Reduce Debt Increase Wealth

Fix MIstakes start Tracking

September 24, 2023 MIsterchuck Season 4 Episode 184
Reduce Debt Increase Wealth
Fix MIstakes start Tracking
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Show Notes Transcript

 Knowing the problems with personal finance the first fix is start tracking. Tracking is simple and once started does not require much time if kept up to date. 

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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. fix mistakes, start tracking, knowing the problems with personal finance. And the first fix is start tracking. Tracking is simple and one started does not require much time if kept up to date. Okay, what is tracking? To put it in the easiest terms that I can add it's nothing but keeping a check register if you know what a check register is, for every account, you have your checking your savings your every credit card, every loan that you have, what is a register register a register is nothing but where you record the events or transactions that happen. Every time you make a deposit in your checking account, you record the deposit amount that day. And words from every time you pay a bill or write a check or use a ATM or do electronic funds transfer. You record the event that date who it's to the dollar amount, put a memo in if you want. But it's a matter of keeping track of where your money is coming from and where your money is going. And this is very important for your personal finances. Because if you don't know where your money is going, most people know where it's coming from. But not knowing where it's going, you can lose track of how much money you may have in your checking account. And the same thing happens with credit cards. And you may be using a credit card more than what you want to and you lose track of how much you owe. And then the time comes to pay, you can't pay the full amount. So he ended up making less than a full payment. So you are carrying a balance, then you get to the point where you're making the minimum payment. So all these things happen over a slow period of time. And it's so slow, you don't realize it's happening. It's like you put a frog and a pot of water and you put the heat on underneath it, the frog doesn't realize he's being boiled to death, as the water slowly warms up, he's doesn't realize this gonna be so hot is gonna harm him. The same thing is happening here in your personal finances. You're not harmed but you are harmed financially by not knowing things about what's going on. So in order to track either again, do it manually, and a piece of pen or paper, which is going to be difficult and time consuming, because you got to do a lot of math, adding subtraction, mostly subtraction, and addition, when you make a deposit. So it's a you can either do it in a spreadsheet, which will do the math for you if you know how to use a spreadsheet. Or you can get an application and app to do it. There is one app that's fairly good, it's quite expensive. I think it's expensive. You need a budget, why an A B? Add does tracking, but it does more than tracking button when you first get it, you have to start out tracking, because it cannot do anything for you until it has information in there. And that's true with any app that you may use. Or if you don't want to spend that kind of money, you want to be a little bit on the less expensive side. I use an app called count about all one word count about that comm it's like less than$10 a year I've in the past said a month. But I meant to say per year $10 A year. It's really cheap. It does a lot of the work for you. And you could use that information in the future to put in somewhere else. I'm not sure if these apps allow you to import from a different app. I don't know you'd have to Check that out. My thing is, you start out with tracking. And you start out with your check checking account, then once you get the last 30 days in, then you do your savings account, which be a lot faster than you do every credit card you have, then you do every loan you have, the loans are not quite as important at this time, because it's usually just one payment a month. And the only thing you're doing is breaking out the principal and interest on the payment. So you can have a good idea of the unpaid balance on your loans. But at this point, don't worry about your car loans and or your mortgage, we're focusing on checking account, at least one savings account, all your credit cards, anything that's high interest, they charge you knew more than a percent a year annual interest, you need to keep track of it, you need to identify those loans, whether they're credit cards, personal loans line of credit, whatever it is, we need to identify those things. And the reason is, once you have a 30 day period, typically you want to do a little more than 30 days, but we're looking at the monthly cycle of you paying your bills. I'm assuming that you're trying to pay all your bills, whether it's rent, your mortgage, your car payments, and all your utilities in a timely manner that you're paying everything timely. If not, then we need to focus on getting these things done on a timely matter. And then once we have a complete cycle of 30 days, maybe 35 days where all the transactions you put in there, start repeating. Now you have some information that you can use for your control center. If you don't know what a control center is, it's your budget. And that's the next step. Going forward. I'm not talking about that now, we're focusing on tracking. So the important thing about tracking is you have to keep track of certain things, the date the event happened, who you're paying, or who the money's coming from, the dollar amount and the date that it's due. So if you're paying utility bill, you need to know the date you paid it, you need to know who you pay the dollar amount, the category that you're gonna put it in, which would be the utilities would be the main account the head account. And then electricity would be a sub account, utilities, gas, trash, water, and sewer, whatever you have, those are the common ones. Now some of these, you may only pay once every quarter or every three months. So that might take a while before it pops in to your tracking where you can add it to your budget. But for now, we're just focusing on a 30 day cycle. If you have more information, you can go back 60 days, that gives you a little more information, if you can get that information in there, we can come up with some averages for your grocery bills, for your gas on your automobile. And whatever ever else that you're paying, it's important to figure a average because some you know, then you don't pay the same amount. Every time you make the payment in may be different it might be $250, one week, then from talking about groceries, that might be 275. The next week, it might be 350. The week after that, we need to figure out an average, add them all up divided by the number of that you put in there and come up with an average and you that's what you're gonna use going down the road for your budget, or your control center. So when you need to do is categories. If you're using an app, the categories are already set up, you just need to go through the list. Find the one that's most appropriate for what you're trying to pay. Say you're paying a trash bill. So you go in, you look through the list you find utility you find trash, or water and sewer trash and then you know, trash is put that bill in there and then Then you hit Enter, once you got all the information in there, you hit enter, the next time you type in that description, the name of that company, everything's gonna pop up. And once it pops up, the trash should be the your category should be there, he just put in the current date, and the dollar amount. If it's changed, well, you got to put $1 amount if it changed or not, because it's, you got to put it in every time. So as you go through this process, that's going to take the most time, the very first month you do it, when you're putting in a lot of new information. And then the next month is it's gonna start popping up. Because that information is already in there, you just have to be careful that you're consistent with putting the same company that you're paying, and to the same category every time you pay it. So that you have consistent and good information. The one place you have to be where least what I can think of is at a grocery store, you might go to a Costco or one of those warehouse stores, or even a grocery store nowadays, they have gasoline, while you go to grocery store, maybe most of the time is going to be groceries. But occasionally you got to put gas in the car there. Just be careful that you remember that keep the paper receipt, so that when you enter it, you make sure you put it in transportation fuel, or gas or whatever it is category that you find so that you're not overstating groceries and understating gasoline because down the road, when we do averages, we want to try to be as accurately as possible. So if you go to the same place, and buy different things that would fall into a different category, then you would need to split those categories out. So to keep it simple, I go to a grocery store 99% of the time is gonna be groceries, they 1% of the time that might be fuel, or gasoline for the car, I go to my cigar store, that's gonna be hobby, I put everything I purchased cigars, I call that hobby spending. And I'm consistently doing that every time so that we have the same category. And you do not enter the dollar amount into the heading category. So let's say you have housing while housing is the heading, your mortgage payment would be under housing, but it would be a sub account of housing, you enter all your transactions into a sub account that total up into the heading account. I hope that makes sense. So when you're setting up your own, say you want to set up a separate category of say your hobby, and you have your hobby which is different than your spouse's hobby. So you could set up a main heading as hobbies and then you can put your name in for your hobbies or the name of your hobbies, say it's boating. And then your spouse might be waterskiing or something different. I just I don't know why I said waterskiing sets wouldn't be related to boating, but it would be something different than that. Maybe jogging or exercise. And you would do that and you had separate yours from hers but that they were totaled together so he had one number so you can see the total amount you're spending out your total budget for hobbies for say. So this is very important to be consistent. And every time you enter it and try to be as accurately as possible but don't create too many accounts. Don't get down into too MyNet minut details, say under clothing. You don't want your your clothing shirt, your clothing and you don't want to separate just say husband's clothing and then the total children's and the name of all your children's and the total for all their clothing, which includes shirt pants, underwear, shoes, socks, everything. Under one thing, if you want to see how much you spent for shoes, you can go in Look at the detail because you know the name of the shoe store that you would go to say You could just do a search for that shoe store and find out, you know, a report. That way, you're not creating too much detail for your monthly entry. We're trying to keep this as simple as possible, so that when you update it, it takes the least amount of time. And you should update it at least once a week or every pay period. If you get paid weekly, when you enter your paycheck, you update all your expenses. If you want to do it every day, that's fine, you cannot keep it up to date too much. If you don't want to spend that much time, the longer you wait, and the more you put it off, if you wait to the end of the month, and then enter a hole 30 days, it's gonna take you a long time. If you do it every pay period more every week, it's gonna take 510 minutes. The more you do it, the faster it gets. If you do it every two weeks again, take a little bit longer. So if you get paid every two weeks, you may want to update your expenses. Every time you go to the store, you do a lot of spending. Maybe on Saturday, you go to the grocery store, you go to hardware store, you go to sporting goods store, he go to the clothing store, once you get back from doing all that, enter it all on that day, whether it's on a Saturday or Sunday or Tuesday, whatever day it is, to keep your accounts up to date. That way you know how much money you have, you know how much you charge on a credit card, you know what's going on. That's the reason you're doing it to be aware of your personal finances. It's that simple. Okay, if you find this podcast useful, and you'd like to make a contribution, you can go to my show notes, and I have a link to my contribution page. And I also have a link to the articles that I'm referring to in my show notes. So let's go to an article tracking monthly expenses. The first step to money success, this is from the NerdWallet. Tracking your expenses on a regular base can give you an accurate picture of where your money is going, and where you'd like it to go instead. So you know you know where it's going. And once you know that you can change where it's going. Then by using a budget, you can actually account for the bills you need to pay going forward. Knowing what's coming due before they come due is also important. But before you start plugging numbers into a spreadsheet or map, take a minute to list out each of your monthly expenses. Check your account statements pinpoint your money habits by taking inventory of all your accounts, and including your checking account and all credit cards you have. Looking at your accounts will help you identify your spending pattering. Your spending are consists of both fixed and variable expenses. Fixed expenses are less likely to change from month to month. They include mortgage or rent, utilities, insurance and debt payments, you have more room to adjust variable expenses like food, clothing, and travel. That's all important that part of it is where you have an app, you go back 30 days in your bank account, you go back 30 days on every credit card and you enter it into the app, that's going to tell you the same thing as just looking at your statement. You can all do that online. If you have your credit card statements, and you can enter the transactions from that that's fine. And then they talk about categories your expenses. Begin by grouping your expenses, some personal finance websites and credit cards automatically tagged your purchases, and categories like department store or automotive, you might find that those impulse buys a targets are costing you a lot. Or maybe you realize you're paying for reoccurring subscription services that you could do without. Now if you go back and look at multiple months on your credit cards, and your checking account, you'll see some of these reoccurring subscriptions come up, because there'll be the same amount to the same place every month. If you see something that you're no longer using, now's the time to cancel it. You identified a potential waste of money. Let's get rid of than sorting out two expenses and two needs and one can help you organize your budget and prioritize spending. Especially if you need to trim costs to make room for saving or debt repayment needs. I got it down to three maybe four categories, housing, transportation, food. That's it. Three major categories, housing, transportation, and food. Those are your head accounts and a hap, under housing, include your mortgage rent or your rent, include all your utilities, because it's related to your housing, your gas, your electric, I include telephone, and I also include cell phone. The reason is that telephone used to be fixed with the house, you couldn't take it with you. So let's just leave it there. So your cell phone, leave it with housing is a neat, same thing with transportation, also in housing, would be real estate taxes, and then how homeowners insurance. If you're not paying it through your mortgage, you can also include a category for repairs and maintenance, and put a smaller amount in there. So you would have it budgeted transportation will include your car payment, your insurance, all your gasoline, maintenance, and our public transportation that you may or may not use. So are you Uber, Uber, for instance, or your train if you ride a subway or your bus ticket, and then groceries, or food I call it, I call it food be my general heading. That would be groceries dining out, and delivery. And any thing that you buy at a grocery store such as shampoo for your hair, so toothbrushes, toothpaste, those type of things. Also included as needs should be as savings, where you set aside so much for savings. And some insurance that's not somewhere else would be life insurance, disability insurance, short term disability insurance. So if you get injured, and you're off work six or seven months, you can get a payment from the insurance company to help you with your finances. That could be down the road. But that's something you need to consider. There is a need anything else is a want. Clothing is a one child well child care could be a need if you have to have child care. So you could go to work, k would be a need to be under need. But everything pretty much else would be a one. And all your loans would be a need your student loans, your credit card payments, because you have to pay them every month. So me see I just keep adding the needs housing, transportation, food, insurance, that savings, six categories, anything else want clothing, hobbies, whatever else you may have or be doing, because the wants is where we need to trim back. And the needs we can trim back and get a lower cost for a particular service. Or maybe cut out some things entertainment is a once so your cable TV and your streamings would be a one. So these are then counted categories that you can consistently use. And you reason you break in needs and wants it because that's how you're going to set up your control center or your budget in the future. So I kinda like to group them the same way. housing, transportation, food, loans, savings, insurance, those are my needs. And after that, shopping, general merchandise shopping hobbies, I can't think of anything else entertainment, streaming services would be wants. So that's a good way to get started and nerdy tip if you find your budget is way out of whack. Look closely at those items you classified as needs and consider negotiating refinancing or an or downgrading. 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 you At 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 works great for me. So I'm going to do a quick recap, here are my my final thoughts in make a mistake by not doing anything, that's a mistake, by not doing tracking by not doing budgeting, but not knowing what's going on and your personal finances that a mistake. And to fix that mistake, the first thing you're doing is you're gonna start tracking your checking account, your savings account and all your credit cards, as that's the only thing you track. So in order to track, you can either do it manually do it a spreadsheet, or get an app, the app I use is less than $10 a year. If you have a computer at home, that's the way to go. You can also have it in your five for your smartphone to enter transactions. But it doesn't work to saying you have to have a computer to get the full benefit of the app. But then, if you're out and about and you have it loaded, on your smartphone, you can enter a transaction as you go. And then when you go on at home on your computer, it's already in there. So it's kind of good. I have it set up that way, but I hardly ever use it. I don't know why part of the tracking is identifying is recording the date, who you pay, or where the money's coming from a description, the dollar amount, and a category. So if you're recording a paycheck could be the date, your employer's name, the dollar amount or net take home of your pay category, income, or category could be wages or salary. As long as it's under an income account, it doesn't much matter what you call it, the try to get as accurately as possible, then you record everything that you spend money on the date, who it's to the dollar amount. And what it's for. Is it housing as a transportation, is it groceries? Is it general merchandise shopping, is it a hobby kind of category, you do that for over at least a 30 day period, once you start re entering the same description is gonna pop up. So you just click on it, and a category is gonna fill in for you. He just changed it to the date, the correct data was paid, because the default will be the current date. And maybe there's something that you paid three days ago, you're just entering today. So you move the date to the correct date, make sure it has the correct dollar amount or you enter the dollar amount. And that's basically all there is to it. Once you get a 30 day period, now you can create a report by category. And for a date range. So you go back the last 30 days, you create a report by category, it's going to come out in alphabetical order and printed out and now you can see at a glance where your money went on paper, it does all the work for you. That's the same report you're gonna use to create your control center or your budget. And that's pretty much all is to it. It's just a matter of keeping everything up to date entering the information. I do not advise having an automatically come in from your bank account. I do not link up to my bank account. Because that's you lose out on learning or seeing and knowing where your money is going. When you enter that in those transactions in there you can start to remember, okay is the first week of the month. What bills did I pay? Oh, I paid my mortgage, my gas for my natural gas and I had groceries and automobile gasoline. The second month I paid some more utility the second week I paid some more utilities and grow Freeze, and I had an insurance bill on my car, you get over time you get to know when things become due. And it comes easier. The important part here is, once you know what's happened in the past, you know what's going to happen in the future. So now you can start planning. Looking forward, we're no longer planning looking backwards, we're using the what happened in the past, to use it as $1 amount control for what may happen in the future. It may not be exactly to the penny, but we're using it. So we know that we have enough money available to pay some bills. That's why I always kept the amount of $300 in my checking account. I never let my checking account go below $300 because of some bills an extra $50 or $20, more than what I thought it was gonna be. I have the money there. And then no big deal. I can keep making timely payments. This is how you build a good credit report. If you're doing tracking, and you do all these things, and you get to the point and you can look forward and plan ahead. You're in good financial shape, and you're gonna be ready for the next step. Creating your control center.