same loan with just a few modifications then changes in loan balance, credit enquiry and any changes in loan terms will have an impact on your credit score. Even if this happens, changes to the FICO score will not be anything substantial.

On the other hand, if the loan is reported as a completely new loan then your credit score still gets affected by then changes in loan balance, credit inquiry and any changes in loan terms. However, another new piece of information affects the FICO score and that’s new “open date”, which indicates that the credit obligation is new. This will have a greater impact on your credit score than what would have been in the case of simple changes in terms of an existing or old loan.

Refinancing your mortgage will certainly have an impact on your FICO credit score but it’s not going to improve it in any way. The impact will be small as well as short-lived. Refinancing might have a greater impact on your credit score if it’s done too frequently or putting in new credits associated to your mortgage. FICO often penalizes if you are not able to honor the terms of the credit or receiving too many inquiries pertaining to your credit report.

Irrespective of what your refinancing terms or needs, your credit score will definitely take a beating, even if it’s for a short term. Thus, you should research a bit before taking the refinancing path and it’s always advisable to weigh your options before you refinance your housing loan.

Is It Practical to Use Zero Based Budgeting

Business owners and top-level managers invest a lot of time budgeting and in bigger organizations, the process itself incurs huge costing. In traditional methods of budgeting, the managers are required to review the previous year’s budget and then make amendments based on the performance expectations. However, in Zero Based Budgeting (ZBB), a completely reverse approach to planning and budgeting is applied.

Zero Based Budgeting doesn’t take into account the previous year’s budget and is instead begins at Zero. The managers need to justify all the budgetary expenses and not limit themselves to the previous year’s budget. Everything starts at zero and the planning and decision making is done on the basis of budgeting. One of the prerequisites of this budgeting is that the mangers need to be ready for detailed documentation and budgeting. The managers also have to identify and even justify the expected expenditures and arrange the activities in accordance to their relevance and costs.

Zero Based Budgeting paves the way for the high level management to make decisions as well as budgetary curtailments based on the documents during any time of the financial year. There is no provision of pre-financing as is in the case of traditional budgeting. This is a big reason why this type of budgeting is followed in the non-profit sectors and government. However, Zero Based Budgeting has to undergo frequent reviews, usually every year, as it is a costly and time-consuming process.

People favoring the Zero Based Budgeting usually point to the following advantages:

  • Resources are allocated vis-à-vis requirements and benefits, which is extremely efficient
  • Managers are compelled to find cost-effective methods for improving activities
  • Inflated budgets can be easily detected
  • Service departments find this to be extremely efficient because often it’s difficult to identify criteria

 

Naysayers point to these disadvantages of Zero Based Budgeting:

  • It’s time consuming because defining expenditures is often challenging for the managers
  • Zero Based Budgeting needs too many support staff and managers to prepare
  • Managers have to be given prior training on this method of budgeting before they can actually begin the process, which again is time-consuming
  • Everyone has to be aware of the details as huge volume of data as well as forms are needed for effective Zero Based Budgeting

 

Zero Based Budgeting is considered to be an honest approach to budgeting but when it is not too practical for private organizations and larger businesses to follow. They are bound to face capital and manpower shortage while trying to implement Zero Based Budgeting.

Should you Withdraw From a Roth IRA to Pay Down Debt?

Most of the people who undergo retirement process want to become debt free and considering withdrawal from Roth IRA is the best option for them. But, what they really don’t know is that, withdrawing money from your Roth Ira to pay all of your debt is not a good action to consider. It is because there are lots of reasons why this is not a good option for you.

To help you have more knowledge about this issue, here are some reasons why you don’t need to withdraw your Roth IRA to pay down all your debts.

  • You will pay penalty once you withdraw from your Roth IRA. Even though you are allowed to withdraw in your contributions to Roth IRA, you will still be penalized once you withdraw your earnings unless you have qualified distribution of earnings. To make your earnings qualified, you should reach 59 ½ of age to make you become disable for withdrawal and should be used for buying your first home. Or your earnings should be five tax years or more after your first contributions. But if you are not qualified you will be subject to additional penalty on your tax upon your withdrawal.
  • You will become unprepared during your retirement. Since the Roth IRA is specifically design for helping people to pay their daily living expenses once you decide to stop working, withdrawing your money will increase your odds to impoverish your retirement.
  • You will lessen the interest of your withdrawal from your Roth IRA. Even if you have qualified distribution, you will just get small balance once you withdraw. This will provide you results that you will get less amount of money on your earning interest and lessen your own returns over a period of time. Thus, once you decide to withdraw your contributions, you will never reinvest it again.
  • You will have bad financial pattern. Withdrawing your money from your Roth IRA is easy however, it will provide you bad financial pattern if you take out your cask in early distribution. This will provide you to hit your retirement goals once you decide to tap your retirement contributions just to pay your debt.

In Roth IRA contributions, all the things are provided equally if you will avoid withdrawing your money just to pay down all of your debts. In case you have no more resources to help you pay your debts, you should try other ways and create good plan to ensure that you will have good future and avoid the withdrawal process in early contribution.

But if you really want to opt for this kind of decision, it is highly recommended that you just get your contributions from Roth IRA and not your actual earnings of your retirement. Just allow your earnings to continuously grow for you to prevent paying for penalty taxes from early withdrawal of your contributions most especially if it is under non – qualifying event. Through this way, there is still good future that awaits you.