Financial Screen Shot | How a simple budget and a plan can save you headaches and pain | Transcription
Transcription for the video titled "Financial Screen Shot | How a simple budget and a plan can save you headaches and pain".
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This is day-a-a-a-a-a-a-a-a-a-a-a-a-a-de-a-a-de-a-de-a-de-a-de-e. Today, I'm your host, elite life-authorization coach Ryan Naidel, and today is day number one, and the Quadrant of Finance. So we've been over fitness together now three weeks ago. We've been over faith two weeks ago and last week we were in the Quadrant of family and today we're diving into the fourth part of the foundational aspect of everyone's life which is the finances that govern what you and I are capable of doing. Now, admittedly, in my quote unquote protocol, I would have you begin to discover something new that will catapult you forward. Right, this would be reading. This would be, you know, acquiring new information and then figuring out how to apply it. So it would be discovering something and declaring it to someone that you know like trust and respect they can help hold you accountable to pulling off the goals etc etc. We're going to get into that in the upcoming days but that is not what today is about. Today is more specifically some tactical information about your finances. And I share this because in the past week two separate clients have had conversations with me questions guided or needing guidance as it pertain to the finances and how to structure them in their life.
Financial Planning And Budgeting
Household expenses rent mortgage (01:51)
And so I feel compelled to share at least what I believe to be a proper protocol. Now I want to put an asterisk next to this that I am in no way shape or form a qualified financial advisor. I'm not a fiduciary. I'm not on investment strategist. This is simply practical information that will benefit every person that I know. We're going to talk about this in the sense of your household finances. Now whether you own a house or you rent a house, whether you have roommates or fly in solo, whether you're married or single, none of it matters. The application of what I'm willing to share with you is universal. And so it's all going to start with you, pulling out a sheet of paper. Now if you're listening to this as you're driving around, obviously don't do this while you're driving. You can use your phone if you want to park to the side of the road or come back and visit this later. But I find it fascinating how many people don't know what I refer to as their burn rate of cash. i.e. how much money does it take you to live and exist on a monthly basis? ...... And that's where the game starts for me. And we're to start with what is probably your most expensive hobby living indoors. Yes, it's not a requirement, right? You and I don't have to live inside. We could live in a tent. We could live outdoors. But we choose to stay indoors. And of course we have to factor in what that costs so the top of the sheet of paper write down rent mortgage whatever it is and write down the dollar amount now if you have a mortgage and it1,267, just round up to $1,300. Don't round down, don't do any of that stuff. Typically, over a long enough period of time, your property taxes are going to increase, not decrease. The operational expenses are going to go up, not down. Round up to whole numbers.
Truly decide what reet-moving costs (04:06)
In my opinion, it makes it much easier to do the math later. Now we're going to go in descending order. We're going to come up with ever the next highest bills are that you have.
Car purchase (04:16)
For most people, maybe for you, it's your car payment. Your car payment is 425 bucks a month. I'm going to have you rounded up to 450. Then we talk about insurances, right? If it's, you know, your health insurance, your renters insurance, whatever it is, list all the insurances that you have and round all of those up to either the nearest hundred or nearest 50 right so if it's 167 bucks just rounded up to 200 and you put all these down see these are what I'm going to call the fixed expenses of your life these are the things we're not talking about food yet not talking about gasoline we're talking mortgage we're talking insurances we're talking car payments, we're talking car payments.
Upper Rounds (04:45)
I'm even going to throw in there in modern day society. Let's talk cell phone bills. Let's talk internet access. Let's get clear on all the specific bills one by one. Now let's also get clear on utilities.
Variable costs (05:22)
Right I know utilities are a little tough because depending on where you live, seasonality is going to play a role in your electric and gas bills. Do the best you can, still round up to the nearest 50 or 100, whatever is closer. At this point when you get all the way down to the bottom you're going to come up with a total. That total is what the total is. You know I'm going to shoot wildly here and let's say it's 3,000 dollars. We still haven't talked about gas for your car. We still haven't talked about food. So let's cover those, right in another column, another part of the what I'll call this worksheet. We're going to really clear on kind of the discretionary spending. The variable expenses of your life, right? These can change on a week by week basis. Let's start with gasoline. You have some idea what you spend a week by week basis. Let's start with gasoline. You have some idea what you spend a week in gas. And drive a truck, it costs a little more money. My gas expenditure, I have equated as $100 a week. This is where most people make a mistake. There are 4.3 weeks in a month, not 4.4.3. So you take that 100, multiply it by 4.3. So that's 430 bucks, then round up to 450. Same thing with food. As I look at what our family spends a week on food, this is just things, going to the grocery store, bring home food.
Dustin Time (07:05)
Just that part. Or about 200 bucks a week, for myself, my wife, Gianna, and of course we eat organic food, we eat things like that. Whatever your actual totals are, we're not talking talking going out to yet. This is just going to the grocery store. So again I'm gonna multiply that by 4.3. And so 860 bucks, which means I got around up to 900. Now we can start talking about how often you go out to eat. And this is where it's going to be shocking for most. Let's be real with each other. If you are a single individual, we are not counting the $13 you spend at Chipotle, and then the $25 you count at VW3s, right? That's one day, we're going to round up and say that's really 50 bucks worth of spending. You do that three times a week. That's another $150 times the same 4.3. Is it starting to click a little bit now? Like this is where your money's going. And so across the board we have what we have. Right, whatever those totals are you're going to add them all up. the This is a credit card payments. These are things that you have borrowed money to move forward in life in some capacity and there's a total for those. Right, your student loans or whatever they are. Next to the credit card payments, this is where it's going to get super painful for you potentially. There's a chance like many Americans you're paying the minimum, the monthly minimum. So you're right down with that minimum payment is. And then next to that, it's going to require a little bit digging around for you. You're going to pull up your effective interest rate, your APR. Right, whether it's 7%, 16% or 24.99%, you're going to write it down. And then next to that, out of that minimum payment, you're going to look and see how much goes to interest and how much goes to principal.
Their Necessity (09:28)
It's going to say right on your statement. If you don't have a statement, figure out how to get it online, you need to know this information. And now at some point, there's a total. you have life insurances, maybe you have other things. You want to make sure to include everything you have. Now for the first time in your life, or at least maybe in the most recent history, you've gotten really, really clear on how much it actually costs you to live. Right, without making any drastic changes, without looking at life through rose-colored glasses, but being really real, where most people mess up in my opinion, is the four weeks a month versus 4.3. There's 52 weeks a year, there's 12 months out of the year. I can assure you, it's 4.3 weeks a month.
And so now you have that, and so now you have that, then below that, you're going to get clear on the income you have. Now, if you're in sales and you get paid commission, this gets tough. We're looking at any sort of guarantee that you have any sort of draw. In a perfect world, we align your monthly burn rate on cash with your draw. And so your commission becomes things that you can invest and save. I know that's idealistic and not very reasonable for most of us and if you're great at sales you never have to hit your draw. But every once while you might and so look at your last four to six paycheck stubs. See how much money you bring home every two weeks? Write that down.
The Facts (11:12)
Now you're starting to get a clear picture, right? Burnade on cash versus cash coming in. And there's some variable, right? There's some delta in between. Hopefully it's a surplus, hopefully it's a positive number. And you don't understand why you can't ever seem to get ahead, that's because you're spending more money than you make. And you're living off credit cards. And you're not paying down your balances. And you're scrambling for how to get ahead. When really you're not getting ahead, you're just barely not falling behind. So where do you really sit right now? What are the facts that you just came up with? See the facts no matter how painful they are are eventually going to set you free in your own financial world. Now that we have your facts, now that you're holding on to them, now that you're forced to look at them square in the eye, now we can make some decisions about what you want to do about them. I don't like living in a constricted mindset. I believe in abundance and I believe in forward processes and I believe in creating new opportunities and bringing in things that better my position not constrict my position. But in the short term we might have to get clear on some spending habits. Just in this hypothetical situation I went through, the first thing I'm going to tell you is we got to cut out some of that going out to eat. It's shocking when you look at how quickly you're spending an extra $600 a month, $700 a month going out to eat.
That Positive Cash Flow (12:54)
It's shocking when you look at how quickly you're spending off immediately. a month, 700 bucks a month going out to eat. You're going to knock that off immediately. You're going to increase the spending inside your household, right? So maybe you go from 200 bucks a week to 225 bucks a week, but you're still net positive ahead. And in my opinion, you start to use some of that surplus cash to pay down some of the debt. We got to get you out of this hole. Right and it's going to take time. We have to map out what that looks like.
Second Summary (13:33)
I also forgot one other key important part. On this balance sheet, if you will, your financial screenshot, you're also going to write down how much you have in savings and how much you have in checking. This is not well I get paid on Friday so it should be this much no no no right now in the moment look at it there's a number is it two grand is at four grand is at 15 grand is a 150 grand is at five hundred thousand bucks it doesn't matter it's just the facts and so you're looking at the facts square in the eye and you're seeing the facts the very first thing that I want you to consider doing is creating enough surplus cash in your savings account. That if something went catastrophically wrong for three months meaning you could not generate more income, that you wouldn't have to live off your credit cards and you would have the disposable cash in liquidity in the bank. Easiest way to calculate this, right, to start with on this spreadsheet, this balance sheet, you came up with your burn rate in cash. Multiply, that number first, and add 20% to it. Because inevitably some things aren't going to go exactly as planned. There's going to be something that goes as skew. We want to be prepared for that on the front side. So even as you're looking at your surplus of cash or deficit of cash, start by taking 20% of an overage in your burn rate on monthly expenditure of cash. From there, take that number multiplied by three, right? So the new total number. Let's say hypothetically, your burn rate on cash was $3,000 a month. 20% additional is $3,600 a month. Multiply that by three and it's $10,800 that you need to have in liquidity at all times. My personal opinion is that you do this prior to any sort of major investment strategy. You do this prior to any sort of major investment strategy. you do this prior to any sort of major investment strategy. You do this prior to any sort of financial vehicles. You do this before much of anything else. Because from that sense of safety and security I believe we can create an more an abundant level, right? Because you invest in the market and don't get me wrong, there's a place and a way and a time to do that. And I'm not the specialist on that. I'm not going to advise you on how to do that. But once that money goes in and you have capital gains, and you have all the variables that go in, you know, early withdrawal penalties from IRAs and and 401ks and you're trying to be interesting is how many is how many people are how many is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, is how many, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, you're, up money that you might not be ready to quite tie up. Right, what I find to be interesting is how many people I come across that are paying 24% interest on a credit card with a $6,000 balance making minimum monthly payments, but worried about an investment strategy that presents a 5% or 7% return. Think about that. You're going to pay 24% interest on 6,000 dollars really in perpetuity. And you're investing your discretionary additional income in the market, which I understand, compounding interest long term, eventually there might be an offset. But how much different would you feel if he didn't have the credit card that limit over your head? How much different would you feel if all that was knocked down and you had the $10,800 in the bank and you had $10,000 of available credit on credit cards, and then you started investing. What if you sprint full speed towards paying down that debt? What if that was job number one and you attack that with ruthless commitment? You had an actual plan we said man. Okay. O six thousand bucks I'm paying interest all this stuff I'm gonna have to really get 8,000 dollars set aside to pay this off. Okay if I stop going out to eat that's another 600 bucks a month. I'm a little more conservative on how I drive around. I can save another 100 bucks a month. So now that's 700 bucks a month. So in a year, if I do that, I can get this paid off quicker. In the year I could invest. Well, it's scary, right now. we're not going to get into quite yet.
Create Baseline Strategy (18:08)
At some point you get that debt paid down enough and your available credit versus credit that's tied up right you're under 20% of that.
Multi-Faceted Approach To Strategic Planning
Diversify Strategy to Utilize Tools (18:20)
At all times you have three available credit cards to maximize your credit score. You should be utilizing under 20% of your available credit. When you have two credit cards that have a balance on them and they're under 30%, you can apply for a balance transfer on to the third card, typically. Assuming you've paid your debtors or creditors the right way. Now all of a sudden you have 0% interest for somewhere between 6 and 12 months months, and that $700 a month you can pay down is destroying the balance. Right, so instead of taking 12 to 13 months, you're now paying it off in 9 or 10. Which doesn't sound like much until you consider, well, you're not an extra 2,100 bucks to invest in the market, which what you wanted to do anyways. You see these things are massively impactful for you as you go forward. But all starts from a clear snapshot on where you're at. I know some incredible men in the financial field, who I would be happy to introduce you to because I'm not the guy.
Key Principles For Better Life
9 Mantras (19:16)
This is very base level looking at the facts of your life and what I believe to be appropriate and I could be way off base This is just how I view money If you would like to be introduced to some of the people that I know They can make massive impacts in your financial standings. Please don't hesitate to email me Ryan at life optimization group.com. I will gladly send you over to them. I don't get anything for it. I don't have a referral or a kick back. I wouldn't take one if they offered it. What I do know is people spend a lot of time, energy, and effort learning much more than my very cursory level of information to help you better your financial position for a lifetime. And when you no longer feel the stress and the pressure of the debt that's looming over your head, and you have a plan that deals with the facts, I can assure you that going forward, every day you'll be able to get shit done.