Question for the Money Doctors
Question submitted on Oct 6, 2013.
QuestionDear Money Doctor, Thank you for your fast reply! I now have two spending plan categories as you suggested. However, I still forget to write down what I spend. Do you have any suggestions? Is there an easier way to keep track of spending than tracking every expense? Maybe I should keep a small amount of my discretionary fund in a separate checking account so that I will be forced to stop spending when I reach the end of that money? Do I even need to write down each time I spend? If I use cash, would I just know that when the cash runs out, I am done spending for the week? Thank you! Maribeth
Let''s start with a smaller sample and take a look at your last 3 months bank statements and credit card statements. Take a YELLOW highlighter and highlight the NONDESCRETIONARY expenses. Add up the total and divide by 3. This lets you know how much your monthly required expenses are.
Take a look at your paystubs for the past 3 months. Add them up and divide by 3. This gives you your monthly cashflow. Subtract the required expenses from this amount. The difference is your discretionary expenses.
Take a look at the expenses you did not highlight - how many of them can you do without? Are you saving at least 10% per month?
You should pay yourself at least 10% per month. That can go into a savings account so you can build up your cash reserve.
If you expand this to 12 months, 24 months, etc.,your calculations will get more meaningful and you will be able to see where you can improve.
If you have outstanding debts - lay them out on a spreadsheet and sort them by the highest interest rate to the lowest.   Add up the required payments. When you have extra cash, pay down the more expensive debt first. Once the more expensive debt is paid off, move onto the next one and before you know it, you will have this under control and paid off.
For additional information visit http://www.360financialliteracy.org/