Money Management, also know as cash flow management is the key to becoming debt free as well as successfully living in financial freedom.
Let me ask you a question. How much money do you make a year? Would you believe that most people can not answer this question? It’s true; most people, especially those in debt, have no idea how much money they make a year, or a month, or even per week. What they do know is they don’t have enough what ever the amount may be.

The good news is, most people have more money than they think they have, they just don’t know it because they are not properly managing what they have.

So the big question at hand. How do you start to properly manage your money?

The first thing you need to do write down, or if you are computer savvy, which you must be if you are reading this on the internet, use a software program to input all your financial information.

Either way you do it, by writing it down or using a software program, it needs to be a way that is easy for you and your spouse if you are married, to understand.

So where do you start?

First, only focus on one month at a time. Don’t worry about the whole year at once.

Next, pull out an 8 ½ by 11 inch notepad and starting with the basics you will need three sheets from this notepad.

On the first sheet write INCOME at the top of the page – down the left hand side write down the company name of your jobs, one on each line. Next to the company name write down the net amount you received in your last paychecks for the month. Do this for each job, you and your spouse have then total the bottom, this is your monthly income. (disclaimer, this is a guideline, some households have irregular income amounts, meaning the income changes each month due to working on commissions, contract work etc. that type of cash flow managing is for another blog, today we are focusing on coming up with a basic cash flow plan for a basic household.)

Now on the second piece of paper right CASH FLOW on the top. On the left hand side of the paper, write down every single expense you have, each on a separate line. Example, charitable giving, savings, rent/mortgage, insurance, electric, water, phone, groceries, eating out, entertainment, etc. At this point don’t include unsecured debt such as credit cards, medical debt, student loan debt, that will come later. To the right of each item listed, write down what you spent on that item last month (or the current month depending on where you are when starting this process) Some categories you may be just “guesstimating” on but that will smooth out after you work this process for 3 or 4 months. Once you are done total the bottom. This is the amount of your monthly expenses.

Now on the third piece of paper write down DEBT SNOWBALL at the top. Down the left hand side of the paper write down the names of the smallest debt to the largest debt owed. To the right, write down the debt amounts and to the far right write down the monthly minimum payment due. Total the debt owed column and the minimum monthly amount column.

Now back on the CASH FLOW page your last category should be DEBT SNOWBALL, enter the total of the minimum monthly amount. Add total monthly expenses plus debt snowball, this is your total “spend” each month.

Subtract this amount from your monthly INCOME this is your bottom line when is comes to your income and outgo each month. If it is a negative number, some serious adjustment should be made in your cash flow categories…say eating out, entertainment to start.

If it is a positive amount, this is great news, you have money to use to build an emergency fund and then put the additional amounts on debt.

Congratulations, you just created your first cash flow worksheet aka your first monthly budget or cash flow plan, and you have begun the money management process.

Now to be honest, this is a tedious process when done manually on paper. There are a lot of programs on the market that you can install on your computer to handle budgeting, however most are far more than what most people need. One program that I found that is well written and flows very closely to what was described here is YNAB or You Need A Budget. YNAB was written by Jesse Mecham and is available as a Windows application. His program makes the monthly budgeting process a breeze and if you are looking for a computer based program that is easy to use for your monthly budgets YNAB is the perfect choice.

Regardless of the method you use, start the cash flow process today and begin to management your money, it is your first step toward financial freedom.

I mentioned yesterday that I had read an article in Entrepreneur Magazine about having a positive attitude. I want to continue on with that positive thought.

Positive thought does not come natural for most people especially in our negative world. Many times we have to work at having positive thoughts we must practice positive thinking daily.

The iron man is a marathon event that includes three competitions, a 2.4 mile swim, biking 112 miles, and a 26.2 mile run. The people that participate in this race practice and train daily, that is the only way that can build the strength and stamina to finish the race. Their persistence in doing so produces results and even miracles.

Positive thought is no different, it is a skill you have to develop. All your accomplishments so far you acquired through hard work and training.

Define where your mind needs discipline, and set up a regimen to train and practice positive thinking. Gain clarity and strength by observing what helps you maintain a positive mind-set, and do more of it. Whether it’s completing a sudoku puzzle, fixing a car, working out or even helping someone else with a problem, your self-confidence will improve, and the path to accomplishing your goals will be illuminated.

Why do you think some people are more successful than others? I believe that personal success or failure goes hand in hand with mental attitude. I have yet to meet a successful individual who has a negative outlook on life.

A negative attitude will defeat you faster than anything else. Your mental attitude effects your facial expressions, how you walk, how you present yourself and the tone of your voice.

I recently read an article in Entrepreneur Magazine by Romanus Wolter where he says “A positive attitude enables you to believe your goals are achievable and to discover opportunities where others may not see them.”

Believe in yourself no matter what. There is negativity all around us. Build up your self-confidence with positive self talk that helps put you in a positive frame of mind. Be optimistic, that comes across to clients as self-confidence and encourages them to support your efforts. Self-doubt or hesitation is a deal breaker and will cause others to question your abilities. Always come across as strong and confident even if you don’t have all the answers. No one has all the answers but you can be confident in the fact that you know where to get the answers and that confidence will translate into success.

Be sure to read part 2 of PMA - Positive Mental Attitude

Becoming wealthy is not about the amount of money you make.

Stop laughing, it is true, as soon as you stop thinking you are going to gain wealth by making more then the quicker you will gain wealth.

You get rich from educating yourself. You must learn how to manage your money, discipline yourself with money, learn how to invest your money.

Education is the key in becoming wealthy. Now I can guarantee if you have a loser type thought process you just tuned out and probably left this page. That is why 90% of America is poor and/or living paycheck to paycheck….most people are lazy and don’t want to learn.

Face it, we all want that pie in the sky idea of the “get rich quick” solution. One tenth of one percent of people stumble onto that quick solution. Of those that do “get rich quick” say the lottery winner, historically loose all there winnings within 5 to 10 years if not sooner because they were not educated in how to handle the money.

If you can’t manage $20,000 a year, how can you expect to know how to manage a win-fall of $500,000 a year? You just can’t. Also, if you “think” you know everything there is to know about money, you are lying to yourself. Nobody knows everything about any one topic. Sure, some of us are smarter about certain topics than others, but we all have room to learn regardless of the topic. As soon as you get arrogant about your knowledge on any one topic, that is a good sign that you are really ignorant and getting lazy.

So, if you are still reading then I owe it to you to give you some of my recommendations of ways to gain education about how to handle money and become wealthy. Now this is just a select few, and as I blog through the days and weeks ahead I will continually add more, it is a never ending list.

Of course, being a Dave Ramsey Certified Financial Counselor I am going to recommend Dave’s book The Total Money Makeover - great book for the beginner who is in debt and needs an idea of where to start to learn how to get out of debt

Another great read is Larry Winget’s Shut Up, Stop Whining, and Get a Life I love this book, it is an in your face reality check. If the book makes you mad, great, that means you are reading it, and it is touching a nerve. It is all about some good old tough love, and I believe in tough love. You have to focuses on handling yourself, after all, you have to be able to handle yourself before you can begin to handle money.

Learn about money with the whole family by playing Cash Flow 101 by Robert Kiyosaki, he is the author of Rich Dad Poor Dad another great book on how to educate yourself on what money is. You have to learn how to think, if you say to yourself “I can’t afford it” you have just turned off your brain..it is a defeatist thought. Instead, focus on “how can I afford it” this get your mind’s creative juices flowing and opens your eyes to money making possibilities.
Education is worthless if you don’t put what you learn into practice. It is easy to become a lifetime student, reading and learning for years, but it won’t help you unless you get past the fear, get off the couch and put what you learn into practice. Make mistakes, learn from your mistakes and move forward

Most of my clients at one point or another ask me about investing. First, I tell them that legally, I can not advise as to what they should or shouldn’t invest in. However, I do offer some valuable, common sense advise.

First and foremost, never give your money to someone else and say “invest it for me and make me a lot of money.” You must always make sure you are educated and understand the risks of what your money is being invested in. You and you alone are responsible for giving the go ahead in any investment. You are the only one who really cares about your money. Giving someone else full control over your money voids your risk comfort level. With that said, it is not a bad idea to work with licensed investment professionals. But you must make sure you know who it is you are working with and what their qualifications are as well as their own portfolio. Again, do you want to invest with someone who is in debt and struggling financially or with someone who is debt free, and making good returns on their own investments?

Interview several different people, get recommendations from successful investors as to who is good and successful to work with. You should never choose an investment broker based on relationship, I hear this a lot, “oh, my brother-in-law is my broker” and when I ask how they made that choice, I usually get an answer something on the lines of “well, he asked, and I just couldn’t say no, he is family” or “he was just starting out and I wanted to help him out a little bit” then they go on to complain about how much money they have lost. Now, don’t get me wrong, if your brother-in-law has a proven success record then that is one thing….but then again, do you really want to mix money into family matters, not a recommendation I would make.

This is your money we are talking about, would you choose to be the first open heart patient of a doctor who was just out of med school and who had never performed the surgery before? Of course not. So why would you choose a investment broker based on relationship rather than experience and a proven track record? Interview many different people, don’t just pick the first one you come by.

During your interview process, if you don’t 100% understand what the broker is telling you, or talking about, or if you don’t feel comfortable with them, then they are not the right choice. You must completely understand how they work, and how they will be bringing recommendations to you. Remember, it is your money, keep control of how it is invested and understand every step.

Never invest more than you are willing to loose. Lets face it, investing is risking, and risk varies depending on what you are investing in. You and only you know what your risk comfort level is. You are responsible for the investments that are made, take accountability for your choice. You can’t blame your broker if you just hand over money to him or her, and they make a bad choice and you loose it all. You can’t even blame them if you tell them what to invest in and then you loose it all. Bottom line is you and you alone are responsible for the choices you make in all aspects of your money, from spending to investing. If you make money you can pat yourself on the back, and if you loose money you have no one to blame but yourself because you and you alone made the choice as to what to invest in based on how you educated yourself. Take responsibility!

So you are in debt and you want to know how you gain wealth. Well, hang on, I am going to tell you something very simple that people who are poor don’t do.

PAY YOURSELF FIRST!

Sorry I don’t mean to yell but it is true. In order to gain wealth you must pay yourself first.

Most people I say that to start giving me excuses as to why they can’t pay themselves first. “I don’t make enough”, “I have too many bills”….blah, blah, blah. These are nothing but excuses. Now…before you shut your mind off, take a risk and keep reading.

I know people who tell me, they can’t pay tithe much less pay themselves first before all the bills. With that thought process, you will never have enough. Now this is not a lecture about paying tithe or other charitable contributions, however, I do believe that 10% of your income is not yours in the first place so it is the right thing to do to give that 10% back right off the top.

Then, you must pay yourself. Think about it…the IRS automatically pulls their amount (also knows as taxes) right out of your check before you even get your hands on it right? Why do you think they do that? Because they know if they didn’t take it automatically, they most likely would never get their money.

Same thought process holds true for you. You should be having money pulled out of your check automatically and have it put into a retirement fund before you ever get your hands on it. That way, you begin to invest in yourself first…paying yourself first. Aren’t you worth it?

Now that means your check will be less than you are use to living on. You won’t have enough for bills, right? Want to know what will happen, your mind will start working in a creative way to figure out how to “make more” to compensate what is being pulled out so you can meet your bills. It will put a fire under you to spend less, and make more.

So how much should I save? Well, it is dependent of course on where you are in paying off your debt. But as a general rule, you should save one hour’s salary or wage per day. So if you make$20 per hour, you save $20 per day in a retirement fund, think about it, that comes out to be about 10% of your annual income. Again, this is just a base line as to where to start and again it is based on your current debt situation as debt needs to be paid off first after your pay yourself an emergency fund.

If you don’t start today….tomorrow will never come.

Do I really need to engage with a money management coach in order to get out of debt?

Is a money management coach required to get out of debt, no it is not required for your to engage in the services of a money management coach to get out of debt.

With that said, most individuals and couples who are in financial distress are so close to the actually problem that if they could resolved it on their own, they would. When you are so overwhelmed with the situation at hand it many times is much easier to continue on with status quo instead of working together to resolve the problem. Most of my clients don’t even know where to begin.

Most of the information that a coach will teach you can be found in well written books such as Dave Ramsey’s The Total Money Makeover. Personally, I believe that Dave’s philosophy is the best as it totally focuses on never using credit again and always paying cash. When that is done, then there is no way to get into debt.

What a coach offers, is additional accountability that you don’t already have when going it alone. It is someone who will provide a third party objective view of your financial situation. It should be someone who has experienced debt first hand and has conquered the problem. Do you want to work with a coach in regard to getting out of debt if they are carrying debt of their own? I don’t think so.

A coach will provide you with recommendations as to where to begin to cut back from your preliminary budget and teach you how to work a budget each month. What a coach shouldn’t do is the work for you. How will you learn if someone else is paying your bills, or working with your creditors. That takes the responsibility off you as well as the accountability. If you don’t do the work yourself, learning and making mistakes along the way, you can’t expect to know how to never get into debt again. Sure, it will hurt, there will be sacrifice, but it will be well worth it in the long run as you will be learning new habits, change behavior and your mind set as it relates to money management along the way.

Now with all that is said, you will not always agree with what a coach recommends to you. Think about it, this is a life changing experience and change is many times a difficult pill to swallow, but if you are serious about getting out of debt, staying out of debt, building wealth and changing your family tree, working with a coach is a great first step forward.

Well, Kim, how on earth can I afford a money management coach if I can’t afford to pay my bills? This is one of my most popular questions. Simple answer is, how can you not afford it. What you are doing right now is obviously not working or you wouldn’t be in a debt situation. I have found that people in debt are more than willing to find money for a new TV, a dinner room table, or something fun and don’t begin to “claim poverty” until it comes to investing in a change for their future. Many times the reason for this is they really don’t want to change and use “I don’t have the money” as an excuse to continue on the path of living paycheck to paycheck. But if you really want to change and are tired of living in the cycle you are in now, you will find the money, just like you found it to get all the things you wanted in the past, it just depends on what your priorities are.

Please feel free to look around our site and invest in a 30-minute call if you are ready to change your financial life.