Simple rules of money

 

So I was thinking today that I should write about some of the simple rules of money I have learned over the years, mostly by making mistakes.  They may seem very fundamental, but can be easily forgotten as we go through the grind of daily life.   And yes I know, rules are boring and don't leave much room for spontaneity; trust me, if your finances are in order, you know you can pay your bills, you have money in the bank, you will have less stress and be able to have more freedom to do the things you really want to do.



Rule #1 - Don't spend more money than you make.

This seems so simplistic and yet the amount of credit card debt is staggering.  For some, credit cards are used for basic needs, for others it is for wants.  In either case, it's important to understand how much you are making and how much you are spending.  Once you understand this by tracking your income and expenses for a month, there will be an opportunity to review and decide whether you can cut expenses or try to bring in more money.

Rule #2 - You can not reach your full money potential if you are paying someone else interest.

If you are paying interest on a credit card, mortgage, or loan;  you can not reach your full potential.  Your first priority before investing or saving is to pay off all debt to minimize the amount of interest your are spending.  I am not saying don't save money while you are paying off debt; you should be saving something for a rainy day; but you also do not want to be in a position to be saving money, only to run out of cash and have to use your credit card as a fall back.

Rule #3 - Have a budget.

Write down what your income and your expenses, not for the next week or month, but for the next six months.  If you know you are going to have a large expense in six months, save a small amount each month, rather than having to take a huge hit in one month.  I know this can be hard, as something always comes up, it does take a bit of discipline and trial and error, but once you get into the habit, it takes a stress out of our life.

For me, these are the fundamentals that will help to simplify our money life.  I will be posting more on the budget process, taxes, and how to get out of debt.

The basics

The basics of any system to improve your money, begins with knowing where your money is coming from and where it is going.  I know my friends out there are rolling their eyes at this moment- these are the same friends who gave me  "Budgets are for wimps".    I'll agree that there is nothing sexy nor fun about listing out how much money you don't have; but it is the starting place that will allow you to understand the flows of cash.

For one or two months, make a list (it can be in Excel or Open Office Calculator) of your income and your expenses.  Write down everything, even that two dollars you gave your child.  I've list an example below of a very basic sheet to give you an idea-it doesn't have to be overly complicated.

Once you have this started, you start getting an idea of where our money is going.  For some, and I've been there, there's a lot of negative amounts at the end of each week. That's okay, first things first, see where our money is going before you make any changes.  Too many times, there is a haste to make changes now, without seeing, it's not the lattes each morning that is causing the budget to be blown, it's the credit cards with 22% interest that is causing the issues.

I'll talk about what to look at once you have the basic idea of where your money is going and how to take that information and turn it into a realistic budget that will allow for a savings and building your financial foundation.

	Week 1	Week 2	Week 3	Week 4
Weekly Salary	500	500	500	500
Rent	-300
Gas	-50	-50	-50	-50
Food	-100	-100	-100	-100
Phone		-100
Electric			-100
Car payment				-300
Car Insurance		-100
Credit card		-75	-100
Parking	-30	-30	-30	-30
Balance	20	45	120	20

And so it begins....

I started a blog similar to this a few years ago, made one post and life got in the way and never went back.  This year, I have decided to try again.  I look around and see so many people making so many mistakes with their finances-myself included. 

I'm a CPA/MBA type, and have made numerous money mistakes over the years.  With my education and credentials-I should know better.  I have mostly figured it out, but have thought about those who don't have my background and making the same mistakes over and over again.  Or those in desperate situations that are often taken advantage of (think pay day loans, buy here, pay here car dealerships).  I want to tell  people that no matter what situation they are in, there can be alternatives.her

Over the next few days, I'll be talking about the basics of budgets, writing down goals, and the importance of both to get out of living paycheck to paycheck.

I recommend the use of a spreadsheet program (ala Excel or Open Office).  This is usually all you will  need in the beginning.  There may be more opportunities with programs like Quicken and or Quickbooks for small businesses.

Looking forward to the journey.