by Del Sandeen
Fiscal Liberty is a blog devoted to Personal Finance, Controlling Your Debt and Obtaining Financial Independence. Be the first to know when we publish new stuff: Subscribe to our RSS feed or via email
If you’re already into budgeting and have drawn up a monthly plan that tallies up regular expenses, good for you. If you’ve also figured in miscellaneous items like entertainment, even better (saving is hard, but you should still be allowed a treat now and then). But are you tallying up everything?
Sometimes, we forget about these expenses that don’t occur every month. They may occur only every few months or once a year. If they regularly recur, however, they need to be figured into the monthly budget. These aren’t “surprise” expenses — you already know about them and not counting them can seriously mess up your finance plan.
Any of these can fall into recurring expenses:
- Termite bonding and inspection for homes
- Beauty salon treatments
- Oil changes for the car/truck
- Buying start-of-school supplies
- Pet checkups/grooming
- Dental visits
There’s plenty more out there that may apply to you individually, but the point is, many of us don’t factor these in to our monthly budgets because they don’t happen every month. Here’s where it can hurt you:
Say you haven’t factored in any of the above expenses. Using what I typically spend on these, here are my figures:
- Termite bonding and inspection for the year: $500
- Hair cut and color: $80; five times a year: $400
- Oil changes plus tire rotation: $50; four times a year: $200
- School supplies for two kids: $150
- Pet shots once a year: $100
- Pet grooming six times per year $45 each; over a year: $270
- Dental visit: $30 office fee (with insurance coverage); twice a year: $60
That’s $1680 over the course of a year or $140/month. If you’re on a strict budget that leaves no room for errors, $140 is a lot of money. Worse, what if an emergency happens and although you have some savings set aside, you’ve factored this money into that savings instead of factoring it into your monthly budget?
If you really want to know how much you spend every month, it’s important to figure in your recurring expenses. This way, you won’t end up one month wondering why you’re $60 “short.”
by Del Sandeen
With the economy being what it currently is, many people are thinking about (or already are) tapping into savings, in some form or another. Whether it’s your regular savings account or your 401(k) plan, money is money when you’re strapped. It can be extremely tempting to dip into your 401(k), but here’s why you should resist if at all possible.
Times are tough now, but imagine how tough they’ll be if you get to retirement age and you have no savings. Basically, that’s what your 401(k) plan is — retirement money. In addition to what you put into your 401(k) account, many companies will match at least a portion of your money, so it’s almost like getting “free money” placed into your savings. You choose the percentage up to a certain amount and where you want to invest your money.
If you’re younger than 59 1/2, there are severe penalties for withdrawing money from this account if you’re still with the same employer, mainly a high tax percentage and having to pay state and federal taxes on the amount you withdraw.
If you want to get the most out of your 401(k) plan, you should:
- Start as early as possible. The sooner you start, the more money you can accumulate and you won’t have to play “catch up” later to secure that nest egg
- Contribute the maximum amount. Because this money is taken directly from your paycheck before you get it, get into the mindset that it’s not even there. Even giving the highest percentage your company allows won’t be missed if you accept that the money isn’t there for you to spend.
- Invest wisely. You’ll likely be able to choose where to invest your funds. Instead of wearing a blindfold and playing “eenie meenie miney mo” before picking whatever your finger lands on, get some information on investing so that you make smart choices. The better you invest, the more you can earn.
If you absolutely have to get some money somehow and your 401(k) plan is the only way you know how, look into borrowing from the plan instead of withdrawing. In some cases, borrowing isn’t as penalty-laden as withdrawing, but you’ll have a time limit to repay the loan before it shows that you’ve defaulted on it.
Bottom line: Make your 401(k) work for you by always adding, not deducting.
