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. Benefits of a control center. Having and keeping a budget up to date has benefits. Tracking will help in this process. But putting the numbers and front to compare what is happening is a big factor in getting personal finances in order. The importance of making a budget is a financial lesson that can't be over emphasized. When you first go on your financial journey. Following a budget can help you practice basic money habits. I have a link in my show notes to two articles that I'm going to refer to so if you're interested in reading them, go to my my show notes and click on the links. A budget is simply a good spending plan that takes into account estimated current and future income and expenses for a specific future time period. Usually a year. Wow, that is not a happy absolutely a true statement that's in the article. Online, a change all at a budget for the time period is usually one month. The numbers are not estimated. The numbers are the most current numbers that you have available. That's the reason you're tracking. You know how much your take home pay is every pay period for yourself and or your spouse? Why would you estimate that when you know the exact number, do not include any pay raise, you might get six months down the road, because we're not looking a year ahead, we're looking at one month a year is way too far. And that's where a budget never worked for me in the past. Because I would use my current income, multiply it by the number of pays and put a yearly amount in there, I would look at my current expenses, multiply it by 12. And put that in, I would guesstimate what my groceries would be, I would guess a mate what my gasoline or car repairs might be. And by the time I figured it out, it wasn't working nine months later, because I'd never paid attention to it. Because he don't even see any trends happening. Because the numbers are so big. That takes 910 months before he's Oh Alma was spending in his category, or a month or spending in that category. Because it's too far in advance. Gotta look at each month by itself one month looking forward. And that's the budget column. That's the amount of money that you're going to say you're going to spend and that particular month, it's basically what your mortgage payment would be. It's basically what your rent would be. In know, you look at utilities, if you want to get a better average look by three months added together, divided by three, use an average, or six months, the more you use, the better average you're gonna have, the closer you gonna be to your actual amount. It's a fairy, not too difficult. When we look at it in shorter periods, it's easier to control, he can identify a problem almost immediately, as soon as that happens, you can take control of it, and you can get your finances under control. That's why you're tracking that tracking is going to give you the actual numbers you need to put into your control center or your budget. I call it the control center because that's where the numbers are right there in front of you. You can see by category, what you think you should have spent the budget amount and what you actually are spending your actual spending for the mouth. Now from time to time, it may vary. If you can justify the reason why you want over your budget amount. That's okay. Maybe you underestimated the budget amount. Maybe it was that seasonal thing. Who are you buy clothes for you children For whatever reason, maybe they're going back to school, maybe it's Christmas or holidays, whatever the case, as long as you can justify it, you're okay because it's your finances. And you can spend your money however you want. The The reason we're tracking is one, so we know where the money's gone. And the reason we have a control center is to see if we are going over our projected amounts. That's the only thing it's doing is to help you see what's going on by category in a nutshell, because tracking is all in alphabetic order. You may be you can look down there and see oh, that looks like a large number. But what's that compared to last month? Was that it compared to two months ago, you're not gonna know because it's just one number. And it's one number, a cumulative number from the time you start it to the current date. That's why you do reports by category for a time period, so that you can use that information to put it in your control center. So it's easier to look at fairly simple. There are applications out there, one of them that's fairly good, I don't use it, they don't pay me for telling you is you need a budget, why an A B, it does everything, and you can put your money to work is what they're calling it. By assigning the money you have in your checking account to go to a Pacific category, or expense. Maybe you have rent coming up, you can sign money to your rent category. So you know you have enough money available to pay your rent when it becomes due. And same thing with utilities and all your other expenses. It's a really good program, you got to learn how to use it and may take some time you need a budget is excellent. From what I can tell they have all kinds of YouTube videos there to help you. That's all I have to say about that. Your budget is not estimated future dollar amounts or current dollar amounts. And it's not for a year. It's actual dollar amounts, or an actual estimate of your dollar amounts an average of your actual spending for that category. For a period of one month, January, February, March, you do each month by itself. You can keep a spreadsheet for a whole year. So you can go back in December, what did I spend in this in June, or January? What was my electric bill and the winter versus the summer? So you can look at it. It'll tell you it'll have the information there. Budgeting helps keep your spending and check can make sure that your savings are on track for the future. Definitely, it can help you achieve your goals but you have to have goals. Many of you that listen to this podcast, your goal is to pay off your credit cards, pay down high interest debt first, and then pay off next highest enters debt, then maybe Car Loans then maybe your mortgage. But why No, you're listening to this because you have a debt problem. A tracking along with a budget can help keep your spending under control can help identify problem areas and can help you achieve the goals of paying off your debt and all goes together. Your personal finances is not just one piece here and there. It is a combination of things that you put together to work together to help you achieve what you want to achieve. A budget helps you figure out your long term goals and work towards them. If you just drift aimlessly through life cost you no money at every shiny new object that happens to catch your eye. How will you ever save up enough money to buy a car have put down a down payment on a house that's keeping your spending under control keeps you from overspending can make retirement savings easier. Let's say you spend your money responsibly following your budget to a tee and never carry a credit card that debt beyond any due dates. In addition to spending wisely. Budgeting can help make savings more achievable because if you don't spend it you are saving it. If you keep it in your own pocket is called savings and if you build up emergency fund does kind of help you for those unforeseen expenses that may pop up from time to time as not if they're gone too, as a matter of when is gonna happen. Everything wears out, cars break down, refrigerators, break down, washing machines break down, whatever anything manmade is gonna wear out over time, you need to be prepared to pay for these things as you go through life. And the less credit you can use, the better off you're gonna be. And that goes for savings, whether your savings up for a down payment for a home, a new car, your children's education, or your own retirement, it doesn't matter. Now, for those of you who have 401k, and your, your retirement is already coming out your paycheck, you don't have to budget for it, because it's already gone. We're online budgeting the money that is deposited into your checking account, your net pay check, and we already covered helps you prepare for emergencies. And you can reveal spending habits definitely, if you say have a account for subscriptions, where you put all your subscriptions, for your streaming for your gym membership for whatever. And you set your budget to say $200 a month. And then six months later, you're looking at it and it's $300 a month, what do you do? The added more subscriptions, why you're spending is out of control? Do you need all those? Maybe before you add one, you remove one, you cancel one before you add a new one? It's common sense. Think before you do it. And that brings me up something just recently happened in my life that I'm like I like to share with you. There are a couple of people coming around door to door on solar panels putting solar on your house, oh, electric bills gone up 28%, it's going to cost you a lot. And you're going to be paying three$400 a month for electricity and solar panels so much cheaper. And you can save 63,000 a year if you get solar panels not a year over the life of the solar panel of 25 years or 30 years, I don't know. But these estimates they were telling me were based on like the electric bills going up four point something percent a year. Well, it may do that and may go up more than that or may not go up that much. It's hard to say I don't care what's going to happen in future might not be around that far in the future for it to really matter. What I care about is today, the next two or three years looking forward, how much is gonna cost me? How much am I paying for electricity now? What's the payback period? And how long do these panels really last? And how much electricity can they produce? Well, it sounded good. And I thought maybe it might be a good idea. Then I started looking into it. I looked up you know, internet is a great thing for information. And I looked up how much solar turn is average throughout the year there's my area get I looked up and found a website that told me by state and city, how many the average hours of solar you can get. And it was four and three quarters hours per day. That's average throughout the year, the summer is gonna be a lot more the winters could be a lot less, but the average is four and three quarters per day. Will my panels that I have up there that I was planning on getting what I would get, would that and for three quarters hours produce enough lecture electricity to offset my electric bill. And yes, it would. so I'm good there. That's not too bad. That was something that I was concerned about. It looks good. It looks like on the average, I'm gonna be okay. I'll be able to produce enough electricity to offset my bill Corsten the first guy was telling me you build up these credits and then once a year, if you have a credit, they they'll send you a check. Well, that sounds good. I did some research. And Ohio. Net metering is what they call it, where the meter If you're using power off the grid is going in one direction, if you're putting power on the grid is going the other direction. And when you're putting power on there, you're getting a credit. When you're using it, you're being charged. So when you get credits, you have a credit. And you can use that against future electric bills. But if you always have a credit month in and month out, and you never use Power Off The Grid, you get this bigger and bigger and bigger and bigger and bigger credit, and they never pay you for it, you only get the credit, if you never used a credit, you're never gonna recover that money back. So the only way to recover your money back is to basically switch off your panels, disconnected from the grid, use electricity until your credit gets close to zero, and then put your panels back on. So why have the capability of producing all that power, if you're not gonna get any money out of it, that was something that may be a little negative sign ha, that's not too great. No, I'm gonna have a $10 charge, because only part of the biller don't go away as like a customer charge $10 a month, oh, the credit would offset that every month. So my electric bill would be zero, then I started looking at it as an investment, I have an amount of money it takes to purchase the solar panels, because I don't want no 25 year more loan for solar panels. I don't want a 10 year loan, the one company, if you got a 25 year loan, it was about 4% interest, but the cost of your equipment was higher. If you got a 10 year loan, you had in mind percent interest, but the cost of your equipment was lower. I never figured out the difference, or the how much lower I didn't even look at it. Because it didn't make any sense to me. Because I look at it as two functions. You're buying equipment, and you're financing equipment, just like when you buy a car and finance a car. So what is the financing have to do with the cost of the equipment? make no sense to me, I just threw that out and thought that's crazy. That would be the cash price. Anyway, the same dollar amount, which is the lower amount, which is good. So I thought, Okay, I have that in my savings account, and I'm getting 5.15% interest. If I offset a bill, what would that rate of return be? So I looked and figured out my average bill was about 80 or $90 a month. That's like 6%. So it's a little bit more but not a whole lot, how long it will take me the pay off those panels to break even per se, you know how many years of getting $80 a month to get my whole investment back to zero, almost 17 years, way too long. I'm better off having the money in a savings account, earning the 5% where I can get to it and use it if I need it an emergency fund per se. And if I need it, it's liquid, and I get it, if I put it in solar panels on my roof is not liquid, I can't sell those solar panels. If I do, I'm going to take a big loss as adds value to the home. But for only first five or six years, then after that the value adds to home goes down because the panels are getting older and more inefficient and all them thanks. So as a buyer, they want newer panels up on the home before they buy the home, maybe I'll be able to recover part of my costs on the sale of a home and I'm not selling the house. So that doesn't even come in and they're hanging out if I sell the house will be deceased, and my wife will sell and she has no clue. But beside and by then I might get a third or 10% of my money back from that investment. So it's not a good thing. So I'm not gonna do it before for it to make sense. My utility rate my when I'm paying for electricity has to double or my use has to go up quite a bit. I don't see it using anymore. I spent my whole life trying to minimize the use of electricity. Because there's things I don't like to pay. I don't like paying utilities and I don't like paying taxes. So I try to minimize it whenever I can. And I don't want to screw up my budget and I don't want to get a real big electric bill and then all of a sudden my solar panels quit working or whatever the case is, and they have to buy it off the grid and pay out the money, and they'll just mess everything up. So by doing my research and thinking that all the different angles of this investment I looked at as an investment, it doesn't make any sense, the utility, my electric rate is too low, I don't use enough, therefore is not a good investment. And I'm not going to get solar panels. That's what you need to do. Every time you're going to make a large purchase, you need to do your homework, and you need to figure out for yourself if it's worth it. Now buying a car, because you need a car, buying a house because you need someplace to live is a little bit different. But you still have to take it at the same approach. And take a look at it. Now the reasons you should budget. And why is it important? Well, it can help you in budgeting and help you in emergency because if you get your spending under control, you can build up your emergency fund. And the bigger emergency fund, the better off you can be, they can help you with your retirement. If you're self employed, and you're gonna have your own retirement plan, you have to keep track not only of your personal expenses, but your business expenses. And you have to keep everything under control. So you can pay for your health insurance. So you can pay for your retirement plan, because there's nobody else gonna do it, but you got to take care of yourself, it can help fix bad spending habits, it can identify where you're spending money where he may not want to be spending it, that could be fixing a bad habit. savings is a habit. Spending is a habit. If you can get the bad habit of spending too much out of your system and get in the habit of saving too much you can be better off, you can never save too much. But you can spend too much. And it gives you control your finances ensures that you can buy what you can afford. Again, that's a spending related thing. It can improve family life. And it can reduce stress. Because you know, what you owe when you owe and how much you owe and how much you have. You got your finances under control. And you can take everything, and stride without any stress. 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 wealth@gmail.com. And I'll send you the information about this online software that worked great for me. As you notice, I didn't mention how to do a budget, I didn't go to any of the mechanics of how to prepare a budget. I'm just talking about why you need a budget. So let's think about if you have an app such as why nab you need a budget, it's got all that set up for you. It's got the tracking included, it's got budget amounts, you just got to learn how to use the app, and it will do it for you. It's right there. I recommend your if you're not going to pay the money for something like that is to have the cheapest tracking app you can find. I use count about.com It's less than $10 a year and not only use it to track my spending and income. Basically I'm using as a check register for my checking my savings, my credit cards and some investment accounts but you don't even have to do that. If you just do your checking, one savings and all your credit cards and put in all the details. Every time you spend money Your time money goes in or out of any account, you enter that in there, and you do a report by category. For a date range, the beginning of the month to the end of the month is always a good choice. And use that report to create a separate budget, either on paper or on a spreadsheet. By Category, the budget should look like the top to bottom income at the top with a total expenses. Expenses should be grouped needs first names would be housing, transportation, food, savings, insurance. I never mentioned that before. But those are your needs. And then once is everything else. groceries, clothing, hobbies, pet care, whatever else you may have, is once and you got columns, while the first column we just have that's your description. The second column is your budgeted amount. The third column is the actual amount you're spending for that month. The fourth column is the difference between the two, a minus b or b minus c, whatever columns you use, it is your difference. If the difference is positive, that means you've underspent. If it goes negative, that means you overspent. And then we have a column that we recently added, call it allocated money. How much money from your checking account are you gonna use for each of these different categories? How much is for housing, how much is gonna be for transportation? Have you set aside money, have you give your money a job, or assign it a category before you spend it, so that you know where you can spend your money. That's what the allocated columns for. Now I do not have that set up. And anything I've ever done, it's something new concept that I, for me, anyway, that I'm just passing on to my listeners to try to use. But if you do the first four columns, description, budget, actual difference for each month, that's a start. If you want to start signing money to different categories, you can do that, add another column and start doing it, you only add the money to that column that you actually have, and your checking account. And then when you pay a bill, you got to take it out, because you paid it. And then when you add some more in later in, you put it back in there. So if you have rent of $800 a month, you assign $800 allocated, you pay your rent, now your allocated amount goes back to zero. When you add up the allocated column, it should equal the amount of money you have in your checking account. available cash to pay bills. That's kind of how it works. I've never done it. But that's you. You need a budget, why and a B, that's what that app can do for you. I think it's a great idea. Maybe it's worth the extra money to pay for that app to do that for you. But try doing it on your own. If you can't afford to, I think it's $15 a month. I'm not really sure. It's fairly expensive. Do a budget. Have a control center, use your tracking, tracking, use your lifeline budget is your control center. Keep it up to date, update your tracking every week, update your budget for the actual dollar amount, every pay period. That way you can see what's going on when you put those numbers in the actual and you go negative that means you overspent then it's one or two things, you're spending too much money in that category or two, you didn't budget enough. That's up to you to decide and figure out over time, you should get a close if you can get it within $10 on all the categories, your rent and your mortgage payment and some of these things should be spot on. month in and month out comes a zero, but then you're gonna have categories utilities, food, gasoline, repairs, that will be different. If you're if you don't use up what you budgeted. That's good. thing I said Insurance insurance should be in the category that it relates to. And then any other insurance does not in any category such as housing or transportation should be in a category by itself, such as health insurance, if you're paying for yourself, such as disability insurance or whatever other type of insurance there is out there. Home Insurance should be in housing, car insurance should be in transportation, I think you get the idea and make savings a need the need to save a money each and every month. If you can put it in a budget and set aside every pay period. You'll be pretty good, much better off and you can look at your spending and try to keep your spending under control. And the more you reduce your spending, the more you can put into your savings, and you'll be glad you did. So