Manage Your Money

It’s never too late to manage your money and fix your personal finances. If you do it right you can save yourself a lot of stress in the future. The best part is that it’s never too early or too late to start. The only way you will start is if you are truly tired of that paycheck-to-paycheck lifestyle. Stop asking yourself “Why don’t I have money?” or “When are these Ramen Noodle days going to be over?” If you are reading this then consider yourself lucky and follow my lead.

So how do you manage your money?

Well, lucky for you we have software and apps to help you manage your money. Quicken, Moneydance, and Acemoney are only a few of the many pieces of software. For those of us that cannot live without our smartphones there are plenty of free applications out there like EasyMoney, Expense Manager, and T2Expense. These apps are already set where you just have to plug-in your numbers and it will show you where your money is mostly going. If you are anything like me then get out a pencil, paper, and calculator. Sometimes doing this on your own and on paper for you to see is enough for you to come to a realization and start making a change. After all, this was the only way people knew how to manage their finances before technology came around.

Step 1: Calculate what you earn a month. If you make the same amount every month then this part is simple. If you work based off tip or commission, calculate what you average a month but DO NOT overestimate your earnings. We all know that if you work at that popular restaurant, then a good Friday night can bring you in over $200. Meanwhile, a measly Tuesday night may not be as rewarding.

Step 2: Make a list of all your credit cards and monthly expenses. Think long and hard about this, and don’t forget that $10 Netflix bill or gym membership (the small fees we all tend to forget about). I would always forget to add my cell phone bill. If there is something that you are currently not paying off I want you to add that in too.

Step 3: Subtract Step 2 from Step 1 (Step 1 – Step 2, for my pencil-and-paper people). Hopefully you are still in the positives. If you are, then you are probably saying to yourself “I could be rich by now!” If you happen to be in the negatives you should sit down and prioritize your payments as far as which debts to consider first. Also, maybe a second job can be temporary but it will definitely fix your financial situation.

“Well I need to eat.” “I need to pay to get to work.” Listen up guys; you need to start cooking and taking food to work. You will be saving so much money and you may get in touch with your inner chef. As for the transportation, ask yourself how much you actually spend on going to work and how much is spent on going other places. These are what I like to call flexible expenses. If you go grocery shopping, do you really need those Twinkies? I bet if you go shopping on a full stomach you won’t crave those types of desirables. Try it! Anyway, you get the picture.

Who are you and why should I follow your lead?

I’ve been there! I never wanted to listen to someone tell me how to manage my money, especially from someone who has plenty of it. I am not rich but I am happy with my financial situation. In less than a year I have improved my credit score tremendously. I pay all my bills (on time) and enjoy the occasional night out. I got ahead of my debt. Most importantly, I never stress about money!

Personal Finance Is More About What You Keep and Spend Than What You Make

Money is the tool that is being used in your personal finances. It can be used to build assets or create liabilities. When you have an asset, you are adding to your net worth. This can include a profitable business, growth funds, money market, etc. When you have a liability, you are taking away from your net worth. This can include credit debt, a car with car payments, a rental unit that is losing money, etc. We have to learn how to see the difference between an asset and a liability.

Now, when we become more financially wise, we will understand that we have to control our spending (thus keeping more of our income) in order to win the battle of personal finances. Eventually, we will win the war that will allow us to have total control of our money and time.

A great quote from Charles Dickens discusses in details about your personal finances:

Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.

We need to control our spending. It seems so trivial that it is overlooked. When we know how to master a few cents, we have the foundation to master handling a few dollars more. Handling money is a real-life game of Monopoly. It is not about accumulating but handling the money we have in an efficient and empowering way. It is about spending wisely by hardly spending. It is about learning and mastering money skills with a little money that will become more money later.

Finances – The Right Question

It’s the age old question asked by financial advisors, “Can you really afford it?” Unfortunately, most Americans, working as trained professionals in reputable industries, and filled with an innate sense of entitlement, will answer that question “Yes. Of course I can afford it.”

And why not? Certainly after a 40-50 hour exhausting work week you should be able to afford a decent wardrobe, your kid’s tuition for summer camp, and a nice family vacation. So why, when we work so much and so hard, are Americans in debt? Why do our salaries always fall short of what we need to survive?

The answer lies in the question. I don’t mean to sound ambiguous. The fact is, if we base each purchase we make on the question “Can I really afford this?” we set ourselves up for budget-breakers. Fortunately, there is a better question we can ask ourselves that effectively cleans up our spending habits, and leave our dignity in tact.

In their 1992 National Bestseller, Your Money of Your Life, Joe Dominguez and Vicki Robin lay out nine steps that will transform your relationship with money and achieve financial independence. In my experience, step two is enough to break most bad spending habits. This exercise changes our mind-set by asking a question we may not have thought before.

The exercise involves the concept of Life Energy. Life Energy is your time in hours traded for money. Some of us make an hourly wage. This is not quite the same as Life Energy, because it only includes the time you punch in to the time you punch out. It doesn’t include the hidden hours we give to our employers: the time required for grooming ourselves, commuting, cooling down after a hard day, (not to mention the vacations and entertainment we must have to maintain our sense of balance.) Nor does our hourly wage reflect the money we must spend just to have the opportunity to work for our employer. I’m talking about the expenses connected with costuming, transportation, meals, and other job-related costs. To know what your real hourly wage is, add all the extra job-related hours to your normal work week, and subtract the job-related expenses from your pay. Now you know how much you really make at work. A simple division problem shows you how much money you earn per hour. This is the amount of money you trade for your time-your Life Energy. Keep this number in your head.

Whether or not you find this number satisfactory (that is considered in another step of the program) you are now equipped to ask the right question. The next time you are at the check out counter don’t ask if you can afford that new “gazingus pin.” Instead, think of your new hourly wage and ask if this purchase is worth that amount of your Life Energy. For instance, let’s say your adjusted hourly wage is $11 per hour. If your new gazingus pin is $67, that’s equivalent to over six hours of your life! Is it worth it? This question can be very sobering for those used to saying “Sure I can afford it!” All of the sudden, the question becomes, “Do I really want to sacrifice that much of my life for this?”

Add to this question the subject of debt and buying on credit. If you are making your purchase on a credit card you are automatically paying a premium for time. And if you are struggling to pay off debts, you must realize that you won’t even have the opportunity to work the six hours to pay for your gazingus pin for several days, weeks or even years. By then it may be up to ten, fifteen or even thirty hours of Life Energy. All for this gazingus pin. Is it worth it? Do you love this gazingus pin so much that five years from now, when you’ve paid your credit card down enough to reconcile this purchase, you won’t mind throwing thirty hours in at work for it? Is your job so enjoyable?

Kind of puts paid employment into perspective, doesn’t it? It also transforms our all-American sense of entitlement. If we look at time as money, maybe we’ll be a little less cavalier and a little more cautious about where we throw it.