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Commentary: More keys to money mastery

Commentary: More keys to money mastery
April 12
08:00 2018

So, we continue to celebrate National Financial Literacy Month by generating awareness for the need to better educate people about how to manage their money and build wealth.  Hopefully you find my tips and daily strategies helpful as you work to improve your financial health.

In this second part of my ongoing series, I’d like to share why it’s important to plan for success and stop failing to plan, while also embracing the unexpected.

When you refuse to plan successful outcomes, then you automatically create outcomes that fail.  To gain control over your cash flow then you must direct where you want the money to go and be purposeful about the outcomes that you hope to create.  Successful people understand the power of planning to achieve goals.

Your initial step toward financial freedom requires you to get a handle on monthly expenses through developing an effective spending plan.  Some choose to use the word “budget,” however my experience over the years has taught me the word implies constraint, which leads to a mental barrier that prevent individuals from engaging. 

A spending plan does not conjure up the same emotional restraints often associated with a budget, but achieves the same objective.  The plan will give you improved control over your money, which is necessary to pay off loans, build an emergency fund, purchase insurance, and save to buy a house, retire, or send the kids to college.

You don’t need a fancy computer program or spreadsheet to draft a spending plan, in fact try not to complicate the process, moreover focus on a method that works best for you.  If you’re a pencil and paper kind of person, then schedule time to sit down and write out your spending plan.  Invite your spouse and kids to participate – family buy in makes a difference.

Think deeply about key goals that you want to achieve and express them clearly in your plan.  For example, a suitable emergency fund will help to prevent financial devastation from unforeseen situations that arise, maintain a cushion of six months in living expenses saved in cash.  If you do not have any savings, then utilize a spending plan to boost your bank account.

Here are some essential steps to consider when you construct your spending plan:

1. Add up your monthly expenses. List the bills you have to pay every month, such as your mortgage or rent, car payment, insurance premiums, utilities and phone bills.

2. Add up your household’s monthly take-home pay. This includes after-tax pay for you and your spouse and any other income, such as investment or rental income.

3. Subtract your expenses from your income. If you’re close to zero or get a negative number, take a second look at your non-essential expenses, such as cable TV, entertainment, and travel. These items are easier to trim if you’re spending too much or if that money is needed elsewhere.

4. List your other financial priorities, such as building up an emergency fund, paying off credit card debt and saving for retirement or college. Estimate how much you would need to meet your goal and when you’d want to reach it. Then divide the time (in months) into the amount. This will give you monthly savings targets for each priority.

5. Match your money with your expenses and your goals. When your income and expenses are clearly laid out, you’ll see where you can make trade-offs to come up with more cash that can improve your longer-term financial situation. Adjust your spending until you’re spending less than you make or are saving enough to meet your other financial priorities.

6. Review your plan and priorities every few months. A spending plan is a “living document” that will change with your needs and situation. Life happens. And your spending plan should be flexible enough to change with whatever comes your way.

Algenon Cash is a nationally recognized speaker and the managing director of Wharton Gladden & Company, an investment banking firm. Reach him at acash@nullalgenoncash.com

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