MANAGE MONEY

Budgeting is the key to managing your money and achieving your financial goals. When you budget, you are essentially creating a plan for how to use your money. This plan can help improve your lifestyle by allowing you to save for the things you want, pay off debt, and cover expenses.

There is no perfect way to budget, and what works for one person may not work for another. However, you can benefit from proven tips and nuggets of financial wisdom to help your budgeting efforts along.

Keep reading for a compilation of our list of the best budgeting tips.

Best Budgeting Tips To Help Secure Your Financial Future

1. Determine Your Goals

What do you want to achieve? Pay off your credit card debt? Build up your emergency fund?

Sticking with your budget is easier when you have specific goals. Ensure your goals are realistic and achievable; trying to accomplish too much at once can be overwhelming and may cause you to give up on your budget altogether.

Now that you know what you want to achieve, you can start making your budget.

2. Pay Down Debt

If you have high-interest debt, such as credit card debt, focus on paying this off as quickly as possible. The longer you wait to pay off your debt, the more interest you will accrue, and the harder it will be to get out of debt.

To start the process, create a list of all debts, from the highest interest rate to the lowest. Then focus on paying off the debt with the highest interest rate. After that, you can move on to the next debt. This method can help you save money on interest payments.

Another method you can use to pay off debt is the debt snowball method. With this method, you first focus on paying off the debt with the smallest balance. Once you pay off your debt, move on to the next debt. This method can help you feel progress more quickly, motivating you to stick with your budget.

Choose a method that works for you and start chipping away at your debt.

3. Get Organized

If your budget feels overwhelming, create a budget binder. This binder can track your income, expenses, and debts. You can also use it to store documents such as bills and bank statements.

Another way to get organized is to use budgeting software. This software can help you track your income and expenses and create a budget plan. Many software programs are available, so find one that meets your needs.

Consider Simplifi, Goodbudget, or EveryDollar. These are all great choices that can make budgeting easier. Once you get organized, it will be easier to stay on top of your finances and stick to your budget.

4. Stick to the Plan

After creating a budget, do your best to stick to the plan. Following a plan can be demanding, especially if you’re used to spending without a budget. But if you want to achieve your financial goals, be disciplined and stay on track.

If you’re veering off course, take a step back and reassess your budget. See where you can cut back to stay on track. If you’re veering off course, you must pay for repairs.

It may take some time to get used to sticking to a budget, but it will be worth it in the long run. You have to be patient and persistent.

5. Create Your Budget Early in the Month

One of the best ways to stick to your budget is to create it early in the month before you start spending. This way, you can plan and account for all expenses.

If you wait until the middle part or end of the month to create your budget, it will be more challenging to stick to it. And this will likely happen because you have already spent some money and may not have enough left to cover your expenses.

To avoid this, create your budget as soon as the month starts or even a week before. Give yourself a better chance of sticking to your budget and achieving your financial goals.

6. Prepare for Surprise Costs

No matter how well you plan, there will always be some surprise spending. It could be anything from a car repair to a medical bill.

To prepare for this, create a buffer in your budget for unexpected expenses. You can use this buffer to cover these costs, so they don’t throw off your entire plan.

A good rule of thumb is to set aside 10-20% of your income for unexpected expenses. This may seem like a lot, but it can help you stay on track when surprises pop up. And if they don’t, you can save or invest the extra money.

7. Find Ways to Cut Expenses

To stick to your budget, you must find ways to cut expenses. One way to cut costs is to renegotiate your bills, including your cable, internet, or cell phone bill. Call your service providers and see if there are any discounts or deals.

You can also cut expenses by stopping unnecessary spending, like eating out, shopping, or entertainment. If you’re trying to save money, you need to be mindful of your spending and make adjustments where necessary.

Finally, you can cut expenses by finding cheaper alternatives. For example, you could switch to a less expensive cell phone plan or buy generic brands instead of name brands. There are many ways to save money. Be creative and see what works for you.

8. Review Your Budget Regularly

It helps to review your budget regularly to ensure you’re still on track. Generally, it’s best to do this at least once a month, but more often if needed.

When you review your budget, take a close look at your income and expenses and see where you can cut back or make adjustments. This will help you stay on track and reach your financial goals.

It’s also a good idea to review your budget whenever something changes in your life, such as getting a raise or having a baby. These changes can impact your budget, so make the necessary adjustments.

9. Carry Your Partner Along

Involve your partner in the budgeting process if you’re married. It will help ensure both of you are on the same page and working towards the same financial goals.

Sit down with your partner and discuss your financial goals and the plan to achieve them. Together, you can plan to be responsible for different aspects of the budget.

For example, one person may be responsible for tracking spending while the other manages the bills. Or, one person may be better at finding ways to save money. Whatever the case, ensure both of you are involved in the process.

Budgeting as a couple makes both of you accountable for the success or failure of the budget. This accountability to each other will help you stay on track and achieve your financial goals.

10. Use Cash Only for Non-Essential Purchases

If you struggle to stick to your budget, consider only using cash for non-essential purchases. This method can help you control your spending and stay within your budget.

You’ll need to designate a certain amount of cash for non-essential expenses, such as entertainment. Once the money is gone, that’s it for the month. 

This approach helps because you’re less likely to overspend when using cash. It also enables you to be more mindful of your spending because you would think twice before making a purchase when you have to hand over the cash physically.

Of course, this approach isn’t for everyone. If you can’t stick to a cash-only budget, don’t force yourself to do it. The next best thing is to get a debit card and ditch your credit card.

11. Have Some Fun!

Last but not least, don’t forget to have some fun! A budget doesn’t have to be all work and no play. Allow some wiggle room to enjoy the things you love.

If you love going out to eat, include that in your budget. The same goes for shopping, visiting places, and other activities you enjoy.

The key is to find a balance between spending and saving.

Closing Thoughts

Budgeting is one of the most important things you can do for financial security. So, get started on your budget today and enjoy peace of mind knowing you’re on track for a secure financial future.

Also, remember to factor in retirement planning when creating your budget. Retirement may seem far away, but the sooner you start saving for it, the better off you’ll be. That said, take advantage of your employer’s retirement matching program so you’re not missing out on free money.

Do you have any budgeting tips to share? If so, please leave a comment below. We’d love to hear from you!

This post originally appeared on Wealth of Geeks.

You’re not alone if you’re confused by real estate jargon. Technical terms like earnest money, option fee, down payment, escrow, and closing may feel intimidating to the first-time home buyer.

Learning these terms helps avoid misunderstandings during the home purchase agreement. What follows here is everything you need to know about earnest money and an earnest money deposit.

What is Earnest Money?

Earnest money is used while buying and selling a house. It is the sum of money the buyer deposits to get into a purchase agreement with the seller. It is also called a “good faith deposit.”

Home purchase starts with an offer, usually arranged through the buyer and seller’s real estate brokers. Once the seller is comfortable with the offer, the two parties go into a purchase contract. The buyer submits a sum of money – the earnest money – as part of the signing deposit. Amounts can vary, but they are typically around 1% to 2% of the total value of the property. 

After the two parties enter the contract, the seller takes the property off the market for any new offer. House closing takes time through inspection, appraisal, and funding. Therefore, the earnest money is compensation for the risk if the deal falls through.

What Role Does Earnest Money Play?

Earnest money essentially works as an assurance to the seller for his consideration of the buyer’s offer. It demonstrates the buyer is serious about following through with the deal and shows they are a strong candidate for buying the home.

The earnest money is usually not mandatory, but it plays a vital role in the sellers’ market. It is due within three days after the effective date of the purchase agreement. If you are buying a home and have a real estate agent, they’ll guide you through the process and help deliver your check.

A third-party agent, either a title company or an escrow account, will hold the earnest money until closing. It ensures that the party entitled to the cash gets it quickly if and when the deal falls apart.

Is Earnest Money Required?

Technically, you can get into the purchase contract without issuing earnest money. Also, it is not a requirement to get into a purchase agreement to buy a house.

However, you’ll be in default if you don’t deposit the earnest money within the time frame specified in the contract. In such cases, the seller can terminate the agreement.

How Much Earnest Money Should You Put Down?

There is no set rule for the earnest money amount. The amount is highly negotiable, and often depends on whether it is a buyer’s market or a seller’s market at the time. Typically, it’s about 1% to 3% of the sale price.

It is in a seller’s best interest to sell their property as soon as possible and get money. As a buyer, the one way to show that the deal will not fall through due to funding issues is through the speedy delivery of earnest money. The amount also indicates if the potential buyer has liquid funds to make a purchase.

Does Earnest Money Go Towards Down Payment?

The earnest money goes to the down payment and closing cost when the deal goes through. The money stays at escrow or title company until the closing date. Therefore, you can assume it is part of the down payment.

Who Gets Earnest Money If the Deal Falls Through?

If the contract falls through, it is not always clear who will receive the earnest money. It depends on who caused the deal to falter. If the cash is released before closing, or if either side does not follow the contract, things can get tricky. That’s why a third party holds the money through that stage.

If the home appraisal comes back low, the financing agency or lender (banks or financial institutions) will only fund up to the appraised value (minus down payment). The seller will have to arrange for additional cash, or else they can’t close the house. In this case, the buyer is not at fault; therefore, the buyer claims the earnest money.

In another situation where the buyer backs out of the contract for no reason, they will be in default. The seller can terminate the agreement and receive the earnest money as liquidated damages. Similarly, the buyer gets the earnest money if the seller backs out of the deal.

Earnest money is refundable if the buyer follows the contract, and it is not their fault that the deal falls through. The agreement has many stages where the buyer gets their money back without disputing the contract.

Can Seller Refuse the Release of Earnest Money?

The seller can refuse to release the earnest money if there is a dispute on who is at fault for the deal’s fallout. Since a third party holds the money, buyers do not have access to it.

The title company will not release earnest money until the two parties come to a common conclusion in writing and terminate the contract.

How to Pay Earnest Money?

Earnest money can be paid via various channels, such as personal checks, bank checks, cashier’s checks, or wire transfers. Since a timely transfer is ideal, most people prefer to drop off the check or go for a wire transfer for speedy delivery.

If you can’t pay by check, a money order is acceptable.

Cash is not acceptable as payment for earnest money. Both parties want to have a paper trail to keep track of the earnest money payment. Lenders often verify that the amount is coming out of your bank account. The lender can disallow unverifiable deposits from being included in closing costs.

Credit cards are also not an acceptable payment method for earnest money. Earnest money and down payment can’t be borrowed funds because they are unsecured debt.

How to Write a Check for Earnest Money?

Writing a check for earnest money is no different than for any other purpose. However, there are a few things you’d want to keep in mind.

The check goes to the closing agent, which, in most cases, is a title company. Therefore, the title company’s name should be in the blank section for “Pay to the Order of _____ .” It is beneficial to add the description under the memo as “earnest money for [address of the property].”

The buyer will get an earnest money receipt after the title company receives the payment.

Earnest Money Deposit Vs. Down Payment

The earnest money acts more like a buyer’s commitment toward the home purchase, and the title company holds the fund. In contrast, a down payment is a set amount promised to the mortgage lender for securing the financing.

You don’t need to issue the down payment until the closing day. The earnest money must be given within the set date in the contract after it is signed and before closing.

Option Money Vs. Earnest Money

Although it’s not a legally binding requirement, the option fee is an amount the buyer pays to get an option period (mostly ten days) for the house inspection. He can walk out of the deal should the home inspection determine significant repairs or improvements required. The option amount is relatively small, ranging from $200 to $500. It is usually non-refundable but must be included in the contract if it goes towards the closing.

Unlike option money or fees, earnest money does not give you any time frame to walk out of the deal. Option money protects the buyer from getting too tied up in the homeownership decision process, while earnest money protects the seller if the buyer walks away simply because he changed his mind.

In Summary

Earnest money is one of the essential aspects of the home purchase process. The money ties the buyer’s seriousness to the seller’s assurance. As a buyer, you can get an earnest money refund if issues are found during the inspection, low appraisal, or home financing. You can claim this money as a home seller if the buyer is at fault. This article originally appeared on Wealth of Geeks.

Retirement mistakes abound, whether due to bad advice, improper planning, or just misconceptions about what retirement truly is for.

Here are some of the biggest retirement mistakes that people are making, according to financial experts. What is most fascinating is that the majority of them have nothing to do with finances, which should be an eye-opener for anyone planning for or nearing retirement.

Mistake #1: Treating Your 401(k) Like a Credit Card

While there are absolutely reasons to take a 401k loan, a huge mistake I’ve seen time and time again is people taking repeated loans against their 401k, essentially treating their retirement account like a credit card. Save the 401k loans for true emergencies and then only when you’re certain you can pay it back.

Kelley Long

Mistake #2: Not Planning for Health Complications

Here is one big retirement mistake: Believing you won’t encounter any health complications for the rest of your life. Maybe you will stay healthy, but having a backup plan for if things go south can help prevent unnecessary pain and stress.

Marcus Blanchard

Mistake #3: Passing Up Free Money in the Form of an Employer Match

One large mistake people tend to make is not contributing enough to their retirement accounts to receive the full employer match. If you are not contributing enough to your 401(k) to receive the match, you are just giving up free money.

Also, not saving early enough to take advantage of compounding. The earlier you begin saving the longer your money can compound over time, resulting in more value. Once in early retirement people think they have endless amounts of money and tend to spend too much early on, on things like extravagant vacations and then end up running out.

Daniel Yerger, CFP

Mistake #4: Thinking Retirement Planning is Just for Your Finances

The biggest retirement mistake I see is people not considering all the non-financial aspects of retirement. They think they’ll just stop working and spend all their time on a quasi-vacation playing golf or taking it easy.

But people don’t consider that their daily routine will be disrupted and they may feel untethered without a structured schedule, social interaction with coworkers, and the pride and sense of accomplishment that comes from contributing through work. Yes, you need to plan for the financial future, but also consider your lifestyle and daily routine.

Russ Thornton

Mistake #5: Using Retirement Money to Pay for Your Kids’ College

A regrettable mistake I witness people make is raiding their retirement accounts to pay for their kids’ college expenses. It might seem like a reasonable idea to take out a 401(k) loan to pay for college, but parents frequently lose out on the larger gains their money would have in the stock market versus the small percentage of interest they are “paying themselves” to borrow.

If you don’t have enough saved in your old age, there’s no such thing as a retirement loan! You only get there by investing consistently over time. And there are plenty of ways to pay for your kid’s college: work studies, loans, part-time jobs, scholarships, and grants.

Christine Luken

Mistake #6: Not Understanding the Different Types of Retirement Accounts

A common mistake I see is not having a plan for which account type you are building investments. This is known as asset location which is the mix between taxable accounts (individual/joint), pre-tax accounts (IRAs, work retirement plans), and Roth accounts (Roth IRAs, Roth 401k). These accounts all have different rules, some with age restrictions, holding restrictions, and different taxation.

Not having a thoughtful plan about where to put your money between these three buckets can greatly impact retirement. It affects when you access the funds, the taxes paid, and if it’s counted as future income.

Valerie Rivera, CFP

Mistake #7: Not Planning for What You’ll Actually Do During Retirement

People spend so much time planning financially yet often spend little time planning practically for their retirement. The clients I have helped transition into retirement that have enjoyed post-career life most are those who have planned how they spend their idle time.

What will your retirement life look like to you? Do you want to travel, play golf, volunteer for a cause, etc.? Whatever your vision is, it is best to have a plan for that initial transition so you can adjust accordingly to your new life.

Ayad Amary, MBA, CFP

Mistake #8: Trying to Time the Market

The worst mistake people make is moving investments within their 401k at the wrong time. This mistiming is often done based on the past performance of the current investment holding. Investors will look at the past, move the money, and then miss the rebound.

Darryl W Lyons, CFP

Mistake #9: Retiring ‘Early’ Without a Plan

As a child, I watched my Dad work hard and retire in his 40s, soon realizing he never made a plan for what to do next. He spends his days wandering around his house, watching a bit of TV, but everyone can tell he’s not happy; he lost his drive. Work was all he had; when it was gone, nothing was left. Finding hobbies and interests now is the solution to future retirement boredom.

Gregory J. Gaynor

Mistake #10: Thinking You Can Wait to Start Saving for Retirement

When it comes to retirement planning, people make the mistake of not starting early enough. No matter how much money you make, it would be best if you tried to start saving for retirement as soon as you start making money.

Even if you can only afford $5 a month, you should put $5 in your retirement account. The best time to start saving for retirement is as a teenager. The second best time to start is today.

Robyn | A Dime Saved

Mistake #11: Forgetting to Assign Account Beneficiaries

One retirement mistake most people make is not assigning beneficiaries. Retirement plans allow you to add multiple beneficiaries. You can designate primary and secondary beneficiaries and set up a benefit split between them.

The next mistake they make is they assign the beneficiary but don’t re-evaluate and update every year. Life and situation change every moment. Therefore, it is always wise to review your beneficiary yearly and update, re-evaluate and revise your choice.

Lastly, most people don’t discuss their retirement plans with their beneficiaries. If something happens to the account holder, the retirement funds could go unclaimed.

Ram Chakradhar

Mistake #12: Forgetting to Enjoy Life Before Retirement

A retirement mistake that people make is to wait until retirement to enjoy doing the things that they love (e.g., traveling, spending time on hobbies, etc.). Even though delayed gratification is important in life, you may not have the same level of energy to do the things you want to do. If there’s something you want to do, do it now.

Bella Wanana

Mistake #13: Overspending in Retirement

With money saved up, investments paying off, and a healthy pension, you may feel it’s okay to go on a spending spree after retirement. After all, why have all that money if you can’t have a good time?

While there’s nothing wrong with spending money, overspending in retirement can leave you bankrupt and stranded. You don’t want to be retired and broke; it’s a sorry state. So, apply some frugality to your lifestyle and curb your expenses. Remember, there’s still life after retirement.

Jude Uchella

Mistake #14: Not Understanding the Power of Compound Interest

One retirement mistake I see the most and kick myself for is not starting to save and invest earlier. When you learn about compound interest’s magic and let it do its thing without making any withdrawals, it is pretty amazing.

As Charlie Munger says, “the first rule of compounding is never to interrupt it unnecessarily.” Just sit back and watch the power of compounding. Typically, you’ll see interest gains start to pick up around the ten-year mark and continue to grow larger.

Davin Eberhardt

Mistake #15: Not Setting Goals in Retirement

A huge mistake people make when retiring, especially retiring early, is not having a plan for their life. Sometimes people want so badly to get out of a job or just not be working that they find retirement boring. They whither away.

Instead, have a plan for what you will do in retirement. Find things that interest you and engage you, and commit to pursuing those things when you quit your job. Consider picking up a hobby, like painting or crafting, slow traveling for an extended period, or volunteering. Having varied interests to explore will ensure your retirement is as fulfilling as possible.

Melanie Allen

Mistake #16: Not Being Prepared for Unexpected Health Crises

Pondering the possibility of becoming incapacitated as you age is not a pleasant thing to do. However, it is a mistake not to. Therefore, being prepared by designating both a financial and healthcare power of attorney (POA) is necessary to protect yourself and your family.

Don’t wait until your health is declining to start the process. Being proactive will allow you to choose someone you can trust to make your healthcare decisions and handle your financial affairs. Finally, strive to get it done well before retirement, no matter what age you plan to retire.

Lisa| Adapt Your Dollars 

Mistake #17: Running from a Job Instead of Running Toward Something New

One of the most common retirement mistakes I see is when people only treat it as the absence of something (their job) rather than a space for something new. Retirement is a splendid opportunity to explore new possibilities in life.

Whether that be more social and family time, a casual hobby, community involvement, or a new semi-professional adventure, this can be a stage of life that is filled with joy, growth, and excitement!

Sam | Smarter and Harder

Retirement Mistakes to Avoid at All Costs

Did you catch the theme running throughout the experts’ advice? Almost half mentioned some form of the fact that people fail to plan for what they will actually do during retirement.

While there are many things you can do to ensure a smooth financial retirement, make sure you are also planning for what you are retiring ‘to’, not just what you are retiring ‘from’.

This article originally appeared on Wealthy Nickel.