Cash Flow Budgeting

A Fast, Flexible Way To Fix Your Finances

You’ve heard it from a million places: Budget your money! Make a firm plan and stick with it. It’s the pathway to prosperity!

For many people, though, that advice just doesn’t resonate. They feel constricted by a budget. Keeping cash in separate envelopes makes them feel like they can’t have a life. It takes too much planning and too much rigid denial. They break their budget and sometimes wind up in serious financial trouble.

Other people have an inconsistent cash flow, making creating and keeping a budget difficult. Maybe they’re freelancers who work gig-to-gig. Maybe they’re in commissioned sales. Maybe their hours fluctuate month-to-month. Whatever the reason, it’s hard to make a detailed plan when your bottom line changes every month.

The answer isn’t to give up on budgeting. The collective wisdom, that monitoring your expenses and income streams is the way to stability, still holds true. It might just require a different approach to budgeting: cash flow focus.

Cash flow focus is the strategy used by most businesses. They pay their fixed costs, and whatever is left is used to grow the business. You can manage your finances the same way.

Just follow these four steps:

1.) Automate your savings

Even if you disregard everything else in this article, implementing this one tip can be life-changing. Figure out how much of your income you can save, then take that out as soon as you get paid. You can set up monthly transfers from your draft account to your savings account. You can also divide the money between the accounts on a per deposit basis. How you choose to do so is less important than doing so.

Like the saying goes, pay yourself first. This savings provides you the flexibility to cover big expenses or make major purchases on your schedule. It’s the single most important step in any budget, but it’s even more important with cash flow budgeting.

When you automate your savings, you remove the money you saved from consideration. You can’t spend it; you’ve already spent it on savings. The importance of this kind of savings will become more clear once you see this budget in action.

2.) Pay your needs and your priorities

Make a list of your essential expenses each month. Include your rent or house payment, your car loan and your utilities. Also include your student loan payments, your insurance and other necessary expenses. These are your “fixed costs.” They get paid after your savings contributions are made.

Next, make a list of your priorities. Include your charitable contributions, vacation savings and retirement account contributions. These are your “growth expenses.” They get paid after your fixed costs.

If you don’t have enough money to make these bills, you don’t need a better budget. You need to lower those bills or increase your income. No amount of spreadsheet magic will change that bottom line.

It’s helpful to automate savings for these expenses, too. That way, you never get caught short on these bills. Transferring this money to a check-only draft account can be a helpful way to ensure you don’t spend it.

3.) Spend the leftovers

This message may sound peculiar for personal finance advice. Remember, though, that you’ve already automated your savings. What you’re spending here is the leftovers – the extra that’s left at the end of the month.

Spend this money however you like – don’t worry about putting this much in entertainment and that much in travel. Just keep track of how much you’ve spent so you don’t accidentally overdraft your account.

This approach allows you to go out or indulge in a latte. You don’t have to worry about including it in your budget. Your spending habits might change as the month goes on, just like a business. If you know there’s a big outing before you get paid again, you may want to save some money for that. You don’t need to say that you can’t go because you didn’t budget for it.

4.) Roll over what’s left

If you’ve worked in a big business, you’ve seen departments desperately spending at the end of the fiscal year. Departments buy cases of pens and paper, knowing that they’ll lose whatever they don’t spend. Fortunately, you’re more flexible than a big business. You don’t have to spend it all. If you have money left over at the end of the month, then you have more to spend the next month.

If you have a month with slightly higher expenses, you can cover it from a previous month’s slightly lower expenses. Your spending will change from month to month, as might your income. So long as you keep the former smaller than the latter in the long run, you’ll be fine.

That’s what cash flow budgeting is about: flexibility. You don’t have to write your unbudgeted spending purposes in stone. You don’t have to mess with cash envelopes or other strategies. You can spend when you have money and save for when you don’t.

Unprepared for College Tuition? You’re Not Alone!

If you are the parent of a college-bound high schooler who’s starting to look at colleges, but find yourself in the difficult position of not having any savings to put toward the cost of education, take a deep breath.  Sending your child to college without having any savings isn’t going to be easy. It’s going to take more research, more writing and more debt. But, this disadvantage isn’t insurmountable. You and your child are both just going to have to work a little harder to make this happen.

Before you begin planning your course of action, get a realistic estimate of costs. The College Board maintains a utility called the Estimated Family Contribution (EFC) calculator. Using this tool, enter your income, savings, and the number of people in your household. At the end of this, you’ll get a dollar amount showing how much the federal government expects you to pay. You can use this number as a target for how much you’ll have to come up with each year.

As hard as it might be to have this conversation with your child, you ought to have it. At some point, your student will have to read and sign the FAFSA (Free Application for Federal Student Aid), which require your income and savings information. This will also help your child make an informed decision about which school to attend.

Once you have a good understanding of realistic costs, it’s time to start planning. Here are three options to consider as you and your child are planning the next steps:

1.) Choose flexible schools

Encourage your child to apply to and visit a few schools where he or she would likely be among the best students. There’s a dirty little secret in the college admissions world. The quality of instruction at most non-Ivy colleges is the same. What’s different is the environment. What makes your student most comfortable: a small, liberal arts school or a big state school? There are many in both categories at all points on the cost continuum.

Many schools in both categories struggle to attract quality applicants. They will be eager to accept a bright and promising young person who can make their school a better place. These schools may offer extensive grants, scholarships, work-study offers, and other tuition breaks.

If your child is reluctant to consider schools that don’t have an elite price tag, you might want to frame the concern as future debt. Use current examples of people who just graduated and can’t find work in their fields. Encourage them to think about the next five or six years of their life, rather than just the next four.

2.) Take a look at loans

If you have nothing saved for college, the unfortunate reality is that you’ll likely have to borrow at least something. The federal government sets a cap on how much they will lend to students, based on EFC, or estimated family contribution. These loans have quite favorable rates and good repayment terms that will help young people stay out of trouble.

The NASA Federal Credit Union CU Student Choice Loan can help you pay for education expenses. Get competitive interest rates and generous repayment terms. Plus, with our fast online application, get the money you need to pay for college quickly. To learn more about NASA Federal’s education loan options, visit the Credit Union Student Choice Loan Center.

Borrowing for college isn’t the end of the world, but you will need to repay all that money whether there is a degree at the end of the adventure or not. This can be a serious burden for a new graduate, even with income-based repayment programs. Don’t give in to “debt creep,” or the feeling that, since you’re borrowing, there’s no reason to borrow less than the most you can. $19,000 in debt is better than $20,000 in debt. Every dollar not borrowed is compounded by the absence of interest on the other end.

Outside of a mortgage, though, a student loan is the safest investment you can make. The earning potential of college graduates is significantly higher than a high school graduate. There’s no need to be ashamed about borrowing to pay for school. Just use it responsibly.

3.) Consider non-traditional options

There’s no rule that says every 18-year-old has to graduate high school and then immediately enroll in college. In fact, in most other countries, the so-called “gap year” is quite common. Students use this time to work at part-time jobs, volunteer, and build their resumes. The difference between a 23-year-old college graduate and a 22-year-old college graduate is negligible. A student working and saving for a whole year could save $10,000 for college. That’s enough to defer the cost of tuition. Plus, building a resume will make it much easier to find work on the other side.

Community college may also be an attractive option. Most community colleges will offer significantly discounted tuition for exceptional students. These institutions offer the same general education courses for a fraction of the price. It’s not a free alternative: you’ll still have to pay for housing and transportation. Yet, the more flexible schedule makes it easier to work a part-time job while going to school, and it costs half as much or less. No employer or grad school will react badly to  two years of community college. Once your child graduates with a four-year degree, that degree will be the same as a four-year student of that school. Community colleges aren’t free, but they’re certainly not as expensive as a residential college.

Having no college savings does set you behind in the education race, but there are many alternative options. Have a frank, honest conversation with your student, and then do what’s best for you and your family. And don’t forget to celebrate the positive – you raised one smart kid.

 

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Social Security Calculators: Planning Retirement to Win

Effective retirement planning is a simple equation. You have to make sure your passive sources of income meet or exceed your monthly expenses. For most of your income, like your retirement accounts, Certificates and investments, that income is easy to calculate. You know the rate of return and you know the amount you have saved.

One potential source of retirement income that’s a lot harder to predict, though, is Social Security. While it shouldn’t be your only source of retirement income, Social Security benefits can provide an added layer of comfort to your retirement. Planning around them, though, requires knowing the amount of your benefit.

That can be a tricky process. The complex web of contributions and regulations can make figuring out your monthly benefit a nightmare. You may need something stronger than a COLA once you’re done working your way through the nightmare of acronyms and bureaucratic doublespeak that make up Social Security laws.

Fortunately, this part of your retirement planning just got a lot easier. A new wave of apps called Social Security benefit calculators can simplify the process dramatically. They couldn’t be much easier to use.

Just input your yearly income, your age, and the date of your retirement. The program takes that information and generates a monthly benefit for you. Some of these programs even include an inflation adjustment tool to let you see how your benefit may change in response to changing economic conditions.

Basic calculators, like those available from the Social Security Administration, will do that and nothing more. These more advanced utilities will let you adjust the information you get based upon a variety of factors. This helps you to visualize the kind of portfolio performance you’d need to supplement your Social Security income.

More than figuring out how much your benefit will be, though, these utilities let you fiddle with numbers to see how to best optimize your Social Security benefit. By changing your retirement date, modifying your income and/or shuffling other variables around, you can see how your retirement income will change in response to your decisions. These adjustments can help you make an informed decision about how and when to retire.

More to the point, these tools will help you make the difficult decision about when to claim Social Security. The monthly benefit you and your spouse will receive increases every year between the time you turn 62 and the time you turn 70. The caveat to this increase is that you’ll likely have less time to spend it. Balancing these demands can be made easier with a calculator tool.

But keep in mind, there are more than a few hazards to making firm plans using one of these utilities. Even the best Social Security benefit calculator can’t predict the future. Social Security regulations are a hot-button political issue. Things like cost of living and inflation adjustments can change in response to political as well as economic circumstances. If these regulations change, so will your benefit.

Social Security itself is always in jeopardy, too. It’s the single largest expenditure in the federal budget and it comes under fire every year. If you build your retirement around Social Security income, you might be in trouble as government budgets get tighter.

Also, remember that these tools are for informational purposes only. You shouldn’t interpret these results as a guarantee of benefit. Many personal circumstances are considered when figuring your benefit and no calculator can capture them all. Treat this information as a useful planning guideline, but not as a contract.

The most basic planning tool is offered by the Social Security Administration. It’s regularly updated and provides the most direct pipeline to the byzantine network of regulations that govern Social Security. While it doesn’t allow you to customize your results much, it’s a good introduction to planning.

Probably the best tool of the bunch is SSAnalyze! SSAnalyze offers the greatest range of flexibility in input options. It allows you to set a range of life expectancies, adjust for changes in income (if your spouse was to retire early or you were to go part time), and account for a large number of household arrangements (domestic partnerships, blended families, and so on). SSAnalyze! has a little bit of a learning curve, and anticipating the results can be daunting, but the flexibility of this powerful tool makes it a great resource for retirement planning.

No matter the result you get from your experience with a Social Security calculator, it’s only one part of the retirement planning package. You need to take this information and add it to the list of things you know about your retirement options and plans. If you want personalized financial advice that uses that information to get you on the path to your truly golden years, speak with a representative from your credit union today. The trained financial service experts there can set you up with a range of savings and investment instruments that will let you enjoy the retirement lifestyle of your dreams. Call 1-888-NASA-FCU (627-2328) or stop by NASA Federal Credit Union today, and get on the path to your financial future.

Financial Planning For College: How To Get The Most Out Of The FAFSA

Q: My oldest child is about to begin her senior year of high school, and her younger brother is about to begin his sophomore year. We’ve already started getting letters from colleges, and I’m worried that her dreams will have a price tag we won’t be able to deal with. We’ve got some savings, but are worried it might not be enough, especially when both kids go to school. What can we do to maximize our chances of getting scholarship funds?

A: If you’re the parent of a college-bound high school student, you’ve probably already started receiving junk mail with pictures of big, impressive stone facades on the outside and big, appalling price tags on the inside. It’s college recruitment season, and college costs are at an all-time high. If your young scholar has his or her sights set on a private school, you can expect to shell out about $120,000 on tuition.

Whether or not you plan to help your children pay these costs, the federal government will use your financial status to assess your child’s financial need in terms of an Expected Family Contribution (EFC). Whether you expect to qualify or not, you’ll have to fill out a Free Application for Federal Student Aid – the FAFSA form. This form will be used in determining your child’s eligibility for a variety of scholarships, including subsidized student loans, Pell grants and other need-based financial aid.

The equation the government uses to calculate the EFC based on the FAFSA is publicly available. With this knowledge, you can move assets around to make your financial situation look as unimpressive to the government as possible. By doing so, you can help your child get qualified for more financial aid for college. You can help pay for school without spending any money by taking these steps:

  1. Reduce your cash assets. The FAFSA formula expects that you’ll use a portion of your liquid assets – that is, money in savings accounts, money market accounts, brokerage accounts, CDs and checking accounts – to pay for college. If you’ve got significant savings there, consider using it to pay down your mortgage or save it in a retirement fund. Neither of these accounts are considered “cash” as far as the FAFSA is concerned.
  2. Move investments into real property. The assets of your business are protected by the FAFSA equation. If you’ve been considering a capital upgrade, like new equipment or a bigger office, now might be the time to do so. If you don’t own a small business, consider shifting your savings into rental property or making improvements to your home. Both of these will reduce your cash assets.
  3. Make purchasing decisions with asset reduction in mind. If you are thinking about taking a big vacation before you send your little ones back to school, consider paying for it with a withdrawal from your savings rather than financing it through debt. The debt will accumulate interest, while the reduction in assets will make your EFC smaller.
  4. Review Retirement Account Contributions. If you haven’t already done so, maximize your tax-deductible contributions to retirement accounts. This will lower your income without counting as assets for the FAFSA. You can do the same thing if you’re planning a large, one-time charitable gift or other tax-deductible expense.
  5. Don’t lie on the FAFSA. It seems obvious, but bears stating. Lying on the FAFSA is a federal crime that could put you in serious trouble. Any money you gained with a fraudulent FAFSA would have to be paid back, usually with penalties.
  6. Reduce savings in your child’s name first. Because children have fewer expenses, they’re expected to pay a higher percentage of their assets. You can put the money back into savings on his or her behalf after graduation.
  7. Discuss college planning with gift-giving relatives. If grandparents are thinking of making a significant gift, ask them to hold off until after graduation. Once the FAFSA has been submitted, it’s good for a whole year.
  8. Be wary of firms that promise to reduce your EFC by huge margins. Often, these savings offers are pitched to desperate parents as a way to sell low-return annuities. These annuities can come with their own serious financial repercussions.
  9. Buy needed supplies before you fill out the FAFSA. Your student will need thousands of dollars worth of supplies, from computers to dorm furnishings. You can usually get a better price if you buy early. Also, you can deduct that money from college savings.
  10. Time your return to school. If you or your spouse is considering returning to school to pursue a higher degree, consider enrolling concurrently. Having two members of the family in college simultaneously allows you to divide your EFC by two.
  11. If your child is employed by the family business, it may be time to let them go. Student income is one of the biggest expected sources of contribution, and students who earn significant income will not qualify for financial aid.

These tricks can only affect your EFC so much. Don’t expect miracles. Unless you’re right at one of the significant FAFSA thresholds, you will likely only end up with some deferred interest loans. For help paying the rest of college expenses, get help from a trusted lender like NASA Federal Credit Union.

Our representatives can help you set up college savings plans for younger children, and may be able to offer competitive rates on student loans for children who are ready to leave for school. Call 1-888-NASA-FCU (627-2328), email support@nasafcu.com, or stop by NASA FCU today, to get help financing your educational future.