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Financial Insights

9/26/2022

Key to a Balanced Budget: Track Your Spending

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Note: This article is for educational purposes only. It should not be considered as investment or personal finance advice.

The best intentions are always present when creating and following a budget, yet somehow there is always a discrepancy or several, that result in it never balancing as intended. However, if you are truly serious about making financial progress and have made genuine efforts in following a budget and have had little success, there may be another step you need to take to identify where your funds are being spent.

The best way to initiate such a lifestyle change is to commit to your budget. Every financial transaction, no matter how small, should be tracked. Designate a folder or binder to keep all paper receipts. Online transactions must also be tracked. You can create a folder on your phone, personal device or computer to track your online purchases. If you have enrolled in online banking, you can use that services to track expenses.

Track your expenses, down to the penny. At the end of the month, summarize your expenditures. Categorizing your expenses by type. Then determine where your expenses were not in alignment with your budget. If actual expenses were higher than your budget, ask yourself “Why?” You may have had an unexpected expense, such as a car repair.

However, if your expenses were higher due to poor spending habits, you should reevaluate how and where you spend your funds and make adjustments to reduce expenditures. Staying in line with your budget will allow you to not only reduce your expenses but to save for investing or making a major purchase, such as a house. Knowing exactly what factors you are working with and how you must revise your approach to your finances is a very powerful tool to ensure success in your financial goals. 


9/13/2022

Is it Smarter to Pay Debt or Invest?

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Note: This article is for educational purposes only. It should not be considered as investment or personal finance advice. Consult a professional financial advisor for investment considerations.

What makes more financial sense? Prioritizing debt payoff or investing? While investing at an early age is essential to take advantage of the compounding of interest that strategy may be difficult to deploy when your level of debt seems insurmountable. Whether to invest or reduce your debt level is relative to your personal situation.

Reasons to Prioritize Investments

The earlier you begin investing, the greater your return on compounded interest. As an example, an initial investment of $5,000 earning an 8% interest rate, compounded over 45 years, would result in an amount approximating $160,000. That is a significant return on investment from the $5,000 originally invested.

Most people invest in Individual Retirement Accounts or retirement plans such as 401(k) and 403(b) plans. The advantage of 401 and 403 plans is that most employers will provide a match contribution up to a certain amount. For instance, if the employer provides a 6% matching contribution the employer will match your contribution, up to 6% of your salary.  These plans also have an annual maximum contribution amount.

Prioritizing investments over debt reduction is that the additional funds earned by investments will eventually allow you to pay off your debt with additional funds remaining for your retirement.

Reducing Debt First

When reducing debt, the interest paid on debt may be less than the interest compared to the interest earned on investments. Funds invested in a Certificate of Deposit earning 2%, will not offset the interest paid on a car loan that has a rate of 6%. However, if your average annual return on your investments is 10%, and you have a loan charging 4% interest, it is more beneficial to add to contribute funds to your investment portfolio than to pay off the loan prior to its maturity.

If your debt is high and you find yourself with numerous monthly payments, it can be frustrating to live on a tight budget. Even though your investments are flourishing, you may be limited in your daily spending as more of your funds are allocated towards investments and not debt reduction. You may decide to change your strategy and reduce or eliminate your debt to become financially stable.

The best course of action is to have a financial plan that allows for all debt to be reduced or eliminated and have funds allocated for investments purposes. Individuals should assess their long and short-term goals and create a plan. A financial advisor can assist in creating a plan that works for you.


9/2/2022

How ACH Transactions Are Utilized

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ACH transactions or Automated Clearing House is the electronic processing of a financial transaction. While it is not a commonly recognized term, it is a frequently utilized transaction used often by consumers. ACH allow for the transfer of funds with less risk but more efficiency and speed.

There are many daily transactions that fall under the ACH classification. Examples are direct deposit or automating payments for billers. Popular forms of payment such as Zelle and Venmo are also ACH transactions, as are online purchases. ACH was developed in the 1960’s to reduce the amount of written paper checks that were anticipated to overload the banking system. By the early 1970’s ACH was being used primarily in California and operated by the Federal Reserve and the Electronic Payment Network (EPN). Direct Deposit was one of the first results of ACH and successfully implemented by government entities such as the U.S. Air Force and the Social Security Administration.

ACH is one of the most common forms of payment used. Businesses can directly pay vendors and suppliers. Companies and individuals can easily transfer funds between bank accounts, schedule direct payments and set up direct deposits. ACH functions in two ways. The creditor can deduct funds from an account on a scheduled day every month as an automatic payment. The other option is to electronically pay the debt when the bill is due or on an as needed basis.

Advantages of using ACH include the fact the transaction is instant, so there is not a delay in waiting for a paper check to clear. Avoiding late fees and the risk of losing checks or having them tampered are additional benefits. The disadvantage is that your banking information must be shared which can be a risk regarding security. There are numerous safeguards to prevent personal information from being compromised, however, there is always the slight possibility of it occurring.

The development of ACH has forever changed the manner in which finances are transacted, facilitating processes and making the exchange of funds more efficient and faster. ACH is used worldwide, resulting in business transaction efficiencies and the speed which funds are exchanged. Consider the many ways ACH can be used to your advantage.


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