July 21, 2024 • 31 mins
Simple budget how to get started and getting a budget setup. It not hard if completed tracking for at least one month.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Charles McDonald (00:03):
Hello, I'm your host, Mr. Chuck, a retired
accountant turned truck driver,I reduce my debt in a relatively
short period of time, debtreduction to achieve financial
freedom takes commitment,confidence determination,
control center, simple budgethow to get started in getting a
(00:26):
budget set up. It's not hard ifyou completed tracking for at
least a one month. But before Iget in talking about a Control
Center, also known as a budget,on on a follow up on what I
started out last week episodeabout lifestyle change. And if
you're looking at a couple carpayments as more than 40% of
(00:51):
your monthly income, you need toget rid of those cars. Now I
know I stress, the point here isto reduce your debt, get rid of
your debt. But if you reduceyour debt, that's a good thing,
too. I mentioned about buying agood used car and paying cash
for it. But I realize a lot ofyou probably can't afford to do
(01:14):
that, because you have all thisother debt. So if you can get
rid of those big car paymentsand buy a lesser expensive car
finance a lot less get a lotsmaller monthly payment. And
then that's gonna help youreduce your credit card debt and
other debt that's at a higherrate of interest. So it's not a
(01:38):
bad thing, getting some new carloans. But your goal should be
to overall reduce the amount youowe, and reduce the monthly
payments. So you can apply thatmoney to some other debt. Now I
say simple budget. What I meanby that is the number of
categories that you're gonna puttogether and your budget to
(02:02):
track. You don't need to have abunch of detail. And here's an
example about too much detail.
Say you're married and have aspouse and two children. And
you're looking at the clothes,setting up clothing. So you want
to set up clothing for eachindividual person. Well, that's
okay. But you don't need to gointo too much detail as husband,
(02:26):
underwear, shirts, pants, ties,socks, shoes, and a don't need
to detail every single items andfor every individual. So if you
want to do clothing, just keepone category and you can break
it down by person if you want.
(02:48):
But you really don't even haveto do that. We're talking about
keeping things simple. So if yougo out and buy a bunch of
clothes, and it's for your twochildren and for your husband
and for yourself, he got to takethat big receipt and split it
all out. So it's even easierjust to have one big category.
(03:10):
And know that, you know, youcould kind of manually do each
individual receipt to see whatpercent of it is going to each
individual if you want. But overtime, that doesn't matter. We
don't need that much detail. Soa budget should be broken into
categories. And a category is aindividual expense that you pay.
(03:35):
That is a good description ofthat particular expense, such as
mortgage utility. Now utilitiescould be broken down to natural
gas, electric, water and sewertrash, whatever else H O A
association dues, that's allwould be under housing, and
(03:59):
housing is a need. You have twobroad categories. The first one
is what you need in order tolive. And the second is what you
want. Your needs. Just thinkabout it is what you need to
exist in life. As a singleperson, or as a married person
(04:23):
with a big family. Your needsare gonna be the same they're
just gonna get more expensivebecause you need a bigger areas.
So the needs are housing,transportation, food, clothing,
that's everything that you needto exist in life, to have a
(04:44):
place to sleep, have a way toget around and go to work and to
the store. To eat to survive andclothes to keep yourself warm or
covered or keep them fromgetting sunburned or whatever
the case would be That's thesame for one person, or a five
person family, they all have thesame needs as this, it gets more
(05:08):
expensive, because while there'smore of you, you need a bigger
home anymore, maybe two cars,instead of one car or a bigger
car, and you got to buy moreclothes, you got to buy more
food. So that's how I set up mybudget. I start out at the very
top. Now creating a budget isnot that difficult. The Step one
(05:36):
is to figure out your netincome. And your net income is
the amount of money that gettingdeposited into your checking
account. Now, if you're somebodywho gets a check, and it's not a
direct deposit, and you go tothe bank, and you take $200, for
yourself, and you deposit therest, so that your spouse don't
(06:00):
really know how much you reallymake, you got to quit doing
that, you got to put 100% ofyour net income into your
checking account because youneed to pay off your debt. And
no more siphoning no more slushfunds, no more anything like
that. And that goes both waysfor both spouses. So your net
(06:23):
income is what you that what youmake less taxes and any other
deductions, it's what's actuallyshould be deposited or what you
receive from your paycheck. Nowthat paycheck might have you
might be contributing to a 401K, you might be paying child
(06:44):
support, or you might be payingalimony. And that might already
be out of there. So when you'relooking at a budget, whatever is
already deducted out of yourpaycheck, you do not have to
include in your budget. So ifyou're putting money into
retirement, it's alreadydeducted, you don't have to set
(07:07):
up a retirement and your budgetbecause it's already taken care
of. Same thing for federal stateand local income taxes, it's
already being taken out of yourcheck, same thing for your child
support has already been takenout of your check. So that's
your net. That's the very top ofyour budget, we're looking at
(07:30):
left to right, this think of aspreadsheet piece of paper. On
the left, you got yourdescriptions of all your
categories going across, youwould have your control dollar
amount, which is the budgetamount, you have the actual for
the current period or thecurrent month, you have the
(07:51):
difference between the two. Andthen you have percentages,
percent of your gross income youcould use or your net income,
the net income is easier becauseit's already there in the
spreadsheet, your gross incomeis before all those other
deductions. And sometimes youuse that to figure out for loans
(08:14):
and stuff like that, how much isyour mortgage of based on your
gross income before taxes andeverything. For this, we're
going to not even think aboutthat. That's something that you
do over time as you get yourbudget under control. And you
want to see how much is my carloans to what I make, what
(08:38):
percent? Well, that percentshould be less than 20%. So
anything over that, that meansyou have to cut back somewhere
else, you can't spend more moneythan what you have. And by
setting up this budget and doingthe tracking, so that you can
set up a budget, you'll figureout really quick. If you're
(09:00):
spending more money than youmake. That's why you're putting
in the detail for all yourcredit cards. Because that's
money that you spent, that youmay not made yet. So that is
gonna be a big sign there. Andstep two is track your spending
with I do that step one, we'recreating a budget now, we've
(09:23):
already tracked our income andspending. So now it's a matter
of putting it in an organizedformat. So we can use the
information to our advantage. Wealready set goals and your goals
is to pay off your debt, maybeincrease your retirement savings
or increase your salary savingsfor your children's education,
(09:47):
whatever. Come on, make a plan.
We have a debt reduction plan.
We know that we're no longergoing to use credit we're
working on getting that our Ifwe're making a minimum payment
of our debt, we're increasingour emergency fund, we went to
the bank and set that up, andwe're gonna try to build that up
(10:09):
as quickly as possible, we'regoing 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. Sothat and then repeat. And the
goal is to pay off our debt, wewant to start with the highest
(10:32):
interest rate debt first, I knowother professionals say
different, I say pay off thesmallest balanced one first. And
after that, you want toconcentrate on paying the
highest interest. Next, thatway, you'll pay a lot less
interest, which then you'll savemoney, which will allow you to
(10:52):
pay more principal. And then asyou go through and you get
everything set up your firstmonth, is gonna include all the
things you bought using yourcredit card. So when you set up
your budget, your controlamount, or the budget amount,
(11:14):
it's gonna be based on theprevious month, because we got
to start somewhere, we can'tjust make up numbers, because we
don't really know what thenumbers are. So we need to start
somewhere. That's why you goback that first 30 days, the
previous month, and we get insome numbers. And that should
include all your credit cardspending. And that's going to go
(11:37):
in your control center. Nowremember, we quit using credit,
we were and then the next month,and we're trying to cut down on
using credit. So the actualamount that you spend for this
month, the first month thatyou're really looking at your
budget should be under yourcontrol center. If you reduce
(12:00):
using your credit cards, or ifyou completely cut out using
credit cards, penning how muchyou 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'reat step one, and we need to see
how we're doing. And that's whatthe control center gives us. It
(12:21):
puts everything in an organizedformat. Because that category,
that report you get by category,from the app where you're doing
your tracking, is going to giveit to you in alphabetical order.
That's why I say you should gointo that app in that category
list. Come up with a system thatworks for you. That groups all
(12:46):
your housing stuff together,your mortgage payments, all your
utilities, maintenance, a waterand sewer, your cell phone, I
include phone with housing,because the landlines, the old
time phones are connected to thehouse. And that's before cell
(13:09):
phones. So the cell phone isconnected to the house, your
internet service, things likethat. That's all housing, and
transportation, as your nextcategory, tried to group all
your transportation together,which would be your car
payments, your gas and oilrepairs and maintenance. Stuff
(13:33):
like that. Same thing was food,your food should be groceries
dining in delivery. How manydifferent ways do you get your
food? Do you go to the grocerystore? Do you have it delivered?
Do you pay extra for that thereis an expense you can cut out of
your life. Instead of having todeliver go pick it up, we're
(13:53):
looking for ways to save money.
So as you're setting up yourcategories, and you're coming up
with these food and then that'syour, you know housing,
transportation, food, clothing,those or the grouping category,
the heading per se, than otherthe heading you have all these
subcategories. And that's whereyou post your dollar amounts
(14:17):
into each individualsubcategory. So if you got food,
you have a sub category isgroceries dining in restaurants
dining in fast foods. Delivery,he can
and under delivery. You can evenbreak it on who is delivering it
(14:38):
if you want to go that far, butdelivery category should go to
zero because it's costing you abunch of money for convenience.
Anything you do that's moreconvenient, you're paying more
for it. We're trying to limitour spending. So we got to quit
paying for all this conveniencestuff. That's where I say, if
(15:03):
you're still paying for cableTV, you're crazy. I realized a
long time ago, I'm paying for aninternet, I'm paying for cable
TV, cable TV is expensive, eventhe basic version was a lot of
money. I just did away with it,because I'm gonna stream because
I'm already paying for myinternet service. Let's use my
(15:26):
internet service to the maximumand stream my TV, I've been
doing that for at least fiveyears, maybe longer, I have no
problems, ie don't need a faststreaming service for viewing
streaming TVs and movies. It'snot at the can doe at the very
(15:47):
basic level of service and stillbe able to watch TV without
having too much buffering, Idon't have any buffering, but
that's beside the point. Sothere's a way to cut an expense
out of your budget, and do itcheaper, but don't get 10
(16:07):
different streaming service,limit your streaming platforms,
or services, one or two, no morethan three. Cuz you're trying to
limit your spending. And themore you can save on your needs,
get it down to the absoluteminimum, you can get it down to
(16:28):
the more be able to apply it toyour debt. And the quicker your
debt get paid off, then you'llbe able to save money and build
that up quicker to buy what youwant. And be able to finance a
lot less, keeping your debtunder control how pan the banker
(16:52):
is never going to make you richor wealthy. paying yourself as
how you do it. You got to getyour money working for you. And
not you working for the banker.
Because when you go out and getall these loans, and you've got
all those interests, all thosemonthly payments, you're going
to work just to survive, just topay the banker back and be able
(17:15):
to buy some food, some clothesand get back and forth to work,
have a little bit of fun everyonce in a while. But you're just
basically in survival mode.
There's a lot of people who areliving paycheck to paycheck,
because they have way too muchdebt if they take the debt,
credit card debt, maybe a carloan or two out, reduce down
(17:39):
their home mortgage down to oneinstead of two mortgages and a
line of credit, they would havea lot more available cash to do
what they want to do. Instead ofbeing paying the banker. I'll be
back in one moment with my finalthoughts are the articles I
(18:00):
refer to in my episodes have alink in my show notes. If you're
interested in checking out thesoftware that I personally use
to get my debt out of control.
It's in my show notes under shopfinancial, you need to copy and
paste the link, and it'll takeyou to the website. Any
questions you can just contactme through that particular
(18:24):
website.
If you value this podcast andwould like to make a
contribution, I had acontribution link in my show
notes also good. Whatever youfeel is appropriate for the
information I am providing. Ithank everyone for listening to
my podcast. Let's get back andsetting up your simple budget
(18:48):
for the first time where yourcontrol center if you wondering
what it should look like just anote, you can go and do a search
online budget spreadsheettemplate and there'll be 1000s
of them out there. Pick oneprinted out and that's pretty
much the format that you need.
But you want to make thedescriptions are the categories
(19:12):
based on what you have based onyour tracking app that you use
that you should already gonethrough double check done some
reports see if you haveduplicate categories, combine
them together. Got all yourchecking account information in
(19:33):
there for at least the previousmonth and up through the current
date. Got all your credit carddetail in there from the
previous month up to the currentdate. But you want to do report
by category of for all accountsinclude all accounts so it will
include your savings, yourchecking and all your credit
(19:53):
cards. That way you pick upeverything you spend money on
All right. And that's our goalhere to get started, because our
first control center column, ourcontrol column, which is the
budget amount, which should becolumn B, is gonna be based on
(20:14):
the previous 30 days, theprevious month, what happened,
we need a starting point. Andwhat's better starting point
than what he did, don't make upnumbers and plug numbers in
there because he either you'llbe way off or you're gone and
set him up to be Wait where youwant them to be. And that may
(20:35):
not be reality. So let's dothat. Go in, maybe we're already
one into the categories and editit, and got them grouped
together by differentcategories. So they're all
together, you can do in anyorder you want. I'm just saying
I put the income at top. Then mynext is housing, I put all
(20:58):
anything related to the house,then transportation, housing is,
as a category group that Igrouped together, housing is
another category I grouptogether and have a subtotal.
Each one of these categorieshave their own subtotal food,
clothing, savings and creditcard debt, insurance, things
(21:19):
like that, bet your insurancefor the house should go on or
housing insurance for the carshould go on their
transportation. And all theloans related to those go into
those categories. Credit carddebt or other debt would be your
credit card, personal loan,something that is not attached
to anything that stands byitself, per se. So once you get
(21:44):
that figured out, you just gotto do that report. Now we're
gonna bring it over and put itinto a format that we can use,
that's called a budget, a simplebudget, or my control center
income at top, and then we'regonna put on the total that up
total income, then we're gonnahave expenses, under that we're
(22:08):
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, andthen put each individual utility
company under there and ittotals up into that subgroup. If
you work for this rally, youunderstand what I'm talking
(22:32):
about, you know, gas, naturalgas, electric, water, and sewer
trash, whatever you may bepaying related to utilities to
your home. I also include cellphone, and internet, because
it's related to the house,transportation, you do the same
(22:53):
thing, you get a total for yourhousing, and you total that up
transportation, you basically dothe same thing, total that up
food, do the same thing, totalthat up clothing, do the same
thing, total that up savings,and other debt. It's an
important category, becausethat's where like your credit
(23:16):
card debts gonna go and put aline in there for savings, even
though it might be zero. Nowthat we're going to change that.
So we want to see, month tomonth how much change we want to
see in our budget, how muchwe're trying to set aside to put
in savings because we've got tobuild our emergency fund up. So
that's an important number. Andthen you have other insurance,
(23:39):
whether it's life insurance,disability insurance, all those
type of things. Maybe you don'thave any of them now, but put a
category in there. Then afterthat would be miscellaneous
entertainment that you do, maybeyou'd like to go to races or
other things hobbies would beonce and that would fill in
yourself. He wants to try tostreamline this as much as
(24:05):
possible, because then thatmakes tracking easier. And makes
your budget quicker, easier. Ifyou want to see the detail. You
can always go back and look atthe detail. And you're tracking.
Oh, my utility seems a littlehigh. What happened you can go
and you're tracking them thislook, do report by category for
the month and see which one ismore what what did you pay
(24:31):
that's higher than usual. You'dbe able to figure that out. You
might be able to do it in yourbudget because you got it broken
down by utility categories, eachindividual one, he might be able
to spot it right away. So that'sthe importance of doing this.
Now once you have a set up thatprevious month is your control
(24:52):
numbers. So that goes in columnA now you're in the current
month so you We want to do areport from the beginning of the
current month to the currentdate, let's assume it's your
first pay date, the first week,the first Friday of the month,
it might be two days, it couldbe four days, whatever the case
is, but it's the first pay day.
(25:14):
So you want to put that in theactual column, which is column
C, the column D is thedifference, and it's
automatically worked for you puta formula in there, the column E
is percent of income, you canwork on to work on that later.
That's something that you workon. After you get your budget
perfected. That way, you getsome better information, as you
(25:37):
go through each month in yourupdating your tracking, and you
get another paycheck, say it'sanother week you do as another
report by category from thebeginning of the month to the
current date, and you use thosenumbers and go in and update the
actual, you have to go back inthe same ones and put in the new
numbers, you're not adding to itor anything you the math is done
(26:01):
by the tracking, only thing yougot to do is look at numbers and
plug numbers in thatspreadsheet, and then the
spreadsheet will do the math foryou. And then you look at it.
Well, how am I doing my housing.
Okay, let's look at the detailhousing, oh, okay, my mortgage
payment comes to zero because Ipaid the mortgage is the same
every month comes to zero, Ipaid my utilities all my gas
(26:21):
bill was down, I paid less thanthan the previous month, my
electric bill is up, I paid alittle more than a preme that's
gonna be an ongoing thing. Andit's gonna be based on the
season where you live. And ifyou heat your home by gas, or
heat your home by electric orcool your home by electric, like
(26:42):
my gas bill is higher in thewinter, because I live in the
north, and I hate with naturalgas. My electric bill is higher
in the summer, because I turn onthe AC in the summer. And that's
electric. So it depends on whereyou live. Same thing with car,
same thing with everything else.
(27:04):
And then as you go through themonth, you're updating his every
single pay period, or at leastonce a week, and you're looking
at what's going on than onecategory did you spend more than
the previous month. Now when youdo this for the very first time,
you're cuz you got your incomeat the top, then you got your
(27:24):
subtotals for expenses, and thenyou got your total expenses,
then you have the net, which isyour income loss total expanse
net, at that net is negative,that means you're spending more
than what you make. If it's apositive number, that's good
thing that means you spent lessthan what you make. So that's
(27:47):
how you tell if you're spendingtoo much on credit cards. That
first month, I wouldn't besurprised if it's a negative
number, because you've beenusing your credit cards and you
include that in your numbers.
Now the second month, you've gotto cut back on using your credit
cards or quit using them alltogether. Because we're trying
to get out of debt, that numbershould get closer to zero if not
(28:10):
a positive number. And we'restriving for a positive number,
then we're striving for a largerposit or number every month
until we get to the point wherewe're standardized. And then we
can say every month, I have $500extra that I can put in my
(28:31):
savings account. And it'sconsistently the same month in
the month out. So as you do thatthe first month is gonna be
probably the toughest. Secondmonth, you're gonna get a little
bit better a third month. But asyou go, we're looking at this
budget on a month to monthbasis. So we got a spreadsheet,
we got one month, and then wegot another next to it, which we
(28:56):
copy and paste. Now we want touse our first month that actual
column, highlight them, copy itand make that your control
number for the second monthyou're doing your budget, and
that'll get you closer in lineto what's going on, then you do
the same thing the next month,make your actual spending your
(29:18):
control number. Because ifyou're serious about getting out
of debt, you're serious, butcutting back your spending, you
quit using credit cards so thatreduce your spending, you're
looking for ways to save money.
So that's going to reduce yourspending, you're looking for
better deals for the sameservice that's going to reduce
(29:40):
your spending. So we always needto be updating the control
amount based on what we'redoing. And then sooner or later
is going to be close everymonth. It's gonna be five or $10
It's gonna be $100 or say $150It's close at that point you
don't have to update The wholething, this look for that one
thing that you changed, maybe itwas you quit using having food
(30:05):
delivered. And so you have thatzero now, well then the next
month I'm gonna make that zerobecause you're not going to use
it anymore because you're tryingto say money or you did away
with cable TV that was $200 amonth that was included in your
control center or your budgetamount, and you did away with
it. So maybe you want to reduceit to half because there's a
(30:29):
time delay. And then the nextmonth you reduce it to zero when
you actually have zero. So we'relooking at this and it's a never
ending update. And you got to beon top of it week in and week
out. always updating, alwaysreviewing it. Always looking at
it looking for problems. Oh, Ispent too much money here on
(30:51):
clothes. Why did I do that?
Okay, the kids are getting readyto go back to school, we went on
vacation, we need a new club.
Whatever the case is, you got tobe able to justify it. And if
you can adjust the FIE it thenit's not a problem. If you can't
justify it, then maybe you havea spending problem. You need to
work on controlling it. keepthings under control, and you'll
(31:12):
be glad you did. So
Hello, I'm your host, Mr. Chuck, a retired
accountant turned truck driver,I reduce my debt in a relatively
short period of time, debtreduction to achieve financial
freedom takes commitment,confidence determination,
control center, simple budgethow to get started in getting a
(00:26):
budget set up. It's not hard ifyou completed tracking for at
least a one month. But before Iget in talking about a Control
Center, also known as a budget,on on a follow up on what I
started out last week episodeabout lifestyle change. And if
you're looking at a couple carpayments as more than 40% of
(00:51):
your monthly income, you need toget rid of those cars. Now I
know I stress, the point here isto reduce your debt, get rid of
your debt. But if you reduceyour debt, that's a good thing,
too. I mentioned about buying agood used car and paying cash
for it. But I realize a lot ofyou probably can't afford to do
(01:14):
that, because you have all thisother debt. So if you can get
rid of those big car paymentsand buy a lesser expensive car
finance a lot less get a lotsmaller monthly payment. And
then that's gonna help youreduce your credit card debt and
other debt that's at a higherrate of interest. So it's not a
(01:38):
bad thing, getting some new carloans. But your goal should be
to overall reduce the amount youowe, and reduce the monthly
payments. So you can apply thatmoney to some other debt. Now I
say simple budget. What I meanby that is the number of
categories that you're gonna puttogether and your budget to
(02:02):
track. You don't need to have abunch of detail. And here's an
example about too much detail.
Say you're married and have aspouse and two children. And
you're looking at the clothes,setting up clothing. So you want
to set up clothing for eachindividual person. Well, that's
okay. But you don't need to gointo too much detail as husband,
(02:26):
underwear, shirts, pants, ties,socks, shoes, and a don't need
to detail every single items andfor every individual. So if you
want to do clothing, just keepone category and you can break
it down by person if you want.
(02:48):
But you really don't even haveto do that. We're talking about
keeping things simple. So if yougo out and buy a bunch of
clothes, and it's for your twochildren and for your husband
and for yourself, he got to takethat big receipt and split it
all out. So it's even easierjust to have one big category.
(03:10):
And know that, you know, youcould kind of manually do each
individual receipt to see whatpercent of it is going to each
individual if you want. But overtime, that doesn't matter. We
don't need that much detail. Soa budget should be broken into
categories. And a category is aindividual expense that you pay.
(03:35):
That is a good description ofthat particular expense, such as
mortgage utility. Now utilitiescould be broken down to natural
gas, electric, water and sewertrash, whatever else H O A
association dues, that's allwould be under housing, and
(03:59):
housing is a need. You have twobroad categories. The first one
is what you need in order tolive. And the second is what you
want. Your needs. Just thinkabout it is what you need to
exist in life. As a singleperson, or as a married person
(04:23):
with a big family. Your needsare gonna be the same they're
just gonna get more expensivebecause you need a bigger areas.
So the needs are housing,transportation, food, clothing,
that's everything that you needto exist in life, to have a
(04:44):
place to sleep, have a way toget around and go to work and to
the store. To eat to survive andclothes to keep yourself warm or
covered or keep them fromgetting sunburned or whatever
the case would be That's thesame for one person, or a five
person family, they all have thesame needs as this, it gets more
(05:08):
expensive, because while there'smore of you, you need a bigger
home anymore, maybe two cars,instead of one car or a bigger
car, and you got to buy moreclothes, you got to buy more
food. So that's how I set up mybudget. I start out at the very
top. Now creating a budget isnot that difficult. The Step one
(05:36):
is to figure out your netincome. And your net income is
the amount of money that gettingdeposited into your checking
account. Now, if you're somebodywho gets a check, and it's not a
direct deposit, and you go tothe bank, and you take $200, for
yourself, and you deposit therest, so that your spouse don't
(06:00):
really know how much you reallymake, you got to quit doing
that, you got to put 100% ofyour net income into your
checking account because youneed to pay off your debt. And
no more siphoning no more slushfunds, no more anything like
that. And that goes both waysfor both spouses. So your net
(06:23):
income is what you that what youmake less taxes and any other
deductions, it's what's actuallyshould be deposited or what you
receive from your paycheck. Nowthat paycheck might have you
might be contributing to a 401K, you might be paying child
(06:44):
support, or you might be payingalimony. And that might already
be out of there. So when you'relooking at a budget, whatever is
already deducted out of yourpaycheck, you do not have to
include in your budget. So ifyou're putting money into
retirement, it's alreadydeducted, you don't have to set
(07:07):
up a retirement and your budgetbecause it's already taken care
of. Same thing for federal stateand local income taxes, it's
already being taken out of yourcheck, same thing for your child
support has already been takenout of your check. So that's
your net. That's the very top ofyour budget, we're looking at
(07:30):
left to right, this think of aspreadsheet piece of paper. On
the left, you got yourdescriptions of all your
categories going across, youwould have your control dollar
amount, which is the budgetamount, you have the actual for
the current period or thecurrent month, you have the
(07:51):
difference between the two. Andthen you have percentages,
percent of your gross income youcould use or your net income,
the net income is easier becauseit's already there in the
spreadsheet, your gross incomeis before all those other
deductions. And sometimes youuse that to figure out for loans
(08:14):
and stuff like that, how much isyour mortgage of based on your
gross income before taxes andeverything. For this, we're
going to not even think aboutthat. That's something that you
do over time as you get yourbudget under control. And you
want to see how much is my carloans to what I make, what
(08:38):
percent? Well, that percentshould be less than 20%. So
anything over that, that meansyou have to cut back somewhere
else, you can't spend more moneythan what you have. And by
setting up this budget and doingthe tracking, so that you can
set up a budget, you'll figureout really quick. If you're
(09:00):
spending more money than youmake. That's why you're putting
in the detail for all yourcredit cards. Because that's
money that you spent, that youmay not made yet. So that is
gonna be a big sign there. Andstep two is track your spending
with I do that step one, we'recreating a budget now, we've
(09:23):
already tracked our income andspending. So now it's a matter
of putting it in an organizedformat. So we can use the
information to our advantage. Wealready set goals and your goals
is to pay off your debt, maybeincrease your retirement savings
or increase your salary savingsfor your children's education,
(09:47):
whatever. Come on, make a plan.
We have a debt reduction plan.
We know that we're no longergoing to use credit we're
working on getting that our Ifwe're making a minimum payment
of our debt, we're increasingour emergency fund, we went to
the bank and set that up, andwe're gonna try to build that up
(10:09):
as quickly as possible, we'regoing 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. Sothat and then repeat. And the
goal is to pay off our debt, wewant to start with the highest
(10:32):
interest rate debt first, I knowother professionals say
different, I say pay off thesmallest balanced one first. And
after that, you want toconcentrate on paying the
highest interest. Next, thatway, you'll pay a lot less
interest, which then you'll savemoney, which will allow you to
(10:52):
pay more principal. And then asyou go through and you get
everything set up your firstmonth, is gonna include all the
things you bought using yourcredit card. So when you set up
your budget, your controlamount, or the budget amount,
(11:14):
it's gonna be based on theprevious month, because we got
to start somewhere, we can'tjust make up numbers, because we
don't really know what thenumbers are. So we need to start
somewhere. That's why you goback that first 30 days, the
previous month, and we get insome numbers. And that should
include all your credit cardspending. And that's going to go
(11:37):
in your control center. Nowremember, we quit using credit,
we were and then the next month,and we're trying to cut down on
using credit. So the actualamount that you spend for this
month, the first month thatyou're really looking at your
budget should be under yourcontrol center. If you reduce
(12:00):
using your credit cards, or ifyou completely cut out using
credit cards, penning how muchyou 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'reat step one, and we need to see
how we're doing. And that's whatthe control center gives us. It
(12:21):
puts everything in an organizedformat. Because that category,
that report you get by category,from the app where you're doing
your tracking, is going to giveit to you in alphabetical order.
That's why I say you should gointo that app in that category
list. Come up with a system thatworks for you. That groups all
(12:46):
your housing stuff together,your mortgage payments, all your
utilities, maintenance, a waterand sewer, your cell phone, I
include phone with housing,because the landlines, the old
time phones are connected to thehouse. And that's before cell
(13:09):
phones. So the cell phone isconnected to the house, your
internet service, things likethat. That's all housing, and
transportation, as your nextcategory, tried to group all
your transportation together,which would be your car
payments, your gas and oilrepairs and maintenance. Stuff
(13:33):
like that. Same thing was food,your food should be groceries
dining in delivery. How manydifferent ways do you get your
food? Do you go to the grocerystore? Do you have it delivered?
Do you pay extra for that thereis an expense you can cut out of
your life. Instead of having todeliver go pick it up, we're
(13:53):
looking for ways to save money.
So as you're setting up yourcategories, and you're coming up
with these food and then that'syour, you know housing,
transportation, food, clothing,those or the grouping category,
the heading per se, than otherthe heading you have all these
subcategories. And that's whereyou post your dollar amounts
(14:17):
into each individualsubcategory. So if you got food,
you have a sub category isgroceries dining in restaurants
dining in fast foods. Delivery,he can
and under delivery. You can evenbreak it on who is delivering it
(14:38):
if you want to go that far, butdelivery category should go to
zero because it's costing you abunch of money for convenience.
Anything you do that's moreconvenient, you're paying more
for it. We're trying to limitour spending. So we got to quit
paying for all this conveniencestuff. That's where I say, if
(15:03):
you're still paying for cableTV, you're crazy. I realized a
long time ago, I'm paying for aninternet, I'm paying for cable
TV, cable TV is expensive, eventhe basic version was a lot of
money. I just did away with it,because I'm gonna stream because
I'm already paying for myinternet service. Let's use my
(15:26):
internet service to the maximumand stream my TV, I've been
doing that for at least fiveyears, maybe longer, I have no
problems, ie don't need a faststreaming service for viewing
streaming TVs and movies. It'snot at the can doe at the very
(15:47):
basic level of service and stillbe able to watch TV without
having too much buffering, Idon't have any buffering, but
that's beside the point. Sothere's a way to cut an expense
out of your budget, and do itcheaper, but don't get 10
(16:07):
different streaming service,limit your streaming platforms,
or services, one or two, no morethan three. Cuz you're trying to
limit your spending. And themore you can save on your needs,
get it down to the absoluteminimum, you can get it down to
(16:28):
the more be able to apply it toyour debt. And the quicker your
debt get paid off, then you'llbe able to save money and build
that up quicker to buy what youwant. And be able to finance a
lot less, keeping your debtunder control how pan the banker
(16:52):
is never going to make you richor wealthy. paying yourself as
how you do it. You got to getyour money working for you. And
not you working for the banker.
Because when you go out and getall these loans, and you've got
all those interests, all thosemonthly payments, you're going
to work just to survive, just topay the banker back and be able
(17:15):
to buy some food, some clothesand get back and forth to work,
have a little bit of fun everyonce in a while. But you're just
basically in survival mode.
There's a lot of people who areliving paycheck to paycheck,
because they have way too muchdebt if they take the debt,
credit card debt, maybe a carloan or two out, reduce down
(17:39):
their home mortgage down to oneinstead of two mortgages and a
line of credit, they would havea lot more available cash to do
what they want to do. Instead ofbeing paying the banker. I'll be
back in one moment with my finalthoughts are the articles I
(18:00):
refer to in my episodes have alink in my show notes. If you're
interested in checking out thesoftware that I personally use
to get my debt out of control.
It's in my show notes under shopfinancial, you need to copy and
paste the link, and it'll takeyou to the website. Any
questions you can just contactme through that particular
(18:24):
website.
If you value this podcast andwould like to make a
contribution, I had acontribution link in my show
notes also good. Whatever youfeel is appropriate for the
information I am providing. Ithank everyone for listening to
my podcast. Let's get back andsetting up your simple budget
(18:48):
for the first time where yourcontrol center if you wondering
what it should look like just anote, you can go and do a search
online budget spreadsheettemplate and there'll be 1000s
of them out there. Pick oneprinted out and that's pretty
much the format that you need.
But you want to make thedescriptions are the categories
(19:12):
based on what you have based onyour tracking app that you use
that you should already gonethrough double check done some
reports see if you haveduplicate categories, combine
them together. Got all yourchecking account information in
(19:33):
there for at least the previousmonth and up through the current
date. Got all your credit carddetail in there from the
previous month up to the currentdate. But you want to do report
by category of for all accountsinclude all accounts so it will
include your savings, yourchecking and all your credit
(19:53):
cards. That way you pick upeverything you spend money on
All right. And that's our goalhere to get started, because our
first control center column, ourcontrol column, which is the
budget amount, which should becolumn B, is gonna be based on
(20:14):
the previous 30 days, theprevious month, what happened,
we need a starting point. Andwhat's better starting point
than what he did, don't make upnumbers and plug numbers in
there because he either you'llbe way off or you're gone and
set him up to be Wait where youwant them to be. And that may
(20:35):
not be reality. So let's dothat. Go in, maybe we're already
one into the categories and editit, and got them grouped
together by differentcategories. So they're all
together, you can do in anyorder you want. I'm just saying
I put the income at top. Then mynext is housing, I put all
(20:58):
anything related to the house,then transportation, housing is,
as a category group that Igrouped together, housing is
another category I grouptogether and have a subtotal.
Each one of these categorieshave their own subtotal food,
clothing, savings and creditcard debt, insurance, things
(21:19):
like that, bet your insurancefor the house should go on or
housing insurance for the carshould go on their
transportation. And all theloans related to those go into
those categories. Credit carddebt or other debt would be your
credit card, personal loan,something that is not attached
to anything that stands byitself, per se. So once you get
(21:44):
that figured out, you just gotto do that report. Now we're
gonna bring it over and put itinto a format that we can use,
that's called a budget, a simplebudget, or my control center
income at top, and then we'regonna put on the total that up
total income, then we're gonnahave expenses, under that we're
(22:08):
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, andthen put each individual utility
company under there and ittotals up into that subgroup. If
you work for this rally, youunderstand what I'm talking
(22:32):
about, you know, gas, naturalgas, electric, water, and sewer
trash, whatever you may bepaying related to utilities to
your home. I also include cellphone, and internet, because
it's related to the house,transportation, you do the same
(22:53):
thing, you get a total for yourhousing, and you total that up
transportation, you basically dothe same thing, total that up
food, do the same thing, totalthat up clothing, do the same
thing, total that up savings,and other debt. It's an
important category, becausethat's where like your credit
(23:16):
card debts gonna go and put aline in there for savings, even
though it might be zero. Nowthat we're going to change that.
So we want to see, month tomonth how much change we want to
see in our budget, how muchwe're trying to set aside to put
in savings because we've got tobuild our emergency fund up. So
that's an important number. Andthen you have other insurance,
(23:39):
whether it's life insurance,disability insurance, all those
type of things. Maybe you don'thave any of them now, but put a
category in there. Then afterthat would be miscellaneous
entertainment that you do, maybeyou'd like to go to races or
other things hobbies would beonce and that would fill in
yourself. He wants to try tostreamline this as much as
(24:05):
possible, because then thatmakes tracking easier. And makes
your budget quicker, easier. Ifyou want to see the detail. You
can always go back and look atthe detail. And you're tracking.
Oh, my utility seems a littlehigh. What happened you can go
and you're tracking them thislook, do report by category for
the month and see which one ismore what what did you pay
(24:31):
that's higher than usual. You'dbe able to figure that out. You
might be able to do it in yourbudget because you got it broken
down by utility categories, eachindividual one, he might be able
to spot it right away. So that'sthe importance of doing this.
Now once you have a set up thatprevious month is your control
(24:52):
numbers. So that goes in columnA now you're in the current
month so you We want to do areport from the beginning of the
current month to the currentdate, let's assume it's your
first pay date, the first week,the first Friday of the month,
it might be two days, it couldbe four days, whatever the case
is, but it's the first pay day.
(25:14):
So you want to put that in theactual column, which is column
C, the column D is thedifference, and it's
automatically worked for you puta formula in there, the column E
is percent of income, you canwork on to work on that later.
That's something that you workon. After you get your budget
perfected. That way, you getsome better information, as you
(25:37):
go through each month in yourupdating your tracking, and you
get another paycheck, say it'sanother week you do as another
report by category from thebeginning of the month to the
current date, and you use thosenumbers and go in and update the
actual, you have to go back inthe same ones and put in the new
numbers, you're not adding to itor anything you the math is done
(26:01):
by the tracking, only thing yougot to do is look at numbers and
plug numbers in thatspreadsheet, and then the
spreadsheet will do the math foryou. And then you look at it.
Well, how am I doing my housing.
Okay, let's look at the detailhousing, oh, okay, my mortgage
payment comes to zero because Ipaid the mortgage is the same
every month comes to zero, Ipaid my utilities all my gas
(26:21):
bill was down, I paid less thanthan the previous month, my
electric bill is up, I paid alittle more than a preme that's
gonna be an ongoing thing. Andit's gonna be based on the
season where you live. And ifyou heat your home by gas, or
heat your home by electric orcool your home by electric, like
(26:42):
my gas bill is higher in thewinter, because I live in the
north, and I hate with naturalgas. My electric bill is higher
in the summer, because I turn onthe AC in the summer. And that's
electric. So it depends on whereyou live. Same thing with car,
same thing with everything else.
(27:04):
And then as you go through themonth, you're updating his every
single pay period, or at leastonce a week, and you're looking
at what's going on than onecategory did you spend more than
the previous month. Now when youdo this for the very first time,
you're cuz you got your incomeat the top, then you got your
(27:24):
subtotals for expenses, and thenyou got your total expenses,
then you have the net, which isyour income loss total expanse
net, at that net is negative,that means you're spending more
than what you make. If it's apositive number, that's good
thing that means you spent lessthan what you make. So that's
(27:47):
how you tell if you're spendingtoo much on credit cards. That
first month, I wouldn't besurprised if it's a negative
number, because you've beenusing your credit cards and you
include that in your numbers.
Now the second month, you've gotto cut back on using your credit
cards or quit using them alltogether. Because we're trying
to get out of debt, that numbershould get closer to zero if not
(28:10):
a positive number. And we'restriving for a positive number,
then we're striving for a largerposit or number every month
until we get to the point wherewe're standardized. And then we
can say every month, I have $500extra that I can put in my
(28:31):
savings account. And it'sconsistently the same month in
the month out. So as you do thatthe first month is gonna be
probably the toughest. Secondmonth, you're gonna get a little
bit better a third month. But asyou go, we're looking at this
budget on a month to monthbasis. So we got a spreadsheet,
we got one month, and then wegot another next to it, which we
(28:56):
copy and paste. Now we want touse our first month that actual
column, highlight them, copy itand make that your control
number for the second monthyou're doing your budget, and
that'll get you closer in lineto what's going on, then you do
the same thing the next month,make your actual spending your
(29:18):
control number. Because ifyou're serious about getting out
of debt, you're serious, butcutting back your spending, you
quit using credit cards so thatreduce your spending, you're
looking for ways to save money.
So that's going to reduce yourspending, you're looking for
better deals for the sameservice that's going to reduce
(29:40):
your spending. So we always needto be updating the control
amount based on what we'redoing. And then sooner or later
is going to be close everymonth. It's gonna be five or $10
It's gonna be $100 or say $150It's close at that point you
don't have to update The wholething, this look for that one
thing that you changed, maybe itwas you quit using having food
(30:05):
delivered. And so you have thatzero now, well then the next
month I'm gonna make that zerobecause you're not going to use
it anymore because you're tryingto say money or you did away
with cable TV that was $200 amonth that was included in your
control center or your budgetamount, and you did away with
it. So maybe you want to reduceit to half because there's a
(30:29):
time delay. And then the nextmonth you reduce it to zero when
you actually have zero. So we'relooking at this and it's a never
ending update. And you got to beon top of it week in and week
out. always updating, alwaysreviewing it. Always looking at
it looking for problems. Oh, Ispent too much money here on
(30:51):
clothes. Why did I do that?
Okay, the kids are getting readyto go back to school, we went on
vacation, we need a new club.
Whatever the case is, you got tobe able to justify it. And if
you can adjust the FIE it thenit's not a problem. If you can't
justify it, then maybe you havea spending problem. You need to
work on controlling it. keepthings under control, and you'll
(31:12):
be glad you did. So
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