Monthly Money Plans (Budgeting Basics, pt. 1)

So far, I’ve shared with you all that I’m not all that great at understanding the best way to manage my money. This fact used to embarrass me and I would be ashamed to share with people who I had nice things but I was flat broke. To get away from feeling embarrassed about not having, I’d figure I’d learn a few things about money.

What I’ve come across really boils down to a few simple rules and I’m here to talk about the first one – “Money Plans.” If I described a Money Plan to you, you’d tell me, “OH! That’s a budget!” and that’s all it is. A budget is simply defined as an estimate of income and expenditure for a set period of time.

By that definition, a budget simply tells you two things: (1) how much money you have coming in and (2) how much money you have going out. You could take it a step further and identify your sources of income and itemize your expenditures (list out what you spend your money on). Today, we see and hear examples of budgets, mostly ones that do NOT work, and that’s all they tell you: how much money you project to bring in and how much money you project to spend.

With this being the day and age of spend-spend-spend, I believe that’s why a budget doesn’t work.

This is exactly why I want people to move from budgeting to Planning their Personal Finances. Let’s move from being reactive to being proactive and taking control of the emotional piece of managing money. Below are some of the “budgeting” rules I’ve come across since I’ve started looking into finding the best Money Plan for me.

Rules to Make Your Money Work for You (Budget Rules 101)

Stop telling yourself you don’t NEED a budget.

The biggest lie we tell ourselves is that we don’t need to plan what we’re doing with our money. Many of us think, “Well my bills are paid and I have money left over to do what I want.” Great! But have you ever thought how you’d handle an unexpected break from work? Do you have structures in place that serve as a safety net for you? If you do, great! Share them in the comments below. If you don’t, then rest assured that you are not alone BUT you do need to change your thinking. A Money Plan is for you and it’s essential to living the type of life you want. The first hurdle to prosperity is knowing what your situation really represents! You may live the good life but if you’re like most of us in the U.S., then you don’t live a financially secure life.

Remain emotionally connected to your money in a way that you don’t overspend.

I’ve learned in life that there are unwritten rules to the way I respond in life (people who coach others call this a “script”). The other week, I had the opportunity to listen to an online webinar and one of the exercises the speaker had us to do was to think back to our earliest memory about money. I learned that my emotional connection to money led me to spend, spend, spend and spend some more and I realized that I had to stay connected to my money so that I didn’t overspend. But you’re probably wondering how a Money Plan helps you remain connected while not overspending? It’s simple! It takes the anxiety out of having (or not having) money. Folks like me who grew up broke often stay broke because in our excitement of getting new money, we go overboard with buying things that make us feel great! By accounting where your money goes before you get it, it lessens the likelihood that you will overspend on things you don’t need.

Make a new Money Plan for each month!

This is key! A few years back, I did really well with budgeting (or so I thought). After a few months of staying on top of where my money went, I thought I had a handle on it and stopped. Now I understand that budgets don’t work but Money Plans do and it’s imperative that a new Money Plan is done each month. Just as you work hard at making sure you have your assignments for work done on time, you need to make sure you have your assignments for life done on time. Remember, your monthly Money Plan is an assignment for the life you wish to live and an essential part of creating wealth.

Create your Money Plan a few days before the new month begins.

This is the tricky part (for me). In addition to having my “9-5” job, I’m also consult on a few different projects and run my own small business centered on individual professional development (I’ll talk about this more when I get to the series on developing extra income). Because I only have one physical source of income which pays me at the middle and end of the month, the success of my Money Plan really hinges on whether I can make it to the middle of the month with a positive bank balance. Although the amount of money I make for the entire month fluctuates, I’ve gotten better at sticking to the plan and because I do my Money Plan a few days before the start of the month, I only expect my success to get better.

Review your spending habits from the month before.

The final rule that I have for myself and my Money Plan is to review my spending habits from the month before. This is where apps and online sites like Mint.com. I gauge the success of sticking to my plan based on the summary profile on my Mint.com account. I also look at the balances in my account. So far this year, my goal with my account balances have just been to not go into the red. Starting in July, the goal will be to increase my Savings Account balances quickly. The Money Plan is the first step in getting to my savings goals and reviewing my spending habits are an essential piece to making sure I stick to it.

So that’s it. Those are my five basic rules to why managing your money really means something. Come back next time to learn about the “Zero-Dollar Money Plan” and to see an example of mine.

Advertisements

My Financial Goals

As I looked into Budgeting Basics, I realized I need to share my own financial goals and explain what I mean by “Young, Gifted, Black & Broke”?

To be Young, Gifted, Black & Broke means you realize your unlimited talent, ability and enthusiasm but you are at a point where you’re “broken.” Broken means that you’ve set goals for yourself and no matter how hard you tried to reach them, you can’t. You make some progress but you can’t sustain it. It also means that you’re doing things the way “you’re supposed to” and you’re still unhappy.

My goal is that I want people, Young People of Color especially, to release the stigma of not having it together. That stinging feeling of isolation that comes along with trying to get it together while pretending to have it together? We need to get rid of that as well. This blog is to remind you that if you are unhappy, you have the power to change your situation.

Leave your excuses behind, think new thoughts, form new habits and move forward! With that, I share my financial goals below!

GOAL 1: I want to pop tags*!

At the end of the day, my BIG financial goal is simple: I want to walk into a store, see something I like that’s not on sale and purchase it without looking at the price tag. Why? Because that’s financial freedom (to me). Currently, I walk into a store and I look at items in terms of student loan and/or credit card payments. For instance, we could go to a department store together and see a really nice pair of Jessica Simpson shoes and not think, “Oh! I could get these shoes OR I could make two Sallie Mae payments or four and a half credit card payments.” That is stressful! I want to look great because there is an inherent need to look awesome because I am awesome and I want to do it from the regular priced clothing rack. Ultimately.

GOAL 2: I don’t want debt associated with my name.

The other day, I read something very simple and profound. Proverbs 22:7 states, “Just as the rich rule the poor, so the borrower is servant to the lender.” This became very clear to me during a very heated conversation with a Sallie Mae Representative who informed me that I needed to pay them because “it’s our money. It’s not your money. We gave that you and we want it back.” She’s still waiting…but she was right! As long as Loans 05, 06, and 07 are accruing interest on principle balances, I owe them. And as long as I owe them, I can’t say that I own my name. After I realized that, I decided I want a debt free name. It’s all that’s really mine anyway.

GOAL 3: I want to live my real estate daydreams.

One of my most favorite shows in the history of shows is House Hunters International. Once I get over the questionable comments that the house seekers make about wanting to be a part of some “exotic” culture but not of it, I’m all in. I’m also in awe that people casually say, “Oh, our housing budget is 1.8 million.” They say it in the same tone of “Oh my drink is warm. More ice please.” and I think that is so cool! Because I think it’s cool, I find myself daydreaming about having homes all over the globe and I want these dreams to come true. It’s just that simple.

GOAL 4: I want to leave things for those who come behind me.

Some people may think why isn’t this up higher on the list? It’s simple – I want to enjoy the fruits of my labor. Then I’ll share those fruits. I want the ability to gift younger family members and my friends’ children monetary gifts to get them started on their life’s passions. That way, they aren’t starting at from nothing or owing something to someone.

GOAL 5: I want to start a scholarship in my Brother’s name.

My eldest Brother passed away in 1997 and I will honor his love of the sciences by starting a scholarship fund in his name. It will be for young people of color interested in furthering their education in the sciences (he went to school for Engineering). Eventually, I want to fund the college educations of 5 young men and 5 young women a year.

Those are my financial goals. Be sure to share yours in the comment section.

.

*If you are unfamiliar with the phrase “popping tags,” I simply mean having so much money that you buy copious amounts of everything with no regard to the actual price. Other catchy phrases that are similar to this: “cashing out” and “getting my roll on” a la Cash Money Millionaires style.

Check Your Financial Health

Are your finances on Life Support? Do you think you have a good idea of what you need to do to get them under control?

Well, if you found this blog, I’d bet my last dollar (not really) that your finances are in a bit of trouble AND that you actually need help getting them under control. Not to worry! This quiz will give you an idea of what you need to start working on. These questions will point out areas that you need to work on yourself. I’ve included a quick write-up at the end of where I stand because I want you all to really know you’re not alone. I’ve also included a link to the original survey because I’ve modified a few of the questions (all modifications are italicized). Here are my answers!

  1. Is more than 15 percent of your income going to pay any kind of debt? The MAJORITY of my income actually goes toward Student Loan and Medical Bills. I look at my income in two different ways: “Before Taxes” and “Take Home” to get an idea of where my money actually goes. I’ll write a post about why this is useful and give you tips/tricks on how to simply calculate where your money goes. (+1)
  2. Are you borrowing money or using credit cards to pay for items you used to pay for with cash? While I don’t borrow money or use credit cards to pay for items I used to pay for with cash, I have developed a nasty habit of using my credit card (which was originally for emergencies) to get me through half of the month. At the time of this post going live, I’m in the midst of developing a personal Credit Card challenge (to clear that balance for good). I also have a few store credit cards with balances near the limits. (+1)
  3. Are you dipping into your savings or any other money stash to pay current bills? In order to dip into a savings account, there must be something in there for you to dip into. Since I’ll readily admit that my savings account looks empty, I have to go ahead and give myself a point for this question. (+1)
  4. Are you paying bills with money intended for something else? Thankfully…no! All of my bills are actually set up on a Kwik-Pay or Automatic Debit System! Additionally, I set them up on days where my Direct Deposit hits my account. It’s almost as though I don’t miss the money because it’s gone before I really have the chance to notice it. I got something right. 🙂
  5. If you or your spouse lost your job, do you have less than three months’ take-home pay in a savings account? Unfortunately no. This point hit home for me when I had to take time off of work to heal from a surgery. Here’s another point for all of the wrong things. (+1)
  6. Can you usually only make the minimum payment on your credit cards or any other credit account? No. I’ve set up automatic payments to take out more than the minimum payment. While this is great, I’ll admit here that the payment amount isn’t enough to put a real dent into the balance on the card.
  7. Are you extending repayment schedules – paying in 60 or 90 days bills you once paid in 30 days? No. This makes me feel a little bit better (this quiz is slowly making me think about all of the things I need to work on). However you should also consider ask yourself this question another way — do you have to ask for extensions on bills because you don’t have enough to cover the small balance for that month? If I ask the question that way, the answer (thankfully) is still no.
  8. Are you near, at, or over the spending limit on your credit cards or spending accounts? Yes. (+1)
  9. Do you take out a new loan before the old one is paid off or take out a new one to pay off an existing loan? No. Thank goodness. The only loans I have are Student Loans.
  10. Are you unsure of how much you owe (within $50)? No. I’m aware of how much I owe. My problem has been getting a handle on being able to put a real dent into it.
  11. Do you habitually pay your bills late? No. Look at answer number 4 for the explanation as to why.
  12. Do you charge more each month than you make in payments? No. I use my credit cards in waves. There may be a period, say of 3 months, where I don’t use them at all AND then, I’ll get all emotional and go on a shopping spree. However, I’ll answer yes to this because the difference in what I buy and what I pay still plays out in much the same way. (+1)
  13. Do you use a cash advance on one credit card to make payments on other credit cards? No. Pretty impossible to do this with one credit card.
  14. Has a collection agency called recently about an overdue bill? Yes. As of the date of this blog post going live, I’ve actually been receiving pretty consistent calls from two companies. *deep sigh* I’m too young for this. (+1)
  15. Are you threatened with repossession of your car, cancellation of your credit cards, or other legal action? No. It hasn’t gotten there yet…and the point of this blog is so that it doesn’t get that far.

I scored a 7. If you’ve answered “Yes” to three or more of these questions, you’re at risk of increasing financial distress and if you gave four or more “yes” answers on the financial health quiz, you’re at risk of slipping into the financial danger zone. My seven means that I DEFINITELY have some areas I need to work on.

But as with all things, it gives a nice snapshot but not really the whole picture. Because this only offered a snapshot, I included the links to two other quizzes below:

How Healthy Are Your Finances? Source: CNN Money. This is an interactive assessment. You start by putting in your age and your gross annual income and go from there. There are some pros and cons to this. The biggest plus is that it is easy to use and gives you a neat little picture of your financial health. It asks you to input how much you put toward (1) Retirement Savings; (2) Housing Payments; (3) Debt; (4) Emergency Savings; (5) Diversification of Stock; (6) Company Stock; and (7) Life Insurance. The major drawback is that  it assumes you work for a company that offers things like company stocks or that you’re investing in the market. I’ve included my neat little picture below (so you can see that I also need work):

As you can see, I got a "C" as a grade on the CNN Money Financial Health survey. It tells me the areas that I need to work on and the areas that I'm doing okay with.

As you can see, I got a “C” as a grade on the CNN Money Financial Health survey. It tells me the areas that I need to work on and the areas that I’m doing okay with.

Quiz: How’s Your Financial Health? by Better Homes & Garden. This one definitely works if you need to consider the spending habits of another person (say, your significant other). For me, there were a few questions that I couldn’t really figure out how to answer because I’m single. However, it’s simple to follow (as it’s a click-through quiz). My only annoyance was the pop up ads of to the side. I didn’t get to see my result because page 3 continued to reload whenever I pressed forward.

I hope that these questions get you start thinking about your Financial Health in a different way and on the road to where you wish to be.

I’d Have to Fire My Chief Financial Officer…If It Were Me

“Pretend for a minute that you started a company called YOU, Inc., and it’s your job to manage every cent that passes through the company. If you managed money for YOU, Inc., the same way you manage money for you now, would you fire you?”

Yes. I would.

That quote above was the introduction to a Daily Bible Plan that I decided would be worth my while to read. It’s called “Dave Ramsey’s Financial Wisdom from Proverbs” and it is a 10-day reading plan that uses the Book of Proverbs to provide a biblical and practical foundation for financial peace. The description alone was pretty cool so I decided to add it to my daily reading. However, I was NOT ready for a mirror to be held up to my face so quickly. After I got over my comical “How dare he start this way?” initial reaction, I was really able to focus on why I decided to start this Bible Plan to begin with. Like many of my peers, I’m broke and I don’t want to be.

By all accounts, I’m “successful” and I’ve made it but the reality is that I haven’t. I’m a “degreed” Black woman with a “good” job that provides me some benefits outside of a paycheck. I pay my bills on time and I dress nicely. I’m the picture of “getting it together” and this comforts the people around me because I’m relatively young (only 26 years old).

The reality is that I live paycheck to paycheck. This realization was something like a gut-check. It became very evident when I found myself needing to take six weeks off from work to heal from a surgery. With only enough Paid Time Off for 13 days (less that one month’s salary), I quickly realized I had to stop all of my automatic withdrawals for bill payments.

In simple terms, I had to go two months without paying all of my bills on time and I had no money to live on (no savings…at all). That’s not having it together…at all. What was most embarrassing was the realization that I took all of these steps forward in paying down debt and cleaning up my credit only to end up in a spot where I was afraid to once again answer my phone.

That “Financial Wake-Up Call” puts me in the same boat of roughly 40% Americans who also feel they are living paycheck and/or barely treading water when it comes to their finances. In a study conducted by Allstate Financial, more than four in 10 (41 percent) are living paycheck-to-paycheck while another 8 percent say they don’t earn enough each month to pay for essentials. The three points that struck me the most were:

  • Only 46 percent of those in households making $50,000 per year or less have a retirement plan in place (compared to 89 percent of those in $75,000 or more per year income households)
  • Of the households making $50,000 or less annually, just a quarter say they have money left over at the end of the month
  • One-third of college graduates (32 percent) say they’re living “paycheck to paycheck,” compared to nearly half (48 percent) of non-graduates.

And at the end of the day, I hope to become one of those people who can share the steps I took in getting on solid financial ground with others. Perhaps, what separates me from my peers is that I am beginning to understand that thoughts really are the foundation of the lives we make for ourselves. Just think of the phrase “Thoughts Become Things” and then look at the evidence of this in your life. It’s there. But I want my thoughts to create more than just prosperity for myself.

With that, I invite you on this journey of my thoughts and the new habits I build as  I create wealth my way and define my financial future!