Tracking for Debt Reduction

Tracking is financial lifeblood, it is a must to keep track of all the money going into and out of household. Before I get started going to talk about lifestyle change that should be made to get debt under control.

Article Link:
https://bethebudget.com/reasons-to-track-your-expenses/By Zach Buchenau 

Transcript

Charles McDonald: 0:03

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 for debt reduction, tracking is financial lifeblood, it is a must to keep track of all the money going into and out of household. Before I get started, I'm going to talk about wildstyle change that should be made to get debt under control. I was listening to other financial podcasts and I came across this subject. And it's very important, if you're struggling with that podcast I listened to was basically high income individuals who are still living paycheck to paycheck, they had over 330,000 A year income, it doesn't matter what your income is, everybody could have the same type of problem that's causing them to get in trouble with their debt situation, you have a mortgage on your home, and maybe you have two car payments, you gotta look at what you're doing. First of all, you don't want to sell an asset that's going to appreciate in value that would be your home, no matter what the payment is, or how long you've been there. Generally speaking, when you buy a home, you got to stay there at least five years to build up a little bit of equity. So you can sell it pay all your expenses and have a little bit of cash to walk away with. But that's not what I'm talking about. If you're struggling to pay your bills, and you're living paycheck to paycheck, which a lot of Americans a lot of people are doing these days, he got to look at everything that you're paying for, and focus on what you might be able to get rid of. And that would be a lifestyle change. So if you have two car payments, doesn't matter what the cars are. But if you got two loans on two cars, and if that's taken more than 40% of your take home pay, that is probably one of the reasons why you're struggling paycheck to paycheck, you've over bought your vehicles, and you may be their vehicles you can not afford at this time. So what do you do? Well, you got to figure out how to get rid of that debt. So if you've got vehicles, you can always sell whatever you have, you don't want to sell your home because you need a place to live and a home appreciates in value. So it's a good investment. So you don't really want to sell that unless you're gonna move for whatever reason for your job or whatever. But you got to look at your car loans, how much of your income is being eaten up by those car payments. And that's something you can sell, get rid of buy cheaper, like calm beater cars, less expensive cars, maybe even pay cash for them if you have the ability to do so to get out from under those car payments. And that's going to help your financial situation greatly. And that's a lifestyle change. Everything on the outside may look good, you're driving nice cars, you got a nice home, you dress well all them things and you make decent income, but you're spending too much on your vehicles. Too much of your income is being eaten up by those two car payments. That's about the one of the problems you might run into is the vehicle is worth less than what you owe on the credit cycle. So in order to sell it, you might have to give up some cash to pay off the loan, so you can get out from underneath that loan. So your step one is figure out what's the market value of your car today. Based on this condition, mileage and that kind of stuff. Can you sell it and pay off the loan and get out from under the loan. If you have two of them, you might want to look at both vehicles. If you're upside down, meaning you owe more on the vehicle than what you can sell it for. Then your next step would be to save enough money until you have enough to get rid of one of those vehicles and pay it off and have enough money to buy a used less expensive automobile that you can hopefully not have to finance And then work on getting rid of the other one. And that's gonna free up a lot of your cash flow, and gonna help you with your other debt. I'm not saying you can't own those cars sometime in the future, but let's get your debt under control now. So that's one step he can change, it's a lifestyle change. And then if you reduce your spending down, so you can get out from all your other loans, whether it's student loans, mortgage, personal loans, whatever else you might have. And same thing would go for if you have a boat or camper, and you got loans on those, he might consider selling those items. For now, get your debt under control, get comfortable in life, save up some money. And then if you have to refinance, have a bigger down payment, so you have a much smaller payment. So let's get in to tracking and what is that is all about. So what is tracking? Tracking is nothing more than keeping a journal, a log, where you can do it manually, or you can use an app, I recommend using some type of app. Because if you have an app that categories are already set up in it, he can do reports, the reports are almost set up in there. So it makes it much easier to take the information and make it useful. If you do it manually, it's gonna be more tedious, it's gonna be manually doing reports, and it's just not going to be good. There's a lot of apps out there that you can use, I pay less than $10 a year for the one I use, and it does everything I needed to do. And I can change the categories around, rename them, and put them in order. So when I print out my report, I get it in the order, I want to do my control center or my budget. So that's everything that goes through your checking account, all your credit cards, you're using anything do money on a you should be keeping track of what money you're spending and what money you're paying towards that item, your checking account will be the primary, he can also do your savings account, because we're going to be putting money in the savings account. And occasionally we're going to take money out. So no one do proper balance at all times is important. So you can know you have the minimum of 1000 or the maximum of 3000, or somewhere in between when you're doing your debt reduction plan. So that's all tracking is but why should you do it. And short the main reason you should track your expenses to identify and eliminate wasteful spending habits in your financial life. Moreover, consistently tracking your expenses will help you maintain control of your finances, and promote better financial habits like saving and investments, there's quite a few benefits to keep tracking your spending behavior. And once you got started this, you never stop you even when you get your debt under control, you still gotta do your tracking. Back in the old days, we used to call it a check register. But now with the apps and computers, you can track everything, your credit cards that you're using, we shouldn't be using any of them. But the credit cards that you owe money on that you're trying to pay off, the need to track everything that's going on with them, everything in and out of your checking account everything in it and now your savings account. You can also include all your other loans, so you know that you're making timely payments and things like that. So it's beneficial. The more information you put into that app, the better information you gonna have when you get a report. Number one is maintaining your financial control. Number two is holding yourself accountable because you can see where your money is going. You have tracking your financial progress and if you're making gains or if you're going backwards, and it keeps your finances organized. It proves your financial security makes it easier for you to sleep at night reducing your stress and finding more ways you can save money or are there items you're paying for the you no longer need or want or use. If there is you get rid of them and cancel them and helps you reduce impulse spending because you know how much money you have. And over time you'll know when your next bills are going to be do what needs to be paid for this pay period to the next pay period and things like that and helps you avoid debt because you know you can't afford any more And that keeps you focused. So those are the reasons why you should be tracking. So maintaining financial control when it comes to personal finances being out of control. And it's not something anyone would strive for. There's nothing financially worse than feeling like you don't have any idea what's going on with your money. If you don't have any idea where your money is going and what you're paying for your and you know, you're you have a problem. The good news is when you make an effort to record every financial transaction you make your are essentially taking the reins on everything, and anything involving your money. At any one time, you will know exactly how much money is sitting in your bank account and how much you can spend. In other words, you can track your expenses take complete, control your finances, holding yourself accountable. If you have any plans on saving, investing, getting out of debt or building wealth, what is holding you accountable. I mean, we all can set goals and have financial dreams. But if you're not tracking your expenses, there's nothing to hold you accountable when you make bad financial decisions. Tracking your expenses hold you accountable for your future goals. And in the long run. That can be the difference between broke and wealthy track in your financial progress in addition to hold yourself accountable, tracking expenses on a day to day basis help you see your progress on the road to your financial goal. Sure, there are many times when you need to answer to yourself for a bad financial decision. But keeping track of your positive progress is just as important. Think about if you have a goal of saving 25,000 A year and you track your expenses every day, you can celebrate all the little wins along the way. For example, if you're for forego an expense, expensive dinner out, and instead cook food at home tracking expense will help you see the impact of that decision. And regards to your savings goals. Keeping your finances organized throughout my life My dad has saying it's easier to keep cleaned, and then to make clean. What he means is that in any area of life, it's easier to stay organized. And it's than it is to organize a messy financial situation. And this saint has guided me throughout my life, and short, disorganized finances lead to financial problems. Or as you spend five minutes logging expenses and look at your bank account every day, you're much less likely to let anything slip through the cracks and proving your financial security. If you go for weeks or worse months without checking your bank account and logging your expenses into a budget, you risk your financial security. What if somebody steals your debit card information or your credit card, you lose, and they make charges. If you're tracking on least once a week, you look at your statements online, and you know something is out of place. Because you can remember what you've done. The more often you do it, the better off you're gonna be. But over time, you should do it at least once a week, or at least every pay period. I do it. If you go out and do a lot of shopping on Friday or Saturday, then you want to enter all the expenses right away when you get home. That way, you know what you spent the money on. He might go to Walmart, but did you buy groceries? Or do you buy clothes. So getting your categories correct is very important. And you got to be consistent on that. So just being aware of what's going on what you personally did and or your spouse personally did is gonna help you identify those things that pop up, that you may be unaware of that you might just pay in the past, you might have got your credit card information online or something you're not aware of it. Then all sudden you got these charges coming in, they're gonna start small to see if they can get away with something. But if you stop it when it starts small, yes, it's a pain in the butt. Because you got to call your credit card company they canceled that car and they got to mail you a new card and it takes a while. But it's a lot better than paying for somebody else's purchases. And that's gonna help you stay focused and stay towards your goal of reducing your debt. Reduce impulse spending when you make purchases are well think thinking that through or consulting your budget it can have a loud lasting negative impact on your financial life. Somewhat from what I observe and experience impulse spending is an m&e a wealth of thought I also learned that the closer your pay attention, your personal finances track your expenses, the less likely you'd like to make impulse purchases. Now I can't be 100 sure why this is but I have a theory. When you track your expenses every day your financial well being comes from much bigger focus and priority in your life. So when you see something you might otherwise spend money on without second thought, you pause and examine in context of your overall financial picture. And that pause can be the difference between a foolish impulse purchase and the decision to walk away. Also, if you're looking at the buy something that's gonna cost you more than$500, and you got to set this number of yourself, maybe $200. II gotta give yourself a 30 day a 10 day time period where you think about it, do you really need it? Can you get by without it, maybe buying it in the future might be a better idea. At this time, you should be primary focus on on reducing your debt. And you can't do that if you're doing impulse buys. So any dollar amount purchase that's large, where you said that at $200, or $500 is important to take a pause and think about it. Like for me, I'd like to have a new big screen TV 55 inch, and I like one of these new ones with a really good picture. But I can't justify spending $1,200. But what I'm gonna do is save up my money while my TV goes out. Because it will someday sooner than later. I'll have the money saved up to buy the new TV I want. But I don't need it. Now. I could use it in the future, though. avoiding debt. I don't think of it. It's any secret that the here at be the budget, that's the article is that be the budget. We're not fans of debt. So to be honest, I've never met anybody that loves paying interest and making monthly debt payments. Sure, they may love the car they finance or the expense of bank, they put on a credit card, if you ask them, if they love making the payments on it, I can almost guarantee they say no. For that reason, tracking expenses can be a powerful motivator to steer clear of that. Because you know what you can afford. And when you can pay it, you got to treat your credit cards like cash. And if you can't pay it off, whether at the end of the week, or the next pay period or whatever without hurting your budget, then that's an item you cannot afford to buy. And you can have to go without. And fat one, the original reason why I personally decided to get out of debt, and stay out debt forever is because we started tracking our expenses, though I did. And we were discussed but how much money we're spending on debt each month. It was overwhelming to say at least. But thank God, goodness, we did it. So the more debt you have, and it's it's good to know, add up all your loan payments, how much is that? What percent of your income is that? If it's 90%, that's why you're struggling because you don't have money left over to pay for groceries, car, gas for the car and things you need on a daily basis to go to work and to survive and live. He also gotta remember that more than your home is more than his making that mortgage, you got to pay all the utilities and all the expenses related to the home, such as maintenance and stuff like that. Maybe you need to get some light bulbs. Well, light bulbs are not cheap anymore. That could be a $50 you round by four or five light bulbs that could be 50 $60 own in your home or where you live is not a cheap endeavor. So you got to make sure you have the money available to pay those monthly expenses because that's a need and not a once everything needs just going out impulse buying is most likely a want. And that is where you got to cut back on your lifestyle and cut back on those things and focus on getting out of debt, and how important that is to you. That should be the most important thing in your life, because you're not going to move forward until you get your debt under control. Now I'm going to go into some of the mechanics, he gets yourself an app, find one that works for you. You don't want to pay 14 or $15 a month there are good ones out there. If you're struggling with that, you want to try to keep your expenses down. I use count about.com It's less than $10 a month, I don't pay for any extras that works just great. You can customize your categories and you can do a lot of stuff. And they're easy to use. But so what you want to do with the current month, wherever you are whichever the current month, whatever the day is, whether it's the second day of the month or the 15th of the month, if you go back to the previous month, and start with the first day of the month. And you probably if you're doing it for the first time you got to put in you what your bank balance was at that time. And then all the transactions from the first of the previous month up through the current date, he may struggle at first because there might be some charges on your checking account your credit cards, you may not remember what they were for, especially if there's some strange name. Because you know, some things you buy online, may not just say might be Amazon, but what you buy at Amazon because you gotta get into proper category. So you might have buy clothes at Amazon, you might have bought household goods, you could bought anything, electronics, if that's important, do the best you can, because being consistent on your categories is an important factor at this point. The categories are already there and set up and their process likely in alphabetic order. So go through, and when you've put in your first transaction, you put in the date, the words coming out of your checking account, let's say a description, or you know, word you buy was a Walmart, Kroger, Kroger, whatever the name of the store, the category what you buy, well, it's Kroger, it's groceries, Walmart could be groceries or anything close. So try to remember, you know, on the day, was it a Friday, did you go to Walmart and buy groceries every Friday or whatever people are creatures of habit. So you tend to do the same thing on the same days of the week. If it's some off day, then you probably bought something different, like some hardware, or something that you needed for the home or your car or some cleaning supplies or something like that. So go through, and then put in the dollar amount, hit Enter. When you get to items, such as your mortgage payment, it's the same every month, you can set it up, enter it the first time, create a reoccurring journal entry, or reoccurring entry, and set it up once a month, the same thing, all the same information started the next month that you're in. So when all happened and give it to three days before it comes due, is gonna pop up for you to approve, don't have a post directly into your register, but have a go to place where you can review it and change the date, get the exact day changed maybe the dollar amount change, especially on utilities, and set up recurring journal entry and then the next month will pop up an OB there. So it'd be less work over the long run. The beginning is gonna take you some time. So you go through and you get everything entered in to the current date, maybe some of the things you entered twice, because the beginning of the month in you're already past the beginning of the month. So you entered again, the recurrent journal entries may not work right away and might work over time though. So the next month will pop up, you can approve them, change the date, update the dollar amount if necessary. So all your loan payments, all your credit card payments, the minimum payment, all your utilities, everything you pay each and every month, he should set up some type of recurring journal entry or recurring entry. And that will help speed up the process. Now once you say you go to target, or Walmart or whatever, and you set it up the first time, the next time you enter it, the date a new date, type in Walmart's gonna pop up and the category is gonna be there. But if the first time you enter Walmart, and it was groceries, the second time, it may not be grocery, so you got to be aware, you might have to change the category. If it's the same, the only thing you'd have to do is put in the dollar amount, hit enter, and you're done. But if the category is something different, then you got to be aware of that. So it's important. So once you get that all done, what you want to do is go back and create a report from the first of the previous month to the 30th of the previous month by category and print it out. And then you can just look through it and see if there's any maybe you created two different categories for the same thing. And tried that you can go back and edit it. Anything you enter can be fixed. So don't worry about making mistakes because you can always go back and fix it. And when you get to the current date the bank balance on that your app should match the bank balance online of what the current balances so don't enter anything until it clears the bank even though you may know well tomorrow this is till the payments gonna come due and I know how much it is, but don't post it until it's cleared the bank. That way your, your balance on your app is always gonna match the bank balance. Now if you want to do that, even you look at the restaurant detail, you got to remember, while these items I'm cleared yet, so you got to look for your balance to make sure it matches below those items, one or two items or whatever it would be. So that's what I do. So I can make sure I got all the correct dollar amounts entered. And that's the reason you want it to match your bank pounds. Now when you first start, that may not match, you might enter everything exactly correct. But maybe your beginning balance that you use was off a little bit. So you go back and adjust that to get everything to balance. And then over time, it will work its way through. And if it gets off again, you go back and readjust it. And sooner or later over a few weeks. It should match your online abouts and you do the same thing with all your credit cards. The reason you want to put the detail in for your credit cards is you want to know where you're spending your money. What are you using your credit cards for a using it for the pay monthly needs? Are you using it just to buy things like clothes, maybe groceries and stuff like that. Remember, if you're working on a debt reduction plan, you should no longer be using your credit cards for anything, he should be using that debit card, and you trying to live on the money that you have coming in. If you track everything, you know how much money you got, you should be aware eventually what's coming up. And you'll be knowing for sure I going can spend X amount of money at the grocery store. Now, because I got these bills coming due. I'll be back in one moment with my final thoughts are the articles are referred to in my episodes, have a link in my show notes. If you're interested in checking out the software that I personally use to get my demo control, it's in my show notes under shop financial, you need to copy and paste the link. And it'll take you to the website can any questions, you can just contact me through that particular website. If you value this podcast and I like to make a contribution, I had a contribution link in my show notes also give whatever you feel is appropriate for the information I am providing. I thank everyone for listening to my podcast. So it may take you a couple tries on your creating your report. The first time you do it, he create a report by category for the month. Just do it with your checking account only and get that perfected. And then work on your credit cards, maybe you got two or three credit cards that you owe a balance on. So every credit card you owe or balance on, he should go back to previous month and put in all the detail and get that to reconcile to the online statement of what you owe. So you have all the good numbers in there, that's what we're striving for, at the beginning is going to be a little bit time consuming, but it's going to be worth your effort. So once you get that caught up, then it's just a matter of keeping that way. Every time you go out and spend money. Keep the receipt, keep the paper receipt, bring it back and enter it in right away. That way, you know, you know, when you did it, where it was, what you bought, and how much it was, every time you go online. And look, it may not be online yet. And if you post it right away, now your checking account, it probably will be because they're pretty quick if you're using a debit card, but your credit card may be a day or two delay before you see the charge there. But don't worry, just go ahead and put it in. And you know it's coming up. And you know what it was for? That way of something else appears on your credit card statement. You can be wow, I didn't buy that. I wonder what that was? Ask your significant other did they buy something Oh yeah, I did about this well, then you can enter that information. But if neither, if nobody seems to know what it was and then call the vendor, what the charge was a maybe ask them. Can you tell me this charge for X amount on this day And about this time? What did I buy? Can you remind me of what I buy because I don't have a receipt for it. That could have been something some scammer they Oh, that was an online purchase. And that was from the Netherlands. Now, that's not me. And then you can contest that with your leak and look at the detail. Now, I'll tell you also, because I had that, where somebody stole my, my credit card information was buying something in the Netherlands. And it's like two or three items, and I challenged it in the bank blocked it. So it never went through. Again, I had to wait that time period to get my new card and all those things. But it's that is what I did to avoid paying for somebody else's purchases. I never put any of my credit information, credit card information, I never save it online. i It's a pain in the butt to enter it every time. But that way, it won't have to worry about getting stolen because they don't have it in their computer are in their account. So if somebody would hack them, they're not going to steal your credit card information. So that's why I do that. And I it's a pain at times. But it's also security that I do. Once you get through and you're happy and everything's up to date. And you got you're getting to the point where you're kind of getting the know what all your monthly expenses are. And it's important to know what they are and about when they're due. Like your mortgage payments do the second of the month, your utilities are due the eighth or ninth. And then this other payment more utility is due around the middle of the month. My Water payments always do once a quarter, and things like that. So you know what's coming up. And that's important to know what's coming up in the future. So you don't overspend the money that you have. You have it available to pay your bills that are your needs. And you're not going to come up short. That is an important concept to grasp and get taken care of. When you create your report to do your control center, it needs to include all your accounts here checking in all your credit card accounts because you want the total amount of money that you spent for that first 30 days that you're this is our beginning point for creating our control center. You want everything that you purchase spent money on included in those numbers. And that is our starting point that we're going to use for setting up and creating your control center.