Charles McDonald: 0:03

Chuck, hello, I'm your host. Mr. Chuck, a retired accountant turned truck driver. I reduced my debt in a relatively short period of time. Debt reduction to achieve financial freedom takes commitment, confidence, determination, budget Made Simple, create and maintain a budget by using tracking app reports. This is the easiest and most accurate way to do a budget and to maintain a budget before we get into the details on setting up a budget. What is a budget? A budget is a plan you write down to decide how you spend your money each month. A budget helps you make sure you have enough money every month. Without a budget, you might run out of money before your next paycheck. A budget shows you how much money you make, how much money you spend. Why I do a budget? A budget helps you decide what you must spend your money on. If you can spend less money on some things and more money on other things, how to prioritize your spending, where your money needs to go first before you spend it on one or fun stuff. For example, your budget might show you spend $100 on clothes every month. You might decide you spend $50 on clothes you can use the rest of the money to pay bills or save for something else. Why should I try to say money? You might need money for emergency you might also need to buy something more expensive, like a car. Saving money might help you buy a car, put a security deposit on an apartment or pay for something expensive. Okay, that is the basics of a budget. A budget gives you your information. It tells you how much money you have coming in and how much money is going out. It helps you prioritize where your spending needs to go, first, second, third. It just helps you in your personal life and your personal financial life. So what do you need to know in order to do a budget? To start a budget by gathering your bills and pay stubs, and this is where I say you use your tracking app. That's why you started doing tracking of everything going through your checking account, your credit cards and everything else. And if you've done that for a minimum of 30 days, you have all the information you need to get your first budget started or to get your budget updated every in each month, because this is a never ending process. You should be doing the budget month in a month time period. That's why you need a month worth of information. Every month is not going to be exactly the same. There might be some bills you pay once a quarter, every three months. There may be some bills you pay once a year, maybe twice a year. So as you go through this for your first year, you're always going to be updating, changing and perfecting your budget dollar amounts, and that's what you need to be aware of as you go through this process, you should be identifying things you no longer use or need and canceling or doing away with it. Why are you paying for those things you no longer need? Subscriptions? Most likely I'm talking about, and it's gonna help you see how much you're spending in each category, and you can decide, is that too much or not enough. Can you afford to spend more in on entertainment, or do you need to cut, cut back on entertainment so you can pay your housing, transportation, food or other needs that you have. Needs are thing that you absolutely have to pay each and every month. It's housing, transportation, food, clothing, maybe some health insurance, and should be some setting money aside for savings, savings for setting up an emergency fund and building up an emergency fund so if something bad happens, you have some money available to pay for whatever it is. That way, you're not always relying on that credit card and you're not. Always going deeper into debt. The goal here is to get your personal finances under control, to help you pay off your credit cards, to pay down your debt in a orderly and timely manner. So where you need to get started in this article, I'm referring to it says, Write down your expenses and expenses money you spend, write down how much money you make. That's called income. Subtract your expenses from the money you make. So as you set up a budget, your income is at the top. If you're doing a spreadsheet, this all should be in a spreadsheet, whether you're doing it on a piece of paper or doing it on a computer, I will recommend a computer, because you can sort it, you can rearrange it once you get it in there, and you can perfect it, and it does all the math for You, so there's no worries about getting the math incorrect. It does it for you, and you don't have to worry about that. So at the top, the headings going across from left to right, the first column A should be description and all of what you're doing. Column B should be your budgeted amount or control Amount column C should be the actual. That's it. We're doing this on a monthly basis. So the control budget amount, or control amount is what the dollar amount that you set based on the previous month. The actual is the actual amount that you're spending in the current month, then the difference is the difference between the two, and then the very right column is a percentage. What percent of this expense to your net income are you spending? Is it 50% of your take home pay, or is it 5% that's going to be useful information? As you build this information up, and you get more involved and more familiar with what going on in your personal financial life, I assume that everybody knows you got to pay rent. You got maybe car payments, you know, you get utility payments. You know, you put gas in the car and you buy food and you go out and have some entertainment. How much money do you have left? Are you struggling paycheck to paycheck? Are bills surprising you? Are you coming up and the utility bills doing you don't have enough money to pay it, so you put it off. Those are the things we're trying to control here, and the more you can get your personal finances under control, the less of those type of things that's gonna happen. You're gonna know when your bills are coming due, and you're gonna know you have enough money to pay them, and there's not gonna be a struggle. And you're gonna know that, like I can put $20 a month in my savings and set it aside and start the emergency fund, no matter how small it is, you need to start doing it, because the sooner you do it and the more often you can do it, the quicker it's gonna build up, and the better off you're gonna be Now, if you've been following my podcast and you've been doing your tracking for at least 30 days, you go into your tracking app and you do a report by category from the first day of the previous month to The last day of the previous month and print out a report. If you did not go in and rearrange and organize your accounts, they're going to come out alpha, alphabetically order, alphabetical order. So one of the things you can do to start with is print that off, and you need to go line by line and identify what category you're going to put this in for your budget. Your budget is set up in categories, and within the categories you have the detail. The detail is right there on that report you're looking at each line item, there is a detail for a particular category. So let's start with housing. The heading for housing is housing. That's the main account under that is a sub account, and all the sub accounts are going to be your mortgage payment, then you can have a sub account called utilities, and then a sub account under Utilities to list each individual utility company you pay, natural gas, electric, cell phone, telephone, internet, water and. Or trash. HOA funds, whatever you pay that you consider utility. As you notice, I put cell phone under housing and utilities. And the reason I do that is because once upon a time, back in the olden days, the phone was physically connected to the house, and you couldn't take it with you, so it was part of your home utilities, and I'm just leaving it in that category. Cell phone should be under your home housing and under Utilities also, okay, we have mortgage, we have utilities, and then sub accounts, all the details. Now your mortgage is going to be your mortgage payment. If you have an escrow with your mortgage company, you're also paying the mortgage, you're paying the insurance, and you're paying the real estate taxes every month, and then the mortgage company sends that in when it's due for you. So you just need to have mortgage if you don't have an escrow. Now you need to break that out mortgage. That's just the mortgage payment, real estate taxes, home insurance, because you're going to pay those things yourself. You might have maintenance. Maybe you can put a category in there for renovations. It's up to you, but that's pretty much a mortgage, real estate, tax, insurance and utilities and all the detail of the insurance, the utilities, is your housing, your transportation is your auto a you work on. That's your transportation is the main heading. Then a subheading would be, if you have two automobiles, you have auto A, you can put the make a model, whatever. And then under that auto A, you put the payment the gas and repairs and maintenance, which include oil change, and you'd put auto B, put the payment, you know, loan payment, whatever the loan company is, gasoline, repairs and maintenance, that would be your transportation under food is your general heading or your main category, and then you would have groceries, dining out, delivery, however you get your food. So you need to break it out by how you get it. Go to a grocery store and buy it. You go to a restaurant and eat out. Or do you go to a restaurant take takeout? Maybe you can make that takeout category. Or do you have it delivered to you by using a service? You can have that delivery, food delivery. If you have food delivery from the groceries, you maybe break that down. The reason you're going to break all these out by how you're getting your food is, and you want to look at each category and how much you're spending in that category, because there's a area here we can save some money in the future, but we got to break it down so we can See where the money is going. Then we have savings or credit cards and savings, this is where you list all your credit card payments, each individual credit card that you owe and you pay you want to put here and you want put savings, because we want to budget a number for how much you're going to set aside every month for savings. At the beginning, you leave that blank because you don't know if you've been paycheck to paycheck, you probably think, well, I can't save nothing. I don't have any money. But down the road, we're going to make it so you do have some money, so that you can put a number there. So that's the idea, and then you can have another coring that those are all your needs that you have to pay. Maybe there's another category. Could be insurance, insurance for your home, goes in home, or goes in housing. Insurance for your automobiles go each individual automobile insurance for your health you're paying through work. If you're paying through work, you don't have to worry about it because it's already out of your paycheck. You've already paid it. If you're paying insurance on your own, then we need to have an insurance category for health insurance, disability insurance, whatever other types of life insurance, what other other types of insurance that you may have, that you think you need then after that is your once and then be entertained. Payment, hobbies, whatever else you can think of. If you have children, some of your needs might be daycare. You need a category for that. I don't know. It's up to you to break out what your needs really are versus what you once are. I don't want to tell you, because it's different for everybody. That's just the basic to get you started. So at the top you're going to put your income, so you got your general headings, description control, amount or budget, amount, actual difference, percentage. And then you're going to put down Column A your description, income from yourself. If you're have a spouse significant other, put their income in. Now this is, would be from your work. If you have a two jobs, both jobs, all your income. If you have a hobby that you occasionally hand a little bit of income. Don't put that in there. Don't worry about it. Now we'll put that as other and you can plug that number in that particular month, but if it's small, say, less than 100 bucks, less than $400 don't worry about it. And you want to total your income, and that's your budget amount. And as you get paid throughout the month, on the actual month, you plug these numbers. You plugged in what you got paid, and you keep a running total. So if you get paid every week after week one, you put in your net pay after week two, you add your second net pay. Week Three, you add your third net pay, so it's the total of your all your pays added together as you go throughout the month, your expenses, and that should be shown through your app as you enter your paycheck in your app, it should give you the total amount when you print out the report, because you're going to do it from the first to the third of the previous month. And then once we get to the current month, you're going to go from the first of the current month to the current date, usually, if you get paid every week to the first pay period, and you're going to put all those numbers in your budget under the actual and then the next week, you're going to go from the first in the month to the second pay period date, and you're going to update all those numbers because that report that You're getting from your tracking app is giving you the totals. You just got to plug numbers, and then the spreadsheet on that you're doing your budget on is going to do all the totaling and all the math for you. It's going to figure out the differences, you know, when you set it up, you're going to take the difference, it's, you know, B minus C. You're going to total down your total income. You're going to total each category. You're going to total eat like you don't have to total mortgage payments with one number, but your utilities, you want to subtotal all utilities. So, you know, one number, how much is all my utilities added up? You can look and have one number you're looking at, and then you can have total for total housing. So when you do your formulas, be careful which numbers you're picking up. Don't pick up all the individual ones on their utilities and then pick up this the total, you know, the sum of all of them, because they'll double it for you. So just be careful. And you go down, and then at the very bottom of your budget spreadsheet, you have total expenses. And then under that you have income minus total expense and a number, if that number is negative, and that's your net, you know, net income, net money saved or lost or spent, if that's a negative number, that means you're spending more than what you make. And that's what we're trying to stop. You're trying to solve that problem, and you're thinking, how'd you do that? Well, part of it could be that you had some money in your checking account, and there was a bill that was due this month that you used money they already had, and then that same bill came due again, and you paid it twice in the same month, that's a possibility. It could just be that you are spending a lot on your credit cards every month and then making some payments on those credit cards. That kind of doesn't also if you're doing my debt reduction. Some plan. You know that the first thing going to do is quit using credit you're going to quit using those credit cards. So that's going to go away over time as you get that under control. You know that you're going to make the minimum payment on all your credit cards, and you know that you're going to put money into your emergency fund, and you're gonna have a minimum of 1000 in your emergency fund, and you're gonna build up to that to a maximum of 3000 or 4000 your maximum. And then you're gonna take the difference between the maximum and the minimum, the say, the 4000 and 1000 3000 and you're going to apply that to one of your debts, or however you want to start paying down your debt, that's my debt reduction plan. But in order to do that, you have to have your budget. You have to be tracking everything to do the budget, and you have to be doing a budget. They get your spending under control, so you can build up that emergency fund so you can apply the money to one of

Unknown: 21:11

those debts. It's all related this whole

Charles McDonald: 21:15

plan. This is a three step process. You got to start tracking, you got to have a budget, and then you have to have a debt reduction plan. You have to have a plan that you follow each and every day so you know what you're doing and why you're doing it. So you're once you get your budget and you know, so once you get through that first month, that budget amount, the total that would be your net income for the month. That's the number you use to do the percentage. What percent of your net income are you spending on housing? 35 to 40% is where it should be. If you're at 60% that's why you're living paycheck to paycheck, you're spending too much on your house. You've already over committed to that. If that's all on because of the mortgage, real estate, tax insurance, as you have an escrow, you're really hurting, really over committed to your housing. So you have to cut back someplace else if you overspend in one category, you have to adjust other categories because you don't have the money to spend it like you want or or do one in the past, this is the basis of why you Want to track all everything that's going in and out of your household. Have a budget. Know everything that you pay, what you pay, how much you pay, and when you pay it, and over time, you'll get all this under control. As you do this, you should be identifying things you no longer need, want or use and get rid of it, cut back so that you can increase that dollar amount you're putting into your savings. Because the more you can say, the faster, all the faster you'll be able to pay off your debt. I'll be back in one moment with my final thoughts are the articles I refer to in my episodes. Have a link in my show notes. If you're interested in checking out the software that I personally use to get my data control. It's in my show notes under shop financial you need to copy and paste the link and it'll take you to the website. Any questions, you can just contact me through that particular website. If you value this podcast and would like to make a contribution, I had a contribution link in my show notes. Also get whatever you feel is appropriate for the information I am providing. I thank everyone for listening to my podcast as an overview, your budget at the top shows all your income by week, however you want to set it up by individual. You have a description, you have your control or budget amount, and that's based on the previous month. You have your actual amount, which is the current month. You have the difference between the two, which is a formula in there, and you have a percent of your net income, which you have a formula in there. So if you put all your income in there, when you total the income, your budgeted amount total should be your net income for the month. That's the number you use to create your for you do the formula for your percentage, what percent of your total housing is based on your net income, even the. When you go to borrow the money, the loan is based on your gross income, then let's look at your net income, because net income is what you really have to work with. They've already took the money out for taxes, hopefully they're all paid. They're already took the money out, maybe for your health insurance, maybe for your child support, or whatever you have to pay those things that's automatically deducted from your checking account you're not have to account for and your budget. We're only accounting for those things that you have to pay with the money you have available, and that's your net income. So what percent of that net income is your housing cost? What percent of your net income is your transportation? What percent of your net income is your food? Housing should be around 25 to 35% transportation, 15 to 20% food, five to 10% you can look up these percentages, just go online and do a search, and you can find percent of income categories, of budget, personal finance categories, percentages. Type in something like to that line, and you'll be able to find that I'm just gonna review, since we're at the budget and it's fresh in your mind, we're as you go down, the first month is the previous month for your control. Then your current month is for your putting in your actual you do a report. Now, I mentioned this before, but to get started, you do report the previous month, from the beginning of the month to the end of the month. Then once you're in the current month, you go from the beginning of the current month to the current date. If you give if you're going to do this by pay period to pay period, if you get paid weekly, then you need to do this weekly. If you get paid every other week, then you need to do it every other week. I recommend you do it weekly. Pick a date a time, like every Saturday morning when you're drinking your coffee, do that report and update it. Now, I started to say earlier that when you're looking at that report, you need to go through at the beginning, because it's going to be in alphabetical order and category H for housing and out to the side somewhere, either to the left or the right, whichever you prefer. Put an h for housing, T for transportation, F for food, C for clothing, D for debt, I for insurance, E for entertainment. And categorize each and all these categories as you go, because we need to set up all these categories in these particular groups. So once you go through there and put H's next to everything, and you're in housing, you're going to be putting it in under housing in alphabetical order. Now, utilities should be used, should be at the bottom, but the name the utility companies may not, you know, may start with an A, so it'd be the top, but you want to put it under Utilities, because you want to subtotal all your utilities. So you know one number. What's your total utilities? All you know, gas, electric, food, not food, but water and sewer, internet, cell phone, whatever you all these things or utilities. You want to know one number. You want to be able to know one number. But when you're setting up the budget on a spreadsheet, you're going to put each one of those in there individually, because we want to total them. We want to know the total of your utilities. So once you go through that HHA, and then you put that on our housing, and then you go through transportation, you put all those in and check them off as you go down the line. You put that way, you know if you miss something. And then when you get done, you can look at your list, and if you get check marks by every one of them, you know they're in order. You know that you didn't miss anything. Now keep that for your sample for the next time you do it so you know, you know where you put them, if you want to, you can go into your app, your tracking app, come up with this system so that you can code those. So all the ones that are coded H, you go in and you somehow code them H so they print out together, so they're all together. And when you go to enter them the next time, they're all going to be in order for you. And that's going to make it easier. So you need to come up with some type of coding system that you. You can do to put them in order by the categories that you want them to come out so it matches budget. I hope that makes sense to you. You can kind of not tell you, because I come up with ways to do it, and then it's not the best, and it doesn't always work, and then I gotta re mess with it. You know, you know, all the housing is h, and all t is transportation, and all food is F. And so if you do h1, h2, h3, h4, and then put the name like, under your category, like, say it's a mortgage, mortgage payment, or the mortgage company is saying you can code at h1 and then util, the first utility is h2 h3 but that's going to be under Utilities, but we want to put them in some type of water, so I'll leave that up to you. That's just a general recommendation to make your life doing your budget faster and easier, and would be able to look at the net result and have useful information. That's what we're going for, and at this time, that's all I have to say. This is my last episode. The reason is, I figured I covered everything as much as I can. I'm getting bored with doing the same things over and over. I just think it's time to stop. But my episodes are still gonna be out there, probably for at least a year. Thanks everybody for listening. If you want anything different, send me an email if you got the information in my footnotes, my show notes, you can contact me if you want a particular subject covered. Maybe I'll do it. Maybe I won't. This is the last weekly podcast that I'm on to do on this subject. You.