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The New Wave of Budgeting Part 2

After my last article I was asked the question: “Where do I start if I feel like all my money is in the red bucket?”

That is not an easy question to answer because everyone and everybody’s situation is different so the easiest answer would be to meet with an advisor. A good advisor will meet with you to assess your situation and give you education and direction without charging you a fee for the initial consultation. Also, they will have tools for you to use, such as 1st Step Cash Management discussed in my previous article.

Generically speaking, to get started without an advisor, I would say there are 4 steps you could do on your own; however a good advisor is going to be able to get you to where you want to be more quickly than you could on your own. I have been told by many people that they need to get their “finances in order” before they can meet with me. I tell them that is a lot like saying “I am going to wait until I am physically fit before I hire a personal trainer.” Yes you can get fit on your own, but a person with training is going to be able to get you there more quickly.

Now I realize that completing the following steps is obviously not an easy task and it is easier said than done but I know from experience that it can be done. After losing my job two years ago and only being able to find part time work for much of that, I know what it is like for money to be tight and to live paycheck to paycheck, or to even fall short some months. We had to make some tough decisions like paying a penalty to cash in my 401(k) just to make ends meet. I also lost sleep worrying about what would happen to my family if something were to happen to me. After becoming a financial advisor, I have realized that had I engaged the help of a financial advisor, we would have been a lot better off. We would have made better decisions and would have been in a better position. That said, here are my recommended steps:

The first step is to really make sure you know where your money is going. 99% of the time no matter who we meet with: single, married, one income, two incomes, etc. people are never spending what they think they are spending – sometimes they actually spend less than they think they do but most often, and not surprisingly, they spend more than they realize. There are third-party software and websites to help you track your spending – is a great third-party website for that (even I use it). You can link all of your accounts to your own personal website and it will capture all of your transactions so you can then categorize and see trends over an extended period of time (the average of more data over more months is going to be more accurate than any one single month). There is also a way to set a budget, but again, it is the traditional way that is backwards looking and does not make it easy to make real-time decisions.

The second step is to make sure that you put limits on your spending. Again, for most people that is easier said than done. When people use credit cards there are no limits to your spending other than the maximum credit limit. There needs to be an easy way to determine whether or not you can afford something. You need to be able to determine very easily whether you can afford to go out for dinner or if you need to stay in. Debit cards and prepaid credit cards are a great way to do this - that way you can only spend it if you have it.

The third step is to make sure that you are funding the things that are the most important to you. Sometimes this can be done without much of an impact to your current spending it but in most cases this requires an adjustment. It means taking a hard look at where your money is going and determining if spending $2 a day on a latte is more important to you than putting that $40 a month towards something like car repairs, vacations, retirement, etc. That is not to say that you cannot still buy your lattes but instead of making it a daily routine, turn it into a reward or a special treat once you hit certain milestones. For instance, treat yourself once your savings hits $100, or $500, etc.

The fourth step is to automate as much as possible. That way you do not have to spend time dealing with redundant tasks. For example, if you know that your mortgage is due on the 1st of the month without fail, why spend time writing out a check, sticking in an envelope, slapping a stamp on it, and bringing it to the mail box if it can be done automatically. Most companies and/or banks will allow you to set up ACH payments to pay the majority of your bills – is a good one: again you can link multiple banks to your own personal website and can automate most payments.

I hope this helps – even if you can implement 1 of these steps, you should “start tipping the scales toward the green bucket.”

David Zicopula is a financial advisor with North Star Resource Group that specializes in helping women in transition with their financial matters.

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David Zicopula, Zicopula Financial
Champlin, MN 55316

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