Follow the Money.

Transcription

1 Follow the Money One of the simplest but most powerful money making ideas is this: Keep a daily log of everything you spend. Go to the dime store and buy a little notebook. Carry it with you wherever you go. Write down every penny every single penny you spend every day. It s simple, but not always easy in our busy lives. We ve made this process easier for you by developing the Quick & Easy Mony Finder on page 52. There is something incredibly powerful about writing down all your expenditures. It makes the flow of money through your life more real and exact. It shows you simply and clearly just where you are spending your money, and on what. Once you know that, it is easier to choose to continue or change your spending habits. Tracking your spending is the only sure fire way of knowing what you have done with your money. You cannot make successful financial plans for the future without knowing your spending history. There s an App for That! There are also several free apps to track your spending, such as Budget Buddy, My Budget Free, Lumen Trails (free version), and many other money tracking apps are available. Find one that works for you. For more resources, visit the Women s MoneyR Mentoring Portal: (womensmoney.org/myportal) MONEY FINDER SYSTEM: ONE OF THE MOST IMPORTANT STEPS The purpose of this tool is to help track out-of-pocket cash expenses that are often hard to remember. For a total financial picture, these will need to be added to major expenses such as your utilities, debt payments and so on. Keep this in your wallet. Carry this chart with you each day for at least one month (2-3 months is even better). Put the amount spent each day in the appropriate box. Figure your total at the end of the month. To save space, round of whole dollars. Don t get lost in wondering if you should write something down or note. If in doubt, just fill it out. Eventually you will figure out where it should go. We have two money tracking systems: 1. The Quick and Easy Money Finder is less detailed but will still provide a snapshot of your spending habits. 2. The Full Money Finder is detailed and comprehensive to produce the full picture of your spending habits Either system will work, just choose the one that best fits your lifestyle and needs.

2 Quick & Easy Money Finder MON TUES WED THURS FRI SAT SUN GROCERIES GROCERY TOTAL $ $ $ $ $ $ $ SHOPPING SHOPPING- TOTAL $ $ $ $ $ $ $ ENTERTAIN- MENT ENTERTAIN- MENT TOTAL $ $ $ $ $ $ $

3 Solution Steps C.A.S.H. Careful Analysis of Spending Habits Tracking your spending has no meaning unless you analyze the information you have recorded. You can make your analysis as general or as specific as you wish at this point. The important thing is to do something with the information. Analysis: BRAINSTORM: Based on your results,, what steps can you take to modify your spending? List Three Ways you Could Save More Money & How much you Expect to Save. 1. $ 2. $ 3. $

4 Draft # 3, Date My Spending Plan Now that you know a little more about where your money is going, let s dive in a little deeper. Make adjustments below using what you have learned from the money finder to create a new spending plan. My Monthly Budget Estimates 1. Estimate the amount of income and expenses for each category that you will include in your budget. 2. If income and adjustments don t match up, that is okay for now. This is just the next step in your journey to your working budget. My Income $$$ My Fixed Expenses $$$ My Flexible Expenses $$$ Salary and wages Rent/mortgage payment Food at home Self employment income Utilities Food away from home Business income Income taxes (extra payments) Medical expense Bonuses Real estate taxes Clothing Interest Property insurance Dry cleaning Dividends Auto insurance Personal care Rental income Other insurance coverage Child/dependent care Trust income Car payments Personal allowances Family contributions College loan payments Books, magazines, papers, films Gifts Other loan payments Entertainment and recreation Alimony Credit card payments Phones/Internet Child support payments Emergency fund savings Gifts Unemployment benefits Savings for goals #1 Hobbies Disability insurance Savings for goals #2 Charitable giving Earned Income Tax Household maintenance Regular savings deposits Home furnishings Garage sale proceeds On line sale proceeds Other income Transportation expense Children s expenses Children s allowances Education expense Job related expenses Professional memberships Fitness center dues Pets Total Monthly Income $ Total Monthly Fixed $ Total Monthly Flexible $

5 Where Do I W ANT My Money to Go? Build a Better Budget Many people cringe at the very idea of preparing a budget. It could be that they have a negative reaction to the word. The word budget comes from the French word for wallet, a place to keep money. Other terms used in place of budget include spending plan and cash flow plan. A spending plan is a tool for directing and controlling our money. A spending plan helps you: Meet important goals Cover all expenses Live within your means Experience the satisfaction that comes from having your finances under control A spending plan is a plan for how you will use your money. Some people shy away from preparing a written spending plan. They think that having a mental one is sufficient. They also think that developing a spending plan is too time-consuming or involved, so they back off. Let s look at a simple, six-step process for budgeting. You should be able to prepare a monthly spending plan on one page! A calculator will speed the process along. Step 1. Estimate your income. First determine what time period your plan will cover. The planning period may be a month, a year, or any length of time you choose. We will focus on a monthly budget. The easiest way to begin. In figuring income from your earnings, include only your take-home pay or net income. This is different from your gross earnings. Your net income is what you have left after income taxes, Social Security, Medicare, insurance (health, life, disability, etc.), flexible spending plan contributions, retirement savings, and other deductions. Net income is what you have left to spend. Calculate/include other sources of monthly income too, such as: spouse s earnings, income from self- employment or a second job, interest or dividend income, or child support payments. Whether you are paid weekly or every two weeks, your monthly income will need to be calculated from the actual amount of your take-home pay, regardless of how frequently you are paid. Step 2. Estimate your expenses. People who have not tracked their spending find that estimating their expenses is the most difficult aspect of setting up a budget. Tracking your spending gives you a fairly good idea of how you spend your money. If you completed a Statement of Income and Expense for the previous year, you also have an additional source of information to use in estimating your future monthly expenses. Consult your records, such as your check register and your receipts, for more details. Expenses may be classified as either fixed expenses or flexible expenses.

6 Fixed expenses, like rent or mortgage payments and loan repayments, are the same each month. Flexible expenses differ each month. They are flexible because they vary in amount, such as food; or they are discretionary, that is, what you spend for them is at your discretion, in contrast to fixed expenses that must be paid and are usually the same amount each month. Consider your special financial goals to be fixed expenses. When you do this, you are more likely to fund your future financial goals. This is the idea behind the concept pay yourself first. My Monthly Budget Estimates is a tool to help you estimate your expenses and balance your income and expenses. Step 3. Make adjustments to balance your budget. In a perfect world, your budget would balance perfectly on the first try. But this is the real world; so don t worry if your outgo exceeds your income on the first go round. See how you can bring it into balance. Is it realistic for you to increase your income? How? Get another job? Get a raise? Hold a garage sale? Check to see if you are over-withholding your federal income taxes, if so, you may be able to increase your take-home pay by adjusting your exemptions. Are you eligible for the Earned Income Tax Credit (EITC) that could increase your monthly take home pay? If you cannot increase your income, your other choice is to reduce your expenses to bring your budget into balance. Check over each expense category. Are you sure that you are getting the most for your money? Or are you over-paying for things that you could obtain for less? For example: are you sure that your cell phone plan is the best one for the money, or could you find a better plan for less money are you paying for a communications package that offers more Internet, cable, and telephone and texting features than you really need or use? Make the necessary changes to your budget to bring it into balance so that your expenses do not exceed your income. Unless you balance your budget, you will be tempted to use your credit card to finance the difference.

7 Action Planner Date Year My Name My Mentor is: My Meeting Facilitator is: (optional) In the next 30 days I plan to accomplish the following tasks: Choose which activities you want to do Used the Money Finder or some other spending notebook or app to document daily spending. Evaluated what you really spend your money on. Evaluated my C.A.S.H. Listed my 3 Ways To Save and How Much. Discover whether my spending is in line with my values. Revised my Spending Plan (budget) to more accuratly reflect my actual spending and how I wish to adjust my spending. I m Inspired to Take More Action! This is also what I d like to accomplish in the next 30 days. Also enter your 3 Ways to Save Money information in addition to your more ideas.