How to get your finances under control or A quick financial plan for the broke and screwed

Feeling financially screwed? Are you not sure if you are screwed? The following questions may help you. Do you have credit card debt? Do you have no retirement plan? Are you just barely getting by each month? When bills come, do you have feelings of anxiety? When tax time comes, does the anxiety double? When somebody suggests you save money, do you want to punch them for being so aloof about your situation? If you own a business, are you never sure if you saved enough for taxes or for things that come up?  If you are answering yes to any of these then you may be financially screwed.

Take heart, brothers and sisters! You are not alone. Being screwed is actually the new normal. There are political and economic forces working around the clock to make sure your status of “screwed” is maintained. Outside of voting as an educated person, there is nothing you can do about it. That said, you need to take back the power that you do have and I would like to tell you how. Before I tell you the recipe for getting your finances in order, you will need the following ingredients:

• A computer and internet connection.
• A spread sheet program like Excel. You can also get free spreadsheet use from Google Drive (aka Google Docs).
• A bank that offers online banking that includes online bill payment and mobile check deposit that allows you to make check deposits with your smart phone. I recommend a credit union like Patelco. Credit Unions often have free accounts and they answer to you, not their shareholders.
• A retirement fund. I like Vanguard. They do not have fees. I’ll discuss later about finding the right retirement plan for you .
• Quickbooks or some other accounting program. This is most relevant if you own a business.
• (Optional but highly suggested) Read Mike Piper’s book “Taxes Made Simple”. I also liked his other book Accounting Made Simple. They are all about 100 pages and quickly explain things.

There is one more ingredient that I didn’t put on the above list because it is such an ugly word…self-discipline. Wait…come back! It’s not what you think. This is the kind of self-discipline that feels good. Self-discipline is something anyone can learn. It is like a muscle that becomes stronger with exercise. There are ways to ease into self-discipline. The advice I am about to give is a new lifestyle that you can ease into slowly. Make a schedule to follow my plan and stick to it. I do it five days a week. This makes sense for me because I am paid daily. If you have a hard time getting started, then start small. I would suggest you spend 30 minutes five days a week to do accounting. If that seems overwhelming, you might first try doing one line item or one minute a day for 21 days just to build up the habit of opening your accounting software and becoming less afraid of it. Why 21 days? Experts say it takes 21 days to learn a new habit. If you find that’s all you can do for a while, you might be amazed how much you get done doing one piece of something a day, as opposed to not doing it at all.

Set Up

First, set up your bank or credit union accounts. You want at least two bank accounts you can access on line from the same bank or credit union. Preferably, you will also have online bill payment. You will need a checking account and a savings account. If you own a business you would do well to have a personal and business checking account along with your savings (three accounts).

Now set up your spread sheet. Using any spreadsheet you are going to make the first column a list of who you will need to pay. For example I have Pacific Gas and Electric at the top portion of that column because that bill comes up every month. Fill in the rest of your frequent money collectors. At the end of that list put in periodic collectors as needed. For example, the Department of Motor Vehicles would be somebody you pay periodically. The next column should be the amount you owe and the next column should be the due date for the bill. Each time you get a bill, put it on your spreadsheet. Notice the couple of cells on the right of all your columns. These are my savings boxes. Because you have only one savings account, you need to track what your savings is for. You’ll notice about four boxes for that. I will explain those later in this article.

Note: If you are receiving a subsidy from Obamacare and you suspect that you may not be eligible for that subsidy (you think you might make too much money) then create a bill called “Difference of Medical Premium” Each month put the amount the government subsidizes in savings and keep track of that amount in the cell “ACA”. (The “ACA” cell is one of those cells on to the right of your bill pay columns.)  If you make too much, the feds will ask for it back.  If you don’t have to pay it back, use all that money you saved to pay down your credit card debt, contribute to retirement, or keep it in savings.

Set up your retirement. Find out what kind of retirement account you need. If you have a nice retirement plan at your work that you can contribute to, great. If you are not sure what type of retirement plan makes sense in terms of tax benefits, talk to a CPA. I found that Mike Piper’s book “Taxes Made Simple” offered some good information about that.

Set up your credit card websites so you can easily find the balances. Part of this plan is to chip away at your credit card debt until is it finally gone. You may even want to transfer your balance to a credit card that will offer little or no interest. Credit card companies offer this deal to get your debt knowing full well most people won’t pay it by the time the low interest offer expires, but you are not “most people”

Set up your accounting software. This is necessary if you run a business. You may find accounting to be a daunting thing to learn. It was for me. I got the basic concept of accounting from reading Mike Piper’s “Accounting Made Simple”. I also learned a lot from Youtube videos. What I did was find a good accountant and tax preparer who really works with me. I had to go through three accountants before I found my rock star. Ask your accountant if he or she will set up your software with a chart of accounts (you’ll learn what that is when you learn more about accounting) and if he or she is willing to let you make daily entries to reduce the cost of your accounting. Each day you will make entries and you will give them categories. For example if you input $30 for Printer Toner, you will categorize it as “Office Expense” With accounting, try to work up to a 30-minute a day habit until you are caught up to date. If you are really uncomfortable with accounting, then just open up the software and do one entry a day. Eventually you will get used to the program and will increase your time.

The Goals

There are many goals here. Most of them will not come overnight, but if you follow this plan you will get closer to them each year. You need to have long-term perspective because as I mentioned earlier, you’re screwed. You are going to do tiny steps towards your goal because that is the power you truly have. By taking steps, no matter how tiny, you will feel better about yourself because you are doing all that you can given your situation. Time passes whether we take action or not.  Where do you want to be financially, five years from now? Do you want to be in that place where you chipped away at your credit card debt for 5 years or at that place where you did nothing but accrued more debt from credit card interest? 

Your goals are the following; you will crush your credit card debt, you will save for retirement, and you will have a savings to take care of emergency expenses and unemployment. Got it? Let’s get started.

The Beginning

(When you have credit card debt)

When you get your paycheck you will do the following things: 1) Deposit your check. 2) If you are self-employed go to your online banking and transfer 30 % of that check into your savings. Open your spread sheet and add that amount to your “Tax Savings” box.

3) Come up with a percent you are willing to pay into your credit card debt and pay it right away. For me it was 10 %. If you are currently stretched pick a smaller percent. Start with 1%  just to get into the habit.  Go to your online bill pay option and pay it right then and there. 4) Until your credit card is paid, pay 1% to your retirement. I set up my online bill pay to pay retirement. One percent will simply get you into the habit of paying into retirement. 5) Start picking off your bills. Find the bill due the soonest and pay it if you can. Each time you pay the bill, put a letter “P” next to the date. If the bill comes but it’s not due for another month or two, put a letter “F” for forward and be sure you add that bill in the next two columns you will make the following month (Amount and Date).  So, each month you will keep inserting two columns and use them to keep track of your bills.

Intermediate

(When you paid off your credit card debt and have no savings)

When you get your check (and if self-employed transferred 30% into savings and recorded it in the spreadsheets), put 5 % into retirement and 5 % into savings. That adds up to 10 %. That’s the amount you used to give to the credit card companies. You are about to start paying yourself. Now you are going to use the savings boxes in your spreadsheet a lot more. You can always contribute more to either retirement or savings but I’ve yet to be able to have that extra income. Let’s talk about savings. There are three tiers. The first amount of savings you want to fill up is the “Things That Come Up” category. You have to come up with a number. I decided to make that number the amount I need to survive for one month. I’ve yet to fill that up before something comes up (a vehicle repair, a sick cat etc…) but I have a long term perspective and things get better every year. When your TTCU cell is full, start putting your savings into your “Buffer” cell.  Come up with an amount of how much money would it take to survive for 3 to 6 months. If save enough to have a full TTCU cell and a full Buffer cell, then you can start saving for investments or put more in retirement. That’s not where we are right now, but that’s the general idea.

Did I mention to avoid using credit cards at all cost? If you are using them for points, then do so, but go to your online banking and pay that amount right away. Sometimes I do need more money than I have. If I don’t have funds in the “TTCU” account, I borrow from my tax savings. I have a cell with red numbers to keep track of that. I’d rather borrow from myself and try to pay it back than be under the yolk of credit card debt.

Conclusion

For some this may all seem too simple. For me, it took years to figure out even this simple plan. I still struggle because no matter how hard I try, my circumstances are what they are. The difference is that when I do run into difficulties, the shame is a lot less. By doing this plan you will at least know that you did all that you can. Hang in there; you can do it.