Everyone has good intentions when it comes to a money management plan.  Unfortunately the road to hell is paved with…ok you get the picture.  We’ve put together a set of guidelines to help you on your way.  These guidelines will assure you of a money management plan to fit your special needs. If you follow each step, It will also save you a complicated job of bookkeeping. This guide won’t be able to work miracles for you but will help show you the way to get the most out of your money.

To make a sustainable plan:

1. Add up your total income, including any funds you receive in addition to your earnings.
2. Figure out your total fixed expenses such as rent or mortgage, insurance premiums or car payments.
3. Provide for a savings fund adequate to meet emergencies and achieve special goals.
4. Estimate how much you need for day to day living expenses.

While these steps are listed in sequence, it’s likely you will arrive at your final estimates by considering them as a group. You may need to do some adjusting of the amount in each step until you have what you feel is a satisfactory plan. After going through each step and filling out the worksheet, you will have a better idea of where your money is going and how much you have left over to work with.

Before you begin to work out your plan, it is important to remember good money management starts long before you begin keeping track of dollars and cents. As we have discussed in previous lessons, your plan is a personal or family matter. You need to take a long hard look at your values. Your goals will reflect your values. No one can tell you what your lifestyle ought to be. Only you can decide how your income is spent. Effective money management will depend on the way you choose to live and the goals you plan to achieve.

So where do you cut expenses to keep the budget balanced? Travel? Clothes? Entertainment? Education? That’s up to you. Think about where you are now and where you want to be in five or ten years. Your long-term plan should reflect those goals you and your family have decided are most important.

Plan For Savings
When making out your budget, plan for savings first. You can grow richer each month if you pay yourself first. Here’s an idea you might want to try. Before paying any bills, decide on an amount, to pay yourself first–say five or ten percent–or whatever you decide– of your paycheck. Then, deposit the amount into a savings account before paying any bills. When you do this at the beginning of the month, your entire paycheck will not slip through your fingers. If you wait until the end of the month, there may be nothing left to save.

Paying yourself first gives you a systematic way to make your money grow. Regardless of the kind of job you have or your income, this system works!

Another technique you might try for saving money is to empty your change into a coffee can or jar each day. At the end of the month, roll the coins and put them into your savings account. You may be able to save up to $30 a month this way.

Remember, good money management is more than a mathematical formula. It’s too closely tied with the ups and downs of living for that. Your money management plan is always subject to change if your life situation changes. The object of a good budget is to make your money help you reach your goals, not to force you to conform to rigid rules. Don’t be discouraged if this budget plan doesn’t work out right away. You may have to revise it several times until it fits your wants and needs. Then, review it from time to time; to be sure it continues to help you use your income in the best way.

I know what you are thinking…Sounds easy right? It’s just one number divided by another. In reality, it requires detailed bookkeeping to track all of your income, investments, loan accounts, and bills. But what about your mortgage–is the principal really an expense? How about that employer stock grant program that awarded you 50 shares for a price of $26.22 but withheld 18 of the shares to pay taxes, that you then sold the remaining 32 for $28.19 two months later? Not so easy, is it?

To properly compute the ratio, you need to build an income statement. An income statement is a document that tracks the inflow and outflow of cash over some set time period - usually a month, quarter, or year. For personal finance issues, a month is a good resolution to use.

The income statement contains two main parts - one for all the cash that comes into your household, and one part for all the cash that leaves your household. Transfers don’t count. So if you contributed some of your pay to a retirement account, it really doesn’t belong on an income statement. What does belong on the income statement is gross pay, not your net. Remember to include interest from bank accounts, dividends from stock, 401(k) employer match, and realized capital gains. Unrealized capital gains will affect your balance sheet, but should not show up on your income statement. All numbers should reflect pre-tax amounts. We can account for taxes in our expense column.

This second part - expenses - is usually the longer column in the balance sheet. Aside from your regular bills, be sure to include all of your monthly insurance costs, income tax, and payroll taxes that were deducted from your paycheck (even if they were in the form of stock); and any interest you paid on a loan. This brings us to an important point:

If your car payment was $460, then only the $60 or so that went toward interest on the loan was really an expense. The payment to principal was simply a transfer of your cash into equity in your car. Remember that transfers don’t count. The same concept applies to your mortgage and student loans of course. Keep in mind though, equity you build in a home tends to stay put or grow, but the equity that’s put into a car tends to evaporate over the next 5-10 years. It’s like filling up a bucket with a big hole in the bottom.

So after you’ve tallied up all of your gross income and all of your expenses for the month, you’re finally ready to divide one by the other. Hopefully, the ratio is greater than 1. Otherwise, you’re living well outside of your means and eroding your existing net worth.  It seems like its simple, but its amazing how difficult most people find it in practice.

I am sitting on an airplane as I write this on the way to beautiful Dayton Ohio. Ok maybe not beautiful Dayton Ohio, how about “At least its not Cleveland.” The day started rough because Jackson has been sort of fussy during the days so I am not thrilled to leave Lauren to deal with everything at home while I am gone, but such is life. In any case, I got to the airport and parked. It was fairly empty but it brings me to point number 1.

1) Know your airport and allocate time to park
Unless you are flying out of an easy airport on a sunday morning, you are going to have an adventure trying to park. Figure out if your airport has plenty of parking, and if it doesn’t plan accordingly. I flew out in late fall one time and my buddy from work that I was with and I had to park far away and nearly missed our flight. Then as a bonus, when we got back we had to walk a mile to the far parking in the middle of freezing rain at midnight. Convinced yet?

I made it into the terminal with a ton of time to spare and came up to security. I put my stuff on the conveyor and walked through the screener. This brings us to point number 2.

2) Know the toiletry/packing rules (and follow them)
I have flown out of DIA on average of at least once a month for the past year. I have always just kept my toilettries in my black zip up bag despite knowing the rule about the plastic bag. I have never once had a problem with it…until today. The screener pulled my luggage off the belt and said “meet me over at the table.” So I put my shoes on walked and walked over to the TSA station. Everyone knows this is either going to be 1) quick or 2) painful. You guessed it, pain. The highly trained, polite, unassuming TSA employee started ripping things out of my suitcase while verbally berating me.

Him: “Did you even bother to read the sign?”
Me: “Sorry, Ive never had a problem with this befo…” (he interrupts me)
Him: “Um hello, so if you were smart you would read the sign and then, oh if there was a plastic bag around somewhere you could start packing your toilettries in it. Oh look, there is one.” (pointing to a plastic bag).
Me: silence (I start packing up the toiletries)
Him: “Do you talk? Yes? No? Anything?”

This entire time he is just taking stuff out and throwing it on the table. This was thrilling since I spent a good amount of time ironing things this morning and rearranging them since my carry on is fairly small.  We then had a little exchange about my shaving cream which was apparently .5 oz over the limit or some such nonsense.  Finally, this:

Him: “So?”
Me: “Yes, I got it. I will never again put my deodorant in my carry case instead of a plastic bag.”
Him: “I hope you learned something.”
Me: “Yes sir I did. Thank you for serving and protecting me. I can’t tell you how much safer I feel right now than I did twenty minutes ago.”
Him: “Good. You know better now.”
Me: “I will spread the good word.”

I guess they don’t teach sarcasm recognition in TSA school. Finally I was on my way to my Gate. This brings me to my next point.

3) If you can, fly Frontier or a similar airline. Avoid United.

Bigger seats, personal TVs, better service, 66% chance of sitting on an aisle or window. Those are just a few of the reasons. All you really need to do is fly United once and you will understand. I like to pick one airline and stick to it, its a great way to build bonus points for your personal travel for free. There are other reasons to stick to one airline such as frequent flyer status. I now get to pick where I sit on every flight, including the super extra roomy exit row. Bonus: if you read TPS faithfully you know that with the current bankruptcy you should have bought some frontier stock. And hey, why not help your business that you own a piece of.

Business travel is always stressful, but we here at TPS are here to make it managable…to be continued tomorrow…

Lauren loves HGTV and I admit I actually like a few of the programs they have on there as well.  So I am not sure who if any of you are award of this, but every year HGTV does a dream home give away.  I figure, the odds of winning are low, but entering is free and its a chance to win a house.  The link is:

http://www.hgtv.com/hgtv-dream-home-2009-giveaway-enter/package/index.html

You can enter once per day and hey, who doesn’t want a free house!

It seems like everytime I turn around lately there is some wall street mongrel being arrested for fraud.  Sound familiar? Bernie Madoff stole 50 billion from investors.  To put that in perspective, in the cost per sq foot it cost to build my house you could build a house the size of colorado.  No kidding, the entire state.

Sorry Kansis, NM, and Utah we borrowed 20 extra bill to build on you too, since the government gives out billion bills like candy these days.

Whats the moral? Well we have a few of them for you:

The experts know nothing more than you do
Have you ever wondered why the so called expert’s estimates can be wrong so often yet investors hang on their every upgrade or downgrade, moving the price of a stock each time they revise their opinion. I won’t even start on my Jim Cramer rants, since you all know what I think of him.  They use really complicated mathematical models to come with these estimates and generally, only after much schooling. It’s a given that most if not all of them are extremely bright. Then again a lot of them are not.  Of those that are extremely bright, how many actually know what is coming?  Zero.

Your broker recommends what makes them the most money
I can hear honest, hard-working stockbrokers screaming and tearing their hair out as they read this. How could any law abiding, honest individual forego every shred of decency in the name of larger commissions? Easy, just like you and I, they need to put food on the table or in a lot of their cases, a yacht in their marina. A bang on explanation comes courtesy a scene in the movie Wall Street where Charlie Sheen explains to his dad why he’s always broke. The overhead just overwhelms. They have necessities such as cars, dinners, suits, boats, expensive cigars, golf games, crown XR,  et al that somebody has to pay and it isn’t going to be your friendly broker, it’s going to be you.

The overwhelming point is this: there is no magic formula for investing to get amazing returns year after year and any broker that tells you there is is a liar and a thief.
Brokers are looking out for themselves, and any that promise returns that seem too good to be true I can promise you actually IS too good to be true.  Don’t allow yourself to get swindled.

I have had a few people write in asking about the new sponsor on the left that replaced Prosper.  From John in Portland:

“Hey Jesse, aren’t you a financial blog? Whats with the 24 hour fitness sign/sponsor?”

After my new years resolution article where I encouraged everyone to  follow through on their resolutions including getting fit both physically and financially I received an email from a VP at 24 hour fitness asking me about my experience.  I responded that I was very happy with my local 24 hour fitness sport and things went from there.   I do not personally plug companies with graphic affiliate ads unless I believe in them (as I still do with p2p lending and ING banking).

As most of you know, I am not an advocate of the ultra frugal lifestyle but the responsibly frugal lifestyle.  I believe spending money on things that are of great value, and I believe fitness is one of those things that is valuable and worth spending some money on.  If you are entrenched at your local gym or comfortable with your home gym, by all means keep at that.  If you are looking for a gym try out a 24 hour with the 30 free day trial.  Hopefully at some point I can find a introductory offer for TPS readers.

(NOTE: I did not just get laid off, I am fine, read entire article carefully, this was a dream/flashback)

I am sitting in my office when my boss comes in and says we need to talk.  I make a joke, but he doesn’t smile.  He informs me that I am being laid off.  I can hardly breathe as the shock sits in and I am overwhelmed with a sense of panic.  “Why?” I ask.  “We have to make cut backs.”  I persist “I got the highest rating possible during my last review, did I do something wrong?”  He looks away from me “No, I am recommending you for rehire if and when we can.  Im sorry.”

I have the mortgage to pay.  I have no job prospects, my resume isn’t up to date, and the job market is terrible.  What am I going to do? Now what?

This is the nightmare I had last night and it hit hard…because it actually happened to me.  This was exactly what happened to me when I worked at HP.  The difference is that now I have a fiance and son to worry about and that was the first thing that popped into my mind.  Oh my God, what about my family?  The difference between being single and being laid off and having a family and being laid off is astronomical.

Sadly, many people are living this.  I have had so many google hits on ‘Got Laid Off” and ‘Got Laid Off what now” it is scary.  I am sorry to all of you who are in this position, and I am going to help.  To those of you who are not, read on as well, you never know when it could happen.  Just friday an old friend of mine from HP got laid off after 10 years and she thought she had complete job security.

What now?

1) Update your resume right now.
Seriously, stop reading if you must and update your resume.  If you are having trouble with your resume, send me an email and I will try to help.

2) Get some exercise. 
I know this sounds weird, but it is going to help in a lot of ways.  It is going to help release some frustration.  It is going to make you feel better about yourself.  It is going to allow you better clarity and focus, which will be necessary.

3) Start Searching now.
Monster.com, newspapers, friends, strangers.  I have read a ton of career sites that say “take time, don’t rush into finding another job.”  BS, you have a family, you have bills, you don’t want to take time to reflect.

4) Get health insurance immediately.
Even if it is disaster protection (3k deductible or so).  I did not do this because I was young and healthy and I paid a big price.  I never had a major accident in my life until I didn’t have health insurance.  This is how life works.  I am still paying credit cards that were used for medical bills (4 years later).

5) Be aggressive
When you get into contact with companies and get interviews make sure you stay on top of them.  Employers will never fault you for inquiring on your status, but they might forget you if you let them.

Don’t panic and don’t give up.  There are plenty of jobs out there and remember, America is a place where wealth is created not stolen or reallocated.  Show your value to a company and you can get a job in any economy.

Got laid off what now? Now time to move onto your next success.

A picture is worth a thousand words:

There are literally thousands of books out there dedicated to this subject.  Just look in the self help section of any bookstore and you will see rows and rows of books about how to be successful.  It is not nearly that complicated.

Good planning + Action + Perseverance = Success

Of course there are a lot of details in each but when it comes down to it nearly every thing in life really is a matter of deciding to do it, doing it well, and sticking to it.

External influences are merely an environment and some sort of success can be achieved no matter what the environment.  Thats right, I believe that no matter your situation you can be successful.

Action and Persistence are things that are easily understood but I think planning often gets left out.  Lets look at some ways to improve planning:

1) Define what you want to be successful at.  There has to be a goal or there is no way to measure your success.  I would take it a step further and say forget any outside influences.  What are the things most important to you?  What are your goals?  How will you measure your progress toward those goals?  It has to be somehow quantifiable or you will end up chasing ghosts.  For example here is a goal of mine: I want to lose 15 lbs and go from 230 to 215.  Here is another goal of mine: I want to pay for our honeymoon and my share of wedding expenses without adding any debt.  Which of these two is the better goal?  The first one.  The better way to quantify the second goal is to say: I want to set aside 2000 for a honeymoon, and 1000 for a wedding ring.  Notice the difference?  Quantifiable goals can be achieved.  Vague goals leave you wanting more, and do not allow for action and persistence.

2) Study the success of others who have has similar goals.  How have they achieved their goals?  What can you use to aid yourself?

3) Be Flexible.  If a goal is not realistic or environmentally impossible, change your goal.  There is no rule that goals cannot change, just make sure not to short change yourself in the process.

4) Take risks.  Don’t be afraid, anything that is easy to attain is not success, so ‘aim high’.  Man that cliche makes me shudder but its too true to leave out.

I want you to all to be successful, so get planning!

Since I pointed out the new years resolutions that people like to make, I am going to go ahead and empower you to follow through on them instead of building yourself a gigantic tower of excuses.  Ready for your help? Alright, here it is!

1) Getting in shape
Its January 5th, have you fallen off the bandwagon yet?  Or have you even jumped on yet?  I am actually switching gym memberships from a local club to a 24 hour fitness.  I found a free 30 day trial membership.  That’s 4X longer than their standard free trial.  You may have to fight them a bit to get the 30 days instead of the 7, but it is worth it!  Also, check out my fitness blog: I don’t update it often and the others even less frequently, but there is some great information related to fitness on there, and one of my new years resolutions is to keep it more updated.  So check it out HERE.   Now, for those of you who want to get into it and get some whey protein etc I suggest buying online because you will save a ton of money.  My favorite place traditionally has been Netrition, however AllStarHealth has lower prices and good reviews (but the site is a bit harder to navigate).

2) Get rid of debt
I get a lot email about various things and I usually do short answers but this time around for the next two weeks I am going to open up for helping everyone on a case by case basis with making personalized plans.  I will take as many as I can handle.  Also, I am offering a budget calculator for download.  I plugged in some example numbers to get you started.  Now, take some time and sign up for Mint.com.  I use it to keep an eye on my spending, and it does a pretty good job of breaking things down.  Start using coupons to grocery shop.  In a survey of my friends, almost none bother to cut out and use coupons.  I also am terrible about it and I know could easily save myself more money doing it.  Check out shortcuts.com and you can load coupons onto your King Soopers card.  I have yet to try this, but I know two people who swear by it and I am going to try it out today.

I would not stash it in my bed
I would not stash it in a shed
I would not stash it in my house
I would not stash it on my spouse
I would not stash it here or there
I would not stash it anywhere
I would not hide it from a waif, by stashing cash inside a safe

And by a waif, I really mean the government or failing banks, in a using-vocabulary-loosely sort of way.

I saw a news report this morning  on the Today show that sales of safes are through the roof, partly because a lot of people are buying them to put their cash into.  They interviewed several different people who said “I just want the security” or “This is the safest thing to do” or “This is the best way to keep from losing money.”  They then dedicated exactly ONE sentence to a ‘financial expert’ who said “it may not be the best idea to stash your money in a safe at home because of inflation and some other things.”

If all it takes to get on NBC as a financial expert is to go on and say one sentence about inflation, all you first year economics majors and anyone who has ever paid attention to economics at all, let your spirits rise! You have a gig in television awaiting you.  Of course, my dog also answered correctly by placing her paw on the “bad idea” side of her good idea/bad idea snack pad.

Seriously, there are a lot of reasons not to be hoarding cash:
-Loss due to inflation
-Insecurity
-Loss due to not investing
-Paper is something easily destroyed

So here is a guide for the nervous among you from the most paranoid to the merely nervous:

Paranoid) I honestly think the United states is about to crumble
Buy a safe, but do not stuff it with cash.  Buy Gold, and stuff your safe full of it.

Damn Scared) The depression is coming and we are screwed
See #1, but diversify a little.  Put some money into FDIC insured accounts.  With the new FDIC limits a married couple can title accounts differently such that they can insure at least 1.5 million at a single bank.  Invest in some foreign currency that you trust.  Look, now you are diversified if we really are screwed, right?

Scared) I think we might be screwed
FDIC insured accounts, bonds, and foreign currency are your friends.

Nervous) The rest of us
Diversify but keep investing.  Remember, we are in this for the long haul.

I would encourage you all to restrain the feelings of panic.  Yes, there are some troubling things going on, and yes, you should be careful where you put your money but that doesn’t mean its time to go back to stashing dollar bills.