Friday, February 26, 2016
The Road Home
One dark evening I received a desperate tearful phone call from my wife. She told me she was lost. She couldn’t find her way home. I did what any husband would do is such a situation. I asked, “Tell me where you are?” She replied, “I don’t know where I am. I’m lost.” Then she cried some more. The story had a happy outcome. My wife was in an apartment parking lot. She found a man who knew where she was located. Between the two of us we were able to quickly get my wife on the familiar road to our home. Your GPS needs two facts before it can plot your course. It needs to know where you want to go and where you are located. We all have some idea where we want to go, but all too often people with financial problems are so lost that they believe what is generally considered the first step, the monthly budget, requires too much information to even begin the journey to financial freedom. Take a deep breath and relax. First determine how much money you have in your checking account, wallet, and bowl where you store your car keys. I know, you don’t want to find out how much money is in your checking account, but go ahead and look in there anyway. When you have this number, write it down on a piece of paper. Next go back over your check register or your bank statements and determine how much money is coming into your account each month. For most of us receiving a weekly or biweekly paycheck, this is pretty easy. If your income is irregular, add up everything that came in over the last three or four months. Use the average of this figure as a starting point. If your records contain too many debits or checks to establish what categories are consuming your money, just determine how much has been going out of your accounts over the last three or four months. If you don’t have the statements, the bank will give you replacements. Compare Money In with Money Out. If more money is coming in than is going out, you can relax—just a little. If more money is going out than is coming in you know you have a problem. Look at how much money you have in the bank. Compare it to the monthly deficit. This will give you some idea of how long you have before you are overtaken by bankruptcy. Now look at your total debt. How much do you have to pay every month to keep the bill collectors at bay? How about the four walls and the roof over your head, rent or mortgage, utilities (including that cell phone), food, clothing (this can drop to near zero), and the cost of transportation. Add up those numbers and compare them to Money In. You have the beginning of a budget. If you are spending more on “necessities” than is coming in on a monthly basis, you need to cut something out. Cable TV, deluxe smart phones, restaurants, fast food, and clothing are often good places to start simplifying your life. Next start a record of every time you spend money, to the penny. No excuses! Write down, “Coffee $1.06.” Now decide the category. You could call that cup of coffee, food, restaurant, or even entertainment. This is your budget. It’s your call. But be honest and be consistent. Every day sort these expenses into their appropriate categories. There are phone apps that will automate this task, but you have to enter the data. After a month of keeping this record, it will be pretty easy to start the formal monthly budget, the fastest route from the swamp of financial despair to the city of financial freedom.