How to Create a Spending Plan That Works
How to Create a Spending Plan That Works
9. How to Create a Spending Plan That Works
Importance of Creating Financial Habits37:42 2
Your Snapshot: Where Are You Today?28:21 3
Creating Goals that Really Work27:43 4
Dealing with Debt26:45 5
How to Work with Your Debt22:26 6
Credit: Lifeblood to the Future24:35 7
How to Raise Your Credit Score24:32
Spending Smarter Plans (Budgets)33:13 9
How to Create a Spending Plan That Works26:31 10
Create a Weekly Spending Plan22:28 11
Tips to Spend Smarter22:51 12
Love & Money41:54 13
Make Your Savings Automatic36:44 14
Taxes: Don't be Afraid27:24 15
Which Retirement Plan is Best for You?42:26 16
Start Today - Where to Invest?28:03 17
Retirement Forecast - How Much to Save?33:59 18
How Much Should You Charge?13:35 19
Mutual Funds, Investments, ETFs44:55 20
Food Groups of Investments38:01 21
Diving Into Mutual Funds and Investments25:55 22
Deeper Dive Into 4 Food Groups of Mutual Funds25:17 23
Diversify Diversify Diversify32:04 24
Retirement Forecasting25:15 25
Funds: Back to Basics36:00 26
Your Financial Checklist: Life Insurance27:53 27
Long Term Care, Disability Insurance, & Wills29:32 28
Estate Planning & Home FInancing21:09 29
Kids & College28:47 30
Take Charge with 30 Minutes A Week38:13
How to Create a Spending Plan That Works
We talked about the three spending plans this is the fourth the weekly cash spending it doesn't have to be cash and we're definitely going to talk about that, but I think initially until you feel comfortable and hit the ground running start with cash, this is just to change your money habit or if you really have a lot of credit card debt, you might need the cash just to really be able to pay down the debt how to create a plan that really works. So when I first started doing budgets with clients, I really focused on the first one, which is looking at were all your spending was over the last three months you have fifty dollars a month for books you've got two hundred dollars a month to eat out, not really practical didn't really work on it forward ongoing basis, so I thought, well, this isn't working for me, so how is it working for my clients? And I am in control of my money so that's where I came up with this is really how to create a plan that really works so again you're a freelancer...
your income is unstable let's start with what you do know get together your fixed expenses and I call this you roll out of bed in the morning and you still have to pay it what are these numbers? You're rent your mortgage storage but if you live in a city I always forget to people austin they say oh I've got a storage container for seventy seven dollars a month I'm like okay let's get rid of that um maybe you've got home equity loans especially rates are cheap I mean home equity loans are one to two percent so a lot of people are taking those out if they can have a car payment you have a student loan or maybe of another fix sloane I put I didn't put credit card on here because credit cards khun change so I don't want to just put the minimum payment so you can put a minimum payment there but you might want to put a little bit more insurance premiums that you pay every month and if you don't pay these on a month to month basis boil it down to a month so if you spend a thousand dollars a year on car insurance what is that on a monthly pay basis that's a little less than hundred dollars a month like eighty ninety dollars a month so what is your car insurance your health insurance your homeowner's insurance which might be in your mortgage if you have life insurance or long term care insurance and I realize that's not on here is disability so these are all your insurance is on a monthly basis again if they're not monthly if you pay them quarterly or annually or by annually boil it down to a monthly basis taxes so your taxes is a fixed expense so maybe this is a percentage we're going to talk about taxes tomorrow in greater detail because that's a really big issue for freelancers but what are your taxes? Your utilities, your water, your sewer afew of garbage collection if you have gas if you have natural gas if you have oil again moving from florida to the north the first time I got that heating bill omg I don't use that very often, but whoa! That was a shock. Umm telephone, landline and mobile I guess I'm dating myself is a dinosaur that I still have a landline, but what is your phone bill? Transportation, public transit gas taxis repair again? Being in new york, I don't like people put taxis in there because that could be a big hole in the pocket. You truly have to take a taxi for work like I have a client who's, a massage therapist, she's like I gotta carry that people from client to client so taxis is a fixed expense in that case or, you know we talked a little bit before about prioritizing. Maybe you want to take taxis fine than save the money elsewhere repair if you've got a car child care if you've got classes for your kids medical dental expenses that are not insurance so if you have prescriptions if you have therapy ofyou physical therapy if you got out of network doctors and again a average this out so maybe you go four times a year and it cost you two hundred dollars so that's four times a year times two fifty is a thousand a thousand divided by twelve is about eighty ninety dollars a month so boil it down to a monthly basis because we want to create a monthly number that is your monthly nut cable internet access they're usually combined these days if you have a pet, what is that pet costing you and then if you have a gym and jim is a little bit questionable because you could get rid of the gym and I'm not telling you you should but the idea is that the gym I mean for a lot of people that is their therapy, right? But the gym is a fixed expense it's a monthly expense so maybe you should get rid of it or maybe you shouldn't but the idea that usually shows up there um I didn't I don't have on your news paper that could be a monthly expense um so there might be I don't have cleaning person on maybe you have a cleaning person that usually shows up there maybe you're thinking I'd love a cleaning person, but so the idea is what are your fixed expenses this is a number that on the whole does not change month after month and you still have to pay these no matter what you're earning so everything we've talked about today by the way, we've definitely focused on it being for freelancers but as you see there's nothing different here as a freelancer is someone who's got a steady paycheck and you can control these numbers there's nothing that we've done today that you're like well I can't do this I don't know what my income is not at all so get these numbers together that's definitely part of your homework so let's give some examples of how the weekly cash spending plan works oh I'm so excited I love this so what I've done here is I've given two examples maybe you're looking at this and thinking I earned way more than this or maybe you're thinking I wish I earn this much so I don't know who you are that are listening so if you want to throw out your numbers I'm going to give an example of somebody else in a few minutes. So the ideas I've used two examples here somebody earning thirty five thousand a year and somebody earning fifty thousand year so I took their income and I averaged it out and that's the big big thing for you is a freelancer because you don't know your income I have no idea what I'm getting paid in january I hope that I've got, you know, I heard I do some client signed up, I do have one seven are booked. I've got a seminar on booked in march, that's how I get paid, I am teaching at barnyard in the spring, so I'm going to get paid their buy. I really can't tell you what my total monthly income will be in january my next month, but I do know what I have earned year to date, december two thousand thirteen, and I know what I've earned two thousand twelve eleven and ten so on, so I know on the whole what I average out on a monthly basis, I could have a great month I can ever really not so great month, but I do know my average, so this is where you come up with your average and this is a hard number two come too I get it probably the hardest for those of you that are watching is those of you that are just starting out and don't have a history, and you know what? This might be a number that you cannot get, but other than that, all of you should be able to get this number, and if you had a bad year, then we'll work with that if you had a bad two years, then we'll work with that. So, really, if you just started out, it might be hard for you to approximate and income, but then if you're truly just starting out, what are you living on your living on savings? So you got to take that money out from savings, so this income might be money you're taking from savings. So again, thirty five thousand, a year, you've got an income of two thousand dollars, and what I did is I did take taxes out. I took about twenty to twenty five I think I took about twenty percent out. I don't recall exactly, so this is after taxes, so if you can do the math, two thousand times twelve is actually twenty four thousand, so I already took taxes out and I'll talk about my taxes in a separate section. I have a lot of great suggestions around that, but the ideas that I'm taking taxes that you got to pay taxes, it sucks. But it's, what you got to do here is your fixed expenses a thousand dollars a month I'm paying myself. This is where I'm putting money into savings, or I'm putting into debt or paying off debt, but the idea here's my extra that leaves me two hundred dollars a week to live on. So here's your budget here's your spending plan so how do you apply this well let's start with two hundred a week is javi air had asked before so I would say initially until you get comfortable take two hundred out on monday and live on that two hundred for the week and maybe you're thinking there's no way I can live on two hundred are you kidding then you gotta earn more or you gotto spend less on your expenses but these are your numbers this is you living within your means and maybe you're like there's no way my fixed expenses are a thousand then you've gotta reduce your fixed expenses air and more but get to know these numbers and as you see here with the fifty thousand a year the fixed expenses went up a little bit more we paid ourselves a little bit more and you're still living on two hundred a week I do a lot of budgets you know I always take give me your budget I'll find some money in it on sometimes I have ten kinds weeks that's ten budgets and doing and on the whole living in new york again and I work with clients all over the country I've got klein and shanghai of acclaimed in brussels I worked to the kind the other day in he's in the peace corps in africa he's an american is living there so I work with budgets all over and I love that I'm working in new york because it's kind of the most expensive place so I feel like you know, if I get a budget from atlanta or if I get a budget of a kind of milwaukee and so cheap it's so much less my budgets elsewhere but on the whole my single clients can kind of live on two to three hundred a week minimum I mean, obviously we can all live on more for food and entertainment and my clients with kids it's kind of like seven hundred eight hundred um can we live on less? Absolutely can we live on more? But the idea is that so yes, this is low, but this is what it is so the question is how do you live on that for food and entertainment and clothing because you're paying herself and you're living within your means so create this plan for yourself so start to write these numbers down so average all your income and I'll go into taxes but maybe just start if you're really if you're earning these kinds of numbers just take fifteen, twenty percent of taxes out what are your fixed expenses? This list right here I'm going to pay myself then I've got two hundred a week to live on if you don't pay yourself no one else will, so I'm going to stop and work on someone had send in their numbers I don't have my calculator so I might need that so let's quickly work on was it estonia yes stein areas fist okay so what estonia did is he gave me his income as eighteen hundred to thirty five hundred so what up a story story of films who has been a great chatter today okay it's a great question thank a story films I don't know strange sounds if that's from queens or something so what I did is I averaged out their income as twenty six fifty so I just took the average of that so that's their income they're fixed expenses they gave me a sixteen hundred and so that's a thousand fifty you know kenny lower kanae doom or whatever we won't get there yet then he gave us or here she I'm not sure that they had three thousand and student loans forty six hundred dollars in credit card debt for thousand and car loan seven hundred medical first of all can I just say how good does it feel to just put that out there and say that's what you owe so then I worked backwards kind of played around I said okay I'm going to give them one hundred fifty dollars a week to live on so their weekly spending is going to be six hundred that's divided by four that means they've got three, seventy five for debt is that right and seventy five for savings so the question is he's got sixteen hundred fixed expenses fixed like a schoolteacher this's their weekly spending this's to pay off that this is their savings so they're starting to build their cushion seventy five dollars a month into savings they're paying three, seventy five to pay off their debts on when they earn mohr because we only assume twenty six fifty but if they earn more they can put a little more towards dad or they can put a little more in the bank when they don't have enough for the income and they have one hundred fifty a week for food entertainment maybe they can live on that maybe they can't but these are the numbers so they gotta figure out how do I live on one fifty weak and depending on where they are, maybe they can, but the idea is that they're paying off their debt and they're starting to save and they're living in what they're making. And so as they make mohr, which I hope they will, it will only change. So maybe they can reduce their fixed expenses or play around with the numbers, but they have a plan now they have a weekly plan as long as they live on one fifty a week and I guess that they're now gonna look at that line and things and see if they can consolidate like you was absolutely right so tweaked that amount down a little so the idea with the loan I'm just getting my little calculator out here so they've got time what should we say they had in dead uh they have a total of twelve thousand three hundred dead so I don't have my calculator here but that student line and credit card which you might get in a cab and twelve thousand three hundred divided by three seventy five not interest so not including interest I don't know what their interest rates are but noninterest bearing which of course they would pay interest would be a little less and three years to pay off twelve thousand dollars in debt on this plan now with interest that might be four years but if they could get their interest rates somewhat low they could be debt free and four years so I'm earning not that much income taken path twelve thousand dollars of dead and start saving on this plan it's pretty powerful right pretty powerful now we have jennifer cole she hasn't always has a different in that she has an income and fixed expenses and some goals. Okay, so what is her income side income is seventeen hundred a month okay face fixed expenses are thousand a month okay fixed and in order hook goals uh to ranch an apartment because she's living with family to say for land or hime to safer home okay build ira by camera gaea could get health insurance health insurance so so the question is, if she's living at home, what are her fixed expenses of a thousand? So I would ask her back because frank but she's living at home or fixed expenses should be about two hundred unless they're they're charging her for rent so you know not to get too personal because she has seven hundred dollars a month, so she doesn't have any dead if that's correct, so she really mentioned it so she's got one, two, three, four, five so health insurance you know, I would say, depending on what part of the country is probably two hundred ish, so that's five hundred left, um going to do does she have any savings already? I'll do fifty for the ira hasn't mentioned any savings, so for fifty, I probably do rent and camera equipment, so maybe split that like to twenty five wait she's not, you know, she doesn't have any money for her to live on. So again, I'd want to know a little more about what the thousand dollars fixed expenses are if she's living at home like, does that include food? You know, just to have to pay for food and things like that? Because let's giver maybe like one hundred dollars food and going out so that's really four hundred or maybe a little bit less but you know, I guess before I answer I gotto understand that a little bit more we might have to come back to that one I will come back to that but I think you get the idea here you know so really this is really powerful like I could not live without this so these are not my numbers but just say for example, family of four, seven hundred dollars a week so I spend seven hundred a week for a family of four got groceries of god like I said, I've got two little kids there's shoes there's snow boots, there's bathing suits in the summer I mean, some things you can't get away from by and if I know that I'm spending seven hundred I'm putting money into saving some putting money into mice up ira putting money into my kid's college I'm doing my fixed expenses and I've average my income out and I might have a month where I made a thousand more than I thought or five thousand more than I thought great that if I'm dead I might half my dad I don't have dead at this point but I might pay off my mortgage a little faster or more importantly I'm just going to put into my different savings accounts well historia films is from boston he's a girl and says thank you oh awesome thank you so feel free does send in more thank you historia if you don't pay yourself, nobody will so here's so what I want you to think about is where's that extra money coming from so in this case that we have seven hundred a month extra in this case we had the three seventy five, seventy five so that was for fifty a month. So what is your number that you've got extra. So what do you want to do with that money? You first want to pay down debt but then you want to save for a rainy day, save for retirement and then create this is a new concept a little bit a save to spend account I love my safe to spend account that lets me have you heard this would let you go to iceland? This would let me buy a new winner code. This would let me put in that erica, that was probably an emergency. Um, lets me say for my kid's birthday parties that sells me say for vacation it gives me permission to empty out my account for things like this or data from jenna who says expenses are set aside for just lost it. Texas storage business expenses she has no savings and, uh, tradition my day sixteen hundred dollars her dead is sixteen hundred total okay, this is this one right here, right? Okay, so she has to live on something so hopefully because she's at home she doesn't have to pay for food so maybe just go way out she could do like fifty dollars or seventy five dollars a week a sort of interesting that her expenses include storage business expenses, taxes, storage all right, so I'm giving her seventy five a week to go out maybe it's too much but I'm being a little you know gender so that's three hundred dollars so she has four hundred you know, I I would have her take a strong look at the thousand can she reduce that at all? Is there anything she can reduce their because it seems somewhat high um four hundred she's got to pay off the debt so hopefully she can do one hundred towards paying off the dead and then she can save three hundred and so between health insurance you know, twenty five or fifty tours and ira then the save the rest for saving up for rent so it's something to work with as she makes more these numbers will only go up. She could give herself a little bit warren a weekly basis. She can pay the debt down a little bit faster and she could save a little bit more towards the rent in the I r a but it's all about moderation so what I've done instead of saying so she really has four hundred dollars a month so I didn't right away say ok, four hundred a month grade just save it towards rent no, I said guess what? You got to save it towards health insurance and rent an an ira in camera equipment you know, I mean it's a little bit maybe it's only twenty five in each category I actually have a client who set up five different savings accounts different goals why not twenty five dollars a month into each? Elena says he had just reviewed my first credit report. Thank you so much. You're welcome. Thank you. Thanks for sharing that. I love it too. She can you ask her if she found any mistakes there? Was it a surprise? You know, I'm not just gonna get away with you, did it? I'm gonna ask you questions about it. So what you want to come up with is that total extra number you've got because people very often will ask me well, you know, what should I pay dutch? I save money. Should I, um how do we divide up the categories? So again, think about all of these different categories, but more importantly, think about that first big number and then I'll separate it out, so in this example, maybe like in jenna's case she only had four hundred dollars extra a month in a story of our lovely lady from boston, she also only had four fifty a month and look, we worked with it, we separated out so here's an example, you have an extra four hundred dollars a month and you have debt hundred arles turned your rainy day fund twenty five towards your saved to spend your trip to iceland, your kid's birthday party, your new coat, your camera equipment, fifty bucks towards your ira and then the rest of it going to pay down debt so you can see we are making an effort to pay down your debt. We're definitely making that a priority, but we're separating it out so it's all about moderation. I'm a big fan of moderation. Um, I remember just like on a separate health track is, um what am I had a doctor and my family and I remember saying, okay, I never eat baking can I do that? And he's like moderation, you know, which is when you learn to drink it's like with a glass of one, you could have a glass of wine or two a week. You know it's not like never have alcohol just don't have a bottle of wine every night or something like that, so this is the same thing with your money. So this is the example ofyou have dead and you can still pay it off but take care of yourself but then say your debt free which I don't have this example then you take that twenty five and you divide it up amongst those things so you put a little bit towards the rainy day a little bit towards the ira, the safe to spend and so kind of a big picture to think about is that when you have an extra month and you have money left over, you automatically put into these different accounts on then that's actually a really, really important tip is that when you get paid take that action item right away and do something with it this is the biggest mistake I actually had a wonderful client she's a photographer, one of my first clients she may probably over one hundred thousand dollars a year, which in new york is you know can not be that much money, but but it is still a great living I can't had nothing to show for it and we realized her biggest mistake was that as soon as she got paid she left in the checking account and just kind of lived off the technique count she didn't do anything with it and she lived her life and she also traveled a lot she traveled all over the country in the world essentially to take pictures and so she didn't have the habits and she would not pay bills for two months or three months and incur late fees and not have systems and so that's part of it is just getting organized I don't care if you travel these days you can pay your bills anywhere you can deal with things anywhere with online banking but more importantly when you get a check you're right away do something with it and I'll give you some suggestions so right away think about those main categories so to reiterate debt your rainy day so it's short term which is your emergency hey calling emergency though I like rainy day better your retirement your ira you're sep ira your roth ira your individual for one k I know there's a lots of initials and letters we'll talk about that tomorrow I promise and then your midterm expenses and I call this your sort of five to seven year fund this is your well I don't need the emergency if I don't get paid, but I kind of want to say this money before I'm sixty right? Like I'd like to I mean I'm only forty I'd like to do something within the next few years I'm only thirty I don't wanna wait tom sixty years old, so I actually call this my hair while you find I don't know I'm really focused on e I want to go to hawaii. Yeah, I've wanted to get a wife for a long time, it's sort of like, you know this, I have a picture of it in my head. Um, I don't know what I'm going, probably not any time soon, but that's my point, it's not my rainy day fund and it's, not my retirement it's my, you know, five to seven year and maybe starting a business of some of you are watching this and you're in a job and you think I'd really like to start my own business, maybe that's your midterm and again, you have permission to empty this out because it's not affecting your retirement and it's not affecting your safety net. So if what I would strongly suggest is you look at what you've gotten say, what is that extra number I can come up with? And in terms of how I make it a reality is what is that total number that I've got? Let me take that money out first, and then with what's left over is what I live on on a weekly basis. And if this scares you and if this freaks you out, then just start living on a weekly amount and you'll have extra left over to put away so you can work backwards because I remember that I had a it wasn't a client was a friend. I remember I'll never forget we were taking the subway home from something together and she's like, oh god, I know I need a budget, but I'm scared to death. I don't even know where to begin, what should I do? And I said, no, just start living on a weekly amount, we'll just have extra money leftover, but I mean, you've got to stick to it, but say, you know what? I'm just going to live on three hundred a week for most of us, we have that and have three hundred, doesn't work, then do two hundred, but just live on a weekly amount, so you don't even have to do all this. Just say this week, I'm just going to do two hundred, you're gonna have extra left over, you're going to run out, you're goingto fall off the wagon, if you will.
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