How to create a spending strategy that really works-a free audiobook excerpt!Like what you hear? Help us out by writing a review at iTunes. Questions go to money@qdnow.com. Thank you!
Money Girl
137 MG Avoid Financial Black Holes
This episode is brought to you by AARP. Ten years from today, Lisa Schneider will trade in her office job to become the leader of a pack of dogs. As the owner of her own dog rescue, that is. A second act made possible by the reskilling courses Lisa's taking now with AARP to help make sure her income lives as long as she does. And she can finally run with the big dogs. And the small dogs, who just think they're big dogs. That's why the younger you are, the more you need AARP. Learn more at aarp.org/skills. Imagine earning a degree that prepares you with real skills for the real world. Capella University's programs teach skills relevant to your career, so you can apply what you learn right away. Learn how Capella can make a difference in your life at Capella.edu. Thanks for joining me on Money Girls Quick and Dirty Tips for a richer life. I'm your host, Laura Adams. If you've listened to the last two podcasts, you know I released free excerpts from my new audiobook, Money Girls 10 Steps to a Debt-Free Life. It went on sale last month at Audible.com and in the iTunes Store. Well, the third time's a charm for promotion, so this show will be the last borrowed material. The topic comes from Step 5 and is an important part of staying on the straight and narrow when it comes to personal finances. It's about creating a budget. I mean, a spending strategy. Doesn't that sound better? If you always have plenty of money to pay your bills on time in addition to maintaining a healthy emergency fund, investing for your retirement, and saving for all your other goals, then you probably don't need a spending strategy. But if you're struggling at all with your cash inflows and outflows, you need a simple spending strategy. That's because it's difficult to improve what you don't measure. What you believe is going on can actually be very different from the reality of a situation. You may think that the amount you spend on groceries or entertainment is reasonable, for example. But do you really know exactly how much that is on average each month? Until you dig a little deeper into your spending patterns, you won't have all the information necessary to make good decisions and beneficial changes. I'm intentionally not telling you to quote "create a budget" because if you're like me, that mandate just sounds too stringent. A budget for many implies doing without and never being able to enjoy oneself. But a spending strategy, on the other hand, embraces the fact that you're going to spend. It's just a matter of making sure that you do it in a deliberate and smart way with your end goal in mind. The purpose of creating a spending strategy is to analyze where your money goes and to put you in control of your cash flow. There's a black hole that seems to suck up our money when we're not looking. An essential element to eliminating debt is to keep your money away from the black hole by improving your money management skills. That starts with doing a spending analysis to monitor all the many ways you pay bills, splurge, give to others, and possibly fritter away money. I believe that a spending strategy should not make you miserable otherwise your app to rebel against it. Its implementation should get you excited because it'll move you closer and closer to what's truly important to you living a debt-free life. In fact, you may get so excited about the prospect of getting out of debt that you'll enjoy cutting out spending on the things that don't matter to you. It can become a game for some people who really get fired up about seeing their goals become a reality. I recommend that you enter the data for your spending strategy on a spreadsheet or in a financial program, but a piece of paper will work just fine too. The first task is to estimate your monthly after-tax income. For some this is easy because you receive a regular paycheck. For others who are paid on commission or who are self-employed, you'll need to come up with a realistic monthly estimate. The second task is to enter all your fixed monthly expenses below your income. Fixed expenses such as rent, a mortgage, or home utilities are those recurring costs that you must pay every month because they're vital for your well-being or are commitments you've already made. Label each category or payment on a separate row. Don't forget to account for any automatic payroll deductions that you may have for workplace insurance or saving to a retirement plan. That's why the younger you are, the more you need AARP. Learn more at AARP.org/skills Imagine earning a degree that prepares you with real skills for the real world. Capella University's programs teach skills relevant to your career so you can apply what you learn right away. Learn how Capella can make a difference in your life at Capella.edu. Curious how equity compensation can help build employee financial confidence and move your business forward? Tune in to the latest episode of Morgan Stanley at Work's Invested at Work podcast where we explore the power of financial benefits and how they can help your employees in the workplace and beyond. Listen now by visiting morganstandley.com/investedatwork or stream on Apple or Spotify because we believe that when employees thrive, your company thrives too. Again, visit morganstandley.com/investedatwork to listen today. Some fixed expenses you don't actually pay for in equal amounts each month so come up with a monthly average. For example, if you pay insurance just twice a year, calculate the annual amount you pay and then divide by 12. Or if your utility bills fluctuate a lot, research the total you paid for a full 12-month period and divide by 12. The third task is to enter all your variable monthly expenses below your fixed expenses. Variable expenses are those that can change each month or are discretionary. Dining out, buying clothes, groceries, a haircut, etc. could be some of your variable expense categories. Try to think of all the ways you spend money. Maybe going to the movies or to a local coffee shop are black holes for your money. If so, be sure to create separate categories just for them. Enter your actual expenses from at least three previous months by looking at charges in your checkbook, register, or bank statements. If you don't have these, you'll simply need to start tracking your expenses going forward. When you subtract your monthly fixed and variable expenses from your monthly after-tax income, what you have left over is called your discretionary income. It's an important number because it's what you have to pay down debt and build wealth for the future. The obvious goal is to make that number as big as possible. That can be accomplished by increasing your income or by decreasing your expenses or by doing both. To hear much more about how to create a spending strategy that will help you reduce expenses and save more money, get your copy of Money Girls 10 Steps to a Debt-Free Life from Audible.com or in the iTunes Store. In the Money Girls section at QuickenDirtyTips.com, you'll find great stuff like show transcripts, links to my Twitter and Facebook pages, code for the show's widget, my email address, voicemail number, and more. I'm glad you're listening. Shoo-ching. That's all for now. Courtesy of Money Girl, your guide to a richer life. Imagine earning a degree that prepares you with real skills for the real world. Capella University's programs teach skills relevant to your career so you can apply what you learn right away. Learn how Capella can make a difference in your life at Capella.edu. Curious how equity compensation can help build employee financial confidence and move your business forward? Tune in to the latest episode of Morgan Stanley at Work's Invested at Work podcast where we explore the power of financial benefits and how they can help your employees in the workplace and beyond. Listen now by visiting morganstandley.com/investedatwork or stream on Apple or Spotify because we believe that when employees thrive, your company thrives too. Again, visit morganstandley.com/investedatwork to listen today. [BLANK_AUDIO]