Personal Finance and Money Management – Starting a Budget & Future Planning

Many people struggle with their personal finances and try to stay within their budget. Most people turn to credit cards, loans, mortgages, to solve their debt problems, then find that they are falling behind, making it hard to pay off debt or keep a good credit score. Making small or minimum payments on a high-interest rate credit card or loan is almost impossible to pay off. It seems like there is no end to the stress and anxiety and no one to turn to for help. Some turn to the lottery hoping “luck” will get them out of the fix that they have gotten themselves into. This only creates more cash shortages when they lose and there are no guarantees.

People who are financially fit do not stress over finances or have a fear of creating debt they know will be paid off in a short amount of time. They manage their finances well, have good paying jobs, a savings for emergencies or travel. People who need help wonder how the financially well-off were able to rise to the level they are today, several years ago, when they were low to mid-income individuals.

Did they start with their family’s money?

Did they go to college and were able to walk into a high paying job after graduation?

How do they obtain financial freedom? How does money management work?

People struggling do not know how to be successful. It's a vicious cycle and sometimes a “catch 22” situation. Pride and embarrassment keep people from asking for help. The thought of how much it will cost to get help scares them. Jealousy of someone doing better contributes to depression, aggression, and giving up.

Is this your situation?

Do you need financial help or debt counseling, but don’t know who to turn to?

Are you feeling depressed and have no idea how to dig yourself out of debt?

It’s not about cost or pride. It’s about money management, organization, spending money wisely for needs, not wants, and saving what you can, for emergencies, shortages, or a vacation to enjoy with your family. It takes time to get ahead and to move forward in life, especially during inflation. It’s possible to get ahead. It just takes a little willingness to create a plan and stick with it. Controlling your impulse buying or dining out are all temptations and crucial in a successful financial plan. Being aware of your finances and remaining in control of spending habits is the key to success.

Step-by-Step Process to Get Started

A good place to start is by sitting down in a quiet place to create a few lists. This is not meant to be difficult or a lot of work. You need to do this to understand where your money is going and how to plan a budget.

(If you know how to use Excel, it’s an excellent software program for lists. If not, this can be done in a Word document or on Google Docs.)

Make a list of the income and sources of income for the entire household. Add these income amounts together to know exactly how much income is coming in.

Make a list consisting of two columns.

Finance Management - Income - Expenses = Savings

1. Column 1 - Essential Debts (Telephone, Utilities, Trash, Heat, etc.) list. In a different column next to Column 1, enter the costs related to each essential debt title

2. Column 2 – Non-Essential Debts (Things that can be cut back or cut out of your budget, maybe not permanently, but for a while.) Enter the costs in a different column next to Column 2 for each item or expenditure

3. Column 3 - Make a list of things you need to buy such as a new door for your house, carpet, fix a vehicle, buy your daughter a new prom dress, shoes, clothing, etc. Enter the costs in a different column next to Column 3 for each needed item

4. Column 4 - Make a list of things you want to do such as taking the family on a vacation, a fishing trip with the guys, a trip for you and your spouse. Enter the costs in a different column next to Column 4 for each want listed.

5. Under all the columns, create a “Totals” row. At the bottom of each “cost “column, add up the columns. Space down one to two rows.

6. Create a “Household Income” cell, under this cell create an “Expenses” cell. In the empty cell next to each of these, type “=SUM( )”, then click in the total cell for each income or cost totals, adding these up as a total cost for each income and cost. This formula is using Excel. Otherwise, you can use a calculator to manually add these totals.

7. Subtract the expenses from the income to determine a remaining balance after debts are paid each month. If your balance is negative, look at the non-essential debts to see what can be adjusted.

• After you have completed each step, compare your household to your current debts such as telephone, electric, loan payments, credit card payments, etc., not including your needs and wants. If your income is less than your debts, it’s time to reorganize your debts and make changes. You might need to consider debt consolidation. However, this should be a last resort. Debt consolidation can affect your credit score and credit report for several years, making it hard to get a loan or credit card in the future.

  
  

• Next, look over the non-essential debts to see what can be reduced or temporarily cut out of the equation to save money. Look for things such as subscriptions, purchasing books and games, dining out, nail salon, spending too much on gas traveling, buying treats instead of healthy food for your family, buying wants instead of needs. Remember, this is temporary until you have paid down the necessary debts, to be able to afford to buy these things again. It’s all about reorganization and debt management.

A good budgeting strategy is to use the 50/20/15/15 plan.

1)      50% of your net income (bring home pay) should be used for needs.

2)      20% should be saved for emergencies, vehicle repairs/maintenance, or travel.

3)      15% should be for wants

4)      15% are for repairs/improvements to your home maintenance.

Example:

      Household Monthly Net Income -       $2, 500.00 (100%)

Needed Expenses (Utilities, credit cards, etc.) -  $1,250.00 (50%)

(Some of these will never go away. Credit card and loan debts will be extra money to save if you pay these off)

Savings for emergencies, vehicle repairs, travel - $500.00 (20%)

(This could be 30% more if the wants and home maintenances are managed well.)

Wants such as dining out, movies, clothing, etc. - $375.00 (15%)

(This is money that can be saved, if not spent)

Needed home maintenance (repairs/improve) -    $375.00 (15%)

(This is money that can be saved, if not spent)

After your budget is created, put your plan into action. Keep in mind there will be seasonal expenses to consider throughout the year. However, these expenses are not normally in a monthly budget. Use your savings account to plan for seasonal expenses such as fireworks, Halloween celebration, winter tires for your vehicle, salt for the driveway, Heet for the fuel, and bringing in the New Year. Look 3-6 months ahead and adjust your monthly budget accordingly.

Ways to prepare and stock up – Spend money now to save money later.

Ways to prepare for holidays, winter, parties, or stocking up is to buy food and supplies in bulk from wholesale stores such as Sam’s Club, Gordons, Aldi’s, or Amazon bulk. Buy quantities when they are on sale or running a special. Freeze food, learn canning, store items in Mylar bags and five-gallon buckets. Go to the local food pantries or mobile food pantries for additional food. Eat more home-cooked meals versus dining out to save money. Be prepared now to save money later, especially if there are shortages or hard to find items. When we experience inflation, you will be glad you stocked up and prepared when prices were low.

BE PREPARED - BUY IN BULK STORE FOR EMERGENCIES

If you have small children or teenagers, you will know what I mean when I say that they eat you out of the house and home. They have growing spurts, always hungry, which causes the grocery bill to increase. Don’t waste your money on chips, candy, processed foods, and “junk” food. Buy fruits, vegetables, and natural food snacks. It is good for young people and will keep the dentist/doctor bills down from rotting teeth, obesity, and upset stomachs.

I hope this article is helpful. If you enjoyed this article, please take the time to read my article regarding your “Next Steps to Financial Independence – Savings, Investing, & Choices”.