Mandy and Personal Finance

As most of you already know, I’m somewhat of a nerd. I get excited over things that would make other people cringe. I’m also a detail person, which is why things like making a budget are exciting to me. When I was nineteen I took a college course on personal finance and loved it. If I’d taken it earlier in college (I was one semester away from graduating at the time) I might have considered adding a second major. I’ve contemplated getting a Master’s degree in something finance related. I’ve since decided not to go that route for numerous reasons, but my love of all things personal finance still remains.

I'll be the first to admit that I haven’t always handled money as well as I should, and I probably still spend money too easily. However, over the last couple of years I’ve spent a lot of time analyzing how I spend my money and researching things relating to personal finance. I’ve also spent time figuring out what the Bible says about how we handle money. I’m by no means an expert, but this is my blog so I figure I’ll pass along some of my thoughts on how to handle money.

A starting point...
The starting point for myself, like most people, was deciding what tool to use to handle my money. If you aren’t using a money management tool of some sort, you’re probably not going to be very successful in your attempts to manage your money. Some people find an Excel spreadsheet will do the trick for them (I’m not a fan of this method). Others prefer to use software packages. A few I hear a lot about are:
Mint
Mvelopes
You Need A Budget

Which do I use?
I use Mint, which is a web-based software package now owned by Quicken. There are probably hundreds of reviews online telling you why Mint is awesome so I'm not going to bother outlining every feature or telling you why you should use it. Feel free to look up the more recent reviews of Mint if you're interested. But I would like to share some of the reasons why I love it and how it suits my purposes well.

For me, the most notable things about Mint are:

1. It's free (woohoo!) 
2. It's web based
3. It's got a slick interface (the software engineer side of me is happy)

I'm a big fan of web based apps because I spend half of my day at a work computer and half of my day at my personal computer. I also have two laptops at home and sometimes have to switch between the two of them, so a desktop app would not suite my purposes very well.

Envelopes?
A lot of people are fans of "envelope" type systems, particularly Christian finance advisers (Dave Ramsey, anyone?). While I see the value of that, I originally wasn't interested in budgeting my money up front. I was more concerned with figuring out where my money was going each month. And in reality, before you can start budgeting you need to quantify your spending, so it turned out to be a good first step.
 
Mint makes it really easy to categorize every transaction (from all of my accounts, in one place, with almost zero work on my part) and then provides me with great ways to work with my data. The pie chart showing where all my money goes on the “Trends” tab is my favorite feature of Mint. The pie chart also helps me break down and sort out my transactions at the end of each month if I haven't already done so or if something gets categorized incorrectly.

(not my account, just a sample)

 
Once I had a good grasp of where my money was going (which took a couple of months) I got a lot more interested in tightening up my budget in certain areas. I use Mint’s “Budgets” to create an envelope system of sorts. I’m not a hardcore envelope budgeter though, so if you are, you might find other tools to be more to your liking. Mint is a great starting point if you're not sure what method of budgeting you prefer. It's worth your time to use Mint just to figure out how you're spending money even if you use it for nothing else.

For me, I’m sticking with Mint because it’s web based and because it helps me keep track of what I’m spending where. And I just plain like it.  In the end, it doesn’t really matter which app a person uses, as long as they’re using something and it works for them.

More on my actual budget later...

The 2011 Tax Cut – Have You Even Noticed It?

I’m not the type of person who pays a lot of attention to politics and trending topics. When ObamaCare was the huge topic of the day I knew essentially nothing about it. When I heard that Obama had issued 2011 tax cuts I didn’t even stop to read about what they were. I just assumed they didn’t impact someone like me.

Well… as it turns out… they do. Obama decreased Social Security from 6.2% to 4.2% thus increasing my take home pay each month. The sad thing is that I didn’t know anything about this until I noticed that my first paycheck in January was larger than normal. 

The cool thing about all of this? I have more money! My first thought was to just not even think about it and pretend it wasn’t there. Then I realized that was a bad idea because one thing I’ve learned since graduating from college is that money finds ways to disappear and also that you adjust your lifestyle to fit whatever amount of money you make. If you start to make more money, you adjust your lifestyle up to fit the new budget. As much as you say you won’t, you do anyway. And I do realize that the amount of money we’re talking about is somewhat minor but it is still extra income nonetheless.

So, what did I decide to do with my extra money? I setup an automatic transfer of the extra amount to my mortgage (as an extra principal payment) each month. Doing a rough calculation it looks like that small amount each month will add up to an extra mortgage payment or two by the end of 2011. Why did I choose to do this with the money? Is it the best return on my investment? Actually, no, I don’t think it will be. While an automatic transfer to somewhere is better than just leaving it in my bank account I actually think that investing this money in a nice index fund would serve me better than putting it towards my mortgage. However, given what the bible has to say about debt, I have a large desire to be rid of my mortgage in a much shorter span of time than the thirty years given to me and as such hope to continue to pay it down at an accelerated pace. I don’t trust myself to earmark an index fund for the mortgage so I’m going to make the money a straight payment towards my mortgage.

While I’ll never scoff at free money it does kind of make me cringe thinking about what the first paycheck of 2012 will be like. It’ll be like the opposite of getting a raise. I’m guessing that there will be a lot of people who don’t understand where the extra money is coming from or where it went when it goes away. The great thing about automatic transfers is that it only takes the click of a button to cancel them at the end of 2011.

Did you notice the tax cut?

Here’s a New York Times article about this subject:

http://www.nytimes.com/2010/12/25/your-money/25money.html

And a calculator to use to calculate how much your paycheck should have increased:

http://www.kiplinger.com/tools/2011_Social_Security_payroll_tax_cut_calculator/

Note: I guess companies have until March to get all of this straightened out and for some people their paychecks won't stabilize until then.