My husband has been on surgery disability for several weeks now and we’ve learned a few surprising things about the process, the first of which is that it’s really not that much of a financial strain. Of course, we earn more than we spend, so it might be more difficult for families that are on the edge.

Total Reduction in Income
My husband’s income, after taxes, is reduced by about 25%. State disability income isn’t taxable, but the 5% bonus we’re receiving through his employer’s private disability plan is. If you’re planning a disability, find out if your benefits are taxable and budget accordingly.

I’m still working, so the total reduction in monthly income is closer to 15%. It’s something, but not so much that we really feel a pinch. I will also be interested to see how this affects our Federal taxes. We planned our withholding around our full incomes. If my husband is out for three months rather than the initial six weeks we estimated, that’s a full quarter of his annual salary, which may bring us into a lower tax bracket. If that’s the case, our total reduced income will be closer to 12%.

Total Reduction in Spending
We figured we’d see some reductions in spending, but we were stunned by the size of the reduction. We’re spending anywhere from 33%-50% less on our credit cards each month. Not only is my husband not eating out at all, or driving, or getting dry-cleaning, but I’ve also been seen some of my expenses go down. I expected our grocery bill to go up a lot, but it’s only gone up $15 a week or so. In addition, we have an FSA this year, so we’re no longer paying for prescriptions or co-pays.

The weather has been relatively mild, which has helped from an energy perspective. We had to use the heat during the day for about a month, but it was only heating the house an additional 3-5 degrees, so it wasn’t a big jump.

Planning for the Reductions by Stockpiling Cash
Once we knew the surgery was coming, we immediately put all major purchases on hold. We had planned to buy furniture, have some work done on the house, and buy me a car. None of that happened. Instead we funneled all our excess income into savings. Combined with our emergency fund, we had more than enough to cover the lost income and the gap between applying for benefits and receiving them. We’d expected that to be four weeks, but it was only three.

Pre-Pay Bills Whenever Possible
Before my husband’s surgery, he scheduled most of our bills for payment through our online banking. That way I didn’t have to worry whether a bill was due while sitting in the hospital. We were very glad he did that when his computer died the day before he went into surgery. Yes, I could access online banking from other computers, but I couldn’t use Quicken or access our budget. Let me tell you, not having access to Quicken or our budget for three weeks was very upsetting for me.

Between the FSA, reduced spending, and reduced income, we’re only falling about $600 a month short of our usual budget. That means we’re saving a little less, but far more than we were expecting. Recovering from surgery is tough, but the financial aspect doesn’t have to be if you plan carefully.

It’s been a rough couple years for employees. Many lost their jobs, and those who kept their jobs were unlikely to receive raises and bonuses. However, the economy is on the mend and many employers are finally able to offer raises. If you’re among the lucky recipients, you might be tempted to resume your prior spending levels, but I’m about to argue that you shouldn’t do that. Instead, use this as an opportunity to do one of the following. After all, you’ve survived this long without the extra money, you can keep doing it.

Pay Down Debt
If you received a pay cut, or couldn’t cut spending enough to avoid debt without a raise, then use the new money to pay down any credit card or other debt you’ve built up in the last two years. Since you weren’t used to having the money, you won’t miss it. If you use it to pay down debt, you’ll even wind up ahead of where you started because you’ll pay less interest and move through your debt faster.

Rebuild Your Emergency Fund
If you had an emergency fund, it may be depleted at this point, especially if you received a pay cut. If you’ve gotten used to spending less and aren’t creating new debt, then use the raise to rebuild the emergency fund. Another emergency could happen at any time, so it’s important to restore it as much as possible.

Boost Retirement Savings
Many employers cut their 401K matches last year, but are now restoring them. If you reduced or stopped contributing to your retirement, use your raise to start contributing again. Especially if your employer is resuming matching funds. If you don’t get matching funds, consider using the raise to open a Roth IRA or traditional IRA.

Replace Worn Out Appliances
Okay, this is a spending one, but if you have an appliance that is due for replacement, now is the time to do it. Some states have already run their Cash for Appliances programs, but other states are just ramping up. If your state is in the latter group, wait until it starts and then use your raise to replace your appliance and claim your rebate. While you’re at it, check for other rebates from your local utility. You could cover a significant portion of the cost by combining rebates.

Make Delayed Home Repairs
If you delayed any home maintenance because money was tight, now is the time to do it. Continuing to delay maintenance could lead to higher replacement costs later when it’s an emergency. Spring and summer are on the way, which is the perfect time for home maintenance.

Set New Savings and Investing Goals
You’ve already missed part of the new bull market, but there’s still quite a way to go. If you’ve already funded your retirement and rebuilt your emergency fund, consider investing in a regular brokerage account, starting a CD ladder, or increasing your general savings. If you really need a vacation, then you can set a savings goal for that and set aside your extra pay for that.

Of course, you can also go out to a nice dinner with your new raise, but don’t let it become a habit again. There’s no reason to give up your newfound frugal ways because you have more income. Have a little treat every now and then, but otherwise stick to your goals. You learned to live without the money once. You can continue to do so.

Are you getting a raise? If so, what do you plan to do with it?

From time to time, I’m offered an opportunity to do a bit of moonlighting. In my case, it’s freelance writing. Sometimes I accept the offer, and sometimes I don’t. Before accepting any offer, I carefully consider a few factors and discuss with my spouse. If you’re looking for side work, or being offered side work, here are some questions to ask.

Am I Qualified to Do the Job?
A potential client may not be completely familiar with your skills. Before accepting a side job or freelance project, get more details about what they expect from you, when they need it, and what the job requires. It might be something that you can do in a weekend, but it could also be something that requires you to learn new skills. If you don’t have the time to learn them, or don’t want to learn them, pass on the job.

Is the Money Worth My Time?
Ask up front how much the client is expecting to pay and how the pay will be structured. Once you know how long you have to complete the job and what sort of pay you’re looking at, figure out how long it will take you to do it. Are there any events or jobs that will require your time in the interim? How much actual time do you have available to do the job? If you don’t have enough time in your day already, then don’t do the job. If you’re stressed about fitting the extra work into your life, you and the job will suffer.

Even if you have enough time, is the money worth it? If you’ll earn just a few bucks an hour, the additional stress and exhaustion may not be worth it. That’s especially true if you work a full-time job, and would have to do the side job on top of that. On the other hand, sometimes the money is just too good to pass up. If it’s a big job that you’re fully qualified for, and have time for, then it’s probably worth giving up an hour each night and a few hours on the weekends.

Can You Afford the Taxes or Related Expenses?
Remember, any self-employment income over $400 is taxable. Is the job still worth it after you pay 5.3% of it in self-employment taxes, plus income tax on the additional income, and cover the costs for any necessary supplies? If the supplies are expensive, ask the client to pay for those separately. Don’t let them eat into your profit. If you can afford the taxes, make sure you pay estimated taxes in the quarter you earn them, or adjust your withholding to cover it. Failing to pay those state and federal can result in a penalty if you wait until tax day to pay them.

Do I Want to Do the Job?
It sounds simple, but for me this is the trickiest question of all. The allure of extra money is very tempting, but sometimes I’m just not interested in the topic. Other times I don’t want to deal with the client. Still other times I don’t want to give up my already short time. All of those are valid reasons to say no, even if the money is good. If you don’t want to do the job, you’ll just make yourself miserable in the long run.

Freelance work can be a great financial windfall, but only if you can handle the extra work. If you’re overwhelmed, just saying now is okay, too.

In college economics, I learned about the stages of adoption of new technologies or ways or doing things. Marketers love innovators and early adopters, but does it make financial sense to be an early adopter every time? What are the pros and cons?

What Are the Stage of Adoption?
There are five stages of adoption: innovators, early adopters, early majority, late majority, and laggards. Innovators take the risk of buying everything when it comes out. Marketers love them because these initial buyers help them work out the kinks. Early adopters are the next to buy – when it’s still cool, but more proven. Early majority buyers buy products when they’ve become mainstream, but not everyone has one. Late majority buyers typically wait until most other people have adopted an item or new technology. Laggards may never get around to buying something, or will only do so once it’s ingrained in society.

Should You Be an Innovaor for New Products?
My brother-in-law is an innovator when it comes to Apple products. He was convinced he needed an iPad the day it came out. I’m somewhere between early and late majority, and I’m not convinced it has a real purpose yet.

From a financial standpoint, it doesn’t make sense to be an innovator. The first buyers of the iPad will pay a high price for a first generation product with fewer features and more bugs. If they wait a year or two, they’ll get twice the features at half the price. I had another friend who bought a DVD player as soon as they were available. It set him back $500. I waited two years and paid $80. I think it was certainly worth it to save $420!

Other Advantages of Resisting the Call
In addition to saving money when you do finally adopt a product, resisting the call to buy can help you determine whether something is actually worth buying. New products come out every day, and most of us simply don’t need them. Rather than rushing to the store, you can determine if an item will actually improve your life. Most of the time, it won’t. I waited over a year to buy a Wii – until I was absolutely convinced that I would make good use of it. I certainly could have done without it, though.

Should You Be a Laggard?
Certainly, being a laggard is the most frugal option, but there are some things that can truly change your life. You shouldn’t be resistant to spending money on something or adopting an idea just because it’s “new.”

Questions to Ask Before Adopting Something
If you’re on the fence about something, or tempted to rush into a purchase, you can start with the 10-10-10 rule, or ask yourself these five questions:

1. How will I use this product?
2. Why do I want this product?
3. How many hours would I have to work to pay for it?
4. Is it worth that much of my time?
5. Will this product make a tangible difference in my life?

Every few months my employer’s financial advisor, Michelle Bless of the Retirement Strategies Group,  comes by the office to update us on changes to our benefits package or give advice. Last time she was here, I asked for her top five financial tips for 2010. She provided a great list of things to consider for 2010:

1) Roth Conversion Income Limits Lifted! For most people, their retirement savings and/or income streams in retirement are 100% taxable. From an advisor’s standpoint, it is very helpful to have some tax free money to work with in retirement. I would recommend looking at a Roth Conversion which allows you to convert your IRAs to Roth IRAs and pay the income tax today and allowing the account to grow on a tax free basis (vs. tax deferred). Before 2010, you weren’t allowed to convert if your Adjusted Gross Income was $100,000 per year or more but now that rule has expired which is big news. A few things to keep in mind: 1) If you convert in 2010 and ONLY in 2010, the IRS will allow you to spread out your tax liability over two years, 2011 and 2012. 2) If you can’t pay the taxes out of savings I would recommend not doing it. There are many things to consider and strategies to implement to make sure that the conversion is right for you so seek professional advice first.

2) Beef up your Emergency Savings accounts to 3 months living expenses if you’re married and 6 months living expenses if you’re single. If anything, this recession has really driven home the fact that most people are unprepared to continue paying their bills for longer than a few weeks if they lost their job. This recession has affected people from all walks of life and has cost millions of people their jobs. You must have emergency savings in the bank to ensure that you can continue to pay your bills should you find yourself out of work. I know saving for retirement is important, but if your retirement account also becomes your emergency savings account (which for many it is) then that’s not good financial planning. Retirement accounts are for retirement, not to buy a first home, not to send your kids to college, and not to dip into if you are in a financial bind.

3) Buy real estate. Real estate has to exist somewhere in your financial life either a primary residence, rental properties, or with Real Estate Investment Trusts (REITS) – public or private. The IRS has extended the Home Buyer Tax Credits for first time home buyers as well as for current home owners. The rules are as follows:

  • Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30, 2010.
  • Expands the credit to grant up to $6,500 credit to current home owners purchasing a new or existing home between November 7, 2009 and April 30, 2010.

If you’re not in a position to purchase physical real estate, a public or private REIT can fulfill that asset class. If you don’t know what I’m talking about, send me an email or give me a call. For the tax credits consult your tax advisor.

4) Give yourself an annual financial review and calculate your Net Worth. One goal I have for my clients is to increase their net worth each year. If it hasn’t gone up, then we look at why – Was it market performance? Savings? Big expenses? It is a very empowering exercise. Add up all your accounts (bank, brokerage, retirement, cash value in life insurance, etc) and subtract your liabilities (mortgage, car loans, student loans, credit cards, etc).

5) Teach your kids about money now. If you have kids and they get an allowance or money for their chores, a good exercise is to have them divide that money into three groups: Save, Spend, Donate/Share. This will help them develop good money management skills at an early age and will also teach them the value of the money they earn/are given. You can buy these piggy banks with three compartments on Amazon.

This has been a rather frustrating week. First, it’s a deluge this week, so the roads are crazy here in Los Angeles (and also, we’re floating away.) Second, the hospital where my husband was scheduled for surgery screwed up the schedule and it’s been delayed. Third, as I mentioned before, the hinge on my cell phone broke. And that is what I’m going to discuss today: what a waste cell phone insurance is.

My Story of Cell Phone Insurance
I’ve been a loyal AT&T Wireless customer for several years, and I was a Cingular customer before AT&T bought them. Basically, I’ve had service with some division of their company for 13 years. In October, 2008, my husband and I bought new LG CU515 phones and agreed to a two-year contract. Now 15 months in, the hinge on my phone has cracked. When we bought our phones, they asked if we wanted insurance. I don’t usually go for these things, but we’ve had phones break before, so we said yes. One monthly insurance charge was added to our monthly bill. Now I am told that the insurance only covers my husband’s phone. We were not told the insurance would only cover one phone when we opted for it.

I called LG, but they’ve chosen not to recall the phone, despite numerous complaints on the AT&T forums and several review sites about the hinge cracking. They will apparently fix the problem free if it’s in warranty, but my phone isn’t.

I called AT&T for help, but my phone is out of warranty, they insist it’s not insured even though we thought it was, and it’s too soon for an upgrade so I can’t switch to an iPhone at the discounted price. I was told my only option is to go to one of their stores to buy a cheap GoPhone and have it added to my account. She kept saying, “We have this option for people who might be short of funds.”

I’m not short of funds, but I’m sure as hell not paying $200 for another piece of junk just to get me through the next nine months of my contract.

I explained to AT&T that my husband is scheduled for surgery and now is not a good time to be running over to the phone store. At the time of the call, his surgery was a mere 15 hours away. Yes, I can use his phone while he’s under, but I also need to be reachable on my own number. I explained this to AT&T, but only got apologies and “Sorry, a GoPhone is your only option.”

I realize that it’s not AT&T’s fault that my husband requires surgery at the same time my phone broke, but it is their fault that they sold me a phone that would not last the contracted two years. This was not a free phone – I paid $80 for it, plus the two-year contract. Without the contract, the phone would have been $200.

What the Worthless Insurance Cost Us
So far, we’ve paid $4.99 a month for 15 months. That comes to a total of $74.85. Over the term of the contract, the total cost will be $119.76. In addition, my particular model has a $50 deductible, if they were willing to replace it. Some phones have higher deductibles. Total cost to replace a phone: $169.76. I could buy a used, unlocked phone on eBay for less than that. Yes, it would be used, but it would get me through the rest of my contract. At which point, I’d have the cash to get a new phone with a new contract.

When Cell Phone Insurance Might Be Worth It
If you have a really expensive phone, one that would cost $600-$800 to replace, then yes, the insurance might be worth it. But you’re also going to pay a high deductible, and your replacement phone will be a refurbished phone, not a new phone. So ask yourself, do you want to pay $120 for insurance plus $150 for the deductible for an old, refurbished model? And be warned that not all damage or losses are covered – so you could pay all that money and still be left without a phone.

A Better Alternative to Insurance
Next time we renew our cell phones, I’ll be doing two things: 1. Considering switching my business to another carrier, and 2. Creating my own cell phone insurance plan. Rather than pay for crappy cell phone insurance, I’ll simply add the amount we would have paid to our emergency fund each month. Then if something happens to our phones, we’ll have the money to replace them. If nothing happens, that money is ours to keep.

Now I realize that a different carrier may be no better than AT&T, but I’m pretty ticked off right now. This phone is crap, and THEY know it’s crap, but have chosen to do nothing about it. I may just be willing to sacrifice the iPhone in order to take my money elsewhere. I could get a G-Phone! By the time I can switch, they’ll have all the G-phone kinks worked out.

I’ve got the ultimate conundrum for a dedicated frugalist: the broken cell phone. First the story, then the conundrum.

The Cheap Phone Plan
As soon as my husband and I got married, we merged our cell phone plans into a family plan. About a year after the first two-year agreement expired, the hinge on his phone cracked and we decided it was time to upgrade. We both went to the AT&T store and bought matching phones. They weren’t the cheapest phones in the store, but they were basic flip phones. My husband considered a Blackberry, but decided to wait until the next contract expiration.

Breakable Flip Phones
Last Thursday the hinge on my phone cracked. I currently have it taped together, but it’s not a long-term solution. However, we’ve got nine months left on our phone plans. It’s a known issue, so I’ll be calling LG to see if they’ll fix it free, even though it’s out of warranty. We also have insurance on the phone, but the deductible will be at least $50 and I’ll get a refurbished phone.

The iPhone Conundrum
Here’s where it gets tricky. Currently, we both receive cell phone reimbursements from our employers: $40 for me, $50 for him. That completely covers our current phone plan, so our phones cost us nothing.

My employer also offers company phones. They’ll give me a free Blackberry or I can buy an iPhone and they’ll pay for the service and data plan. But, I would have to get a new phone number or transfer my number. I’ve had my number for 13 years – I don’t want to change it!

If we upgraded to an iPhone for me and a Blackberry for him, we’re looking at $179 a month plus taxes vs. $70 a month plus taxes. We could use the lowest cost plan with rollover minutes since we have 4000 minutes accumulated, but that would still cost $125 a month.

My plan was to wait until October so I could go on my company plan and we could put him on an individual plan for a Blackberry. It would cost the same as it costs us now, but the net after his reimbursement would be $30ish, instead of $50ish.

Why I Want an iPhone
I primarily want an iPhone for the browser. There have been several occasions where I wanted to get directions, or check an online price, or find some other information while out and about.
I hate texting, but I do have friends who insist on texting me, so the iPhone would make that easier.
It’s becoming more important that I have access to office email on the weekends.
My co-workers all have them and use them during conference calls, while I sit quietly staring at the wall.

Why I’m Hesitant about the iPhone
I don’t really care about the apps. I’ve had a PDA before and used apps. Although handy, I wasn’t addicted to them.
I prefer to use a paper notebook to keep notes, to do lists, etc. It’s faster to write by hand than it is to keep it on a PDA.
I hate the iPhone keyboard – it’s hard to poke the letters with my fingertips. Maybe it’s just because I used to use a stylus and I’ll get used to it.
I already have an iPod that still works perfectly well, so I don’t need it for the music.
I just bought a new pocket calendar for the year and I like it.

My first plan of action is to try to get my current phone fixed for free. If that doesn’t work I’ll have to decide my next step. If we break our family plan now, we’ll have to pay a $100 early termination fee, unless we can avoid the fee by replacing our family plan with an individual plan at equal cost. Hmmm, I’ll have to look into that. If we can, then I’ll jump onto the office plan. If we can’t, then we’ll be doing some more math.

So, are any of you iPhone users? Do you think it’s worth the extra cost?

At the start of each year, my husband and I calculate our taxes for the year and adjust our withholding to get the lowest refund possible. That way we get to use more of our money during the year, rather than give the government an interest-free loan.

Withholding Errors Do Happen
My employer’s payroll company usually gets it right, but as we’ve seen before, my husband’s employer’s payroll company isn’t quite as good at that. Which is odd, because they use the same payroll company. I guess my employer, being larger, gets better service.

At any rate, my husband’s first paystub of the year has arrived, so I entered the new withholding into my tax spreadsheet and discovered that we would overwithhold by a whopping $5600 if the current levels were maintained.

That didn’t seem right to me, so I used the Paycheck Calculator to verify that their calculations were correct.

Yeah, not so much. I can’t figure out how they arrived at this particular figure, but they’re adding $235 to his federal withholding. Interestingly, that’s the same amount they used when they withheld taxes from his paycheck, but forgot to pay him his whole salary. I don’t know what their obsession with $235 is. At one point we had them withholding an additional sum every paycheck because of the marriage penalty. It’s possible that was $235, but that was 6 months and two W-4 forms ago.

To double-check the double-checking, I also used the IRS withholding chart in their tax publication. I looked at several possible calculations and not one of them matched the number the payroll company came up with. I don’t know what they’re doing over there.

How to Handle Errors
If you find an error, take your stub to your HR rep (or whoever does payroll at your company) and tell them it’s wrong. They’ll communicate that to the payroll company or verify that they have the correct information entered into the system if they process payroll themselves. Then check it again when the next paycheck arrives. Unless they seriously messed up, you probably won’t get a refund of the overwithholding.

Obviously, one paycheck error isn’t going to break us, but over a year, it adds up. Sure, we’ll get it back, but I’d much rather have it now. If you agree, take a few minutes to check your paycheck when your first stub comes. You might be glad you did.

Hopefully you rebalanced your investment portfolio at the end of 2009 to capture tax losses, but you can do it now if you haven’t already and have those losses for 2010. However, you should look at more than just your portfolio. It’s time to look at all the places you keep money to make you’re not being hit with new fees.

Review Your Checking Account
If you have direct deposit, then you may not worry whether your checking account carries fees. However, some employers don’t offer direct deposit. If your employer is one of them, it’s time to check your account for fees. You should be able to find a fee list online. If not, call customer service and ask. If they charge fees for calls, teller services, monthly account maintenance, low balance, etc., it’s time to move your money. Your first try should be a local credit union, which is probably fee-free. If you can’t find one of those, some major banks offer fee-free accounts. You could even ask your bank if they have one and inform that you’re prepared to find a new bank if they can’t switch you into it.

Review Your Savings Account
I’m not saying you should move your savings account each time a different bank shows a slightly improved rate. You should, however, check this account for fees, too. For example, last year I had to remove my money from Everbank after they more than tripled the minimum balance and doubled the associated low-balance fee. We weren’t in danger of triggering the fee, but we wanted the flexibility and they didn’t offer it.

Review Your Brokerage Account
This is a tricky one, because your investments may be tied up for a short while if you have to move them to a new brokerage. However, you should still check your brokerage account for new “account maintenance fees.” Those fees were one of the reasons I left E-Trade several years ago. They didn’t tell me they’d introduced the fee until they sent me a statement four months after they levied it and then said they couldn’t reverse it because it had been more than 90 days. Even when I said I wanted to close the account if they didn’t reverse the fee, they didn’t budge. So I closed the account and I’m never going back.

Review Your Credit Cards
Credit card companies are cutting limits and hiking fees and interest rates all over the place. If you don’t carry a balance, interest rate hikes are moot, but you need to know if they’ve cut your limit. They should send you a letter when they change your account, but check your account online monthly just to make sure.

Review Your CD Due Dates
If you have any CDs expiring this year, mark the due date on a calendar so you can notify the bank immediately about your intentions. If you wait more than 10 days, the CD will automatically renew and lock your money in for another term unless you pay a high surrender fee.

Check Your Credit Report
While you’re doing all this, why not check your credit report, too? I use to check one free report every four months: January, May, and September.

A once-a-year checkup is a good way to start the year, but always be vigilant about changes to your account because they can happen at any time. The sooner you take action, the less risk of getting hit by a fee.

It’s the beginning of the year, which means it’s the perfect time to sit down and redo your budget. Plan out your basic expenses, budget for savings and big purchases, and start yourself on the path to a financially sound year.

Reassess Your Taxes and Income
If you adjusted your retirement or flexible spending account contributions, received a raise, bought a house, had a child, or did anything else to change your finances, then you probably need to readjust your tax withholding and budget for the difference in income. Start by using the IRS withholding calculator, which has been updated for 2010. Enter your income, expected contributions, deductions, and credits. It will tell you exactly how many allowances to claim to arrive at as low a refund or payment due as possible. It’s the best way to maximize your income without getting walloped by a big tax bill. If you need to make a change, file a new W-4 with your employer. You can complete the form and print it right from the IRS site.

Reassess Your Expenses
Now update (or list for the first time) all of your monthly, semi-monthly, and annual expenses. For the irregular or annual expenses, divide the amount due by 12 to figure out how much you need to save for the next year to cover the payment. List the due dates and payment amounts in your budget. Calculate the difference between your income and your expenses. If you don’t have a positive balance, you’re spending too much. If you do have a positive balance, put the extra into savings or invest it.

Plan for Major Expenses
Is this the year you buy a new couch, a new car, or take a vacation? Check your savings to make sure you’ve got what you need to cover it. If you don’t, calculate what you need to save each month and add it to your budget as an expense so you won’t be caught short when the day comes.

Budget for Savings
If you’re not already serious about saving, it’s time to make it a line item on your budget. We usually transfer our money into savings after the second pay period of the month. We like to keep the money in our checking account during the first period as a buffer in case we have a paycheck error (as happened twice last year.) With the money in the account, we know our mortgage payment and bills will clear without us having to transfer money back from savings.

Set Your Goals
If you haven’t already set your financial goals for the year, set a couple of reasonable goals (increase your emergency fund by 20%, for example), and a couple of stretch goals (double your emergency fund). Now figure out the dollar amount necessary for each goal, divide by 12, and add it to your budget as a monthly expense.

Put It In Motion
If you know you won’t remember to transfer the money to savings every month, make it an automatic withdrawal. If you like to move money around, set up the accounts now so you can transfer funds in a flash. Each month, update your budget with that month’s irregular or annual bills and make sure you’re still on track. If you had to spend a little extra on an emergency, deduct it from your goals before you decide to carry it as debt.

Once you get into the habit of using a budget and saving money, it gets much easier every month. Try it for just this month to get 2010 off to a good start.

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