Step 4 – Maintaining Control & Saving Money
The last step of The Total Budget Makeover Series
Step 4 – Maintaining Control & Saving Money of The Total Budget Makeover Series is designed to get you thinking about your future beyond one or two years from today. As I have said in the past, if you develop good and healthy money habits then you will never have to overhaul your budget again! You will sleep better at night knowing you are in total control and your money is actually working for you instead of you working so hard for your money.
By now you should have your priorities in order, your budget set up and your envelopes stuffed. This last step is important because all of your hard work will need to pay off and pay you back! That’s right, your money can earn money and work for you when invested properly so let’s get started so you can make money sooner!!
Check your budget daily, reassess every month and set a yearly goal
That’s right, you read that line above correctly, you will need to check your budget DAILY. If you want to save money and secure your financial future then you have to do what all of the successful financial gurus do, handle your money daily. I am not talking about obsessing over it every minute of every day of your life but you need to look at your financials every day to be sure your numbers are correct.
If you think about it, once a day is nothing compared to the hundreds of times we check our Facebook updates, email and texts. It’s so easy these days for people to steal your credit card information and try and use it without you catching on right away. If you log in to your account daily to check the balances, credits and debits then you can catch “fishy” transactions early on. I have my mobile banking settings set to alert me by text and email when I spend over $125 in any given transaction.
Once upon a time, not so long ago, I naively believed that no one actually did things like steal credit card information from unsuspecting people, until I gave birth to my third child last year. I was hospitalized for 5 days since I had complications and hubby and I decided to order a pizza online for delivery to my room. (I know, I am a bit spoiled!) My husband got a text alert sent to his phone from our bank asking if we were making a purchase in Corpus Christi, Texas, which is over 200 miles away from us here in Central Texas. The bank caught on when the attempt to use the same card in two different locations at the same time seemed odd.
The bank rep took care of the fraudulent transactions and we were free to enjoy our pizza with full peace of mind as they credited the fraudulent charges back to our account right away. I have no idea what happened to the person trying to use our stolen information but that incident was enough for me to want to log in daily and set my notification settings to paranoid mode! We bank at Chase Bank in case you want that same wonderful customer service!
On top of the daily maintenance checks to your bank accounts you should be doing an end of the month budget assessment. Take a look and see if the numbers worked for you this month. Did you have enough to cover your groceries, gas and extras or did an unforeseen expense throw a wrench in it all?
It is not at all uncommon to have to go back and re-work your numbers from time to time. If you find a consistent pattern of having too little or too much money at the end of the month then consider redistributing those funds where they are needed the most. Try to spot habits and patterns that you notice in a few months time frame that might trip you up. Get rid of wasteful habits and trends immediately when you spot them. For a recap on those wasteful habits and trends then read Step 1 – What Can You Actually Afford? as a refresher.
Before I set myself on a weekly grocery budget I would spend without thinking about how much I was actually spending in total. I knew I was saving ridiculous amounts of money by couponing, but those $5 and $10 transactions can add up fast without you realizing it. I would stress when it came time to pay the bills because I would be just a little short at times. I thought it seemed odd when I was saving so much with couponing but not having a set limit is what tripped me up every time.
Now that I have a weekly and monthly budget, I can’t go overboard and having a good reason to do it, like stockpiling, won’t make the money in my wallet multiply! The only way I can get more without spending more is to get items that are totally free with coupons. It is a weekly challenge but I think it’s fun and it helps me to keep the right perspective about spending. You had better believe that I LIVE for those money maker deals each week though!
If you set a yearly goal to reach then staying on track is so much easier. My husband and I decided that we will live off his paycheck alone for the entire year’s expenses and any extra we receive is a bonus that goes towards paying down debts and savings. With his overtime, bonuses and my unexpected and erratic income or monetary gifts, we take 20% off the top cut to save, no matter what the amount. The other 80% is spent on extra loan payments for our mortgage and his student loan and to help whittle down our car note balances.
Put your money to work and make it your slave
That sounds a bit weird but it’s true, you want to make money your slave and make it work for you. Most of us spend the majority of our lives working like slaves for our money. But not anymore, not after today! You will be armed with information to help you break free of the debt cycle and become master of your finances!
The first thing that I believe everyone should do is to stop allowing banks, the government and other institutions the ability to use your money to earn them money! Banks LOVE it when you open a savings account and park your money with them because they get to lend a portion of that money to other banks or borrowers and make interest off of it. They also get to earn interest when it just sits there, doing nothing but hanging out so make sure you get a piece of that interest pie too!
To read more about the how banks work loans and make money then read this easy to understand article by John Carney at CNBC.com called Basics of Banking: Loans Create a Lot More Than Deposits. I learned something new about those “loan origination fees” in this easy to understand article.
The same is true when you pay in extra all year long to cover your income taxes. Some married couples choose the option to be taxed at the higher single rate to pay in extra. WHY? All you are doing is allowing the government to park your money into their federal reserve bank and make interest all year long off of YOUR money. When you get your tax return next year, you get your money back with no interest. Instead of making the government more money, why not turn that situation around and make some money for yourself?
Practical Money Management Hack: If you want to make sure you will have enough to cover your taxes throughout the year then open your own interest bearing savings account and let it earn interest for you until you are ready to send off your payment to Uncle Sam. Set up automatic payments from your direct deposit into this savings account through your bank so you never see the money.
It is pretty much the same concept as withholding more except you get to keep the interest it earns instead of the government. You also have access to it at all times so no more waiting for the IRS to distribute it back to you after they keep the interest it earns from sitting in the federal reserve bank.
If you overpaid in taxes then you don’t have to wait forever to get your refund money back because it’s already in your possession. And if you need to pay in because you didn’t withhold enough then you can easily transfer those funds but at least you made some money off of it first by having it sit there the whole time. Win-Win for you either way!
How can I put my money into slave mode?
The idea is to make your dollars work so hard that they sweat coins! Weird analogy there, right? But it’s true, the way most “millionaires next door” get rich is by slow and steady growth, true story! We ALL wish and hope for some lucky break where mountains of money fall in our laps but reality tells us that the chances of it actually happening are slim to none. But there’s good news! The chance to accumulate wealth over time isn’t impossible if you know which route to take to get there.
There are many different ways to invest money and you would have to find the one that is the right “fit” for you and your goals but I want to list a few to help you get started. I want you to always remember one key point, if you remember nothing else, then really pay attention and remember what I am about to tell you!! Be sure and find as many income streams as possible before you are ready to retire. The biggest mistake we can make is to put all of our eggs into one basket.
Retirement plans and employer paid contributions
If your employer has a retirement plan and they are willing to pay a percentage of your contribution then you need to sign up and take advantage of it right away if you don’t already participate. Not participating is selling yourself short of free money for your future. That FREE money that your employer pays will earn you more free money. And seriously, why are you turning down FREE money contributions anyway???
Think of it this way, if your contribution was two dollars and your employer offers to give you a dollar, and two of your grown up dollars got married and had babies known as “cents.” And those cents grew up into dollars and those dollars got married with other dollars and had more babies and made “cents” and the cycle keeps repeating over time then before you know it, you have a whole big huge tribe of dollars!
In the meantime, you and your employer are still adding dollars to your tribe as your tribe is “being fruitful and multiplying.” We all know there is strength in numbers so the more dollars you have at “work” the more dollars you “beget” in the end! Did you like my corny way of putting it? Haha! I bet you’ll never forget it though!
The great thing about retirement savings plans is that if you ever leave your employer for any reason at all then you have some options for what happens to your money, so long as you are fully vested. You can park it there in that account and leave it alone and let it multiply and grow or you can take it with you to your new employer so you can continue to add contributions in an IRA or Individual Retirement Account.
You can have more than one retirement account but there are strict guidelines as to how much you can contribute in the year. The 2015 limit for contributions to a 402(k) is $18,000 and if you are 50 years of age or older then you can contribute up to $24,000. Each different type of IRA has certain tax advantages and stipulations.
To get a basic overview of how you can prepare to save for your retirement then read this article How to Save for Retirement: 5 Essential Savings Accounts to Consider by Eric Rosenberg on Betterment.com. I like how he breaks down the different basic retirement accounts and their maximum contributions into easy to understand format.
Money Market Accounts and Certificates of Deposit (CDs)
A money market account is pretty much a savings account with a few differences but with a higher interest rate and yield. I love this article on nerdwallet.com by John Glower titled FAQ: What is a Money Market Account? Should I Get One? I like the idea of parking my money somewhere and earning a little more interest than the average savings accounts with the flexibility to access my funds at any time. You can easily access your savings in a money market account because you would have the option of checks, a debit card or you can transfer funds through online banking to get those funds quickly if the need should arise.
CDs, or Certificates of Deposit, also earn higher interest than a traditional savings account but if you need to withdraw those funds for an emergency then you are out of luck if the bank is closed, like they do on holidays and weekends. You also pay hefty fees for early withdrawals so this option is only a good one if you plan to stash it and forget about it until it matures in umpteen dozen years!
I think of CDs as the same method as grandma stuffing mattresses or bibles with cash money and forgetting about it but without the risk of theft, fire or accidentally throwing it away. Everything is now done electronically when you sign up to open a CD so if you lose the certificate somehow, the bank can still issue your money to you should the need arise.
Credit Unions vs Traditional Banks
Credit unions are not-for-profit financial cooperatives, whose earnings are paid back to members in the form of higher savings interest rates and lower loan interest rates. Banks are all for-profit corporations with declared earnings paid to stockholders only. I personally believe this means making sure they don’t reverse fees or charges as much as possible to keep stockholders profit margins in the red. It has been my personal experience that credit unions are more “reasonable” when it comes to lending to individual borrowers and more forgiving when honest mistakes are made in the over draft departments.
I once had a major nationwide bank (Bank of America) wipe out my checking account with fees because I chose the wrong account in the drop down box in the online banking bill pay. This was way back when online bill pay was very new and we still used dial up internet connections to log in and AOL would say “You’ve got mail!” Yeah, I really am a dinosaur! They refused to reverse the fees and credit my account although it truly was an honest mistake. I never made that mistake in the past and I was not a “chronic overdrafter.” I had more than enough funds in the other account to cover the bills I intended to pay from that account. Needless to say, they were relentless in refusing to help me so I closed both accounts and have never banked with them since then!
When my husband was starting out in life as a young man and needed to purchase his first car, his local credit union was the only one who would loan him money with his “no credit” status. We now leave our savings parked in this savings account at this same credit union and we earn a nice little penny on our interest every quarter.
I like knowing that credit unions don’t have to answer to shareholders so they aren’t pushed to meet quotas and numbers. Credit unions seem like they are “by the people and for the people” institutions and mine always seems ready to help in any way possible. Year after year I see the same employees at the same branch but the same can’t be said for my local banks. It seems that they “switch” out fresh faces every so often so that they don’t get too familiar with the customers and become soft. Just my personal opinion thrown in there.
Invest in property
I am by no means qualified or trained to give any advice on property investments, real estate advice or the technical aspect of real estate investing. However, I am going to share my own personal thoughts and you can decide for yourself if you agree or disagree with my opinion on real estate investments and why I believe they are a great way to invest your money.
I personally believe that real estate is one of the best ways to invest your money for the future. I also believe that home ownership is awesome for families and a pain in the patootie for single folks who like to travel. I do admit that it takes quite a bit of research and a willingness to learn in order to make money off of real estate. You also need to sprinkle in some luck and good timing but I would much rather invest money into a piece of real estate before I ever decide to play the stock markets.
Once your home is paid off you have the perk of not paying anymore payments, unless you re-mortgage your home again. The only expenses you have would be your yearly property taxes, home owner’s insurance, association fees – if applicable, and any maintenance, repairs or improvement costs. I like the idea that one day my home will be paid off and I can enjoy the perks of an extra $700 a month in my pocket.
My husband and I have this idea that by the time he’s ready to retire from his day job that we will have some rental properties accumulated. He’s using our house as a “guinea pig” home to learn the hands on of DIY projects and so far he’s done very well! Learning to do as much as possible yourself can save you so much money in the long run when it comes to home repairs and remodeling.
I like the idea of having an alternate stream of passive income simply by helping someone have a home to live in. It has been my own personal experience that you make a profit when you buy it for well below the market value and invest no more than 10% of it’s total cost in repairs and remodeling. Again, this is just my personal opinion on the subject, not expert advice! If this is something that interests you then I strongly urge you to read up on real estate investing and talk to your real estate broker.
I bought my house for a really good deal, heck, I’ll even daresay I got it for a steal! It was a Veterans Affairs foreclosure and we bought it for well below market value. I will share all of the details on how we found it, how we outbid other buyers and how we transformed the exterior very soon in a future post! Don’t worry, like everything else, I will share and over share some more!
If you can’t wait until I post everything later, then get started by logging in to the Realtor.com website or mobile app. I browse properties in my area for kicks and as a hobby. I like to use the filter settings to find the homes that range from $0 – $20, 000 and see what pops up. There are also auctions and plenty of for-sale-by-owner listings. Take a look out of curiosity and see what you find….I can almost guarantee that you will be surprised!
Again, I am no expert in the area of real estate but I am more than willing to share what has worked for me and what we plan to do with our savings and the goals we are trying to reach!
Pay off Debts and Stay Debt Free
This sounds pretty straight forward and obvious but it’s not as easy as it sounds. Life can unexpectedly hand you some sour lemons and you need to add plenty of sugar and water to make a lemonade you can barely get down your throat at times. Those super sour lemons alone are reason enough to review your finances on a daily basis.
Most of us have goals to pay off some high balance, long term debts like mortgages and student loans and we should get them paid off as fast as possible. But you also need to keep in mind that you need to stash away emergency funds for those days when you just can’t dodge the lemons and limes coming at your head!
I once had a Professional Financial Advisor at a bank tell me the best thing I could do was to take my meager savings and pay off any unsecured credit card balances that I had outstanding and not to worry about draining my “emergency fund.” That was pretty stupid advice in my opinion. I was a single mom, making peanuts for pay and this joker told me to pay off credit card balances! Not all professional advice is sound advice so please be sure and do your research before making any big changes like paying off debt balances.
Last bit of advice about paying off debts from me to you – always take care of yourself and your family first. Feed your kids before you fatten someone else’s bank account. But also remember that certain loans and debts never go away, not even in death, so pay them off as fast as you can!
Utilize your local library for books and information in print about financial planning and debt reduction. You make the best decisions when you are fully informed of your options and choices. Keep in mind that there is no such thing as debtor’s prison in the US and creditors are not allowed to bully, harass or threaten you, although they will and do, sadly enough.
No matter how you decide to budget or save, always have a plan for that future money or you will easily spend it all away. I think of budgeting as being the vehicle I will drive to my final destination. The savings amount at the end of the road trip of life will determine where I live in my retirement years.
If I saved well enough in my younger years then I can live in a beach house on a tropical island and drink fruity cocktails with little umbrellas in them served to me by gorgeous men in little white speedos. If I didn’t manage my money so well then I get to live in a broken down shack on a dirty beach in a toxic wasteland where my drinking water glows in the dark! Just kidding! Not that extreme anyway!
Dave Ramsey’s mantra is to “live like no one else is living so you can live like no one else in the future.” (Those are not verbatim, just so you know!) I love his book The Total Money Makeover and I highly recommend you read it too!
I find living a frugal lifestyle to be fun and challenging and at times it can be hard to stick to my guns and not over spend. But when I keep seeing my goals being met and my dreams closer and closer to coming true then I deem it all worth it in the end! What changes were you willing to make to makeover your budget and overhaul your spending?
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