Before you create your next budget or monthly spending plan -

1.  Track your spending for one month.

Use a spreadsheet, pen and paper, or online software, and track your spending for one month.  Track all payments - including those made by check, debit card, cash, (and credit card, if you choose to use one).  Remember to also include any payments that are automatically withdrawn from your checking / savings accounts.  (My wife and I use the You Need A Budget software to track our expenses and manage our monthly budget.)

2.  Create a detailed list of non-monthly bills / expenses.

Remember, for a budget to really work, you need to plan for non-monthly (irregular) bills and expenses.  For instance, you may need to pay annual life insurance premiums, twice-yearly automobile insurance premiums, and property taxes.  These bills do not arrive in your mailbox each month, but they still need to be included in your budgeting plans.  Click here for several options for how to deal with annual / irregular billing cycles.

3.  Open a free checking account with free online bill pay.

I could not manage my finances without a free checking account and free online bill pay.  Instead of writing several checks a month, I can go online, schedule payments, and be done with paying bills in a matter of minutes.  It helps to bank with an institution that integrates with your budgeting software of choice, or one that allows you to download transactions in several different file formats.

4.  Open a savings account.

I use an online savings account - one that allows me to quickly transfer money, via it’s transfer system, to and from my online checking account.  (If you would prefer one account, consider an interest-bearing checking account, like the ING DIRECT Electric Orange Checking Account)  You need an account where you can earn interest, while temporarily saving money for non-monthly bills / annual expenses.  I happen to have three accounts - a checking account at a local bank for day-to-day transactions, the Electric Orange account for online bill pay, and the online savings account for stashing cash until annual bills are due.

5.  Consider a cash-management system that will work for you.

I am comfortable carrying cash, but some may not be.  Find a cash-management system that you like and use it in connection with your budget.  My wife and I us the envelope system.  (Click here to watch a video tutorial, outlining how we use envelopes to manage our cash.)  You may choose to use a debit card, or even write checks, instead of using cash, but be sure you have some sort of system set up that helps you account for how much cash you need and spend.  Learning to properly handle cash, without wasting it, is one of the first steps in the life of a maturing home-finance manager.  Stop using the excuse that you “spend more with cash”.  If you can learn to be responsible with the $20 in your wallet, you can learn to be responsible with the $200,000 in your retirement account!

6.  Establish a budget-creation routine.

Determine when you will create your monthly budget.  Determine when you will discuss the monthly / weekly budget with your spouse.  Be specific and write the date / time on your calendar.  Instead of paying bills “whenever you have the chance”, build some time into every week for handling personal-finance related chores.

7.  Balance your checkbook / reconcile savings account.

It almost goes without saying, but before you can create a budget, you need to know how much money you have on hand.  Also, consider taking a look at any other accounts you might have - retirement, education savings, etc. - just to make a note of current balances.

8.  Determine your next financial step / goal / plan.

If you are trying to build an emergency fund, you need to have an emergency fund category in your budget.  If you are trying to get out of debt, you need a debt reduction category in your budget.  If you are trying to fund your Roth IRA, you need a Roth IRA category in your budget.  You get the picture.  Also, remember, after you get out of debt, you can then remove that category from your budget, and replace it with some other category.  The point is - Incorporate your current goal within the budget.

9.  Prepare yourself to succeed (and fail).

If you have never lived on a budget, prepare to be amazed by how in control you will feel, once you start using one.  Also, be prepared to fail, and feel frustrated, once your “perfectly” detailed plans fall completely apart.  The truth is, none of us can tell the future, but we can make some pretty decent predictions, based on past expenses.  For some, budgeting is easy, and becomes easier.  For others, budgeting can be a struggle, and it takes time to find the groove.  Be patient and enjoy the process!

10.  Understand how to budget with irregular income.

For most people, even those with regular monthly income, it’s a good idea to learn how to budget with irregular income.  For instance, most will need to know what to do with year-end bonus or a tax rebate check.  For many, especially those who work on commission, it’s critical to learn how to budget when on an irregular income.  Click here to read an in-depth article about how to create a budget when you have an irregular income.

I have used the above when creating my own budget.  My wife and I have been living on a budget for more than four years.  I will remind you, I am not a financial planner, and the above simply outlines what works for us.  Before making any financial decisions, consider consulting a qualified financial adviser or planner.

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When it comes to managing our personal finances, it’s very easy to feel overwhelmed.  Here are some steps we’ve taken, over the past four years, so that we feel in control.  We have -

Established An Emergency Fund

I cannot overstate the value of our emergency fund.  On several occasions, we have had to deal with unplanned-for expenses.  Instead of borrowing money to cover said expenses, we have been able to dip into our emergency fund, and cover the cost of those expenses.  While getting out of debt, our emergency fund balance fluctuated between $1000 and $2000.  Now days, the fund sits right at nine months’ worth of expenses.  We keep our emergency fund in our ING DIRECT Savings Account. Dedicating ourselves to maintaining an adequately funded emergency fund may have been the smartest financial decision we have ever made.

Eliminated Certain Unnecessary Expenses

Please note the use of the word certain.  We still spend money on things that we don’t need, but we have eliminated much of the truly wasteful spending from our lives.  Finding a healthy balance between wants and needs can be difficult, but finding a healthy balance between acceptable and wasteful is not.  I’ll be brutally honest.  We used to waste a lot of money, buying things that we absolutely did not need, and in many cases, really didn’t even want, just because we thought we had to.  Now, we think about our purchases, and we try to apply some common sense to our decision making.

Eradicated Our Debts

The blog heading says it all - Debt Reduction Rocks - We Are Living Debt Free.  Four years ago, we decided to get out of debt, and we worked very hard, through several ups and downs, until we accomplished our goal.  I remember, as a kid, having to walk home from school.  I also remember the relief, even the joy, that I would feel, each day, when I finally reached our backdoor and was able to drop my backpack, filled with books, from my shoulders and onto the kitchen floor.  That’s what being debt free feels like.  My burden, which felt so heavy at the time, is gone.

Established A Budgeting Routine

If you want to feel less overwhelmed, and more in control, start living on a budget.  A good friend told me that, several years ago, and I wish that I would have listened to him then, instead of waiting so many years to get my act together.  We use a zero-based budget, every penny is accounted for, and our finances are so much easier to manage than they were in the years B.B.  (Before Budget)  We also created a filing system for our important documents, and committed ourselves to maintaining balanced checkbooks.

Eliminated Credit Card Use

We stopped using credit cards, and we really haven’t missed them.  Sure, we forgo some of the cash-back offers that certain credit card companies provide, but we more than make up for those missed rebates with the peace-of-mind we have, knowing that we will never again have to worry about interest charges, late fees, or lost payments.  I’m not trying to convince anyone to give up their credit cards, but I will say, if you are tired of your credit cards, or you feel that your credit card usage is out of control, it is possible to live without the silly things.  Personally, I think that everyone, during their debt reduction phase, should give up their credit cards, if only temporarily, so as to break the cycle of charging-paying-charging-paying-charging.

Eradicated Negative Voices

Okay, so maybe we didn’t completely eradicate them, but we did choose not to listen to them.  Instead, we surrounded ourselves with like-minded, positive, forward-thinking people.  I started this site, and connected with debt reducers from around the world.  As a couple, we found friends who were willing to give this debt reduction thing a shot, and we shared our journey with them.  Celebration and accountability have been so important to our success.

Eliminated Some Of The Stress

Let’s face it, personal finance management will never be completely stress-free, but we can work hard to eliminate some of the stress from the process.  Over the years, I have created a financial inventory for my wife, so she’ll know where everything related to our finances is located, should something happen to me.  I have also updated our term life insurance coverage and we now have up-to-date wills, stored in a safe location.  Taking care of these things, just knowing that they are done, really removes so much of the stress associated with managing our finances.

What about you?  What steps have you taken / are you taking, to gain more control?  Do you still feel overwhelmed?  What are you struggling with?  Where are you finding success?  Leave a comment and let us know.

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For the visual-learners in the audience, I have diagrammed the flow of my money.

Regular income is deposited into my primary checking account.  Scheduled monthly payments are made, and allocations for non-monthly scheduled payments are then deposited in my online savings account.

Irregular income, such as it is, is deposited into my primary checking account, and used, if needed, for scheduled monthly payments.  If not needed for scheduled monthly payments, money will be transferred from my primary checking account to my online savings account.

Business income is deposited in my business checking account.  All business income is then transferred to my online savings account, set aside for non-monthly payments and long-term savings.

Any non-monthly scheduled payments are made from my interest-bearing checking account.  Money necessary for non-monthly scheduled payments is transferred from my online savings account to my interest-bearing checking account, as needed.

Contributions to Roth IRAs and Education Savings Accounts are made from my interest-bearing checking account.  Again, these contributions are first transferred from my online savings account, to my interest-bearing checking account, and then a check is written for each contribution.

I have it set so that I make all of my scheduled monthly payments on the first day of each month.  As soon as payments clear, I can then transfer remaining money to my online savings account, leaving a cushion in my checking account for unforeseen-expenses.  Not included in this diagram, but very important, is my envelope system, which I use for managing my cash, to pay for budgeted items like groceries and gasoline.

I am a big fan of the The ING Direct Orange Savings Account and I use it as my online savings account. I also use ING’s Electric Orange as my interest-bearing checking account.  Having both accounts with the same company, it’s very easy for me to make instant transfers.

For more about scheduled monthly payments and scheduled non-monthly payments, please see this recent article about how to create a zero-based budget.

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The goal: Dedicate 1 hour a day, for 7 days, and improve the health of our finances.

Click to view Hour 1

Click to view Hour 2

Click to view Hour 3

Click to view Hour 4

Click to view Hour 5

Click to view Hour 6

Click to view Hour 7

Hour 7 (00:00 - 50:00)

Insurance Brainstorm -

Do I have enough life insurance?

Should I consider switching from whole life to term life?

Does my spouse have enough life insurance?

Should we consider an insurance rider for our child or children?

Do I have a long-term disability insurance policy?

Does my spouse have a long-term disability insurance policy?

We live in a rental property, do we have renter’s insurance?

Have we reviewed our home owner’s policy?

Should we look for new or additional health insurance?

Have we reviewed our automobile insurance policies?

Can we raise our automobile deductibles, now that we have a fully-funded emergency fund?

Can we use one company for multiple policies, thereby receiving discounts?

Do I know where all of my insurance-related documents are?

Hour 7 (50:00 - 60:00)

Begin the process of researching insurance companies which may be able to meet any needs identified during the brainstorming session.  Consider online resources as well as local insurance companies and agents.

I hope you have enjoyed this series of articles about improving the health of our finances.  Each article should take just a few minutes to read, and the steps outlined should take about an hour to do.  Depending on the health of your finances, you might be able to breeze through the steps in just minutes - or it might take you much longer, if things are in need of repair.  My goal, however, is to keep the steps to a minimum, and to make them as easy-to-follow as is possible.

Consider Hour 7.  If you will take the time to do all of the steps outlined above, you’ll have a a better understanding of your life insurance needs, you’ll have a plan in place for purchasing additional insurance policies, and you will know where critical insurance-related documents are located.  And, you will have accomplished all of these things, in about an hour!

If you haven’t done so, be sure to subscribe to No Credit Needed, via email or RSS.

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The goal: Dedicate 1 hour a day, for 7 days, and improve the health of our finances.

Click to view Hour 1

Click to view Hour 2

Click to view Hour 3

Click to view Hour 4

Click to view Hour 5

Click to view Hour 6

Click to view Hour 7

Hour 6 (00:00 - 60:00)

Create a Career Portfolio

Locate, organize, copy, and store important education-related documents, including diplomas and certifications.

Locate, organize, copy, and store important work-related documents, including commendations, awards, and acknowledgments.

Locate, organize, copy, and store important community-related documents, including civic membership information and awards.

Create or update your resume.  Include relevant information about educational achievements, community involvement, and work history.

Get to know people who are working in your field of interest.  Consider using a site like linkedin, and use it to establish or expand your network of relationships.

Over the course of this week, I’ll write one more article about improving the health of our finances.  Each article should take just a few minutes to read, and the steps outlined should take about an hour to do.  Depending on the health of your finances, you might be able to breeze through the steps in just minutes - or it might take you much longer, if things are in need of repair.  My goal, however, is to keep the steps to a minimum, and to make them as easy-to-follow as is possible.

Consider Hour 6.  If you will take the time to do all of the steps outlined above, you will know where your important education- work- and community-related documents are, you will have updated your resume, and you will have begun to connect with like-intentioned people. And, you will have accomplished all of these things, in about an hour!

If you haven’t done so, be sure to subscribe to No Credit Needed, via email or RSS, and make sure you catch hour 7.

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