Practical Stuff - Quarterly Propserity Check

With the first three months of the year behind us, now is a great time to take a look at how we're doing managing our money thus far. Why now? Most businesses review financial data quarterly. It's a cycle that works well as it is not so frequent as to become tedious, but is often enough to keep us on track.

The first items I recommend looking at are reoccurring expenses. These are things like housing costs, utilities, car payments, child care costs, etc. Really take some time to make sure your list is complete. Everything that you are regularly billed for that has a due date should be on this list. For examples, see the quarterly budget review tab on the home page.

The next step is to take this total and compare it to your net monthly income. This is the amount that you actually receive after any deductions like taxes, health insurance and 401(k). How is it looking? Do you have a lot of money left over and you're scratching your head, wondering where it's going? Or, do you have more bills then you thoughts and are running a deficit? 

If you find that you have a deficit: First and foremost, don't give up! Many of us have been there. The first thing you'll want to do is go line by line and see what can be eliminated or negotiated. Are you paying for a land line and a cell phone? Have you shopped your insurance recently? Are you mindful of utility usage? Are you driving a vehicle that is beyond your means? Are you overpaying taxes? 

A lot of bills can be negotiated, such as insurance, cable and credit cards. If you rent, you may want to shop for a new apartment or look for a roommate. If you talk honestly with your friends, you might even find someone who's ready to take this journey with you. If you have a mortgage, talk to your mortgage company about options that may be available if you're struggling, but want to stay in your home. Or, depending on your level of equity, consider if continuing to live in your home still makes sense.

If you’re at a point where you’ve cut everything you can and you’re still struggling to meet basic necessities like food and housing, there is no shame is seeking out assistance if you really need it. In this situation it may be best to contact your local social services office to see if you are eligible for any benefits that will help you get back on your feet.

If you find you have money left over: You may be surprised that you have more expendable income then you realized. This goes back to mindful spending. You might not even think of yourself as a big spender, but a few nights out, buying lunch every day or a latte addiction can really eat away at your bank account. Or maybe you are a big spender who has that next big ticket item all picked out as soon as payday comes. Either way, we're going to need to dig into the day to day spending to determine where that money is going. It's not that this spending is bad necessarily, but it needs to be understood.

There are a few ways you can do this. If you're like most people and use a debit card. You can use a software program like Quicken or web/app based programs like Mint or Mvelopes which will quickly pull data from your accounts and categorize it so you can get a nice visual snapshot of where your money is going. Another option would be to go through your bank statements and manually sort out your spending. Some online banking systems offer sorting options to help make this task easier. If you don't want to deal with learning new software, or if you don't use a debit card, you can make up spreadsheet to estimate and list out your more variable expenses.

Once you have all of your financial data laid out some obvious patterns and waste will likely emerge. From here we want to enter a four part action plan.

1.    Reflect - Think back on the topics we have discussed and reflect on what areas most reflect your spending behavior.

2.    Budget - You can make a budget using a number of different methods, electronic or otherwise. Whatever system works best for you is fine.

3.    Track - I also recommend a checklist for your bills where you can easily keep track of what has been paid and what is outstanding to help avoid overdue payments and nasty late fees. For day to day spending, I recommend Mint and Mvelopes, but even a simple notebook that you can keep with you is fine.

4.    Automate - Lastly, look at what payments can be automated. For most of us coming up with money for items like taxes and health insurance are a non-issue because the money is taken out of our paychecks before we even see it. The best way to start is with smaller bills and those which provide a discount for automated payments. You may want to consider opening a separate checking account where the amount needed to cover these items is segregates from our other money to avoid overdrawing your account.

Let’s talk more about checking accounts. I actually recommend having two to three checking accounts; one for bills (two if you maintain separate funds for automated payments) and one for daily spending. In fact, it’s best if we don’t even keep a debit card for the account set up for bills. By separating out the amount we have allotted for daily spending we are less likely to dip into those funds.

If you're ready to start a savings plan it's best it’s best to open a savings account at a place other than where we keep our checking account. At the least we should avoid having our savings and checking accounts linked together to prevent us from making transfers on a whim. This may all seen a bit overwhelming, but it can also be very empowering. By taking ownership of our current financial situation we control our money instead of allowing it to control us. When we document our bills and spending we can stop walking around with financial stress rattling around in our heads all of the time. Did I pay this? Do I have enough money for that? By writing it all out we know exactly where we're at. Even if our financial situation is not great, I promise that just getting rid of those nagging thoughts will be a relief.

For further reading I recommend "Financial Peace" and "The Total Money Makeover" by Dave Ramsey. His radio show is fantastic as well and very motivating. His blunt style can take some getting used to, but his advice is simple, practical and solid. Also, "The Automatic Millionaire" by David Bach. This book dives more into the benefits of automating our finances as much as possible. The These books have been out for a while so they're readily available through libraries or as second hand copies.

I will be setting up a page specific to budget work as a reference to help you get started. The more budget work you do will help determine what systems work best for you. The most important thing though is to be honest with yourself and follow through. At the same time, even if you find you don't stick to the plan you set up, keep trying. Just having quarterly check-ups can help us from spinning out of control.

Be Well!
-Nicole