Sunday, February 24, 2013

Lesson 1: Budgeting

Financial Planning for the Recent Graduate


Before I teach you anything else, I have to get you to create and get on the dreaded “b” word.  That’s right, a budget.  About half of you reading this blog will love this lesson, and half of you might feel the urge to skip it entirely.  DON’T SKIP IT.  This is the most important lesson, hands down.  If you get nothing else from this series, GET ON A BUDGET.




Imagine you are the captain of a ship.  The S.S. your name here.  You're in the middle of the ocean by yourself and all of a sudden the indicator light goes off that you've run into something and sprung a leak. At first you ignore it because it's a small leak, but minutes pass by and more and more lights come on, indicating something more serious.  You run to the hull of the ship and find many small holes on the bottom of the ship where the water is coming through.  If these aren't patched up soon, your ship is going to sink.  Luckily, you planned ahead and brought several patches and sealant to stop the leak.  I don't know where you are with your finances, but I'd imagine there is money leaking out and slipping through the cracks every month.  This lesson is about tracking down those dollars and patching up your finances so you can cruise off comfortably into the sunset and get back on track with making your money behave.

The weird thing about money is it’s amoral.  Money doesn't have emotions, principles, values, and it certainly doesn't spend itself.  It won’t do anything if you don’t tell it to.  If you tell it to do nothing, it will do nothing.  If you tell it to buy drinks at a bar, that’s exactly what it’ll do.  If you tell it to buy groceries, it will.  If you tell it to support someone going on a mission trip to educate underprivileged children, it will do that too.  You are in control (and you always have been, though you may not have realized it until now).  I’m writing this right around the time where taxes are due, and you may be sitting there bewildered with the huge difference in what your W-2 says you were paid and the money that’s actually in your bank account.  Where did it go??  Budget to the rescue.  This time next year, we’re not going to sit there wondering where everything went.  This time, we’re going to be in charge of our money.  We’re going to tell our money where to go.  Each dollar we bring in is going to have a purpose.  We’re going to write every dollar down and designate it to something, and I’m going to make it easy on you.  Here’s how:

I’ve created a free Google Doc for people with a monthly paycheck, and you can access it here.  If you receive a bi-weekly paycheck, meaning you get paid twice a month, I’ve included that budget for you here.  (If you don't have a Google account and don't want one, send an email to finance4therecentgrad@gmail.com with "Budget" in the subject line and I'll personally attach the Excel spreadsheet and send it to you.) You can view, but not edit this spreadsheet, so simply go to File -> Download As, and choose the option best suitable for your computer.  Take a few minutes to look at your bank statements from the past few months and calculate the average of what you spent for food, gas, and maybe some of the extraneous purchases you shouldn’t have made.  Your bank account and your budget will tell you the kind of life you live.  The Bible says in Matthew 6:21 “For where your treasure is, there your heart will be also.”  When you are financially invested in something, your heart tends to follow it.  While you’re looking at your bank statements, pay special attention to how much it costs to go to a restaurant vs. eating at home.  We'll get into that in another lesson.

If you need an idea of how much you spend on each category each month, take the average of all of your payments over the last few months and start to fill out the budget that I included.  Our mission is a zero-based budget.  We want to end up with a zero at the bottom of the budget (inflow minus outflow equals zero) so every dollar that came in has gone to something.  For an instructional and help with filling out your budget, I've included a YouTube video here.



Tip 1: Live below your means. You’ve always heard it, but why?  Because you don’t want to live paycheck to paycheck, that’s why.  How many times have you been stuck with no money at the end of the month?  You need to tell your money what to do.  If you’re spending all of your money on restaurants or shopping, you’re losing the opportunity to save or invest.  Get on the RBR diet.  Rice, beans, and Ramen (I'm over exaggerating, but you get the point).  




Tip 2: Keep room in the budget to start saving.  We’re going to get into the importance of an emergency fund in the next lesson, but go ahead and start putting money in a savings account.  It doesn’t matter how much money you make, it’s how much you keep.  You work too hard for your money to give it all to someone else.  If all of your money is going out, you’re not gaining traction.  You’re going to learn to pay yourself first during this series.




Tip 3: Ask for help.  If you’re not embarrassed to ask, another set of eyes on the budget might help you see something you overlooked.  Find someone that you trust and that you know will give you honest feedback.





Tip 4: Try an envelope system.  You can buy one at the Dollar Tree (it's called a coupon organizer and it looks like a mini file folder), and carry around cash for your purchases for the month. At the beginning of the month, withdraw and separate your cash into different envelopes (one for food, one for gas, one for fun, etc), and that's your spending money for the month for that expense category.  Keep the cash in a safe place at home, but carry around enough cash to get you through the week.  It sounds crazy, but it works.  My fiancĂ© uses the envelope system for everything she spends money on.  Food, gas, beauty products, fun money, anything that isn’t going into a savings account.  Here’s the catch: you can’t take money from one envelope to “help” or replenish another envelope.  In other words, if you run out of money from your food budget because you went out to eat too much, tough luck.  Also, just because you didn’t use as much gas as you usually do that month doesn’t mean you get to use the money in your gas envelope to go to a movie.  This is really going to force you to be accountable for your spending, and you're going to hate me for it at first, but you'll thank me later.  Oh, and whatever you have left in each envelope at the end of the month, put it in your savings account.  That way you’re always saving something.




Tip 5: It takes time.  This is your first budget.  Give yourself some credit – you won’t be perfect the first month, probably not even the second month, maybe not even the third month, but DON’T GIVE UP. Eventually, you’ll find your balance, and you’ll finally start having the feeling of being in control of your money.  

Check out this week's supplemental video:

http://www.youtube.com/watch?v=UqWOXUCLV4E

And my YouTube Channel below:

http://www.youtube.com/user/OfficialEricDurham?feature=mhee

Questions?  Leave a comment below.


Image Courtesy of www.freedigitalphotos.net, Stock illustration - image ID: 10063484 by worradmu, image ID: 10053900, 10095094, 10088178 by Stuart Miles, image ID: 10087086 by TeddyBear[Picnic], image ID: 10068488 by Vichaya Kiatying-Angsulee, image ID: 10065994 by  David Castillo Dominici

Sunday, February 17, 2013

Welcome

Introduction to Financial Planning for the Recent Graduate






Welcome to Financial Planning for the Recent Graduate.  My name is Eric Durham, and I’m going to be your coach over the next few months, teaching you the many ways to win with your money.  This vlog/blog series stems from lots of prayer and from my friends and their echoes of “teach me your ways” after I come home with tons of groceries and pay less than $1 for them.  Most of my financial knowledge comes from personal experience, trial and error, hitting rock bottom, and climbing my way back.  I’ve been employed in some capacity and receiving income from the time I was 15 years old because of the pressures of self-sufficiency and assisting my single mother since my freshman year in high school when my father left.  Since that time, I essentially became the “man of the house”, personally, spiritually, and financially.  I was blessed to be one of the first graduating classes in high school from the Academy of Finance, and paid my way through college (with way too many student loans, of which I’m almost certain you have as well, as 96% of college graduates have some sort of student loan).  

I personally manage both my retirement and brokerage accounts, graduated with a business and a music degree, and a few months after graduation, my very generous aunt put my fiancĂ© and me through Dave Ramsey’s Financial Peace University, of which many of my financial beliefs and advice derive from.  Enough about me.  This series is about you.  This is about you not having to hit rock bottom, not setting yourself up for failure, not being stupid with your money, but instead learning to win financially. 


Welcome to the real world.  Welcome to full-time jobs (or the job search), cold calls from financial advisors and insurance agents, grocery shopping, and your first monthly paycheck!  Personally, this was one of the hardest transitions that I’ve had to go through.  We are no longer protected by our college life “bubble”, where we have tons of friends and acquaintances close to our age, parties, meal plans, free time, classes, and every resource you would need within a few miles (sometimes even a few hundred feet).



Now we are faced with a new set of challenges, including what to do with our money.  What is a good investment?  What’s a bad investment?  What type of insurance do I buy? How do I save money on groceries?  How do I coupon like those guys on Extreme Couponing?  In this blog, we’ll explore many different ways of saving money, paying off debt, and most importantly, I’ll attempt to achieve one of the most difficult tasks: changing your behavior.  If you really want to win with your money and set yourself up for success, we have to change your behavior.  These are simply words on a page if you don’t take my advice to heart.  10% of financial behavior is head knowledge.  The other 90% is your behavior, and what you do.  This blog will not get you rich quickly.  What it will do, however, is steer you clear from bad financial decisions so you can live comfortably, protect yourself in emergency situations, and retire wealthy.  To start us on a structure, I’ll highlight a few steps to ensure you’re winning with your money. 

1. Get on a Budget
2. Save $1000 for an emergency
3. Pay off your debt
4. Save for 3-6 months of expenses
5. Invest 15% of your income into a retirement account

Stay tuned for next week's blog about budgeting, and be sure to check out my YouTube channel, where many of these blogs will be paired with a supplemental video: