Personal Finance Basics Part 4: Why Have a Budget

In a previous post titled Personal Finance Basics Part 3: Let’s Do A Budget, I showed you the How of doing a budget. How to identify what categories need to be included, the basic math used and a spreadsheet to start creating your own budget. You can use this spreadsheet, a pencil and paper, or one of several apps for budgeting. Some of the more popular are YNAB, Mint, and Every Dollar.

This post talks about the Why of Budgeting. A budget is just a list of categories with math behind it, but the emotions and decisions that are wrapped up in putting together your first budget can be overwhelming. This post will help you work through your own Why as you wrestle with these concepts.

Budgeting can be a scary word. Many people approach budgets with fear, especially if they don’t have much experience with them. But budgeting does not mean you will have to start scrimping and living like a miser. It just means you understand your finances and have control over them.

It’s stressful not knowing what money is coming in, what’s going out and what our obligations are. No matter how big our checking account is, we can feel stressed.

Budgeting is creating a plan to help you get your finances where you want them to be. A budget is the ideal way to get an understanding of the way you spend, the way you save and then identify ways to improve. A budget also helps define your values. Look at where you spend your money. Does that align with your goals and values? If not, changes can be made.

9 Benefits of Budgeting

(1) Gives You a Framework for Money Conversations:

There was a time in my marriage when money conversations almost always fell off the cliff into the abyss of arguing, pain, and indecision. We couldn’t agree and the conversations led us nowhere. I talk about this in the post Being on the Same Page With Your Spouse.

If you’re married, don’t start the conversation by talking about money. Start by talking about your WHY. Talk about your wants, dreams, and goals. Why are you saving , why would you care about how much you’re spending? Will it relieve stress in you life and your relationship? Will it allow you to go on that vacations you’ve been dreaming of? What’s your WHY?

After you’ve had a few of these conversations, THEN you can talk about money. Working on your budget together can become the basis for many interesting and productive money conversations. Make the decisions together. Compromise together. No matter where you are starting…have patience with each other.

(2) Provides Control Over Your Money:

You have total control over where you spend your money. If you choose to spend money on A, then you may not have as much for B. If you want a latte three times a week, put it in the budget. If getting a babysitter once a month is important, put it in the budget. If there’s not room for those discretionary items, cut back somewhere else.

What if there’s not room for any of those things? If your finances are a dumpster fire, cut everything you can! Just remember, it won’t be like this forever. There was a time when I told my kids, “If you can’t eat it, we’re not buying it.” These times were not pleasant, but they were temporary. We dug ourselves out and you can, too!

(3) Let’s You Track Your Financial Goals – Saving, Long-Term Spending, and The Emergency Fund:

A budget will not only help you plan for this week and this month, but it will also help you with long-term goals. Do you want to take a big vacation in five years? Will you need a roof or major car repair next year? Do you need to beef up your Emergency Fund? A budget can help you find and accumulate cash for these kinds of issues.

(4) Budgeting Will Open Your Eyes. It Helps Shed Light on Bad Spending Habits:

Do you get to the end of the month and think, “Where did all my paycheck go?!” Does it feels like it disappeared? Once you really start looking at your spending, you will be able to identify where it’s going.

You may have large medical bills that you just have to gut through till they’re paid. Or you may find that you’ve got some bad spending habits that need to be reigned in, like going to the drive-thru too often or all those Amazon boxes! How about bank fees? If you are paying the bank for overdraft fees, this needs to stop now!

(5) Helps Create a Cushion for Unexpected Expenses – Emergency Fund:

Do you have an emergency fund? If not, you need to start working on that today. We all have emergencies! No one is exempt. For some people, a flat tire or car repair is a real emergency. An illness or a broken heater can be financially devastating.

The lack of an emergency fund is what caused most of mine and Stephen’s financial hardships earlier in life. “Stuff” happened and we had no safety net.

Could you cover a $500 emergency without going into debt? $1000? $5000? How about a job layoff? You need 3-6 months of living expenses in an emergency fund. This needs to be kept in an easily accessible place. But not too easy. A savings account or money market fund will do nicely for now. Remember, this is not a new couch fund!

(6) Helps Identify Money for Paying Down Debt:

If you are paying down debt like credit card or student loan debt, a budget will help you identify cash you can send toward that debt. Any extra cash you can use to pay down debt will get rid of it sooner and save you money in interest payments. If you’re having trouble making your minimum payments…see dumpster fire above!

(7) Helps Identify Money for Investing:

If your Emergency Fund is in place and you are paying on your debt, you may be able to identify some extra cash to start investing. If you can identify money to invest, I would start with your employer’s 401k and get the match. I will talk more about investing in a future blog post, but for now, do everything you can to get your employer’s match if you have one. Don’t turn down free money!

(8) Helps Ensure You Don’t Spend Money You Don’t Have:

You may be in a place where you are spending more money than you make. Stephen and I did that for a while when he had no income. It felt terrible! We were living on credit cards and digging a bigger hole with our debt every day. Again, this is a dumpster fire. You may not realize you are doing this. One reason would be because this is “normal” in our culture. A budget can help you identify the problem when more money is going out than coming in.

(9) Helps Keep Your Eyes on the Prize (Motivation):

After Stephen and I put out our dumpster fire and got on track with a budget, it helped to keep us motivated. If you’re paying down debt or just starting to invest, the numbers don’t seem to change very quickly. It takes some time to get traction. The budget helped us to “Keep Our Eyes on the Prize!”

Assignment 1 – Evaluate your budget WHY. Where do you find yourself with your money right now? Are you in a dumpster fire or are you ready to start investing?

Assignment 2 – If you haven’t done a budget yet, start working on you first draft. There is a spreadsheet template in Personal Finance Basics Part 3: Let’s Do A Budget.

Key Takeaway – A budget is the ideal way to get an understanding of the way you spend, the way you save, and then identify ways to improve. A budget also helps define your values. Look at where you spend your money. Does that align with your goals and values?

What I’ve learned through my self-quarantine

I’m sure, by now, we have all learned some new things about ourselves, our spouses, our families and even our pets! This time of quarantine has presented us with challenges and opportunities. Here are a few of mine.

What I’ve Learned in Quarantine

I should have had more money in Bucket 1 or the Cash Bucket. Stephen and I use the Bucket System for allocating our investments. Bucket 1 is cash and cash equivalents, Bucket 2 is Bonds and Bucket 3 is our Total Stock Market Index Fund. Bucket 1 should contain 2-3 years worth of money. Bucket 2 should contain 3-5 years and Bucket 3, the balance of our investments. The market had done so well over the last few years that we got greedy and kept a larger percentage in equities than our plan laid out. When the pandemic hit and the market fell, we found ourselves wishing there was more cash in the cash bucket. We will be fine, but a bigger cash cushion would have been comforting.

Be flexible. One thing Stephen and I always built into our budget plan was flexibility. We have set our budget in 3 phases. Phase 1 is the normal budget with all the bells and whistles. This includes our two biggest spending categories – our race car hobby and travel. Phase 2 would be normal budget without those two big categories. Phase 3 is what we call Skinny Budget, or cutting down all non-essential spending. Interestingly, most of us are probably operating in skinny budget right now. We can’t travel, can’t spend money on entertainment and we’re cooking at home. One thing I hope most of us have learned is that life goes on without all the frills. When life throws you a curve that affects your money, remember it’s probably temporary and you can cut back drastically if you need to.

I was going to use some of my cash to buy more equities, but now… no! When the market first started to tumble a couple of months ago, I reacted like a lot of others in the FI community: “It’s on sale and I should buy more.” As the reality of the virus and our US stock market started to sink in, I realized that this might not be the time to buy…for me. I am not in the wealth accumulation stage anymore, I’m in drawdown. Since I’m not investing new money, it was not a time for me to take my cash (Bucket 1) and invest even though the funds were “on sale.” For others, buying more stocks is a viable option, just not for me.

Now may be a good time to do your ROTH conversion. If you are in a position to do a ROTH conversion, now might be a good time. You can move more shares than before because of the lower per share price. We have moved about two-thirds of our planned 2020 conversion from a Traditional IRA to a ROTH IRA, and will re-evaluate later in the year for the other one-third. (Originally, I had added doing RMD’s to this paragraph, but I believe the IRS has suspended RMD’s for 2020.)

Look at rebalancing your allocations. Most of us probably re-balance our allocations at least once a year. Look at you current allocation. It may be a good time to do your re-balancing. I would also suggest keeping an eye on it for the rest of the year. 2020 may be the year of multiple re-balances.

I’m so thankful I don’t have a mortgage. There is a lot of debate on whether to pay off your mortgage early or invest. This discussion is as charged as the debt snowball vs debt avalanche debate. The right answer is always what’s right for you. For me personally, I’m so glad I don’t have mortgage payments right now. I’ve heard someone say that no matter what side of the mortgage payoff/invest debate you’re on, think about paying off that mortgage before you enter retirement. I agree!! Right now, my only required expenses are food, utilities and insurances. If I still had a mortgage, my expenses would be double.

Be the voice of calm and reason to your friends and family. We will get through this. Not everyone is in the same place emotionally or financially. Some are doing fine, and some have lost loved ones and/or jobs. For the most part, there are tons of “silver linings” that have come out of this quarantine. Be the calming and comforting voice in the ear of your family and friends.

Here are a few tips on ways to use your quarantine time.

Spend time with God. Spend some time to deepen your relationship with your Lord. Pray, meditate on scripture, listen to praise and worship music. Time with your Father is never wasted.

Temper feeling the need to homeschool your kids with just letting them read, play boardgames, play basketball and walk the dog. Every school district is handling the homeschool issue differently. Don’t stress yourself or your kids. Do your best and they will be fine when school starts next fall. The best thing they can do is READ.

If you have older kids, teach them a life skill. Teach them to cook, sew, change the oil, check the air pressure, balance a checkbook, use basic tools or properly clean the house. This is a great opportunity for enhancing life skills.

There are tons of free resources that have been recently added to the internet. Many organizations, like Scholastic, are offering their resources for free. The guys at ChooseFI (choosefi.com) have added several new resources to their website. They can be found on the home page. There is a section called Financial Resilience with tools for this time of quarantine, the Accidental Homeschooler, the K-12 curriculum for financial literacy and the FI 101 online class for adult financial literacy. These resources are all FREE.

Have your kids keep a journal (written, computer, video) of what is happening and their experiences and feelings. We are living in what will be an unprecedented history.

Have you lost your job or afraid you may lose it in the near future? Don’t be too proud to go get another job temporarily. Some businesses like the grocery stores or shipping warehouses are hiring.

Stay in touch with family and friends. Keep the connection with people even though we can’t be together physically. Stephen and I have made a list of people to stay in contact with, and we’ve been surprised by the reaction we get when we call “just to check in.” Even those of us who are introverts needs human contact. God did not create us to be autonomous.

Develop a new skill. This is a great time to develop a new skill or hobby. Especially if you have lost your job or think you might. A new marketable skill could be advantageous in the next few months.

Create your family emergency binder/legacy box. All of us need a set of legal documents like a will, medical directive to physicians and power of attorney. Another set of documents we all need is a family emergency binder or legacy box. This would contain instructions for family members in case of an emergency where you temporarily could not make decisions for yourself, or in case of your death. This is one of the most loving things you can do for your family. Don’t leave those who will come behind you guessing about what you want and where all the documents are. Various versions of this can be found online for a small cost.

Flex your generosity muscle. If you have the resources, give to your local food bank, church’s needs fund, pet shelter, or the local charity of your choice. Get take-out food and give a big tip. Offer to pick up your neighbor’s groceries. Find ways to be extravagantly generous!

This is not an exhaustive list. Please add anything you have discovered in the comments.

Stay safe and healthy! Let’s pray for each other, and we will get through this together!

For everything there is a season, and a time for every matter under heaven:

a time to be born, and a time to die; a time to plant, and a time to pluck up what is planted; a time to kill, and a time to heal; a time to break down, and a time to build up; a time to weep, and a time to laugh; a time to mourn, and a time to dance; a time to cast away stones, and a time to gather stones together; a time to embrace, and a time to refrain from embracing; a time to seek, and a time to lose; a time to keep and a time to cast away; a time to tear, and a time to sew; a time to keep silence and a time to speak; a time to love and a time to hate; a time for war, and a time for peace.

He has made everything beautiful in its time. Also, he has put eternity into man’s heart, yet so that he cannot find out what God has done from the beginning to the end.

Ecclesiastes 3:1-8, 11

Our World Has Turned Upside Down!

Our world has forever changed. This is my opinion, but I think it’s a safe assumption. Our lives are literally upside-down. What used to be unacceptable is now acceptable and vice versa. We can’t go anywhere we want. We can’t find TP at the grocery store. We can’t discern when this market free-fall will stop. But what we CAN do, at least here in the state I live in, is order alcohol to be delivered with your take out food!

Our world is a little crazy, but it doesn’t have to be scary. This post is a collection of random thoughts I’ve had about our “new world” of COVID-19.

Random Thoughts on Our Financial Situation

Since this is a personal finance blog, here are some thoughts about how this is affecting our money.

We have seen a lot of stock market volatility. I mean, it’s a roller coaster and it tends to take our emotions with it. We are now in a Bear Market territory (more than a 20% loss). After years of the Bull, we have all been lulled into thinking that things will always be great. They won’t. In fact, downturns normally come every 5-10 years. In the possible 25 or so years left in my investment horizon (my mom is 98, so who knows how long I’ll live) I could see 5 significant market downturns. It’s part of life. It stinks, but we’re all in the same boat. And, if you are positioned correctly, it can be used to your advantage.

There are some great resources on this subject of market volatility. One is J. L. Collins’ book, “The Simple Path to Wealth.” In this book, Jim explains market volatility and how to calmly ride it out. Also, one of my favorite bloggers, Fritz Gilbert at The Retirement Manifesto has written a post about our current Bear Market. He explains how this Bear can be used to your advantage. Check it out: “The Benefits of a Bear Market”

The market always recovers. It looks like you’ve lost a LOT of money. Remember, you haven’t “lost” all that money if you don’t sell. Please don’t panic sell and lock in your losses. There are numerous posts and articles about buying when the market is down. Stocks are basically on sale. This can be an advantage if you have the resources to do that. If not, just sit tight.

Do you have a financial game plan? If you don’t have a financial game plan, you need one. Just like every NFL coach, you need to have a plan before the game begins. These are best done before a crisis when you’re not panicked or fearful. Given our circumstances you do need to have a plan for the next few weeks. Then when our lives go back to normal, you should get serious about a long-term plan for your money. One bright side to these shaky times is we’re getting a great education on what to do for our future.

If you already have a financial game plan, has this market downturn changed your personal risk tolerance? If so, it may be time to reevaluate and tweak your plan.

Some of us have prepared well, some of us were living paycheck-to-paycheck and as a result, life is scary. If you are prepared, think of ways to use your resources to help someone else who may have lost a job or is struggling. If you are in the paycheck-to-paycheck group, this has probably caught you off guard and you’re not sure what to do. It’s time to make some hard choices.

Your first priority is the essentials: Food, shelter, utilities and transportation. We’re mostly staying in, so expenses will probably be lower without much effort. You may need to cut everything down to the essentials. Remember, this won’t last forever.

If you have lost your job, don’t let your pride or your fear keep you frozen. Some industries are suffering and others need workers. Check with the grocery stores. They are hiring in my area. They need stockers and delivery drivers. Also, other retail, like pharmacies, may need drivers. Check with Amazon or any large distribution warehouse. They may not be glamorous jobs, but it could be a paycheck for a while.

Do you have an emergency fund? If not, this may have opened your eyes to the need for one. A lack of an EF is one of the things that took Stephen and I down financially in our dark days. My upcoming post of Why You Need a Budget talks more about an EF. It is like an insurance policy against life’s “Oh, $#@&”.

Are you sitting on more debt than you’re comfortable with now? This may be another life lesson to come out of our current circumstances. Debt elimination may need to rise to the top of the priority list. Interest rates have just been lowered. This means you can possibly refinance a car, mortgage, or student loan. You’ve got time on your hands and it could be worth real dollars, so check it out!

It may be smart to cut back on your spending temporarily. We’re kinda being forced to do that. Since we are self-quarantining, we are cooking more at home and not going out for any kind of entertainment. Also, some of our events have been cancelled. It all helps reduce the strain on our budget for a while.

Look after your older neighbors, help out where you can. If you’re in a position to do so, tip big on your take-out order. Think of creative ways you can help your neighbors while still practicing social distancing. Check on older or more vulnerable neighbors who don’t need to be getting out. If you know anyone in Assisted Living/Nursing Home/Hospice, call them. This isolation will leave lasting scars on a person who may already feel forgotten. If you have the resources, give to your local church’s needs fund. They will be ministering to out-of-work congregants. Also, give extra if you can to the general fund. Some churches are already seeing a 30-40% drop in giving.

Stay home as much as possible. This will not only help the general population, but it will help our local small business owners and our over-stressed healthcare workers by helping to end this ASAP. Staying home is what we can all do now. Between the day I started writing this post and the day I have published it, most large cities have instituted a Shelter In Place order. Please stay home unless it’s an emergency or to go to the grocery store.

Hard Choices, Easy Life. Easy Choices, Hard Life.

Jerzy Gregorek

My next post will have a few thoughts on what I have personally learned during this market downturn. See you soon!

The Cards We’ve Been Dealt

(Saturday March 21, 2020. This post was written almost a week ago and many thing have changed in the last week. I will be writing another post soon about what our world and our lives look like now. This is already somewhat out of date, but the sentiment is still valid.)

This post is a combination of a couple of Facebook posts I have written recently concerning the state of our world right now…or The Cards We’ve Been Dealt. I apologize if this is a repeat of something you’ve already seen.

There won’t be a lot of financial stuff in this post. From time to time, I will write about things affecting more than just our money. Although, what is going on around us is definitely affecting our money.

A Little Preview of the Next Post

Before I get into this, let me assure you I will get back to writing about money. It’s been a while since I posted, and I’ll tell you right up front, you will not see my posts coming through on a consistent basis. Us bloggers are supposed to post every week or 2 weeks at the most. That’s just not happening in my life! Retirement, hobbies and my family obligations just don’t give me a nice, smooth predictable schedule. And that’s OK.

My last post was about budgeting and included a sample budget spreadsheet. The next post will be about the WHY of doing a budget and then one on some of the HOW’s of doing a budget.

Now Let’s Get Back to Those Cards We Were Dealt

I’m writing this post on Sunday, March 15, 2020. I was supposed to sing as part of the worship team this morning, but didn’t because I have a cold. The video at the bottom of this post is one of the songs I was practicing this week. It speaks of our Jesus who walk on water, speaks to the seas and stands in the fire beside us.

In the last few weeks, our world has turned upside down. I believe we have seen more changes to our lives (due to COVID-19) in a shorter period of time than in all of history. The effects of this disease fall across a wide spectrum. At one end, devastating loss of loved ones. The other end is personal inconvenience. We don’t know how long these inconveniences will last. We don’t know if one of our own loved oneswill be affected tomorrow. We DO know that nothing can separate us from the love of GOD if we are in Christ Jesus.

Even if you are not a Christ follower, there is one thing you cannot ignore. These things have been predicted. I have a good friend who teaches a class on how the Bible has, with 100% accuracy predicted the future. The Bible talks about the increase in frequency of wars, natural disasters and pestilence. This is not the first disease crisis our world has faced and it won’t be the last. It’s just the one we have to deal with TODAY.

Praying For Each Other

Sunday, March 15 has been set aside as a day of prayer. ( added March 21 – We should be in constant prayer for our families and our world) We all need peace and wisdom in these trying times. I want my Facebook and Website family (some of whom I’ve never met face to face) to know I’ve got your back. I am and will continue to pray for you, for your safety, your wisdom and your peace. I hope all of you who are part of this family will be doing the same. We need each other, even if we have to be socially distant.

Next to the last thought

Watch the video below. The producers asked people to send in their praises and their prayer requests. Some of these are highlighted in a video behind Chris as he sings. You can hear the audio on some, but not all. For most, you don’t need to. It reminded me that my inconveniences are NOTHING compared to what others are facing. The one that hit me the hardest was the young boy, probably about 4 or 5, who is battling brain cancer….FOR THE 3RD TIME! We all need to keep our lives in perspective and be in a constant attitude of gratitude and not fear.

Last thought

As of this weekend, most, if not all, nursing homes and assisted livings are on lock-down. This means no outside visitors. The facility my mom is in has also started a general quarantine of all residents. This means they cannot leave their rooms. So, no activities, no contact with other residents and their meals are being brought to their rooms. This kind of isolation can be devastating. If you know ANYONE who is in a facility, please be diligent to call them…often. Most of our elderly already feel forgotten. This won’t help. And if you have an elderly neighbor who probably shouldn’t be driving anyway, offer your help. Some of our neighbors don’t need to be getting out in their cars every day to go to the store in hopes of finding toilet paper and milk.

Started At 50 Made the Cut! A Review from Wealthtender

A few times a year, Wealthtender publishes a list highlighting Finance Blog Startups to Watch. The 2019 list is out and Started At 50 has been included as one of the Startup Finance Blogs to Watch – Class of 2019!

According to Wealthtender, “With more than 2,000 personal finance blogs in the U.S. alone, it can be difficult for newer blogs to stand out and their creators to get noticed.”

“But with millions of people looking for help with money matters on the internet everyday, new finance blogs sharing the diverse perspectives and unique life experiences of their founders play an important role extending the reach and impact delivered by the personal finance community.”

“Wealthtender is committed to raising awareness of up and coming finance blogs and celebrating the success of their owners as they grow through the startup stage to reach new milestones and help more people achieve their financial goals.”

21 Personal Finance Blogs that have been launched in the last year are highlighted. The focus audience of these blogs has a wide range – women, educators, government workers, physicians and married couples to name a few. And, of course, all 21 are focused on Personal Finance skills and education.

I want to share the article found on Wealthtender’s website, Finance Blog Startups to Watch. Check out some of these new startups. You may find something new and interesting for your FI journey.

I am honored and humbled to be recognized in this way. The trajectory my website has taken is not something I could have accomplished on my own. The support of my many friends and readers and the grace and strength of my Heavenly Father has catapulted me far beyond what I had planned. Thank you!

Personal Finance Basics Part 3: Let’s Do a Budget

Do you get to the end of the month and say, “Where did all my money go!”? Are you living paycheck-to-paycheck. If you are, you’re not alone. Around 70% of Americans live paycheck-to-paycheck. I did for a long time. In fact, I not only didn’t save anything, but I didn’t have an emergency fund. I was one emergency away from disaster financially. And then disaster hit! That’s when my husband and I sank into the darkest days of our marriage. I never want to be there again. And, I don’t want you to be there, either! I’d like to help you get out of that pit or never fall into it.

Is the “B” word a dirty word for you?!

This post is going to show you how to do a budget. I know, the “B” word is a dirty word for some folks. Like the assignment to add up all your debt in the post How Do I Get a Handle on My Money, putting together your budget will take some time and effort. It may bring some heartache and frustration. It’s like starting to exercise. It’s not pleasant at first, but it will be worth it if you stick to it!

How do you start?

The first step to putting together your own Monthly Budget is to look at your monthly inflows and outflows of money or your Monthly Income and Monthly Expenses.

Gather Your Income Data

First, you will need to gather all your monthly income sources. This will be your monthly paycheck (take home) and any other income source you have, such as side jobs, dividends or even alimony.

Gather Your Expense Data

Next let’s look at your expenses. This will take some time, so be patient with yourself! Write down everything you spend throughout the month. There will be lots of categories.

As with the Net Worth Statement, you can track these categories and their corresponding numbers with pencil and paper, or I have created a Monthly Budget Spreadsheet. The spreadsheet has columns for 6 months, and you can expand that as needed. You may want to change the headings from Month 1 to Jan 2020 and so on. The picture of the spreadsheet can be found below, and the link to the actual sheet is below that. Again, the spreadsheet is protected and you will need to make your own copy.

Giving and Savings First

Let’s look at those expense categories. For me and my family, Tithing/Giving is always at the top of the list. We believe in the Biblical principle of “first fruits” giving. This just means we give first and budget what’s left. For us, right behind giving is saving. Have you heard the term “Pay Yourself First”? This is a basic concept in saving for the future. (unfortunately, one I did not do for a long time!) Again, it is the idea of do your saving first and live on the rest. Or Pay Yourself First and then pay everyone else!

You may not be Tithing/Giving and Saving yet. Don’t worry. Both of these concepts are VERY important, but they can be addressed when you have a clear picture of where you’re money is going every month. Saving and Giving are like a muscle…they can be developed with exercise.

Other Expense Categories

Next, let’s look at the other categories. Start with the big ones like mortgage/rent payments, food and car expenses. You will also need categories like insurance payments, cell phone, utilities, cable and internet. Anything that you pay monthly needs to go on this list. And don’t forget those pesky subscriptions. Netflix, Pandora or anything that is automatically paid on your credit card.

The next step is to add categories for things that happen seldom or once a year like birthday and Christmas presents. How about printer cartridges and school pictures. There’s also car repairs, vacation and property taxes. These are not spent monthly, but they need to be considered. Take some time to think about how much money you normally spend in these types of categories in a year’s time, divide it by 12 and add that amount to your list of expenses.

Let’s Do the Math

At this point, if you’re doing this on paper, add up all your Monthly Expenses and then subtract that from the Total Monthly Income. If you’re using the spreadsheet it will do the math for you.

Look at the number at the bottom or Total Monthly Income minus Total Monthly Expenses. Is that number positive or negative? Are the Expenses greater than the Income or are they less? If they are less, great! The difference between Income and Expenses can be called the Gap, and we will talk in a future post about how to grow that gap. This is what will allow you to save for the future.

Are your Expenses greater than the Income (or the number at the bottom is negative)? This is what some would call a “Dumpster Fire”! This requires some immediate action. Look at your expenses and see what you can trim TODAY! See where you can cut in order to get the bottom number to zero.

Having Zero at the Bottom

Speaking of the bottom number being zero, my instructions on the Monthly Budget Spreadsheet say the bottom line number should equal zero. The reason for this is if you have trimmed your spending down to be less than your Income, there is excess or what I called earlier, the Gap. This Gap is where you can start saving! If you have a Gap now, great! This amount can go in the Saving Category at the top of the list of Monthly Expenses. This should bring your bottom line to zero. This method of budgeting is called a “Zero-Based Budget”

Give Yourself A Break!

This is NOT an easy task if you’ve never done a budget. In fact, it takes most people about 3 months to get the hang of it. You’ll forget categories, you’ll over or under estimate what you spend. One month will have a minor disaster that has to be handled. It’s OK. Give yourself a break. Just DON’T GIVE UP!

What Does Your Spending Say?

Now that you have done your first Budget, what do you see in it about yourself. Remember the “10 Things That Make Me Happy” list? How does your spending align with what makes you happy? Or stated another way…How does your spending align with your priorities and what you value? There may need to be some changes made to your spending to align it with your values.

Wrapping It Up

If you’ve never done a budget or it’s been a while, spend some time this week gathering your data. Use that data to create a current budget for yourself and your family and then see what it’s telling you. Let it guide you to evaluate what areas of your life might need some tweaks. Don’t be overwhelmed by thinking LOTS of major changed have to happen all at once. There’s a phrase coined by Brad and Jonathan at ChooseFI. It’s called the “aggregation of marginal gains”. That means if you continue to stack small changes, eventually you’ve made Big changes. Think about what small changes can be made over the next 7-10 days.

What Does God Say?

But he who listens to me (wisdom) shall live securely, and shall be at ease from the dread of evil

Proverbs 1:33

Looking Ahead

In the next post, I’ll talk about why do a budget and some tips on how to use it.

Monthly Budget Spreadsheet

Link To Monthly Budget Spreadsheet

Assigmnent and Key Takeaway

Assignment – Download the Monthly Budget Spreadsheet (or get a pencil and paper). Gather all your income and expense numbers and fill in all the categories with YOUR numbers. Add or delete categories as needed.

Assignment 1 – Evaluate the bottom line. Is it positive? Great! Is it negative? See what you can change today to bring that back to zero.

Assignment 2 – What can you improve over the next 7-10 days to help your GAP.

Key Takeaway – Evaluate your budget in light of your “10 Things That Make Me Happy” list. Your spending should reflect your values and priorities. If it doesn’t, what needs to change to bring those into alignment?

Personal Finance Basics Part 2: Figuring Out Where You Are Right Now

Thanks for hanging in there with me on my short absence. My mom is doing better and things have stabilized for now.

This post will be a continuation of the previous post titled Personal Finance Basics Part 1 – How Do I Get a Handle On My Money. In this previous post I talked about what FI means, how to calculate your FI number and then gave you 2 assignments.

  1. Add up all you debt (I mean ALL of it)
  2. Make a list of the 10 things that make you happy

If you haven’t done these 2 things yet, stop here and do them now.

Your “10 Things” List

Were there any surprises on your “10 Things” list? Did you have a hard time making the list to begin with? You may not think you deserve to be happy or that happiness is just not within your reach. I want to tell you that these ideas are false. You can be happy.

I’m using the term happy, but really, this is joy…joy in the Lord. I’ll write about that in a future post. God gives us all we have and His desire is for you to experience joy.

May the God of hope fill you with all joy and peace in believing, so that by the power of the Holy Spirit you may abound in hope.

Romans 15:13

And, the idea that happiness is not within your reach is also false. In the next few months, we will work through all the steps you’ll need to get your finances on track and be able to tackle that “10 Things” list!

So, how about surprises on your list. You might have discovered some interesting things about yourself or your spouse. One concept that may have appeared is, not everything on your list requires money or at least not large amounts of money. You may have discovered you can be content and intentional with life and relationships and sometimes, that doesn’t cost anything!

Your Net Worth

Now, let’s put that debt number to work. We’re going to create a Net Worth Statement. This is a simple statement that lists all your Assets and Liabilities. Assets are what you Own and Liabilities are what you Owe. The difference between the Total Assets and Total Liabilities is Net Worth.

Why do a Net Worth Statement

A Net Worth Statement gives you a snapshot of your financial position. This information is useful in creating a financial plan or understanding more about your financial health. I know many people who don’t know how much they owe on their mortgage, how much they have in savings or even where some of their assets are. Don’t be one of those! Be informed about your finances.

How to Create a Net Worth Statement

A Net Worth Statement is easy to create. This can be done with a blank sheet of paper and a pencil or with a spreadsheet. If you are doing this on paper, simply draw a line down the middle of the page, title one column Assets and the other column Liabilities. List everything you own in the Asset column and everything you owe on the Liability column.

You’ll need to gather information about what you own, such as the value of your house and cars, similar to how you gathered all your debts earlier. I had you start with the debts or what you owe first because those are usually more time consuming and it’s a more emotional exercise.

If you are a spreadsheet person, you can create your statement with a spreadsheet similar to the one below. I have created a sample spreadsheet that will give you an idea of the categories you might need. Even if you are creating this on paper, look at the categories for ideas of the kinds of numbers you’ll need to gather.

There are many Net Worth spreadsheets available online. You can use this one or find another that fits your style better. Remember, one size does not fit all!

Plug in all your numbers or list them on your paper. When you are finished, add up the Asset column and then add up the Liability column. Take the Total Liabilities and subtract them from the Total Assets. (or let the spreadsheet do the math for you).

Is your Net Worth number positive or negative. If positive, this is your Total Net Worth today. If the number is negative, we’ve got some work to do!

This is my Sample Net Worth Statement Spreadsheet. If you would like to use mine, click the link below the picture of the spreadsheet, save a new copy for yourself and you are ready to go.

Assignment and Key Takeaway

Assignment – Gather all your financial data and create you very first Net Worth Statement. If you already have one, make sure it’s up to date.

Takeaway – Be informed about your finances. Don’t depend on someone else to protect and track your money.

Looking Ahead

In Part 3, we will learn how to do a Monthly Budget

Life Happens

This is just a short note to let everyone know I’ve had a family issue come up and it will be some time before I post again.

I am solely responsible for my 98 year old mom. She lives back in Texas and, as you can image, her health is a challenge at times. She’s actually doing great for a 98 year old, but as my nurse friend said, at this point there’s no cushion. That is true for their physical state as well as their mental state.

She is recovering and I hope to be back home in a few days. Right now we are navigating what the “new normal” is. I appreciate your prayers and the support I’ve already felt from my FB family.

I’m sure I’m not the only one here with aging parents. In fact, the blog post I was working on when this happened last week was about our aging family and our own aging. I guess the Lord gave me some new material! These are topics that a lot of us are dealing with and, hopefully, we can all learn from each other.

Thanks for your patience and I’ll be back soon.

God is our refuge and strength, a very present help in trouble. Therefore, we will not fear though the earth gives way, though the mountains be moved into the heart of the sea, though its waters roar and foam, though the mountains tremble at its swelling.

There is a river whose streams make glad the city of God, the holy habitation of the Most High. God is in the midst of her; she will not be moved; God will help her when morning dawns. The nations rage, the kingdoms totter; he utters his voice, the earth melts. The Lord of hosts is with us, the God of Jacob is our fortress.

Come, behold the works of the Lord, how he has brought desolations on the earth. He makes war cease to the end of the earth; he breaks the bow and shatters the spear; he burns the chariots with fire. “Be still, and know that I am God. I will be exalted among the nations, I will be exalted in the earth!” The Lord of hosts is with us, the God of Jacob is our fortress.

Psalm 46

Being on the Same Page With Your Spouse

Have you wondered, “Will my spouse and I ever agree about money?! Can we possibly work together to create the life we want or will we always be at odds?” The bad news is…money issues are the primary reason for divorce in America. Good news…there’s hope.

I can’t stress enough how important it is to be on the same page with your spouse financially. When you’re not, it’s like being in the same boat, but rowing in opposite directions. You’re together, but you spend a lot of energy and go nowhere.

One of the reasons Stephen and I spent so many years drifting in our finances is because We Didn’t Pay Attention. I kept thinking it would somehow magically all work out. What actually happened was, the more difficult our situation got, the more not being united was a problem. We needed to make some hard decisions and we couldn’t agree.

Getting on the same page with your spouse is possible. Not easy, but possible. Stephen and I struggled with not agreeing on spending, saving or even how to do Christmas! There were many reasons for our divergent ideas.

  • Background – Everyone grows up with different money experiences in their childhood.
  • Personality – Are you a natural spender or a natural saver. There are lots of times when a spender is married to a saver. (That’s not all bad, by the way)
  • Gender Differences – Men look at money as a measure of achievement or a “scorecoard”. Women look at money as part of their security system. When it is not stable, fear can set in. (I experience this!)
  • Divergent Goals – Each partner may have a different idea of what’s important to them.
  • Lack of Goals – You may not have even thought about goals or what you’d like your future to look like.

All of these issues can be overcome.

Money Represents Your Values

Your money and the way you handle it represents your family’s value system. You may not have thought much about that, but now is a great time to start.

For where your treasure is, there will your heart be also.

Matthew 6:21

Dream With Your Spouse

Get a cup of coffee, sit on the deck or take a walk in the park and have a conversation. Just dream. Talk about your dreams and your desires for your future. What do YOU want it to look like? What does YOUR SPOUSE want it to look like? Share your desires for your future with each other. Write them down to reference later. If you made your List of 10 Things That Make Me Happy from the previous post Personal Finance Basics Part 1 – How Do I Get a Handle On My Money?!?, now is a good time to pull that out.

While you’re having this conversation, REALLY LISTEN to your spouse. What do you hear from them that maybe you weren’t aware of? What pain might you be hearing from their childhood? Many of the items I shared above may surface during this conversation. The differences in your upbringing, differences is personality or goals. Have grace and patience with each other. Remember, the end-game is to walk into your future together, hand-in-hand.

I entreat you to walk in a manner worthy of the calling with which you have been called, with all humility and gentleness, with patience, showing forbearance to one another in love, being diligent to preserve the unity of the Spirit in the bond of peace.

Ephesians 4:1-3

Budgeting With Your Spouse

Working on the budget is where the rubber meets the road. If you don’t have a budget yet, you’ll need to start working on one. (If you don’t know where to start with a budget, I’ll be talking about that in a future post) If you have one prepared or you’ve been using a budget for a while, it may be time to revisit and revise.

Usually one partner is a money person or a spreadsheet nerd. Most times the other is not. The one with the talent and penchant for spreadsheets can prepare the preliminary budget, but BOTH partners need to make the final decisions. This will require some give and take. Some negotiation over categories and amounts, but in the end you should be able to determine a budget that reflects your goals and your values.

The flow of money in a household represents the value system under which that household operates.

The Board Meeting

One way Stephen and I softened the harshness of talking money was to schedule “Board Meetings”. Arrange a time and place where you can be away from the kids and other distractions to talk money. We would often have our Board Meetings at our favorite “hole in the wall” Mexican food restaurant. If spending money for this is not in the budget, go to the park or someplace that is meaningful to you.

Being outside of your normal surroundings and away from distractions and things that remind you of stress can sometimes make these conversations easier. Have these Board Meetings as often as you need. Later on, they will become a habit you look forward to.

Side Note: We found this was also a good way to have a “calendar meeting”. Coordinating schedules can also eliminate stress on your emotions and your budget. If you know that 3 nights next week you will be at school functions or games, you can plan ahead for meals and not “run through the drive-through”.

Final Thought

Getting a reluctant spouse on board may be difficult, but it is crucial to your success. Show them why you want to implement changes. Show them how much better your future can be if you don’t just follow the norm.