Reduce Debt Increase Wealth

Control Center AKA Budget

January 29, 2023 MIsterchuck Season 3 Episode 150
Reduce Debt Increase Wealth
Control Center AKA Budget
Reduce Debt Increase Wealth +
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Show Notes Transcript

Keeping a budget and knowing when and where your money is going is key in keeping debt under control. It also important to know when and where money is going to help with the timely payments. 

 Article Link: By Kevin Smith

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Hello, I'm your host Mr. Chuck, I retired accountant turned truck driver, I reduce my debt in a relatively short period of time. debt reduction to achieve financial freedom takes commitment, confidence determination. Control Center, also known as budget, keeping a budget and knowing when and where your money is going is key to keeping debt under control. It's also important to know when and where money is going to help with timely payments. And link in my show notes is personal finance budget knowledge personal finance budgeting. When learning about managing your finances, many experts are already recommend you begin with a budget. A budget is a tool that tracks income and expenses. It allows you to set goals and make plans for the future. Developing a budget for a specific project for a special event, or to help you with your monthly spending are all example of using a budget to help you manage your financial situation, your personal budget, when you mentioned the word budget to others, you may get a negative response. That's because people often associate budgeting with restrictions. They feel that if they go on a budget that's like going on a diet, they won't able to spend money in a way they like. But a budget is really a financial planning tool. Every person or household should have a personal budget, not just to keep spending under control, but also to achieve what's important financially. Whether it's saving for college, buying a second car, or going on that Hawaiian vacation, and effective budget will give you a clearer picture of your expected income. A detailed look at where you spend your money and will help you set and achieve realistic savings goals. There's a reason that the word personal is used with budgeting. A thorough guidelines are often provided to help you determine how much to spend in different areas of your life. That choice is really yours. Your budget is designed for you based on your goals. So if you have enough income to spend more on your transportation needs, then go ahead and buy that Tesla. The purpose of having a budget is so you have a plan for spending your money. This helps you avoid debt and achieve what you want to do with your money. In order to build your personal budget, you will need to gather your financial records. Spend time categorize and analyzing your current spending. Create a balance between earning and expenses consistently plan for expenses that you might be facing in the future. And put everything together while considering your long term financial goals. gathering your financial records. This is also known as tracking. If you've already started your tracking, you're one step ahead in creating your budget. That's why I call tracking the lifeblood of your personal finance, the lifeline of your personal finances, because without it, you won't have any idea on the dollar amounts you need to budget and for what categories. If you use an app to do your tracking, has gone to put it in categories for you. And now you're 90% done with your budget. You just need the next take the next step and putting a budget together. And then article has broken down in needs and one needs are things you must purchase in order to survive. They include necessities such as rent, utility bills, groceries and medical expenses. They also include legal responsibilities such as paying taxes, once are things you choose to spend money on. But in theory, there are items you don't really need. Eating out holiday gifts for friends and family TV streaming subscriptions, and new clothes might be in this category. Once you sorted your records into needs, versus once you need to look closer into vitamin to fixed and variable expenses. Fixed expenses are those that you pay on the regular basis month in and month out. are items that cost stays the same from one month to the next as means you can reliably plan for these expenditures. They include expenses such as rent your cell phone bill, a subscription fee for streaming video, there will expenses change from month to month, so it's hard to plan accurately for these expenses, they might include how much you spend on fashion, how many times you go out to eat, or how much you spend on gas for your car. Some of your expenses may need to be split into small categories. For example, food is a need. So you could try to lump all the money you spent on eating into one category. But to be more honest, and it will help you create a realistic plan. If you separate your food items into categories such as groceries, coffee, and eating out. And then putting it all together. Once you finish sorting out your needs list of categories, you need to spend money on placing the information in four different boxes, fixed needs, fixed once variable needs, they are well once every penny you spend in the month you're analyzed should be included in these boxes. Now I'm gonna simplify that because I have a little bit a different way of stating that. For those of you who are not accountants, and don't want to be an accountant, or have no financial background at all, this is the way you're gonna be doing it. When you create it, you're tracking it, you have within your tracking categories. And long as you're consistently putting everything in the correct category, month in and month out, you're 90% Done. And only thing you need to do is take those categories and group them together by needs. I have the needs as housing, transportation, food, clothing, things that you need in order to survive on a regular basis. And these are expenses you're going to pay in each and every month. So what is the easiest way to set up your budget. And I recommend you do this in a spreadsheet. And if you don't have a spreadsheet program, Google has them. And there's different free spreadsheets out there. So it's not gonna be an expensive thing to do. Try to find a free spreadsheet if you don't have one. If you have spreadsheets on your computer, then open it up and start a new one, name it budget. And we'll start with that. The first category at the very top should be your income. Your income is from all the sources, whether it's work, rent, from rental properties, self employment income, whatever you're doing, to create money to pay for your bills, your income. Now, this should include you and your spouse, because you're in this together. So at the top, you would list your separate incomes by individual by each spouse, and you would total that up and then that be your total income for the particular month. Now this if you're on a salary, or you get paid close to the same thing every time, then it's gonna be a fairly consistent number, plus or minus a few bucks. After that, you start grouping together your needs. The first category is housing, under housing include your mortgage payment, your line of credit on the home, real estate taxes, homeowners insurance, and all your utilities. And the utilities is everything associated with the house. The only exception to that would be your cell phone plan. I would group that under housing because these are things that you're gonna need month in and month out. Some of them may be fixed, we paid the same amount every month, and some of them are variable they go up and down. Depending on the season such as your utilities, your cell phone plan should be somewhat of a fix because you're always on the same plan. And if you stay within the plans parameters, you should be paying the same amount a month in and month out. So once you have those all by category, you're next grouping is transportation, which would include your auto loans, auto insurance, auto gasoline, and repairs and maintenance. Repairs. Maintenance most commonly is going to be oil changes, which you've probably got to get done every four to six months or something like that the bank how much you drive. That's your transportation costs also on your transportation costs. If you live in a big city would be any commuting expenses such as fare for subway, or fares for buses or whatever you may have. You can also include taxis. If you use taxis or Uber, on an occasional basis, and you have an idea of how much you spend every month, you can also include that under transportation, then the next category is gonna be food, which is gonna be groceries is gonna be a category dining out. And he can break dining out into dining out and dining out entertainment, if that's what you do for entertainment, subscriptions for your TV service should be included up on their housing, because it's related to the house, because you have to be home, in order to watch the TV. I hope that makes sense. And then the final category for needs is gonna be clothing. And you can break that out clothing for you clothing for your spouse and clothing for your children. If you don't buy clothes, every month, you can do an estimate for your budget. Even if you don't spend any money, you have money set aside for the future months, where you might spend a lot more than we would on a monthly basis, maybe twice a year you buy clothes for your, your children, before going back to school, or for some special occasion, because of the money you're not spending on the budget, this is going to end up in your savings account. So sometime down the road, you're gonna have the money available to buy those clothes when you need to. And then after that, you're gonna have entertainment, which would be hobbies, and anything else you do going to the movies, whatever, I don't know, I'm not going to be able to name them all. So I'm going to try. So you have entertainment, and that's a want. And if you have credit cards, that's another category because you got a minimum payment, and you have credit. So under credit, you should list every individual credit card you have, and any loans that not included above. So if your auto loan is already included, you don't include it twice. And same with your mortgage payment or your home line of credit, or a second mortgage or whatever you have. So it'd be credit cards, personal loans, payday loans, things like that, under credit, and that's gonna be PE on a regular basis. If you have some other category that I had mentioned, like you can't fit it in to one that are already said, you can create a category for that. So you would need one I can think of off top my head would be savings. If you want to set aside a certain amount of money for whatever reason, you can have a category and call it savings and use that particular category to put things in. Now one of them should be an emergency fund may be a Christmas fun, or maybe fun for gifts. So now you got your categories down the left side, you need to put three columns. The first column is referred to as your budgeted dollar amount. The second might be column two, column three would be actual spending. And then the next column would be the difference between what you budgeted for that category and what you actually spent for that category. Now like I said before, clothing may be an item that you budgeted $50 a person for but then particular certain months you might spend zero so you would have extra money to put into your savings account but you have it in your budget so that you can set that money aside on a regular basis and then you have it in your savings account to apply for when you do buy clothes understand savings you could put in category for clothing and then when you don't spend that money for the month you can increase your deduction for clothing if you're having trouble Okay, so then we got your total income we have all your expenses and at should come to a positive number which means you have money leftover net money that's leftover should then be deposited into a savings account. Remember, you want to keep a minimum balance in your checking account, I use $600, you could use $300, you could use $1,000 is just to make sure that your checking account never becomes overdrawn. And so that would be part of your budgeting process to keep a minimum balance in your checking account. Anything above that minimum balance then can be transferred into your savings account, once all your bills have been paid for that particular month. So let's go back to your tracking program, you can create a report by category for the previous month, we're just getting started. So we've been tracking the previous month we're tracking through the current month. So if you do it report, from your tracking program, and printed out by category for the previous month, that gives you a number you need for your budget column to go in, by those categories, find worry, have it set up on your budget, and plugged in numbers. Put in your income for that particular month, putting in all the expenses you pay. And then you would do a report. Now you're going to do this on a weekly basis, or you're going to do it whenever you get paid. So under the income, if you get paid weekly for each spouse, then you should have spouse a with four different lines, one for each weekly pay spouse B and then a separate line for for equal pay, and then the total of your income. If you have other sources of income, you plug that in when you know the right amount, it may not be consistent, it may be up and down every month. So that's where you have to figure out some type of an average. And once you have that, you plug that in to your budget spreadsheet, under income. Then you go through all your categories you put in your mortgage payment, your line of credit payment, you put in all your utility payments, you put in your cell phone payment, you put in your subscriptions for your cable TV, or your streaming services, under the category housing, then you do the same thing for your transportation, you put in all your car payments for that particular month, you put in what you spent for gasoline, the total for the month for any repairs, if not put in a zero if you didn't have anything. And any commuting expenses that you may have had plugged those numbers in, that happened the first month that you did your tracking. Now in the current month, which is your actual, he would put in from the beginning of the month, up to your first pay day and do a report now I'm assuming or in the first week of the second month, and you follow that and to your actual if you made a mortgage payment that should come to zero. If you paid exactly the same amount, which you probably should, if your same thing with your car loan, same thing with all your maybe your credit cards are not the same. But you plug in all those numbers. And then the next pay period, you do the same thing again from the first of the month, up to the second pay day. Now you just go in actual and you update those numbers and put in total for the month. And you do that throughout the month until the end of the month. When then you can look at your control center, your budget. And you know, you can see where you may have overspent maybe your utilities were higher. And the second month in the first month. While there may be a reason for it may be the previous month was the fall. And utilities were fairly low because it was good temperature out. He wasn't running he wasn't run an AC and you actually are paying the actual amount of utilities every month. So may be low. Second month might be higher because maybe you turn the heat on. Or maybe you turn your AC on. So your electric bill might been up or your gas bill and depending on your utilities, so if you can identify what they are and know what's causing it and then that's nothing to worry about. But if you had budgeted$400 for clothing and you spent$3,000 While you may have overspent that category and why in Need to look back and find out what the reason was. As long as you can identify the reasons for why you're overspending money or why your money is greater than your budgeted amount, you're in fairly good shape. So after your second month is done, now you need to look at your budget amount do you need to adjust them up or down? Based on what happened in that second month, if you can figure out some type of average of what your spending is from month to month, try to do that as much as possible. Now, what I've done a long time ago, is on my utilities, I set up a budgeted amount with the utility. So I pay the same amount every month, when once a year, utilities look at today overpay or under pay, and they adjust it up or down based on what money they have on my account. And that keeps my budgeting easier because I pay the same amount for 11 or 12 months, I might have a month where I don't pay anything. And then a month they pay a little bit and then my budget amount will kick back in. And I'll be the same for another 10 months. So that's what I've done to make this process a little bit easier. Over a period of three to six months, you should be able to get the budget column fairly close to what you're actually doing. Now for gasoline, I would increase it about 5% every month because the price of gas is going up at the price of gas seems to be stable and about the same, then leave it alone. But if you're always have a shortage or going over on your gasoline purchases, you need to increase what you budgeted there. Once you do this for a period of time you be able to look at it and know what's going on in your personal finances. That's why I call it the control center. And the more control you have over where your money is coming from and where your money is gone. And if you can direct some of that or more of that into your savings account, it will be better off overall. Remember, on the debt reduction plan or a debt management plan, part of your savings should be an emergency fund. If you spend lots of money on Christmas gifts, and then some of them money should be in a Christmas fun. If you're trying to pay down debt, he can look at these categories and tried to figure out where you can cut back. Maybe you have a cellphone plan and you're paying a high amount, say $150 for a cell phone, perhaps you one of your family members got their own phone under their name, because they're old enough and they're paying for themselves. But you never adjust your budget down. Maybe you can go online and find a better plan that meets your current needs. That gives you unlimited talk, text and data. And he might be able to get in at a cheaper price. And then you can adjust your budget down a little bit. He can look for things, the subscriptions that you no longer use. And so you can cancel them. And you can look for ways to save money from your cable TV bill. By doing away with cable TV, and finding two or three streaming services where you can save money doing that. There's many options out there. And you should always be checking on ways to say money. Insurance is another category where you can maybe change the type of insurance you have a little bit, get the same amount of coverage and save a few bucks. Even though I say a few bucks, $5 $10 a month could adds up over time. And the more money you say, over time, the better off you can be. Say you look at your gross groceries or your food bill. And you know you go out to eat three times a week. Well, maybe you need to cut that back down to one time a week or maybe two times a month and II at home more often and save money that way. We're all trying to spend less money on a regular basis. And the only way you're gonna do that is you have to know how much you're spending and where you're spending. That's the only way you're going to be able to know you need to cut back in a certain area and having your controls Enter right in front of you, that shows you the numbers, where you can drill down and see where maybe a particular month, or maybe multiple months, you were spending money that you can save by getting another plan or adjusting it somehow, to reduce that particular expenditure. I'll be back in one moment with my final thoughts. If you're interested in learning about an online software that helped myself get out of debt, it does tracking, budgeting, and keeps track of all your assets and all your debt, and even tells you how much and when to transfer money into your savings account, and how much and when to transfer money to your debt, and which debts to pay off in order. First, it's not cheap. It's a one time payment. But it will definitely be an investment, something and yourself and an investment in your personal financial life. If you're interested, send me an email at reduce debt increase And I'll send you the information about this online software that worked great for me. You probably heard financial experts talk about percent of income in the referring to your gross income, that's income before taxes and any other deductions south, such as health insurance or retirement accounts. And what you do is put your gross income in for a particular month, put it at the top, and this is an additional column where you do percent of income, you go down, if you have multiple mortgages, you group them together, and you figure out what percent of your gross income is the total of all your mortgages, you do the same thing with your car payments. And then you can do the same thing with the total per each category. So you got housing, you have a breakout, what's the percent of my loan debt to my gross income, and what's the total percent of housing to my gross income, your loan debt might be 28% of your gross income. But your total housing, which includes utilities, insurance, and taxes, and some maintenance could be 42%, or 51%. Now, if you're wondering where your money is going, this will help you identify that you do the same thing, you want to break out the loan amount separate from the total amount that you're spending for that category. When you get down to entertainment, or food or clothes, that's just a total category, because he shouldn't be taken out loans for that, he can do the same thing with a credit card, the total for your credit card payments, how much of your gross income is your credit card payments eaten up, and then I'll help you identify and you can quickly see where maybe your money is disappearing too much quicker by doing it as a percentage. Because your housing mortgage shouldn't be more than 25 to 30% of your gross income, your transportation, loans on your automobiles shouldn't be more than eight to 12% of your gross income. Everything else will fall in the place. If you can keep everything within these percentages. Everything else in life will become easier, and your financial strain will go away. Because you have your finances under control. You know where your money is coming from, you know where your money is gone. You know where it's going, you know, when it's going. So that's gonna help you. Make sure you make timely payments every place you can, and it will help you get your debt under control. If you follow my debt reduction plan or debt management plan, you will have a really good idea. That's why I call this the control center because people don't like the word budget. I'm going to call it the control center. And your lifeline is your tracking. So you track and you control and your finances will be in much better shape, and you'll be glad it did. So