3/12/06

         Controlling Your Money

OK, I know that everyone groans, holds their hands over
their ears and hits the “ignore” button whenever the subject of budgeting comes
up. I also know that anyone involved in debt reduction, wealth building or
investing has done this whole topic to death. That being said, here’s another
nail in the coffin.

        Without having a handle on your current
financial situation you are driving your car down a twisty country road wearing
a blindfold. You are also quite sure of arriving at your destination, because
“it’s always worked out before.” Yeah, maybe you had to sell the second car or
move back in with your Mom, but that’s all part of life, isn’t it? 

        Well, no. 

        In order to get a handle on your financial situation you first need to establish what that situation is. Don’t
be concerned if the numbers scare you. You have to be honest with yourself and
look at reality. That really is the only way to start.

        First the fixed expenses need to be
listed. For most people that is the rent or mortgage payment, utility payments
(electricity, water, sewer, cable, phone), car payment, and credit cards.
Second thing you need to look at is the grocery budget, dining out,
entertainment, and “unaccounted for” expenses. The “Unaccounted for” expenses are
what takes most people out.

        Groceries, dining out, entertainment and
“etc.” are the ones that really need to be tracked to get a real idea where the
money is going, and why. It is going to be necessary to carry a small notebook
and write down everything you spend for one month. This will “feed the detail
monster” and give you the realistic picture you need to get things in line.

        When I say every detail, I mean
everything. Vending machine, morning coffee at 7-11, feeding a parking meter,
getting a drink after work, everything. 

        Hopefully when you get done with all
that, and tab up the total, you are not looking at a negative number. Even if
you are, that can still be worked on. 

        If you lump the rent, utilities, credit
cards, car payment and food into one pile, which is what I will call your
“necessities.” That is a portion of your budget that cannot be altered without
a life-changing event. The remainder of your expenses should be divided into
four categories. 

First, to keep you reading, if you haven’t stopped yet, put 20% of the remainder in a
“Me” account. 10% into a “give” account, 20% into long-term savings, 20% into
short-term savings and 20% and 10% into an “education” account. 

        Me is for fun and games. Enjoy the money and don’t hesitate to spoil yourself on a
regular basis.

        Give is to charity. Support groups that you align with. Red Cross,  United Way, your
church, Big Brothers/Big Sisters. Whatever you believe in, show your support
with money. It is well spent and you will be rewarded.

        Long Term Savings is an account for your retirement. Save and DO NOT SPEND.

        Short Term Savings is an account to buy your car, down payment on a house, or a
major expense.

        Education is to go to seminars and buy educational material; books, magazines, etc If you
stop growing mentally, you start dying mentally. Grow and live!

If you follow this system, you should start to see the “Necessities” amount decrease
and the other amounts grow. Things you used your credit card for can now be
purchased using your short-term savings.

When you tally up the amount of things you buy on a regular basis, you should be able to
eliminate some of those. Take a cup of coffee from home instead of stopping at
the doughnut shop. This can save hundreds of dollars a year. (along with some
calories – you know that doughnuts often come with that coffee)

After you have that taken care of, here is a thought on eliminating revolving debt.
(credit card debt)

Look at your interest rates on all cards you have and select the one that has the
highest rate. Concentrate on eliminating that debt.  Don’t pull money from other sources (outside
of necessities) Use the extra money you should have been paying down that debt
with and concentrate it on one card. 

Example:

By taking all the overages you will see the Sears card paid off pretty quickly. Then move
that $100 payment to the VISA bill, so the payment there will be $180. When
that is paid off add  the $180 to the$60, ($240) and the Mastercard will be paid off in months instead of
years.  This doesn’t pull money out ofyour other accounts and will blast away at that debt. When I ran into
‘unexpected’ money I added a portion of that to the payment on the card I was working on. Example, an 
income tax return can quickly eliminate some revolving debt and take years of that burden.

When the cards are paid off, you can use this money to eliminate a car payment in the
same way. Add the $240 to your existing car payment and watch the principle
dwindle before your eyes. 

The “trick” to making this all work is that the “Short Term Savings” should
eliminate the need to borrow using credit cards. 

I don’t have any problem with having debt, just not revolving debt in the form of
credit cards. Scheduled payments with an end in sight (Car loans, mortgage,
etc.) are all part of life and gaining things you need. Credit cards are a
whirlpool (more like a toilet) that is never ending.

Hope this helps, I know it can. 
It has for me. 

RobertEBritt@yahoo.com

The columns, articles, message board posts and/or any other features provided on Wealth Training Source are provided for personal finance and investment information and are not to be construed as investment advice. Under no circumstances does the information in this content represent a recommendation to buy, sell or hold any security. The views and opinions expressed in an article or column are the author’s own and there is no implied endorsement by Robert Britt of any advice or trading strategy

copyright Robert E. Britt 2006