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Owning Your Shit: day 14

This is part of the Unleash Your Inner Money Babe series. You can checkout yesterday’s post here.

Denise Duffield-Thomas, in her book Get Rich, Lucky Bitch, dedicates an entire chapter to exploring why women so often give up their power when it comes to money. She uses celebrities as examples of how women in particular give away their money power to others, and how the majority of the time it ends up leaving these women broke and angry. I don’t what any woman to end up in this kind of situation.

I am a control freak when it comes to money. And in my relationship, I handle all of the finances. I have a bachelor’s degree in business administration with a double major in finance and management. So when women come to me and say things like “I don’t understand numbers or math” or, “money is too complicated for me,” it boils my blood. If you are smart enough to raise a child you are smart enough to deal with your money. If you can start a business you can manage your finances. And if you have ever read a non-fiction book, you can get your financial shit together. It’s not hard. Stop with the victim bullshit and take back your power!

Don’t quit. Struggle now and live the rest of your life as a champion – Muhammad Ali

Today I am going to give you a straight-up lesson in managing your personal finances. I’m so sick of women coming to me and explaining that they can’t manifest financial abundance for their family because their husband takes care of the money and they are in the dark about their bills, debt, and savings. You don’t get to stick your head in the sand anymore. It’s your time, and you are ready for the next step.

You Need a Budget

There are always going to be people who have better clothes, nicer houses, and more five-dollar bills to spend on strippers. You just have to decide what you are willing to settle for and what are your must-haves. This is what a budget is for. You get to define your needs and wants, your must haves and your nice to haves. A budget makes you look at your life and your spending and helps you determine what’s really important.

Is wine a need? What about organic vegetables? Is living downtown in a penthouse apartment one of your must haves? Is wearing Oscar de la Rena to your friend’s party really something you need?

We have needs and we have wants but we need to be able to distinguish between the two in order to have a balanced life. You might want to take a $30,000 trip to Bora Bora but in actuality finishing your $30,000+ degree is more important. This is what a budget is for. You need a budget not because you overspend or because you need to save more. You need a budget because you need to know what’s important to you (and because you need to know if you overspend…).

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If you have never budgeted before you may start to feel like you are cutting out a lot of things that you don’t really want to cut out.

It may start to feel like you are depriving yourself of everything that is fun. It is not about depriving yourself of things, it’s about buying things you care about. Don’t think of it as giving up Pizza Hut, think of it as gaining a trip to Europe.

Frugality is the beginning, not the end of wealth creation. It’s like fitness: it’s a lot easier to not eat an entire medium Cheese Pan Pizza from Pizza Hut than it is to burn 1,920 calories. The same concept applies to money management; it is easier to not spend $50 on a new pair of shoes you don’t really care about than it is to save $50.

Don’t get me wrong, I’m all for spending $15,000 a year on clothes if that is your definition of rich. But if your definition of rich is sitting poolside with a drink in your hand somewhere down south for six months of the year, maybe spending $15,000 on clothes isn’t the right choice for you. Plus if you’re laying by a pool in your bikini all the time what do you need clothes for?

How to Make A Budget

I could describe how to create a super awesome, detailed budget. However, I think it’s just easier for you to actually create one yourself. Download the prebuilt budget below, plug in your own numbers, and figure your shit out.

Just one thing, make sure you use realistic numbers. If you really don’t know what you spend take some time looking through your financial documents (credit card statements, bank statements, etc). Add up how much you spend on food, housing, fun, pizza, your business, all of it. Use realistic numbers for your budget to get the best results.

Also, track your spending! Whether you use an app like Mint or track your spending using a pen and paper it’s important to know approximately what you are spending so you can stay within your budget once you make one. Personally, I use one credit card for all of my spending. I log on to my credit card app everyday to check my balance and once I reach my spending limit I stop spending.

Download the a free copy of the budget template below. Start to type in your numbers to get an idea of where your money is going (just click on the photo of the budget below and save a copy to our own Google drive):

budget define your rich

As you input your bills and expenses into the spreadsheet make sure you show gratitude for your money. Which of your bills are you most grateful for? Which of your income sources are you most grateful for? How can you thank all the companies that are charging you for their incredible services that you have access to?

Gratitude is the best way to bring more abundance into your life. And although you may feel like these companies are sucking your money supply they, are actually just providing you with a service that enhances your life. Be thankful for these companies and the services they provide to you. Imagine if you had to go through life without them.

Save Six Figures

As you start to look though your credit card and bank statement write down notes. Open up everything that pertains to your money, and track what’s going in, what’s going out, and when. Figure out how much you owe so that you can set a realistic goal to pay it back. And, if you have some extra cash (you do), you can look at saving some for the future.

If you really want to stretch yourself and get excited about your savings download the spreadsheet below and learn how to save six figures (or more) in seven years or less:

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Dealing With Your Debt & Spending

If you have some debt, like a lot of us do, it’s not the end of the world. You can save six figures and payoff your debt if you believe you can.

There is no good or bad reasons to be in debt. There are just causes that led to the effect: debt. Personal finance is super personal. No one can, or should, tell you what is right for you. That’s a decision you need to make for yourself. However, if you are in a situation that you don’t like, something needs to change.

Being in debt isn’t really a problem for most people until it starts limiting their ability to do things they would like to do. This is considered your opportunity cost of having debt. An opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action. In other words it is what you are giving up by making a choice. Another way to think of it is the cost of a choice. The opportunity cost of buying a pizza from Pizza Hut is that you forgo the option to buy a Panago Pizza. The opportunity cost of reading a book is that you can’t spend that time watching TV. When you chose to date Louis your opportunity cost is not being able to date Harry, Niall, or Liam. It is what you are giving up in order to get something when you make a choice.

Debt only becomes an issue when the opportunity cost of having debt outweighs the cost of your goals.

For example, Grace, a 24 year old recent university graduate, has a huge passion for helping autistic children and wants to pursue a career in psychology. For her to be able to get a job in this field she needs to take a masters level program (and eventually her PHD). Her grades are strong and she probably could get into a great masters program, however, Grace has $49,000 of student loan debt and another $5,900 in credit card debt and no one will lender her the money she now needs for her tuition. If Grace didn’t have the debt she could qualify for the loan needed to pay for her masters program. Grace’s opportunity cost of having debt is that she can not afford to go to graduate school. Debt only becomes an issue when it prevents you from pursuing your goals in a meaningful way.

On the other hand, if Grace was happy with the schooling she received and just wanted to get into the working world this debt most likely wouldn’t be as big of an obstacle for her. Her opportunity cost for having debt would be low compared to what she was giving up. I’m not a fan of the “good debt” versus “bad debt” debate. I think that, well for one, no debt is good debt, but also that you as an individual have to decide how much debt is too much debt for you. Personally, I strive to have zero debt; that includes paying off my mortgage and any other debts I may have. But the debt level you are comfortable with might be different. And that’s ok, too!

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How to Get Out of Debt – The Snowball Method

The Snowball method of paying off your debt is paying off the debt with smallest balance first so you see progress right away. For example, if you have a credit card with a $250 balance, a car loan with $15,000, a LOC with $1,000 and a student loan with a $40,000 balance, no matter the interest rate, no matter what debt you really want to pay off first. Once the first debt is paid in full you then move on to the next highest debt. So in the the example above you would pay off the debt in the following order:

  1. Credit card @ $250 with an interest only minimum payment of $10 per month
  2. LOC @ $1,000 with an interest only minimum payment of $15 per month
  3. Car Loan @ $15,000 with an interest only minimum payment of $200 per month
  4. Student Loan at $40,000 with an interest only minimum payment of $250 per month

How it works is this: you make the minimum payments on all of your debts then. You allocate all the extra debt repayment money in your budget to the lowest balanced debt. Continuing with our example, say you have $1,000 per month allocated to debt repayment.

The calculation for Month #1 looks like this:

$1,000 – $10 – $15 – $200 – $250 = $525 extra

$525 – $250 (credit card paid off) = $275 extra

$275 – $275 (LOC is now at $725) = $0 extra

Month #2 would look like this:

$1,000 – $15 – $200 – $250 = $535 extra

$535 – $535 (LOC in now at $190) = $0 extra

And month #3 would look like this:

$1,000 – $15 – $200 – $250 = $535 extra

$535 – $190 (LOC paid off) = $345 extra

$345 – $345 (car loan is now at $14,455) = $0 extra

*Note: we are assuming that none of your payments pay down the principle on your loan. This is for simplicity sake but in reality a portion would be going toward principal meaning that this example is actually the very possible worse case scenario. It will most likely take you less time to pay off your debt in the real world.

Your Money Ritual

Technology has given us the ability to constantly be in contact with our money. I can log into my credit card app on my phone I can check my balances, pay my bills, and send money with a click of a button. That’s pretty cool!

I check up on my debts, bank accounts, and investments daily. Just like I would check in on a friend, I check in on my money to see how it’s doing. It might seem scary at first, to look at your debt/bank balance everyday. But after a while it will start to feel easy and fun. And, as we all know, what gets measured, improves. So by measuring your money everyday it will improve.

Some people find it easier to check in on their money everyday if they have a money routine. What do you plan to do when checking your bank balance every single day? Is it lighting a candle? Turning it into a dance party? Is it pouring yourself a glass of bubbly? The more fun you make this process, the more rewarding it will be.

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How to save six figures in seven years or less. Money comes easily to....