Category Archives: Taking Control

Taking Control Step 2: Where Are You Going?

It’s been almost six months since I started this blog… and it’s taken me almost six months to finish this post…

Once you know where you’re at financially, it’s time to see where your going.

To find out, track your expenses. Just because you have money left over every month doesn’t mean you aren’t wasting  any. And I’m talking about wasteful according to your goals and desires, not what others might call wasteful, so if you really like that $4 cup of coffee and you can afford it, enjoy. On the other hand, if you don’t have any money left over, is that $80-120/month really that important to you?

I use mint.com to track my expenses. It’s automatic, I just have to go in every once in a while to make sure transactions are categorized correctly. I like automatic. If I had to write each purchase down it would never get done. Mint isn’t perfect, it doesn’t track my car loan because I don’t have a web log in for it, but it works for all my other accounts.

If you aren’t comfortable giving Mint your account log in information there are other options like Quicken and You Need a Budget where the information stays on your own computer.

Some people like doing it by hand. A notebook, spreadsheet or mobile budgeting app is all they need. Having to write down every purchase does make you more aware of what you’re buying and can even help curb spending. If you’re good at journaling this probably is the best method.

Whatever method you choose, the idea is to know what you’re spending your money on and how much. How much do you spend on clothes every month? Or eating out, or any number of categories? Add up the numbers. It might be painful, but look. Don’t judge. If it’s bad remind yourself that you’re doing this exercise so you can do better. Don’t make excuses, either. If the money has been spent it’s been spent and it is what it is. Most importantly, don’t beat yourself up over the totals.

Once you know where you’re heading now, it’s time to decide where you want to go, short and long term. Maybe you have some definite goals already, like get out of debt or save up a down payment for a house. If you don’t, that’s okay. Figuring out what I want from my money was a fairly lengthy process for me and I’m still revising my plan. If you have no idea what to do I’d start with the big three: deal with any debt you have, make sure you have a healthy emergency fund, and start preparing for retirement.

Getting out of debt is generally pretty simple – pay more money each month. Whether you get that extra money from savings, working a second job, or cutting spending is up to you.

Figuring out the right amount for an emergency fund takes a bit of work. At minimum it should cover your insurance deductibles and max out of pocket for your health insurance, expenses for however many months you could be unemployed if you get laid off (or at least enough to cover what unemployment doesn’t), and any other large expense that could come up with little or no notice. If you don’t have health insurance or comprehensive car coverage, you’ll need a larger emergency fund.

Figuring out what you’ll need for retirement is a lot more work and relies on a lot of guesses – how much inflation should you account for, what returns will you get from the stock market, what will your expenses be, etc. The farther you are from retirement the more guessing you need, but that’s no excuse not to start saving (was that listed in my excuse post? If not, it should be.) Start saving something, even if you don’t have a plan yet. If you want to take early retirement save more.

Personal finance is just that, personal. Retiring in my 30s isn’t a high priority for me but some people make it their ultimate goal. The trick is to decide what YOU want – and it’s okay to start simple. My goal right now is basically to keep my expenses low, max my Roth IRA, contribute to max the match in my 401k, and start investing in non-retirement accounts. Obviously I need to do some refining – what number should I keep my expenses under? If my income increases can I increase that number? Should I make a goal to increase my income? I used to have some other short term goals regarding cash hoarding to buy a house but that’s been done so it’s time to make some new ones.

I’m a fairly laid back person, the kind who takes a “if it ain’t broke, don’t fix it” type of attitude. Buy while my finances aren’t necessarily broken, they could be better. Fortunately I’m also a geek who likes making things more efficient so I have to draw on that side of myself to do this kind of work. ‘Cause it is work.

Alright, I’m off to think about goals. Again. What are your goals that you’re working on?

Taking Control Step 1: Where are you?

I’ve been working on getting a better handle on my money for over a year now and it’s still a work in progress. Okay, so personal finance is never actually done, but I haven’t mastered my money just yet. Even so I’ve been making progress and here’s what I’d consider to be the place to start.

The first step to take control of your finances is to look and see what you have. Getting a grip on what you have is the financial equivalent of telling GPS to center on your location and you can’t go anywhere without knowing where you are. Just ask any mapping software for directions and they’ll want your current location as well as the destination.

Knowing where you are means knowing:

How much exactly do you have in retirement savings?

How much do you have in cash, checking and non-retirement savings and investments?

How much do you owe, and to whom? What are the interest rates?

If you have bills that you haven’t opened, now’s the time to look. Don’t be afraid, they don’t bite, and even if the amounts are as bad as you’re imagining they’ll only get worse. Seriously, your imagination is probably creating more stress than the knowledge possibly could.

This is also the time to track down old accounts that you no longer use including credit cards, bank accounts and retirement plans from former employers.

If you don’t already, look at your recent pay stubs. How much do you earn before and after tax each pay period? What all is deducted from your pay? If your pay is variable, do you know what your average income is per pay period? If you work for yourself you already be on top of your income, but if that isn’t the case it’s time to get busy.

Finally, make sure you have access to all of your accounts. For most this means a user name, password and website address for logging in through the web. It could mean a phone number to call, or a branch to visit. The point is, if you want to know your balance, make a payment or withdraw money, can you?

I’m failing on that last one. I have a retirement account from an old employer. I have the account number and receive periodic statements in the mail, but in order to make changes to the investment allocation or fill out the form to transfer it to another account I need a PIN. I requested that PIN over a year ago, it promptly came in the mail, then I set it aside to deal with other things. Is that piece of paper in the file folder I should have put it in? Is it buried in the stack of filing that’s been piling up for months? I don’t know right now and need to make it a priority to either find it or request another.

Once you know all of your balances add them up. Now you have a nice big picture of your money.

I have a spreadsheet where I track the balance of all my accounts individually along with a total of all savings, a total for all debt, and a grand total of savings minus debt. I add a new row each pay period with the updated amounts, giving me a running total. With a quick glance I can see just how much is in savings now, or I can study the progress I’ve made since I started tracking it. I haven’t been perfect with my tracking so there are a couple of gaps but it’s still a nice window into history.

If this is the first time you’ve done something like this were you surprised by the totals? Are you in a better place than you thought, or worse?

If you already knew the answers, great! Go get a cookie.