Reduce Debt Increase Wealth

Setting Up Budget

August 06, 2023 MIsterchuck Season 4 Episode 177
Reduce Debt Increase Wealth
Setting Up Budget
Reduce Debt Increase Wealth +
Become a supporter of the show!
Starting at $3/month
Show Notes Transcript

Once tracking has been done for the last 30 plus days, now it time to start a budget or control center. The tracking will make the control center easier to setup and to maintain. Vacation time and how that affect the tracking and budgeting process.

Article Link:

Support the show

Please support the show by subscribing, can cancel at any time. Thanks for the support.

All other inquires place topic into Subject.

Charles McDonald:

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. Setting up a budget, once tracking has been done for the last 30 plus days, now it's time to start a budget or control center, that tracking will make the control center easier to set up and to maintain vacation time and how that affects the tracking and budgeting process. I'm gonna start out with the vacation time, I just got back from a trip from overseas, I was gone about six weeks, when I got back, I had to update my tracking program, I actually use two of them. So it took a little bit longer. Six weeks and not updating everything, even though I had very little transactions. Going through my checking account. And my credit card because my wife was paying for everything. Only thing I paid for was airfare there and back. So the wife was taking care of all the expenses, which is nice, because she was in her home town. She got good deals, she enjoys that she wants to take care of me, Oh, I'm fine with that. But I still had all my utilities from the house had real estate taxes, I had a pay well, I was gone. So I set all that to be automatic payments. So I didn't have to worry about a bill not getting paid, become overdue, and all those type of things. Most of that was already set up. So it wasn't that difficult. I just had to make sure I had enough money. And my checking account, in order to pay all the bills that were coming out. That's the only thing I really had to be concerned about. And I took care of that three or four days before I even left. But when I got back, I had to enter about 45 days worth of transaction. It wasn't too bad, but it still took more time than it normally does. But I got it all up to date, I got all my income in there. And it's important. Now if I was unable to do the tracking app phone app because I was overseas, and the app did not work in the country where I was located. So it was blocked. You can guess where I was I'm not going to say but it was somewhere that don't like Americans and or Americans application and social medias, just put it that way. So it took some time to get everything caught up and up to date. But it wasn't too bad. He got to stay focused. If you're vacationing when inside of the United States, and you're gonna be gone for a week. Your is apps you can have on your mom or phone so that when you buy things, you can enter it in there. And it makes it a lot easier because it's already in there to update. Maybe you have to put in some income where you got some check direct deposits, and you're set to go. And of course you need to reconcile with your bank account. So you know that you have everything in there and everything's up to date. But my first article or my article on my show notes is mapping your money budget. Establishing a budget and stick into it is not easy. But it's the best way to be in control your finances and make sure your money is going towards the expenses that matter most to you. Now the expenses that matter most to you are mostly likely gonna be your home, your house payment, your car payments, your second line of credit, all your credit cards because you want to keep a good credit rating. That is what you're trying to keep control. That is why you're trying to plan for in the future. So you always have the money available to pay for the needs of your life and lifestyle. Once is an extra opportunity. A lot of people get in trouble with credit cards because they spend a spend money using their credit cards on once and not necessarily Look forward to their needs, they get the credit cards charged up too far. And then they take some more money out of their budget to make the minimum payment or to make payments on those credit cards, that cuts and to your needs. So it's just a matter of staying focus, organize and control of your money, you control your money, don't let the money control you. And once you get a bigger savings account, he can put your money to work for you. I know that the local banks don't pay much in interest, but you have high yield savings, you have money market accounts, to online banks, were I think they're paying close to 5% 4.8, I believe, is what I saw. So it's really reasonable, make that money work for you, you're hard, you worked hard to earn that money, hold on to as much of it as you possibly can. So you have it available to pay for things you want in the future. And don't use credit to pay for everything. Because you're gonna get yourself into trouble, you'll be paying a lot more in interest, and you'll gradually get farther and farther behind. Now my article in the show notes, it says they make a list of your values, write down what matters to you, and then put your values in order. Well, the order of your values should be housing, transportation, food, credit cards. Of course, when I say housing, transportation, I'm also saying the loans that are associated with those food, credit cards, clothing, school for your children. So write down your goals and what you're trying to achieve, then you want to determine your income. Do not include any overtime pay, because it may not be on a regular basis. If you get the same amount of overtime every week, and it's pretty consistent, then you might want to include it. But if it's a sprat sporadic or occasional do not include overtime pay. Then determine your expenses. Expenses is everything that comes through your check resor, credit cards, payments, store receipts, and more. Where is your money really going? Fixed expenses such as rent auto and student loan payments are easy to determine. Flexible expenses such as food, clothing, and entertainment vary from month to month. That's where I say, if you're keeping track a few have a tracking app, you can go back over time and get it report by category for three months. And you could figure out an average of these flexible expenses as food, clothing and entertainment. He also has gone to help you identify where you may be spending too much money, maybe you're gone too much on entertainment. Now it could be seasonal. Maybe you go to concerts more in the summer, than in the winter. Got family picnics and other things where you buy more food. But all that needs to be taken into consideration when you're doing a budget, and then create your budget. Pay yourself first, be careful with credit cards and check your budget on a regular basis. That was in my show notes. You can read that article. I'm gonna now talk about how I want you to do a budget. You may be thinking, well my tracking app says it does a budget. You don't want to use that. You can if you want. But it's difficult. It takes more effort to do it through your tracking app, than if you just do it on a piece of paper or use a spreadsheet. Because you're gonna go in that tracking. That's why you need at least 30 days and perfect if it's the beginning to the end of a particular month. If you started a little bit before the beginning of the month, and you're now past the end of the month, it's perfect. You got a 30 day period, where you have almost everything that you pay, you can get a 30 day average on those flexible accounts, your food, your grocery, your entertainment, your your clothing, whatever it may be. Now he got to keep in mind the month that you're doing that. He has to think to yourself, is this a low month or maybe a high month And do I spend my money more on food in the summer, because I'm going to picnics and grill them out more often. So I'm buying more expensive meats than they would in the winter. Those are the type of things you need to consider your control center, I call it a control center, because it helps you control your spending. It shows you where your money is going. And when it's going, so you have control of your money. It's not just okay, I get paid on Friday. What do I owe? Oh, I got utilities, gas, electric and cell phone and I got my rent payment due and I'm $100 short, what do I do? Well, if you had a budget before this, you would have known that those items were coming up, and how much you would have, you could have cut back somewhere. And you could have made up that $100. Without taking it out of your savings account, maybe you would have seen, I usually put $200 in my savings account. But I'm going to be a little short, I'm going to put $100 in my savings account this time, because I know I need it for my rent, utilities, and some food and the next pay period, you have to think about your budget and terms from paycheck to paycheck. If you get paid weekly, it's weekly, you get paid every two weeks is bi weekly, semi monthly, or monthly. How that all is determined on how often you get paid. If you're bi weekly, that means you're gonna get 26 pays a year, you're gonna have two months a year where you have three paychecks instead of two, you have to plan ahead. If the Falls perfectly were the first of the month, you can pay that month's rent and everything. And then the end of the month, you can pay the next month's rent, okay, it worked out good. But you know that in advance, that is the reason you have a control center, your tracking is your lifeline, it tells you every where your money is going. It's very important to do both of these all the time, every week on a regular basis. So that you know you have control of your money. Now let's How are you going to do it? I'm assuming that you've been tracking for like 35 days or so you can go back and create a report and your tracking app from the first of the month to the end of the month, at least a 30 day period. It doesn't necessarily have to be from the first of the month, end the month, as long as you get a 30 Get all the bills that you normally pay from month to month. If you get all captured and know about them. That's what we're looking for here. I'm assuming that you use a spreadsheet, they're not hard to learn. If you don't have a spreadsheet application on your computer. I think Google has a spreadsheet you get some free V ones and they've gone work fine. You go into your tracking app and you do a report by category for a 30 day period from the first of the month to the end of the month would be ideal so that you have a starting point. So let's say it's July you're gonna do a budget for the first time you've been you won back in you put in all your June transactions and your tracking app. You have it reconcile to about July 4, because the holiday July 3 And you want to set up your budget so you know what's going on July but we're working with June so let's do a June budget first. So in there, at the top, we're gonna make it June the year. It's gonna be about four or five columns. First column is description. Second column is a budget dollar amount. third column is actual. The fourth column is the difference and the fifth column is I'll think about it later. So at least that at the bare minimum, so yeah, if you got your report by category, it's most likely gonna be in alphabetical order. You want to group them together by needs first needs, while your incomes at the top and income at the top, your salary, your paycheck your wife's through your spouse's pay check anything you get on a regular basis as income at the top. If you get a part, if you have a part time job, or a side, hustle, hustle, and you do it on a regular basis, then put that in there also, maybe you put that in there once a month, maybe you put it in twice a week, but your paycheck is weekly, your paycheck might be weekly, your spouse's might be semi weekly, set it up for what is going on in your life. What your thing is, so your top is income, you total it up, you want to put it in by going down the rows, the number of pays that you're going to have in a month. So if it's weekly, you should have four to five pays. If it's semi weekly, you should have at least three because you got two months out of the year, where you get three checks. And then your side household, maybe every couple of weeks semi monthly, or even monthly doesn't matter as long as you have a number to put in there. And it's happening on a regular basis. Then below that you total that up total income, you're all set and done. The income part is not too difficult. The expense part is where it's gonna get more complicated. You have it in front of you, you print out your report by categories in alphabetical order. And you just go you want to group it together by needs, then once needs is housing, and you will put everything related to housing together. So you have in your housing, then you have mortgage, one mortgage to maybe line up credit, all the utilities, and you can total those up into one number. I mean, you show each utility, but in the spreadsheet, you can total it down to one number and bring it in as one number, or separately, it doesn't really much matter. Insurance, real estate taxes, if you don't have an escrow, if you're paying your taxes insurance through the bank, it's called an escrow, then it's this your mortgage payment, etc. Then the second category would be transportation, your car loans, you can break it out by vehicle if you have more than one vehicle, your car loan for vehicle a gas, oil change, repairs and maintenance, tires, something like that for each vehicle. And then you would have food, groceries dining out, dining out could be partly entertainment or it could be partly food, depending on your lifestyle. If you consider dining out as entertainment and you only do it every once in a while then put it in entertainment, it's not a need that more of a want. If it's something you do on a regular basis, and that's way you get your food, then it's a need so included under your needs on their food. You should have groceries, food, dining out coffee shops, you can break it out as little as much as you want. Then credit cards, these are loan payments, these are all loan payments that you have to make that's not associated anywhere else is not part of your housing. And that's not part of your automobile. Maybe you got a personal loan to buy furniture for the house could be part of housing. But if you mixed it up and bought other stuff, maybe you need not be part of housing but put it in here as loans and credit cards. Put in all your credit cards. The minimum payment is what we're putting here for now. And student loans. Put that there. After that you have savings. Pay yourself first and remember the articles told you that if you have money and set aside on a regular basis, try to set aside money on a regular. If you don't think you have any money, put five bucks there $10 $10 of pay and try to save it as the only way you're gonna know if you can do it to set it aside. If you know you're going to be short, don't put it in your savings. This All right, if your actual don't meet your budget, if it comes up a little short, fine, now we know where we can work. If it goes over your budget, fine. Now we know where we need maybe to cut back on some spending, that's concern Control Center helps you control your money, then your wants, entertainment would be a want. Maybe more clothing would be a want children's education. I don't know. Whatever it is hobbies, boating, a motorcycle. Whatever you do for fun, or whatever you do for entertainment, it would be I want. Now, some of you entertainment, like your internet service should be part of housing, I always put my streaming service and housing, because I only have a couple of them. And it's not a whole lot. I've been streaming for a long time now. And my, my payments are like $15. And twice, I think he's not a whole lot, I think 30 or $40 a month. And I watch everything I need to see that by the way, if you're paying for cable TV, and it's more than$100 a month, you definitely need to switch over to streaming but that we're not about that. In this will help you then K take that put in your description. And you put in the numbers under the budget amount. For June, era, no the actual exactly the same as your budget. So everything comes to zero. I still can't remember what that other column was for our planning ahead, I believe, is to set money aside so that you have it available to pay that particular expense. And I can't remember what I call it. But you need a budget app. I've talked about it in the past. Basically what that app does in their budgeting process. It helps you plan ahead, and you assign money to say rent. And then when you rent to it comes out of there and you're never come up short and your checking account, because you took the money theoretically out your checking account, he set it aside. And when rent comes to is there, he take it out and you pay it, it actually stays in the checking account the whole time. But it helps you not spend the money. And I can't remember what I called that. 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 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 reduce debt increase And I'll send you the information about this online software that works great for me. Your spreadsheet for your budget should be five columns and as many rows as you need for your category. For your income, you'd have one row for each weekly or each pay period behalf. He can't get paid weekly, you need at least four or five every month. If you five because depending on how the month falls. If your spouse gets paid weekly now you need at least 10 rows. If you have a side hustle you need one or two rows, it depending on how often you're going to enter your income. Then your expenses would be whatever the might how many categories you want to set up. I group them together housing transportation, food, credit cards and loans. or entertainment, hobbies, whatever else you might have children clothing, it's up to you. And then you have a row for every individual item that you want to track. I recommend to keep it as basic as possible. If you overdo it here, you will not get a lot of good information. But you would lose track, he would probably give up, and may be something that you're putting in there, that you only spend money on once a quarter or a couple times a year. So kind of group it together trying to keep bigger groups. So you have less things to track and keep track of, okay, you have five columns, a description of what it is that you're doing b, the budget amount, see actual D, the difference between budget, less actual F that goes negative, you mean you overspent your budget, so you may need to review what your budget is. And then the fifth column allocation deposits. It's also referred to allocation of your income, but you don't allocate it until it's money deposited in your checking account. I call it allocation of deposits. And what is that it's money that's in your checking account, they recently got there, and you're gone to give it a job, assign it a use, are you gonna if you get $1,000 a week, maybe you're gonna put a$300 every week into for rent, another $100 for gas for the car, maybe $50 for insurance, whether it's your car insurance, or whatever type in your sign in your deposits, a job and you only do it after the money is in your checking account, do not do that in advance. Then when you make the payment, like you pay your rent, you subtract out the amount of rent you paid from the allocated dollar amount is a manual thing you have to do. So say your rent is $800 a month, you already allocated $900 You pay your rent. So you reduce your allocated amount from 900 to 100. Because you subtracted 800. From that, now you have$100 allocated for the next month rent, you're kind of getting a little bit ahead. You do that for all your categories, the allocated dollar amount, you can move around, you can allocate it to clothing. But then if you come up short in another category by 10 bucks, you can take some out clothing and put it in where you came up short. This way, you'll never overdraw your checking account, this money is still in your checking account. It's just a tool to help you see where your money's going and advance, so you don't spend your money. So in your spreadsheet, what I would do is put your bank balance at the top of that column. Then at the bottom of the column, put your adjusted bank balance is where you allocate your money. So if you have $3,000, in your checking account, and you've allocated 3100, you'll have $100 Negative, you've trying to spend more than what you have, you got to go through there and make an adjustment it should never go below zero. If it has a positive balance. That means you have money in your checking account, you have an allocate it, maybe you keep a minimum balance in your checking account of 200 or$300. That would be good. So you don't overdraw your checking account. It's a tool, try using it. I've talked about it in my past episodes. When law more detail. It's something fairly new for the manual budgeting process for your control center. But I saw a app that does that and it seems to work fairly good within their app. And why not? You need a budget is the name of the app. If you can afford it, I highly recommend it. If you want to do it on your own then give it a shot. Keeping track of all your expenditures is step one, and then doing a budget and a budget. should be reviewing on a regular basis and may be updating. Maybe you put in $500 a month for food, and it's coming out in the last three months it was only $435. So why don't we adjust that down to 475 and put that extra $25 in your savings? To put it in savings to pay yourself first. It's a never ending process. Sometimes you gotta adjust your budget up. Sometimes you just some categories down. It's keeping control of your money is the most important thing you can do, and you'll be glad you did. So