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.
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