This is a reprint of an article I wrote for Bible Money Matters.
Make a better budget!
1. Know your budget-busters and stay away!
If this is the mall don’t go, if it is QVC, turn it off, if is buying stuff online - throw your computer out the window! (Well, not really 
).
2. Wait before purchasing.
Never buy large purchase items with out waiting a week to really be sure that it is the best use of your money.
3. Budget for Giving.
It makes it a whole heckuva lot more fun to give if you have the money sitting there waiting to be spent.
4. Make budgeting fun.
It is not a diet. Quit telling yourself that budgeting is just like a diet for you checkbook. In my opinion, the reasons that most budgets fail is because they are out of balance. Fun should be budgeted for. Going out to dinner, vacation, date night, etc.
5. Snowball it.
Once a debt is paid off, take that amount and either apply it to another debt (aka Debt Snowball) or to something fun (vacation fund, etc.)
6. Create a misc. budgeting category.
No matter how many categories you create, you can bet that you will have expenses come up that won’t fall into any of them. This is why it is a great idea to have a backup called miscellaneous.
7. Have fun money.
Have some money given to each family member that doesn’t need to be tracked and can be used for whatever he/she wants.
8. Combine budgeting categories.
Try combining categories to simplify the system. For example if you have money budgeted for car maintenance and car insurance, try putting them together in the same category.
9. Set money aside monthly for infrequent bills.
Just because a bill isn’t paid monthly doesn’t mean that it can’t be budgeted for monthly. If you pay car insurance every 6 months, just take that bill and divide by 6, viola! Now add that amount to your monthly budget, and when the next bill comes due, the money will be sitting there waiting!
10. Try budgeting with ING or another online bank.
This way you are earning interest on each one of your budgeting categories. Small amounts add up quick.
Feel free to share your budgeting tips below!
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While I think few would argue that paying off debts is a good thing, there is a better way to accurately see the big picture of your finances. It is called your NET WORTH.
And no it is not just a number that rich people talk about at cocktail parties. It is what financially saavy people use to track their progress.
The simple definition of it is:
Assets(stuff you own) - Liabilities(debts) = Net Worth
It is simple to calculate and I will get to that shortly, but first…
Why Net Worth rather than just debt?
Your Net Worth is more encouraging
The primary reason for using your Net Worth as a gauge of your financial progress rather than the amount of debt you have is because it is more encouraging. When you look at your amount of debt to track progress you are only seeing the fruit of paying down those debts. On the other hand, your Net Worth increases for every good financial decision you make.
For example, you can increase your Net Worth with the following actions:
- Paying off credit cards or car loans
- Paying more towards your mortgage
- Buying property
- Funding a Roth IRA
- Getting your employer’s match on your 401(k)
- Building an emergency fund
- Buying index funds, mutual funds, or dividend paying stocks
- Or even just not spending as much money
There are many more things you can do to increase your Net Worth, but these are some of the bigger and more common ones.
Your Net Worth changes how you think about buying decisions
The second reason I prefer to use my Net Worth to track my progress is because I have found it helps change how I think about my buying decisions.
One of the most valuable financial lessons I have learned can be summed up in two words: buy assets. What I mean by that is you should spend more of your money on things that will keep cash in your pocket. So they should at the very least:
- maintain their value
- but better yet increase in value
- and the best would be increase in value and provide you income as well.
On the other hand you should avoid buying things that are going to take cash from your pocket. Coincidentally, these are most of the things most of us spend our money on. When you buy clothes, food, electronics, decorations, cars, entertainment, you are (generally) using cash to for something that is going down in value and therefore decreasing your Net Worth. Examples of this would be:
- Spending $200 on new clothes
- A $50 steak dinner
- Getting the new iPhone
- Going to the Yankees game
- A brand new BMW
Think about how much you could sell each of these for 2 years from now. Each one of them is a depreciating asset, so 2 years later they would not be worth what you paid for it, if anything at all. But if you had spent it on…
- Buying property
- Funding a Roth IRA
- Getting your employer’s match on your 401(k)
- Building an emergency fund
- Buying index funds, mutual funds, or dividend paying stocks
You would have a much better chance that it would be worth at least what you paid, and it would more than likely be worth more than you paid for it.
Obviously there is more to life than Net Worth, and you can never avoid spending money on depreciating assets, but you can avoid spending ALL of your money on depreciating assets. This is the key to why many people never get ahead financially. They spend all of their money on stuff that goes down in value. Once you start buying things that increase in value, you begin building a snowball that just grows larger and larger, faster and faster.
I don’t want to get the cart ahead of the horse, so lets get back to our Net Worth. The reason I mentioned this is because I want you to be thinking about the end result of each buying decision. None of the things listed above are necessarily wrong, but they should be thought about and decided upon rather than just reacting to what you “feel like doing”. Your Net Worth will reflect each buying decision that you make - good or bad.
How to calculate your Net Worth
This shouldn’t take more than a hour if you have never done it before. When you update it in the future it will take even less time than that. I have created a template from my own balance sheet that you can use if you would like. You can download it here.
1. Get a spreadsheet
First off, you can do this on paper if you really want to, but I suggest Excel, Google docs, Open Office, or really any kind of spreadsheet will do.
2. Total your assets
List every asset you can think of. Anything that you could realistically sell. For the purposes of sanity and simplicity I don’t bother with items under about $500. Yea, I am sure I could find someone on Ebay to buy my socks, but I am just looking for a general picture. So I just lump together all these smaller items as one line called “Misc items” and take a conservative guess of what they could be sold for.
So your house, cars, retirement accounts, stocks, savings accounts, checking accounts, emergency fund, jewelry, and anything else similar would fall in this category.
To get real estate values you can use Zillow to get a decent estimate of what your home may be worth. For automobiles you can check out Kelley Blue Book to see what they could be sold for. For all your checking, savings, investment accounts you can either check the balances online, or just use your last statement.
Once you have them all listed with the estimated selling/liquidation value you can total them up.
3. Total your liabilities
A few lines below the Assets total, we are going to now list every debt you have. Mortgages, credit cards, student loans, they all apply. Do the same as above checking balances on each one and then total your debts to get your liability total.
4. Subtract them
Now you can subtract your liability total from your asset total and viola! You have your Net Worth. Date it and save it.
Now what?
When I first calculated my Net Worth, it was -$13,843.84. Which was eye-opening to me. I knew I had a bunch of debt, but didn’t realize how below par I was. Regardless of what you number is, just look at it as the starting point. It is from this point that it will become larger.
After we had been working at it for one year it was up to $746! We were so excited to have a positive Net Worth! Even if it was only $746. As we kept on working on it, it has just continued to grow.
I normally update mine about two times a year. But if you are working really hard at it and need to see the encouragement of it increasing, do it more! As in just about anything, you are either moving forward, or you are going backwards. If you are increasing your assets by making good buying decisions or minimizing debts your net worth will be growing.
Next step is to quit spending! Getting out of Debt (Step 4)
Click to go to the beginning of the Getting out of debt series.
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If giving is better than receiving, why doesn’t it feel like it?
Jesus himself said that it is, “more blessed to give than to receive.” I don’t know about you, but when I have been strapped for cash and needed to buy someone a birthday gift - it didn’t FEEL like much of a blessing.
I hated the feeling of being torn with what to do with my money. I wanted to be a generous giver, but when the $20 in my wallet was being pulled in 4 different directions, it made it difficult to be exceedingly generous like I wanted to be.
I am not sure where I got the idea from, but we had a very basic budget at the time and decided to create an ING account specifically for gifts and giving. This account was to be the source of all of our birthday and Christmas presents and any other giving we did.
I thought it was a good idea until we started doing it. Then I realized that it was an absolute GREAT idea and wish we had started it earlier. It instantly added so much more fun to the giving process, because the money was just sitting there waiting to be spent on others. It wasn’t getting pulled in numerous directions like it was previously. It’s purpose had been clearly defined.
Christians are called to give
We have the opportunity to give into God’s kingdom. We have the privilege of being able to give to help people. It really is a privilege and an opportunity. God doesn’t need us. He has an endless supply of finances - He can get the money where it needs to be. But He allows us the chance to be used by Him in the process, knowing that WE will benefit from being used.
As we get a better understanding of this truth, it helps us break free from our own selfishness.
God really wants to bless us!! He set the system up that it is kind of counter-intuitive - we give away, and as a result we get more. As we give, it is given back to us in a greater measure. The Bible makes it clear that there will always be seedtime and harvest. To the measure that we sow, we will reap.
Biblical giving
After we started to get an understanding about Biblical giving - we were faced with the same challenges that everyone else has. You want to give, but it is hard to find money to give, because it is all already being spent on other important things.
It was for this reason that we had to start budgeting for our giving. The Bible says that we are to “discipline ourselves for the purpose of godliness” and that “we should not make any provision for the flesh.”
It is crucial that we set up NATURAL processes and habits in order to fulfill the SPIRITUAL things that we are called to do.
In this case taking money right off the top of our income to budget for giving were the natural steps that helped fulfill what God wanted us to do. It wasn’t enough that we wanted to give, or even that we asked God to help us give. We had to take natural steps (that were His will) to fulfill what He wanted us to do.
Bottom Line: Budgeting for giving was just a simple step that helped us fulfill what we were called to do.
A few things that budgeting for gifts did for us:
- Assuming we were adding enough to the account, we rarely (if ever) would need to try to find money to purchase gifts.
- It encouraged more generosity because money was sitting in the account just waiting to be spent. We agreed that it would ONLY be used for giving purposes, therefore we might as well spend it because that was what it was there for.
- It is a wonderful feeling to have money available for the sole purpose of blessing others. It makes it really EASY and FUN to give.
- It is great to have cash always available to pay for Birthday gifts, but it is even more exciting as you increase your budgeted amount. When it gets to the point that there is so much money in the account that you have to start looking for people to bless. I want to get to the point where the account is overflowing and we have to work hard to try to give it all away!! I can’t think of anything more fun!!
Before we started budgeting for gifts I never had a thorough understanding of what Jesus meant that it was more blessed to give than to receive. The main reason was that giving created a negative side effect on my finances. Since my groceries and gifts were purchased from money in the same pot, I was always torn between my desire to give and my desire to eat.
Now, instead of thinking about how a gift was going to cause me to get fewer groceries, I now am free to focus on blessing the other person rather than my grocery list.
For more inspiration check out these giving verses
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To the beginner…
Money management is not just for big corporations. It is for you and I as well. It doesn’t need to be labeled with terms like money management or budgeting. If you are where I was, it means nothing more than GETTING RID OF THE CHAOS.
If you are just beginning to get your financial life in order - I am excited for you! It is a fun journey and it is well-worth the effort. The peace that comes with knowing how much money you actually have and being in control of your spending is truly priceless.
Not too many years ago I was out of control financially with my maxxed out credit card and empty (and likely overdrawn) bank accounts, and not a dollar in savings. I decided that I was not going to live my life out of control and had to get things in order.
It did take a little work and a little time, but it is not much different than cleaning out a junk filled garage. It looks like an overwhelming task, but once you get going, it is easy to keep going. And once it is finished, it brings a sweet taste of satisfaction of a task accomplished.
Money Management
If you are looking for a way to get your bank accounts set up to to make bill-paying simpler I have laid out how I organize my bank accounts. And how I manage my bill payments will show you the steps that I take to keep my bills in order and pay them 2 times a month.
I also use a balance sheet to keep track of my financial life. You can also download a copy of my balance sheet template that I use.
Budgeting
If you are making the wise move to start a budget, I suggest reading why budgeting is like baking cookies to get some fun into your budgeting and these 4 quick tips to sticking with a budget.
Then you can learn some techniques with how to budget with the envelope system or how to budget with ING direct.
Saving Money
If you are having trouble spending too much money, then I suggest you read how to quit spending more money than you make or the trick to saving money.
If you are having trouble finding money to save read how to find money to save. One great way to find extra money to save, is to use the money from your raises at work. Read what to do with a raise for a more detailed analysis of what I do with each raise.
As you take your beginning steps with managing your money you will find that it is a lonely journey sometimes. Most people do not ever get their financial lives in order, and sometimes you can feel like you are not normal. Well, the truth is that in the U.S. “normal” means living paycheck to paycheck and in debt up to your eyeballs. Who wants to be normal anyway? Here are 16 ways to save money by not being “normal”
Building an Emergency Fund
One of the best tips for beginners is to build an emergency fund. Experts recommend anywhere from 1 month to 6 months of your expenses. It really depends on your personal situation.
Don’t be intimidated by the amount, just start saving, realize it may be a distant goal, and keep going and you will get there!! It is a very comforting feeling, knowing that if the car breaks down or the water heater breaks that you have money in reserve waiting for it.
If you are wondering if you need an emergency fund you can read “do I need an emergency fund?” and if you already have one and are looking for ways to make more money with it check out how to make more money with your emergency fund.
Saving for Retirement
So you want to retire? You mean you don’t actually want to work until you are 85? Good, me neither. The good news is that it is never too late to start saving for retirement. And, the earlier you start, the better off you will be. I have a quick and easy solution for twenty-somethings to retire well off.
You can find out more about saving for retirement with these 4 quick steps to retirement savings.
I think this should give you a good start at managing you money like a pro, keeping checking back (or get updates in your inbox) as I regularly aim to provide money management tips for beginners and veterans alike…
Veterans: Do you have any suggestions for beginners? What financial advice do you wish you would have received when you first started the journey?
Technorati Tags: beginner tips, money management
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For some reason the word “budget” has an interesting effect on most people causing them to cringe in pain more than the thought of going to the dentist. It really shouldn’t be as painful as people make it seem. If done correctly, it should give you MORE freedom to get what you want. If you think of a budget as a plan “that takes away all the fun” or eliminates your ability to get things you want, then you are doing it wrong.
A budget is no more than “measured spending.” I think it is a lot like baking cookies. Just like cookies, to make the perfect batch you have to follow a recipe and measure each ingredient. Of course you can improvise a little bit, but each slight variation changes the outcome of the cookies and can take a great recipe and make it mediocre, or a decent recipe and make it great.
Budgeting is not like cookies without sugar
Most people seem to think of budgeting as baking cookies without sugar or chocolate chips. To me chocolate chip cookies are the only kind, so if they don’t have chocolate chips, they aren’t really cookies.
A budget is no different, if you don’t have money budgeted for areas like going to the movies, vacation, buying clothes, or even “blow money” then IT IS like baking cookies without chocolate chips or sugar!! Of course no one likes it!! Who would eat cookies without sugar or chocolate chips?
On the other hand, if your cookies are all sugar and all chocolate - well, that doesn’t sound good either.
The reason many budgets fail is because people forget to add or are instructed to eliminate the ingredients they enjoy the most. If you invent a cookie that doesn’t have sugar or chocolate chips please let me know 
Budgets are NOT supposed to be TORTURE!
Don’t get me wrong, there may be some slight discomfort, if you have never told yourself NO, you will have to say NO to yourself occasionally. If you are currently spending more than you earn - just like the little kid who eats chocolate until they vomit, you will have to learn to say NO when you just want to eat the whole bag of chocolate chips in one sitting.
This is the other main reason that budgets fail. A baker has to be disciplined enough to know that just because sugar and chocolate are good, it doesn’t mean that they can just add as much as they want. Having the correct amount of each ingredient is the key to great cookies.
Don’t forget you SHOULD add sugar and chocolate to the cookies, it is what makes them good!! Maybe just not the whole bag.
Find a recipe you like
Creating a budget is a trial and error process. Just like creating a recipe from scratch will take you a few attempts to get it right, a budget is no different. Using someone else’s recipe may give you a head start, but still may need to be tweaked a little to fit your personal preferences (check out budgeting with the envelope system and budgeting with ING Direct for a head start).
Stick with what works
Once you find the recipe that you like, the only way to get those cookies exactly the way you want them is to follow the recipe. Sure, you can bend on the ingredients if you need to - after all they are YOUR cookies. But learn from the pros - cookie companies may spend years or months developing a recipe, but once they find a great recipe that works, they print out a recipe that measures out each ingredient that will yield those great cookies if followed exactly.
Cookies are made for enjoyment
Cookies are baked by someone for someone to enjoy. Budgets are the same, being disciplined to follow the recipe may be a little bit of a challenge, but the rewards are the cookies!
In terms of a budget, the reward is having control over your financial life, rather than letting it control you, telling your money where it should go, rather than being told, watching debts shrink, watching savings increase, and not really having to think much about money. Now those are some good cookies!!
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Well, I think everyone KNOWS what to do with a raise, but the challenge is DOING it (My definition of personal finance is DOING what you KNOW you should DO). Personal finance is 80% doing and 20% knowing. Just incase you don’t know what to do with a raise, here are a few ideas…
Don’t spend your raise…
until you get it. I can’t even count how many times I have received the news of getting a raise and started spending the extra money before I saw it on a paycheck. Inevitably I would spend more than I actually was getting and when it showed up on my paycheck I would be upset because I spent more than the raise was. By waiting until I actually saw the money in my paycheck, I could enjoy the raise, rather than just watching it go out the door to cover my purchases I made the 2 prior weeks.
Expenses rise to meet income, and naturally we find a way fill the gap between expenses and income. This is why you need to make a plan in advance on how you will…
Allocate your raise…
in a way that works for your financial situation. Personally, my allocation plan is:
- 10% Tithe
- 20% Pay down debt
- 20% Retirement savings
- 50% Spend!!
These percentages frequently change based on the needs of the family (i.e. if we are in desperate need of a vacation or if we are planning a large purchase). The point is to have some sort of plan for the increase, before it comes. I have tried it both ways, and I much prefer allocating the raise over spending it in advance. If you can resist the urge to SPEND immediately, allocate your raise wisely, and follow through, you will be nicely rewarded with the comfort of seeing your financial situation improve.
Just following this allocation over the course of a working life would yield a huge retirement nest egg and house that would be paid off many years earlier than scheduled.
Enjoy your raise…
after all, you earned it. Don’t be such a good saver that you can’t enjoy spending money. If you received a raise, you most likely earned it. As you can see with my 50% going to spending money that I am very generous with myself. I love rewarding myself for all the hard work I have put into organizing my financial life.
Technorati Tags: what to do with a raise
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Organize your Bank accounts
If there is one thing that I have learned about personal finances, it is that nothing is one-size-fits-all. There are different tools, methods, products, and investments that work for different people at different phases of their lives. My system that I am currently using to manage my accounts and cashflow did not work for me 5 years ago. But now I couldn’t think of anything easier or more efficient.
Below is a diagram showing how cash flows through my accounts.
This is a simplified version, but it gets the point across.
Variable Expenses
Every two weeks, our paychecks are direct deposited as noted above in the diagram into our accounts at our credit union. Our checking account for GAS & GROCERY gets a fixed amount deposited into it every two weeks. From this account we get our spending cash (or blow money), pay for fuel for our cars, and groceries. None of the three are really fixed expenses, so when gas prices rise we are forced to cut back on our spending money or grocery bill.
I sure hope that gas doesn’t go up to $4 a gallon - I won’t be able to eat!! Keeping a leash on variable expenses is extremely important when trying to save money. Most people do not realize that expenses rise to meet income, and they pay the price because of it.
Look at any well established business and you will find that each department has a set budget for the quarter or year. They have to stay within those limits that have been created for them.
Why do they do this? Because it works. Businesses are in business to make money, so if it minimizes expenses they are happy.I am not suggesting to manage your finances like a CFO, but we can learn a lot about how to get things done from the business world.
Fixed Expenses
Roughly 75% of our paychecks go into our BILLS account. When we set this account up, I calculated how much all of our monthly bills cost, divided it by two and set up a schedule for when each would be paid. So, in all honesty I don’t check the balance in this account very often. Since we know how much needs to be paid out each month, we have exactly that amount deposited in. I use bill pay to pay my bills out of this account every two weeks based on my bill payment schedule.
Budgeting
Part of this fixed amount that gets direct deposited into our BILLS account is our ING savings. ING is a great budgeting tool and if you don’t have an account with them, I recommend that you take a look at what they have to offer.
From our BILLS account (every two weeks) I transfer a fixed amount into each one of our ING savings accounts. As the accounts grow I am earning a nice interest rate on my budgeted money.
I would love to hear how you manage your money or any other thoughts or suggestions…
del.icio.us Tags: Organize , bank accounts , finances
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Budgeting with ING Direct
ING Direct has played a critical role in helping me get my financial life organized. They don’t advertise themselves as a great budgeting tool, but they really are. You could probably use this same budgeting technique at other banks, but I will show you why it is more beneficial at ING Direct.
1. Open multiple ING savings accounts
The first step is to open up multiple savings accounts at ING Direct (Yes, ING does allow you to open multiple accounts). At most other banks, this is discouraged, if not by the bank itself, by the amount of paperwork required for each. However, at ING once you have opened up your first account, any additional accounts can be opened with about three mouse clicks.
Each one of the accounts that you open will be something that you are saving (budgeting) for. For example, I have my emergency, vacation, car maintenance, entertainment, clothing, and any other savings funds at ING. I put a fixed amount into each account every pay period (ING can automate this if you would like).
2. Open up a ING Electric Orange Checking account
It is really this checking account at ING that makes this budget system possible. You could still use the ING savings accounts to budget without the ING checking account, but it will be much easier if you have the ING checking as well. And to be honest, I don’t think there is a better checking account out there that is better than ING’s.
ING’s Electric Orange checking is unique in a few ways:
- They do NOT offer checkbooks. It is a debit card based account
- You can send E-Checks to someone elses bank account for free
- It has a 3.93%(at the time of this writing) interest rate even with a $10 balance (try to find that at your local bank)
- Free ATM access at 32,000 locations across the country
- There are no overdraft fees. Instead of charging you $30 when you bounce a check, they just lend you the money until you bring the balance back up to $0. So instead of having a $30 NSF fee, you might have a $.50 interest charge. This alone is reason enough to switch. ING has saved me a lot of money with this feature.
3. Use the ING debit card to pay for items budgeted for
Once you have the first two steps taken care of and have saved up money in the accounts you are ready to go. Now is the fun part: SPENDING!! You have to do some work on the car? Just transfer the money from you car maintenance fund (this is a real-time transfer) to your ING Checking and head to the dealer or if you are like me and like to do car maintenance yourself, head to Autozone and swipe the debit card.
How is that for a simple budgeting tool?
I just get a lot of pleasure in simplifying my life. If you have ever used the envelope system for budgeting, you should be able to notice the advantages of this system. Like I mentioned earlier, you can probably do this at variety of banks, but I think it would be difficult to find a bank that offered all of the conveniences of ING as well as the great rates.
The negatives of using ING as a budget tool
The two things I would warn anyone trying the ING budget:
- Stay on top of your transfers from your ING savings accounts to your checking. If you do a lot of budgeted spending for a couple weeks and forget to do the transfers, it can be difficult to backtrack. Like most things in life, it works better with regular maintenance.
- You can only transfer FROM the savings accounts 6 times per month. This really hasn’t been an issue for me but maybe once or twice in the few years that I have been using the ING budgeting method. (But, I figured out a simple hack to getting around this restriction.)
If you are interested in signing up with ING make sure you contact me so I can get you a $25 bonus for signing up.
How to budget with other tools
If the ING budge method doesn’t interest you, then you could try the envelope system of budgeting. If you are looking for budgeting software to help you budget you can check out YNAB’s personal budget
del.icio.us Tags: How to budget , ING Direct
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What do I mean? I mean that the raise you are hoping to get is not going to fix your financial squeeze. I mean if you were making what your boss is making, it will not fix your financial squeeze. There is a famous principle that expenses rise to meet income, so if you are having a hard time paying your bills or making a dent in your mountain of debt money is NOT your answer.
I know it may sound like this is bad news, but really this is great news. This is because money problems (difficulty paying bills, paying off debt, getting into debt, difficulty saving) are really behavioral problems. Since they are behavioral problems they can NOT be solved with money.
People seem to think that they can make their problems go away with more money, but really it just covers them up. This is apparent with all of the millionaires who file for bankruptcy. They have more money than most people can dream of, yet they also have a spending problem that is far stronger than their income.
How do you fix behavioral problems? Well, you start just doing one small thing at a time. It is a lot easier to update your house by working on one room at a time than by tearing up every room all at once. You can start by learning to not spend more than you make.
There are practical things that can be done to help out, but I think nothing will be more valuable than just taking a long hard look at where your money is going and asking yourself, “do I really need this?”
We say we NEED all this stuff to survive and yet 100 years ago most of it didn’t even exist yet. I think when we are honest with ourselves we can see that a lot of our NEEDS are really just screaming, yelling, panicky WANTS.
It is a tough pill to swallow. Go visit a third-world nation and swallowing it will become much easier.
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