28 - How to Achieve Your Financial Dreams

Everything you or your teenager / young adult needs to know about how to manage their personal finances. Avoid financial stress by following this simple plan and start building habits that will inevitably result in better life choices when it comes to money.

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Episode Transcript

[00:00:00] Intro Sequence

[00:03:15] Hello everyone and welcome to another edition of the Aspire healthy living podcast. I'm your host John Oden. I'm extremely excited that you've decided to join us today. We're going to be talking about a very actionable and useful topic so this is going to be a little bit less high level and philosophical than usual and a little bit more practical and detail oriented about the specific tactics on improving your life in the specific way we're going to be talking about today and the general topic I would like to discuss is financial management. And I know finance can be somewhat of a boring topic but I'm going to keep it extremely simple. And we're just going to focus on what is necessary for you too. I was going to say be financially successful but it's less about overall financial success and it's more about having a financial plan so that you don't get into a situation where you're extremely stressed about finances. We all know that stress is very unhealthy for you and can take a toll on your body. In addition to other areas of your life and I would say the number one or possibly the number two largest stressor out there is financial problems. So if you engage in healthy financial management practices or sound financial management practices you are less likely to get into a situation where you're going to be really stressed out about money and therefore you're less likely to be in a situation where that stress is going to negatively impact your life.

[00:04:51] Now I'm also putting this this episode together from the perspective of if I had like a teacher like a teenage child or a teacher I guess child is not the right word for a teenager but if I had a teenager and I was trying to teach them about financial management this is basically what I would teach them. So if your child is the appropriate age and that is a lesson that you're trained to teach. I think maybe sit down and watch this episode with them and talk through it with them. But at a really high level financial management and again I have an MBA in finance so I have a very very strong background in financial management and I've also run many probably five. Well it's an exaggeration let's say for many companies but let's say three companies from a chief financial officer kind of perspective and then some additional companies from a founding entrepreneurial perspective and they're both very similar. So if you understand how to manage your personal finances you're also going to know how to manage business finances if you're an entrepreneur and you're in that sort of situation. So the way to think about financial management and I'm going to kind of try and explain accounting in two minutes is there's there's two main things you need to be looking at and one is am I spending less money than I make on a month to month basis. And if you spend less money that you make on a month to month basis and you do that forever you're going to end up in a good financial position or an in a real very real sense.

[00:06:24] I consider always spending less money than you make an interesting alternative definition to being rich that that that is in a sense being rich because if you always spend less money than you make you're not going to feel like you're going without because you're going to be taking care of your own needs and then the other side of that is over time. What is the what is the cumulative effect of all of these months and months and months of financial activity. So what happens this month and spending less than we make this month. Is is equivalent to what's called the income statement and accounting or the PNL also known as the profit and loss. Those are all words meaning the same thing in accounting but it's basically the money coming in minus the money coming out. And what's the left over which would be called profit in the business. And you can kind of think of your household as as a little micro-business in that you want the business that is your life to be profitable on a monthly basis. And that would that would typically include you know money from a job minus the expenses to live your life equals hopefully hopefully money left over zero left over is an acceptable outcome less than zero leftover it means your financial situation is getting worse as a result of that month. So you want to be in a position where with each passing increment of time it's a damn talking about a monthly increment. You could also look at it as a yearly increment but with each increment of time you're you're doing better financially you're financially better off.

[00:07:57] And then the cumulative effect of that is is kind of your general financial position and that if your general financial position is that you have millions of dollars that's usually called being rich and your general financial position is kind of equivalent to what we would call a balance sheet and accounting.

[00:08:17] So the balance sheet is is saying essentially over time we have accumulated certain assets and we have accumulated certain liabilities and what and what does that look like. So you may own a car that's an asset. That's something that you own that is valuable. That is not like physical dollar bills but owning a car is still still owning something that is valuable and using it using owning a car as an example if you own a car outright.

[00:08:47] If you have the asset of a fully owned car was no debt on it then that means you'd no longer have to pay a car lease cost or a car or a car loan payment for example so usually assets. The reason why an asset is so good is because it usually cuts down on your expenses. If it's an attractive asset now it's possible to own assets that are not financially attractive. But we will not get into that today. And then the liability side is saying how much do I owe. So let's say I made a thousand dollars this month but I only spent 900. I'm a 100 dollars better off. That's like the income statement. That's what happened this month.

[00:09:30] But what if I already owed $200000 then than my overall financial position would be weak but I would be making. I would be making incremental progress towards resolving that financial situation and therefore I would still be moving in the right direction. So the two key levers are over this period of time we're talking about monthly in this example. Are we moving in a positive direction which would be which would be not spending all of our money that came in this month and then over the long term what is what is the net effect of that. So for most people or for a lot of people and unfortunately I'm included in that category but I very much have a plan to resolve that they've accumulated a number of liabilities and it's going to take time to pay off those liabilities. So speaking for myself personally I own money on a on one credit card.

[00:10:24] I own a fairly significant amount of money on my student loan and then I have some personal loans and some other debts that I need to work through so I have my overall financial position is not as strong as I would like it to be but I have a plan to get it to where I want it to be and therefore it doesn't stress me out in the way that it would if I owed all this money and I was and I was accumulating more debt all the time. So I would say financial stress is. It's your general financial position like you're less likely to have financial stress if you're rich versus if you're poor. But really the generator of financial stress is whether you're moving in the right direction or not because being in a bad financial position but being on a solid plan to have it resolved in a timely fashion is not very stressful. Being in a bad financial position and and head and hemorrhaging money where you're getting in a way worse financial position every month that is extremely stressful. And even if you're very wealthy Let's say you had five million dollars in the bank if you had $5 billion in the bank but you were losing a million dollars a month because you were spending way more than you were making. And even though by most people's definition today you are rich, clearly you're on a path to not be rich very soon because your money is going out the door so quickly and that that is extremely stressful as well.

[00:11:49] So contrary to popular opinion Rich people can experience financial stress and in many ways it's been my experience that rich people just had larger.

[00:11:58] Yes they have more money coming in but they also have many more bills than a non-rich person so to sort of conclude the introduction. I think financial stress is one of the most one of the one of the most impactful types of stress that can really affect the quality of your life.

[00:12:17] Probably the only thing that can cause as much stress as relationship problems but that's a that's outside of the purview of today's topic. And really financial stress is about a feeling of whether or not you're moving in the right direction or not. Your financial situation getting better over time. Or is your financial situation getting worse over time.

[00:12:38] And of course sometimes there's going to be things that happen that are that are unexpected that you're going to have to deal with. And so I'll outline in this in this plan we're about to talk about how you will put yourself in a position to be ready for this the for the road bumps that inevitably come up in live there are going to be expenses that are unexpected and that's inevitable and you want to put yourself in a financial position where you can handle that. So what I'm going to recommend so that your so that you're moving forward in a financial sense every single month so that you're spending less than you make every single month. I'm going to recommend a tool called a budget and very similar to what you know a recommendation to eat right and exercise. The vast majority of people know that they should have a budget. And they understand the basic idea which is like write down your write down how much money is coming in and write down your expenses and see what that looks like so that you have a plan for your money on actionable plan. But the vast majority of people are unwilling or unable to actually accomplish that.

[00:13:47] That relatively simple task of creating a budget and actually now that I say that I believe everyone is capable.

[00:13:54] Everybody with the vast majority of the population has the mental capacity to prepare a budget.

[00:14:04] But financial planning can be very stressful and so it's it's easier for a lot of people to just try to avoid avoid looking at it and just pretending like pretending like they can just spend however they feel like it and that and that things will be ok.

[00:14:23] People kind of know that's not OK but it's sort of scary to get a plan because then you have to look at the reality of your situation. So I very much feel like the best way to approach this is in sort of a small steps method and in an episode coming up quite soon we're going to completely explore the method of changing your life using small steps. We'll go ahead and just put that aside for right now. But today we're going to talk about how to prepare a budget. And I have actually created a spreadsheet which will serve as a template that if you're a patron you can just go ahead and download and it's going to it's going to provide a structure where you can just type in type in the relevant answers to the questions and then bang you have a budget. Now I would say from my personal experience the first month when you write down your budget you're going to try and list all your expenses you're going to try and guess how much each of those expenses is going to be and.

[00:15:22] Your original guesses are not going to be highly accurate and that's OK. But over time your guesses will become highly accurate so if you think for example let's say haircut the very first month you may say OK I'm expecting to spend $50 on a haircut but then when you actually do go spend money on a haircut you know like oh I spent $35 on the haircut and then the line in your budget that says haircut it now gets adjusted to say 35 instead of 50. And after two or three months you not only have a comprehensive list of what your bills are. You have a very highly accurate guess about what. The exact amount of those bills is going to be. So. At first my what my budget was not particularly useful but after two or three months. And now let's say six months or a year after using this plan my financial budget is so ridiculous accurate. I could basically tell you to the penny what I'm going to spend a month in advance. With the exception of some some minor. Budgets which vary from month to month in the main the main two that seem to vary relatively the most dramatically are basically the the grocery budget to an extent but mostly that's the dining out budget. That's that's that's the budget that is most likely to change based on my whims and based on my circumstances. So one month a couple of months ago we had a hurricane and I ended up eating out a bunch more than normal and so my growth my dining out budget was a little bit higher than normal. But.

[00:16:51] My guess about what my rent is is accurate to the penny. My guess about what my medical insurance is is accurate to the penny etc.. So in the grand scheme of things it's relatively easy to get a detailed picture of what's going on with yourself financially so that you can plan and so that you can make decisions. And so we're going to go ahead and walk through the specific spreadsheet that I prepared for patrons to use if you're not a patron. This same logic still applies. You could prepare a very similar thing in a spreadsheet. The spreadsheet program I'm going to use is classic Microsoft Excel I think 2010. Basically I have an antique windows computer that I use just for spreadsheets because I'm a little bit of a spreadsheet nerd but you can use any kind of spread sheeting program. Spreadsheets are basically this is the exact use case that spreadsheets were designed for. Spreadsheets are basically a way of writing out data in a list and connecting those with numbers that can be added or subtracted very easily. So I'm going to walk through how we how we fill out this budget and how we think about this budget to prepare ourselves for financial success.

[00:18:04] Ok I'm back. We're looking at my computer obviously we're looking at a spreadsheet which is the monthly budgeting tool which is again available for free for patrons but you can create something very easily from scratch which is fairly similar. So these are not real numbers these are numbers I've just made up. Obviously everybody's financial situation is going to be a little bit different. So you would be filling in these numbers for yourself and you would be filling in the specific items. But I tried I've tried to list what I think are common bills and provide space where additional bills can be added. Ok so let's just let's just start at the top and walk or going through it here. So revenue is how much money you expect to receive this month. And if you're a typical salaried employee I would expect I would basically add up all the paychecks you expect to receive in the month. And to be a little bit technical I would use the net amount rather than the gross amount. So the difference is let's say you get paid let's say this person is making $4000 a month. And they get paid twice a month $2000 that's that's $2000 after tax after. What am I trying to say. You want to enter the amount of money that you're actually going to receive not the amount of money before taxes have been taken out. So whatever the. You make a certain amount of money and then taxes are taken out and then you get a lesser amount and that's called that's your net pay.

[00:19:39] You want to add up your net pay that you expect to receive within the month and put it here because you're basically going to receive a certain amount of money and then we're going to subtract each of the expenses out of that and hopefully there's going to be money left over to improve our financial situation at the end. So revenue is relatively straightforward. The only time I've run into it that it might be difficult is if you're self-employed and your income from your revenue from month to month is highly variable. If that's the case go ahead and just put the best guess about what amount of money you're going to make this month. And if you're less certain about the amount I would err on the side of less rather than more like it's not a problem if you make more money than you're expecting to make but it is a problem if you make less money than you're expecting to make. So related to revenue you want to basically guess low if there's if there's a question about how much money you make. Although if you're a salaried employee you're probably going to be able to tell you know to the penny how much money you can expect to receive this month. But just for simplicity let's say this person is going to receive $4000 over the course of this month which which is just kind of a round number to work with. Now this next section is recurring monthly bills and that's basically bills that you receive a bill for.

[00:21:04] And actually for out once only just type it in right now which is telephone so you can see as you as you think of bills like I just thought of one right now which is telephone expense. And then you want to guess how much you're going to spend in the month on that expense I guess to $100. Now unlike revenue where you want to guess low on the expenses you want to guess why. So you want to you want to enter like the largest amount of money it can reasonably cost not an absurd number but you want to enter if it's if it's a 90 dollar bill go hidden in your 100 you know type of a thing because again an expense larger than the budgeted amount for that expense is a problem. But if an expense is smaller than the budget amount. That just means you have extra money that can be applied to savings or whatever. So for each of these numbers you want to get as accurate as possible but to the extent there's uncertainty you want to get high rather than guessing. So let's just walk through these here. Presumably your pay you know if you're not living with your parents presumably you either have a rent or a mortgage payment. Let's say that was a thousand dollars so all we're doing here is we're listing what our monthly bills are our recurring monthly bills that are predictable in advance and we're writing down what those totals are. Now I have a pretty significant amount of credit card debt you know left over from my now defunct marriage. And so that's actually an accurate number for me. I pay $400 a month in credit card debt. Unfortunately I'm very much looking forward to reducing that amount.

[00:22:42] A lot of people have student loans and so you would would enter what is your monthly student loan payment. And again that's going to be all of these are highly variable from person to person so I'm going to stop saying that just assume that these are highly variable expenses from one person to another but but for you your student loan is going to cost you the same amount every month unless you refinance it. So once you have the list of your bills and over time you'll get the numbers associated with those bills to be accurate. You're going to have a good financial picture. Now let's say you had finished your budget but you had forgotten one of the bills like just now I had forgotten the telephone expense. Then you just load up your budget you add the telephone expense and you adjust accordingly. OK. So a lot of people have car loans if you have a car you're going to have to pay car insurance on it. Most people are legally required to have medical insurance which unfortunately is quite costly in America dental insurance potentially other types of insurance like harrying identity theft insurance personally which cost me $10 a month. Haircut most people are going to need to get their hair cut if you work in sort of a professional sector you'll probably have to have dry cleaning. But the point is these numbers are highly predictable in advance. It's not going to be a surprise how much your rent is it's not going to be a surprise how much your medical insurance is. It's not going to be a surprise how much your telephone is assuming you don't have some sort.

[00:24:11] Assuming you're on the right plan and you don't have some sort of horrible overage. OK. And the way a spreadsheet works is you can just highlight all of these and it will actually tell you. Mean just to keep it right here for a second. It will actually tell you what all those numbers added together are. So in this case all those bills together are two thousand six hundred sixteen dollars and ten cents it just the camera here. And there's other ways you can add things up in a spreadsheet. But adding up the individual subtotals is less important than what is the cumulative effect of all of the bills drafted off the money that's coming in. So we've got this 4000 at the top and then we're subtracting off all of these predictable bills and over time this is going to get accurate to the penny. So like car loan my car loan to the penny cost 243 because I drive a very old car. Because that's a decision that I've made. OK. So so that's the first category of expenses. The second category is savings and debt reduction. Because we want some of our money to be put aside for making our financial situation better. And there's really there's really three flavors of that. There's emergency cash which would basically be cash that I keep on hand for an unexpected emergency expense. So you know what if I need to go to the hospital this month. Well all of a sudden I've got my $100 co-pay sitting around ready to spend just in case I need it. Of course I would prefer not to spend it.

[00:25:52] Of course I would prefer not to have an emergency that requires cash. But over the long term you are going to have emergencies and you're going to need cash and that can be physical cash store to your home or that can be stored in a separate bank account which is not mixed in with your regular money. So the way my bank accounts are is I have one main bank account and then I have a second bank account which is still a checking account. But it's it's a checking account called cash savings and that money is not mixed in with with my my normal month to month money. So the best way to avoid getting into a bad financial situation is to have a small emergency cash financial cushion so that you can handle financial speed bumps that that come up along the way. And so I would recommend for everyone to over time accumulate a $1000 emergency cash fund and depending on how much money you make that may take a while that may not take very long. And then you may want to increase that in the future. But I would look at a 1000 as sort of a short term target. If you listen to people who are really into financial planning that they might recommend as much as you know three months of salary being stored as emergency cash. So the point of emergency cash is if something happens that's unexpected. You don't have to go into debt if something happens that's unexpected. You don't have to dip into your retirement savings. You don't have to dip into your short term savings.

[00:27:27] The point of the emergency cash is to basically safeguard all of your other savings from these little blips that happen in life that cost money. You know I need an emergency dental surgery or something like that. OK. The other main type of savings is well there's there's really three I'm assuming that somebody has a salaried job and so their their taxes are being taken out of their salary and their long term retirement savings is being taken out of their salary. So if that does not apply to you then I would maybe add an additional category which is like savings for retirement but I'm assuming that's already been taken out of your paycheck if you're a salaried employee. So with that as the backdrop the other main type of savings is short term savings and by short term savings. I want to compare that against or compare that to retirement savings retirement savings and 37 today. If I had to be saving for retirement which frankly I do not happen to have but if I did then I would be targeting you know retiring when I'm 60 or 65 and I would want to not spend any of that money until I'm 65. Or when I'm ready for retirement versus short term savings is more like savings for a short term goal. So this is not money that I'm going to spend this month. But what if I want to go on a vacation in three months to Alaska. Well if so I'm going to have to save up for that. And that trip to Alaska and so that would be my short term savings. So short term savings is saving up for a large expense that's in the relatively short term like within a year or two.

[00:29:07] Or like I'm saving up to buy a car or whatever there's plenty of things that you can save up for but it's the point of short term savings is not an emergency cash cushion. That's what the emergency cash is for and it's not to retire on. That's what your retirement money is for. It's so that you can save up for things that require more than one month worth of money but are still within sort of a short term time horizon. So the reason I have that set is zero right now is I sort of see emergency cash in short term savings as of course if you're able to aggressively say you can do both. But I think of them as one or the other. If you if I didn't have any emergency cash I would apply all my savings towards saving up emergency cash till I had that thousand dollars or whatever amount of emergency cash that I felt was necessary and that would then put me in a position where I could move on and maybe the next and once I have my emergency cash then I no longer allocate money to emergency capital to start allocating money to short term savings or whatever the amount is maybe it's less than 300. OK. So you could apply for both but typically I would say save up your emergency cash and then once you have enough emergency cash start making short term savings. And then the other major form of savings is extra debt reduction.

[00:30:34] And by that I mean up here at the top there's a number of there's a number of expenses that are associated with debts like this student loan is because hypothetically you owe money from going to college you know this credit card is because you owe money that's been spent on the credit card and this car loan is because you owe money that's been spent on my car. And if this is a mortgage you owe money because it's been said that buying a house. So all of these hypothetical items that I've described here but are going to apply to many of you those all relate to debt that has been encouraged to obtain an asset. We were obtaining a house we were obtaining whatever we bought on the credit card we were obtaining an education and we were obtaining a car. So in the right circumstances all this kind of makes sense although it's obviously not good to let credit card debt credit card debt get out of hand so that is mandatory debt reduction when you make let's say this $400 payment on your credit card. Even if $400 is the mandatory minimum payment a certain amount of that is going to apply to the principal that you owe and it's going to reduce the overall principal. So let's say you paid $400 and let's say 100 of it goes to interest but 300 it of it goes to decreasing the overall amount of debt. So when you make a minimum payment on a debt instrument that basically means that a pretty large amount of it is going to be applied to interest versus extra debt reduction. It all gets applied to reducing your debt so paying above and beyond the minimum payments so that you can reduce your debt faster. Is is highly advantageous to getting you in a strong financial position.

[00:32:21] And so even just taking an extra $100 a month and applying that to whatever your highest rate credit card there's different methods to do it. Basically the Dave Ramsey method would be to apply it to whatever your smallest debt is so that you can pay off your smallest debt quickly and get an emotional boost that excites you to go pay off more debt. Or if you're more of a pure mathematical financial person you would probably apply this to whichever debt has the highest interest rate. So going back up to these examples almost always the credit card is going to be the highest interest rate. Like I don't have a mortgage I pay rent. My credit card I'm paying like 15 percent interest versus on the student loan a pay like 8 percent interest versus on the car loan I'm paying like say five or six percent interest so none of those are actually very attractive interest rates given where we are in the economic cycle. But given that reality if I had a hundred dollars of extra debt reduction I would personally apply it to the credit card because the credit card has the highest interest rate so that the savings and debt reduction you can you can. I was going to say either of course you can do all three of these categories but the three categories I'm outlining here are emergency cash so you have an emergency cushion. Short term savings for medium term short to medium term expenses the need to save up for like a trip or a car or something and then extra debt reduction so you can be aggressive in paying down your debts and getting into a stronger overall financial position.

[00:34:00] And again if any of these categories don't apply to you fine just download the spreadsheet and type in something else in that category. That's why I have some placeholders in here like there so you can just add whatever extra expenses you have and then whatever budget you have for those expenses. And again that budget may not be highly accurate on day one but by month two or three you probably will be accurate to the penny that you had your savings and your debt reduction like that like we talked about then you have your variable expense budgets so variable expenses are exactly like other kinds of expenses. It's just that unlike your rent that you know is going to be the exact same amount every month or your telephone bill which is barring overage charges is going to be the exact same amount every month. Your variable expense budgets are going to be much more dependent on your behavior during the month. So like in grocery budget let's say I typed in 600 as a grocery budget. You could either spend a lot this month on groceries or a tiny bit this month on groceries. And of course you want to stay within your budget that's the entire point of a budget. So these are much more of a guess as to how much you're going to spend. You're never going to get within you know within a penny of the correct amount versus like this. The car loan as an example. This is to the penny what I always pay for my car loan. And there's no question about it. OK.

[00:35:24] So the recurring monthly bills are over time they're going to be very easy to predict the amount required. The savings and debt reduction the amount is really up to us and that's going to be very easy to predict. And the variable expenses are also going to be up to you. But there's going to be a lot more variability in it. So there is as in this example I made a $600 grocery budget of $400 dining out and social you know social activities budget. And I would say those are the two that are most that are most variable from month to month. Sometimes I spend a lot on groceries sometimes they don't spend that much on groceries. Sometimes I go out a lot sometimes I don't go out that much if I've just started dating somebody new. Obviously I would be spending more money on my social budget than if I was single and not seeing any money. So those those two and then also the gas budget I have I have created backup sheets that actually refer to that. So this is this is a little advanced if you're building something from scratch but it's already built for you if you're a patron. See when you click over to this grocery tab my grocery budget was $600 and then every time I go to the grocery store I'm going to write you know grocery trip at Kroger amount of $110 just as an example remaining budget $490. OK so this provides a good way of tracking your budgets as you're going off as you're going along the variable expenses are going to actually require you paying attention to where you are compared to your budget.

[00:37:03] So we had a $600 budget this month for groceries and we've spent 110 of it so we have 490 left and let's go over to the dining out budget on the dining out budget it was a $400 budget I vinyard an example meal here which is $30 and therefore the remaining budget is $370. As you can see there. Same thing with the gas budget. So since grocery dining out and gas are more variable than the other expenses I end up taking a little bit more effort to track those OK. Now let's go back to the main budget page. I've also added an item for unexpected expenses. There are going to be unexpected expenses every single month. For example this month a group of my friends said hey we want to go to this event in Tennessee next summer and the tickets go on sale Saturday and it's $80. You know so I ended up spending $80 more than I expected but I had this unexpected expenses item in here and it just came out of the unexpected expenses item so I remained within my budget. OK. Then essentially every month there's going to be the last category here is called one time purchases and one time purchases like this totally. I was going to say totally discretionary spending but it's not necessarily discretionary like it wasn't totally discretionary to take my dog to the vet this month. But I needed to take my dog to the vet this month and I didn't need to take it last. I didn't need to take them last month and I'm not going to need to take them next month. OK.

[00:38:40] So these are more like a one time expense and that's going to vary from month to month so let's say this month I need to take my dog to the vet. I need to do some car repairs. Maybe I'll get a new sweater. You know that sort of thing. And one time purchases are the very most the very most flexible in terms of your spending because like let's say I needed this. I wanted this new sweater but I couldn't afford it then I would just put this new sweater on next month's budget. OK. And how I have that is I have my one time purchases here which is purchases I'm expecting to make this month. And then I basically have a list of purchases that I'm expecting to make for next month. So the reason I bring that up is I have a system to discourage me spending money unnecessarily. And here's the system ok if I think of something I want to spend money on. That's one of these onetime purchases. It's not like my rent or my student loan but it's like a new sweater or car repairs. And Curtis is an example like I don't really have the option of not getting my car repaired if I'm if I need my car to drive to work for example. But even that I could sort of do a minimum amount of car appear if I couldn't afford the full cost cetera. So what I do is every time I think of something like oh I want to take a trip to Dallas or I need a new pair of workout shoes. I write those down in my list of purchases for next month.

[00:40:05] I don't add them to the budget for this month. I add them to the budget for next month unless it's a time sensitive expense like the concert ticket that was only going to be available for one day that I just described. And what that does is it gives me a month to sit there and basically think about if I really want that expense. So again for next month I have a Dallas trip I have new glasses I have new workout shoes but I did have other things on this list that I later changed my mind about. So it's like do you know maybe I want to buy a new hammock. But then later I decide you know what I am. I'd rather have new glasses rather than a new hammock. So this is an opportunity to plan in advance so that you're not doing impulse purchasing because impulse purchasing is a big way of getting into financial problems. OK so your onetime purchases for this month are listed here. Your onetime purchases for next month are listed here. Your onetime purchases for this month and used to be over here on last month's list of purchases for next month. So as a general rule which I try not to break unless I can help it is the one time purchases in the budget have all been have all been sitting in the budget for a month on this part. So I've had a month to think about if that's really what I want to spend my money on. And the upside of this is once the budget is totally balanced and we'll get to that in just a second.

[00:41:34] Let's say I get all my money on the first of the month and I'm able to really efficiently make these onetime purchases I may do them all in one day because I know that I have the money for them because it's in the budget. And so I can really efficiently execute or implement those those specific specific items. Now you'll notice the way the spreadsheet works is there was four thousand dollars and then we're subtracting all the expenses from all those categories.

[00:42:07] So subtracting all that that I've highlighted.

[00:42:10] And the net result which is money coming in minus going out what does that equal is a negative number in this case negative. Eight hundred forty seven dollars. So if I changed nothing and I spent all this then that would mean I would have to put eight hundred forty seven dollars on my credit card. And again that's totally unacceptable on a month to month basis as I have made the decision and I'm encouraging you to make the decision that I want to be moving forward financially every single month. I want to be better off every single month than I was the previous month and the way that I'm going to do that is through financial fiscal responsibility. OK. So you want the remaining cash after all of your expenses has been subtracted off to be a positive number or at least 0. Absolutely cannot be a negative number. Well it can be as a theoretical matter but it is not. It is not wise to have it be a negative number because if it's a negative number that means you're going to have to you're either not going to have the money at all or you're going to have to incur additional debt which is not advantageous. OK. So if I see a situation like this like I've laid out my budget but my budget has eight hundred and forty seven more dollars of expenses than revenue then I go back up here and I say OK well that means I can't spend $600 on groceries maybe I'll spend $400 on groceries and I can't spend $400.

[00:43:37] You know I'm going to the ones that can be changed. Obviously cannot change what my rent is I cannot change what my car loan is but I can say how much I can change how much I can save. I can change some of these variable expenses. So gas budget 60 that feels pretty bare bones. Unexpected expenses that feels pretty bare bones. So. So let's let's say we're only going to do $100 in short term savings $100 in extra debt reduction which is still you know it's it's not aggressive but it's definitely it's it's we are saving money and we're moving in the right direction. Let's go make this 3 a.m. And let's see where we are now so negative 3:47 So we have to find a way to get $347 out of the expenses or a way to make $347 of extra revenue. But that is unlikely over an extremely short period of time.

[00:44:35] So maybe I decide OK well it's kind of a small expense but you're using this as an example let's say I've decided that I can't afford this $35 sweater and suddenly move down here no type in a new sweater and I'm going to think it's $35 and then I'm going to take it off the list here. And it's no wonder in this month's budget it's now in next month's budget so of a key tool for keeping the budget in balance. If if the total remaining cash is negative is to remove some of the onetime purchases and to put them in next month. So for example if it's just a general visit and there's no reason why that is it has to happen this month then go ahead and move that to next month to say dog that appointment misspelled little typo there. OK. And maybe I'm able to call around and get a deal on the car repairs that there's only $300 and let me go ahead and erase that since we're no longer taking the dog to the vet this month I'm just going to copy the label there.

[00:46:05] And so you'll see that the total remaining cash is positive 23:19. So two of you were making $4000 in this hypothetical example. We're spending two thousand six hundred sixteen dollars and recurring monthly bills and then we're saving $200 in various forms and then we have x variable expense budgets of $860 and then we have one time purchases of $300 and that will leave us just a little bit remaining. OK. And so usually what I do is I try and have this number be a low positive number like I don't really want this number to be 500.

[00:46:45] If this was 500 that I would go and I would save more money or do more debt reduction. And also in general what I do is at the end of each month I have a little bit of extra money left over let's say twenty three dollars and ninety cents. And at the end of the month I do extra debt reduction with that $23 and 90 cents as well. So this has been a method for deciding what your bills are and for documenting them so that they're really easy to look at and really easy to make decisions about because you have more flexibility the lower you go on the page. Most of these onetime purchases can be pushed off to the next month if necessary. A lot of the variable expense budgets can be adjusted. You know you're not going to spend no money on groceries but you can spend less or more money depending on how much money you have and similar with dining versus Again the recurring monthly bills are far less changeable. Now the flip side of this is let's say your recurring monthly bills are just completely untenable like you're making $4000 a month but you're spending $5000 a month in rent than that's going to be real obvious because no matter what you do you're not going to be able to get this to a positive number and then you're going to look back at this list and you're going to say why can't I get this into positive territory. Well that's because I'm spending a crazy amount on rent. So it gives you a good snapshot and it gives you a good plan.

[00:48:12] And it also gives you a systematic way to go about paying your bills. So the way that I do it at the beginning of the month is let's say I was getting this $4000 check on the first of the month I would get that $4000 check and then I would immediately pay all these bills and I would maybe put a check mark by him or make these a different color. Actually what I do is a gray amount. So let's say I paid this thousand dollars then I would just pray it out. And that's my little signal to myself that it's been paid. And then I pay the credit card so I bring it out etc. and so what happens is I get into a situation kind of like kind of like this where I can tell like OK I paid most of my bills but I still need to pay this dental insurance and I still haven't gotten my haircut for the month. You know something like that. So it's really useful in helping to make sure that you remember to pay all of your individual bills because you know most of us have a bunch of different bills. So give you a systematic way of thinking about it. It gives you a systematic way of problem solving so that you can get to a solution and planning and then also it's a very useful reference sheet during the month because if I think a week from now like oh I want take a trip to Dallas or whatever then I pull up my budget night and Dallas trip for next month.

[00:49:30] And then I write you know roughly how much I'm expecting to spend on my Dallas trip or whatever. And so I find that I end up pulling up the book pulling up the monthly budget a lot primarily for listing one time purchases I want to make next month and primarily for recording expenses in my variable expense budget. So earlier today I went out to eat and I had a meal and I also went to the grocery store and so I added you know trip to grocery store from that budget. And then also if I was about to decide whether or not I could afford to go out to eat tonight and then I could put my spreadsheet look over at the grocery budget and say oh I have $290 left in my grocery budget. I can afford that. Now let's say you got near the end of the month and let's just adjust this slightly Let's say you didn't have any savings from respected expenses and you did not follow my advice. You don't have any emergency cash sitting around and you had spend let's say 160 on gas it's a 180 on gas and I guess that's kind of a crazy number it was not that easy number for the let's say there was an unexpected one time expense that happened which was you know I can't think of a specific example that's an emergency like concert ticket concert tickets that you had to buy that day or whatever that you didn't know in advance that ended up costing you $200. And this month is already in progress and now you see like oh that means I'm 76 I'm going to be 76 dollars behind if I don't change something then what I'll do is I'll go.

[00:51:15] OK well that means I need to I need to tighten my grocery budget and now it's going to be three hundred and three hundred and twenty say OK. And then that would then be reflected over here in my in my dining out budget.

[00:51:28] And now I only have a grocery budget.

[00:51:33] OK so that would be reflected in my grocery budget. Now I only have $210 whereas I had more before. OK. So there is. You can adjust on the fly during the month as expenses come up but mostly you want to you want to have already included 99 percent of them in the budget and you want to have an unexpected expenses budget so that you can handle unexpected expenses that come up. And that's also why you want to have your emergency cash because if your unexpected expenses budget cannot cover it then hopefully your emergency cash can cover it and you won't have to jostle around the different the different budgets. But it is it is very easy like I was just showing you if you get behind because of an expense that you weren't planning to make to adjust primarily primarily in these two categories are just what's going on so that so that the net result is that you are in a positive financial position for the whole month. So we hope that this has been a helpful introduction to how to soundly manage your financial situation which is going to have the effect of keeping you from getting really stressed out about debt and it's going to give you this feeling like I have a good plan for my future and ambulant lessly executing on that plan for my future. So I hope you find it helpful. I hope we've given you the tools so you can create something like this for yourself if you are a patron please visit the patrons area to download this spreadsheet for yourself so that you can use it.

[00:53:03] And if you have any questions about this or really any subject please go to our website aspire123.com scroll to the bottom and click ask the question. This is very much an audience driven show and we want to clarify any matter that may have been unclear in his presentation. I wanted to make sure to impart some extremely actionable knowledge and I think that this is also really as I mentioned useful knowledge for like teenagers and young adults who are who are in the life development stage where theyre trying to learn about you know what is sound financial management and firmed up for adults who are not actually engaging in sound financial practices because like I said I know that many of us know that we should have a budget but for whatever reason there is maybe a mental block that has not enabled us to prepare a budget so hopefully by using the budget template that I have prepared that will put you in a position where it wont be so daunting to prepare a budget that will be relatively straightforward to prepare a budget. Remember to get high on your expenses and remember that your guesses are not going to be totally accurate at first but as you spend money each month like lets say you had $400 listed for medical insurance but it was actually 378 when you go pay that bill and you change the 400 to 378 and then next month you have the exact amount already there. OK. So thats how it works overtime. The budget is going to get highly highly accurate and it's going to be a very useful tool for you. So thank you very much for joining us.

[00:54:37] Outro