budgeting guide

Budgeting Guide – Financially Fresh, Focused, and Fit – Better Budgeting Basics

It’s time to start a new better financial budgeting you. You need a fresh start to focus back on the basics of solid budgeting. I have created a simple but effective budgeting guide. This thing is sure to get you financially fit.

Focused Finance Fitness – Budgeting Guide – 10 Basic Exercises to Better Budgeting

This budgeting guide gives you everything you need to know to pay off debt, spend less money, save more money, make more money, and reach than surpass your financial goals. To get ahead financially you need solid debt management knowledge, skills, and habits. Follow my guide and you will come out way ahead of what you thought was normal.

Better Budgeting and Financial Management Exercise 1 – Determine Net Worth

You can think of this as like taking a before picture before starting a new workout and diet routine.

To find your net worth we simply take all the debt and liabilities you have and add it up. Next we do the same with all your assets such as cash, bank accounts, etc.

Liability List

  • Credit Card Debt
  • Other Personal loans not secured
  • Mortgage debt
  • Car Loan
  • Store Credit Accounts
  • Home Equity Lines of Credit
  • School Loans
  • Medical Debt

Asset List

  • Bank Accounts
  • Cash
  • Investment Accounts
  • Jewelry
  • Home Value
  • Car Values
  • Other Property of Significant Value

After you have the totals of both assets and liabilities you simply subtract the 2 numbers. The figure you end up with is your current net worth.

Better Budgeting and Financial Management Exercise 2 – Determine Free Cash Flow

To understand what free cash flow is just imagine for a second that you are a company and not human. Your profit is calculated by revenue take away expenses and costs. Company profit is the same thing as your monthly free cash flow.

So to get the free cash flow figure we will simply add up your before tax income and any other payments that come to you as income such as government money or welfare or whatever it is. Once we have that figure we have to get your total expenses. Everything that you have to pay for excluding loan payments and excluding investment installments.

Now that you have income and expenses get the difference and that figure is your free cash flow. Now we want to hope to God that the number is positive. We will go ahead and assume that you do have a positive free cash flow.

Better Budgeting and Financial Management Exercise 3 – Planning, Mapping, but not yet starting the Reverse Secured Debt Snowball

For the moment we are going to continue maintaining the minimum payments on all secured debt. We are going to figure out which debt has the highest interest rates. In the future on that particular debt we are going to spend all our excess free cash flow after account minimums.

Better Budgeting and Financial Management Exercise 4 – Commence Debt Settlement Efforts

That’s why we are not paying credit card debt or other unsecured debt. Instead of this month’s payment we are going to write a financial hardship letter and create a budget for our creditors.

With the money that we would typically give our creditors we will invest in a low risk security that we can safely dip into after one year to settle debt.

Better Budgeting and Financial Management Exercise 5 – Consolidation loan for secured debt – Cash Back Refinancing

Realizing that we have several high interest secured loans, cars, as well as our unsecured student loans (which seem more like secured loans backed by our human right to breathe lol). Just saving 3% on 20,000 for one year would be 600. By getting a low interest mortgage refinance with cash back that we can use to consolidate debt we will save way more that 3%. This is because of today’s low mortgage rates.

The first place to look at refinancing options is the Obama refinance HARP program. This may or may not be a option for you but it is worth a look.

You may be asking yourself, “Should I refinance?” This may not be the best way to get a debt consolidation loan for everyone. If you are unsure then start researching the topic. 

Better Budgeting and Financial Management Exercise 6 – Past Spending Habit Cuts

Like we just saw in the step above not spending money we would typically see is the same as making extra money. With this concept‌ in mind we are going to have some frugal fun adventures. First let5s just stroll down every day memory lane. What do we buy ourselves regularly that we don’t really need?

Examples of Frivolous Spending Cuts

  • 2800 – Daily Star Bucks Coffee and Occasional Treat – $2800/yr
  • 600 – Cable
  • 85 – Only see $5 movies on Tuesday nights
  • 960 – Random overpriced Take-out all alone
  • 1244 – Replace nicer at home 15$ meal with Not so nice 2$ meal twice a week
  • 100 – Commit to Beating Last Years Power Bill by 8.50

5789 Total Annual Savings

Better Budgeting and Financial Management Exercise 7 – Transfer Frivolous Spending Savings to Emergency Cash Fund

Now that we have aggressive funding towards paying off all our debt let’s be sure to manage our risk of unforeseen problems that will most likely be expensive. Ideally we need to save 10,000 for adults with no kids. With a couple of kids w e should have at least 15,000 though 20,000 would be ideal.

Better Budgeting and Financial Management Exercise 8 – Negotiate Final Debt Settlement Agreements

After 1-2 years our debt settlement agreements should be ready and negotiated down to 50% or better. It’s time to look them over and sign. Make the lump sum payment that we have been saving for and say goodbye to credit card debt forever.

Better Budgeting and Financial Management Exercise 9 – Switching from Paying Down Debt to Paying Up Our Financial Future

Now that we have paid off all our unsecured debt we will find that we have a rather large sum of extra cash each month. We are going to want to start investing it for the long-term. I think a simple way to start is with Vanguard.

2 Great Low Cost and Long Term Vanguard Investments

  • They have two great starter funds. If we are only going to have one I would start with the Vanguard STAR Fund – VGSTX which is a Fund of funds. It’s very well diversified and has a solid long-term track record with very low expenses.
  • The other is a simple S&P 500 index fund they offer. This will just perform as the overall market performs and has almost no expenses. Over the long run the index fund should have better returns but will be more volatile.

Either one is fine to start.

The idea here is to continue living frugally and to start putting away money just as aggressively as we were paying down debt. The goal is to save every possible penny until we hit our first magic number which at a minimum is 110,000 and a max of 250,000 in long-term savings.

Once we reach these heights we get to a point where just by reinvesting our returns we are saving a significant amount. Thus we can relax our monthly efforts and enjoy the fruits of life a little more.

Better Budgeting and Financial Management Exercise 10 – Make Extra Money

Another great way to improve our financial footing is to figure out a way to earn extra income. The exact method to do this is going to depend on the individual. But if I had to suggest just one way for everyone it would be to start an online business.

Final Thoughts on Following this Budgeting Guide

No one is going to be able to follow this budgeting guide perfectly. However sticking to the general plan and more importantly the principles of this guide will lead to financial success and ultimately your financial freedom. Keep exploring healthy personal finance practices by utilizing resources such as this useful finance blog and you will be destined for long-term financial success. 

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