More Money Monday: Step 3

Now that you've begun tracking your spending, and have identified your goals, it's time to get started on your budget! 

Step 3: Income

Step 3 is pretty straight forward, think about where your incoming money comes from and write it down. Easy as that! It should be a bit easier than other steps because it typically stays a lot more steady and it's easier to figure out than say how much you spend on entertainment or groceries. You may need to dig through the filing cabinet or look online at your bank account to find some of the information, but once you've found it you'll be well on your way. 

To get started, use this free printable and fill in the columns, following along with the points below. 

1. List the ways that you receive money. Some typical items here would be your pay cheques, getting a bonus from work, maybe you make a little bit of money on the side through contract work, being a Mary Kay lady or somesuch, or even babysitting. 
On our budget these lines include Cass' pay cheque, Philip's pay cheque, Philip's work bonus, our tax return. We also have a line for miscellaneous revenue to allow a place for any gifts or unexpected money we take in, and a line for payable which helps us to track money that we've received but know we need to pay back out right away (say, if we earned money that hadn't been taxed, and we want to make sure we aren't led into thinking that the money we got is all ours). 

2. Calculate the amount you receive each month or year for these items. You'll find that it's easier to list things like pay cheques monthly, and things like tax returns yearly. For the annual budget, multiply bi-weekly paycheques by 26 to see how much you're raking in each year.

It's as easy as that, you now know more about your income than you did before. 

Extra Credit:

1. Now that you've tracked your income, look at your goals sheet and see if there is anything you can add that is income related. Do you want to make more money? How will you achieve it? Write these down in the "How I can drive this income" column.

If you're handy in excel (Philip is, I'm not), you can create your budget in the computer so that as you manipulate numbers you can see what it can look like with some of the differences you plan to make through your goals.

More Money Monday: Step 2

Step 2: Launch Your Debt Rocket

NOTE: This is the fun part. This is the part where you get to dream about what you want your life to look like. So if you've gotten rolling on Step 1, this is a sweet reward for your continuing efforts.

Everybody's done cheesy goal-setting exercises before, so it might seem somewhat lame to yet another one just because we said so. But this isn't going to be cheesy because this isn't a goal for your eighth-grade basketball team and this isn't a goal for drinking eleventeen glasses of water a day because Dr. Oz said so. This is a goal for you, for determining what you want your life to look like, and how you can set yourself up financially to make that possible.

Here's a free printable for this exercise, take some time either on your own or with your spouse or fellow budgeteer to sit down and answer the questions. When you're done hang it somewhere visible to you daily as a motivator and reminder.

Keep your answers as direct and concrete as possible. This makes them more measurable and understandable. And a big hat-tip to Dave Ramsey, whose Debt Snowball is a big inspiration for this piece.

First question: "Understanding the richness of my life isn't determined by my bank account or my toys, is there one luxury that I dream of having?"

This is your dream, your aspirational goal. For Carl and Ellie Fredricksen, it was moving to Paradise Falls. For Cassondra, this would be going on regular vacations. For Philip, this would be owning a hot tub or building a media room. Maybe for you, it's having built your own home, paid off your mortgage, sent your kids to college, and/or having built a dozen freshwater wells in Africa. (Sorry, was that a Jesus Juke?)

Second Question: "What are all the obstacles standing in my way of acquiring that one luxury?"

This is your Debt Universe into which you’re launching your Debt Rocket (we’ll kill this metaphor yet!). Here you get to list all your debts (from smallest to largest) and how much you’d need to save to reach your version of Paradise Falls.

A quick word on owing money: Debt is a the single biggest threat to your financial future. And while home ownership might necessitate a mortgage, there's other debt like student loans, car loans, and credit card debt (especially credit card debt) that can kill your dream before it even gets off the ground.

On top of that, debt is expensive. Add up all your debts that are not your mortgage and multiply them by the annual interest rate. For example, if you've got $2,000 worth of car loans at 6% interest, that's $120; if you've got $900 of credit card debt at 28% interest, that's $252/year that you're paying that you won't have to anymore!

So list all your debts, how much you’d need to save to achieve your dream, and get ready for...

Third Question: "What are 3 things that we can do without, starting today?"

Say hi to your Debt Rocket Boosters!

“Wait,” you say, “didn’t you say at the top that this was supposed to be fun?”

“Yes,” I respond.

“Well, I’ll admit the first question (deciding what my aspirational goal is) was fun,” you continue, “but then you had me write down all my debts, and the amount of money I’d need to save, and that wasn’t so much fun!”

“Uh-huh,” I respond.

“And now!” you exclaim. “Now you want me to give up stuff? How is that fun?”

“I admit it’s not all rainbows and lollipops,” I acknowledge, “but bear with me here.”

Look at your aspirational goal. How cool would it be to get there? Very cool. Popsicle Pete-cool. So this is fun, because we’re giving up things that are less cool than your ultimate dream, in order to get you to your ultimate dream faster.

So come up with a plan to put extra money against your debt. Write down "Give up my morning coffee from [insert your coffeeshop here]." Add it up for a year: even just $3 every weekday for coffee adds up to $750/year!

Or write "Cancel our cable TV service and switch to Netflix.” It’s easy to drop $50-$100 a month on cable, but Netflix has tons of shows you can binge-watch to your heart’s content for only $8/month (with a freebie to get you started). Even if you’re on the low end of cable TV costs, you’ll be saving over $500/year with this switch.

For us, a few things we’ve sacrificed include Philip driving to work (he busses), cable TV, and a few games’ worth of our Blue Bomber season seats. With those three changes, a conservative estimate suggests we save about $2500/year. It’s not easy, but when I remember that we’re $2500 closer to soaking the winter blahs away in a hot tub or one day having a “Winter Cruise budget,” it’s a lot easier to stomach.

So what’s your aspirational goal? What are you giving up to get there? Make note of it in the comments so we can all cheer you on!

More Money Monday: Step 1

We're going to be doing a new series here on the blog each "Money Monday". We got the idea because we've been realizing how challenging personal finance can be, especially when you're renovating, also because a lot of you showed interest in a post we did a long time ago related to finances. Philip in particular has done a lot of work setting up a budget for us here, and we figure there's no reason more people shouldn't benefit from our hard work.

We've broken it down into a month-long process that should help set you up for financial security. Along the way, we'll even provide some free printables that should help you along as you get rolling. So without further ado...

Step 1: Start Tracking

This might be the hardest step of all, and it's really very simple:

Every time you handle money, you write down what you did.

Complicated? No. Time-consuming? Not really. Requires discipline? Yeah, a bit. So to help you, here's a printable that you can use to keep track of everything.

As a method for keeping track, we suggest the following:

1. Empty your purse, wallet, or pockets of all your receipts. Put them in a separate place (or better yet, deal with them however you planned to deal with them in the first place).
2. Every time you handle money, get a receipt. (If you can't get a receipt, i.e. if you're doing something online, then perhaps write it down on a Post-It.) Put the receipt/Post-It in your pocket/wallet/purse.
3. At night, before bed, empty all the receipts/Post-Its out of your purse/wallet/pockets. (If it's just one day's worth, there shouldn't be too many.)
4. Keep the printable from above beside your bed with a pen/pencil. Write down your receipts before your head hits the pillow.
5. Decide how you will handle receipts. We put ours in a box with other papers to be shredded, and our bank hosts a "Shred Day" once in a while where we can take the items to be shredded at no cost, if you have a shredder or a friend who's generous with shredding privileges - that will work too. 

This doesn't sound like a very helpful step in terms of saving money or budgeting, but you can't budget effectively unless you know where you're money's going presently, and if you stick with the process for the whole month, you'll have developed a good habit and will have an excellent base of knowledge for making your money decisions easier.

Next week, we'll be talking about setting goals and start getting into the actual creation of your budget. Take advantage of this easy week and starting a great habit of writing down what you spend and spending money with intention and planning.