Tracking and Ratios

Tracking all income and expenses is a must for reducing debt. Knowing the ratios income to debt is helpful in know what debt is needed to be reduced.

Article Link:
https://finance.yahoo.com/news/30-expenses-quietly-eat-away-180006082.html?fr=sycsrp_catchall By Andrew Lisa

Transcript

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Hello, I'm your host, Mr. Chuck, a retired accountant turned truck driver, I reduce my debt in a relatively short period of time, debt reduction to achieve financial freedom takes commitment, confidence, determination. Tracking and ratios tracking all income and expenses is a must for reducing debt. Knowing that ratios, income to debt is helpful to know what debt is needed to be reduced. Also, in this episode, I'm gonna include some common things people pay for that is quietly costing you money, and maybe you you're aware of it, but you don't do anything about it type of expenses, that will help you reduce some of your spending, so that you can apply more of it of your savings what you save to paying down your debt. Let's get started with the ratios first, because I talked about it in the last episode. And try trying to understand if you have a debt problem or not, I talked about basically one ratio, your home ratio, your mortgage to income ratio, and if you have an escrow that also includes your real estate taxes, and your insurance, that ratio, that percentage should be somewhere between 25 and 35%. When you include all your household expenses, such as utilities, so a little bit of maintenance and some other expenses, the internet service, then that ratio is probably gonna be somewhere between 38 to 45%. I just want to stress at this point, if one of your categories, now I break categories down by housing, transportation, food, entertainment, savings and debt to the general overview there, if one of your categories, if your income to debt ratio is too high, and one of those categories, then what happened, then what you have to do is adjust another core category, make sure it's lower than average, to offset the one that's too high. So if you bought a home that way, cost you way too much or overbought your home, then you have to give up something else. And that's most likely going to be transportation, you can have 50% of your income going to your home and 50% of your income going to your transportation. Now you have no money left over to pay for anything, such as food, clothing, gas, utilities, and those type of things. So we have to balance everything out. So if you're high in one area, you need to be a little bit lower, you need to be low in one or two other areas. So if you want to learn I'm just gonna give based off my memory, and I may not be exactly right, your housing, which includes your real estate, and your insurance should be somewhere between 25 to 35% of your income. If you want to learn how to compute the things that your gross income, and that would be your monthly payment. Your debt is your monthly payment divided by the same gross income. That'd be monthly gross income. If you want to know exactly all the percentages and rate, what these ratios should be just Google income, the debt ratios, and you'll find plenty of them out there. Your transportation should be somewhere between eight to 20% range or less. Your food is like five to 8% of your income. Your clothing is like two to 5% of your income. Your savings and debt are always keep saying see and 10% but it's gonna be way more than that if you have a lot of credit card debt because you need to pay us down. So 10 to 20% of your gross income is going to go to either in your savings account or your savings for your emergency fund or paying down debt. If you're following my debt reduction plan. We know we're going to put it in a savings account and and build it up over time and then use a big chunk of it to apply it to one of your debts or maybe multiple whichever one's home. Money can pay off with that amount of money. So it's important to know these things. Now, tracking is this manually keeping track of all the money coming in to your checking account and all the money going out of your checking account. But it's more than just your checking account. It also includes every one of your credit cards, because you're using your credit cards to buy things. So that's money that you're spending, whether you actually pay for today, or pay for tomorrow on a credit card, it's the same thing. One of the ways you can tell if you're overspending based on your income is when you do your control center, and you only use money deposited in your checking account as your income, and you list all your expenses. And if your expenses is more than your income, you're living too much, and how you're doing that you're using credit cards way too much to buy things or pay for things, whether it's something it's a need, or something is a one at doesn't matter, you're just using credit cards to pay for stuff, and that's got a start, stop. If you want to pay down and get out of debt, the easiest way to increase your wealth is to get rid of your debt, then you can say more money, the more money you say, he then you can invest it, and more you can get invested over a longer period of time, the more money you're gonna have. And I like to call that getting your money working for you, instead of you working for your money. When you're working for your money, you're actually working for the banks and credit card companies. And that's not going to do you much good and building any type of wealth, no matter, even if you're just looking to 200,000 or 100,000. In your lifetime. Paying the banks and credit cards is not gonna do you any good over the long run. So when I'm gonna talk about the tracking software that I use, you can do this manually, you can do it on a spreadsheet, you can do it. And through an app that does the tracking the budgeting and everything for you do you need a budget is an app that works fairly good, I personally don't use it. But I've watched a lot of their video YouTube videos, and it seems to be a nice program, I don't want to spend that kind of money, I don't want 14 or $15 a month going out. That's a subscription that I'm doing away with. And I'm trying to save that money. So I'm trying to reduce my spending as much as possible. And I did that when I was trying to get out of debt. Now I'm trying to maintain that reduced level of spending, so I can accumulate more and make more investments. And that's how I'm building my wealth, it takes time. And you're gonna do it. The tracking program I use is called count about.com. Count about they don't pay me, they're not promoting it. I'm just saying that's what I use, it's fairly easy to learn. If you used any other type of tracking software, whether it was Quicken or mint, or whatever, mints no longer I guess, and you're trying to reduce this software only cost $9.95 a year, and you pay for it once a year. So it's really inexpensive, and it does a lot for you. You can set up your checking account, savings account, multiple savings account, he can put in all your credit cards that you owe on that you're using or not that you're trying to pay off this is leave it at that. And he can put it all in there and it's easy to use and get set up. You can also go into categories and arrange them the way you want them by just what I did was I just renamed them like put a one like housing was a transportation is B so on and so forth. So that when I print out a report by category that comes out in the same order that I have my control center or budget setup, and you can do that in this program. Now once you're if you're just getting started, and today is the third of the month, so it's a new month. So we want to go back at least 30 days, in this case, the first of the previous month. Once we have the tracking program, we download it, we got it there, we set up our checking account, and then we'll add a one a opening balance. So you go back to the first day of the previous month, you do this online, and you look what was the balance in your checking account at that time in that your opening balance, then you enter everything that went into and out of the checking account from that, first of the previous month, up to the current date, which were the third, we're at the third of the month, as you do that this is the slow time that what takes you the most amount of time to do because one, you're still figuring out the program, and to he got to do a lot of typing to get things set up. So Lee, you go in and you enter a transaction the first time, let's say it's your paycheck, put in the name of your employer, you put in the day, you put in $1 amount, and you hit enter, you get all the information in the you got to put in a category, income wage or salary, and you hit enter and it's there. If you get paid the same amount, or if you get paid, say, every Friday, or every two weeks on a regular basis, he can now that you got to then or once you can go in and create a reoccurring transaction. And you just go to that playing, you click on the Edit button, the little wheel here will click on it and you can select create recurring entry. And it will ask you things like how often does this happen is that weekly, bi weekly, monthly, whatever you make the appropriate selections, and it will then the next time. So if it's weekly, the next week at that same time, it's going to automatically post for you, he can do that with everything you enter that you pay every single month. Now, as you're going down through this, it may not work for you until you get to real time the current month, let's say. But you can go ahead and set things up as you go, you may have to go back in there later. And change some dates and fix it up by I can't remember how I did it. But that I just want to tell you or you can just go through and enter everything for the current the previous month, get all your income because it's paid weekly, and it may be different. And then once you got it in there first time, next time you start typing, it's gonna pop up and you can select it. So that makes things go a little faster, you can change the date and then you put in the correct dollar amount. And then if your monthly expenses such as utilities and mortgage and loan payments, those a once a month, you can set up the reoccurring as you enter it the first time because it won't be until the previous month or the current month you're in before it comes due. And at all it's gonna make the default date the same date that you paid it in that previous model. So if you paid the bill on the fifth of a month as a new set up, a reoccurring entry is gone, the next month is gonna show up on the fifth of the month. Now one of the selections you can make, when you're setting this up is automatically posts which puts it directly into your roster, or to be reviewed, I recommend to be reviewed that way you can because there's a different tab that you go to. And you can look at it and you can change the date in the dollar amount if you have to. And it's much easier before you post it. That way nothing is getting put in there that you're not aware of you know that you forget about maybe over time. And then when you go to try to reconcile your your online to your online statements, dollar amounts of match because all these miscellaneous things been posted for you and you've forgotten the numbers are different. So always review it before it goes post don't ever post it directly into your register. So with you once you get them all in there, and then to the current month, the step would be to create a report by category for the previous month. And that's gonna then be what you use for setting up your first budget or your first control center. But before you do that, we need to think about what our budget is gonna look like because we want to set up our categories list to match it pretty close. Because most of the programs I ever use, the category list always prints out in alphabetical order. While your life is not in alphabetical order, because we want our, our control center to be by segment or by department is say, We want housing, transportation, food, little bit clothing, savings and debt, or you can just have savings, but savings and debt can go they gather, entertainment, whatever else you can think of, he wants to try to keep the number of categories down to a minimum as much as possible. Your housing includes all your mortgage payments, if we got multiple mortgage payments, all your utilities, which includes your internet, and also includes your cell phone bill, I put the phone with housing, because in the olden days, it was a hard line to the home, and the phone was only in the house, I'm sticking with that type of thinking, for my housing. Transportation is your automobile expenses, if you have more than two, you can set up auto a name the model make of the auto, and it would be your mortgage, your loan payment, your gas, maintenance, and oil changes stuff like that for each auto individually, so that we know how much that particular auto automobile cost us for the month, if you just lump it all into one big number. That month, the work also but if you can break it out, that works good. That way you can see how much car A is costing you versus how much car B or who's driving more who's driving less, or whatever the case would be. Because that's one of the ways you can cut back on spending is reduced the amount of driving you do because gasoline is a not so cheap expenditure nowadays, food you want to break that down by groceries deliveries dining out, how do you get your food and you want to track it by the ways you get your foods if you have food delivered to your home, or if you go out and eat out dining out. Or if you go to grocery store and buy food and and do it yourself, do all your own cooking. He wants to break it out by those type of categories. So you can see how much each one has cost and entertainment would be whatever you do for entertainment, cable TV streaming, you know, football or sports, subscriptions, all that kind of stuff. Break it down by again, like you did with your food, you know, cable streaming, whatever however you do, whatever you do for entertainment, that is list all the debt that's not anywhere else, because your mortgage debt is with your housing, your car loans with your transportation. So this would be personal debt, credit card debt, anything else that you can't put somewhere else. And of course, your savings is going to be in that same category. There's a clothing one, it's he can do that by person in your household if you want. But it should be a fairly small number unless you're a fashion designer, whatever make your I don't know, but it shouldn't be a very large number. He wants to go into your categories we're talking about the tracking program now. You want to go in your categories and make group them together by each one of these sections that I just talked about. housing, transportation, food, entertainment, savings and debt, clothing and you want to group everything that's related to the same thing together so like housing, I want in because you'd have mortgage loan that's an app and it would have natural gas that's and you know all everything's in alphabetic order. So you go through and find each individual item and you code it to where you want it to go grouped together. So the housing I put a transportation I did be in need get the idea. Now I did the mortgage was a one the first mortgage a second mortgage is a two utilities was a a three, a four, a five. So that can give you you know, an infinite number of different categories you can group together. And then if you do that for about everything that you use, because when you do your report, it's only gonna print out the, in the items that have money on them, it's not going to print out zero balances unless you select that option, but don't select that option. And then that way, if you have everything set up that way, when you print it out, all your housing is going to be together or in then right underneath that, like all the A's will be in a one, a two, or B in order. And then all the B's will be in order and then all of a C's etc. And when you set up your control center or your budget, you can set up the exactly the same way. So down and future months, when you print things out, it's going to be in similar order and is going to be close and easy for you to update. That's the goal here more spending a little more time up front, setting things up and getting everything set up. So that later on, it's going to take a whole lot less time to update things. And that way, you'll stay at it and you'll have good information. And that's the goal here we're trying to create good information that we can then use to help us control our spending or reduce our spending. And now the other way to pay your debt paid off faster is to increase your income. However you want to do that, you can do that. Not much I can talk about on that. But this depends on your field, career field and demand and what the employment situation would be. That is what we do. If you decide to use a program that has everything included that does tracking and does your budgeting it does this it does that. And I'll tell you pay this off, pay that off, you pay in this the two subscriptions for the same thing. If you're gonna use one of those apps, I'm not saying not to I'm just saying you have to learn how to use it. So you need to go and watch all their YouTube videos, instruction videos. And that's you need a budget why and a be a have a lot of YouTube videos that the one lady talks from experience. When she first started, she did this and then she learned how to do this, he start with the basic, learn how to use it and and watch the next level up and keep going. It doesn't do any good to watch him straight all the way through because you can't create a budget if you don't have any information in the program. So you first got to learn how to enter the information, then you got to learn what to do with the information. And then you got to learn what to do with that information and how you can use it to your advantage. So it's a learning process that may take a few days, a few weeks or longer. The more information that you can put in at the beginning, that's why I say go back to the previous month and put in the whole month information and then put in the home up to your current date. That way, you have a whole 30 days worth of information. That's basically one financial cycle of your life that you can pick up on most all your expenses. Remember, when you're setting up a budget, that if you only have one month, it may not include some things. Maybe you pay your car insurance twice a year or quarterly, you might have things you pay once a quarter, and that was in that particular month. So maybe think you got paid twice a year. And it wasn't one of those months. Maybe you got some pay once a year and it wasn't that month. So it's gone to take a while before you pick up everything unless you know, I know I pay my insurance quarterly I paid it a couple months ago. This go put that in this put it in your system and set the date for the next time it's due and if you know the dollar amount, you know if you don't know the dollar amount, just what did you pay the last time put that dollar amount in? Because something is better than nothing. So over time, you're going to pick up everything that flows through your checking account, everything that's going on with your credit cards. Now remember, putting in 30 days worth your credit card. Spending might seem like a big number or a lot of entry, but you got to do it. Because you got to see where you're spending your money. And don't import it directly in from the credit cards, account that you have, manually enter it, manually enter everything into your checking account, your savings account, and all your credit cards, that's gonna help you become aware of what's going on in your life. If you just transpose if you just imported in, it may not get in the right categories, it may, he may overlook it, you may forget about it. It may be the numbers will match, you know your numbers there to the bank, but how long is that gonna happen manually and are things that makes you way more aware of what's going on in your life. And this again, knowing your ratios, the last episode I talked about, in all your debt, payment statements together, putting them your mortgage, your car, your personal loan, that's gonna help you, that's gonna help you down the line and keep it in that order, stick them in the folder, keep them because you got to figure out your income to debt ratio by each one of those categories. Because if you have a 48% income to debt ratio on your mortgage, somewhere else, you have to give up because you don't have that kind of money. You can't have over 100%. And if you do, that's probably why you're living paycheck to paycheck, and you're robbing Peter to pay Paul. And you're wondering why what's going on in your life. While that's going on, you've spent too much money, you have too much debt. And each of these areas in your head doesn't give you enough room to pay for everyday life, things like food and gas, and whatever. I'll be back in one moment with my final thoughts. If you're interested, and there's software that I use personally, to reduce my debt, I have a link in my show notes, shop financial.com, copy and paste it. And it will take you to the website. If you are looking for any spreadsheets or other information that I talk about from time to time, I have links and my show notes. And I always have links to the articles I refer to and my show notes, plus other things like the happy draft.org, which is a another organization that helps you with your debt. So feel free to go on my show notes and link and check out whatever I'm putting out there, I appreciate it very much. If you would like to make a contribution to help keep this alive, then I would gladly accept that, say my show notes. Thank you very much. Now as you're entering your transaction for those first 30 days, I want you to be aware of what's going on. That's why you're manually entering what your pain and where your money is going. So there is I have a link in my show notes 30 expenses that quietly eat away at your budget. And I thought this was quite interesting, because it's true. You know, every nickel and dime adds up to dollars and every dollars apps up to hundreds and every $100 adds up to 1000s over the period of your lifetime. So the form of the first ones you have to be aware is overlapping or underutilized insurance policies. Often people another where they're paying for overlapping coverages across different policies such as travel insurance benefits that might already be covered under certain premium credit cards. So be aware of what you're paying for on your insurance, and where you can cut back. So if you have car insurance, that includes you're gonna include coverage if you would rent a car, don't pay for auto insurance at the car rental place. Make sure you know what's in your insurance policy. And if you have a question, that's what your agent is for financial and investments descriptions, I never really thought of this. Many sign up for these services with the intention of using them to make informed financial decisions. Yet the daily demands of life means that these subscriptions go on utilize and we're talking about you subscribe to investments or financial research services and tools so that you can make your own investments, but then you get busy in life. And either you don't use them or you forget about And you're still paying for him is a big one. ATM fees bank fees, while they seem nominal on a per item basis can accumulate to a substantial amount of money over time. I don't use an ATM that's gonna charge me a fee period. In fact, I hardly use the ATM anymore at all. But if I'm going to use an ATM, I go to my bank where I they're not going to charge me a fee. It's even though it's 250 to $5. If you hit it 10 times a month, that's $25 plus. So ATM fees, try to cut those out as much impossible bank maintenance fees. If you're paying a maintenance fee for your checking account, you're at the wrong bank, or go to your bank and find out if they have a different account. thing a different one they offer where you don't have to pay a maintenance fee. Maybe they require a minimum balance of 300 or $500. I don't know. But you need to avoid paying monthly maintenance fee on your checking account. I hadn't paid any maintenance monthly can lie checking account for years overdraft fees Well, period, you don't want to spend more money you have because the bank is gonna charge you $35 per transaction if you overdraw. So avoid that at all costs. Now I know some of you are really struggling, and you can't help but some of these fees you're getting nailed with, well, you got to get your life under control is all I can say and try to stop using these things. And paying the bank banks makes millions of dollars a year. And while omelets the interests are paying very little. Okay, cable TV cable has gotten more expensive. So if you're gonna feel it, so review, if it's worth cutting the cord, and eliminating that expense, which can be hundreds a month of dollars that you can say if I've been saying that for years, according to a study from all connect the cable patches can cost as much as $299.95 per month. Without fees or internet service. That is way too much money. You can now stream about everything you watch, much less than $300 a month. I can tell you that right now. But what you got to watch out for when you're streaming is again the overlapping or unused streaming service. So if you have multiple streaming service, are they overlapping? Meaning? Do they have the same channels on them? And you're paying for the second one because there's that one channel you want that the first one didn't have? Well, all the other channels the same Why didn't you cancel the first one because they're generally a month to month service. So no use to pay for two or have them multiple things on overlapping services or have five or 10 different streaming services. He got to minimize that to no more than three per month and move them around. Okay getting brand name prescription drugs, used generic drugs, unused gym memberships, unused anything. Not only gym memberships, but unused. If you have if you're still paying for Internet security from old computer that you got rid of and you bought a new computer and you got a new subscription, you're paying for two subscriptions you why you only need one same way with gym memberships and Paul's purchases Think Before You Buy, don't buy anything you really don't need or want. So that's all I have to say there but impulse buys could cost you a lot of money and everything at the gift your god the grocery store for instance, at the checkout county if you buy a couple candy bars every time you do that, you know stuff up around the cash register that all is impulse buy and they put it there for a reason. So people buy it because if they put it somewhere else nobody would buy it. Food delivery fees. So they can cost between two to$5 per order bit can be higher for longer distance or peak hours. Convenient charges same thing. I never have food deliver. If I order a pizza I go pick it up. I don't pay for any delivery fees, especially Uber DoorDash all those that gets way too expensive. That's the most expensive way you can buy food. Convenience charges, said Be cautious, too. With takeout or other deliveries which come with fees on top of the standard delivery fees can that's why it's expensive to have it delivered. pre made food you go to the grocery store all pre made food, pre made meals, we it's a frozen meal and you buy it and then you can just warming up and it's cooked for you don't buy that's the most expensive way anything that's pre made or cut down a watermelon caught the pieces or whatever the case is, that's the most expensive way to buy your food from a grocery store. Mobile services from major carrier said instead of purchasing the $1,000 smartphone and switch from regular switch from a regular postpaid phone service to a prepaid phone, Straight Talk wireless as affordable prepaid phones and no contract plans for as low as $25 a lie. So instead of buying a smartphone that costs a lot and then finance it through the carrier, where you're locked into a two or three year contract, they're saying don't do that is to go to Target Walmart and get a prepaid phone, where you pay for the month ahead, or so much talk time. And then try to use it sparingly. To reduce your cell phone costs, your phone cost fitness apps, any apps that you don't use on a regular basis, don't you don't want to be paying for anything. Credit card finance charges, if you can't pay off a credit card, I know that's gonna cost you money. But I think that's why people were trying to pay off their debt. So they already know that credit card transaction fees, you may be paying that at some businesses where they charge you that and wasting food throwing food away instead of eating it. So over buying food from the grocery store, and then ended up throwing it away before you can use it because it was spoiled or went bad. So those are ways to reduce your spending. But so as you're entering your transactions for that first month, you want to look for duplications that you pay the same place for two different times in the same month. And do your research, find out why that happened and get rid of one that's gonna help you reduce your spending. Stick with it, and you'll be glad you did. So