More on Cash Flow and Budgets

An Emergency Plan, Do you have one?

Do you have liquid assets that can be tapped to cover interruptions in your income? Interruptions caused by loss of employment or a prolonged illness can destroy your financial future in short order. Statistically, most people will experience at least one period of debilitating illness or injury lasting 90 days or more at some point in their life. Medical expense aside, could your budget tolerate a 3 month gap in income? Mine sure didn't! In 2007, I experienced a medical problem that prevented me from working for two months. That really hurt my financial well being.  I had saved up a few thousand dollars but that was soon consumed by my ongoing expenses.  Bills don't take a time out while you get back on your feet!

These days, the standard wisdom of having three months income as an emergency fund may not be enough! Consider making that six months of expenses rather than income. Most families operate on a deficit spending plan and use credit to fill the gap. This is not only foolish but is a "head in the sand" viewpoint that will quickly lay you low if something unexpected happens. Sit down right now and really look at your spending patterns.  There are hundreds of tools available on the Net, mostly free, that can help you analyze your budget and spot areas that can be trimmed or eliminated to bring your spending more in line with your income. Even a simple $.50 notebook will do. Just write down EVERY penny you spend for one month. It will blow your mind! I'm sure there are items that you spend hundreds of dollars a month on, a few dollars at a time, that could be reduced or eliminated.  They get "masked" as "mad money" or "just pocket change" but they quickly add up to a significant amount if you stop to look. Quitting smoking can equal a nice car payment for example or can build a nice nest egg emergency fund. Do you absolutely "have to have" that $3-$5 cup of coffee from that trendy coffee shop every day or you can't function?  Get real! It's a "status" thing and it is taking money away from your family that could be better used to get out of debt.  You can get a decent cup of coffee from your local quick stop market for less that a dollar if you bring your own cup. I've been getting a 24 oz cup every day for years for $.89, including all the fancy creamer I can stuff in the cup.

The Credit Card Trap

Credit cards are the worst game in town. Credit Cards are the "New Slavery." Sure, you can "afford" those minimum payments now. What happens if you are out of work for an extended period?  Do you know how long they "own you" if you make just the minimum payments?  The average is 17 years! And, you will end up paying 2-3 times the original price for those things you could not live without. Now tell me slavery is dead!

It's about "following a plan."

There are a number of techniques that can be used to eliminate credit card debt.  One I like is to look at all your credit card debt and start a log or spreadsheet to track them.  Lay it out so that you can see: Who, Outstanding balance, minimum payment, interest rate and amount paid each month. Total the overall payments you make every month for all the cards. Now total only the amount needed to make minimum payments to keep them current and avoid charges. Subtract the total minimum payments from the total you pay each month.  Is there a difference? If so, target the highest interest rate card and throw that difference on that card.  Keep doing that until is goes to zero. Now cancel that account and destroy the card. I know this doesn't seem to make a lot of difference at first but hang in there, it gains momentum if you follow through. The next step is where it really starts to come together! DO NOT "blow the money" on other spending but instead take the money you were putting on that card and add it to the next highest interest card and pound it out of existence! This will happen much faster since you are "doubling up" on the payments. Keep doing this until you have eliminated all the credit card debt.  It does not effect your overall budget since you are still paying the same amount in total each month. You are just doing it "smarter" than you were and eliminating debt faster. You are paying off your debts quickly and putting some order in your financial life.  This process can have you out of debt from high interest credit cards in just a couple of years as opposed to their plans for you of "financial servitude" for the next 15-20 years.

Want to get out of debt even faster? Visit http://www.thegoodmoneylife.com to see how.

Technorati Tags: debt,credit cards,get out of debt,eliminate debt

How Should I Handle My Money?

What money, you ask?

Although times are a bit tough right now, it has not always been that way nor will it continue to be. Everything has a cycle if you look at the numbers over a period of time. Various sectors of the economy move up and down like the tides. Nothing is static. Sometimes the cycles are complimentary, one moving up as another moves down. Some are linked and as one falls, so does its companion. Being aware of these cycles can be useful.

Your financial life is not a simple thing. Nothing is cast in stone and there are quite a few variables that determine how you should handle it. For some, their income is not all that predictable, such as those that are self-employed. Others, as long as they actually have a job (not a sure thing these days), can be pretty sure about the amount of money to expect each month.

The Five Areas of Personal Finance

• Cash Flow
• Proper Protection
• Debt Management
• Emergency Fund
• Asset Accumulation & Preservation

Let me address the "Cash Flow" part first. (part one of five)

How and where does your income come from? Is is stable and predictable? Is it enough? (Too much month left at the end of the money?) How do you manage expenses. Do you need to earn additional income? Do you follow a budget or track expenses?

The first step in good financial management is to be brutally honest with yourself and actually KNOW how much you really bring in each month from all sources and where it really goes. This is one of the weakest areas for most of us. A few weeks into the month and we are asking "Where the hell did it all go?" There are numerous ways to track this available for free in most cases. From something as simple as a $.50 pocket notebook in which you write down every penny you spend on anything to freeware programs for your Smart Phone and computer. Whether you use a pencil and paper or a spreadsheet, the point is, JUST DO IT!

If you really do this, you will soon spot the "leaks" in your cash flow. Now you will see areas that can be evaluated as to just how important the expense is in relation to your overall financial health.

Not enough money left to pay all the expenses? You have two choices here, cut expenses or make more money. In many cases, spending a few dollars here and there can be trimmed or eliminated with little loss of "life style". Are you spending $3-$5 every day in that coffee house? Did you know that you can get a 24 oz. coffee for only $.89 at 7-11 or Circle K or whatever local convenience chain is near you if you bring your own cup? Or even better, make your own at home and bring it with you. Still smoking? There is $250 or more per month. Damn! That's a car payment! Or that could buy you a $250,000 Life Insurance policy or fund an Annuity policy for retirement or for college tuition that has huge tax advantages! Basically, you can "find" extra money if you look for it without changing your quality of life and it may even improve it.

Next time: Proper Protection

Financial Freedom - Why Should You Strive For It?

On the surface, one might think that this is a "Well Duh!" question.

Most people feel that they are attempting to do this. One of the problems that prevents most people from attaining it is actually the "why" to do it. If you really do not have a strong enough WHY, you may not have the drive and the attitude needed to actually attain it. It it totally possible, people attain it every day because they have identified the proper why and are using the right tools and methods to do it.

What exactly is "Financial Freedom"?

There are many definitions that could apply here but a good start is;

Making enough money to pay all your obligations whether you are physically able to work or not and being debt free.

What does being financially free mean to you? Here are a few ideas:

• Being able to choose the job or career that you want and not needing to accept something or be "trapped" in a bad job just because you need the money or benifits it brings in. Working or volunteering for a non-profit cause or entity for instance.
• Freedom to live wherever you wish. Most of us live where we do because that is where or livelihood is produced and we cannot live elsewhere and still do that job.
• Choosing how you spend your time. Want to work, do it! Want to play on the beaches of the world? Do it! Want to explore new business ideas without needing to worry about cash flow until it gets off the ground? Do it.
• Freedom from worry. Stress creates health problems we don't need. Financial Freedom is an amazing stress reducer!
• If you think about it, it gives you the freedom to say NO. No, when your employer tells you you need to work overtime this weekend and you had other plans. No, when you see unethical things happening in your workplace that you do not want to be a part of. No when the hotel clerk tries to put you in that crappy room by the elevator because you didn't have a reservation.
  
• It also gives you the ability to say YES. Yes when a friend or relative is in need. Yes when your church needs help. Yes when your son or daughter asks you to be at a school function or sporting event during normal work hours. Yes when your son or daughter needs a coach or mentor for their after school team or club. Yes to joining the Peace Corps or Habitat for Humanity for a year or two.
  
• Freedom to choose the schools your children attend.
• Freedom to drive the vehicle you always wanted or choose to ride your bicycle because you don't really need to be anywhere at a particular time.
• Freedom to support causes, political or otherwise, that you believe in.
  

The bottom line is, is that it is all about FREEDOM!

One of the signatures on one of my e-mail accounts is: "Ya know, just once I would like to try to disprove the concept that money does not buy happiness. If you do it right, having financial freedom can go a long way toward being happy.

Dana@TheGoodMoneyLife.com