Organization of your Finances

14 Aug    Blogs

I know it has been a extremely rough roller coaster ride this past year.  Whether you lost your employment and received a stimulus check, received unemployment benefits, or gone on to work as a contractor for a delivery and/or ride share app; you’re in the position that you just do not know what to do with regards to your finances and where your income is going to come from.  Well let us take a step back and take a few breaths to calm down and clear our minds first to get situated.

It is now time to tackle our finances to see where you really stand.  It is time for your debt free journey to begin.

Now with a clear head on our shoulders, let’s gather up the most recent bills and statements from all of the accounts, whether they are reoccurring services or debt that is owed.  First thing to do, once you have all of your paperwork in front of you is to create three separate categories in which to file these documents.  These categories are: Basic Walls, Reoccurring Expenses, and  Establish Emergency Fund & Debt Payments.

 

  1. Basic Walls (the Necessities)

    1. Gather all of your most recent sources of income and their statements.  Calculate each source of income for its monthly total.  Add all of the sources of incomes’ monthly totals for your TOTAL MONTHLY INCOME.
    2. Now let us gather your information for the basic wall of expenses.  This refers to the expenditures that are 100% absolutely NEEDED in order to LIVE your life.  These fall into the classifications of housing (mortgage or rent); housing insurance (home owner’s or renter’s); groceries ( no restaurants involved here); utilities; and transportation (auto insurance & fuel).  I want to add a note to the table below.  This one displays a person as a renter.  In which case the rent and renter’s insurance (not required, but strongly suggested) are an itemized amount.  If you by chance are paying a mortgage, then leave these two fields out with $0.00.  In the fields of Mortgage and Home Owner’s Insurance, place the respective amounts that you are paying out monthly.  If your mortgage payment includes your home owner’s insurance, then leave that line item at $0.00.
    3. After you have come to categorize and total up your first priorities in knowing your income and the first expenditures to come out of your income, it’s time to calculate the remaining amount of income you have for any other reoccurring expenses and or debt that you have.  For this just take your “TOTAL INCOME” and subtract your “TOTAL EXPENSES”.  The result will give you the amount of income you have left for any other NEEDED services or luxury services that are provided to you.  These items where services that are NOT a NECESSITY will need to be eliminated.  The amount of money saved from these items will just be adjusted on your remaining income, giving you more of your money to attack your debt and become debt free that much quicker.
  2. Reoccurring Expenses (the Luxuries)

    1. Now that you know what it takes in order just to survive off of your income, let’s take this remaining income and figure out what other expense you are paying to that is not debt.  We will come to the debt section shortly.  But at the same time, this category is where you will have a complete understating of your unnecessary expenses that are prohibiting you from paying off your debt and building your emergency fund as quickly as you would have hoped.
    2. Okay so the picture is definitely becoming clearer on where your hard earned money is going each month that is not debt.  This also reveals why you may be living paycheck to paycheck, because of the above luxuries.  But now let us see how much of your income is remaining to finally start building your beginning emergency fund and pay off just your monthly minimum amount due to your bills.
  3. Establishing your Starter Emergency Fund & Debt Payments

    1. Congratulations!  You have made it through to the building of your starter emergency fund and debt paying section.  The reason why I am including the Emergency Fund with your Debt is actually pretty simple, it is an expense that is coming out of your income but is being reallocated into a completely separate liquid money market account.  This would be your first line item to pay with the remaining income you have at this point.  All of the remaining income will be focused at just paying your minimum amount due to each and every piece of debt you have just to keep them current.  Further explanation of this process will be coming at the overall summary.  So let’s get started with this already.
    2. Here is the final step to figure out.  The amount remaining may be positive or may be negative.  If the amount is a negative, than you will most likely need to go back to the monthly reoccurring table to see what services you will NEED to cut in order to bring your number to either a even $0.00 or a positive amount.  Now if you still have some income remaining after all of this.  Then it is time to see where you can contribute towards your debt payments.  The first goal is the starter emergency fund.  After your starter emergency fund of $1,000.00 is funded, then attack your smallest piece of debt with the remaining amount of your income.  But for now, here is what is left of your income.

 

The Final Take Home:

Please keep in mind the above information was just a random sampling of what someone may be dealing with as far as their finances.  This in no way represents a true person’s financial situation.  The purpose of the above information is so you can use this process as a nice and easy way to gather all of your finances and become organize.  Feel free to use your spreadsheet software of choice to begin the process of organization as the starting point for your debt free journey.  Coming soon to the resources section, I will be providing an online spreadsheet where you can simply input your information and print out for your records.

So the above make believe person’s information has them with $27.48 left in the bank after all of the expenses are paid for them to remain current.  So with the excess amount, this person can now allocate to their emergency fund an additional $27.48.  After this payment plus the pre-allocated amount as listed above of $200.00, this person will have completed their first goal of building their starting emergency fund of $1,000.00 in approximately 4 and a half months.  The last installment payment would be for only $90.08.  This  will now leave $227.48 plus the already allocated minimum monthly payment that can go towards the lowest balance of debt.

So with the starting emergency fund now off of the debt table above and into the fifth month of this journey, this person now will have an additional amount of $200.00 to place towards the debt.  The remaining amount will now go from $27.48 to $227.48 assuming that their income remains as well as all other expenses.  All of this will go towards the lowest remaining debt to begin attacking all of their debt.

That is how becoming organize with your finances and creating this budget can ultimately save you from any undue stress to dealing with the demons of debt.  My next article will break down the actual debt payment process utilizing this person’s finances as the continuing template.

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