Budget Divas

Smart Money Habits Series: 3 Simple Steps To Start Reconciling Your Budget Today!

March 17, 2023 Jenn Trinidad Episode 59
Budget Divas
Smart Money Habits Series: 3 Simple Steps To Start Reconciling Your Budget Today!
Show Notes Transcript

In this series we’ll be talking about good old-fashioned money habits that we need to revisit from the generations before us. The same good old-fashioned money tips that our parents, grandparents, and even great-grandparents used in their everyday life. 

People want that magic pill that is going to take away all their problems. But let’s be honest here. Imagine for a second, someone that is not very good at money and they were given $50,000 to pay off their credit cards. And lets just say they did – they actually deposited that check, went online to pay off that bill, and was now completely debt-free. 

Now, this person has a pretty decent income but has not learned how to manage their money correctly. In your opinion, do you think that person will be back into debt in the near future? 

If you answered yes, I completely agree with you. 

It’s interesting because when I hear stories on social media, the first thing that comes to mind is “if only there was a magic wand that could completely wipe out my debt, I’d have a clean slate and I’d be better off.” 

But most times, that is not the case at all. Think about this for a second. There are so many diet fads out there that promote this magic pill that will instantly help you to lose weight, curb your appetite, and make you eat less. these diets may lead to rapid weight loss in the short term, they are not sustainable over the long term. But what happens once they stop taking that magic pill? Many people end up going back to their previous eating habits once they stop following the diet, which can cause them to regain the weight they lost or even gain more weight than before. We hear stories like this ALL the time and that’s why they call it fad dieting.

When I talk to people and ask them what keeps them up at night, the most common response I hear is -  My spouse/partner and I make a really good income but we don’t know where our money is going. It seems like money comes into the account and goes right back out and we don’t have any money until the next paycheck. 

The short answer is the fortune is in the follow-up. This term is widely used in business but has the same effect when we apply it to money habits. If you create a budget and don’t look at it again until the next month, that budget is no good to you at all. You are pretty much left with a pretty template that you downloaded online with your budgeted numbers in it. 

The first habit to becoming good with money is to reconcile your budget. Reconciling your budget involves comparing your actual income and expenses to the budget that you have set for yourself, identifying any discrepancies, and adjusting your spending or saving habits accordingly. 

I’m going to give you three easy steps you can do right now: 

1) Pick a day and time that you will reconcile your budget

2) Dedicate a space for your monthly receipts

3) Go through your receipts and only keep the current month’s personal spending receipts in that dedicated space 

Stay tuned because in the next podcast, I’m going to tell you step-by-step on how to reconcile your budget so that you can get it down to one hour per week. Until next time, keep moving forwa

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Welcome to another episode of the Budget Diva podcast. I am your host Jenn Trinidad. We are starting a new series called Smart Money Habits. In this series we’ll be talking about good old-fashioned money habits that we need to revisit from the generations before us. The same good old-fashioned money tips that our parents, grandparents, and even great-grandparents used in their everyday life. 

 

People want that magic pill that is going to take away all their problems. But let’s be honest here. Imagine for a second, someone that is not very good at money and they were given $50,000 to pay off their credit cards. And lets just say they did – they actually deposited that check, went online to pay off that bill, and was now completely debt-free. 

Now, this person has a pretty decent income but has not learned how to manage their money correctly. In your opinion, do you think that person will be back into debt in the near future? 

If you answered yes, I completely agree with you. 

It’s interesting because when I hear stories on social media, the first thing that comes to mind is “if only there was a magic wand that could completely wipe out my debt, I’d have a clean slate and I’d be better off.” 

But most times, that is not the case at all. Think about this for a second. There are so many diet fads out there that promote this magic pill that will instantly help you to lose weight, curb your appetite, and make you eat less. these diets may lead to rapid weight loss in the short term, they are not sustainable over the long term. But what happens once they stop taking that magic pill? Many people end up going back to their previous eating habits once they stop following the diet, which can cause them to regain the weight they lost or even gain more weight than before. We hear stories like this ALL the time and that’s why they call it fad dieting.

Well it’s the same with money. In order to become good with money, you need to establish good money habits first. One of the fad diets out there are 0% interest credit cards. Now, before you start to say what you mean Jenn? 0% interest credit cards are awesome. It cuts down on hundreds, even thousands of dollars of interest which will get me to my debt-free date faster than if I didn’t go that route. I totally agree 100% and I’ve used these cards in the past to pay off my debt faster as well. 

I’ve also been on the other side where I’ve transferred my entire credit card balance to a 0% credit card and instead of consistently paying down the debt each month, I spent the money instead. Then 18 months later, I’m on the hook for the entire balance PLUS the accrued interest along the way. I would’ve been better off chipping away at the debt on the current credit card. 

Why did that happen? It was because I hadn’t established good money habits yet. I was still in the infant stages of learning how to be good with money. I wasn’t disciplined. In our Back to Basics series, we talked about creating a budget, setting financial goals, creating different savings funds, and creating more income. All those tactical steps will help you become financially savvy but if you are not disciplined with your money, all that goes away. 

With the recent financial events that have been going on, I hear so many stories of people who are so scared. They are thinking of keeping their savings under a mattress, taking out their stocks and buying gold instead, even liquidating their retirement funds to pay off debt. 

I get it. But here’s the thing. Whenever I make emotional decisions, it always turns out to be a BAD decision. And we are going to see these loan sharks coming after people enticing them to use a debt consolidation program, take out personal loans, and apply for 0% interest credit cards. 

I am not saying that these strategies do not work, however, I want you to take a step back and actually think it through. If you do get a 0% interest credit card to pay off your debt, do you have a plan for it? Have you calculated your monthly payments per month? If you transfer $20k to a 0% interest credit card for the next 18 months, that comes out to a little over $1100 per month. Are you disciplined enough to not spend on that credit card and use it to actually pay down debt? Do you have a plan so you can afford the payment each month without taking on additional debt? 

I bring this up because there are money predators out there that do not have your best interest in mind. Before you sign your name on the dotted line, be sure you understand the fine print and have a written plan in mind so you will be set up for success. 

But let’s get back to creating good money habits which is what this episode is all about. 

When I talk to people and ask them what keeps them up at night, the most common response I hear is -  My spouse/partner and I make a really good income but we don’t know where our money is going. It seems like money comes into the account and goes right back out and we don’t have any money until the next paycheck. 

The short answer is the fortune is in the follow-up. This term is widely used in business but has the same effect when we apply it to money habits. If you create a budget and don’t look at it again until the next month, that budget is no good to you at all. You are pretty much left with a pretty template that you downloaded online with your budgeted numbers in it. 

The first habit to becoming good with money is to reconcile your budget. Reconciling your budget involves comparing your actual income and expenses to the budget that you have set for yourself, identifying any discrepancies, and adjusting your spending or saving habits accordingly. 

This is going to be easier than you think. I want you to dedicate one hour per week to reconciling your budget. Yes, just one hour per week. That is actually all it takes to make sure you are on top of your finances each month. I have a recurring event on my Google calendar for Saturday mornings at 7am. Mornings are usually the best time when my mind is fresh and awake and I picked Saturday because it’s the end of the week which means I need to know how much I have left in my budgeting categories before the following week begins. The day and time doesn’t really matter… just pick a dedicated day and time that you can reconcile your budget with no distractions…. Maybe that means at night when you and your spouse can meet together while the kids are asleep… or if you are budgeting by yourself perhaps that means scheduling it for a time when you don’t have too many things going on in that day. What’s most important is to pick a date/time that is consistent and you know you will stick to it. 

I’m going to give you three easy steps you can do right now: 

1.       Pick a day and time that you will reconcile your budget. It is highly preferred to do this on the same day at the same time because we are creating a new habit. Now, if you have a sporadic schedule, I totally understand. Adjust accordingly but the purpose of this exercise is to get you into the habit of knowing that every Sunday at 8pm, I’m going to reconcile my budget. Once you have picked the date and time, schedule it on your calendar. Whether that is a paper calendar, google calendar, writing it in your planner… whichever method you choose, just make sure that you know this is when I’m going to reconcile my budget so I know exactly how much money I have left in my budget for the month. 

 

2.       Dedicate a space to put all your receipts. You know how we all have junk drawers – that drawer that we throw random stuff in every single day because we don’t know what to do with it? I want you to find a space where you can do the same for your receipts. A space that is easily accessible that you can throw your receipts until your reconcile day. That might mean a drawer, a cubby hole, maybe even a shoebox. I have a plastic shoebox that I throw all my receipts in until I can reconcile them and it makes it so easy to find when I need it. This might be a new habit for some of you and that is the point of this podcast. We are creating a new habit, a new default. So instead of receipts all over the car, being stuffed in the bottom of your bag, or in your junk drawer…. When you get home just put all those receipts in that dedicated space to deal with on reconcile day. Your task right now is to walk around your entire house and check your car for any receipts that you’ve accumulated and put them into your dedicated receipt space. 

3.       The last thing that you can do right now (like right after you listen to this podcast) is to go through the receipts that you put in that box or drawer. Any important receipts that you need to keep long-term (like perhaps warranties or documents that you’ll need for tax purposes later) I want you to keep it separate from this box. Keep it in a safe place with your important files – especially if you are a business owner, keep those receipts separate from your personal spending receipts. This box that we are using to reconcile our budget should be used only for personal receipts. Now as you are looking through those receipts, I want you to only keep the current month’s receipts in this box. The rest of the receipts you can decide if you want to discard them or keep it for other purposes (maybe you need to return an item or need to hang on to it for something else). The reason is that we’ll be using the current month’s receipts to track our spending. 

 

This is really where the magic begins. For example, if you budget $800 for groceries for the month and you reconcile your budget and see that $400 has already been spent in the first week of the month, you you have $400 left to spend for the month. If you didn’t reconcile your budget on a weekly basis and kept spending $400 a week on groceries, that would be $1600 on groceries – double what you have budgeted for. This is the reason that the fortune is in the follow up. When you do this for the first time, it may take you more than an hour to reconcile it. But the beauty with every habit is that it gets easier like muscle memory. You’ll start to clearly understand your spending habits. You’ll see exactly where you are spending the most and adjust accordingly. 

 

To recap, 

1) pick a day and time that you will reconcile your budget

2) dedicate a space for your monthly receipts

3) Go through your receipts and only keep the current month’s personal spending receipts in that dedicated space 

 

 

Stay tuned because in the next podcast, I’m going to tell you step-by-step on how to reconcile your budget so that you can get it down to one hour per week. Until next time, keep moving forward one step at a time.