Basics of Effective Money Management (Systemized Budget) Part 1 of 2

Now that we know how important a good foundational education and true self-control is to having an effective money management system, we need to put the system in place.

Systems are used in just about every aspect of life and business.  Ray Kroc created a system to build his McDonalds empire, franchising is popular due to proven systems, and a systemized budget can and will assist you in effectively managing your money correctly. 

The real question is this, what systemized budget is right for me?  I think we can agree that no two financial situations are the same and even if they were, each person has their own goals in mind.  So when you put these two elements together we need something that is systemized yet flexible enough to accomplish the same end result.  Effective Money Management.

Regardless of how you make your money, whether it be by paycheck, investment income, a social security check, or even if you own a business that pays you, in any of these cases, you have money coming in and you have to manage it effectively.  So lets start with the basics and then we can tweak the numbers and percentages to fit your unique financial picture.

1.  We need to calculate how much money you have coming in on a monthly basis. (we use monthly figures because most expenses are paid once a month)
     a.  If you get paid weekly, simply take that amount (after taxes) and multiply it by 52 and divide by 12.
     b.  If you get paid bi-weekly, take that amount (again after taxes) and multiply it by 26 and divide by
          12. (this will give you an accurate $ amount for each month)
     c.  If you happen to get paid monthly, then there is no calculation needed.

2.  If you are in a relationship where you share the expenses and pay the bills together then do the same
     calculations in step 1 and then add the 2 totals together to get your TOTAL Monthly income.

3.  Now we need to break down your expenses into categories.  This makes it easier to systemize your
     budget.  There is usually about 6 different categories you will spend your money on every month.

     a.  Necessities or Everyday Life-  these are examples of what belongs in this category
          1.  rent or mortgage
          2.  utilities (electricity, heat/ac, water etc)
          3.  phone (home and cellular)
          4.  food  (home cooked food or groceries)
          5.  insurance (homeowners, auto, life, health etc)
          6.  car payments (lease or own)
          7.  minimum payments on your debt (credit cards, personal loans,)
          8.  banking fees (if any)
          9.  home alarm fees
         10. transportation (can be gas for your car or bus pass or even a subway card)

     b.  Entertainment or Play time- again some examples
          1.  Eating out (even for lunch at work)
          2.  going to the movies
          3.  bowling
          4.  movie rentals
          5.  clubbing or dancing
          6.  club fees (playing any kind of sport)

     c.  Education- anything that would be considered a teaching tool or to continue your education.
          1.  student loans
          2.  seminars
          3.  webinars
          4.  book purchases
          5.  cd purchases (not music :) )

     d. Charity- I think this is pretty self-explanatory

     e.  Investments or Interest Creating- this could be anything your expecting a rate of return on
          that you contribute money to on monthly basis.
          1.  401k or RRSP
          2.  savings accounts
          3.  real estate investments
          4.  IRA's
          5.  CD's
          6.  Mutual Funds       
   
      f.  Debt Elimination-  extra money you send to your debt to get it paid faster

Now even with a list like this and putting this money into these categories we are still missing the need for an "emergency fund" or as I like to call it "the in case of xyz" account and a "I want it soon" account.  These two final categories help you eliminate the need to create more debt when these things happen.

Once you have created these categories the next thing you need to do to create a Systemized budget is to figure out what percentage of your income is being used for each category and then adjust as needed.

We will cover this adjustment and recommended percentages for each category in part 2 of the Systemized Budget portion of "Basics of Effective Money Management".

Please feel free to ask questions and comment as needed.

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Basics of Effective Money Management (Self-Control)

The I want it now mentality comes up alot in my discussions and for good reason.  We live in a very "plastic" society where most people are living way above their means by using Credit Cards to supplement their income.  Now, granted there are people who just don't make enough to live on but studies show, they are the minority.  The vast majority of people using up their credit cards are of the "I want it now" mentality.  They see the big screen tv or the fancy car and they think the worst words I think can ever be thought when it comes to finances "I think I can afford it" and/or "I wonder if I have enough room on my credit card".  These two thoughts are the downfall of most people when it comes to financial intelligence. 

Paycheck Distribution Coaching has been created to help stop this vicious cycle.  If you ever say or even think these words while your shopping, then your not managing your money correctly.  You should KNOW you can afford something and you should KNOW the balances on your credit cards.  And to take this one step further, you should KNOW how much that item will really cost you in the long run after interest is calculated on the money your borrowing to purchase it.

This is where Self-Control comes into play.  Too many people use shopping as a way to make up for other deficiencies or short falls in their lives.  The "I deserve it" attitude plays a huge role in this common problem.  When you take a good close look at your financial situation as a whole, I'm fairly certain that you have thought these thoughts at one time or another.  And as it has been said before "your past decisions are a direct result to your future problems".  This is where the cycle needs to be stopped. 

Most people would be surprised how easy it is to manager your income correctly.  But self-control is key.  If you continue to make the bad financial decisions based on the these three key thoughts then your future will continue on just as you past did.  To make a change you must change the way you think and how you manage your finances.  If your thinking to yourself "I have it all under control" just look at your net worth....or if you don't know that....look at the amount of debt you have and honestly tell yourself what you have to show for it.

Financial Self-Control-  Practice it, Love it and it will reap great rewards, ignore it and you will continue on the path you  already created.  More debt, more insecurity and continued servitude.

Thoughts to avoid following:
1.  "I think i can afford it"
2.  "I deserve it"
3.  "I think I have room on my credit card"

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