Financial Zip

In the times we live in money is tight. Gas prices are really high. If you haven’t noticed the price of groceries has gone way up. I remember just last year eggs were $1.59 and now they are a little over $2.50. The hardest thing you face is keep your spending under control and its even more important now.
The best thing to do if you have no idea where your money is being spent is to approach it from two different ways that will accomplish the same thing. One, use a budget they are typically very structured and can be a little restricting; however it is very effective at tracking what your spending is and where it is going. The other is the 20/80 spending plan. This way is a little less restrictive basically it says you devote 20% of your income to investments and charity and the 80% to your expenses. Now according to your personal circumstances the ratio might be different but it is a good rule of thumb. I am just going to be focusing on budgeting.

There are 2 parts to a budgeted plan.

1. Gathering Information
2. Executing the Budget or Spending plan

There are a lot of tools out there that you can use to gather information. A lot of people like to use computer programs like Quicken, Microsoft Money, Mint. People also can use spreadsheets to track information. What ever you use the main idea is that you need to get it down on paper.

David Bach call his plan the Seven Day Challenge other guru’s have other things that they call it, regardless of what it is called it is important to track your spending over a 1 to 2 month period. So to get started this is what needs to happen.

1. Track what you spend every day down to the penny and record any income you receive for that week. However small.

• Write Down what you paid for, cash, credit, debit
• The date
• Description, where you bought the item.

1. Income (This will be your net income)
2. Fixed Expenses – these are expenses that are the same month after month. Mortgage, car insurance etc…
3. Variable expenses – these are things that vary month to month. Groceries, clothes, eating out, entertainment.

The purpose of writing this information down is to know how you spend money. Most people do not take accountability of where their money is going. It is wise to know where it is going because you can then know how you are wasting and correct it.

Now, that you have for the last month recorded your spending information it is time to create the second half which is your budget.

1. To construct the Budget you are going to break this down the same way

Income

Fixed Expenses

Variable Expenses

2. Notice there is a planned and actual column’s here. Your planned is your budgeted amount for that month. The actual will be totaled at the end of the month through your spending journal.
3. This is the most important step because this will give you an idea of if you have money at the end of the month or not. That is to total your income for the month. Then to total your all your expenses, and then subtract the 2. If you have extra at the end of the month you have done well managing your money if not you need to find the places to cut back.

If you are going to achieve financial independence it starts with knowing where you are spending your money. The vicious cycle of debt and out of control spending occurs because people are not disciplined enough to know where their money us going. So your goal of getting out of debt, saving for retirement, or ultimately financial independence hinges on your ability to keep track of your money.