Reduce Debt Increase Wealth

Budget Made Simple

May 21, 2023 MIsterchuck Season 4 Episode 166
Reduce Debt Increase Wealth
Budget Made Simple
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Show Notes Transcript

Control center is the second most important part of the personal finance. Keeping spending under control and know what and where money is going is key to reducing debt and increasing savings. 

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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. Budget made simple control center is the second most important part of the personal finance, keeping spending under control and know what and where money is going as key to reducing debt and increased savings. Control Center is a another name for your budget. Some people don't like the name of the budget, or they cringe or they've had bad experiences in the past doing a budget. So I call it a control center tracking, which we talked about in the previous episode, which is an app you use to track all your income coming in and all your expenses going out, you know money in money out of that checking account. But if you do tracking, then doing your control center is really easy. I have a link in my show notes to an article. And I'm going to talk about that in a second. But if you find this podcast useful, and you'd like to make a contribution, and my show notes, I have a link to my contribution page. Or you can go to reduce debt increased and click on Support. Now my article is created a personal budget how to make a budget and they're talking about 10 simple steps. I don't know where they're getting the 10 from, but they're calling them simple. But the first thing to do is gather your financial information. And what they're recommending is to gather up your bank statements. But you also should be gathering up all your credit card statements. And anything that you use, we get paper back from so you know exactly what and when your money is gone. So they say last 12 months, and then you got to figure out your sources of income. I think everybody knows that that genuinely your paycheck, the net amount of the paycheck. And then if you do a side hustle, any profits you would have, you might want to average that out over a couple of months of unless it's a pretty regular steady stream. And once you got your income, that's the top part of your budget, once you got a list of that, then you want to create a monthly expenses. So go through your financial statements, figure out where your money's going, while you're paying on a regular monthly basis. But don't forget those things you're paying maybe once a quarter, maybe water and sewer, maybe once a year insurance on the home, or maybe twice a year, car insurance or maybe quarterly it water and sewer in our car insurance or whatever you want to include everything that you're going to pay even if you're not paying it in the current month that you're looking at, or that you're currently in. And you if you're gonna do a budget, he can do it on paper, or he can do it using a spreadsheet or he can get maybe a spreadsheet template or a made up to follow or he can just create your own. I'm going to talk about an easier way to do it. Then they this article is talking about fixed expense. Look at their bills in the notes, the ones you pay every month or you expect to pay the same amount for several months, and may be rent your mortgage, your car payment, utilities, things like that. And then variable expenses, things that change that not always the same every time. grocery bills, gasoline for the car, maybe automobile repairs. Could be utilities, but I'm thinking that you I'm looking at him more like how often do you pay it? Do you pay a once a month and it's do the same time every month no matter what the dollar amount? Or is it something you might have to pay for once a week, such as groceries, go to the grocery store? He paid? He goes at a service station you put gas in the automobile and you pay it as needed. I don't know why they're talking about Got this. But those are type of things that you want to put into your budget. And don't forget to include money going in your savings account. And don't forget, include all your minimum payment on all your credit cards or any debt that you may have. And they have tips and stuff in here, you total up your total income, you total up all your expenses, he take the total income last year expenses, if it's a negative number, you're in a deficit, meaning you're spending more than you make, that's not good, you got to correct that problem. If you have a positive number, and you didn't put anything in the savings, there's a pretty good number that may be a little bit less than that you can put in savings, but don't bring your checking account down to zero because you never know when an unexpected expense might pop up. So that is how you would manually create a a budget or a control center. I think that's way too much work. Probably why people fail. They don't get good numbers, maybe guesstimate what they're paying. And maybe they're way over or way under, but they're nowhere close. So it gets frustrating when you come up, come up with some budgeted numbers. And then you compare your actual numbers and you're way off and you get frustrated, and you don't know what to do. And you think you're just terrible at handling your money. If you're a big negative number all the time, it's not necessary or tell terrible at handling your money is that you just don't have a control over it, you don't have a grasp of what's going on. And that's where we need to start with our lifeline tracking. That's why I talked about trapping in the other episode, all by itself. Once you've been tracking for at least 30 days, or a little bit longer, 30 days plus, say a week or two, you're ready to set up your control center to create your first budget. If you're gonna do it on paper, it doesn't matter, you can do it on paper, or do it on a spreadsheet, or use an app, it should pretty much all look the same. You got the first column is your description. The second column is your budgeted dollar amount. The third column is the actual amount that you pay in the current month. The fourth column is the difference between the second and third column, plus or minus. Remember that the budgeted amount is in the total for the whole month. And your actual is not in the total for the whole month until you get to the end of the month. But what you need to be doing is updating the actual dollar amount, every pay period or every week. So at least four times a month. If you get paid every two weeks, maybe eating it by doing it every pay period. If you get paid monthly, then you just do a monthly but you can still do it throughout the month because it's not like he gets paid on the you know, the 10th of the month. And you spend all your money on the loved one thing, you don't spend any more money for the rest of the month, you're going to be spending money throughout the month as you go. So you need to still be updating your actual amounts. I say weekly, do it every Friday or every Saturday, I did it every Friday because that was my pay day. But you could do it on a Sunday, whenever you have time to do it. Once you get going into this process, the actual updating on a regular basis doesn't take that long. But the benefit of doing it is you can see where you are compared to the dollar amount you budget for that particular category. You can see maybe your grocery bill is going to go over your budgeted amount. Okay, well with you're just getting started in your second month of doing this. Maybe you need to adjust your grocery dollar amount for your budget up a little bit. Or maybe something happened in the current month. That doesn't normally happen. Maybe you had some type of party or birthday party so you spend a little bit more money at the grocery store. So it depends on what's going on your life. Or you can justify it to yourself or your spouse or to each other doesn't marry much matter, but we got to identify areas where there may be problems with your spending. And when I say problems with your spending is where you may be spending too much money. Now, there's gonna be times where you're gonna be spending more on a particular category and one month and then maybe for the whole year, I Christmas is a good example. You know, November and December, maybe into January, you're going to be spending a little bit more buying gifts, if you're, if you're into Christmas, a whole lot. But the benefit of doing your tracking on a separate app makes your budget much easier to create, and to update. Because as long as you keep in all your income, up to date, and your app, all your spending up to date in your app, including all your credit cards and everything, then you can generate a report the first time for the past previous month, from the beginning of the month, to the end of the month for the previous month. And why you got to do that, because we've got generally report by category for the month. And you got to do that, because that's going to be your starting numbers. We don't know anything else. We don't know us going back three years and figuring out on average, let's just start somewhere, he had the information handy, create a report by category, print it out, he got it in front of you. When you set up your budget, remember the beginning at the top is income, then we have your expenses. And then at the bottom, we have the difference between now you told your income you total your expensive, then at the bottom, you have the difference between the total income, total expenses for your budget column for your actual column. Don't do that for your that difference, because that's a different number, that you have it there. So if you set up your spreadsheet, close to the same order that does printout report that you just got, every time you do the report is gonna get closer to lining up with your budget, thus making it easy to update, you can just go right down the line. You don't have to look around for different numbers you won't miss a number II won't put a number in twice in two different places. And things like that makes it much simple. Simpler. Income is pretty easy and straightforward. You enter your net, take home pay what's deposited in your bank account for your pay your spouse's pay. If you have any regular other income that comes in say, you work a part time job, maybe you deliver pizzas, Kay's on the weekends, eat on those, you'd figure out an average of what you're putting in your checking account, average it out for the last month and use that as your budgeted amounts. Add up all your income, total income, you're done with the income portion. expenses can be a little trickier. You can list them down in alphabetical order and like the report that you generated, or you can group them together by utilities all together, housing expense all together, clothing all the gather food, groceries and dining out all together in group in that way. But I highly recommend that you group them by needs first, then once a second. So the first set of categories and needs is housing needs are something you pay every month no matter what in order to live, housing, transportation, food, under housing include your mortgage payment or your rent payment, whichever you have all the utilities to that resonance, any streaming service, cable TV service and telephone services you have. I put that all under housing. If you're buying a home then it would be your mortgage. Also, if you're having an Aspro your mortgage that would also include your real estate tax in your homeowners insurance because you're paying that every month. But if if you don't have an escrow, then you have to put in your homeowners insurance and your real estate taxes. Granted, you only pay real estate taxes, maybe twice a year like I do, I pay my homeowners insurance once a year, you put that in there, you can take your my case, my yearly homeowners insurance, divided by 12, plug in number, I'm never gonna pay that only twice, once a year. So I'm gonna be a plus side 11 months of the year, and then I'll be a negative side, one month of the year for my homeowners. Or you can just put in the amount you're gonna pay for homeowner's insurance, and the month in which you pay it, same thing was real estate taxes. So your budget amount for housing would not include homeowners insurance, for love and times a year. But that one month, when you pay it, you would include it. That's the way I do it. That way, you can look forward and see what's coming up, if you have it budgeted for when you're gonna pay for it, especially for quarterly expenses and my annual expenses, and annual things you pay real estate taxes, semi annual homeowners insurance, car insurance might be quarterly, if you put it in the months where you're gonna pay it, and you have a budget by month, okay, we're looking at a whole year now, you can if you're in June, or if you're in May, you can look in June, oh, I got my real estate taxes due next month, I better make sure I have the money available July or I have homeowners insurance coming up, I have homeowners and auto insurance coming up, I better make sure I have the money available to make those payments. That's the benefit of doing it that way. So on a spreadsheet, I do 12 separate budgets, one for every month, then I go through in my budget column and figure out everything I pay for January, you know everything I pay every month, except for the quarterly semi annual, you know those things, and I got a base, that's my base budget number, then I go through the months where I make those payments of the month where I make them, and I plug in those numbers. Now I got my budget set up for the whole year. Going forward, I have a general idea of what and went on me paying for things just by looking at my budget. That's why I call it a control center, and helps you look forward to things that you're paying for. And not just what did I do bad in the past, he got to quit thinking, it's only gonna tell me what I did bad and past, it's gonna tell me I'll respond on Dining Out. Because I didn't budget enough for it. Remember, these are numbers that you're coming up with, nobody is telling you not to do something, it's up to you. It's up to you to decide, do you want to cut back in one area, so you don't have to struggle to pay things in other areas, or the make your life more reasonable. So help you pay off debt faster, or increase your savings faster, whatever it is, it doesn't much matter. But it's a way for you to know what's due. And when it's due. Now, when you're setting up the budget can if you want to put in the date things are due. And that will help you know about when in the month is due in because you've got that number and the correct month where you're gonna pay it. But now if you just put like under real estate tax, it's due on the 20th under the description real estate tax, I just put 20 that means the 20th of that particular month. So if I pay if so if it's January and June, and I pay it on the 20th I put real estate taxes 20 And then in June I put real estate taxes 20 Now that tell me the day that I pay that that may be due in that particular month. So if I use go over it with oh, it's May I go on June I got real estate taxes due and wondering, well, the 20th I don't have to think about it because right there in front of me. I'm making my life support. That's why we call it a control center and helps you control your finances helps you gives you information of when and why you're gone to be spending money and making those payments. 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. We'll also talk about modifying your categories list in your tracking app. And why I did that was so it lines up with my budget that I have separately on the spreadsheet. And that's what I recommend you to do, you got to do it separate. If you try to automate it too much, you're gonna lose out on the benefits of having a control center, and having a budget and doing your tracking. So you go in on your app that you use to do your tracking, and leaves my app, I could do it and the categories. And I added the categories. And only thing I did was in the beginning of the name, I did put like a one for housing, everything related to housing was a one. And then under I have my parent account was called housing, but you don't post anything to the parent account, then you have rent or mortgage payment, that would be a sub account. So the parent under the housing, so you'd have your mortgage company, or maybe mortgage payment, or whatever you want to call it, it could be the company you're paying would be a sub account under your housing, then utilities would be a sub account under housing, with all the utility companies that you pay sub accounts, under Utilities, so if you just category, all those a one, then you print them out, they're gonna print out in that particular order, then when you set up your control center, you set it up exactly the same way. So when you in the future, when you print out your report is going to be exactly like your budget spreadsheet, and may vary from time to time, because you might pay something once a year, it might not show up for a while, or it might show up early in the year, then it won't for a while. So it'll be close. And you'll be able to easily update your numbers every month. Now when I say Update, we're talking about the current month, from the beginning of the month, to the day that you're actually doing it. So if you get paid every Friday, and you update every Friday, beginning of the month, to the first Friday of the month, where your pay day, then the beginning of the month to the second Friday, your pay day than the beginning of the month or the third Friday of the month, than the beginning of the month, to the end of the month, or to the yet to the end of the month. And that way you keep everything within that month that you're paying. It may sometimes be different, because you're doing it every pay day, but you just remember what month you're working on, and you only want information for that particular month. Now if you've done budgets in the past, thanks for useless length or too difficult. had trouble doing it. I have one link to another spreadsheet that's completely different. A kinda you still have to do the tracking. So you know the numbers to put into it. It's called Happy forward slash donate. Yes, it's the donation page. But that's where the spreadsheet is that you can download for free. It's similar to a budget but the Bane purpose of it is to let you know how much money you have available to spend every week. It's a great application spreadsheet I use it and I love it. Penn, I got it to work. And I'm actually I can adjust once a week, my dollar amounts and keep my checking account and balance. Keep that spreadsheet in balance with my checking account. So it's always the same. So I know exactly where I am, it's got income, or you put in your beginning checking account balance, when you're starting, then you put in income that you get every month, then the next is your expenses and they got income is fairly straightforward is not too different than I have expenses, but it's broken out weekly, monthly, yearly, every once in a while or one time, the weekly expenses would be something you pay every week, such as child care monthly is basically 90% of where everything is gonna be. So you put in the name of it, the dollar amount, and the day of the month that you pay it. So it's good for tracking and knowing when you're gonna pay something, then yearly is where you put in your quarterly things, you pay every three months semiannual. And annual. That would be homeowners insurance, car insurance, your water bills for me, there's quite a bit in there. And you put in the date that you pay it. No one time payments, is what I used to put in for things that pop up. That's not normal, that only pay once a month, such as my garage door needed repair, well, that's a one time payment. So that was the date that happened that I paid it saying any repair that pops up that is not planned for. And what this tells you in the background is calculating it gives you if you got all those numbers correct. And you're fairly good at doing that, and got the good numbers. It's going to tell you how much money you have available to spend outside of all that spending is going to give you a weekly amount. And then if you can keep your spending for the week, under that particular amount, you always you're never gonna run out of money. And it tells you how much money you have available. I'm retired. That's why I used it because I wasn't sure because now I want from getting paid once a week when I was working now getting paid once a month. Lots of big change have been paid monthly in the past, but it's been a while. So I wanted to know how much money do I have available to spend every week if I want to keep on track. So I put in all my numbers. And now what I got a lot more money than what I thought I did. So that's a good thing. And that's the reason I paid off my debt because I know I was getting close to retirement, I didn't want all that debt hanging over my head when I have online money come in once a month. So that's happy It's a great spreadsheet, it's easy to figure out. They have three videos on how to use it. And if you don't want to do a budget, this may be another alternative. I use both. It works really good on comparing it to my budget and it's working pretty good. I keep it in my checking account and balance on there. It wasn't intended to do it but you can do it. You just got to figure out how it works and how to do it. And you'll be glad it did. So