Control Center

Simple budget how to get started and getting a budget setup. It not hard if completed tracking for at least one month.

Article Link:
https://bettermoneyhabits.bankofamerica.com/en/saving-budgeting/creating-a-budget

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, control center, simple budget how to get started in getting a budget set up. It's not hard if you completed tracking for at least a one month. But before I get in talking about a Control Center, also known as a budget, on on a follow up on what I started out last week episode about lifestyle change. And if you're looking at a couple car payments as more than 40% of your monthly income, you need to get rid of those cars. Now I know I stress, the point here is to reduce your debt, get rid of your debt. But if you reduce your debt, that's a good thing, too. I mentioned about buying a good used car and paying cash for it. But I realize a lot of you probably can't afford to do that, because you have all this other debt. So if you can get rid of those big car payments and buy a lesser expensive car finance a lot less get a lot smaller monthly payment. And then that's gonna help you reduce your credit card debt and other debt that's at a higher rate of interest. So it's not a bad thing, getting some new car loans. But your goal should be to overall reduce the amount you owe, and reduce the monthly payments. So you can apply that money to some other debt. Now I say simple budget. What I mean by that is the number of categories that you're gonna put together and your budget to track. You don't need to have a bunch of detail. And here's an example about too much detail. Say you're married and have a spouse and two children. And you're looking at the clothes, setting up clothing. So you want to set up clothing for each individual person. Well, that's okay. But you don't need to go into too much detail as husband, underwear, shirts, pants, ties, socks, shoes, and a don't need to detail every single items and for every individual. So if you want to do clothing, just keep one category and you can break it down by person if you want. But you really don't even have to do that. We're talking about keeping things simple. So if you go out and buy a bunch of clothes, and it's for your two children and for your husband and for yourself, he got to take that big receipt and split it all out. So it's even easier just to have one big category. And know that, you know, you could kind of manually do each individual receipt to see what percent of it is going to each individual if you want. But over time, that doesn't matter. We don't need that much detail. So a budget should be broken into categories. And a category is a individual expense that you pay. That is a good description of that particular expense, such as mortgage utility. Now utilities could be broken down to natural gas, electric, water and sewer trash, whatever else H O A association dues, that's all would be under housing, and housing is a need. You have two broad categories. The first one is what you need in order to live. And the second is what you want. Your needs. Just think about it is what you need to exist in life. As a single person, or as a married person with a big family. Your needs are gonna be the same they're just gonna get more expensive because you need a bigger areas. So the needs are housing, transportation, food, clothing, that's everything that you need to exist in life, to have a place to sleep, have a way to get around and go to work and to the store. To eat to survive and clothes to keep yourself warm or covered or keep them from getting sunburned or whatever the case would be That's the same for one person, or a five person family, they all have the same needs as this, it gets more expensive, because while there's more of you, you need a bigger home anymore, maybe two cars, instead of one car or a bigger car, and you got to buy more clothes, you got to buy more food. So that's how I set up my budget. I start out at the very top. Now creating a budget is not that difficult. The Step one is to figure out your net income. And your net income is the amount of money that getting deposited into your checking account. Now, if you're somebody who gets a check, and it's not a direct deposit, and you go to the bank, and you take $200, for yourself, and you deposit the rest, so that your spouse don't really know how much you really make, you got to quit doing that, you got to put 100% of your net income into your checking account because you need to pay off your debt. And no more siphoning no more slush funds, no more anything like that. And that goes both ways for both spouses. So your net income is what you that what you make less taxes and any other deductions, it's what's actually should be deposited or what you receive from your paycheck. Now that paycheck might have you might be contributing to a 401 K, you might be paying child support, or you might be paying alimony. And that might already be out of there. So when you're looking at a budget, whatever is already deducted out of your paycheck, you do not have to include in your budget. So if you're putting money into retirement, it's already deducted, you don't have to set up a retirement and your budget because it's already taken care of. Same thing for federal state and local income taxes, it's already being taken out of your check, same thing for your child support has already been taken out of your check. So that's your net. That's the very top of your budget, we're looking at left to right, this think of a spreadsheet piece of paper. On the left, you got your descriptions of all your categories going across, you would have your control dollar amount, which is the budget amount, you have the actual for the current period or the current month, you have the difference between the two. And then you have percentages, percent of your gross income you could use or your net income, the net income is easier because it's already there in the spreadsheet, your gross income is before all those other deductions. And sometimes you use that to figure out for loans and stuff like that, how much is your mortgage of based on your gross income before taxes and everything. For this, we're going to not even think about that. That's something that you do over time as you get your budget under control. And you want to see how much is my car loans to what I make, what percent? Well, that percent should be less than 20%. So anything over that, that means you have to cut back somewhere else, you can't spend more money than what you have. And by setting up this budget and doing the tracking, so that you can set up a budget, you'll figure out really quick. If you're spending more money than you make. That's why you're putting in the detail for all your credit cards. Because that's money that you spent, that you may not made yet. So that is gonna be a big sign there. And step two is track your spending with I do that step one, we're creating a budget now, we've already tracked our income and spending. So now it's a matter of putting it in an organized format. So we can use the information to our advantage. We already set goals and your goals is to pay off your debt, maybe increase your retirement savings or increase your salary savings for your children's education, whatever. Come on, make a plan. We have a debt reduction plan. We know that we're no longer going to use credit we're working on getting that our If we're making a minimum payment of our debt, we're increasing our emergency fund, we went to the bank and set that up, and we're gonna try to build that up as quickly as possible, we're going to get extra, up to the maximum and our emergency fund, then we're going to apply that$3,000 to one of our debts. So that and then repeat. And the goal is to pay off our debt, we want to start with the highest interest rate debt first, I know other professionals say different, I say pay off the smallest balanced one first. And after that, you want to concentrate on paying the highest interest. Next, that way, you'll pay a lot less interest, which then you'll save money, which will allow you to pay more principal. And then as you go through and you get everything set up your first month, is gonna include all the things you bought using your credit card. So when you set up your budget, your control amount, or the budget amount, it's gonna be based on the previous month, because we got to start somewhere, we can't just make up numbers, because we don't really know what the numbers are. So we need to start somewhere. That's why you go back that first 30 days, the previous month, and we get in some numbers. And that should include all your credit card spending. And that's going to go in your control center. Now remember, we quit using credit, we were and then the next month, and we're trying to cut down on using credit. So the actual amount that you spend for this month, the first month that you're really looking at your budget should be under your control center. If you reduce using your credit cards, or if you completely cut out using credit cards, penning how much you spend every month and chrome might be $1,000 might be 2000, could be a lot more. That's what we're trying to control. We're at step one, and we need to see how we're doing. And that's what the control center gives us. It puts everything in an organized format. Because that category, that report you get by category, from the app where you're doing your tracking, is going to give it to you in alphabetical order. That's why I say you should go into that app in that category list. Come up with a system that works for you. That groups all your housing stuff together, your mortgage payments, all your utilities, maintenance, a water and sewer, your cell phone, I include phone with housing, because the landlines, the old time phones are connected to the house. And that's before cell phones. So the cell phone is connected to the house, your internet service, things like that. That's all housing, and transportation, as your next category, tried to group all your transportation together, which would be your car payments, your gas and oil repairs and maintenance. Stuff like that. Same thing was food, your food should be groceries dining in delivery. How many different ways do you get your food? Do you go to the grocery store? Do you have it delivered? Do you pay extra for that there is an expense you can cut out of your life. Instead of having to deliver go pick it up, we're looking for ways to save money. So as you're setting up your categories, and you're coming up with these food and then that's your, you know housing, transportation, food, clothing, those or the grouping category, the heading per se, than other the heading you have all these subcategories. And that's where you post your dollar amounts into each individual subcategory. So if you got food, you have a sub category is groceries dining in restaurants dining in fast foods. Delivery, he can and under delivery. You can even break it on who is delivering it if you want to go that far, but delivery category should go to zero because it's costing you a bunch of money for convenience. Anything you do that's more convenient, you're paying more for it. We're trying to limit our spending. So we got to quit paying for all this convenience stuff. That's where I say, if you're still paying for cable TV, you're crazy. I realized a long time ago, I'm paying for an internet, I'm paying for cable TV, cable TV is expensive, even the basic version was a lot of money. I just did away with it, because I'm gonna stream because I'm already paying for my internet service. Let's use my internet service to the maximum and stream my TV, I've been doing that for at least five years, maybe longer, I have no problems, ie don't need a fast streaming service for viewing streaming TVs and movies. It's not at the can doe at the very basic level of service and still be able to watch TV without having too much buffering, I don't have any buffering, but that's beside the point. So there's a way to cut an expense out of your budget, and do it cheaper, but don't get 10 different streaming service, limit your streaming platforms, or services, one or two, no more than three. Cuz you're trying to limit your spending. And the more you can save on your needs, get it down to the absolute minimum, you can get it down to the more be able to apply it to your debt. And the quicker your debt get paid off, then you'll be able to save money and build that up quicker to buy what you want. And be able to finance a lot less, keeping your debt under control how pan the banker is never going to make you rich or wealthy. paying yourself as how you do it. You got to get your money working for you. And not you working for the banker. Because when you go out and get all these loans, and you've got all those interests, all those monthly payments, you're going to work just to survive, just to pay the banker back and be able to buy some food, some clothes and get back and forth to work, have a little bit of fun every once in a while. But you're just basically in survival mode. There's a lot of people who are living paycheck to paycheck, because they have way too much debt if they take the debt, credit card debt, maybe a car loan or two out, reduce down their home mortgage down to one instead of two mortgages and a line of credit, they would have a lot more available cash to do what they want to do. Instead of being paying the banker. I'll be back in one moment with my final thoughts are the articles I refer 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 debt out of 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. Any questions you can just contact me through that particular website. If you value this podcast and would like to make a contribution, I had a contribution link in my show notes also good. Whatever you feel is appropriate for the information I am providing. I thank everyone for listening to my podcast. Let's get back and setting up your simple budget for the first time where your control center if you wondering what it should look like just a note, you can go and do a search online budget spreadsheet template and there'll be 1000s of them out there. Pick one printed out and that's pretty much the format that you need. But you want to make the descriptions are the categories based on what you have based on your tracking app that you use that you should already gone through double check done some reports see if you have duplicate categories, combine them together. Got all your checking account information in there for at least the previous month and up through the current date. Got all your credit card detail in there from the previous month up to the current date. But you want to do report by category of for all accounts include all accounts so it will include your savings, your checking and all your credit cards. That way you pick up everything you spend money on All right. And that's our goal here to get started, because our first control center column, our control column, which is the budget amount, which should be column B, is gonna be based on the previous 30 days, the previous month, what happened, we need a starting point. And what's better starting point than what he did, don't make up numbers and plug numbers in there because he either you'll be way off or you're gone and set him up to be Wait where you want them to be. And that may not be reality. So let's do that. Go in, maybe we're already one into the categories and edit it, and got them grouped together by different categories. So they're all together, you can do in any order you want. I'm just saying I put the income at top. Then my next is housing, I put all anything related to the house, then transportation, housing is, as a category group that I grouped together, housing is another category I group together and have a subtotal. Each one of these categories have their own subtotal food, clothing, savings and credit card debt, insurance, things like that, bet your insurance for the house should go on or housing insurance for the car should go on their transportation. And all the loans related to those go into those categories. Credit card debt or other debt would be your credit card, personal loan, something that is not attached to anything that stands by itself, per se. So once you get that figured out, you just got to do that report. Now we're gonna bring it over and put it into a format that we can use, that's called a budget, a simple budget, or my control center income at top, and then we're gonna put on the total that up total income, then we're gonna have expenses, under that we're gonna have housing, housing, then we're gonna have a broken down by mortgage, real estate, tax insurance, utilities, now I do utility as a subgroup, and then put each individual utility company under there and it totals up into that subgroup. If you work for this rally, you understand what I'm talking about, you know, gas, natural gas, electric, water, and sewer trash, whatever you may be paying related to utilities to your home. I also include cell phone, and internet, because it's related to the house, transportation, you do the same thing, you get a total for your housing, and you total that up transportation, you basically do the same thing, total that up food, do the same thing, total that up clothing, do the same thing, total that up savings, and other debt. It's an important category, because that's where like your credit card debts gonna go and put a line in there for savings, even though it might be zero. Now that we're going to change that. So we want to see, month to month how much change we want to see in our budget, how much we're trying to set aside to put in savings because we've got to build our emergency fund up. So that's an important number. And then you have other insurance, whether it's life insurance, disability insurance, all those type of things. Maybe you don't have any of them now, but put a category in there. Then after that would be miscellaneous entertainment that you do, maybe you'd like to go to races or other things hobbies would be once and that would fill in yourself. He wants to try to streamline this as much as possible, because then that makes tracking easier. And makes your budget quicker, easier. If you want to see the detail. You can always go back and look at the detail. And you're tracking. Oh, my utility seems a little high. What happened you can go and you're tracking them this look, do report by category for the month and see which one is more what what did you pay that's higher than usual. You'd be able to figure that out. You might be able to do it in your budget because you got it broken down by utility categories, each individual one, he might be able to spot it right away. So that's the importance of doing this. Now once you have a set up that previous month is your control numbers. So that goes in column A now you're in the current month so you We want to do a report from the beginning of the current month to the current date, let's assume it's your first pay date, the first week, the first Friday of the month, it might be two days, it could be four days, whatever the case is, but it's the first pay day. So you want to put that in the actual column, which is column C, the column D is the difference, and it's automatically worked for you put a formula in there, the column E is percent of income, you can work on to work on that later. That's something that you work on. After you get your budget perfected. That way, you get some better information, as you go through each month in your updating your tracking, and you get another paycheck, say it's another week you do as another report by category from the beginning of the month to the current date, and you use those numbers and go in and update the actual, you have to go back in the same ones and put in the new numbers, you're not adding to it or anything you the math is done by the tracking, only thing you got to do is look at numbers and plug numbers in that spreadsheet, and then the spreadsheet will do the math for you. And then you look at it. Well, how am I doing my housing. Okay, let's look at the detail housing, oh, okay, my mortgage payment comes to zero because I paid the mortgage is the same every month comes to zero, I paid my utilities all my gas bill was down, I paid less than than the previous month, my electric bill is up, I paid a little more than a preme that's gonna be an ongoing thing. And it's gonna be based on the season where you live. And if you heat your home by gas, or heat your home by electric or cool your home by electric, like my gas bill is higher in the winter, because I live in the north, and I hate with natural gas. My electric bill is higher in the summer, because I turn on the AC in the summer. And that's electric. So it depends on where you live. Same thing with car, same thing with everything else. And then as you go through the month, you're updating his every single pay period, or at least once a week, and you're looking at what's going on than one category did you spend more than the previous month. Now when you do this for the very first time, you're cuz you got your income at the top, then you got your subtotals for expenses, and then you got your total expenses, then you have the net, which is your income loss total expanse net, at that net is negative, that means you're spending more than what you make. If it's a positive number, that's good thing that means you spent less than what you make. So that's how you tell if you're spending too much on credit cards. That first month, I wouldn't be surprised if it's a negative number, because you've been using your credit cards and you include that in your numbers. Now the second month, you've got to cut back on using your credit cards or quit using them all together. Because we're trying to get out of debt, that number should get closer to zero if not a positive number. And we're striving for a positive number, then we're striving for a larger posit or number every month until we get to the point where we're standardized. And then we can say every month, I have $500 extra that I can put in my savings account. And it's consistently the same month in the month out. So as you do that the first month is gonna be probably the toughest. Second month, you're gonna get a little bit better a third month. But as you go, we're looking at this budget on a month to month basis. So we got a spreadsheet, we got one month, and then we got another next to it, which we copy and paste. Now we want to use our first month that actual column, highlight them, copy it and make that your control number for the second month you're doing your budget, and that'll get you closer in line to what's going on, then you do the same thing the next month, make your actual spending your control number. Because if you're serious about getting out of debt, you're serious, but cutting back your spending, you quit using credit cards so that reduce your spending, you're looking for ways to save money. So that's going to reduce your spending, you're looking for better deals for the same service that's going to reduce your spending. So we always need to be updating the control amount based on what we're doing. And then sooner or later is going to be close every month. It's gonna be five or $10 It's gonna be $100 or say $150 It's close at that point you don't have to update The whole thing, this look for that one thing that you changed, maybe it was you quit using having food delivered. And so you have that zero now, well then the next month I'm gonna make that zero because you're not going to use it anymore because you're trying to say money or you did away with cable TV that was $200 a month that was included in your control center or your budget amount, and you did away with it. So maybe you want to reduce it to half because there's a time delay. And then the next month you reduce it to zero when you actually have zero. So we're looking at this and it's a never ending update. And you got to be on top of it week in and week out. always updating, always reviewing it. Always looking at it looking for problems. Oh, I spent too much money here on clothes. Why did I do that? Okay, the kids are getting ready to go back to school, we went on vacation, we need a new club. Whatever the case is, you got to be able to justify it. And if you can adjust the FIE it then it's not a problem. If you can't justify it, then maybe you have a spending problem. You need to work on controlling it. keep things under control, and you'll be glad you did. So