Intentional Money Management

Ever peek at your bank account and wonder where your paycheck went? Or maybe you swipe your credit card and cross your fingers that it’ll be accepted. Perhaps you’re embarrassed to admit where you are financially to your parents/significant other?

You aren’t the only one.

In December 2017 US Citizens owed $834 billion in credit card debt alone.

But just because a lot of people are in this situation doesn’t mean you have to stay there. You can get out of the vicious cycle of living paycheck to paycheck and supporting yourself with credit cards. You just need to know where to start.

Step one: Admitting there’s a problem

If you don’t know you need a change, you’ll never change. In order to get the process started – you need to be able to look yourself in the mirror and admit that there is a problem. Someday the credit limits will run out and the bills will keep coming in.

You know you want to make a change – now what? Now we do the hardest easy thing you’ll ever have to do. We budget. I call it the hardest easy thing you’ll ever do because the theory is super easy – track your money – but oftentimes putting it into practice can be difficult to commit to.

Budgeting shows you where your money goes. This is where we’ll start.

You can budget on a monthly basis or a weekly basis or a two-week basis if that’s how often you get paid. Many people find it easiest to budget on a monthly basis as many bills are on a monthly cycle. What do I mean by zero based budget? It means that every dollar you have coming in (income) you assign to somewhere (outcome). By doing this you tell your money what it does rather than finding out what it’s doing at the end of the month.

Step two: Track your income

How much do you make? Do you know? You should. Check your pay stubs. If you earn the same from month to month this is the easy part. If you earn something different each month, take the average from the last three months to start out, and as you get paid you can alter the budget to reflect the true amount.

Now you have your income - write it down. Do you have a side hustle? Account for that income too. Record all of it.

Step three: Fixed Expenses

Fixed expenses are expenses that don’t change month to month – like rent, your car payment, your mortgage, insurance, Netflix subscriptions, etc. Since we’re doing a zero-based budget, this is also where you’ll add your savings and retirement contributions. You should prioritize saving here, set it up as an auto-transfer the day you get paid, so you don’t even miss it. We assign your savings contributions to the expenses portion because saving money is like paying your future self – and your future self will thank you.

Extra Tip: Savings

You should have an emergency savings account – which experts say should have 3-6 months of living expenses in. You can build up to this.

You may also want to start another savings account for large purchases you have planned for the future – like a down payment on a home, or a wedding, or a vacation.

Step Four: Variable Expenses

Now that you’ve written down your fixed expenses, you’ll also want to plan for the expenses you have that change from month to month. This will include stuff like groceries, entertainment – anything that changes monthly.

You may be wondering how you predict an amount that changes every month. Here’s what you do – track your spending for three months. Write down everything you spend and take the average of your spending to project your variable expenses for upcoming months. As you go through the month, you can update your budget to reflect what you actually spend. The variable expense portion of your budget can be flexible – just be sure you aren’t being so flexible that you overspend in this portion of your budget. It's better to over budget and under spend rather than under budget and over spend. Anything you do over budget and have left over you can put into savings or pay down debt.

When you finish this part of your budget, you can see how much money you have left over. . .

Step Five: Paydown debt

It’s amazing how you can see what you prioritize based on your credit card bill. That same credit card bill can also be very disheartening if you are carrying a large balance.

If you’ve got credit card debt, or a car payment, student loans, a mortgage – any kind of debt - you want to start paying it down to get rid of it. Any money you have left over at the end of your budget and the end of the month you can use to pay down debt. The more you pay off the more you’ll save on interest. Debt pay off is something you’ll want to do – and there are different strategies to doing so.

Finally: Income = outcome

When you finish the budget, your income should equal your outcome. This ensures you are being intentional with your money – every cent. For this to work, you must record everything you spend and everything you bring in. So, if you find a $5 on the street – record it. You drop a dollar in the charity bucket? Record it. Find out where your money is going, and then you can control where your money is going.

It’s a lot of work, but you can learn a lot about your habits when you start paying attention. As you track your money and the more intentional you are with the budget, the more it will become a habit and the more it will help you rather than stress you. Hope this helps!

As always, I am but a work in progress.

Cheers.