Back in May I posted some budgeting tips from GreenPath debt solutions.
Now I have a 14-day plan to improve your finances from Business Insider (with some editorializing by yours truly). Note this was originally published January 4, 2016 at 12 pm.
Day 1: Get your 90-day number. This means recording all the money you earned (and spent) in the past 90 days (three months).
This will help you figure out if you are over-spending and also where your money is going.
Step 1: Add up your income for the past 90 days.
Step 2: Add up your expenses for the past 90 days.
If the number is negative, you are overspending! You should be careful.
If the number is around zero, you are probably living paycheck to paycheck, which isn't ideal.
If the number is positive (and not close to zero), congratulations! You are already ahead of the game.
Day 2: Choose your tracking system.
Some people use Mint (I used to, but I don't anymore). Some people use YNAB (You Need A Budget). Some people use Microsoft Excel (expensive, unless you have it through work). Some people use Google Sheets (this is what I use).
I do not track my spending everyday. Some people do and they find it works for them. Instead, what I do is I record the spending monthly after it has occurred. If I'm worried about spending more than I can afford, I will plug in my expenses and see if it is less or more than my anticipated pay for the next month.
Day 3: Add up your debt.
Debt means anything you owe to anyone else.
Some people think there is good debt (low interest rates, mortgage or student loan debt) and bad debt (high interest rates, credit card debt or car loans).
The way I look at it is you want to organize it by interest rate.
The highest interest rates, you want to pay off first.
Let's say you have $10k in mortgage loan debt at 3% interest, $10k in student loan debt at 2% interest, a car loan of $5k at 20% interest, and credit card debt of $5k at 30% interest. In this case, you would want to pay off the credit card debt off first since it has the highest interest rate.
You would still need to make all the minimum payments on your other debt.
Personally, I think good debt and bad debt should be differentiated by interest rates.
Student loan debt is an investment in your future, but some types of schooling are more lucrative than others (software engineering vs. studio art, anyone?). Before getting into student loan debt, see if you can get your degree for less (AP credits, summer classes, community college, working for a university and receiving tuition remission, having your employer pay for part or all of your schooling, scholarships, the list goes on and on).
Don't forget to include any money/loans from friends or family members!
Day 4: Create a budget.
How do we do this? Remember that 90-day number? You will take the items you spent money on and categorize it.
Don't forget expenses like health insurance!
After you categorize it, you will want to assign a number you think it reasonable to spend on that category per week, month or year.
Just remember whichever time frame you choose, you want to be consistent.
Let's say I spend $600 on vacations every year, but my budget is monthly. Then I would divide $600 by 12. Or let's say I have a weekly budget. Then it would be $600/52. You get the picture. All units of measurements must match, or it won't work.
Okay, I think that's a lot for today!!! Further days to come in a following blog post!
Warmly,
Into the FIRE
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