Spending Plan - Planning To Action

Now that you know where you would like to go it is time to figure out how to get there. While each of us may find a different route to achieving our personal financial goals, true success always comes down to being completely honest with ourselves and holding ourselves accountable. Ouch! Yes, I can admit that I am often my own worst enemy, but even if we suffer setbacks we will be OK if we keep our goals in front of us to make sure we can get back on track quickly.

So, how can you build a spending plan? The first step is to clearly identify your regular monthly expenses. These expenses usually come in three forms. First you have regular expenses like utilities, child care, etc. Then you have variable monthly expenses like meals out, auto repairs, entertainment, etc. Finally, you have debt service obligations like your mortgage or auto loan payments. It is usually quite simple to document your regular and debt service expenses. It is a bit more difficult to identify your variable expenses. However, the variable expenses usually are the major cause in ending with more month than paycheck!

The second step is to document all of your regular monthly expenses and your debt service obligations. You can use something as simple as a sheet of notepaper or as detailed as a spreadsheet or money management program like Quicken.(I like to use a spreadsheet so that I can quickly see what happens if I make changes in income or expenses to my spending plan.)

The next step is to document all of your variable expenses. This is the most difficult and can take considerable time to complete. Some experts suggest that you track your variable expenses for up to 90 days, but in many cases you have a good sense of where you are spending your money if you track your expenses diligently for at least a week. I would probably suggest that you will have an accurate understanding of where your money is going if you track your variable expenses for at least 30 days. There are a lot of ways to track your expenses including notes on a notepad, keeping all of your receipts and adding them up by expense category or using personal financial management software like Quicken. (I prefer to use Quicken, but many folks find this to difficult to maintain.)

To make this process simple there are a variety of free online tools like Geezeo, My Spending Plan , and Quicken Online. Some tools like Mint make it so simple that it allows you to download your checking account data and automatically categorizes your expenditures. While I can not recommend any of these particular tools, I have heard positive comments about all of them. If you don’t like these there are dozens of free tools to help you understand your spending and build your spending plan.

Now, using the tool of your choice it is time to start tracking your monthly expenditures. Remember to be honest with yourself and also be aware of how you might actually reduce your spending because you don’t want to write down some of the things that you would normally spend your money on. Do this for 30 days and check back in at the Ask Gene blog for our next installment on Building the Plan and… making the Tough Choices!

Spending Plan – Begin with the End in Mind!

On the last blog I wrote about declaring financial independence. I described financial independence as … the opportunity to pursue your life’s ambitions absent of the chains of financial obligations. I know that sounds like something we would all love to do, but is it really possible? Well, after years of working at it, I am closer than I have ever been. However, the thought of attaining financial independence would not have been possible for me without the sound advice of a trusted friend several years ago.

While he did not make millions off a bestseller, his advice was very similar to what I consider the most powerful habit in Stephen Covey’s classic book, "The 7 Habits of Highly Effective People," which is begin with the end in mind. Covey asserts that all things are created twice, first in the mind (mental) creation, and it is followed by the physical (actual) creation. I have found that principle is critically important whether you are business leader, an athlete, or a homemaker, visualizing your goal is the important first step to achieving your goal.

So, have you thought about your personal financial objectives besides just daydreaming lately? What is your personal "end in mind?" Do you know what you would need to do daily, weekly, or monthly to take the dream vacation to Disneyland, pay off your credit card, send the kids to college, save three months salary for an emergency, or retire early? If you have not taken the time to determine your personal "end in mind" do not worry, there is no time like the present to get started. It is important for you to decide what is most important to you …and even more important to write it down. The "mental" creation must be documented in a way that you will review it as you work to achieve your goals. If you are married or have a committed partner it is important to do this planning together.

There are many ways to accomplish this, but for my family it has always been a weekend away. We like to do our planning right after the first of the year and we always take a weekend in late January to review how we did on our goals over the last year and decide on our goals for next year. I think it is important to remove distractions so you can focus. So, depending on your personal situation, it might be a day at home with the phone turned off, a peaceful place like the coast, or a campground on the river. All you need is a paper and a pencil, and a desire to build a better future.

It is critically important to be honest with yourself and/or your partner about what is was most important. It might be the security of a savings account, the anticipation of a family vacation, paying off bills, or buying something new for your family. However, you will always find difficulties in achieving your goals if honesty is not part of the evaluation. After sitting down together and getting your wish list you need to prioritize the list. This process will surprisingly improve your relationship as you work together to set common goals and you agree on the sacrifices necessary to achieve your goals. It provides significantly better results (both personally and financially) than the normal decision making process of the "in store debate" and the "after store regrets!"

Now, just because you have written your goals down does not mean that all the work is done. The next step is to identify your current expenses and determine if/how you can make these new goals fit into your current spending plan. Some goals will take longer than others, but without a plan you might not ever reach your goal, or even worse, end up financing your dreams from your emergency savings or on a credit card.

On the next blog post I will talk about building a personal spending plan.

(Special Note: If you want to read ahead simply do a web search on personal spending plan and you will find that there are numerous resources available.)

Financial Independence Day!

The 4th of July weekend was a great reminder to me that there is no better time to seek financial independence than today. Yes, I know that unemployment is at 14% and many folks are having a hard time just making ends meet. However, there are 86% of the population still working!!

So, why do I bring this all up? Well after reflecting on the holiday and the time with family and friends, my wife and I both realized that there are so many things to do around the valley that don’t cost a lot of money. (More on that in a later Blog post. Please share your favorites with me by sending a message to me at AskGene@roguefcu.org.) In addition, with so many folks struggling due to the economy there is no longer a need to keep up with the “Jones.” In fact, it is time for just the opposite. It is time to rethink what is important in our lives and get back to enjoying the simple things. It is time to leverage a challenging time for a better future!

What is financial independence? It is the opportunity to pursue your life’s ambitions absent of the chains of financial obligations. While many of us will never eliminate debt, we can manage it and use it to our advantage. Debt used effectively is powerful… debt used inappropriately is an overwhelming restraint. Many of us became accustomed to a lifestyle fueled by debt and now that burden has overwhelmed folks from all segments of our society.

For someone who runs an organization where our income is dependent on folks getting in debt these are blasphemous words in many circles! However, we only make the money needed to pay competitive rates on deposits and low fees if folks repay their obligations. Our goal has always been to promote the wise use of thrift. Now is the best time in recent memory to reconsider what that is. Fortunately, I get to work for an organization whose sole purpose is to help folks work together to make a better life. We are dedicated to helping folks realize their dreams, not endure a life overwhelmed by debt.

There are a variety of ways that you can pursue financial independence. Over the next couple of weeks I will share with you some of my thoughts on how you might be able to achieve what is an elusive goal for many. Next blog we will discuss how it all starts with a plan…