All the debt has been identified now it time to start tracking all income and spending. Knowing how much money is in the checking account and monies owe is important to reducing debt. Emergency fund in detail how to setup different savings categories for uses as needed.
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Hello, I'm your host, Mr. Chuck, I retired accountant, turn truck driver, I reduce my debt in a relatively short period of time, debt reduction, to achieve financial freedom takes commitment, confidence, determination, tracking income and spending. All the debts been identified. Now it's time to start tracking all income and spending, knowing how much money is in the checking account. And monies owed is important to reducing that emergency fund and detail how the setup different savings category for uses as needed. In the later half of this episode, on to talk more detail about an emergency fund. Once you start getting your debt paid off, and you start increasing your emergency fund. The question is, how much do you really need to generic answer would be three to six months worth of expenses, I have an idea to help you figure out that exactly. And to categorize your emergency fund, so that you know exactly how much you have for each type of expense. And we'll talk about that more later on. I have a link in my show notes to two articles that I'm gonna refer to. And it's all related to how to track your expenses. And it's not all that difficult. But for those of you who have never done it in the past, you may be overwhelmed by the process. I've talked about this subject many times. It's the lifeblood of your personal finances. If you don't do this step, you have no idea how much money you have, how much money is coming in, and how much money's going out, thus resulting in perhaps a debt problem. He never have enough money. Here. If you're looking if you're living paycheck to paycheck, and you're always coming up short. And you always are robbing Peter. So you can pay Paul, for that particular month. And you rotating which bills your pan from month a month, you're in trouble, you have no idea what's going on and your financial life. So let's get that under control. And the first step was identifying what your debt really was. I talked about that in the last episode. So if you have that done, you're ready to move forward. So you have your data identify, you know, who you owe, how much you owe, your current balance, the due date, rate of interest. And the minimum payment, you have that down, you have that written down you maybe you have it in a spreadsheet, maybe you can consider sorted out by highest interest rate first, or by lowest balance first or whatever, whatever you want to do, it doesn't much matter. But the second step would be now that you've identified what you owe debt, that's a monthly expense. Just like your mortgage, or just like your rent is something you have to pay every month no matter what. But on my debt reduction plan. What's the first thing I tell you quit using credit. If you want to get your credit or debt under control, you have to stop using it. Number two is make the minimum payment on all your debt. And we're gonna explain the reason for that coming up. Number three, if you don't have any type of savings, you need an emergency fund, an emergency fund to get started $1,000 And you don't pay off any of your debt until you have $1,000. The reason for your emergency fund at this point is so that you have some money available in case something would pop up. Maybe your car breaks down. Are your something in your home breaks and unexpected bill happens. You have the money to pay for it without using credit that's going back Tip number one quit using credit. As time goes by, and your debt starts coming down, and your credit cards disappear your B, you pay them off every month, or you quit using them, period. Now your emergency fund can increase. And the question always would be how much you need? Well, we're gonna talk about that later in this episode. But for now, to get to that point, you have to know how much income is coming in every month, whether you're paid weekly, every two weeks, semi monthly or monthly doesn't matter how often you get paid. You and your spouse significant other, he got to know how much money is coming and to your household finances. And then number two, you have to know how much money is going out of your finances? And how do you do? How do you know that? Well, you have to track it. The easiest way to do it is have an app on your computer, where you can put the information, I do not recommend link in any app to your bank account and download it. Because by doing that you overlook, you'll miss out on what's going on. Because it's done automatic for you, you'll glance at it and you'll forget. And you look at the balance where I have $1,000 in my checking account, I'm fine. But tomorrow or next week, you might owe rent that's $1,500 or $500. Short, he need to know before that happens, we need to start looking ahead, you need to know what's happened in the past, so that you can plan for the future. That's the idea of tracking. When I first got out of high school back in the olden days, everybody kept a check register thous before online banking. So what you did you want to the bank, you open up a checking account, and you made your initial deposit of 50 bucks or whatever. So you deposit $50 Then you record every check you wrote, or aid every ATM withdraw. And every deposit you make. That's what we're going to do here. But you're going to use a computerized app to help you getting started is the hardest thing. Once you got about 30 plus days worth of spending and put it into an app, it will start remembering. So when you type in the name of your mortgage company has gotten a pop up, the only thing you have to do is put the dollar amount in as should put it in to the correct category. Same thing when you go to a gas station, and you put the name of the gas station in and if you've done it before it will pop up you need this put in the dollar amount and the date. So it gets easier as you go. The benefit of using this is you can create a report by category. And once you have 30 plus days worth of information in there, and you got it in there fairly accurate, because you were consistently doing your entries for the last 30 days. Or if you just start and go back the first of the previous month and enter all the way up to the current date. That way you have the previous month, complete month in there. And you have the current month already up to date. So you do a category report for the previous month from the first to the end of the month by category and that gives you the numbers you need to start your budget. And I recommend doing a superb budget on a spreadsheet. That is your starting point. Your budget is your control center. Your tracking app is your lifeblood is what you do on a regular basis. The budget helps you control what's going on your you can look at it and know how much are you spending for housing, how much for a transportation how much for food. That's all your needs. Anything else other than housing, transportation and food? I can center a once. Of course, a savings is a need also, and your savings if you don't have any, you're just getting started. You need a minimum of $1,000. And it's called your emergency fund. And how do you track your spending if you want to take charge of your finances keeping track, your spending is a good place to get started. The information you can click and help you identify opportunities to reduce your spending. Choose a method online to tools can make the process of tracking your spending automatic, I don't recommend that I say manually input it. And then they give you a whatever. So what you want to track is everything going through your checking account, and everything going through every credit card you use. If you got money going in and out of a savings account, you need to track that also, in at the very minimum track your savings account for the deposits going in there. And when you make a Trent deposit from your checking to your savings account, using an app, you call it a transfer, he tell it's coming out checking has gone to savings. The reason transfer to savings is what I use the dollar amount $100. So anything that in any account, all your credit cards that are in this particular app that you're using would be whenever you make a payment to a credit card. From checking to that credit card that's considered a transfer that help you make it a little bit easier. Some individuals may be comfortable with lower tech options as as recording expenses with a simple pencil and notebook or login expenses into a spreadsheet program. Keep in mind that these manual options may take make it more challenging to categorize expenses. They also cannot link automatic activities to you bank account. But don't do that. The app I use is $9.95 A year is count about.com As all one word count about all one word.com. So if you're doing tracking and you're just getting started, you want to save your receipts, keeping your receipts is an excellent way to make sure you remember expenses during the day. Use your card using a credit or debit card rather than cash for most of your purchases creates a documented recording of your spending. Be careful not to let the convenience of paying with credit card encourage you to spend more than you would otherwise spend with cash. Okay, we're gonna quit using credit. So if you're gonna do this, use your debit card, it's coming directly from your checking account. If you don't want to keep the receipts, and you using your debit card, you can go online to your bank and look at the daily transactions in your checking account. And enter that. And that's what I do most the time. Update your records at the end of the day, set aside a few minutes update your records. Remember to include small cash purchases, such as coffee bus fares, snacks, then go online to review pending and posted transactions. Finally, subtract your expenses from your beginning balance to see how much you spent. Well, that is good and dandy high. Don't do all that. I record my expenses about once a week genuinely on payday. Because I gotta go in there and record the amount of my deposit into my checking account. When I do that, then I go online to my bank account and see what spending I've done, including things that happen automatic, maybe I have an automatic payment for my rent, maybe for my utilities that some of that might have happened in the past pay period. So I would enter that manually. I don't do anything automatic because that negates the reason for doing this. You're doing this to get your personal finances under control. If you do it automatically. You're not going to be completely under control. You know that you paid some things and you don't maybe don't remember how much or when. But if you enter it manually, you will know what I do when I take out cash from eight TMX I tried to think, what am I going to use it for? I mean, you use it to buy groceries. So when I take a withdrawal from the ATM of $50, I categorize that as groceries. Then when I pay cash for things, I forget about it, because I already got it accounted for. I also use a separate checking account that I transfer $100 a weekend to that I use kind of like my slush fund, whenever I transfer their money. And to that account, I categorize it as shopping, general category. And then when I use it, I don't have to put any detail into my tracking app. That's just one way you can speed up this process and make things a little bit easier, whether you're an expert at it or just getting started. So that's article number one. And then there's four simple and legitimate ways to track your spending and what you should do, see where you stand. What I like here, I'm not going to do the whole thing is for tips for staying on track. This is a tedious process, you do it once a week, it may take you 10 or 15 minutes at the beginning, it will take you longer as more transactions get into your app you're using more of it will automatically pop up. He just got to be careful that you consistent on that categories. So if you go to your grocery store and you buy groceries, and you categorize that as groceries, be careful because if you use the same grocery store, and you buy fuel for your automobile, then you got to make sure that gets categories as fuel and not groceries or your categories will be off a little bit. Okay, four tips for staying on track. Getting into the habit of tracking your spending is like building any other habit, it may not happen overnight. As you go forth on your money tracking journey, there are a few things to remember to help you keep on track. Look for progress, not perfection, you might spend outside your budget at your grocery store or forget to monitor your spending for a day or a week. This doesn't mean you're fail. If tracking your spending is helping you save money towards your goal, you're on the right track. And remember, he can always review your system at the end of the month and make adjustments as needed. So if you do it weekly, and you skip a week and you catch it up the following week, you're doing good. But the important thing is that you know how much money you have and your checking account. You don't want to overdraw your checking account. Try different systems until you find something that works as system for tracking expenses that work great for someone else might not work for you. If a system doesn't work, try one on these other ones. It's on this list until you find a method be able to keep up with consistently do what you can, like, do what you understand and be consistent at whatever you're doing. Be sure to budget and some fun stuff. We're not talking about budget now, we're only talking about keeping track of where your money is coming from and where it's going to. That's the important thing. At this time. Find accountability partners. If you have friends or a partner who also wants to get a better handle on their money, you can start an accountability group. If you don't have access to an in person community, you can turn to the internet. For example, the personal finance subreddit has an active community where people support each other and share budgeting hacks. That was my second article. If you find this podcast helpful, and you'd like to make a contribution, you can go to my contribution link in the show notes and do so or you can go to reduce reduce debt increase wealth.com Click on this support button and you end up in the same place. And thank all you people who have already made contributions. I'll be back in one moment with my final thoughts. If you're interested and 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 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 and 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 reduced that increase firstname.lastname@example.org. And I'll send you the information about this online software that worked great for me. As I said earlier, in the podcast, I was going to talk more about your emergency fund and your debt plan. debt reduction plan. One quit using credit to make the minimum payment, three, build an emergency fund up to a minimum of $1,000. At this point, it's not too important that you categorize anything, what am I talking about? Maybe you have a savings account where you set aside money for Christmas fun, or you set aside money for vacation fun. But you don't really have money set aside for emergency funds. I'm talking about one savings account that you put all your money into for savings, you do a spreadsheet, and you do a tab. So when you do your budget spreadsheet, you create another tab another page, and you call it savings. And this account, this is where you're going to put savings, maybe the bank name, and you're going to make categorize of what the money would be used for in the event you needed to use it. The first one would be an emergency fund, something unexpected that pops up, and we need a minimum of $1,000. And you leave it at a minimum of$1,000 until you start getting your debt under control. Maybe you've paid off all your credit cards, that maybe you still have two car payments, a line of credit on your home and a first mortgage. Okay, well, we can start increase in the emergency fund from $1,000. Let's bump it up to $1,500. At some point, you're gonna have most your debt paid off maybe all your debt except for your first mortgage. And maybe you have a 3% mortgage rate is HOAs. Really, and it's a mound of money that is not hard for you to make a payment every month. It's a reasonable monthly payment. And it's nothing that keeping you your budget out of control. It's manageable, let's say. Then most people want to know, How much money do I need in my emergency fund? Well, your general answer would be three to six months worth of expenses. However, you're gonna figure that out, you can go back to your budget, and look how much you've been spending the last three months and add it together and come up with a number. But what are you going to use that money for? Just having one number, emergency fund $30,000? What are you going to use that for? What is the reason for it? The reason for it is to have the money there to pay your needs, if something would happen to your income. If you get laid off from your job, you get injured and unable to work and you don't have any insurance to come in. You have money there so you don't lose everything while you're out of work or unable to work. Even if your spouse is still work and maybe they don't make quite enough money to pay all the monthly bills. So what you do and this spreadsheet with the label of savings once you get to this point which may be a year Two years down the road or longer, but you can start thinking about what to do. You want to set up categories, just like you have in your budget, you want housing, your mortgage payment, your utilities, your phones, your internet, everything related to your housing, then you want transportation, your car payments, your repairs, and maintenance, gasoline, then you want food, dining out groceries. And then once what maybe you have a small amount you set aside for clothing. So twice or a couple times a year, you might go and buy some clothing for yourself or your children or your spouse. So you come up with numbers for these categories. And the first column is savings and all these descriptions. Next one would be this call it target amount. This is your mount you're shooting for to have in your savings account. And then actual amount would be the third column, how much have you put in your savings account towards these different categories, you can add it up at the bottom. And that would be equivalent to one month worth of expenses. If you once you get that achieved, and you're still paying down debt, wait a while, and then pay off some more debt, and then increase it to maybe two months of all those categories. And then eventually three months of all those categories, so that you have the money available, if something really super bad would happen. You have it available to pay for things, so you won't lose everything in the first 30 days. And it gives you some time period to find another job to get well to get back to work, whatever the case may be. So we're gonna take your savings account, we're on a spreadsheet, and you're gonna put into different categories of things that you pay for every month. And this would be the bare minimum that you need. If you can get more than that, then you're going to be better off as the point of making. The less debt you have, the more savings you should have. The less debt you have, the more cash you have available to pay for things and the better off your life will be. quit paying the bank and start paying yourself