Reduce Debt Increase Wealth

Budget Deep Dive

March 10, 2024 MIsterchuck Season 5 Episode 209
Reduce Debt Increase Wealth
Budget Deep Dive
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Show Notes Transcript

The budget or control center is necessary for everyone especially those with financial problems. Tracking is just the start  giving the numbers to use in the budget to review and control the financial situation.

Article Links:
https://www.personalfinancelab.com/finance-knowledge/personal-finance/budgeting/ By Kevin Smith

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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 deep dive, the budget or control center is necessary for everyone, especially those whose financial problems tracking is just a start giving the numbers to use in a budget to review and control the financial situation. So let's get started here. I think the most important part of this is understanding why and what a budget really is and why you need to do it. When learning about managing your finances. Many experts recommend you begin with a budget. A budget is a tool that tracks income and expenses and allows you to set goals and make plans for the future. Developing a budget for a specific project for a special event, or to help you with your monthly spending are all examples of using a budget to help you manage your financial situation. So let's say your daughter's getting married. So you set up a marriage budget, you know how much you're going to spend overall, that's the amount of money coming in, what's your overall mount you want to spend? And then how much is the dress how much is the cake, how much is flowers? How much is the venue, how much is how for band, you know, all those things, you need to break out and consider how much you're willing to pay. Now granted, he may not know the numbers, but let's say you have $15,000 to work with, because that's all you can afford. Well, now you have to limit what you do to what you can afford for that particular wedding. The same thing goes for your personal budget, you do it on month to month, on a monthly basis. You have X amount of money coming in, and you need to pay certain bills. And then you have a little bit leftover, we're going to do with that you're gonna put some in your emergency fund for savings, you may put some aside for your goals, or you may buy something that you want. That's what a budget is all about. But when you mentioned the word budget to others, you may get a negative response. That's because people often associate budget, budgeting with restrictions. They fill up their go on a budgets like going on a diet, they won't be able to spend money in a way they like but I budget is really a financial planning tool. Every person or household should have a personal budget, not to just to keep spending under control, but also to help achieve what's important financially. Whether that saving for college buying a second car, going on that Hawaiian vacation, and effective budget will give you a clearer picture of your expected income. A detailed look at where you spend your money and will help you set and achieve realistic saving goals. There's a reason for the word personal as us and budget. Though guidelines are often provided to help you determine how much to spend and different areas of your life. The choice is really yours. The budget is designed for you based on your goals. So you have enough income to spend more on your transportation needs, then go ahead and by that Tesla, the purpose of having a budget is so that you have a plan for spending your money. This helps you avoid debt and achieve what you want to do with your money. Boy, that's that says a lot. It's nothing but a plan on how to use your money. And that plan is made up of needs and what things you need to pay every month, your mortgage or your rent, your utilities, gas for the car, groceries dining out whatever it is you're doing. You know you have to eat. You need a place to live. And you need transportation to get back and forth to work so you have income or to go buy things so that you have food in the house. Well they say gather your financial records. I have a link in my show notes, personal financial labs. They're breaking all this down for you. I say that you already gathered your financial records if you started with track A tracking is the first step in this process, where you put all your information income in expenses out what you spent on a credit card. All that information we're gathering for a reason one is going to help you know how much you have in your checking account how much you owe on your credit cards. But also, it's going to help you plan is going to help you do reports that you can use to create your budget. So instead of manually going through your checking account for the last month, and look well how much they pay for my mortgage, how much do I pay for utilities an add in and up and plug in a number, you can do a report and it's much easier and it's accurate. And it's up to date because it was in the last 30 days, he can't get any more up to date than that. So you're using good numbers to start your budget or do your monthly budget. I'm assuming everybody's just starting for the first time that I know there's people out there it has been doing a month to month. The only difference is when you're starting you go that first 30 days, you do a report by category from the beginning of the previous month to the end of the previous month. That's your starting numbers for your budget numbers, the budget in the budgeting, spreadsheet, you have description, then you have your budget and number, what you think you're going to spend actual numbers, what you are spending, the difference between the two, maybe another column for percentages, and maybe another color column that you can use to assign money a job, I forgot what I call that. But whatever I've talked about it in the past where that's not important at this point. So when you're just getting started, that first column is based on that last 30 days. Now we know that you're struggling, and you have all this debt, those numbers are gone to change, especially when you start here. Plan for your debt reduction. Once you start your debt reduction plan, then some of those numbers are going to change and they're going to go down for what money was going out to that particular item. mostly referring to credit cards. At this point, I'm not saying to do away with anything, we first step is finding out what's going on and your financial life. So you do that by tracking. And then you do that by creating yourself a budget. So budget is is broken down at the very top is your income. But as far as expenses are concerned after you income you total up total income. And now what I have always done is put in if I got paid weekly, I put in four lines for the month, were actually five lines because some months I had five pay days or months ahead for pays whatever you know for myself, if they are married, you have a significant other put in her pay frequency. So every time you get paid, you go in there and you add that to the actual amount so that your income coming in for the actual column is current. And you do it week by week or paper to paper. After that your expenses things that you pay are broken out into needs needs are things you must purchase in order to survive. They include necessities such as rent, utility bills, groceries, medical expenses, gas for the car, and they're also include legal responsibilities such as playing taxes, alimony, child support, things like that. Also I include within a needs is credit card debt, which is kind of explained in there. And savings. After that you would then have once you get those n Libray got housing, transportation, food, credit card debt or other debt savings. Then after that I would do hobbies, anything else that you may do entertainment insurance. Now there are some insurance is going to be a need such as homeowners insurance, car insurance, then there's other insurance that's a want to help you protect you financial life, such as disability insurance, life insurance, things like that. So you'd have insurance and that couple different places where there's no big deal. Then this says, Once you sorted sorted out your records into needs versus once you need to look at closer and divide him into fixed or variable expenses. I don't do that. Fixed expenses are things that you pay every month, the same dollar amount, most of the time, maybe it changes once a year, that'd be your rent, utilities up and down a little bit, that'd be a variable expense things that changes month to month, do you no need to do that. Because once you broke everything out and to needs and once within each category, under housing, you would have both your fixed and variable expenses, you'd have your like your the rent or mortgage payment, you'd have all utilities, you'd have your insurance, you have all your loans, repairs, and maintenance. And, and I include telephone, which is also cell phone, and streaming services, such as your internet, and TV streaming, because I don't have a lot of streaming service only do two, one for me and one for the wife. So I don't spend a lot of money there. So I don't need to put it in entertainment, which is necessary one. But if you stream a basketball, baseball, football, and all the college sports, and if you have movie channels for your children and Disney and all those things, you might want to throw that down under entertainment. But your internet service should be in the house because it's connected to the house. That's how I justify a put it in housing. If it's only in the house or connected to the house, then it's consider a housing expense. Transportation is your automobiles would be your loans, car insurance, gas, oil changes in any repairs that you might want to set aside a little bit of money. And then under food, you would have groceries, things you buy at the grocery store, dining out coffee shops, delivery, you know food delivery, break that out a little bit and kind of keep track of it by what you're doing. Because that will help you identify a place where you if you need to cut back in the future that you will help you identify a place. How much can you save, if you quit doing this, if you quit having food delivered to your home, how much a month would you save, if you quit doing that, that's the reason we're breaking these things out for food, clothing would be a want. Unless you spend a lot of money on clothes, and you need to buy the clothes for work or some other reason, then it's gonna be a what, if you need to have a new suit every week for work for whatever reason, maybe you're on TV or something, then that would be a need. So it would depend on each individual person, then what you need, once you get your tracking through the first 30 days, there's gonna be some things that you pay that you didn't pay that month, or they're gonna come due, may be something you pay once a year or something you pay quarterly or twice a year. So in this article, and what they've done is say they put the expense down the left hand side, if you do a spreadsheet, he put your list of the different items. And my case would be real estate taxes, dentists visit doctor visit auto insurance, any insurance do you pay that monthly payment, car registration, birthday gifts, if you're going to school when your tuition is due, so they put the expenses down on the left hand column, and then across the top they put January through December, and then they put the dollar amount in the month worrying or it's gonna happen. So if you do use that as like doing a counter, but if you do this, you can just glance at it and look okay, this is we're in June, I just had my life insurance payments and next was due in September. I have a physical in August and I hasn't tuition due in August and I'm going to the dentist in August it's gonna be expensive month I better say lump sum. I got a month to do it. month and a half or so whatever, to save up some money so I can meet those expenses. But I had it in a place where I can just glance at it and know about it in advance before it happens. That's the main point of doing this. That's the main point. Doing a budget is you have an idea of expenses that you need to pay in that particular month because we're doing a monthly budget, and you'll be able to make sure you have the money available to make timely payments. That's the goal of all doing all this, emergency funds should be a want. Also, we should always be trying to build that up. Remember, if you're just getting started on your debt reduction program, you need to have a minimum of $1,000. And then we're gonna build it up. And then we're gonna use the money over your minimum to apply to one of your debts. I'll be back in one moment with my final thoughts. If you're interested and learning about an online software that helped myself get out of debt, it does tracking, budgeting, and keeps track of all your assets and all your debt. And even tells you how 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. So you got your tracking numbers together. And if you are smart, you kind of already rearrange your category list to match your budget for your needs. And once I talked about that on there, my tracking Deep Dive. So if you got all that done, you're ready now to set up your budget. So in a spreadsheet, if you have an app that does all this, it's probably doing it for you. So you just need to maybe look at it, maybe learn how to use the app to its fullest potential is gonna be your most important thing you can do in the next week, I can't tell you because I don't know what you're using. And you got YouTube videos out there. And you probably need to watch a lot of them got trial and error, don't worry about making a mistake, because you can always fix your mistakes. So if I'm talking the if you're going to create your own budget and a spreadsheet, so you got Column A I'm gonna go from a across any column A is your description of income, whose income, expenses, housing, and everything under all your expenses is column A, Column B is your budget amount, which is the what you're getting from your tracking report, your category, your report by category for the previous month. And those are the numbers you got to use for setting your budget. Now, if you notice, I didn't You didn't do away with any spending, we're not doing away with anything at this point. We're not trying to reduce your spending, we're just trying to see what are your spending, how much and where is it going. So that's the purpose at this point. So your work your way down, is fill out your description, and you plug your numbers in column B, Column C is actual is the current month's actual spending as you do it. So this report would be a report by category from the beginning of the month to the current date, it's important that you update your tracking information first, for everything, you're checking all your credit cards, so we can capture everything you're gonna do the report is going to be all accounts. So we're we want to capture everything you're spending your money on where the matter how you're paying for it is where are you spending, what are you spending your money on. And that goes then from the beginning of the month to the current date, you put that in column C, Column D is the difference between a to b minus c. So you want column C always to be a positive number. Column C generally will be a positive number early on In a month, but towards the end of the month, if you spend more than you did the previous month is going to come up as a negative number. And that's then you need to figure out, okay, why am I spending more this month than I did last month, and there was there a special event that might happen? What category was it may be an insurance bill was due that you pay in the current month that you didn't pay before. So if there's something you can explain, then we need to adjust your budget amount up to the current month's amount, so that we're using good numbers. Now, maybe the next two months, you might be way under it because of that adjustment. But then maybe three months from now, you'll be spot on. So it's alright, if you over budget it a little bit. And don't ever spend it every month, because now we're just trying to find out how much we're spending and where it's going. So you do that every week, or at least every paper if you don't get paid every week, and you want to do it as often as possible, weekly, so you can see what's going on. Because when you compare it to the previous month, now you have a guy, you have a guideline on what's going on. So you want to kind of keep your eye on categories that are your wants, because that's where you may tend to overspend. And he need to determine if you really need it or not. Or if you just want it. But in your needs categories, those are things you have to pay, they should be somewhat consistent in you should come up with a number over time and average, where you're going to be close month in and month out. And that's our goal here for this budget purpose. And that's why I call it a control center. Because if you're shopping for clothes, jumps way up in the current month, you can see it right when a happens. And you might think Hall, I have some bills due I can't afford to do any more shopping for clothes this month, because I got some of these bills member spreadsheet we set up with the month. And we put down those things that you pay occasionally quarterly, semi annual annually. And we have that all tracked out. Now you want back over time to try to find these things. But I know what mine ours real estate taxes, insurance. That's pretty much it. And well an income taxes. So that's pretty much my things that I pay, it's not on a monthly basis, a couple subscriptions I pay at the beginning of the year that I've already paid, got those in my budgeting app also. So there's no surprises, I may not know the dollar amount that will be close. And that's what we're trying to do here, just get a close. And that way you won't ever come up too much short, you may be an extra $20 off, but that's fine, we can gradually adjust that as we get a better average. And the average is gonna be on your food and your gasoline for your car or your car repairs. Because those things jump change. So often it's hard to keep a good average. But if you over in your budget column, if you're a little high there, that's good. And if you don't spend it all, that's even better, because then that says that much more money you can put into your savings account into your emergency fund. So if you budget for auto repair $100 a month, but you only get an oil change twice a year, well, that's 10 months out of the year, the God that $100 You should be able to put into your savings, because you didn't spend it. That's how I view it. Now, whether or not that works is up to each individual person. But that's kind of how it worked. For me. That's kind of how you get it to work. But you don't want to put a number in there so high, that's not realistic. either. You want to try to if that if you pay it once a quarter or twice a year, you want to try to get close to what the actual expense kind of be. Maybe is not $100, it could be $75. So do $75 Instead, or do$25.03 months in a row adds up to 75 You're close. You're right on when you do it. So you'll have two months where you're over or under and then one month for your beast over. But if you consider it all together, you'll be right on the money close. So that's the purpose is to help you see what's going on. In your personal finances, is help you plan and is to help you spot potential problems before they get too big and out of control. Once you get to this point, now you can look through different things Is there anything in there you no longer use? If that's the case, cancel it. And so anything in there, you no longer need, canceling it rid of it is there anything in your budget that you can maybe get a better price on for the same service, that generally is gonna be so fun, and may be streaming, or maybe cable TV. If you're paying for a table cable TV and it's costing you more than $100 a month, you're paying too much, you can cancel that and get an a streaming service has probably gone off, you're pretty much close to everything you're paying for. For 50 to $75 a month, you're gonna save money. $25 $75 doesn't sound like much, but over time, it adds up. And that will make a big difference, especially those of you who are struggling to pay off your debt. And you're looking for ways to trim spending out of your budget. This is what you have to do. Once you got how much it is and where it's gone. And you got that under control and you have a good average and everything's working fine. Now you need to look at how to reduce your spending a little bit do it here do it there. It better rates on everything. That includes insurance, and includes maybe credit cards, navy, if you can contact them and have them give you a lower rate for whatever. I mean, good luck. I don't think they'll do it. But they might. If you're struggling to make payments. Whatever you can do to reduce your spending is you need to track everything that's going on in your personal finances. He needs to do the budget, you need to keep it up to date, and you need to keep everything under control. You need to be aware of expenses coming up in the future. If the next 30 days, 45 days and have a chart where those semiannual quarterly annual bills come up that you have tracked out by month so you know when you have to pay them. I know I pay insurance march in September. I know I pay real estate taxes January and June. That helps me I know about when I need to have money available to pay for it. So I don't have to take it out of my savings. It's as simple as that. Get your life under control, do a budget and you'd be glad you did. So