Budgeting eCourse - Day 3

Welcome back!

Congratulations on completing Day 2! In Day 3 we will introduce you to a budget calculator, show you how to calculate your net income and start your list of spending envelopes for your spending plan.

The following checklist will assist you in keeping today’s tasks straight:

• Calculate your Net Income
• Use the Budget Calculator to see where you are spending your money
• Create your list of Envelope Spending Accounts
• Read Budgeting – Tips for Succes

Calculate your Net Income

The first thing we want to do today is calculate your net monthly income – it’s a fairly easy and quick process. Your net income is the amount of income that you 'take home' from each paycheck, after taxes and other deductions. Your net monthly income is the total that you take home each month.

Download your net monthly income worksheet and let’s get started! To calculate your monthly income, we need to first look at how often you get paid.

The most common pay periods are every two weeks, paid twice monthly, or paid weekly. These options apply to salaried individuals whose paychecks are a consistent amount for each pay period. (If you are paid on commission, or on an hourly basis, you will want to review the section on variable income a few paragraphs down.)

The following chart will help you to calculate your monthly net income based on the your pay schedule. Simply find your pay schedule in the left column to start.

Once you have determined your pay schedule, take the net amount of your paycheck and multiply it by the number of weeks shown in the chart. This will give you your net income for the year. Simply divide that number by 12 to calculate your monthly net income.

If you have variable income (commission based, hourly or an other wise changing amount for each paycheck) it is still easy to plan for your monthly income. You can either average your income, or select the least amount you expect to receive in a month.

If you go with the least amount, then you know that you will never overspend, as long as you make the minimum. When you have extra income, you can apply it to savings, debt reduction, periodic spending, etc.

If you go with the average method, simply take your last years’ income, or 6 months of the previous year, total it up and then divide by the number of months that you counted. Use this average amount for your monthly income.

Filling in the Monthly Net Income WorksheetNow that you know how to calculate the monthly net income, we need to do that for each income source that you and your spouse or partner if applicable, have. Simply enter in the "income source" column of the fixed or periodic net income areas.

• Fixed Net Income – Fixed income refers to income that you receive every month on a regular basis, such as your salary or wage.
• Periodic Net Income – Periodic income refers to income that you do not receive every month. This may be a bonus that you receive quarterly or yearly. Or if your ‘pay period’ is, for example, every two weeks, periodic income refers to the extra paychecks that you receive during the two months of the year where there is one extra pay period.

After filling in all of your income sources, the net amounts, and the pay periods, calculate the monthly and annual income. After making the calculations for each income source, total the fixed and periodic sections to get your total fixed net income and your total periodic net income. Next of course, you will calculate the monthly net income by adding the fixed and the periodic income totals.

Use the Budget Calculator

Now that you have your total monthly net income, we can start down the road to creating your balanced monthly spending plan. Let’s use the Mvelopes® Personal Online Budget Calculator to give you an idea of how much you are spending in each category and how that relates to not only your monthly net income, but also to the national spending averages. Click here to use the budget calculator.

Follow the steps through the Mvelopes Personal Budget Calculator and be sure to print out your results. Keep that report handy; we will use it today to create your list of spending envelopes for your monthly spending plan, as well as using it Day 4.

Create your list of Envelope Spending Accounts

Download the Spending Accounts Worksheet and we will get started on creating your personal list of envelope spending accounts for your personal monthly spending plan.

First thing we will want to do is identify the different type of envelope spending accounts that you will need. There are two types of envelope spending accounts— monthly and periodic.
Monthly envelope spending accounts are for areas of spending that have spending activity each month.

Periodic envelope spending accounts are for areas of spending that have spending activity only periodically—for example, quarterly or even annually.

Let’s first deal with the monthly envelope spending accounts, which can be either required or discretionary. Monthly required accounts include planned savings; car payments; and the minimum or planned payments for credit cards, mortgage payments, and the like. Monthly discretionary accounts include groceries, dining out, clothing, entertainment, allowances, and so on.

Next, let’s address periodic envelope spending accounts. As with monthly accounts, these can also be split into required and discretionary spending. Periodic required accounts include items such as property taxes, periodic insurance payments, annual auto registration fees, and the like. Periodic discretionary accounts include items such as gifts, vacations, house maintenance, holiday spending, etc.

Using your report from the Budget Calculator, start filling in the envelope spending account names that you will need for your spending plan. Place them in the appropriate category for monthly or periodic, as well as required or discretionary. The sample below will help you to classify all your expenditures and may also help you think of a few that may have been missing from the budget calculator.

Keep your list handy once you have completed your list of envelope spending accounts; We will transfer the list to the appropriate sections of the Monthly Spending Plan Worksheet in Day 4’s lesson.

Budgeting – Tips for Success

As we approach the end of the 3rd Day of the Money for Life Financial Fitness University Course, the following tips for success will help you stay focused on your goal of becoming financially fit. Let’s just take it one step at a time and you will be pleasantly surprised at how much you can accomplish in a very short period of time!

Don’t get discouraged! On average, people spend 10% more than they make. Don’t get discouraged if you do too. Stick with a spending plan and be committed to fixing the problem of overspending!

Be consistent. Put together a plan, track your expenses, compare your results and make adjustments. Do this every month.

Get everyone involved. At the beginning you may even want to have a weekly family meeting where everyone who spends money is together, reviewing the spending plan. Its critical for you and your spouse to work together but, why not start educating the kids about spending management too?

Learn to “Pay Cash”. Don’t rely on “credit”. If you don’t have the funds in your envelope, don’t make the purchase.

Avoid Department Store or other merchant credit accounts. People tend to spend more with these cards and they often have higher interest rates.

Use the Debt Roll-Down Principle to quickly eliminate debt. With this method, you will see fast results and stay motivated.

Congratulations on completing Day 3! In Day 4 we will learn how to create a balanced spending plan, review the Success Cycle, and read about how to manage, and overcome, the challenges with managing spending in today’s cashless society.
See you tomorrow!

Budgeting eCourse - Day 2

Welcome back to Day 2 of the Money for Life Spending Management E-Course!

Congratulations on completing all your tasks from Day 1!

Now that you have your financial fitness score, have set your goals, and have made your commitment to spend less than you make, you are ready to take the next step! You now know more about your attitudes and habits surrounding money, spending, debt, and savings; And by setting your financial objectives, you also now know what you are trying to accomplish. For the next step, let’s figure out where you currently stand.

In Day 2, you will work through creating a Net-Worth Statement and a listing of your debt obligations. You will also learn about the envelope budgeting method, the method we will use to create your spending plan in day 3 and 4.

The following checklist will help you keep track of the tasks that you will complete during today’s lesson:
Create a Net-Worth Statement
List out your Debt Obligations
Read The Secrets of Envelope Budgeting

Create a Net-Worth Statement

Before you can determine what changes you need to make in your financial life, we need to get a realistic idea of where you stand today. Let’s start with your net-worth.

Creating a Net-Worth Statement will help you to get an idea of the big financial picture, as it pertains to your assets, your debt, and your overall net-worth.

Remember, when you have completed this form, don’t be discouraged if the number is lower than you expected. Frankly, if you are in the positive, you are doing better than many in today’s world!

Download the Net-Worth Statement Worksheet by clicking here, and then follow these three easy steps to fill it out:

Step 1 – Create a list of your assets

The first list you will want to create is a list of your assets. Let’s start with your cash-equivalent assets. This would
be any asset that is in cash or could be quickly turned to cash. Examples of this type of asset are:

• The balance in your checking accounts, savings accounts, 401(k) accounts, and IRA accounts


• The cash value of life insurance policies


• The current market value of stocks, bonds, or other marketable securities
  

Another item you may include in this list is money that is owed to you, if you have a reasonable likelihood of collecting the outstanding balance.

Second let’s move on to your real estate assets. Your real estate holdings will include the market value of your home and any other property that you own. List the approximate value of your home and property from a competitive analysis or an appraisal.

The third section of assets is the listing of your personal property. This would include the current value of any vehicles you own, furniture, and other high-priced personal items such as recreational vehicles, jewelry, collectibles and even electronics. For current value of your vehicles use a site such as www.bluebook.com. To estimate the price of other personal property, deduct 25% from the purchase price for each year you have owned the item. Jewelry and collectibles are the exception to this, they often retain their value, or in some cases they even increase in value over time. Using the purchase price of these items would be a safe bet for this exercise.

Step 2 – Complete a list of your debt obligations

Access the Debt Obligations Worksheet by clicking here, or simply list the debts on the worksheet you are using for your Net-Worth Statement. In Day 5 we will use your list of debt obligations to create a Debt Roll-Down Plan, so be sure to keep that list where you can easily find it.

To create your list of debt obligations, or liabilities, you will include items, such as your mortgage, your car loan or loans, a home equity loan if you have one, etc. Don’t forget that debt consolidation loan you took out last year to pay off your credit cards.

Next you will want to list the balances owed on any personal loans, student loans, charge accounts, credit card accounts, and any other type of consumer debt. You should be able to find the current balance for each of your debts by checking your most recent statement or by checking for the balance online.

Step 3 – Calculate your net worth

Now that you have your assets and liabilities clearly defined, you will want to total each list – add up the assets, and then separately add up the liabilities. Next you will take the total liability amount and subtract it from the total asset amount. The resulting number is the approximate value of your current net worth.

Don’t forget, many people will have a low number, or even a negative amount. If you have a positive number, that is great! Don’t be discouraged, however, if the number is lower than you expected. With some proactive planning, you can get that number to increase more quickly than you realize.

After completing your Net-Worth Statement, place the date at the top and keep it handy. Every few month, or perhaps twice a year, repeat this exercise so that you can see the progress you are making. You will be amazed at how quickly you can make changes when you have become committed to following the path to financial fitness.

Start Down the Path Toward Change

Now that we have a clearer picture of where you stand financially speaking, let’s move on to how to change your inancial habits so that you can improve your financial fitness and create a more stable financial future.

One way to do that is to learn a new way to manage your spending. The envelope method of budgeting is a tried and true way to do just that.

Read the following excerpt from Money for Life – Budgeting Success and Financial Fitness in Just 12-Weeks and learn the Secrets of Envelope Budgeting and why it has always been so effective.

Congratulations on completing Day 2! In Day 3 we will introduce a budget calculator to help you start on your spending plan, review the spending envelopes that you will want to include in your spending plan, calculate your net income, and read an article on how to be successful at budgeting. See you tomorrow!!

Day 1 - Financial Fitness University

I found this great resource from the folks at Mvelopes.com. I will post each of the 5 days in this budgeting e-course.

Welcome to the Financial Fitness University, 5-Day course on personal finance and spending management.

It is often said that the first step in overcoming a challenge is to acknowledge that there needs to be a change. By signing up for this financial fitness e-course, you have decided to make a change – Congratulations on taking this first step!

Let’s get started!
Sometimes the most difficult part of any worthwhile journey is just getting started. Often the tasks ahead seem daunting—even impossible. If you break down the tasks into manageable pieces, however, you can more easily achieve success – so let’s take this one day at a time, one task at a time, and we will achieve success together.

In today’s lesson, you will work through activities that will help you understand your current personal financial position and lay the foundation for successfully achieving financial fitness moving forward.

The following check list will help you keep track of the tasks you should complete during today’s lesson:

• Make a commitment to change your financial direction
• Read Financial Fitness – Its not about hitting some magical number
• Take the Financial Fitness Quiz
• Set your personal financial goals
• Make a commitment to spend less than you make
• Read the Money for Life E-Book
• Read the Money for Life Success Planner E-Book

Make a Commitment to Change Your Financial Direction.
First – Let’s make sure you are ready to shed your old financial habits and replace them with new and improved habits.

Becoming financially fit will require you to break from our old thought processes in order to forge new habits and behaviors. You must have the courage and commitment to make these changes. You must be prepared to win the battle of the mind before you can move on to the battle of the checkbook.

Read and commit to the following statements showing your commitment to change your financial direction and become financially fit:

I/We will evaluate my/our old thought processes and be prepared to make necessary adjustments in my/our thinking where appropriate.

I/We will evaluate my/our existing financial habits and behaviors and be prepared to forge new habits and behaviors where appropriate.

Financial Fitness— It's not about hitting some magical number
By Steven B. Smith

What does it mean to be Financially Fit? First let’s ask, ‘What does it mean to be physically fit?’ For some, being physically fit means having the strength and endurance necessary to win a marathon; for others, it is simply to finish. While some want to be able to compete at a professional level, most agree that being physically fit means having a level of fitness necessary to look good, enjoy a healthy life, and be able to participate comfortably in the activities they like.

There is no predefined point at which we suddenly become physically fit. Physical fitness is more about being on the right path and doing the right things from a diet and exercise perspective than reaching some magical point in time. However, having specific and attainable objectives that provide motivation for continual improvement is very important. Otherwise, we may struggle with direction and find it difficult to stay on the right path. Read the entire article...

Set your personal financial goals.
The Financial Fitness Quiz should have helped you to focus your thoughts on the areas in your financial life that you would most like to change. Understanding what these areas are and then making a commitment to change them is a very important step in achieving success.

For some tips on effective goal setting, read Tips for Successful Goal Setting, simply click here to view the article. Next, write down the things you would most like to change in your financial life. Some examples are as follows:

• No longer living paycheck to paycheck
• Having the money saved for your next vacation before you leave
• Having the money saved for holiday expenses before the spending is required
• Paying cash for your next vehicle purchase
• Reducing or eliminating consumer debt
• Saving for long-term spending requirements, including college and retirement
• Being able to travel without going into debt
• Having money set aside for emergencies
• Creating and living within a budget
• Purchasing only those things you can truly afford
• Working together with your partner to achieve financial goals
• Eliminating the fear, uncertainty, and doubt surrounding finances
• Having the peace and happiness that comes from knowing you are financially fit
• No longer spending more than you make

Write down a list of your personal financial objectives—things in your financial life that you would most like to change, or achieve:

Make a commitment to spend less than you make.
While financial fitness is not contingent on how much money you make, it is contingent on how you manage and spend that income.

For the majority of people, managing our spending and keeping our financial house in order is a constant challenge. We spend a great deal of time and energy worrying about running out of money, paying the bills, and increasing our debt load.

Many people have the desire and even the knowledge necessary to be financially fit; They just simply haven’t had the right tools to be able to accomplish it. In today’s world of financial excess and convenience, we have many methods by which we can access and spend money; We, however, have not had an easy way to track all this spending or a tool that helps us plan ahead. Unfortunately, without these tools, people have continued to overspend, increase their debt, and then move on to the next month – often without even realizing what they have done.

If you want to become financially fit, the first thing you need to do is stop overspending. This sounds simple, but for most, it’s anything but. The fact is, if you don’t have the right tools, including a spending plan, you will continue to struggle with overspending and debt accumulation.

Being financially fit is a realistic goal and one that everyone – regardless of income – can attain. Make the commitment to spend less than you make on a consistent basis and you too can reach financial fitness.

Take the Financial Fitness Quiz.
The Online Financial Fitness Quiz will calculate your results for you. Simply click here to take the quiz. If you would rather download a printable version, just click here to do so.

Download the Money for Life E-Book
All of the principles discussed above are included in the book, Money for Life. Download the e-book version so that you can find out more. (1.54 MB)

"Thank you very much for this little jewel of a book. I didn’t think that a book on the subject of budgeting and finances could be as enjoyable and informative as this one. It was such an easy read. I understood the lessons, and then I immediately shared it with my bookkeeper and told friends about it. I look forward to using the Mvelopes Personal System."
Donna Yerman

Download the Money for Life Success Planner E-Book
Many of the worksheets, forms and exercises in the 5 day e-course are included in the Money for Life Success Planner. Download your free e-book version now so that you can find out more. (5.36 MB)

Coming up in Day 2, of the Money for Life Financial Fitness University – 5 day spending management course, you will get the opportunity to create a Net-Worth Statement and learn about the envelope method of budgeting.

See you tomorrow!

Why bother with a personal budget?

Hello! And welcome to the inaugural posting to the Personal Budget Blog. I plan on updating this blog several times a week.

My name is Adam Speed and I LOVE personal budgeting. Ok, maybe love is too strong a word. But I consider myself to be the unofficial personal budgeting spokesman, promoter, and flat out “preach it from the corner” guy. The reason for this is that budgeting made such a huge difference in my financial life. I was in debt and tried everything to get out of debt. Loans, debt consolidators, debt counseling, book, seminars, financial advisors, I tried everything and nothing worked for me. I wanted an easy fix and I really wanted someone to do it for me. It sounds kind of funny as I type this, but this is what I thought (and millions out there think just like this).

Well, it wasn’t until I learned one single concept that I finally “GOT IT!”. It was SOOO simple in principle but SOOO difficult in practice. And the secret is……………

“Spend LESS than you make!”

It really is simple when you think about it but very difficult when it comes down to actually doing it. And there is a reason it is difficult. It is because in the modern technological society we live in today it is almost impossible to know where you money is and how much you have left to spend. Today we live in a near "cash less" society. Using debit cards, credit cards, automatic deposits, and wire transfers we rarely even see our money. It's easier than ever to spend, spend, spend!

How can I spend less than I make if I don’t have any idea how much I have left? This is why most Americans spend 10% more than they make each month. AMAZING!

So I have a website dedicated to personal budgeting located at http://www.personalfinancebudgeting.com. Check it out if you have any specific questions or need an article on a specific topic. There is also a very active personal budgeting forum where you can post your questions and get answers quickly.