Category Archives: Financial Literacy

How to Have More Money with the Beauty of Budgeting

When you practice budgeting, you get to be in charge of exactly where your money goes. Sometimes, we can forget the true value of every dollar—that each one was earned with a specific amount of our time. When we see our paycheck come in, we feel flush with opportunity and we can lose sight of all that time we worked to earn it. Remind yourself how much work went into each dollar. Do you want to waste precious time by spending those dollars wherever your impulses take them?

This is just one of many important reasons to keep a budget. Here are a few others:

  • It lets you keep your eyes on the prize.
  • It ensures you don’t spend money you don’t have.
  • It leads to a happier retirement.
  • It helps you prepare for emergencies.
  • It sheds light on bad spending habits.
  • It’s better than counting sheep at night.

As we learned in the last Focus on Your Money webinar, we have to know the full scope of our financial situation in order to change it. Hope is simply not a strategy. You’ll have to take a more realistic look at your money before you can gain control over it. Luckily, we’re here to help.

Essential Steps to Budgeting

It may seem overwhelming at first, but by following the steps below, you’ll see that budgeting is actually quite simple—it’s just a habit that you need to form. Before you begin, set a financial goal to look forward to, like a dream home, a place to retire, or an exciting vacation in Europe. These goals will help you stay focused and make budgeting a little easier.

Know your income

The money you take home will become your budgeting baseline. The catch? You can’t build your budget on your salary alone—you’ll have to build it on your net income. Deduct your income tax and set it in your savings account before you pay yourself. Then, you can use the amount that’s left over to start your budget.

Determine your basic expenses

Count up the bills that have fixed payment amounts, such as your mortgage, your car, your insurance, or your student loans. This is also a good time to set up your emergency fund—pick a number to save monthly and factor that into this category.

Determine your variable expenses

Variable expenses are those that will change from month-to-month. These are your phone bill, your groceries, meals at restaurants, and entertainment—all things you have control over.

Prioritize

Now that you know your expenses, determine what’s really important to you. We all tend to think we won’t be able to live without the latest iPhone, but gadgets like this fall in the “Like to Have” column instead of the “Necessity” column. Be ready to make tough choices: do you really need unlimited texting? Do you really need 400 channels? You’ll have to take an unsparing look at your lifestyle to figure out what’s truly necessary and what is a luxury.

Follow your spending and review it monthly

Keep an eye on your spending—especially credit cards—and watch out for small things that quickly add up. It’s easy to cave on these minor expenses from day-to-day, so stay diligent!

Keep track

Find the best way to keep track of your expenses and income. You can use pen and paper or your favorite mobile app if you prefer, but luckily, Maria Riofrio of the LiSA Initiative has made a budgeting spreadsheet that will do most of the heavy lifting for you.

FFS Monthly Budget Tracker

Customized just for you, this spreadsheet is built with specific formulas that will automatically do all the math your budget needs. To begin, put your projected income and expenses into the left-most column. This will anticipate every dollar coming in and out of your budget each month. You’ll find your fixed expenses are coded in green, the flexible expenses are blue, and the intermittent expenses are represented by yellow.

After you’ve projected your expenses for the month, you can start tracking what you’re making week-to-week and stay on track by adjusting accordingly. Place your income in the top row (remember to save your taxes first and only use net income), and the sum total will automatically populate in the upper right-hand corner of the sheet. Your weekly expenses will also populate just below your total income as you go along. The difference between the two will then be calculated to show you the money you have left as the month goes on.

Start budgeting today with our LiSA Budgeting Sheet.

The Ten Best Ways to Save Money

Soon, you’ll be able to see which habits you need to change to have more money every month. The best way to positively affect your budget is to lower your expenses and increase your income. For this, an irregular income can actually be a good thing—when you need more income, you can simply go out and do more business.

If you have a normal 9-to-5, you’ll have to focus more on cutting down your expenses, as there’s not much you can do to raise your income outside of getting a promotion or a new job. Here are the best ways to cut your expenses and save money:

1. Eliminate debt

Interest and annual fees

You Have to Know Your Numbers to Change Your Numbers

The easiest way to put your financial life in order is to start budgeting, yet most people are still resistant to it. In fact, only 4 in 10 American adults would be able to cover a $1,000 emergency using their savings. Not only is financial security good in and of itself but getting your finances under control can also lead to better sleep at night, sturdier romances, and greater overall happiness.

Where should you start? We’ll show you, but first, there are two truths that you must address to get in the right mindset for financial health. First is understanding that, when it comes to your money, you are the one in the driver’s seat. The bad news is that no one is coming to save you—this is all on you. The good news? Budgeting is not that hard, as long as you dedicate yourself and commit to change.

The second truth is the importance of delaying gratification. Humans were designed to move toward pleasure and away from pain, even if it costs us more pain down the line. This instinct toward pleasure is called instant gratification—evidence of its existence can be found in the Stanford Marshmallow Experiment of 1972. In the study by Dr. Walter Mischel, a group of children were each given one marshmallow on a plate and told that it was theirs to eat. Then they were told that if they waited a certain amount of time before eating it, they could have another marshmallow as well and get to eat them both.

Plenty of children ate the first marshmallow instead of waiting for the other. In follow-up studies, children who waited for the second marshmallow were found to lead better lives overall—they had better SAT scores, lower amounts of substance abuse, better responses to stress, more educational achievements, and more success in relationships. These children were practicing delayed gratification, and their lives were better for it.

Luckily, your willpower can be strengthened like a muscle. It is never set in stone. “The ability to delay gratification for the sake of future consequences is an acquirable cognitive skill,” according to Dr. Mischel. We budget to reverse our human conditioning—getting the pain out of the way early and enhancing our reward later in life.

Identifying Your Needs and Wants

To budget properly, you must first learn the difference between the things you want and the things you need. Wants are the things that give you pleasure, such as a beach home, the latest fashions or a nicer car, while needs are all the things you have to buy to survive, including food, shelter, basic clothing and transportation.

Before making any purchase, determine whether you’re satisfying a want or a need and whether it will bring you closer to your financial goals or farther away. Cover your needs first, and then, with the money you have left, you can move toward your wants. Don’t be fooled, though! Think carefully—sometimes something that looks like a need can actually be a want in disguise.

How to Start Budgeting with an Irregular Income

1. TRACK YOUR EXPENSES

This helps create financial awareness—if you don’t know where your money is going, how will you know which habits to change? To make your money work for you, you have to make sure you aren’t wasting it. For the next two weeks, keep track of every dollar that you spend, and write it down using our downloadable Expense Tracker.

2. KNOW YOUR BASELINE

The following expenses make up your baseline:

  • Groceries – include the lowest food cost that is reasonable.
  • Housing and Utilities ­– mortgage or rent, utilities, insurance, taxes.
  • Medical costs – copays, cost of medicines.
  • Transportation – car payment, gas, maintenance, insurance.
  • Miscellaneous – expenses you were not anticipating.

With an unpredictable income, you must work “backward” by starting with the money you’re spending and figuring how much of that you really need. Knowing your baseline will give you that number.

3. SEPARATE YOUR BANK ACCOUNTS

Keeping your money in different bank accounts ensures that you know the specific purpose for every dollar you have. You should have the following bank accounts, at the least:

  • Business checking account – this is where your commissions will be deposited.
  • Personal checking account – pay yourself with every commission by transferring money from your business account to your personal checking account.
  • Savings account – this is for personal goals, long-term savings, and your emergency fund.
  • Tax savings account – this is for the money you owe the IRS. Keeping this money separate is essential to keeping track of tax payments.

Start by doing some research in your hometown to find out which banks have fewer fees and more advantages and go from there.

These tips will help you build a foundation to start budgeting. Use this week to track your expenses and get an idea of what your baseline looks like; in the meantime, set up your bank accounts. Next week, we’ll provide you with our budgeting template, available for download during our next webinar * and in the accompanying blog post.

Until then, remember that you’re the one who has to take control. Practice delaying gratification, keep track of every dollar and identify your wants and needs. Recruit a “budget buddy” to help hold you accountable, and don’t be afraid to ask your family for support. Remember: keep it simple! There are no more excuses—if you start budgeting, even you can have financial security and peace of mind.