THE GOOD LIFE

WELCOME to my first personal finance post! I hope you enjoy it!

Many of you know I enjoy personal finance. I listen to radio shows, read Money magazine on occasion, and enjoy learning about getting out of debt, successfully managing finances and investments and more. I want to share this knowledge with you all because I know it is a big help and a lot of people struggle with debt and financial difficulties.

Please feel free to let me know of any financial topics you would like me to discuss as well and I will cover them in future posts.

Today, I want to talk about budgeting and beginning the process of becoming debt free.

GETTING STARTED

I prefer to call budgets another word as budget sounds too restrictive. A spending plan is better terminology. Don’t be afraid of spending plans. This is simply a document that will help you determine where you want your money to go. This document also acts as an accountability partner to some extent because you will know how much you can spend on any given item. This will also help in keeping your bills from being paid late because you will have already planned their payment in advance. The spending plan can be as simple or as complex as you want them to be. We will talk more about the budget itself though in a second.

The first step in creating a budget is to track your spending for 30 days if you don’t already. Get a check register, computer program or access Crown Financial Ministries (the link is in my Blogroll) to access a PDF document of a check register. Tracking your spending will help in determining two things: how much you spend in a particular category, and how much to a lot in your budget for that category. My guess is that you will find you are spending too much money on eating out during the month and you will want to reduce that expenditure. You can now take your spending data and create a budgeted amount for eating out every week.

It is important to maintain a check register of some sort even after your first month. Many times the amount in your bank account and the amount you actually have will not match due to outstanding checks and pending transactions. I use a computer program called Moneydance which is a one time purchase fee and is always available to you with unlimited updates of the program; no monthly charge. This program allows me to balance my account every month with my statement, track accurate available balances by noting outstanding checks and pending transactions, and also generates a number of reports including net worth, assets, liabilities, cash flow and expenditure totals by category.

THE SPENDING PLAN

Now it is time to begin the process of using your data to create a budget. Excel tends to work nice for this document because you can create simple formulas which will automatically calculate totals and it produces a clean looking document when printed with no formatting issues. As a bonus, you can also color code columns and rows! How exciting is that! First, go through your check register and color code your spending for easy reference, or just add how much you spent in each category. Keep in mind that eating out and groceries are two different categories and should be listed separately on the budget and calculated separately when totaling your months expenditures. Same goes for similar categories.

For a basic budget, list all of your spending categories in column A, along the left side of the page. Across the top, list your paycheck dates and your expected amount for every paycheck. In the body of the document then goes your budget amounts for each category. Keep in mind, you are allocating the amounts that you want to spend on each paycheck. IMPORTANT: WHEN ENTERING YOUR BILL AMOUNTS, BE SURE THAT YOU PLACE THEM ON THE BUDGET AHEAD OF YOUR PAYMENT DUE DATE! This will prevent late or missed payments.

Once your document is completed and is formatted and colored to your liking, print it out and post it in the area that you pay your bills. For most of us this will be near the computer as we all, for the most part, use on line banking and on line bill payment and we use our computers a lot. The budget will always be accessible and in view.

Here are some tips when creating your allocations on the spending plan:

• Round your paycheck amounts down and your expenditures up to the nearest whole dollar. Rounding in this way will create a pillow in case you underestimate an expenditure of have something arise out of the blue. It will also not draw your checking account to a scary balance, risking overdraft fees.
• Set money aside each paycheck for yourself. Give yourself some spending money each paycheck so that you don’t go crazy! This would be in addition to eating out money. Take this money out in cash from your ATM each payday so that once it is gone, you cannot spend anymore of your already allocated funds in the budget.

I also want to mention that a budget is dynamic, never static. You will always want to be changing your amounts, fine tuning your allocations so that you are always making progress.

IMPORTANCE OF SAVINGS: BUILDING WEALTH

Be sure to include savings as a category. Paying yourself first is the only way to become rich and according to a lot of people, is the “secret” to gaining wealth. If you don’t have a savings account, open one. Every paycheck, be sure to allocate something to savings. You also want to be sure not to spend your savings except for emergencies. Let your money sit in your account and earn interest for you. It is free money!Emergencies do not include a new pair of shoes, a new video game or something similar. This emergency savings is set aside for emergency car repairs, unexpected doctor’s bills etc. DO NOT SPEND IT ON ANYTHING OTHER THAN THAT!

FINAL THOUGHTS

I hope that this information was useful and you can begin to start your financial success with a spending plan. This is the most important tool in personal finance and when used correctly, along with a check register or computer program, you will see a reduction in debt and a more stable financial history.

Check out Crown Financial Ministries website for helpful tools, and documents, calculators and more. They even have an excellent daily radio show that you can listen to on line or Podcast it and listen to it when ever you have a chance. Also, I included a link in the Blogroll to an excellent tool providing financial information, news and calculators. You can also search for products such as loans, credit cards, mortgages, auto loans and more and arrange by rates, fees etc. It is called Bankrate.

Let me know if there is a particular topic you would like me to discuss! You can contact me at brent.a.downey@gmail.com! Have a great day everyone!

Brent