10 Minutes to Total Financial Control

By on May 30, 2013

paycheck

What is Total Financial Control?

Knowing how much money is coming in, and generally, how much is going out. From this base, almost anything else is possible. We can begin investment plans. We can save up for that new car, the big Mediterranean vacation, or a prosperous retirement.

Shockingly, less than 70 percent of people ever balance their bank statement (bankrate.com). This may relate to the new 11.5% low reached in people paying cash for cars. If we do not have financial control, it is almost impossible to hold onto money over the long term.

With the tips from this article, all we will need is 10 minutes to get the basics for our finances out of the way per month.

3 Steps for Controlling Our Spending

Some of these concepts may sound too simple to work. Also, for those who are already recording where every dime goes, then kudos. These steps are for those who find that recording every spend and categorizing it is too much of a burden. Now we will be able to have almost the same financial control of those who are counting each separate spend, with only a fraction of the effort required.

Step 1 - Instantly Confirming a Bank Account Statement:

Instead of checking and confirming each line from our bank statement, only look for expenditures that do not look legitimate, and look at the bank fees.  We can scan either our paper statement or the online version in just a few minutes. If every debit (spend) looks like it was from you, then you are good to go. Any items that do not look right, will need to be investigated, but these will be few if ever. Throw in the bank fees, and the bank statement is the right balance. Total time: 5 minutes or less.

Step 2 - Budgeting in 5 Minutes or Less:

Write down our after tax income for the month. Most of us will know this number with one look at a pay stub. If we are a freelancer, commission sales person, or our income varies, than take an average from memory (maybe deduct some for safety).

Let's say for example, our after tax income per month is about $3900.00 per month.

Write out expenses for the following:

            A. Mortgage / rent

            B. Car payments, if any.

            C. Loan payments

            D. General utility.

            E. Communications - cell, internet, cable, etc.

            F. Childcare and memberships.

            G. Insurance

Many of us will know these expenses by heart because we have been paying them for years.

These form the basic non variable expenses for us each month. This means we cannot move this number up or down much. Now we total all the expenses from A-G, calling this our "Fixed Expenses."

From our total in after tax income, subtract this Fixed Expense number.

Continuing with our example numbers:

            After tax income:  $3900

            Fixed Expenses:    $2800

            Variable Spending:$1100

Now we know exactly how much financial wiggle room we have each month. This $1100 will need to be divided between general categories such as food, entertainment, travel, clothing, etc. Financial planners call these "Variable Expenses."

Our next step explains how we handle dividing this money and shows some of the magic of this system.

Step 3 - Controlling Expenses is the Key:

Here is how we will divide up our Variable Expenses.

A. Take at least 5% (10% at $390 is recommended), or $180 in this case (.05*$3900) and put that in an envelope labeled Savings.

B. Take 15% or no more than $585 into an envelope labeled Food.

C. Take the remaining funds for entertainment, clothing, travel, miscellaneous expenses, and put them all in one envelope labeled CET (clothing, entertainment, travel). This allows us a lot of flexibility from shifting travel funds into buying that pair of earrings we have to have.

For the rest of the month, we keep the Savings envelope separate and ready to deposit for our savings program. The Food envelope is strictly for food shopping. If we need more money by the end of the month for food, it must come from our CET envelope.

The Living is Easy with the 10 Minute System

These percentages come from the average spending patterns across the U.S. according to the Commerce Department. The only exception is that this system has a higher level of savings, as should be. Most Americans do not save enough. We will be well on our way to a strong savings program and have total financial control with this program. Friends will be amazed how stress free we are, all because while they are spending hours checking over numbers, we will have our system set-up and working in minutes per month.

Additional resources for those that like to watch and categorize every dollar spent:

Gnucash.org - A free accounting program similar to Quicken

iXpenseIt - Expense, income and budgeting app for iPhone

Easy Envelope Budget Aid - For Android, helps make envelope tracking easy.

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Mark Solomon
Mark Solomon
Contributing Writer at ExcelLiving.com
Mark Solomon is a former professional commodity trader and licensed financial adviser. He is an author of several personal finance books, including the most recent, "Bitcoin Exposed" (recently #4 on Amazon in finance) and provides uniquely profitable advice at his free Financial Survival Center. An engineer by training, he currently owns farms, manages funds, and runs an internet marketing business. Most importantly, he knows dogs are one of the keys to happiness:)

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