The Bottom Line is BS

The bottom line is BS. It’s not important. I know, that’s quite the statement. Contrary in fact to everything you’re taught I’m sure. But it’s true. The bottom line on your financial statement is not the important line. Why? Because there is nothing you can do with it. I mean, you can make adjustments to things in the middle so that the number, maybe, gets a little bigger. However, At the end of the day, there will only be so much you can free. It’s a value with a fixed range and to make it bigger requires you limiting or constricting yourself to do it. Therefore the bottom line is BS and instead, your focus should be at the top.

 

Focus at the top

Where your focus should be is at the top. This is the line with infinite possibilities. This is the line that can make a real difference in your financial freedom. Now, if you’re on salary you may say, “But wait a minute! That line is also fixed!” And indeed if you don’t have any plan or intention to change it then yes, it will be. If you have a plan, if you have the intention to change it, however, then you’re playing a different ball-game. First and foremost you could always ask for a raise, but this would be limiting, if your tying to get out of debt or make a significant increase to your income this is a very unworkable way to approach it. You can only ask for so many raises before your boss is just flatly going to say no. You could go for that promotion but again, it is unlikely you will get them every year. Instead what you need to do is look at what activities you can do that will have a more direct and dependable impact on that top line.

 

A Dependable Impact

A dependable impact means something you can do that you know will yield a certain result. To give an example of the opposite, if you are a salaried exempt employee, working overtime will not yield additional income. Maybe it will help you earn a bonus for meeting that target or hitting that deadline, but that’s not dependable is it? If you are paid the same whether you work 16 hours or 8 in a day, what’s the point? You love what you do? That’s fine, but shouldn’t you be paid for it?

 

So then what would be a dependable impact? It would be an activity or action that you know will yield a certain result every time. In the context we are speaking, an action that you know will yield a certain monetary return for it’s performance. For example lets say you can make $100 for building a webpage, so then earning more money in a month becomes a very simple problem right? Simply build more webpages until you’ve covered what you need. Heck, then build more so that you have more than you need. Working more will have a dependable impact on what you make. The problem then becomes one of scaling.

 

Scaling

Scaling, specifically how to, completely depends on what your dependable impact is. In most cases though it will be one of two scenarios.  You either hire someone to help or you devote yourself to the dependable impact full time (which most likely at some point will still require you to hire someone later.) In the webpage example above, as your experience and reputation grows, you can charge more. Or, it could be getting someone else to help and cutting them in on some of the profit. The point though is to push what is working and to push it hard.

 

Final Thoughts

If you are in debt, or looking to earn more. The solution to both is to look up. Put focus on that top line, find something you can do to make a dependable financial impact and then once you have found that, scale it. The reality is the bottom line is BS, it is merely a reflection of what you have done, but don’t make the mistake of believing it is all you can do. Your potential is unlimited and this world has no shortage of money to be earned, so find out who has yours and collect it.

 

Have a question on getting out of debt? Or Earning more? Comment!

Best Rewards Cards To Get Out of Debt 2019

When you are in debt, credit cards are often villainized as the ultimate evil. The first advice almost always given is to destroy all your credit cards! Fill a bag with water, put your cards in it and throw it in the freezer! I particularly like that one, it seems the most useless of all the ones I’ve heard. Look, when you’re in debt credit cards are not the source of all your troubles. They may be greatly contributing to it, due to their high interest rates, but they are not the reason you went into debt. You are. I would argue in fact that when you are in debt, the best rewards cards can actually be a blessing in disguise. No, not because you can use them to pay for bills you otherwise can’t afford. But because if you have a solid budget in place, they can become a treasure trove of savings.

 

Hidden Savings

If you are wondering what hard liquor I’ve been downing or deep-end I fell off of, rest assured I’m as sober and sane as can be. What I am talking about are credit cards known as rewards cards. The concept is very simple, for using the card, you get rewarded in return. These rewards vary from redeemable points to cash back or both. Once you have a budget worked out and you are making more than you spend, a rewards card can be a very smart move.

 

What to Look For

I will give my recommendation on worthwhile rewards cards as the end of this article. In general however here is what you should look for:

  1. Large cash back for purchases Or
  2. Rewards for everyday purchases
  3. Redeemable for things you will be able to use

So why are these three things so important? Large cash back for purchases should hopefully be pretty self evident. Finding a card with the largest cash back for purchases that you can just means more in your pocket for normal purchases. Alternatively, rewards for everyday purchases is important because that just means you will accumulate more rewards for things you normally buy already. To give you a an example of cards that do not fit this bill, some will reward you for spending on travel activities like eating out or paying for hotels. If you are saving your money to get out of debt, it’s a pretty safe bet these kinds of purchases should not be your everyday norm.

 

Lastly, what you can redeem your points for should be for things you can and will use. Things that will either give you money or save you money elsewhere. The best of these would obviously be a credit directly to your account as is the case for cash back rewards for purchases. For other rewards, however, a visa gift card can be equally as beneficial. Things like an Amazon gift card  also works if you make purchases there frequently. What you don’t want are reward redemptions that just wouldn’t make sense for your situation. For example a great mileage rewards card will be pretty useless to you if you can rarely afford to go anywhere. So make sure the rewards for the card make sense to your situation and what you are trying to achieve.

 

The Best Rewards Cards

As promised, here are my personal recommendations based on the information I provided above. The below cards I either presently have and use or have used so I have actual experience with all of them.

1. Amazon Rewards Visa

If you are an Amazon Prime member then this card just makes sense on so many levels. Depending on if you already have a Prime membership, which this card requires, it either does or doesn’t have an annual fee. If you are not already a Prime member then you shouldn’t get it. If you do however, then this card should just be a given. You receive 5% cash back on Amazon purchases. That alone is astounding. You get 2% back at restaurants, gas stations and drugstores, and finally you get 1% back on all other purchases. As an avid Amazon shopper and a gasoline consumer, this card hits points #1 and #2 above perfectly. Because it is also a cash rewards card, it nails #3 as well. An added treat, at the time of this writing, the card is also made of metal. You do need good credit to qualify for this card so keep that in mind. Also, it is issued by JPMorgan Chase Bank so their 5/24 rule applies (you can read more about that from The Points Guy here.)

Get it here*

 

2. Chase Freedom Unlimited®

At 1.5% cash back on all purchases, it’s hard to go wrong with this one. Once again hitting the one, two, three combo above, and no annual fee of any kind, it’s probably one of your best options on the market right now.

Get it here*

 

3. Chase Freedom®

This one is a quarterly category card. This means every quarter there are specific things that when purchases with this card will give you the largest reward benefit. For this card the reward benefit is nice, 5% cash back on anything purchased in the category for that quarter! Buying something not in the category? No problem, get 1% cash back on everything else. Similar to the Freedom Unlimited, there is no annual fee. The only caveat with this card is that the 5% cash back for a category is only good for the first $1,500 spent. If you are trying to get out of debt, you won’t be spending that kind of money each quarter anyway, or at least you better not be!

Get it here*

 

The Golden Rules

Unfortunately the way our (American) credit scoring system is designed, requires you have credit of some kind that you utilize. This makes credit cards a necessary evil. When you are in debt, there are two golden rules you should follow with credit cards. The first, don’t purchase anything that you don’t have money for in your checking account. Second, whatever you buy with them, transfer that money to that card the same day. Don’t wait for the next bill cycle, don’t sit on it to do it later.

 

Final Word

When you are in debt, common conception is to throw away your cards! Shreddem! Keep them as far away as possible! However, these are all just gimmicks. Especially in an age where they are all easily digitized anyway (Eg. Apple Pay.) Truly getting out of debt starts with yourself, changing your own viewpoints on how you handle and perceive money. It is about being smart with your cash flow and how you use it and in that vein credit cards can actually be a blessing in disguise. This is especially true for cash back cards. You end up paying less than the cost of what you purchased. It is like having a coupon for anything and everything you buy, including bills. Just remember the golden rules, because if you are in debt, there will be no faster way to stay that way than to break them.

*Disclaimer: I am not being paid a penny for promoting these cards. The views expressed in this post regarding them are entirely my own.

The Trouble with Borrowing from Friends

If you have ever borrowed a large sum of money from a friend you probably already know the kind of trouble you can get into. If you haven’t, let me break it down for you so that you do. It generally starts off with you venting to your friend about your situation. Then they, being your good friend, try to offer help. You, needing the help, take it. Maybe you don’t take it at first, maybe your sense of pride causes you to think on it for a bit, but eventually you do.

 

At first everything is fine. But, lets say you are really in a financial bind. 5 months have gone by, and despite your best intentions you have not been able to repay a single penny. So now what starts to happen? That owed money will sit in the back of each of your minds. You and your friend have a fight, guess what will come up in that fight. In general conversation with your friend they mention the fact that they are still owed money. As time wears on you start to feel guilty that you have not paid your friend back. Just being around them makes you feel guilty. You start talking to them less to avoid confronting them on it. Or you avoid them altogether.

 

In an even worse scenario, lets say your friend starts to run into financial trouble. Then what? Guess who they will go to, and if not paid back right away, start to blame.

 

All of this; guilt, avoidance, non-communication, results in only one thing. No friendship. The same reason money can kill a marriage is the same reason it can kill a friendship.

 

The Solution

Here is the secret to keeping a friendship in this situation from going down the toilet. Keep talking about it. When you owe a friend money, don’t let the fact that you owe be the unspoken elephant in the room with every interaction. Stick to a repayment plan, and if you can’t follow it, communicate that fact. Make a new plan if you must or form a new agreement or do whatever you need to do to handle the situation, but handle it. And communicate it.

 

Final Thoughts

Borrowing from a friend when you are really in a time of need can be a lifesaver. It can be just the safety net that helps you out of a bind when you need it most. But personally, I consider borrowing from friends a last resort. But if you must, work out a repayment plan beforehand. Make sure this plan takes into account what to do if payments can’t be made. Any expectations on when things should be paid off and if your friend is expecting a little extra for their own troubles (interest.) Being in debt is itself a treacherous mind game. Adding onto it the multi-layered emotions of a good friendship can turn it into a nuclear bomb. So remember that no matter what happens, have a plan, stick to it and always, always communicate what is going on.

 

How I went from very poor to very good credit in 45 days

Not to long ago, I went from very poor to very good credit in 45 days. My wife and I were under crushing financial debt. I mean we still are, but the payments at the time far exceeded what we were actually able to handle. I had a pay cut from work a few months earlier, which we had not recovered from. We were behind payments, our credit scores were both shot and my wife was on maternity leave. We were definitely not in a good place. To handle payments we were using our savings. Savings which, by this time were nearly exhausted. We were considering some pretty serious options, like declaring bankruptcy.

 

Then Came an Angel

No, not really, but a friend of ours told us about a financial trick he knew about. A trick to open a bunch of 0% interest credit cards and reset your credit score in 4 – 6 weeks. “Even better…” he said, between my wife and I, we could keep our debt on 0% cards in perpetuity. Sound to good to be true? Let me tell you about a hack so outrageous, so ridiculous, so crazy, that I can not in good conscience actually recommend you do this. But I did it, and it worked. Here’s the true story…

 

Disclaimer: What you are about to read should not be taken as financial advice. In fact, it is a perfect example of something you should not do. What I am about to describe is the way I quickly achieved a solution to a big problem I had. However, this solution is extremely high risk. I can not in any capacity recommend anyone actually do what I will be describing below. Unless you are in the most dire of financial situations, even then, do not do this! I am not a financial advisor. Anything I say and or write regarding finances should not be construed as professional or expert financial knowledge.  You have been warned.

 

The Setup

So the first thing my wife and I did was find a friend, a very, very good friend. One who was not only an extremely good friend but one who was also willing to basically take on all of our debt for about two months, and who had excellent credit. Let me tell you, you’ll find out who your true ‘lifer’ friends are if you have one that will agree to this.

 

After getting our friends agreement for this, she (and her husband) needed to open as many long term 0% offer credit cards as they could. (See the Difference between a Hard and Soft Credit Check for more information on how this can affect your score.)  Then, after receiving them, combining as many as they could onto one card. So for example, for 3 different Chase cards at 10k each, they would now call Chase and ask to combine all the cards into one so that they have one card with a 30k limit. This was not necessary but just made it easier to track everything.

 

The Transfer

With the cards open and received, we then worked with our friend to do balance transfers of all of the debt onto her 0% cards. The purpose of this step was to clear all debt from our records. The only things remaining on our end was our house mortgage, car loan and a small amount on a personal line of credit. Then from there we just waited.

 

The Waiting Game

An interesting piece of information about the credit reporting bureau’s (Equifax, TransUnion, and Experian) is that they generally update right when a request to pull your credit is made. Another interesting tidbit, is that credit card companies generally report changes to status once a month. (Read this article from Nerdwallet for more details.) Depending on when in the month the credit card company reports to the agency, it’s possible to see a credit change in as little as 1 week, and a maximum of 6 weeks. So, we waited. I do want to point out that during this waiting period, we had already made agreements with our friend to cover any credit card bills that came in while the debt was in her name. And so we did.

 

The Return Transfer

If I remember correctly it took us just about 4 weeks before the score changed. And WOW did it change! From a Very Poor to Very Good credit rating in only 4 weeks! It felt like magic! Of course it wasn’t magic, if anything it was deception… but I digress. From here the plan was simple, make sure that moving forward, we could keep all the debt at 0% interest until it was paid. The reason we needed a friend to offset our debt was so that both of us could ‘reset’ our credit scores.

 

With our credit scores reset, my wife just duplicated what our friend did. She opened up as many 0% cards as possible, consolidated them and then transferred the debt back over from our friend to only her. This point was important. This plan wouldn’t work if we split the debt between us. Why? Because one of us has to maintain excellent credit, so that when the time comes and those 0% start to expire, we can simply transfer the debt over to me. In this way, switching off every year and a half or so, the debt can be kept on 0% cards in perpetuity.

 

What to Beware of

Where do I even begin. There are so many potential risks to this strategy that it’s why I could never actually recommend it to anyone.

 

First, beware that most banks do charge a transfer fee. When we went through this process we not only looked for long term 0% offers, but also for nothing greater than a 1% transfer fee. The way this works is the bank charges 1% of the total being transferred over as the ‘fee’ of doing so.

 

Example

If you are transferring 30k, the bank would charge $30,000 * 0.01 = $300. This amount is usually added on top of the amount transferred over, not as a separate bill. Keep in mind, however, that this is up to the bank! When my wife and I did this we made sure not to apply for anything with more than a 1% fee.

 

Second, if you do this with a significant other, the person who’s debt is not in their name must maintain good credit. Not doing so will put you right back in the same situation of needing a friend. Don’t treat your friends so poorly!

 

Third, remember that banks can change the rules of the game at any time! This works right now because interest rates, the economy etc. are going in such a way that some banks don’t mind extending large amounts of credit, that they don’t mind having a lot of long term 0% offers on the market etc. It’s important to remember however that this could change at any moment.

 

Lastly, Remember that banks have the right to collect on all outstanding debt at any time! It’s their money after all and if they want it back, there is little to nothing you could do about it except pay.

 

Why We Did This

At the time my wife and I did this, we were paying an absurd amount of money in interest. The amount we were paying in interest far exceeded what we could actually afford. Even including the 1% transfer fees we needed to pay on all the debt we were moving (both ways,) those fees combined were still less than the interest we were paying in a month. Now that it is done, we have all our debt on 0% cards, which means every payment is pure principle. In addition, the payments are now within a budget-able amount, instead of in excess of what we bring in every month.

 

Final Thoughts

This is how I got excellent credit in 45 days. I will point out and stress, however, that having excellent credit does not mean “good with money.”  If you are reading this thinking any part of this sounds like something you should do. Or worse, if you fee like it is something you “need” to do. Then the first thing you really need to do is learn how to properly deal with and handle money. My true story here is not an example of how to do so, quite the opposite. I recommend starting here.

 

The Ideal Account Setup

What is the ideal account setup? How does one structure their accounts for success? For the former the answer is simple, as many as you need. For the latter, that’s a bit more subjective. Here I will explain how I set things up and why and you can make your own judgement call from there. Regarding number of accounts, most people have two, a checking and a savings account. In terms of what is needed for receiving, spending and saving money this setup does serve that purpose, but it could server that purpose better.

 

The Setup for Failure

Let’s assume that today is the 18th of the month and that you have a checking account with a monthly direct deposit. On the first day of the month $1,000 dollars was put into this account. $500 of that was withdrawn from this same account for rent on the third. You spent $200 on groceries on the 17th so you are already down to $300. Now, Netflix and YouTube TV were withdrawn on the 10th for $45, Adobe Creative Suite will be deducted on the 20th for $55 and your gym membership will be deducted on the 25th for $49.50.

 

You are out on an anniversary date with your significant other, a nice restaurant with a 7 course dinner sampler & wine pairing for $90 dollars a person. (yeah, I wouldn’t actually do this either, but just roll with the example…) You check your account and see you have $255, everything looks good so you and your S.O. enjoy a nice dinner. Everything is good right? …Not quite. Were you tracking everything that happened? If not that’s ok. I’m not great at word problems either. lets look at the same information above in a spreadsheet format:

 

Do you see what happened there? The day you went out dinner you did have more than enough to cover the dinner, (which… side note: please don’t spend that much per person on a dinner. I promise you no food on this planet is that good) but, Argh!! You forgot about a couple of bills that still needed to be deducted! Many of you may have experienced a situation like this once or twice. It happens, but with the ideal account setup, it doesn’t have to.

 

The Myth

Before I start getting deep into this, I want to dispel a myth in regards to checking and savings accounts. This is that opening many checking and saving accounts will hurt your credit. This is not true, you can have as many savings and checking accounts as you like. There is no sort of penalty for having multiple accounts.

 

The one thing you should be mindful of when opening accounts is that some banks, like for example Charles Schwab, will run a hard check on your credit before they will open an account. Running a hard credit check can affect your credit score. (See The Difference Between Hard and Soft Credit Checks) The only thing to be mindful of are any bank requirements like minimum balance requirements, direct deposit requirements and any related fees. Ideally if you are going to create multiple accounts, you’ll want to chose financial institutions that do not have fees or requirements for their accounts. Ok, with that out of the way, lets continue…

 

The Ideal Account Setup

So what would be the ideal account setup? An ideal setup would be one in which one account receives all income, and from which all incoming money is then re-allocated (aka, your primary checking). This basically means the money that goes into this account does not stay there. It either goes to a bill or is transferred to another account and that’s it. This account is like a central transit hub, everything goes there but nothing stays there.

 

You should have a savings account in which you keep 6 months worth of living expenses. (why? Because apparently everyone says so.) Realistically I don’t think you need 6 months worth. The point is to have enough that if you hit real trouble, you’d be set for a long time. How much you should have in this account is based on how confident you are in how long it will take you to find another job should you lose it, even if the economy is doing poorly. Then add a month or two buffer to it. This account will be your emergency fund account.

 

If you don’t have enough to cover 6 months of expenses, that’s fine, the important part is setting up an emergency account and then flowing some money towards it. Even if you can only flow $5 a month toward such an account, it’s worth it. For a truly ideal account setup, I highly recommend a high yield interest account for this. I personally have a Marcus account for this purpose.

 

Fun Money Account

You may be wondering at this point that if all the money in your checking account is being redirected elsewhere so that it can’t be spent, how do you buy other things like your morning coffee and bagel before work? How is that an ideal account setup?! Well, glad you asked. One of the places your money should be redirected to is a checking account meant for general spending. The idea being that the money in this account is money that you can use to buy anything. This is your “fun” money account. It’s the money you can spend completely guilt free because you know it’s not needed for or tied to anything else.

 

Once your fun money account is established, you should set up savings accounts for any other longer term items you may need money for. An example account I would recommend you create is one for gifts. Every year someones birthday always seems to sneak up on me at the most inconvenient financial time. How much simpler life would be (and now is) if I had a saving account where I put some money in each month specifically to cover the purchase of gifts for all the birthdays in a year!

 

Ideal Account Setup Review

Ok, that was a lot of information. Let’s review and simplify how accounts can be handled to avoid the scenario of spending money you don’t actually have.

  1. Create a primary checking account. This account is where all money earned is deposited and from which all the deposited money is then immediately moved to other accounts or used to pay all bills. Setup correctly it would be expected that at the end of each month, this account would reach a zero balance.
  2. Create an emergency savings account. This account, as the name implies, is only used for dire emergencies. As far as daily life goes, this account does not exist. You put money in and it never comes back out.
  3. Create a “fun” money checking account or what some call a slush fund (such a negative connotation though…) in which general spending is made from. This is things like your morning coffee or the pedicure that Susan just invited you to join along for.
  4. Create additional savings accounts for longer term items that you will need money for.  An example of such an account would be a savings account for birthday gifts.

 

The Final Word

If you’re curious how I personally have setup my accounts, I will write about it at a later time. So that’s about it! This may seem like a lot of work and the initial setup can be. When it’s done, the amount you have in your spend account is exactly the amount you have to spend. When you need to buy gifts, the money sitting in your gift account is exactly what you have. What you see is what you get. There is no need to wonder if you paid all your bills yet or if there was something you forgot about.

 

Difference Between Hard and Soft Credit Checks

Were you trying to do something when someone said to you, “We’ll need to run a hard credit check for this.”? Did you wonder what exactly that meant and why it matters?  What is the difference between hard and soft credit checks? Here I’ll explain what a hard credit check (also known as a hard credit inquiry) is, what a soft credit check is, and answer the all important question of why it matters. In fact, I’ll answer that all important question right now. It matters because hard credit checks can affect your credit score. Specifically, many hard credit checks within a years time can adversely affect your score by a few points.

 

Example hard credit checks include:

  1. Credit card applications (where most people rack up the most inquiries)
  2. Home mortgage application
  3. Loan applications of all types, student or otherwise.
  4. Apartment rentals (Note: this sometimes falls under soft inquiry. Ask landlord for inquiry type details.)
  5. Opening brokerage accounts

Did you notice a commonality with all these activities? If so you would be absolutely correct! That commonality is that they all require you to have taken an action. Your authorization of a credit check is considered a hard check. You give permission for these to be run, they are the checks you know about. So why are they considered bad? Why do they negatively affect your score? Only running one hard credit check most likely won’t affect your score at all. However, if you ran say, five within a week, this likely would. Why? Because making multiple hard requests (requests you knowingly authorized) signifies to the evaluator that you are in need of money fast. This is especially true in the credit card space.

 

How exactly these things are evaluated is entirely at the discretion of the credit agencies. While it is not always true that a person applying for a lot of cards in a hurry is because they need money fast, it is a pretty safe bet to make. That said, some agencies know people like to shop for the best offers and will combine multiple requests and classify it as only one request. The degree to which such inquiries can adversely affect your credit varies, but of all the factors that your credit score is made up of, this one isn’t usually high impacting. You can expect many hard inquiries on your report to drop your score by a few points. These do get removed after two years, but only affect your score for one.

 

Soft Credit Checks

So how about soft credit checks? As you may be guessed, when dealing with hard and soft credit checks, if a hard credit check is one that requires your permission to be run, a soft credit check is one in which it is not.

 

Example soft credit checks include:

  1. Almost all “pre-qualified” offers
  2. Employment background checks
  3. Apartment rentals (Note: this sometimes falls under hard inquiry. Ask landlord for inquiry type details.)
  4. Sites like creditKarma (Awesome resource site, I highly recommend them)

Unlike a hard credit check, a soft credit check does not adversely affect your credit score. It also does not show on your credit report. To be blunt and to the point, the only real reason soft inquiries exist is so that companies and “authorized” individuals can check your score without you knowing. It’s how credit companies know how much to offer you on a new card. It’s how your existing credit card creditors know if they can adjust your rates, and it is how many landlords across the U.S. determine if they should rent to you. CreditKarma gets some kudos for at least using that little loophole to allow you to see your own score at any time, but make no mistake, they are using that data as well for targeted advertising to you.

 

So there you have it, the difference between hard and soft credit checks and why it matters. I recommend you check your credit report periodically to see what hard inquiries are on file. An easy way for you to spot identity theft is to look at our report and find hard inquiries for things you know you weren’t doing. Each of the three reporting credit agencies will let you obtain your credit report for free once every twelve months. For more information on how to do that, visit the Federal Trade Commission website.

 

10 Step Guide to Creating a Budget

Creating a budget may sound like a daunting task, but there are a lot of ways to create a budget and a lot of apps and websites to help you do so. Links to them are available below. What you use to manage your budget is entirely personal preference. The important part is selecting a tool and method that works for you. I have personally used a number of apps from You Need a Budget to the Quicken desktop software. Are you a fan of Dave Ramsey? Even he has his own app. In my case Quicken turned out to be far more complex than I needed and YNAB turned out to simplify things a bit to much.

 

In the end, the thing that ended up working best for me was Google Sheets. I know, “that’s so much work!” you say, but that turned out to be exactly what I needed to truly grasp what my finances were doing. So, I will guide you though the basics of creating a budget. If you want to use a fancy program that is fine, but I ask that for at least your first iteration of this, you stay basic. Bust out Excel, or Google Sheets, or even a piece of paper and lets get down to business.

 

 

Setting up Your Budget

 

Step 1:

If you skipped the intro paragraph, grab a piece of paper or open up a spreadsheet and at the top right of it, write your net income a month. Remember that your net income is the amount you get to take home after taxes and any other deductions you or your employer make for things like medical coverage or company benefits.

 

 

Step 2:

Put down every bill and recurring expense you have. This is an important step in creating a budget. Things falling under this would be your phone bill, car payments, rent/mortgage, insurance, Spotify, Netflix, etc. Done? Next, right down next to it the date each are due.

 

 

Step 3:

Review your most recent statements across all your accounts. Checking, savings, credit cards, all of them. Make sure you correctly noted every recurring expense you have. Then order them by date. This is one of the most important steps you can do when creating a budget as it will allow you to see the expenses that you know will always come in and that are fixed or mostly fixed costs.

 

Step 4:

Now, using your statements, categorize all your other spending. For example if you are a frequent coffee drinker, find all the coffee purchases you made. Create a Coffee label on your paper or your spreadsheet and write the months sum of all coffee purchases next to it. Do this for all other purchases you have made. How exactly you break this out is up to you, the important part is to remain consistent with how you track things in the future. Here is an example of how your paper/spreadsheet should now be looking:

 

Step 5:

This one is really simple. Sum all the values under cost, this is your total monthly spending, and compare it to your net income you wrote at the top right of your spreadsheet. You did do that step right?

Now, is the amount you are spending greater than the amount you bring in? If you then you will have some work to do later. If not, then good for you! This likely means you have money that can be working harder for you.

 

 

Step 6:

Now that you have all your expenses listed and categorized, creating a budget is fairly simple. You can basically just rename your “cost” field to “budget” and a good chunk of the work is now done. You know your recurring costs are pretty static, for everything else it’s just a matter of estimating how much you believe you will spend on each category you have created and then make that the budget. So for example, last month we spend $197.35 on Groceries. The month prior lets say we spent $205.67. So for our budget, lets say we will set aside $200 to be our grocery budget. For gas, we will say it will be $110 even and coffee we’ll say we want to set aside $70. Continue in this fashion though all the non-recurring expenses in your list. Here is an example of how it should now be looking.

If in step 5, your expenses were more than your income, continue to Step 7. If your expenses were less then your income, continue to Step 8. Bet you weren’t expecting a choose your own budget adventure were you?!

 

Step 7:

So your expenses are more than your income. If you are finding yourself swimming in debt, then this is actually good news! Why? Because it means you have identified a key problem to why you are in debt. To fix this, you simply need to adjust your budget until the amount you are spending is under what you bring in. Start this process by first seeing if you can reduce your spending under your categorized items.

 

For example, can you maybe reduce your coffee spending by half each month? Could you skip the potato chips at the store and reduce your groceries to $150? Don’t just look at your categorized items either, look at your recurring expenses. Do you really need Netflix and YouTube TV? If you find yourself using one more than the other then you can look at cancelling the service you use least. If you are truly in a financial bind, you should consider cancelling everything except the absolute life necessities. This will suck big time short term but can provide much needed financial relief depending on your situation. There are some great hidden tricks you can use on some services which I will write about and link here at a later time.

 

Step 8:

Congrats! Your expenses are less than your income! This is fantastic, and a major milestone when creating a budget. Now the next step is to utilize that extra money to work for you. While you do want to make sure you are bring in more than you are spending, you also want to make sure that at the end of the month, you have utilized every free dollar you have.

 

For example, if you are in debt, then this extra money should probably go towards paying that extra debt down. This can be done through various methods such as the Snowball or Avalanche method or my own method which I will detail and link to later. If you are not in debt, then you should look at putting this extra money into a high interest saving account, retirement or investment account. This will allow you to not only put it away somewhere, but allow that money to accrue interest and grow over time.

 

Step 9:

Check your budget daily! An important part of creating a budget is maintaining it! To truly get reality on what is happening with your finances, check your budget daily. As your recurring expenses come in and you pay them, mark that they are paid by putting the amount paid in the column to the right of them. This basically makes this column your “Spend” column. For non-recurring expenses, as they occur, add this to the running total spend for that category. For example if today I bought chips for $5 and I had already spent $13 under groceries, then I would add the $5 to the $13, so my running total for groceries would be $18.

 

Step 10:

From here, budgeting is a balancing act between steps six through nine. The goal is to apply self discipline on your spending so that you do not overspend in any category you have defined. If you do, then you will need to rework your budget, reducing how much you will spend in another category to make up the shortfall for your overspending. Remember, your budget is based on the amount you bring in a month, so any overspend has to be either taken from something else in your budget or more money has to be earned to cover it.

 

Creating a budget this way can be a lot of work, but at least for me, this is what it took for me to really grasp what my finances were doing and how to handle it. However, as I mentioned earlier, there are many websites and programs out there that make this process a lot easier. My only recommendation is do make sure you understand the basics mentioned here so that you understand the principles with which these programs and tools operate.

 

Websites & Apps:

Personal Capital

Mint

Every Dollar

You Need A Budget

 

Get Out Of Debt And Stay That Way In 5 Easy Steps

Get Out Of Debt And Stay That Way In 5 Easy Steps

Have a lot of debt? Spending more than you make? Nothing can be more terrifying than the realization that the bills sitting on the table far exceed what you have in your account. There are many reasons you may find yourself in this situation that have nothing to do with poor spending habits. Regardless of how you find yourself in such situations, there is a way out. So, if you want to get out of debt, or guarantee you never find yourself in it, then read these 10 easy steps to get out of debt.

Step 1: Change your viewpoint

If you are in debt, whatever viewpoint you had on your finances is not working. So the first step then is to change it. Fortunately for you, if you are reading this, you have already completed this step, so congratulations!

 

Step 2: Confront your finances

To get out of debt, you need to confront your finances. This may seem dumb and silly, but you would be surprised how many people, both financially affluent and otherwise are not actually doing this step. Confronting your finances does not mean assuming you are making enough to pay for things. It is truly knowing that you do. If you are properly confronting something, then you can control it. So it follows that if you are not in control of something, you are not actually confronting it.

 

Do you know or have a list of what all your recurring expenses are and when they are due? Or how much you spent on gas? If not, you should start by taking a look and really understand where your money is going. Create a list of all your bills and when they are due, categorize your different spending and understand how much you are spending where. Later after Step 3, this can be further expanded to making sure that when a bill comes in you handle it immediately. Don’t throw it on the counter to handle it later or worse hope it will eventually go away, because it won’t. In fact, it will cause you even more headache down the road!

 

Step 3: Get Solvent

Before you can begin to get out of debt, you first need to make sure that what you are bringing in is covering how much is going back out. The next step to confronting your finances is to then handle them. This will include making a budget and working it and re-working it until the amount going out each month is below what you bring in. This is the step where difficult decisions may need to get made, the step where you may need to give up things like your Netflix or Spotify, so that you can get control of your finances. Check out this detailed guide for help with this step.

 

Step 4: Pay it down

Sounds simple but there are actually a lot of methods and strategies to doing this step, popular examples include the Snowball or Avalanche method. The basic premise is exactly as the name suggests, use any excess money each month towards paying down the debt. I’ll talk about and link to my own strategy to this a bit later.

 

Step 5: Go back to Step 2

Did you catch that last line after Step Two? the one that said it could be further expanded to handling bills immediately? Did you pay attention in Step 3 where I said you would need to work and re-work your budget? The simple truth about managing finances and your budget is that it is a cyclic process. This makes sense right? Life happens; You may get an unexpected expense or maybe you get a raise or get married or have kids. As life goes on your financial situation will change. To match, so must your budget. Truly staying on top of it all is making sure you are always confronting, ensuring you are solvent and paying down your debt.