Dear Dollar, Genus? Species?

Yesterday we talked about the basics of what I call The Babylon Budget.

For a brief review, this is a budget in which you allocate all of your paycheck as follows:

1/10th to savings
2/10th's to debt
7/10th's to living expenses

The tenth of your income going to savings is pretty straight forward. Take your paycheck and divide it by 10. That is the amount you should be putting directly into savings each paycheck.
For example, if you get paid $500 every time you get your paycheck, you should be automatically putting $50 into savings. This is going to help you start to build your personal wealth and we'll talk more about investments at another time.

So now we have two categories left: debt and living expenses. Everyone has lots of different bills, utilities, housing, gas, credit card payments, etc. So how do we decide which expenses to classify as debt and which qualify as living expenses?

My rule of thumb is that if I owe money over a period of more than 2 months, it's considered a debt. Here are a few examples of things I allocate 2/10th's of my income to:

- Credit card payments
- Past due accounts
- Medical bills

What's really lovely about this plan is that once you have eliminated your debt, you now have the 2/10th's of your income that was previously paying off debt just sitting there, burning a hole in your wallet!
Let's use the same example as if we made $500 each pay period. You would be putting $100 toward paying off your debts every time you get paid. As long as you don't rack up any other debt, your credit cards and other debts will be paid off in no time!!

What about the mortgage and the car loan? Aren't those technically debts?

Yes, technically they are. However, since you need a house to live in and a car to get to your job, we classify them as living expenses. Here is a brief list of things that could be considered in the living expenses category:

- Mortgage/rent payment
- Car payment (&insurance)
- Groceries
- Gas for your car
- Utility payments
- A few creature comforts (non-necessities)

Example: If you make $500 each pay period, and you are allocating 7/10th's of your income to living expenses, you would be budgeting to spend $350 on these things each time you are paid.

So to go for a brief overview and example, your Babylon Budget might look like this:

Keep in mind this is just an example. 

As difficult as it may seem to think about, you really can afford things. That is one thing using the Babylon Budget has taught me. It made me realize just how poorly I was managing my own finances by forcing me to break down how much should be going towards everything each month. Better yet, having everything in a list like the one above can make your bills seem a lot less intimidating.

As always, please feel free to contact me with any questions you might have. I am more than happy to answer them!

Cheering for you always!

Dear Dollar, What are the Rules?

Everything in the world is governed by a set of rules.

There are limitations to physics on earth, and a set of rules that tell us what those limits are. The same idea applies to money - there are rules and limitations that govern what money can and cannot do. It's much easier to play a game (and win) if you know the rules before you begin.

In a fantastic book that I would highly recommend you read, these rules are laid out and explained. The book is called, The Richest Man in Babylon and we'll be talking about it a lot when it comes to finances. Top financial companies all over the world use this book as part of their training program for their financial advisers and investors. Get it here if you don't already have a copy.




Here is a brief list of the rules in summation:

1.    Start thy purse to fattening
2.    Control thy expenditures
3.    Make thy gold multiply
4.    Guard thy treasures from loss
5.    Make of thy dwelling a profitable investment
6.    Insure a future income
7.    Increase thy ability to earn

I'll be going a little more in depth with each of these rules, discussing the parables as we move along through the book. Just consider it your own personal money Bible for now.

Yesterday we discussed Budgeting for Lazy People however, the budget I'm currently trying to work with is what I call the Babylon Budget. It's a budget derived from the principles described in this book. Just quickly so you can get an idea of what I'm talking about, it looks kind of like this:

Of All that You Earn,
1/10 is yours to keep (savings)
2/10 goes towards paying down debts
7/10 is for living expenses

So as an example, your budget might look kind of like this:

Well get further into how to properly classify your expenses in the next post.

Always cheering for you!!

Dear Dollar, Please Balance.

For my first official post, I'd like to discuss the all-too-boring and tedious prospect of budgeting.

I know, I know...you don't want to hear about it and frankly, I don't want to talk about it. Sure you should definitely have a budget, blah, blah, blah.

However, the reality is that most of us are just plain unwilling to take the hours and dedication necessary to obsessively track expenses and categorize  our 500 debit card swipes a month.

So I've come up with a system that works relatively well for me:

BUDGETING FOR LAZY PEOPLE!

Yep! You heard me! Now, this isn't a typical "budget" but more so a way for the rest of us to begin to get a grip on our finances. You have to start somewhere.

The system goes as such:

1. Organize on payday.

You'll want to gather ALL of the mail you've received since your last paycheck. First, get rid of all the junk mail. Next, separate bills from non-bills. Now, take your bills and put them in two stacks:
1) Bills that are due before your next pay-day.
2) Bills that are due after your next pay-day.

The bills that are due after your next pay-day, set aside. You can deal with those next time around. The bills that are due before you get paid next, sort according to their due date. What I do next is to take a sheet of scrap paper, and write down how much money I have in the bank now that I've been paid as well as a quick list of all the bills in my "due now" and the amount that is due. If you are super lucky, you'll be able to pay all your bills and have plenty of money left over until next pay-day. If you are like me, you might have to start making decisions. Some bills will be more flexible than others on the due date or amount you can pay, but at least you have all the info in front of you at once.

2. Pay before you spend!

This is a crucial step in making the Lazy Budget work. Before you've spent even a dime of your paycheck, write out all the bills that are due (if you can, and within reason) and send the checks. Now you know how much you just wrote in checks - subtract that amount from your paycheck. That is the money you have left over to spend on your general living expenses like food and gas until your next pay period. But hey - the bills are paid now!

3. Keep at least kind of tracked as you spend.

Now the rest that is left over after bills is yours to spend. I would highly, highly, highly recommend that you take at least 1/10th of your paycheck each time you get it and have it automatically moved to a savings account, preferably one with a decent interest rate. You'll never get ahead financially if you keep giving your money to other people. You must meet your existing financial obligations of course, but this is the key to building personal wealth. Save a little bit - trust me, you didn't need a new shirt that bad.

Here's an example of what the Lazy Budget looks like:

Give it a try! Let me know if this works for you (or not) in the comments!

Always cheering for you!

Dear Dollar, Welcome!

Money talks, right?
But are we listening?

The economy is in the tank, there are record numbers of foreclosure and bankruptcy, and pretty much everyone who isn't extremely wealthy is having trouble these days.

I created this blog in the hopes that the billions of things I've learned researching how to manage my personal financial budget will perhaps be able to help someone else out there. Even if weeks upon weeks of writing only amounts to my having helped just one person, if I can do that much, it was well worth the effort.

I won't get on a high horse and say I know everything about money management - I'm sure I don't.

BUT, in the very least I can tell you what I DO know and hopefully it'll deliver the kind of value that will help your financial situation. If at any point you have any questions I might be able to answer, please do not hesitate to contact me! I want to be able to help you in any way I can. This is important stuff, and no, you aren't "bothering" me. polkapopworldwide@live.com 

Always Cheering for you!