Cutting Expenses

So, how’d you do? Did you write it all down? Every little expense, right down to the penny? Did you find yourself NOT buying things because you got tired of whipping out the notepad?

It’s pretty amazing when we add it all up how many spending opportunities present themselves to us each day, week, month, year. I had some unexpected expenses this past month that put a good dent in my wallet. However, I am pleased to say that I had accounted for them in my spending plan, so had the money tucked away, ready to take care of the bill. Would I have been able to say that a couple of years ago? No way. Living week to week, scared of anything extraordinary that might happen with my money wasn’t only a reality, but a way of life.

Well, I got tired of being scared and uneducated. I got $mart. By keeping track of every little expense, I realized that there were little leaks in my “budget” that I either (1) wasn’t honest with myself about or (2) didn’t remember to include. Those annual or periodic expenses that might not come up every month but certainly bite when they do (vet bills, car taxes and repairs, insurance premiums, anyone?) were not even on my radar. I had to learn to work those expenses into my plan even though I might only pay them every once in a while. Even with a relatively new car, there is still scheduled maintenance that must be performed to keep the vehicle in good working order. I must account and prepare for that. Preventive maintenance is smarter than reactive maintenance any way you slice it.

I also had to get serious about what I like to call my “princess side.” Yes, there is a part of me that loves manicures, facials, massages, really great haircuts by an amazing stylist, and other small, but essential (to me, at least) indulgences. Allocating $10 a month to personal care simply wasn’t going to cut it for me. So, I either had to raise the amount that I was allotting for these treats or I had to cut them out.

Torn between $mart spending and taking care of the princess in me, I was faced with a substantial dilemma. What’s a girl to do?? I decided that it was more realistic to meet in the middle and take care of the $mart princess. By strategically scheduling pampering sessions and understanding that a great haircut should grow out beautifully, I could move my haircuts to every 6-8 weeks instead of every 4-6 and still look and feel great while exercising my $mart Girl tendencies.

Now, instead of spending my personal care budget on manicures and pedicures, I relegate those to the money I’ve saved in my FUN account. The money in this account can be spent on absolutely anything I want. If I want to buy $100 worth of gumballs, this account allows me to do it.

Aside from hundreds of dollars in gumballs, where else can we cut our spending? What have you been spending money on that is simply outrageous – what surprised you? It surprised me to document the money that I spend on clothing for me and for my son. I thought we were pretty frugal in our clothing expenses, but I obviously needed to adjust what I set aside each month for those purchases. I also committed to exploring local consignment shops for steals that would indulge our needs. I also took the opportunity to reflect on what I was buying and why. That is when I started thinking about shoes.

Shoes? Yes, shoes. I enjoy shoes, but seldom buy a pair that really feels great on my foot. They are either too high to realistically remain comfortable in at work or they just didn’t fit comfortably in the first place. Rather than buying shoes that I won’t wear again, I should make regular “try them on” dates at the shoe store, but relegate the need to purchase every pair I fall in love with. I also pondered if it makes more money sense to buy a new, inexpensive pair every couple of months or to invest in a modestly priced pair that offers stability and quality? In other words, should I spend $50 now for a great pair of quality shoes, or $10 every month for cute, but ultimately, inadequate shoes? That comes down to preferences and perceptions, so I’ll leave that up to you.

I’m not going to harp on gourmet coffee, because we’ve heard that so much over the past few years we’re sick of it and besides, we don’t want to be mean to Starbucks, but I will ask you to take a sincere look at your spending habits and patterns and decipher what you are spending your money on and if that spending aligns itself with your money goals.

Right now, my family is planning our first trip abroad – to Ireland – next summer. We are so excited. It’s not going to be cheap, though. We have to put away a certain amount of money to make these plans materialize. Consequently, every single item I pick up or consider spending money on (cable, faster internet, etc) gets the “Ireland test.” It’s simple. Before I can pull out the cash, transfer the money or write the check, I have to say, out loud, “Ireland.” This puts the purchase back into perspective for me and reminds me what I am working toward. No, buying this gumball does NOT get me closer to Ireland. That quarter goes into my Ireland fund. My family has already saved over $200 EXTRA dollars this way.

Little changes make big differences. Count on it and watch how $mart you can become.

The challenge: Decide on a goal that you wish to work toward. Define it, plan for it and take the steps necessary to make it happen. Make sure that every penny you spend is aligned with your money goals – including this new dream that you are working toward. Ask yourself before every purchase, “Does this get me closer to my dream, or does it push me further away?” Answer yourself honestly and make positive adjustments. You’re definitely worth it.

Your $mart Girl$ Picture Perfect Snapshot TM

So, how’s it going?…Have you found it all? Gathered it up? Decided to organize it and begin to learn where all of your hard-earned money is going? By giving you some extra time, I am hoping that you’ve had time to gather your stuff and that any stray bills or reminders have come in that help you remember all of the areas in your life that money flies to… The amount can be staggering when we take a cold, hard look at it.

Now, it’s time to be in control, right? Well, congratulations! You are now on the road to controlling your financial well-being! The sky is the limit and your dreams are coming into focus. I’m proud of you!

First, let’s create your financial snapshot. Learning how to do this now will be greatly beneficial as you take a firm grip and control of your money. You’ll learn to quickly pull together the information needed to know exactly where you stand financially at any point in time. Then, the snapshot process should become a monthly phenomenon. Make a date with yourself to sit down for 15-20 minutes and reconcile your net worth monthly. (Wow, how liberating does THAT sound?!?)

To create your $mart Girl$ Picture Perfect Snapshot™, you will need to pull out the documents that you’ve been gathering over the month. Whatever organization system you chose, file folders, a three-ring binder, etc., pull it out and set it on your desk or dining room table or the family room couch – wherever you are comfortable and can spread out and think.

Pull out a blank sheet of paper, or create a new spreadsheet on your laptop, and create the following categories, going in a line, down the left side of your sheet (leave plenty of room for sub-categories): Income, House/Home, Insurance, Investments, Debt, Expenses.

Keep in mind, we are not creating a spending plan at this point, only a snapshot of your financial status. An exhaustive list of all the categories in which you spend your dollars will not be represented in this exercise.

Also, all amounts are considered monthly. If there are areas that you do not pay monthly or have a monthly bill for, average the amount to come up with a monthly total. For example, most car insurance bills are given in six-month premiums. If your car insurance is $300 every six months, list $50 as your monthly total.

Under Income, make the following subcategories as they relate to you: Mine, Spouse/Partner, Alimony, Child Support, Less Taxes, Other.

House/Home: Mortgage/Rent (technically, if you have a mortgage, this is also a debt, but for now, we are going to leave this amount here), Utilities (average), Insurance, Taxes.

Insurance: Medical, Car/Auto/Motorcycle/Boat, etc., Life, Disability, Long-term Care.

Investments: Retirement (subs: 401(k), IRA, SEP, Roth, etc.), Stocks, Bonds, Secured CDs, etc., Real Estate, Other.

Debt: Car, Credit Cards, Loans, Equity Lines, etc.

Ok, is this really so bad? At this point, we’ve just got a whole lot of numbers listed. We’re now going to sort them into a format that is understandable. It must tell your story. Here we go…

Once Upon a Time, there was a lady who looked just like you. She was lost and out of control with her finances. Then one day, she chose to take control of her money and become a $mart Girl. Even though her financial situation wasn’t beautiful, she was. Control and confidence made her the most beautiful woman in the land. She found solace and assurance in her new found $martness.

Create a TOTAL line for each category. If you’re using a spreadsheet program to organize your financial data, create a formula at the bottom that subtracts the totals from the House/Home category, insurance, and debt. Add the investments and income categories. How does your final total look?

If it’s positive, GREAT! Know, however, that you are in the minority and it takes hard work to stay here… We’ll work on ways to ensure that you move farther and farther into the black. We don’t DO red here.

If it’s negative, do NOT despair! This shouldn’t be a huge surprise if you’ve got lots of debt on credit cards and loans. It’s almost impossible to borrow other people’s money and stay in the positive. We’ll work on ways to MOVE onto the positive side of the balance sheet and GROW your wealth!

This exercise is a simple, no-nonsense approach to quickly determining your net worth. Remember, however, that your total ending balance still has to support your expenses. Expenses are all those incidentals that come up every month, but can’t be considered debt, because they never go away. Things like groceries, movies, eating out, gym memberships, etc. are all considered expenses.

We will work on realizing and reducing these expenses next.

For now, rejoice in the major step that you’ve accomplished: you’ve just calculated your net worth! You know, right now, at this very moment, how much you owe and how much you’ve saved toward your future. You also know whether or not you like these numbers.

Next steps:

1. Start creating goals. Now that you’ve identified your financial blueprint and how to identify areas for improvement, it’s time to make some goals to work on. Make your goals SMART ones, though.

Specific – avoid generalities and make the goal as specific as possible.

Measurable – establish specific criteria that you can measure as you move toward your goal.

Attainable – make the goal real to you and something that you believe that you can do.

Realistic – make the goal something that is actually achievable.

Timely – set a time line to achieve your goal.

2. For one month, keep a small notepad with you and write down every single penny you spend, from the tank of gas, to the bottle of water, to the quarter you give your son for the vending machine. To make changes in our spending patterns, we must first know what we spend money on. While that may sound silly, we seldom know where all of our money has gone at the end of the month. Well, here’s the chance to find out. Write it down. Nothing is wrong or right, just keep track of it.

***As a bonus to this exercise, if you feel so inclined and really want an eye-opener at the end of the month, write down your mood/feelings each time you spend something. We may uncover an emotional side of your personality that we can tame and therefore stop feeding with our hard-earned money…

Best wishes and until next time, thanks for your commitment to becoming a $mart Girl!

Invite your friends and colleagues to become $mart, too. Please share this information with others around you. We can all use some money $mart$, right?!

Moving forward

How do you feel? Empowered? Confident? Positive? You should...

This week's exercise was to recite, out loud, that you are taking control of your finances. We will be adding to this task, so don't forget to tell yourself every day that you are in control.

By committing to take control of your finances and reiterating that to yourself throughout the week, you've begun the journey to monetary harmony. This road will vary in length and course for all of us, because the journey is essentially personal. It will not be the same for any two people. However, I would encourage you to hold hands with your partner and take this journey together.

Allow money to be a tool which helps you encompass your values and live out your dreams. What is it that you've been wanting, more than anything, to do or be? What do you want to do with your partner in life? Start dreaming, because we'll be carving out your dreams soon. To begin on this journey, you must have an idea of where you'd like the road to lead you.

Before we do anything, though, we must take a tough step. We've got to put it all out on paper and figure out where in the world we are in the vast ocean of finance. That's right. Pull out your paperwork - every credit card statement, every receipt, your checkbook, your bank statement, your retirement and savings statements, life insurance policies, (if you have those accounts, if not, don't fret, you will later)... Everything that has to do with you and your wallet and your financial life must be pulled out. Separate everything according to type and take a look at what you've got going on.

Get a couple of file folders or an accordion file together and start making an organized system in which to house your documents. I would like to borrow David Bach's system of organization for this exercise. In his Finish Rich series, Bach asks that you use hanging file folders and a big box of folders to fill up the hanging folders. I use a large three-ring binder for all of my information. Again, make it yours and something that you will actually USE.

Bach says:

1. Label the first hanging file folder "Tax Returns." Put eight file folders, one for the last seven years plus one for this year, in the hanging folder and mark each year on their respective files. Put everything related to taxes in their folder - W2s, 1099s, copies of your return, receipts for deductions, etc.

2. Label the second hanging folder "Retirement Accounts." Create a file for all of your separate retirement account statements, 401(k), 403(b), IRA, Roth IRA, etc.

3. Label the third hanging folder "Social Security." In this folder, put all of the annual Social Security statements that you receive in the mail.

4. Label the fourth hanging folder "Investment Accounts." put all investment account information in this folder (other than retirement accounts). This includes mutual funds, stocks, bonds, information from your broker, etc.

5. Next, label the fifth hanging folder "Savings and Checking Accounts." Make a separate folder for each account you have and house all statements here.

6. The sixth hanging folder should be labeled "Household Accounts." Put information on your mortgage, lease or other household related information in their own folders. Make a "home improvements" file with receipts and dated information about updates and repairs you've performed.

7. The next hanging folder, the seventh, label "Credit Card DEBT." Make it big and ugly so it really tears at you each time that you see it. This way, you'll want to get rid of that folder as fast as you can. Create a separate file for each credit card account.

8. Label the eighth folder "Other Liabilities." These files will house anything other than debts associated with your mortgage or credit cards. Include student and personal loans, car loans, etc.

9. Label the ninth folder "Insurance." Create a separate folder for each policy, including health, life, car, homeowners, renters, disability, long-term care, etc.

10. Label the tenth folder "Family Will/Trust." Put in this folder the most recent copy of your will and/or trust (yes, you will be making a will if you have not already. Go ahead and make the folder, even if you don't yet have one) and contact information for the attorney who set it up.

11. Label the next folder "Children's Accounts" if you have kids. House here all the statements and records pertaining to their college savings accounts, CDs, and other accounts or investments you've set up for your children.

12. Finally, create a folder called "Net Worth." That's right, we're going to calculate exactly how much you've got and we're going to track it and watch it GROW!

You've got 10 days, even though this whole exercise should not take more than half an hour. Wedge in some evening time, some weekend time, any time - just put it on your calendar and keep this appointment JUST LIKE YOU WOULD A DOCTORS APPOINTMENT. No, you won't be charged a no show fee if you don't do it, but what we've been doing with our money thus far hasn't been working, so we must CHANGE and do things differently. We've committed to doing this now. So, let's get started.

I'll see you in 10 days. Here's to financial independence!

Cheers,
Shannon

Sharing my story

Hi. I'm Shannon. I'm 32 years old and live in eastern NC with my little boy. About six years ago, we went through a divorce. I was left with almost $15,000 in credit card debt, and my name on a mortgage AND a second mortgage (even though I did not stay in the home) ... and an opportunity to start over.

I'm here to tell you that your money woes are not permanent and that you can take control of your future. You simply have to be willing to face the future with courage and an ability to start thinking differently than you have previously.

I would like to remind you that you are smart, intelligent and completely able to handle anything that life puts before you. No matter what your circumstances, you can overcome the love-hate relationship we create with money.

Mine is a formula that incorporates what I've learned from many masterminds in the field of personal finance. I encourage you to do the same. Read a lot. Glean that which is relevant to you and that which speaks to you. Knowledge is power and I'm here to share the knowledge that I've learned over the years.

Let's take this journey together. Starting here, starting now, you must make a promise to yourself to take control of your money and stop letting it control you.

Your assignment: For the next 5 days, tell yourself, out loud, every time you look in a mirror or see your reflection, "I am taking control of my money." Period. Don't do anything more or less. Simply tell yourself that you are taking the reigns from here. We'll take this journey one step at a time, together. If you'd like, get a couple of girlfriends together. We'll start our own "$mart Girl$ Money Club" and learn to make magic happen with the power of money.

See you in 5 days. Until then, remember, you are taking control...

Best wishes,
Shannon