ReduceDebtIncreaseWealth.com Welcome and Mr. Chuck here this week I'm going to talk about setting up a budget and doing a budget. The second topic is going to be the method of how you're going to apply your payments to your debt. Which debt you pay off first, what order you want to pay off debt. So on the budgeting topic, I know, early on a couple episodes ago, maybe in the first one, I said, you really don't have to do a budget. Then I start talking about projecting your, you know, expenses forward. Well, that was in a sense setting up a budget. He just did that tell you that. I was just more focused on what are you going to pay? I didn't want you to get all stressed out because a lot of people don't like to do budgets. I know you've probably read articles or listened to other you know that people saying you need to do a budget you need to set aside this much money for this and this was money. For that, and on and on and on, and you just don't want to do it. So the easiest way to prepare a budget is what are you paying? You gotta pay it every month, you should know, if you should know how much your average payment is. So we just go back and look, if you've projected your, your, your expenses going forward and how much is due and when and when it's gonna come out your checking account and you got your finances. You're starting to get your finances under control, you know how much is in your checking account, you know, pretty much how much is going to come out from between pay period period pay period, you're pretty much getting your budget done. You just don't know it. I'm telling you, your budget is done. The next step is on a separate piece of paper or maybe create a new spreadsheet or a new sheet within your spreadsheet. Set one call it budget. And what I want you to do is go through The last couple pay periods and things you've been paying and categorize them into a category such as utilities. Take natural gas you pay for the home, electric, water and sewer, trash, telephone, internet, anything that's connected to that home that you pay on a regular basis, whether it's monthly, monthly, quarterly, semi annual or annual. And put them in that category utilities, home, entertainment, food, and on and on clothing. If I didn't say auto auto, like auto would be your all the gas you pay gasoline you buy for your cars, repairs. insurance. Or you can have a category called insurance and put all your insurance in that category. But don't put your loans in there. Don't include your mortgage payment for utilities, because it's really not a utility. Don't include your car loan on our auto expense. We want to keep those separate. So you go down, you do all your categories, then you can subtotal each category up by itself. So every month, you know, oh, and utilities, I'm paying $439. And car expenses cost me $350 and entertainment, spending $400 where and then think to yourself, where can you cut back? Where can you reduce the spending because remember, your plan is to reduce spending, your goal is get out of debt. So that's going to help you so go ahead and do that. And it's us actual numbers that you paid the last few weeks. I mean, we're not saying, Okay, well, I'm gonna I think I'm gonna spend $200 this month. So I go to the bank, I set up an envelope, I put the cash in there, and I buy it and it's for auto expense. And I put gas in the car and I run out of money and I'll halfway through the month and I can't put gas in the car, no more, I'm out of money and my budget is blown. If I know I'm not talking about that, I'll take real numbers that you already know. And we're just going to categorize them by category. So that, you know, at a quick glance, you'll have an idea what you're spending where. And once you get all that done, and this is what I did, and it helped me a lot. I went through there and thought, where can I cut where what can I reduce? And then I thought, well, how can I redo it? Well, let me see I can change providers. I can call up see if there's different plans. Because you know, I was always calling the see if there's a plan that gave me like more data, or more text or something, we can do that in reverse to he can call and see if there's a plan that fits your needs, that's gonna cost you less. And if that particular provider won't reduce what they're charging you, most of them will, you can go somewhere else, the bait and switch, as we talked about, and from that article, I believe it was last week. So you see how all this is starting to come together. It's all makes pretty much sense. And then anyone to see things that you're paying that you don't really need. You know, I go to Starbucks every morning I get a latte and it cost me $4 and 35 cents. Do I need to go there everyday and buy a latte? Well, the answer is no. I have an espresso machine at home. I can buy my beans and I can make it probably a lot cheaper even though I never figured that out, but I did what I do. So I quit going to Starbucks, so I'm not spending five bucks a day. So five times five is $25. I hope you get the idea where we're coming from here. So that that's in a nutshell is, you know, if you do it on a separate spreadsheet or a piece of paper, you gotta categorize, you pretty much know what your budget is. And now it's just a matter of looking line by line. How can I control when I'm spending like maybe you can turn it temperature down and keep your house a little bit cooler in the wintertime. Don't let it turn the temperature up in the summer so you don't run electric as much you're not using as much gas turn your hot water heater down so it's not it's not as hot but it's still hot enough to for you to take a comfortable shower. I'm not telling you to sacrifice and take a cold shower. I'm just saying, Well, if I cut that back a little bit, I could save three bucks a month, three times 12 is36. That's $36 I got in my pocket. It's not how much you make is how much you keep. That's something you should remember. I'm gonna you know, most of you have probably searched the internet, read articles, maybe saw some YouTube stuff, talking about different methods of paying down debt, which debt to pay off first, where do I start? How do I do it? Well, there's two methods, snowball, and avalanche. I'm going to start with the snowball method first. And it's pretty simple because because once you take everything you own, which I forgot to tell you, you want to set up another page and call it accounts. And on that page, you want to list all your loans your mortgage. Your line of credit, your auto loan, or loans, all your credit cards, where you have a balanced do first payday loans, you want to do that on a separate sheet of paper. And you want to put as much information there as possible. You want to put when it that you know the name, the date, the loan started, the amount you borrowed, the monthly payment, and the current unpaid balance. And that will give you a lot of information that you're going to be useful later on. And do that for everything and call at accounts. So once we're talking about the snowball method now, once you have your account set up, you can look at it and say which item Do I have the smallest balance on, you pay that one first. Then once that's pay, you go to the next one, the smallest balance so you keep paying off the loan or the debt, the credit or the debt with the smallest balance. And the idea is you don't get depressed you feel like you're making progress, which in a way you are, it snowballs. The longer you do it, the faster it goes because the more money you'll have to apply and the more money you had applied, the more you can pay off, the more you pay off, the less that you got. So you know, it's it's snowballs, it's you know, as the ball is getting bigger, it's going faster down the hill. The and that's the pros is your your make you feel like you're accomplishing something. The negative part is you're going to end up paying more in interest than you need to. Which brings me to the avalanche method. The avalanche method is you pay off the debt with the highest rate of interest No matter what the balances. So over time, if you pay off the highest interest rate first, and then work your way down, you'll pay less interest than on the snowball. But it might take you longer before you feel like you accomplished something. Both methods work, there's no doubt about it. Both methods are good, both methods got some bad point. But I kind of do something a little different. I do mixed method. I did a little bit of snowball, and I do a lot of avalanche for a year. Let's say you're just getting started. And you have one credit card that's got maybe a two or $3,000 balance but everything else is way high. That two or $3,000 balance may have the lowest rate of interest. And the other ones might have high rates of interest. Well if you use the avalanche that one would get paid off Last. But what we need to do here is you want to make especially at the beginning you need to feel like you're you're making accomplishment that you're advancing somehow, that that's worth it to you that you're advancing forward. And you're making you're making your goal. And the second reason is, you pay off that low balance first, and you don't close that card off. You don't cancel that card, you keep it. Now you have a credit card with a zero balance. You're going to use that to your advantage. You can use that to buy stuff online. But you got to be careful if you're buying the same stuff anyway. If you go to the store and pay cash for it, or you buy online, you put on a credit card. You got to treat that credit card, just like cash. And if you Charge something on that credit card on a Wednesday, he go to that card website. And on Friday, you pay it off. So you basically does using it as a, a short term loan to three days and you're going to pay it off and you want to maintain a zero balance or as close to zero balance. You never want a balance to get back on that card. But if you're going to go to the store and buy those items anyway, such as cleaning supplies, or even food or groceries, or clothes, and like buying clothes, don't buy $5,000 clothes all at once, do a little bit at a time and pay it off every week. So that you can have at least one credit card was a zero balance with that you keep a close to a zero balance as possible. You never have a bounce on it. You know at statement time once you comment That now you want to look at lists pay off items with the highest rate of interest so I can minimize the answers on pan. Because the less interest you pay, the more principal you're going to be paying down. I hope that makes sense. So if you pay $5,000 less in interest at any given year, that means you have $5,000 more to apply to your principal, which means you got $5,000 less in debt. And that's what I did. It works, and it works good. This week's article is I found on the internet by Dave Ramsey website. And it's budgeting 15 practical budgeting tips. I don't think it was written by him. I'm gonna read it. The eight minute read by Rachael Cruz. The dreaded B word budgeting. Unfortunately, they were budget has gotten a bad rap. And all boils down a budget is basically just a plan for your money. Budgeting means you're spending with a purpose before the month begins. But many people view a budget as a straitjacket though keep them from doing what they want. But that couldn't be further from the truth. A budget doesn't limit your freedom, it gives you freedom. It really all about being intentional with where your money goes. How can budgeting help me a budget it's going to give you an action plan and a clear picture of where your money is ending up each month. Budgeting will help you achieve the goals you're working towards. Whether that's getting out of debt, saving for retirement or just keeping your grocery bill from getting out of hand. When you see planning a budget simply spending your money intentionally you can actually find more freedom to spend. Once something has been budgeted for you'll be able to spend money without feeling guilty. Many people even say They find extra money after they create a realistic budget budget and stick with it. How amazing is that 15 budgeting tips for your daily life ready to get started here are the top 15 budgeting tips. One budget to zero before the month begins. This means before the month even starts, you're making a plan and giving every dollar a name. It's called a zero based budget. Now that doesn't mean you have zero dollars in your bank account. It just means your income minus all your expenses alcoves equals zero to do the budget together. If you're married, sit down once a month and have a family budgeting night. Make it fun. Grab some of your favorite snacks and put a good play list to help you focus you need get on the same page with money. So set goals together and dream about what the future would look like. Remember that till you are one, your bank account should be one two. It's no longer your money. money or my money, it's our money. And if you're single find someone who can act as your accountability partner and help you stick to your goals. Three, every month is different. Some months you have to budget for things like back to school expenses, supplies or routine car maintenance. Other month you'll be saving for things like vacation birthdays and holidays. Regardless of the occasion, make sure you prepare for those expenses and the budget. Don't let those special occasions sneak up on you. Hence Christmas is in December again this year guys. Be sure to adjust your budget each month as things change. Make a savings fun you can stash cash and with throughout the year. When you don't have a plan you're going to be stressed and that takes all the fun of giving and celebrating no one wants that for start with the most important categories first. Giving and saving are at the top of the list and when it comes to The four walls food, shelter, utilities, basic clothing and transportation. Once your true necessities necessities are taken care of, you can fill in the rest of the categories in your budget. Five, pay off your debt. If you have debt paying it off needs to be top priority. Use the snowball method and the baby steps to get rid of debt as fast as you can attack it. Get mad at it. Stop letting debt rob you of everything that helps you win with money your income. Six. Don't be afraid to trim the budget. Brace yourself. It might be time for some budget cuts in your life and things are tight right now. You can save money quickly by canceling your cable dining out less and shopping at discount clothing and grocery stores. Remember your budget cuts are only temporary. You can always make adjustments later on down the road. Road. Seven, make a schedule and stick to it. While you're making a budget part of your monthly routine, why not pick specific dates for other expenses. Set up auto draft out of your checking account to pay bills and buy your groceries on this set a set day every week or twice a month. When you know what to expect and when to expect it you can take a lot of stress and potential potential pitfalls out of the pitcher. Eight track your process. It's important to check your process from time to time if you're married, track your spending and purchases together. So you both keep your goals in sight. Look back at earlier budgets see how far you've come and don't forget to celebrate small wins. Pro Tip one key gutter gory to keep a close eye on is your grocery budget. I bet you're spending significantly less on groceries on a budget. Nine. Create a buffer in your budget. Put a small amount of money aside for unexpected expenses throughout the month later this year miscellaneous category in a budget. That way when common on something comes up, you can cover it without taking away money you've already put somewhere else. Keep track of expenses that frankly end up in this category. Eventually you might even want to promote them to a permanent spot on the budget rest roster. 10 cut up your credit cards. If you're really committed to stick into a budget and getting out of debt you need to debt ditch those credit cards for good stop using them. Cut them up, shred them, or even make a craft project got them whatever you do, get them out your life. Have a no credit card debt with me no minimum payments to add to the budget. Zero hassle was fees are high interest rates and much less stress and worry. Stick to using your debit card and even cash and dump those credit cards like your ninth grade fling. You know that. The great thing about a debit card is the money comes from straight out of your bank account, there's no middleman charging you 15% interest 11. Use cash for certain budget categories that trip you up. If you're constantly overspending on your grocery budget for fun money, cash out those categories and use envelope system to hold you accountable. Just go to the bank and pull out the cash. Amount your budget for that category. Once the cash runs out, stop spending it. It's the ultimate accountability partner 12. Try an online budget tool. If pen and paper or spreadsheet aren't your thing, it's time to join the 21st century and use a budgeting tool like every dollar. You can focus on planning a budget and track your spending from the comfort of your smartphone. Plus, you can sync up your budget with your spouse, which is great for keeping that communication open 13 big content and quit the comparisons. You have much more than you realize don't compare your situation to everyone's else. Comparison when only rob you of your joy Also your paycheck. Keep moving forward and doing what's right for your family. 14 have goals. Whether you're paying off student loans, building up your emergency fund, or paying off your mortgage, you need to focus on your why that's the reason you make any sacrifices. 15 give yourself lots of grace, it usually takes three to four months to get a handle on this whole budgeting thing and it won't be perfect the first time or the second but you'll get there budgeting tip for inconsistent income. Good news guys you can budget was inconsistent or irregular income. A good rule of thumb is to budget based on what the end low earning month would look like for you. This would be your budgeting income. All you need to do is make a list of things you'd put in a normal budget giving savings for wall etc. Then ask yourself if you had a horrible month we only had enough money to do one thing on this list. What would that be? Put a one Next that item, then list your second priority and go on through your budget that way, make an items marking items by importance Be sure to take care of the necessary necessities first. That way, when you do get paid, you know exactly where your money is going. How can I make a budget quickly? One of the quickest ways you can do a budget is by using our free budgeting tool every dollar and map out next budget and as little as 10 minutes, streamline the process and even more using our premium version, every dollar plus which connects to your bank accounts so you never miss another transaction. When you realize the whole purpose of budget isn't limited to your freedom, but gives your freedom you'll be on the road to loving your life in your bank account. That's what we call winning with money about Rachael Cruz. Rachael Cruz is a seasoned communicator. And number one New York Times bestselling author, help them people learn the proper way to handle money and stuff. They all debt. You can follow Rachel on YouTube, Facebook or Rachael cruz.com. A few comments about the article. First of all, I never used and never looked at. And I don't endorse the app that was mentioned in that article, I have know nothing about it, that they have some good things in there. Let's start with the zero base budget. What they're saying is you take your total income, you subtract out everything, you got to pay for the month, a lot, like projecting forward. And that should come to zero. How you get it to zero if you don't spend all your money, well, you put it in your savings account. So in theory, your budget is zero. Now, the reality is you still got money in your checking account. So if you project forward and you transfer what I call discretionary income, into your savings account, and later on in that article, they mentioned a place to stash some cash. Well, that Your savings account. So that's that's how it's comparable to mine. There's some other good tips and things in there. Be content and satisfied with what you got. That is important. You got to keep your spending under control. You don't want to you know, overspend overpay for anything. Just be realistic about life, what you can afford, what you're not what you can't afford. You might want to listen to that a couple times. And it pretty much works very closely to what I have you doing. by projecting forward you know, we categorize everything. We took your debt and we call them accounts, we got that listed out so you know, it's all you got all that done, but I'm not doing it every month. I just do it one time and we're going to project forward. We're gonna keep looking. What's my income this month? Oh, I don't have enough to pay. Everything What can I do? What do I don't pay, so I don't overspend. That's how I do it. Now the idea about the envelope budgeting, and it said in there that if you have some categories or one or two categories where you tend to overspend and they give the example of groceries or fun money, find money would be here entertainment, maybe going out to dinner, going to movies, whatever you do for fun. And you tend to overdo it in those categories. What they say is, okay, set up how much he can want to spend a month, go to bank and take that money out and stick it in an envelope. And then once you use up all the money envelope, you just quit doing that activity. Well, that's good. As long as you didn't short yourself when you initially funded that you budgeted it, like groceries. How did you come up with the money you're going to use you go last five times you want to grocery store added up divided five demos on average. If you did that sometimes you may be a little short. Sometimes you may have some leftover. It didn't say what to do if you got the end of the month and you had money left to now vote. Do you leave it in there? Or do you put it in your savings account? I'd say put it in your savings account and start over. If you come up short, I guess you're gonna have to take some out a savings account, or just cut back your activities. That's the idea. They just want you to cut back on what you're spending money on. There's a lot of good things in there. New episodes are released weekly subscribe so you can follow Mr. Chuck's journey to reduce in debt and financial freedom as you do the same. If you liked this podcast, please share Transcribed by https://otter.ai