The Year 2020 has taught everyone that mastering their money should be a priority. I can remember a time in my life when I had no clue of how I spent my money. I just knew that my next paycheck did not come fast enough. Have you ever experienced living paycheck to paycheck?
I am sure that we can agree that it is absolutely no fun! If it is your goal to take control of your money instead of your money controlling you, I would like to share five simple action steps that you can take to master your money. Today, I am a Money Master and I teach others how to become one too!!
Action Step #1 – Track Every Penny You Spend
I found this to be the best way to be more conscious of where I was spending my hard-earned dollars. I tracked my spending for three months using a pocket- sized notebook that fit in my purse. I wrote down everything that I purchased even if it cost a penny ($0.01). I really wanted to see where my holes were so that I could plug the leaks. It does not matter how you track your spending. The most important thing is that you do it.
There are online tools that you can use to make tracking easier. My personal favorite is Mint, www.mint.com, which you can sign up for free. There are other tools that you may like better, but whatever method you choose to use, stick with it, and make it a habit to record your purchases daily. The primary focus is to collect data, not change your habits. We will focus on new habits later.
Action Step #2 – Develop a Budget
Now that you have tracked your spending, it is time to use your data to create a budget. There are so many of us who are afraid of the “B’ word. Gotcha, not that “B” word!! Oftentimes, we feel that a budget is useless because either we did not stick to it in the past, we do not know where to start, or that we must have a certain income level. I get it! I felt the same way too!
However, I learned that budgeting is the one thing that sets the wealthy apart from the rest of us. Fifty-five percent (55%) of millionaires keep a budget. Also, I learned that I would not become a Money Master until I knew how to master my money and I would not be able to master my money if I did not know how my cash flowed in and out of my home. Therefore, I began with a simple formula known as the 50/20/30 Budget Rules:
Essentials (50%) – mortgage/rent, food, utilities, insurance, car, debt, etc.
Savings (20%) – retirement, emergency, general, college funds, IRA, etc.
Wants (30%) – gifts, dining out, shopping, vacations, purses, jewelry, etc.
The simple act of creating a budget started me on my path to becoming a Money Master and it could do the same for you. I began with the Excel spreadsheet, Personal Monthly Budget, that has pre-filled categories and simply entered my numbers. I still use it today! Of course, you can use Mint to do the same.
Action Step #3 – Open an Emergency Fund
The first thing I want to point out is that an Emergency Fund is not the same as your savings account. According to the dictionary, emergency is defined as “a serious, unexpected, and often dangerous situation requiring immediate action”. For example, job loss, health crisis, major car repairs, or the replacement of a major appliance. These setbacks used to put me in a cycle of debt until I realized that $1000 could handle most emergencies. Gone are my days of financing an emergency with credit cards. More on this topic later.
Now, I teach everyone to start with saving $1000 as fast as they can in an account for emergencies only. Once you reach $1000, then the next goal is to save to cover six to nine months of expenses, essentials only. This will not happen overnight, but you can do it. It takes focus, discipline, determination, and making it a priority. As a result, you will have peace knowing that you could withstand the “storms” of life. Open yourself an emergency savings account at the financial institution of your choice. As for me, my emergency fund can handle 16 months of expenses before I hit the panic button.
Action Step #4 – Get out of Debt
At the end of 2012, I said good-bye to eight years of debt. It is such a wonderful feeling to know that I can pursue my passion because I no longer have that weight on my shoulders. Do you know what you can do when you do not have to make payments? Anything that you want!!
I believe that debt is really a myth! We have all heard that there is “good” debt and “bad” debt. Here is the truth: there is no such thing as a good debt if you cannot afford to pay it off. When you cannot make the payments, the only difference between “good” and “bad” debts is that the bad variety can destroy your financial life much more quickly.
Debt management is essential. Here is how we know that we may have more month than money:
Only make minimum payments,
Overdrawn and past due accounts,
At or near credit card limits,
Do not know how much you owe,
Use cash advances to pay bills,
Denied credit or credit purchases, or
Get calls from collection agencies.
Here is the plan that I used beginning in 2004 to become debt-free. It is widely known as the “Debt Snowball”. It allowed me to experience success quickly through small wins. Each psychological win kept me motivated until it was all paid. Progress is everything!!
Here is how it works:
List all debts from lowest to highest balance with interest rate, current balance, and minimum payments in a debt paydown calculator. You can find a calculator at Debt Paydown Calculator – Eliminate and Consolidate Debt (bankrate.com).
Example: Follow the instructions and enter the data in the calculator.
Debt #1 – $500.00, interest rate 10%, minimum payment is $30.00.
Debt #2 – $2000.00, interest rate 5%, minimum payment is $75.00.
Debt #3 – $15,000.00, interest rate 19%, minimum payment is $450.00.
Determine the additional money you can pay towards debt each month, i.e., $100.00, and enter it in the calculator.
The calculator will create a payment schedule to pay the minimum payment on all debts except Debt #1. It will pay Debts #2 and #3 as usual for a total of $525.00.
The remaining $130.00 will apply towards Debt#1, the lowest balance. You will pay this balance in four months whereby $30.00 would have taken over a year.
When Debt #1 is paid off, the calculator will add the $130.00 from Debt#1 to Debt #2 and begin paying $205.00 per month until Debt #2 is paid.
Finally, you will apply the entire $655.00 to Debt #3 until it is paid.
Can you see how this method would allow you to pay off your debts quicker and build your confidence on becoming a Money Master? However, you choose to get out of debt, do not give up. Let us create your plan today to buy back your freedom and stop leasing your life. We are not free until we are debt-free!
Action #5 – Automate Your Finances
Finally, technology brings automation. We no longer must think about paying our bills or saving each month. We can set it and forget it. I just love this banking feature. Setting up automatic transfers or “bill pay” for my financial transactions proved to be invaluable for me. I do not have to worry about late fees, missed payments, or not sticking to my plan. All my expenses are paid automatically. All my savings are transferred automatically. This removes the human element and prevents mistakes.
Mistakes can be costly when checks are returned and bills go unpaid. These simple mistakes cost us in more ways than one when it comes to getting car insurance, applying for credit, renting an apartment, or buying a home. I do not even want to mention overdraft fees of $29.00 – $39.00 that could add up to hundreds of dollars per month. Yes, I experienced all of these before I decided to master my money.
Log in to your bank account today and set up automatic payments for all your expenses, automatic transfers for all your saving accounts including retirement, and alerts for low balances to avoid fees.
You are on your way to becoming a Money Master if you follow these five steps! What are you waiting on? Do it today!!
Contact C.A.N. Financial Services, LLC, 832-496-0886, and let us help you become a Money Master.
Cynthia Fields Daly is a Certified Public Accountant and licensed financial professional. Cynthia holds an MBA in Finance and has been teaching and helping individuals and families with their finances since 2008. She served 28 years in the United States Army, worked 4 years for the federal government, and 5 years for corporate America before becoming fully engaged in the financial services industry in 2019.
C.A.N. Financial Services’ objective to help families fight for their financial freedom by providing training and solutions that will transform lives and leave no family behind. Cynthia serves her community by providing free financial education classes at local community centers, businesses, schools as well as partnering with other organizations that serve women and Veterans.