Getting a Handle on Finances
Let us look at a most important subject and yet most overlooked subject
of today. The first thing that is crucial in the success of any endeavor
is planning and the second is having the money to accomplish the thing
planned. Let us put half of our effort into planning and the other half
into the work of our plan. Yes, money will be needed but there are ways
to reduce the need for tons of money and still succeed.
The very first need in the plan is to have control of your finances
and know exactly where every penny of your money is going so you can
direct it to the needed places and have little to no waste. This in
itself will create a situation in which less money is needed. This may
sound extremely difficult to figure out where every penny goes but actually
it is very simple. Everyone's financial situation is different from
the next persons and as such needs to be dealt with on an individual
basis. The only person, who can truly deal with your finances, is you.
If you understand how to deal with your situation, then you can start
the process that will cause the desired result to be achieved.
Unless you were born rich, managing our money becomes a very high priority. I am going to share with you a principle that I have seen work which was used to keep track of personal finances and how to change a financial situation in order to be able to afford things that were wanted as a house. There are ways to acquire what one wants by simply getting control of one's finances. I am often amazed at how easy it is to spend hard earned money and not even realize where it goes. With a little organization and record keeping it is easy to gain control. When control is obtained it is then easy to apply those earnings toward dreams that become realities which we often thought were unattainable.
A Great Way to Save Money
First, it seems it is very difficult to save or acquire money. Agreed? There are basically two ways of getting extra money. First, you can increase your income in some manner as getting a second job, a promotion or winning the lottery. Seems these are all uncertain or require a lot of luck or more work. Agreed? The second way of getting extra money is simply don't spend what you earn and you'll have extra money, but this too seems impossible. Right? Well let's think for a moment. How can we get control of the money we earn? It seems to slip through our fingers before we have a chance to know where it's going. Right here is the key. Know where it is going before it slips through our fingers.
A good example of what I'm talking about is this. By going out to eat at a restaurant just 2 times a week - if each meal costs $20.00 - that is a total of $40.00 a week. In one month's time you just spent $160.00. In one year's time this adds up to $2,080.00. Some families like to rent videos on a weekly basis. Perhaps they rent 2 per week at $2.50 each - that adds up to $5.00 per week or a total of $260.00 per year. The average American family will spend a minimum of $1,000.00 for one week of vacation each year. If you need to save money to acquire a home - this year for vacation - stay home and don't spend the $1,000.00. Put that in the bank for use toward your dream home. These are just 3 examples of how to put more money into the things that you really want (as perhaps a house) instead of into things that 5 or 10 years from now leave you with nothing but a pile of receipts. The above examples I've given amount to $3,340.00 in just one year or $33,400.00 in ten years and does not really affect the quality of one's life during that year. In case you're wondering - that figures out to $278.33 per month - every month - just to go out to eat, rent 2 movies per week, and go on vacation 1 week a year! What else could that money be used for that would provide something more substantial in your life than just entertainment?
Secondly and as stated before, in order to understand finances, you must know exactly where every penny that you have earned is going. By spending only a few minutes a day - it is possible to keep track of every cent you earn, spend, and then determine what to change. For a period of at least 90 days to 6 months - preferably longer - take a piece of paper and every time you spend any money, write it down. I'm not talking just about large expenditures. I mean every cent. If you buy a pack of gum, a candy bar, a soda, go out to eat, pay the rent, or whatever. Write it down on paper. At the end of ninety days you will have a written record of where your money has gone. You will find that some items are essentials and some are non-essentials. At this point, you can examine your records and if needed, make changes to your finances as eliminate some or all of the non-essentials in order to be able to afford those things which you truly desire.
To expound on the above paragraph, do one of two things. Either takes minimal time. If you are a computer fan and have a program to track the numbers set it up and do so or do it in a notebook as follows. Either on paper or the screen you will get the same result. List several categorys that denote where you spend your money as per groceries, car gas, car insurance, eating out, entertainment, charity, car repairs, medical expense, dentist, eye doctor, hair cuts/perms, taxes, lottery, newspapers, telephone, electric, school lunches, clothing, birthday gifts, etc. and so forth. This is not a complete list but just a few suggestions. Different lifestyles have different needs and expenses. Make the list that accommodates your expenses. The list should be general and should not be so lengthy as to list each item as apples, hamburger, noodles and so forth. Group items into groups. Now take a notebook as a 3-ring binder so pages can be added where needed and make a page for each group. On each group page should be the following information so as to track individual purchases and totals spent. Note the next few examples:
| Groceries: | ||||
| Date | Amount | Total | Paid By | Comments |
| 8/3/01 | $23.44 | $23.44 | cash | purchased at local store |
| 8/8/01 | $2.10 | $25.54 | ck#567 | 2 dozen eggs at market |
| 8/18/01 | $55.00 | $80.54 | ck#569 | weekly groceries |
| Car Gas | ||||
| 8/7/01 | $12.00 | $12.00 | cash | Mobil |
| 8/17/01 | $26.00 | $38.00 | charge | Texaco |
| Electric | ||||
| 9/12/01 | $74.99 | $74.99 | ck#601 | bill for August |
| 10/11/01 | $65.01 | $140.00 | ck#612 | bill for September |
| Taxes | ||||
| 7/1/01 | $15.00 | $15.00 | cash | per capita |
| 7/28/01 | $100.00 | $115.00 | money order | school tax |
This may look as if it is quite lengthy but actually you probably rarely
make more than a few purchases each day and so it is only one to three,
four or five entries each day. It only takes a few minutes. You always
have a total for each category or grouping and know what you have spent
for the year. As time goes by you will see where you can cut certain
unneeded wasted expenses and funnel that money toward a savings to purchase
what you really want. Be sure to fill in the Comments section which
gives you details so you know where money is wasted. This type of record
keeping is crucial to gaining control of your money instead of having
your money control you and you have to work, work, work!
Thirdly but as important as all of the previous, one MUST set up a budget
so the above will not have been done in vain. The budget will perpetuate
the savings you are looking for. If you have tracked your expenses as
noted above for at least 90 days but preferably 6 months you will have
a fair to good idea of what your expenses are. The next thing needed
to do is sit down and list every expense that you figure you will have
for the year. Then divide the expenses listed into two categories being
weekly and all other. The weekly expenses should include all but only
those things that are purchased daily or weekly as groceries, eating
out, car gas, newspaper, diapers and so forth. All other expenses should
be monthly, quarterly, bi-annual or yearly as rent, taxes, electric,
car payment, telephone and so forth. Now that you have a list of all
your expenses assign a dollar figure to each of them based upon the
study you have made by tracking each of the expenses for 90 days to
6 months. The weekly expenses estimate should be based on the total
spent for the week while the all other expenses should be based on the
annual total. For two examples, if you buy groceries twice during the
week your weekly total should be their sum and the electric sum should
be an estimate or total for the year. Once you have assigned a fair
to good estimate to each expense, total all of the weekly expenses as
one total and total all of the all other expenses as another total for
the year. You now have a total of the amount of money you need for the
week and a total of the amount of money you need for the year to pay
all expenses. Throughout time you will find places you estimated either
too low or too high and thus you can make adjustments as needed. The
secret is to be as thorough and as accurate as possible based on your
previous tracking of the expenses. Now that you have a weekly total
and yearly total of your expenses you need to divide your money into
three categories. First, take the amount of money from your paycheck
that is needed for the weekly expenses. We'll call this account your
weekly cash account. This is what you live on weekly. Secondly, divide
the all other total or yearly account by the number of paychecks you
get a year. The result of this is the dollar amount you will want to
put into a checking account each paycheck to pay all of your monthly,
quarterly, bi-annual and annual expenses for the year. This allows money
to be put into place for the expenses that come about each week, month
and so forth so that when the bill comes, the money is there in place
to cover the expense. During the first year of this process there will
be things that need to be adjusted or refigured until all calculations
hold true. The third account that needs to be in place is a savings
account. This is the account that any extra gets dumped into. If from
your paycheck you have extra money after the weekly cash account and
monthly-yearly checking account for bills has been satisfied, put it
into the savings account. If at the end of the week there is money left
over from your weekly cash account even if it is only $5, put it in
the savings. If at the end of the year the checking account has extra
money, dump it over into the savings account. If during the process
you eliminate some non-essentials, dump this excess over into the savings
account. Any money you get that is unused no matter how small the amount,
put into the savings. The savings never gets touched unless it is an
absolute necessity. You will slowly see your savings grow and realize
the self-discipline you have learned.
To sum slightly, you are tracking all expenses so you can get an excellent handle on your expenses so you can better calculate your expenses and further refine the budget which has three accounts being the weekly cash account, the bill checking account and the savings account that captures any excess that comes about as a result of all of the above. The real secret to all of this, is this. You now have control of all of your money to know exactly where it is going and thus you control where it goes. It no longer slips through your fingers to go anywhere. You are now conscious of the placement of all dollars and can put them where they are needed the most. This is the best way I know to save money. It is slow and yet it adds up faster than you may think. Try it and you will find diligence and persistence pays off with excellent dividends!
The above can be used in various ways. Perhaps you aren't looking to acquire a home. You may be looking to live on a fixed income. Here it is....control the expenses...drive them to the lowest level possible based on your needs and desires and live on less. Now there is no need to work, work, work. Control of one's finances has many advantages but you must know where everything is going and take control otherwise the finances control you. Good luck and God bless...It is a challenge but it does work and Oh the benefits!