JenPlans.com Budgeting Series – Part Two

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Welcome back! If you are checking in for part two in the budgeting series, read on! If you haven’t seen part one yet, start here!

Part Two is all about knowing your numbers. To properly build a complete budget, we need to know exactly where all of our money has been going. Good thing we checked shame at the door in our last part! It is NOT shameful to look at your past when you’re trying to change. It is ESSENTIAL. Take a deep breath. Most people have the hardest time with this step. I promise you – there is no hole so big you can’t get out of it. It may take some time and hard work, but ANYTHING is possible. We have to know what we’ve been doing if we want to change it. This week’s mission is getting a very precise picture of your financial situation.

There are three pieces to this puzzle: Debt, Spending, and Income

Debt
Make a list of all of your debts, smallest balance to largest balance, and interest rates.

Spending
This is the most time consuming step. A complete breakdown of the last 12 months of spending. I know it sounds overwhelming, but it took me about 2 hours altogether. You’ll have to adjust this process for the ways that you spend, but I’ll share what I did to get this picture and you can modify based on how you spend. I opened a blank excel spreadsheet (paper and pen work fine, too!) and then in my internet browser, a tab for every account I had (checking account, credit card 1, credit card 2) and then grabbed my checkbook register. I started with my least frequently used CC and went to 12 months prior, copied and pasted and then sorted out into excel by date, vendor name and amount. I added a fourth column with which credit card it was for my own reference, and then added a fifth column that I later used to categorize.

Here’s an example:

Date Vendor Amount CC Category
1/2/13 Shell $43.46 Chase Gas
1/6/13 SportsClips $22.00 Chase Health/Beauty
1/15/13 Chili’s $32.47 Chase Dining Out

I did this for every single charge for 12 months in my checking account (using my check register to supplement with check numbers) and two credit cards. It was easiest for me to alpha sort by vendor and then add a category. You’ll be able to separate by month to get your total monthly spend and also by category. You’ll know very quickly where your money went. It’s incredible and scary and empowering. Knowledge is power!

Income
Make sure you know what is income and what is reimbursement (if applicable). When you have your income listed out for each month, you can cross-check it with your monthly expenses and see how much in the hole you’ve been going (if you have been).

Homework
Homework for Week 2 is to complete all of these steps (together with your spouse/partner, if applicable)! See you next week for Part Three! I also highly recommend finding a local Financial Peace University class through this link on Dave Ramsey’s website and enrolling.

See you next week!

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Money and shame

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Money shame is real.

I had outlined this post when a dear friend sent me a text message. “Why do we go to the doctor when we’re sick, bring our car to the mechanic but we aren’t supposed to talk about money or ask for help when we have money questions?”

Money shame. Somewhere along the way, the notion that it is impolite to discuss finances has gone to an extreme where no one talks about money ever. Sure, it’s still impolite to ask someone how much money they make or how much something cost them, but what about the rest? What about those struggling with money? With budgeting? With debt? With savings? With retirement? Money is so complex and emotionally charged, it’s one of the top reasons for conflict in relationships and it causes stress in the lives of countless people. Its management is also critically important to your future and security. I’m going to talk money because I think financial literacy is important.

There are two MBAs living under our roof and neither of us had done a true written budget until last year. No matter how much education you have, there is very little exposure to managing your own personal finances. It’s not that we didn’t want to or that we weren’t smart enough, it was a combination of not knowing how, and for me, some shame. I read Dave Ramsey’s “Total Money Makeover” in three days while my husband was gone on a business trip. I opened my laptop, created our complete budget and when he came home, told him about our new plan. He was totally on board and excited (relieved?) that we had a path. I was so excited that I shared with a few close friends and family members. The responses were so interesting.

“Ohhhh, Jen. I’m so sorry. I thought you guys were doing okay . . . .”

FREEZE. Okay. This response, I will admit, sparked some shame. We WERE doing ok. We could pay all of our bills. We never worried about feeding our family. We were saving some. We were able to give gifts and have fun. We were fine. Why did a budget suddenly mean that we weren’t doing okay? Are budgets only for people who aren’t doing okay financially? “Doesn’t that feel too restrictive?” “Only poor people need to budget.” “Only people with a lot of money can budget.” “You work hard, you DESERVE to get whatever you want.” WOAH. No wonder we have money shame.

For a lot of people, money shame comes when you have to say no, when you limit, when you have to own up to your own financial behavior, when you spend money you know you don’t have, when you know you should be changing your behavior and don’t, or when you ask for help. It also prevents us from change. “I deserve,” “I earned,” “I want.” Disregarding our long-term for short-term gratification. Our focus culturally has shifted from being wise with money to materialism and the price is high. Any of this sound familiar?

I challenge you to let go of the shame. For so many reasons. The biggest is that shame weighs us down and gets in the way of happiness. It gets in the way of actually being able to help ourselves financially. Don’t let your shame rob your future. Saying no is hard, asking for help is hard, owning up to your behavior is hard, but once you do it, you’re free! You can go on the path. You can learn. You can grow. You can pay off debt, save and be financially secure. You can give. You can win.

The single best way to control your finances is to control what goes OUT. Get a written budget. “The Millionaire Next Door” teaches us that most millionaires become millionaires because they control what goes out. They don’t buy things they can’t afford. They save and invest. They are disciplined. They say no. And most of them did that from the ground up – not from inheritances or the lottery. Hard work and smart choices. They aren’t ashamed to limit themselves.

It’s something everyone can do…but you have to let go of the shame.

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