AIA Chiangmai

Two incomes aren’t always the obvious choice. Most households today consist of two incomes. Stay at home parents are less and less common. Part of this is due to the increase in housing costs in many areas. Houses are larger, fancier and more expensive than ever.

But have you thought of the costs associated with two incomes? When both parents work, there are more auto costs — double the auto insurance, gas and maintenance. There is also day care, an increased level of taxes, more for clothing and even lunch.

You have to spend money to make money, after all.

Two income homes are often more risky than one income homes. When there are two incomes, a level of spending is reached that is comparable with the two incomes. If one wage earner is laid off or can no longer work, the family may find it is in financial trouble.

In a one-income family, if the wage earner is no longer working, the partner can go to work and provide approximately the same level of living for the family. Yes, there may be a gap in the incomes, but it usually isn’t as severe as when a two-income family loses one income.

It’s not that two income families aren’t great. They are just as wonderful as one-income families. But you should consider all of the costs when looking at the extra income. It is often more sensible and increasingly frugal to consider becoming a one income family.

Even if you are a two-income family, you can reduce your risk by simply working your budget so that you are living off of only one income, not both. That way, you are able to cushion yourself against any unforeseen occurences. The income from the second income should go directly into savings each month. You will be amazed how quickly your savings will grow by doing this.

It can be difficult to go from two to one, but if you adjust yourself gradually, you should really notice the difference. The changes can start as simply as no longer eating out for lunch. For two people, that can save around $100 a week. That’s $400 a month!

Then, consider carpooling. Lots of families arrange it so that one person goes on and off work fifteen minutes before and after the other person. That way, they can ride together. This can save a lot given today’s rising gas expenses.

Find ways to cut your monthly expenses. Start paying off all of your credit card debt. If you have no credit card debt, start paying off your other debts. You should make sure that you have emergency savings that will cover up to three months of expenses. This will cushion your budget from unexpected emergencies.

Look to ways to cut your utilities, grocery spending and entertainment costs. You will be surprised what you will cut and never really miss.

One or two incomes, it is up to you. But make sure you base the decision partly on the math involved, not just what others are doing.

Martin Lukac (http://www.MartinLukac.com), represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com, a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies!

Tags: budgeting, Finance, household income, personal finance, second incomebudgeting, Finance, household income, personal finance, second income

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The typical American household budget percentage breakdown looks like the list below. For most of the categories a range is shown. A range makes more sense to help you see where your personal budget fits (or doesn’t fit.) If your budget doesn’t fit the typical American household budget, rejoice! The average American household budget is jacked up - we carry too much debt and we just don’t save enough. We’re so worried about our neighbor’s new pool, our co-worker’s new car and our friend’s new designer shoes that we spend more than we earn to try and keep up. But take heart! Review the percentages below, compare your household budget and then read on to find out how you can move yourself into the elite minority of Americans who have mastered where their money goes.

Typical Household Budget Percentages

• 33-38% Housing (59%-66% of this is on shelter - mortgage interest, property taxes, repairs, and rent, and other items)
• 15-19% Transportation (up to half of this is vehicle purchase - 2 cars per household average)
• 13-14% Food Budget (55% at home, 45% away)
• 0-2% Alcohol
• 0-3% Tobacco and related products
• 0-2% Caffeine related products
• 4-5% On clothing and related services (drycleaning)
• 4.5 - 6% on out of pocket Health Care
• 9% Personal Insurance and Pensions (breakdown: 1% life and other personal insurance, 7.5% Social Security, .5% investment
• 5% Entertainment
• 2.5% Charitable Contributions
• 2% Reading and Education
• 1% Personal Care products and services
• 2% Miscellaneous
• 4% Credit Card, Consumer Loan Interest

If your budget closely matches the above, here’s what you can do to fix that. Do these in order. Do not proceed to the next step until you’ve addressed the current step:

1. Stop using your @#!&*! credit cards!
2. Make a down and dirty budget right away! Don’t worry about it being right at first…you can perfect it over time. Just do it!
3. Cut back on your easy to identify, frivolous spending habits (3 dollar lattes, magazines, 450 extra satellite channels, etc.) If you’ve got some expensive habits you’ve wanted to quit for some time, now’s the time. For example, if you’re a hard-drinkin’, chain smokin’, coffee drinkin’ fool, you can reap a windfall of up to 7% or more of your income! Just cutting back to 2 drinks per day, only drinking coffee from home and quitting the cigarettes will net you a nice amount of extra cash and add years to your life! Refine your budget after eliminating what you can.
4. Reduce your 401K and other investment payments (if you have any) to the minimum allowable to keep your 401K and/or other investment accounts open. If your employer has a stock matching plan, keep that in addition to the minimum to keep your investments accounts open (but only up to the minimum you need to get all the matching money.) You’re going to reap a whole lot more return on paying off your debts than you can ever hope to reasonably get from traditional investments. If you’re paying into a college fund for your kids - keep doing that - if you’re not and you really want to, hold off until step 6. Refine your budget to reflect the extra income available, if any.
5. Build an emergency fund equal to 2% of your gross annual income. It should be a little hard to get to (like a separate checking account or mutual fund), but not too difficult (Certificate of Deposit.) Work this into your budget - it’s very important. You will not believe the amount of stress that will melt away when you do this.
6. Pay off your debts - everything except mortgages. And don’t just move your revolving debt into a second or third mortgage - that’s bad. Pay them off using a rapid debt paydown system. Pay off any student loans (for future reference, these are a bad idea.) Pay off your car(s) too. If you’re not upside down on a car loan (your car is worth more than you owe) you can sell it and get a cheaper, paid for car. Throw a small (inexpensive but fun) party for yourself and your loved ones every time you pay off a debt.
7. Take all the money you WERE spending to pay off your non-mortgage debt and start putting it into those investment accounts you put on idle. Make sure you’re investing at least 10% of your gross income. If you followed steps 1-4 exactly, you should have lots of breathing room in your budget now. If this is true and you want to invest more than 10%, go ahead, but be sure to reward yourself too and live a little. Grow your emergency fund to a level you’re comfortable with (2 or more months of income is a good start.) If you have young kids and you want to send them to college, start putting money into a college fund of your choice for them, if you haven’t already. Throw a bigger party than usual when this is done.
8. Pay off your mortgage and throw your biggest party yet! You can start towards this by refinancing to a single fixed rate mortgage (your credit should be in pretty good shape having paid off all your other debts.) If it’s a 30 year mortgage, pay more than your monthly payment to dramatically lower the amount of interest you give to the bank. If it’s a 15 year fixed - wow! That’s excellent!
9. When you’re totally debt free, regularly give away whatever you think you can afford. It’s good for the soul!

Easy? Not. Worth it? Doing the above will pay dividends in your life in many more ways than just dollars and cents. You will assure yourself a dignified and financially secure retirement. Do this well and you will also build a way for your kids and your grandkids to enjoy prosperous lives, and they will remember you with fondness and respect long after you’ve moved on to the other side. Now get started!

Brad Homer offers free-to-try software to help you quickly and easily with your budgeting and rapid debt repayment planning. At his website you can also find more budgeting articles like this one.

© 2006 Homerworks LLC. All rights reserved.

Tags: budget, budget breakdown, budget percentages, budgeting, typical budgetbudget, budget breakdown, budget percentages, budgeting, typical budget

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Budgeting and financial planning are great ideas, but how in the world do you budget or plan when you don’t know from one month to the next how much money you’re going to earn? You have months at a time when you earn very little money, and then during the prosperous months you’re busy playing financial catch-up - and then comes another tough time.

It’s a difficult situation, but there are ways to approach the problem that, over time, will provide some stability for your finances.

The first trick is finding out how much it actually costs you each month to live; chances are it costs more than you think it does. Add up all your expenses - food, gas for the car, rent or mortgage payment, utilities, car payments, car and health insurance, and so on. Don’t forget periodic payments like license renewals and car registrations, birthday and holiday gifts and cards, Lotto tickets - anything that costs you money. A good exercise is to carry a small notepad around with you for a couple months and keep track of everything - I mean every penny - you spend. Allow yourself a certain amount for entertainment; if you put yourself on such a strict budget you can’t enjoy yourself you won’t maintain it.

Once you’ve decided what it costs you to live each month, that’s what you live on. Open bank accounts for each broad category - monthly expenses, weekly expenses, and so on - and then deposit the amount of money you need per month into the appropriate accounts as the money comes in. Separating monthly from daily expenses actually frees you up; if you know you’ve got money stashed safely away for the rent, heat, etc., and you see a pair of shoes or a book you really want, just check out your daily expenses account; you may find that if you eat rice and beans for a few days you can spring for the impulse buy without wrecking your budget. Just don’t, under any circumstances, raid the monthly expenses account!

If you have a month where you earn more than you need to spend based on your budget, put the extra into an interest-bearing savings account until you need it during the next low income period. Don’t blow the extra on a luxury item, at least not until you’ve built up a substantial financial cushion.

The conventional wisdom is that if you have credit card debt, you should pay it off before you start saving money. On paper, that looks good; you’re going to save a lot more in interest payments if you eliminate your credit card debt than you’ll be earning in a conventional savings account. But you need to take into account your uncertain financial circumstances and your own human nature. Having a month or two of living expenses in the bank can do an amazing job of calming one’s nerves, and can preclude the need for charging more money on your credit cards.

Here’s a good approach: stop charging on credit cards, period. Unless you have a necessary expense that you can’t pay any other way, don’t charge it! (Those kicky shoes aren’t a necessity unless you’re barefoot.) Pay cash, or don’t buy whatever it is you wanted to buy. Do your utmost to accumulate one to two months’ living expenses in a savings account, to be used during slow months, and then start paying down your credit cards, getting rid of the balance with the highest interest rate first. One exception - if you’ve got some cards with big balances and one or two that have a hundred dollars or so on them, and you can pay the little ones off in one fell swoop, do it! The psychological boost you get from getting rid of one credit card balance is worth what little extra interest you’ll pay by delaying paying the high balance card for a month. Once you pay off each credit card, cut it up, don’t use it - but keep the account open. You’ve just improved your debt to available credit ratio!

And finally, we get to taxes. Freelancers really get socked; they have to pay regular income taxes plus self-employment taxes - their own and the employer’s share of social security and Medicare taxes. Currently the self-employment tax is 15.3 percent. The best thing to do is to stash 20 to 25 percent of your income in a “tax account” as you receive it, and pay your quarterly estimated taxes as they are due; but you may not be able to do that, at least not initially.

Make sure you claim all the business expenses you can legitimately claim; your self-employment tax is figured on net profit after expenses, so the more you can get that profit figure down, the less your self-employment tax is going to be.

There are penalties for not paying enough tax - in 2004 if you owed over $1000 at the end of the year, you could be fined a penalty, unless you could demonstrate that your income was unpredictable during the course of the year. (You can do that, right? A hint -update your income and expense records regularly.)

If you get to April 15 and you can’t pay up, the IRS will allow you to file certain forms and set up an installment payment account; they charge you penalties and fees, but they’re not substantial, and this is a good alternative if you can’t cough up the cash; and it’s better than putting it on a high-interest-rate charge card. By law, the IRS can’t turn you down for the installment plan.

Over time, you’ll be able to budget for living expenses and taxes and put yourself on a pay-as-you-go schedule. Building this sound financial foundation is the first step toward prosperity!

Aldene Fredenburg is a freelance writer living in southwestern New Hampshire and frequently contributes to Tips and Topics. She has published numerous articles in local and regional publications on a wide range of topics, including business, education, the arts, and local events. Her feature articles include an interview with independent documentary filmmaker Ken Burns and a feature on prisoners at the New Hampshire State Prison in Concord. She may be reached at amfredenburg@yahoo.com.

Tags: budgeting, Financial planningbudgeting, Financial planning

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