Understanding Your Money Check the Paycheck Before we get started. Are you doing this alone? If so, fine. But if you have a spouse or any other person that shares the bills or financial obligations, make sure they are involved in the process with you. It is very important, because where and how much money is available will change things for the better - or worse. There are a great many of us still living paycheck to paycheck. I am not going to be the one to tell you whether that s ok, or it isn t. What I am going to tell you is that while you live like this, you can take steps to help control what that looks like. It s time you mastered your money! 1
2 What does it mean to have Mastered your Money? Mastering your money means you control it, instead of it controlling you. I am in control! (You said to yourself) But are you? Do you know how much is in your accounts right now? Do you know if you will have enough to buy what you need before the next paycheck comes in? Do you even know what that paycheck will be? Even if you know how much you will be paid, chances are high that you expect there to be money left over - and sometimes there just isn t. Figuring the Income Take a look at your last few deposits. Are they basically the same? They are if you are in a Salary position (always making the same regardless of hours worked). But if you are an hourly employee, your income might differ quite frequently. Factors such as holiday pay, overtime pay, switching shifts, requesting time off (and the list goes on) will alter how much you make, and maybe how much taxes are taken out of your hard earned income. The first thing you need to understand is what you can actually count on when it comes to bringing home the bacon. Being Salary is the most dependable way, but hourly can be dependable too. If you are hourly, I recommend sticking to a strict schedule and doing your best not to deviate, unless of course it is to make extra cash. Before you can start plugging numbers into a spreadsheet, do your best to figure out an income that is reliable. Please don t shoot yourself in the foot by fudging the numbers and making it look like you earn more than you really do - you will only hurt yourself doing this. Details (They Matter) 2
3 Did you figure out your income? Great. The next step is to put it on paper to start making this official. Or better yet, a spreadsheet in Excel (and I promise no special skills are required), or if you have a Smartphone, you can plug your income into an app. There quite a few apps out there available in the marketplace for free. If you are a iphone user, I personally recommend Numbers. This is a very straight forward app that does the work for you. Even having the work done for you is nice, I will still show you how to do it in a more manual fashion which will give you a better understanding. Income (Yay!) Regardless of what your income is, you will want to place it in Excel. Above I have given you a mock up of what this should look like (pick your own colors - I think green is appropriate though!) 3
4 If you have multiple lines for income, whether that is you having more than one job, or if that means it s your income plus someone else s income, separate them here. Now I want you to get to know this one simple Excel command that will make your life so much easier! =SUM(A1,B1) The =SUM( are the main parts of the equation. The A1 and B1 will be replaced with whatever box your income numbers fall into. What happens once you close the bracket, is wonderful. It takes the numbers you inserted and adds them together for you. Yippee! Give this a try until you understand it s proper use. Keep in mind that the Total Income line is where this command goes. Expenses (Boo!) Once that is accomplished you can move on to the not so fun portion. (Sorry!) The Outgoing money that you spend through your days and weeks. 4
5 As you can see in the example, there is a lovely list of potential outgoing expenses that can occur. It is your job to make a list for yourself. One thing that isn t on this example is a date (that you actually pay the bill or the money leaves your account). To help yourself for future refreshers, it would be wise to add a date column of when these expenses leave your account. This helps you in two ways. First, you can see if the beginning, middle or end of the month is more top heavy with expenses than other times. And secondly, if you need to replace one of these expenses, for example, you buy a new car - you can see when you normally pay for that in the month and try to replicate the same buying date. Now on your Excel spreadsheet, start making a list of the expenses you have and how much they cost you. Don t worry about it looking pretty at this point, or even in order (you can sort the information anytime you choose). 5
6 Once you have them all listed, use that fancy new equation I showed you =SUM( ) to make a new total at the bottom. But what kind of expenses do you put in here? (One might ask). Well, that depends on you. If you only want to consider things that are actually bills, then just do that for now. If you want to take this a step further, you can add in a Gas allowance, a Grocery allowance etc. You can consider anything a bill if you want to. Once this is all done, I will then show you how to arrange your money in the bank to help fulfill your needs. Back to the spreadsheet. Have you typed in all your expenses? Is the Income total bigger than the Expenses total? If so, good! If not, then you need to figure out which expenses can be stopped, or find a way to add more income to make the lifestyle work. Reality Check It can be a harsh reality when we look at our finances under a microscope. At this point in the process you have now seen how much money you actually spend each month on the stuff we claim to need in our lives. I strongly encourage that you evaluate what you pay for on a month to month basis and decide if you really need it or not. As a young kid growing up, I was always told that a penny saved is a penny earned. Needless to say I thought this was ridiculous on many levels. But, now that I am older and a little wiser, I see the value in this statement. Another example is of a particular department store of which I will not name. They like to tell you how much you saved at the bottom of your receipt so you feel 6
7 good about yourself as you leave the store. It helps justify that you just spent money there, and overall makes you want to go back and do it again. The only number you should pay attention to on that receipt is what you spent. In reality, you saved nothing - sorry! If the receipt shows I saved $150, but I spent $100 in the store...then I spent $100. The $150 I saved will not appear in my Savings account the next day. This is what it means to understand your finances. At The Bank When it comes to arranging your money, there are many different ways to make it work. I am going to show you the simple approach, and if you feel empowered to look beyond that and do more, then go for it! 1. Open up separate accounts. a. You probably have a checking account open right now. And I would be willing to bet that your bills come out of that account too. If I am right - keep it that way. Open up a second checking account. 2. In the New Account a. Make this account the only one you use for day to day expenditures. By this I mean gas, groceries, dinners out, the movies - whatever. 3. Have a Savings Account a. You need at least one savings account because, well, saving money is important. Here s How It All Works In the first checking account (which you can probably nickname). Make this the account that handles all your bills, and ONLY your bills. You have a number on your spreadsheet of how much 7
8 money you need each month to pay your bills. Make sure this account has that much money in there. In the next checking account, let s calls this Daily Spending, allow whatever excess funds you have AFTER paying your bills to flow into this account. However much that is, that is now your budget for paying for gas and food etc. If you took the extra step earlier on the spreadsheet, you might have a good estimate on how much you spend on gas and groceries each month, but if not, that s ok. You now have a cap, or limit on what you can spend. Remember: You should not touch your Bills account ever if you re running low on funds. Out of the extra funds, you will want to make sure a certain % that you are comfortable parting ways with goes into the Savings account. (You could set up money to go into Savings as a Bill to make it easier - I do!) If you follow this flow, you will have what I like to call Stress Free Bill Pay, because you will always have money to pay your bills. But what about Bills that vary from month to month? Excellent question! Now you re thinking like a true Master of your money! For bills like Utilities that go up and down, or Credit Card payments that come and go, there is a simple solution to these. Higher is safer. I will give you a real life example from my own home. My electric bill at one point was in the ballpark of $180. This was due to hot weather and an older AC unit outside keeping the house cool. But when we didn t need to run the AC or use heat that much, the electric bill dropped to around $120. That s a $60 savings! If you are ahead of me one this, you can see that by keeping the assumption of a high bill cost, I am always covered, and when it s low, it gives me wiggle room in my account. Here s the 8
9 awesome part! At the end of the year, look at your bills again, and see if they are the same. If they are, check your account and figure out what your overflow is - whatever is extra you can use for whatever purpose you like. Christmas presents? More money in Savings? A separate savings for a vacation you want to take? You pick - you ve earned it! (Literally). Welcome to the Club - You are now a Master of your Money! Copyright of A Life of Heart, Jason Atkinson owner and CEO. Not all outcomes and experiences will be the same. The views and ideas expressed here within are the sole responsibility to act out by the participant. Each person following these steps will have different desires and therefore different examples of right & wrong financial decisions. The views expressed here within are made to provide a guideline of which to live by. These statements have not been evaluated by the SEC. 9