Reduce Debt Increase Wealth

Budget Setup

January 28, 2024 MIsterchuck Season 5 Episode 202
Reduce Debt Increase Wealth
Budget Setup
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Show Notes Transcript

Setting up a budget should not be hard to do. Keeping the categories to the minimum can be key to making a budget work. This starts with one month of tracking data. Let’s start with tracking entering and getting data out of the program before starting the budget setup.

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https://consumer.gov/managing-your-money/making-budget#what-to-do

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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 setup, setting up a budget should not be hard to do. Keeping the categories to the minimum can be key to making a budget work. This starts with one month of tracking data. Let's start with tracking entering and getting data out of the program. Before starting the budget setup. If you need more information about what a budget is, and what's involved, I have a link in my show no consumer doc of making a budget what to do, I'm gonna assume you have some basic knowledge, but it's not all that difficult. I'm gonna start with tracking because my last episode, I told you what to look for in a program and to enter data and to be consistent, and the categories are already in there for you. You can add some if you wish, or you can change the name or you can rearrange them, they will rearrange and part of those category comes through when you're going to do a budget. So that when you do a report by category for a time period, that you can print out that report and the same or close to the same order as how you have your budget setup. So they give you an example of that food and your tracking app. He may have food and it might have subcategories as groceries, dining out, delivery, you know special occasions, whatever you can come up with, as in your tracking app. But when you take that information and put it in your budget, he don't need all that break out you need one number. So when you do a report, you total all those number, he had one number and you put it in your food, housing and OT and transportation is a little bit different. The categories you should have to set up and your budget should be here needs first, which is housing, transportation, food, credit card payments, or other debt payment does not anywhere else. Savings, maybe some insurance that's not anywhere else. So that kind of limit you to five major categories. And then everything else would be a once such as entertainment, hobbies, clothing, can all be consider once so it's back in the tracking. It's the when you get the app and first download it. It's an alpha though the categories are in alphabetical order. So like for housing, for example, lawn care would be under l mortgage would be under am maintenance would be under am supply supplies would be under s l be all over the place. So what you want to do in your tracking app is go to housing the main main category, and under that you want to move your mortgage payment to be a sub account of housing. And if you have a line of credit, make that a sub account of housing. And then your utilities, you could have a total utility, which would be a sub account of housing, and then the breakdown of each particular utility bill Kompany would be a subcategory of your utility category. So you're grouping them together when you bring that over to the budget. You don't bring in this case you would bring over your housing, but you want your mortgage payment has one number, utilities is one number, maintenance and supplies as one number. So you're going on a post three different numbers and you're breaking it out for a reason. And the reason is when you go to apply percentages to percentage of your income that you can afford for your mortgage is 43% is the maximum. So when you're gonna do the math, you just want to do it based on how much your mortgage payments are. At that particular month. Same thing was transportation you want to have separate line items and your monthly budget for each automobile loan if you have more than one and then gas and oil each and break it out by auto. If you have more than one auto, if you have to, for instance, you could have auto one auto to, you know your wife, whatever you want to call it. And then when you bring it over, he can bring over the loan amount as one for auto one, the loan amount for auto two, and then all the other numbers for auto one and auto two, and then you have your total auto. So it's important when we're looking at the tracking, if you want detail, you put it there. When we bring it into your monthly budget, we want to consolidate them some. So we have less numbers to post. And it makes it a whole lot easier. But yet, we want to break it out some. So we get our percent of income to each loan by particular category. So you while you want to do when you're first getting started is whenever you bring in that app, whatever day of the month, it is you go back to the previous month, the first day of the previous month, and you enter all your transactions, your income, your deposits and your withdrawals from the first of the previous month up to your current date. And that will get you up to date. And when you do that, you got to make sure when you get everything entered, the balance in your app is gonna match the balance on your bank. So that you know everything's been correctly enter as far as the dollar amount, it may be in the wrong category, which he could fix later. But at least you know the dollar amounts are right. Once you get all that done. If you haven't already edited your category, you need to think about what you want your monthly budget to look like. Do you want it in alphabetic order, just like why that category lists which makes no sense. It might make sense to you bet when you try to get percentages on different numbers, it's gonna be a little more difficult. So you need to group them together. So that's why I say housing. So housing would be all your mortgage loans, everything related to the house is housing, your mortgage, your line of credit, all your utilities, your internet utility and your cell phone is a utility connected to the house, in my also repairs and maintenance, that I wouldn't include large, long term projects like remodeling the bathroom, you don't need to put that in there at this point you could in the future. But that's something down the road that you could just set up a category and your spreadsheet for your savings account and call it bathroom remodel and assign some money to it. That's one way to handle that. But you don't need to put it in your budget per se, at least not at this time. And you do the same thing with your automobile, your food, and then your your credit card payments. So the bead loan payments would be loans or credit cards mostly that's not included anywhere else within your budget. So your mortgages are with housing, your auto loans is with transportation. So if you got another category that you have money borrowed for, say like hobbies and you borrowed money for your hobby, that loan would be in your your hobbies. I don't know if that actually happens or not. That's this an example. Any other loans would be credit cards would just be under credit card debt, or loans and credit cards is what I would call it. And then I also have a category for savings. If you start out maybe that dollar amount is zero. And then after a month or two, it might be $10. The important part here is you want to start putting some type of money into your savings budget. So you're automatically start to set some money aside, get habit. So if you go into your app and edit your categories, you can rearrange them you can do it by A B C D housing, a transportation B whatever you want to do, or a one a two or 123 So housings all number one, so housing is one and then mortgage would be 1.11 dot two 1.31. And then they'll be printed out in that particular order. When you do a report by category, from the first of the previous month to the end of the previous month, that's the first report you're going to do, because that's gonna give you a number to set up your budget. Now let's get in to need to work on that. And that is got to be the longest time you're gonna probably span and getting set up and getting it rearranged and thinking about how you want your budget to look, once you got that figured out, and you can redo a report and you can print it out, so you can look at it. Now let's, how do you set up a budget budget has a if I'm looking at a spreadsheet, left to right, column A is on the left, Column E is on my right. The first column A is would be your description, that's where you put in all your words or your headings or whatever housing and then under housing, mortgage, a mortgage be mortgage See, or the name of the mortgage company, utilities, and then under Utilities, gas, natural gas, electric, telephone, internet, cable, whatever you have, I put cable under Utilities, because it's connected to the home. And it's pretty much that's the only place you're gonna use it. I know you can do it and go out and do other things with it nowadays, but mainly it's connected with the home. That's why I included as utilities. And as you can see here, a lot of those needs are starting to move into or once are starting to move into needs, like cable TV, that's really a want, it's not necessarily a need. But let's put it in with needs for housing. And then later on, when we're looking for ways to reduce our spending, we can look at those things and move forward at that particular time. But now we're setting up a budget based on your actual spending for the previous month, we're not cutting anything out, we're not trying to reduce spending at this point, we're just trying to identify how much income how much spending, that's step one. So column A is the description of where you would put all your categories description, down the left side, and you can stretch it out and make it a little bit wider. Column B is what B would be budget or previous month numbers or historic numbers or whatever you want to call it. But the most common term is budgeted dollar amount, the amount of money that you're trying to achieve, to to not go over as far as your current month's spending is concerned, that's column B. Now, over time those numbers are going to change, you're gonna be able to update it and fine tune it as I call it. Column C is the actual dollar amount that you're spending in those categories. For this current month, to that current date, what you do to get that day's numbers is the beginning of the current month to your current date. After you've entered all your transactions, and everything's been updated, and you're happy with it. Now you want to do a report by category for the current month, beginning of the month to the current date. You do this up to four times a month, every week, once a week, Friday, Saturday, whenever you have time to do it. You update everything, you do a report and you go in the actual Mount Everest, second, or third or fourth week. You just type in the new number and the particular column where it goes. Now they're gonna be some of these numbers so it can be one time a month. Some of the number numbers you're gonna update every week such as groceries and gasoline if you fill up your car once a week and you go to a grocery store at least once a week or twice a week. These are numbers are going to be updated on a weekly basis. Other numbers are going to only be updated once a month, that might be the second or third month or third week of the month before Will you enter it the first time, it's fine, don't worry about it. Because when you get to the end of the month, those numbers all be filled in with the current amount of data. And you can look because the next category D is the different column D is the difference between B minus C. If the difference is a negative number, that means you spent more money in the current month and then what you budgeted for. If it's a positive number, that means you spend less money, that's a good thing. Okay, you do this for at least one month, two months. Once you get through two months, and you're seeing a trend, now you go back and you figure, okay, my budget dollar amounts are overstated or understated. Let's fix them up, let's make a more accurate to what I'm doing, because over time, you'll get an average. And as everything averaged out, over a period of three months, six months a year, you'll catch everything they ever pay for. And you'll come out with a better dollar amount average of what your average spending, it could be a little high, one month, a little bit low one month, but you'll get that average, so you only be off 1020 bucks either way. And you once you get to that point, you're pretty well set. That's the basic of setting up a budget. If you want to add one more column to your budget, would be percentage of gross income. So you'd have to put up in your heading somewhere, number of what's your gross monthly income, and that's going to change every month, due to how many pay periods you have in that particular month. And the gross amount is the amount you get paid before taxes are deducted before health insurance before alimony, before anything is taken out anything out your retirement, that's your gross pay. Why are you using that he using that because that's what lenders use. And you apply that to what's the total amount, okay, my gross pay for the month is $1,500. My mortgage payment is $500. And so that's roughly 33% of my gross pay is for the loan on my home, that's a good number, you can do that for the year housing, the total amount, and do it specifically, only for the total loan amount to keep those separate as a separate number. The lender don't care how much you're actually spending for utilities and everything else. They're just more concerned that how much of your gross income is going to pay this loan. And if it's too much like over 43%, you're going to be hard pressed to get a new mortgage or to refinance or even to get a mortgage. The better that number, the better off you're gonna be. Because that's telling you that you're not overspent on your home or your housing costs. And the same thing goes with transportation. So if you go high on one area of your budget, such as housing, if you're at 40% of your gross income to pay for your loans, that means you have to cut back somewhere else, because you don't have the money to cover it. I hope all that makes sense. It kinda does over time. And over time, when you get six months, nine months, and you keep adjusting that budget column, or the budgeted amount column or this story number column. And you get that fine tune in your differences only 20 $30 I say if it's within $50 Either way, plus or minus you don't pretty good. But the main thing is if you take your total income, which is at the top, you list your income and and your and your budget, and then below that you have a total and then you have all your expenses. You have total expenses. And then at the bottom you have total income less total expenses and that gives you a number. Are you overspending? If so, you got to make some adjustments. You got to cut back spending, or do you have some money leftover? Have you have money leftover? That goes into your savings, and you put that in your budget now that number comes Tuesday. Arrow, so your income less your expenses less your savings should be zero. That's how you know you're on track. If you stay in that range, you should not overdraw your checking account, you should be safe there. Now it can't say it won't happen. Because you don't know what may pop up an extra expense that you didn't plan on. And that's why you have the savings or a emergency fund to help cover those unexpected, unplanned for expenses that could pop up at any time. And that's so that you don't have to use more credit in order to pay for it. It all flows together, it all comes together and everything works together to help you with your personal finances, whether it's staying out of debt, reducing your debt, saving for the future, saving for whatever you're saving for, it all works together. 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. Okay, for those of you interested in checking out the software that I use to personally get out of debt, I have a link in my show notes is shop financial. If you go there, you probably had to copy and paste that. And check out the program. If you're interested, send me a note. It's through the website. And I'd be glad to get back to you. So if you're working on this budget, and you're doing it on a spreadsheet, I'm assuming you're using the spreadsheet, because if you're using it manually, you get more aware of what's going on, you can set it up any way you want. But you want to set up that first month. And once you got the first month set up, you put in your formulas, you got everything work and zero out all your numbers, highlight that copy and paste it 12 times. So now you have a year. Once you get that done, say that as template, yearly template budget, or something like that, that's every year, you're gonna go to that and you're gonna pull it up, and you're gonna save it under a different name. And you're gonna put that one aside. And whenever you have an update or a fix to it, you go and you fix it and then come back. So the next year, you have less messing around. So that you have 12 of these setup. When on the spreadsheet, I like to go from left to right six months, January that June and then right below it July to December. So it's kind of all together. So July is right under January excetera December's under June, so you kind of know where you are in in the spreadsheet. And once you do that, then you go in the first one you type in January for your month, type in February, March and you go to whichever month you're currently in. So if you're in May, you work your way over to May, and that's the current month so you should have the data for the month free for which would be April. So you would go back to April and that's where you would then use the numbers as for your historic your budget numbers for April, and then that would be the same for actual so it all come to zero but you get used to entering the numbers and where they go. And then you go into May you could copy and paste your budget historic numbers over into May you shouldn't have any formula Is there and then you can just work on the current month coming forward and doing your update, then when you get to June, you can copy the budgeted amount over. Or you could use your actual numbers for May, and copy those numbers over as your budgeted numbers for June, if they're lower and more accurate than what you've been previously using. So over time, you'll just be updating these numbers one here, one there, and you'd be perfecting it down to the actual spending day you're doing. Now, once you get to this point, you can look through your detail and figure out where you could cut back spending. Because if you have a debt problem, and you have a credit card problem, you should be aware that you're probably spending more money than what you make. So you need to cut back somewhere. So you go through your needs first work, can you reduce your spending? Okay, well, under housing, we have cable TV, and we have five different streaming services. Well, that's a good place to cut back. Why are you paying for cable, if you're streaming, get rid of the cable, cut your streaming service back to one or two or three, maybe one for the husband and one for the wife, one for the kids. Try to minimize your spending. Also look at your utilities. What can you do to use less utilities. In the summer time, if you run AC, turn the temper thermostat up, have a programmable thermostat in your home, set it at a higher setting. And then when you're gone during the day, why cool the house have nobody's there. And then in the evening, right before people come back, lower it down to degrees. And then when the sun goes down, and there's not hot as hot outside, bring it all the way down to what I do 72 degrees. Oil takes a short time, the house is nice and cool. It stays that way all night. And then let the temperature rise during the day. And then to a higher temperature and then bring it back down slowly at night. And you'll save some electric reduce your electric bill where I have it running full blast suddenly did keep the house at 72 When Nobody's Home. Same thing in the cold climates in the wintertime does do the reverse, lower the heat and then bring the heat back up. I know it sounds like that might cost you more. But I've been doing that for years. And I may admit my utilities are pretty much minimized. And I don't really I use half the electricity as the average home in my neighborhood. Title No, that's what the power company is telling me. So once you do that, then look at your wants. Where can you cut back now that is where you can make drastic cuts for say six months or a year or three months or for a shorter period of time that cut back somewhere in order to pay down your debt a little bit faster. And if you can do away with multiple ways, if everybody in the family could do away with something for six months, and you could save $200 Then that's just gonna be them much faster you could pay down your debt and eventually pay off your debt. That's it for this particular episode. Now what you need to do for budget upkeep is the next episode. And then we're going to talk about a debt reduction plan.