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Daily Money Management

TechGirl Financial loves working with individuals & families to determine wise ways to pay down debt, create a budget and manage personal cash flow.

In this section of our SMART Learning Library we cover many of the most commonly asked questions with regards to daily money management. We provide some great TechGirl Tips, Tools and Resources to help individuals & families navigate through the sometimes complex decision making process.

Take a moment and click on the links below to get advice
from TechGirl Financial’s Founder Kim Gaxiola:

How can I start to pay down my debt?

At some point in life, most of us have accrued a debt or two. Don’t feel bad, but do take action to get rid of, and avoid bad debt in the future. Bad debt is the kind you get into buying a depreciating asset with money you don’t have – like a car loan or credit card debt. Good debt is an investment that has the potential to increase in value over time, like a home mortgage. For this article, let’s concentrate on the bad debt. Bad debt is very easy to acquire if the user is not conscientious of their spending habits. I encourage everyone to make sure their credit cards come from a bank with an app attached to it. That way you can instantly know how much you’ve spent by the day using the app to make sure you keep your credit card purchases to a level you can pay off monthly.

There are ways to pay down debt without allocating all of your free income to payments. Before making a decision on how to pay down your debt, my first recommendation is to create a spreadsheet with all the debt amounts, minimum payments, interest rates and how much (the actual dollar amount) you are paying in interest annually based on the amount of debt and interest rate. I think it’s KEY to see the actual dollar amounts you are spending on interest per year to better understand and motivate you to get rid of it soon. You know the saying, you can’t manage what you can’t measure. Being aware of the dollars spent on interest for bad debt is the first step to getting back on track.

Once you have a spreadsheet of the debt you own, there are two ways that work to pay down debt.

The first way: Pay off the debt with the highest interest rate first and then work down the line.

This is my favorite way – because it tackles the problem of high interest rates. I cringe every time I see someone paying abusively high interest rates charged by some credit card companies. Say NO to high interest rates by paying those off first. Don’t give credit card companies the satisfaction of taking your money like that.

Paying off the debt with the highest interest rate takes a lot of discipline and patience. The debt will grow faster and accumulate quickly because of the high amount of interest added to your bill every month. In order to pay this debt down faster, the payments must exceed the minimum required payment. If the minimum payment is $50, try to pay $75. This will speed up the process of paying down the debt.

The second way: Pay off the debt with the lowest balance and work up.

If you have several debt balances on multiple accounts; and you are having a hard time paying a large debt balance because you feel like you are going nowhere with small payments, then it might make sense to pay the lowest balance and work up. There is more gratification when debts are paid quickly and that keeps the motivation rolling to the end.

Both ways will create a snow ball effect, meaning that when one debt is paid in full, that monthly payment amount is applied to the next debt payment and so on. For example, if debt payment #1 is $100 a month, then once debt #1 is paid off, the $100 payment will instead be applied to debt payment #2 and so on until all debts are paid in full.

Once all debts are paid, there are more decisions to make.

If you feel that you can’t control your spending, put your credit cards in a drawer and use cash. Give yourself enough cash to make it through the week and replenish weekly. You will have the greatest sense of awareness and discipline with this routine. Only use credit cards in emergency situations. The key is to pay off credit card balances completely every month; this will help you to achieve the ultimate goal of increasing your credit score. If you don’t like using cash, call your credit card companies and tell them to lower your limit to a limit that you can afford to pay off monthly. That way if you are above your monthly limit, your credit card won’t approve the purchase and you will be forced to live within your means. In working with our clients, we supply technology that can help you stay within your limits by setting alerts and notifying you when you’ve exceeded the amounts budgeted for monthly expenses. For more information and help on budgeting and taking control of your finances, contact us directly. (link to contact us page)

When you have mastered paying down your debt, create a workable budget to keep you on a positive financial track moving forward. Once you’ve tackled your debt, you can begin on a track to wealth accumulation and financial independence. Financial independence is the road to discovering financial happiness.

Personal Cash Flow Management

What is Personal Cash Flow Management?

When it comes to your personal cash flow, Drucker was right. “If you can’t measure it, you can’t manage it.” Personal cash flow management works as a wire frame for a personal budget. There are no dollar amounts or expenditures with a management plan, only types of income and expenses.

There are two types of personal cash flow; positive and negative. Positive cash flow covers all expenses while negative cash flow gets you into debt. The idea of a personal cash flow management system is to see where your exact cash flow lies and adjust accordingly. The goal is to have a positive cash flow.

Below is a basic cash flow management wire frame. No one management plan will be the same, as no one person spends and earns the exact same amount of money. If it is financial independence you seek, make sure your model includes savings as if it were an expense. Savings is an obligation to yourself and your future.

Income (all types)

Income is the base of a Personal Cash Flow Management Plan.

Salary

Salary is a set total amount to be paid to the employee over the course a year. Employees receive paycheck every week/bi-weekly/or monthly. The amount does not change if the worked hours increase or decrease.

Hourly

Hourly is a set amount the employee is paid per hour of work. Employees receive a paycheck every week/bi-weekly/or monthly. The amount will fluctuate depending on the amount of hours worked and if the place of employment pays overtime (hours worked over a 40 hour work week).

Self-employment

A person is paid on a contractual basis with a company and is paid based on the contract decided between the contractor and company. Self-employed workers receive a 1099 for taxes, not a W-2.

Bonuses and Investments

Bonuses are at the discretion of the employer. Prudent cash flow management doesn’t include bonuses because they are not guaranteed. Investments may or may not provide immediate income. Depending on the investment whether structured as an equity or fixed income will determine how likely you can rely on the income for your cash flow management.

Expenses (all types)

1. Rent/Mortgage

a. Home Owners Association Dues

b. Rental Insurance

c. Home Owners Insurance

2. Fixed Expenses

a. Utilities

b. Gas

c. Electric

d. Water/Trash/Sewer

e. Cable/Internet/Phone

f. Cell Phone

g. Credit Cards

h. Car Expenses

i. Maintenance

j. Gas

3. Extra Expenses

a. Grocery (Food)

b. Clothes/Shoes/Hygiene

c. Extra for Home Expenses

4. Savings

a. Savings Account. Speak with employer; some saving plans can pull from paycheck before taxes. That means less of your paycheck is taxable.

b. Create an Emergency Fund; it should be at least 6 months of expenses. Emergencies can happen and drain a well-established savings account

5. Taxes

a. No explanation needed

6. Fun Cash

a. Out with friends

b. Movies

c. Vacations

d. Etc.

When creating a cash flow management plan, don’t be discouraged if it’s negative. The key is to understand how you are spending your money and determine what is essential, and what is luxury. Figure out which expenditures creates happiness for you and what’s adding more stress in your life. Once everything is on paper, it is easy to see where the budget needs to be tweaked and adjustments made. There are many useful programs out there to help you be diligent on your spending. You can create alerts on programs and send to your cell phone when you’ve maxed out on Starbuck’s or other luxury goods for the month. If you don’t have the discipline to stick to the budget, make sure you take advantage of these tools.

A few helpful tips to maximize cash flow:

  • Keep your credit rating strong! Having a good credit score will keep your interest rates down and help your cash flow tremendously. Pay your bills on time!
  • When buying or refinancing a home shop around for the best interest rates and terms. There are many lending options out there and depending on your credit score and financial situation finding the best lender for your purchase will be time well spent.
  • Be sure to revisit your insurance needs at least every other year. Life circumstances change and you may be under or over insured. If you are over insured scale back and put those dollars into savings.
  • If your employer provides a 401k or other type of retirement savings plans take advantage of them! These funds won’t be part of your immediate use, but you will need them in the future.
  • I also encourage taking advantage of a stock purchase plan. When you save in employer sponsored plans, you learn to live on the difference. Setting this money aside will benefit you later.
  • Manage food and dining when going out… happy hour is a great time to go out with friends. You can still have drinks, but at half the price, and most restaurants have a happy hour food menu.
  • Stay home or plan a hike with a friend. Spending time with friends doesn’t always mean you have to spend money. Going on a hike is a good way to hang out, work out, and save money.
  • Vacations don’t have to break the bank, think about a “staycation” and take advantage of local site seeing and the fun spots you didn’t even know your own city had to offer.

How do I Create a Budget?

And why do I need a budget?

Only about 40% of Americans have a working budget because creating a budget can be overwhelming and stressful.

Imagine a life where you weren’t working for a paycheck, living month to month in financial stress. Instead, you were working because you enjoyed what you do, and could afford doing it, even if it isn’t the best paying job. When creating a budget, a person must learn how to live within their financial means. A person must define what is necessary and that which is a luxury. Furthermore, it’s important to determine what luxuries will create lasting happiness and good memories, or just a spontaneous joy that is temporary. When you come to those terms your budget can be made in confidence. You can start living in a budget that will make you happy. I know, it’s not that much fun to talk about budgeting, but if you can tie it to your values and quality of life, it just may give you the motivation to stick to it. If you feel a budget will limit your financial freedom, read more. I’d like to convince you that a budget actually allows you to have more purchasing power because it adds stability and control into a person’s financial situation.

Start your budget by creating a spreadsheet of what you are actually spending, and then go to work trimming and finding room for saving. When you see what you are actually spending, and compare it to the income you have, you’re managing your cash flow. Cash flow determines whether you are operating over budget and creating more debt, or under budget and building wealth. Operating over budget will cause financial stress and anxiety. It can also cause problems in a relationship or marriage. With a first time budget it is normal to be upside down. When deciding what you need to trim in your budget ask yourself – is it essential first. If it’s a non-essential item, ask yourself – how is this making my life better? Those two questions will help you trim when you need to cut expenses. The process is an eye opening experience. Remember, you can only manage what you can measure.

The following are two simplified budgets, to demonstrate the importance of savings.

Budget Example 1: Individual living paycheck to paycheck, living beyond their financial means

Emergencies happen, and they usually happen at the least convenient time. This person’s budget does not have an emergency fund. When they are faced with an unexpected emergency, they may end up maxing out their credit card. Then it becomes stressful having to decide which bills not to pay to cover the emergency.

Budget Example 2: Individual on their way to financial independence

Individual has the same emergency; however they have an emergency savings account, plus extra money that is not allocated for anything. They are able to handle the emergency with minimal financial stress and move forward with their financial health.

Help your Budget: Tips for keeping your bills in check

For some, cable entertainment is a way to relax after a long day. A bit of advice… shop around! This market is getting very competitive and cheaper ways of consuming media is happening quickly. Consider Netflix or Hulu instead of Cable. If you must have cable, determine the cable providers in your area, and find the best subscription rate. You can even ask your current provider if they would honor their competition’s advertised rates if the competitor’s rate is lower than what you are currently paying. Lastly, pay close attention to your monthly statements. It’s not uncommon to be charged for services that you are not using. You are your own advocate so take the initiative to pay attention to the fine print.

Mobile data plans can be costly. If you have wireless internet in your home, you can limit the data plan on your phone and instead utilize the wireless connection. If your main mode of communication is texting, it may make more sense to subscribe to a less expensive unlimited text plan vs an unlimited data plan. Read over your plan details carefully and be sure you’re being billed accurately. If free minutes start at a specific time, plan calls accordingly.

Car insurance premiums increase as deductibles decrease. If possible set aside the highest deductible in a savings account; let your money work for you and pay the lower monthly premium. Don’t forget about good driver discounts and good student discounts if you have children.

Health insurance is the same – high deductibles mean lower premiums. There are multiple plans with multiple benefits. Find the plan that suits your specific needs and remember to do your homework. Unforeseen medical bills are a common way to get into debt fast. Never put large medical bill payments on a credit card. Work it out with the medical provider – they are very willing to work with you just to get paid. You’d be surprised how many go completely unpaid. Make sure you save up enough to cover your maximum annual out of pocket charge too. That way if you have a medical emergency, you won’t have to worry about covering the cost.

Groceries… never go food shopping when you are hungry or without a list, chances are you will buy everything you do not need and only what sounds good. I avoid large box stores as much as possible because it seems I pay twice as much, buy more than I need, and waste twice as much time there too. I find sticking to my money and time budget easier at places like Trader Joe’s. Who really needs 10 different choices of peanut butter? Go weekly to the store and try using cash instead. If you go to the store with $50 on hand and force yourself to use cash only, you’ll be disciplined.

The goal of your budget is to avoid overspending, increase savings and create clarity. This is the route to discovering financial happiness. Have an incentive in mind. It is too tough to trim expenses if all you are doing is taking things away. If you were to cut down expenses and increase savings so you can afford a vacation every year that is fully paid for with your savings – then you’ve created motivation that makes it worthwhile. When you are adding savings columns for specific goals, name and separate the funds, such as vacation fund, new car fund, sabbatical, adoption, etc. Keep in mind, a budget isn’t etched in stone. It’s a work in progress and needs to have flexibility if you are to be disciplined. After all, a budget that isn’t attainable never works, because you will give up easily. Once you’ve created the budget, go back and review it every 3 months or semi-annually to make sure you are sticking to it.

If you have done all of this and you are still having difficulties spending within your means and saving appropriately, seek help. We find sometimes our clients’ only way to succeed is to have accountability to stick to a plan. We’d love to help you Discover Financial Happiness, to schedule a consultation click here. (link to contact us page)

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