RPF0221-Budgeting_When_Behind_on_Bills
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00:00:30.960 | The show recently has been kind of touchy-feely, a little big picture. And I'm concerned about
00:00:38.080 | that because this show is big picture, but it's also practical and tactical. And so today,
00:00:46.000 | let's talk tactics and be extremely practical. And here's the scenario. You are in financial
00:00:53.600 | distress or you know somebody in financial distress. That might mean that you just got
00:00:57.600 | laid off from a job. It might mean that you're behind on your bills. That might mean that
00:01:02.000 | something unexpected has happened or you've just woken up and realized that you're not
00:01:06.440 | very good with money. It's okay. Been there, done that myself. I'm going to share with
00:01:11.360 | you today some ideas and some tools and some tactics that will help you take control of
00:01:18.600 | the money that you have.
00:01:21.360 | Get a pen, get a piece of paper. This is an episode if you are ever in financial distress
00:01:25.360 | or you know anyone, this is an episode to share with them.
00:01:44.960 | Welcome to the Radical Personal Finance podcast. My name is Joshua Sheets and I'm your host.
00:01:48.440 | Thank you so much for being here today. Radical Personal Finance, the show where we talk each
00:01:52.160 | and every day about everything that you need to know and more importantly, everything that
00:01:57.040 | you need to do to build financial freedom and financial independence in your life. That
00:02:02.360 | might be a long way off, at least the idea that you can sit back and live on your investments.
00:02:07.240 | That might be a long way off for you, but the idea of having control doesn't have to
00:02:11.120 | be a long way off. We're going to get to that today.
00:02:17.080 | Thank you all so much for being here. Like I said in the intro there, I want to talk
00:02:20.320 | about some practical stuff. I've been looking back at the show content, just kind of thinking
00:02:24.440 | about it. Part of this has just been due to my being a little bit busy outside of the
00:02:30.000 | show in the last few weeks, but I'm a little concerned that I've strayed from some of the
00:02:33.800 | core messages of Radical Personal Finance and I'm not willing to stray for very long.
00:02:37.520 | So I've strayed a little bit away from the practical content and I've also strayed a
00:02:42.120 | little bit away from the technical financial planning content. This show is intended to
00:02:47.000 | be comprehensive. You need the big picture. You need the thought process. You need the
00:02:51.320 | paradigm. You need the motivation and the encouragement, but we also need the tactics
00:02:55.400 | and the tools and the specific techniques that we can apply today to get us closer towards
00:03:00.500 | our goals.
00:03:01.500 | I want to talk about how to implement a simple budgeting process into your life. Today, I'm
00:03:07.800 | specifically focused on those of you who are listening who are struggling with the basics.
00:03:12.480 | I do not expect this show to be applicable to everybody. This is absolutely not applicable
00:03:17.960 | to everybody. We're going to be talking a little bit about budgeting over the coming
00:03:21.560 | weeks and I'm going to be talking about some different styles of budgeting. To be clear,
00:03:25.780 | my opinion on budgeting is that you've got to find a method and a solution that works
00:03:29.360 | for you and that will vary depending on the type of person that you are. For some of you,
00:03:34.280 | it will be very hands-on. For others of you, it will not be hands-on. For some of you,
00:03:38.640 | it will be very, very physical and tangible. For others of you, it will be electronic.
00:03:44.360 | All of these are fine, but there are some fundamental truths that apply across the board.
00:03:51.200 | I'd like to start with this one. If you do not carefully manage the money and resources
00:03:58.680 | that you now have, it's unlikely that you will ever have much more to manage in the
00:04:06.360 | future. You've got to start where you are, no matter where that is. If you do not currently
00:04:13.280 | do a good job managing the resources that you currently have, how on earth do you expect
00:04:19.080 | to ever get more? As Jim Rohn used to say, "A guy says to himself, 'Well, if I had a
00:04:25.040 | little bit more money, then I would learn to manage it well.'" Not going to work. If
00:04:31.000 | you learn to manage the money that you have well, then in the future you're going to have
00:04:34.800 | more. It's pretty simple, but we really don't look at it that way.
00:04:40.600 | I'll tell you, I've been there myself in times of financial constraint, in times when I'm
00:04:45.240 | just flat out broke. You look around and say, "Ah, what's the use? I'm broke." So I'll just
00:04:50.080 | toss my hands in the wind and not worry about it. I've seen this time and time again from
00:04:53.920 | many people that I've worked with as well. But when you're broke, that's the time that
00:04:58.440 | you've got to be very, very hands on if you ever want to have any hope of being in a different
00:05:04.480 | place.
00:05:05.480 | I'll tell you, I speak today from a little bit of personal experience. I feel like in
00:05:12.160 | my life I've gone in and out of the edge so many times that I'm well familiar with what
00:05:19.080 | you need to do when you get to the edge. I've been in debt, out of debt, in debt, out of
00:05:22.080 | debt. It seemed like every time for years, it would seem like every time I got just a
00:05:26.880 | little bit ahead, then all of a sudden something would happen and I would get knocked right
00:05:30.320 | back, whether I get laid off or start a business or have an unexpected financial emergency
00:05:34.640 | and all of a sudden, boom, root canal, out of money. Or all of a sudden there's a change
00:05:40.120 | of course and a change of plans.
00:05:41.920 | I'm thankful now for that experience because it's built some confidence into me that I
00:05:46.520 | can look back and say, "Well, I know what to do when things get tough." So today I want
00:05:51.960 | to share some ideas with you and some specific tools and tactics.
00:05:57.880 | Now what I have to share with you is not necessarily easy. It is simple, but it is not easy. I
00:06:05.120 | don't think it's that tough, but I got to start with that disclaimer because in our
00:06:09.240 | culture many people just expect everything to be very easy. Frankly, this is not super
00:06:15.600 | easy, but it's worth it. What I mean is it's worth it to take some time and to take some
00:06:22.200 | control of your situation.
00:06:26.200 | Last couple of weeks have not been an easy time in my life. I'm right now in a crunch
00:06:31.760 | zone even with my business and with my family life and basically across the board. I'm finding
00:06:39.200 | myself in a position where at the end of July here, my external consulting contract which
00:06:44.120 | I was using to pay my bills is coming to an end. Radical personal finance is starting
00:06:49.520 | to be financially productive, but it's not productive to the point where I'd like it
00:06:52.360 | to be. I have some savings and things in reserve, but I don't really want to dip into that.
00:06:56.500 | So I'm sitting here looking and saying, "Okay, what am I going to do? What are the next actions
00:07:01.280 | that I need to focus on?" Plus it's just been challenging with the birth of our new little
00:07:05.360 | baby girl and settling into a new routine and helping my wife and dealing with the variable
00:07:10.960 | sleep schedule and all of that. All of a sudden doing all of that right at the time where
00:07:14.160 | I'm trying to build the business up and launch a bunch of affiliate programs and get some
00:07:18.200 | stuff and some products created on my end. It's not been easy. It's been really, really
00:07:22.600 | challenging.
00:07:25.680 | But at least if I've got some things to do, then that makes the challenge feel a little
00:07:33.320 | bit better because then I can just put my head down and work on the next thing. And
00:07:37.880 | if I don't know the things that I'm going to do and if I'm not clear on my priorities,
00:07:41.000 | if I'm not clear on exactly where everything is going, then it's easy to feel overwhelmed.
00:07:49.160 | But if I know where things are going and I know what's happening, no matter how difficult
00:07:53.320 | the circumstances may be, at least I can drop it down into a tangible problem and I can
00:08:00.480 | say, "Okay, this is the problem and this is the solution."
00:08:04.160 | From a business perspective, it comes out to be a total amount of money that you need.
00:08:07.840 | If you're in a situation of financial distress, it might mean, "How do I come up with the
00:08:11.000 | money to pay that credit card bill?" or "How do I come up with the money to pay this other
00:08:14.120 | bill?" Well, we got to get tactical and we got to take control. And if you take control
00:08:20.280 | and you realize, "Well, I'm just not going to be able to do it," you're going to feel
00:08:23.640 | a lot better about being late on a bill or having to pick and choose which creditors
00:08:28.440 | you pay versus being in a situation where you're just kind of forestalling all of them
00:08:33.960 | and the world just seems black because you've never sat down and written it down.
00:08:39.680 | So I really want this show to be a resource and an encouragement for you, especially if
00:08:43.120 | you're in a place of financial stress. And I've been there. Who knows? Maybe I'll be
00:08:49.760 | there again. I'm a little bit there right now. I'm not as broke as I once was, but I
00:08:55.000 | just – when I don't want to dip into savings to fund my lifestyle, then it puts me in a
00:08:59.720 | situation of saying, "How do I make the business go and what are the difficult decisions
00:09:02.960 | that I need to make?" So I can relate afresh to even the content that I'm desiring to
00:09:08.600 | share with you today.
00:09:10.840 | The budgeting system that I'm about to share with you is simple and if not completely free,
00:09:17.960 | very, very cheap. You're going to need just a couple of things. You're going to need
00:09:22.040 | a couple of pieces of paper. You're going to need a checkbook register and a pencil.
00:09:25.560 | A calculator. Use the one on your phone if you don't have one. And you're going to
00:09:28.800 | need access to your bank accounts, which you're probably going to have set up on your phone.
00:09:32.960 | And what I'm going to instruct you in today is a budgeting process that is very, very
00:09:37.800 | manual. You hear a lot about the benefits of automating your finances and I believe
00:09:45.720 | there's a powerful case to make for automating your finances. If you've already established
00:09:55.480 | good habits and practices and if you're coming from a place of being in control.
00:10:01.480 | Let me use for a moment, let me use a dieting example, a way of eating example. If you are
00:10:08.160 | a skilled athlete and you are a very healthy person, you know all the different things
00:10:13.280 | that you need to eat, you know all the different things that you need to do and you have excellent
00:10:17.120 | habits that are built into you. Well, in that situation, you can just pretty much put your
00:10:22.560 | eating life on autopilot. But if you're not that person, if you're fat, if you make
00:10:28.680 | bad choices, if you aren't familiar with what the content is of the food that you're
00:10:33.280 | eating, at least in the beginning stages, you've got to go the other way. You've
00:10:38.640 | got to get yourself in a situation where you can say, "I know what is in every bite."
00:10:44.960 | And you got to get very, very tactical so as to make each decision afresh to you.
00:10:50.080 | I've had experiences in the past, whether it was at a time when I was fasting completely
00:10:54.960 | from all food or it was in a time where I was cutting out a certain element out of my
00:10:59.840 | diet and I noticed during one of those periods of time how often I had the urge to dip into
00:11:08.040 | the candy jar on a co-worker's desk. Because when I had taken an extreme perspective and
00:11:13.160 | cut it out completely, then I was very, very aware of it. I sat back and looked at it and
00:11:17.240 | said, "Man, I had no idea how many times per day I had that urge to go and take some
00:11:21.880 | M&Ms out of the candy jar."
00:11:23.120 | Well, the same thing with finance. Many of us have financial habits that are built into
00:11:29.640 | us where we're consistently in the habit of buying this little thing there, spending
00:11:34.800 | this little money on the other place. And if those habits are good, then that's fine.
00:11:41.040 | But if the habits are not good, you would be shocked at how much money can leak out
00:11:44.880 | of your budget. And so I think that the concept of automating your finance is incredibly powerful
00:11:51.800 | if you're in a good place.
00:11:52.800 | But if you're not, you've got to go the--. I would recommend to you, you don't have to
00:11:55.680 | do anything, I would recommend to you that you un-automate everything and that you make
00:12:00.560 | everything manual so that you're forced to step in and take control. That's the key.
00:12:10.520 | Make everything manual so that you're forced to step in and take control. Once you've established
00:12:15.880 | the skill of being fully in control of your finances, then you can go in and you can automate
00:12:21.440 | things in order to free up a little bit more time for you to focus on other things.
00:12:25.360 | But if you automate bad behavior, you're sunk. So step in and take control. Now, it wouldn't
00:12:37.000 | hurt you to take very careful control from now for the rest of your life, but I do recognize
00:12:42.520 | that most people won't do it. And that's okay. You don't necessarily always have to count
00:12:48.800 | every single micro and macro nutrient once you've established a good baseline. But if
00:12:55.440 | you're in a difficult place, you do. And so I recommend to you that you take control.
00:13:01.120 | So let's get to what to do. And as a reminder, I'm specifically targeting today somebody
00:13:09.320 | who is either money is tight for various reasons or you're finding yourself in a situation
00:13:14.080 | where you're falling behind on bills, maybe something has changed, the reason doesn't
00:13:17.600 | matter. But when you get in a situation where money is tight, I would recommend to you that
00:13:23.960 | you simplify everything and you make everything manual.
00:13:30.040 | So here are your steps. Number one, you need to eliminate all automatic payments from your
00:13:34.840 | life and from your budget. So the very first thing that you should do is call any credit
00:13:39.640 | cards that you have, call your bank that issues any debit cards, and request a completely
00:13:46.540 | new card number. Now, you don't necessarily have to take this step. You could go through
00:13:52.000 | and manually cancel and change all of the automatic payments with the individual providers.
00:13:58.440 | But if you're in a situation where you're just – you got your back up against the
00:14:02.160 | wall, best thing to do, just call a credit card company, say, "I've lost a card and
00:14:06.240 | I need a new one," and have them issue you a new one with a new number. That way, all
00:14:10.920 | of the automatic payments that are currently set to be paid off of your credit cards and
00:14:15.460 | off of your debit cards will immediately be canceled.
00:14:20.100 | If you need to, if you have any automatic payments on your checking account, most of
00:14:23.440 | us don't or if we do have automatic payments, as usual in the couple, it's kind of a hassle
00:14:27.580 | to change checking account numbers in this way, especially you might have things like
00:14:31.120 | direct deposit or other things set up. Usually, with checking accounts, it would be better
00:14:36.160 | for you just to change it on the provider's end. But if you have a lot of things automatically
00:14:43.160 | being paid that are a pain to cancel or you don't have direct deposit set up where it's
00:14:48.240 | going to be a hassle to change that, then go ahead and change your checking account
00:14:51.160 | number as well. Close one account and open a new account.
00:14:54.000 | The goal is we want to take control. So the worst thing that can happen in people's lives
00:14:58.700 | when people are struggling with money, when they're down to their last dollar for whatever
00:15:01.880 | reason, the worst thing that can happen is somebody that you owe money to and you just
00:15:07.560 | owe a bill payment, your electric bill, whatever, they come in and all of a sudden, you're
00:15:11.480 | about to go down to the store and buy groceries and you check your account balance and all
00:15:14.720 | of a sudden, the electric company took the money out of your account. That's a bummer
00:15:20.000 | because then it means you don't have any money to buy groceries and you always have to prioritize
00:15:24.600 | what you're going to do with money. So change the credit card numbers, change the debit
00:15:28.920 | card numbers, change the checking account numbers if you need to. Just make sure that
00:15:32.160 | there are no automatic payments happening on your account.
00:15:35.120 | Next, get a checkbook register. I don't know if you are familiar with what these things
00:15:42.600 | are. They're from about 1942 but they're these little things about the size of a check. You
00:15:47.560 | may or may not know what a check is but it got all these little columns and these little
00:15:52.040 | squares in it. You need one of those and they're free to get. Trot down to any bank that's
00:15:57.480 | near you and just ask a teller for a checkbook register and they'll give you one. It doesn't
00:16:00.640 | matter whether you bank there or not. Just trot in and ask the teller and say, "I need
00:16:03.160 | a checkbook register."
00:16:04.960 | Personally, I think one of the biggest losses to people's finances is that nobody uses a
00:16:08.520 | checkbook register anymore. They are unwieldy and there are better solutions as far as easier
00:16:14.600 | solutions, easier to manage, electronic solutions. You can do this with an Excel spreadsheet.
00:16:19.840 | That's how I've usually done it. But you cannot beat the simplicity of a checkbook register
00:16:26.400 | especially as I'm going to tell you how to use it.
00:16:29.040 | The beauty of the checkbook register is it does something that nothing else can do. It
00:16:32.760 | allows you to look forward and see your money laid out in a backwards and forwards chronological
00:16:40.600 | order. This allows you to project forward different amounts of money. It allows you
00:16:46.360 | to say, "Okay, today is January 1 and I've got to get from now through January 15 and
00:16:52.040 | I've got to pay these two bills. One is due on January 5, one is due on January 10. How
00:16:56.600 | much money am I going to have left over?" It allows you to go ahead and put those bills
00:17:01.600 | in on the checkbook register knowing that the money hasn't been paid out yet but allows
00:17:05.920 | you to see, "Okay, once those two bills are paid, how much money am I going to have left
00:17:09.240 | over?" Looking at your bank balance which is what most people do who are not skilled
00:17:13.340 | with money, just simply look at the bank balance, see if there's money in the checking account,
00:17:16.320 | I can go spend it. That doesn't tell you anything.
00:17:20.640 | So the checkbook register is a powerful, powerful tool. I've been through this several times,
00:17:26.960 | again, doing coaching with people who are in financial distress and most of them have
00:17:31.660 | agreed with me that once you actually can sit down and put dates to your money, it eliminates
00:17:38.420 | that question. It eliminates the insecurity of saying, "Well, I'm just going to be broke,"
00:17:44.600 | because you know, "Okay, on Thursday this bill is going out and I've got enough money
00:17:48.000 | in the account to pay Thursday's bill." As long as you know that there's no money going
00:17:51.720 | out of the account unless I actually physically, manually send the money out in the form of
00:17:56.920 | a check or an ATM withdrawal or however that works, you know I'm going to have money to
00:18:01.160 | pay the bills and that can bring you in a sense of control. So you need a physical checkbook
00:18:06.220 | register. Get one.
00:18:08.760 | Next, you need a legal pad or a notebook. You need some place that you can write down
00:18:15.520 | on paper the situation that you're facing and have it kept together. My preference would
00:18:21.120 | be a bound notebook. Go get a composition book for about 97 cents if you don't have
00:18:26.020 | one or any notebook or any sheaf of papers, but ideally it's a notebook. And you want
00:18:30.920 | something where the pages are actually connected so you don't lose things because you're going
00:18:35.560 | to start keeping budgets and you want to just have very simple. You don't want to be doing
00:18:38.160 | this on an iPad or on a phone or on a computer where the programs are going to crash or you've
00:18:43.240 | got to buy something or anything like that. Just very simple. Get a notebook.
00:18:48.520 | A pencil. Checkbook register. And if you have trouble with math, a simple calculator will
00:18:56.000 | help.
00:18:57.480 | Next, you need to get a folder and print out every single bill and every single payment
00:19:05.960 | that you owe for any reason whatsoever and make a stack of all of the bills. If you're
00:19:11.800 | receiving paper bills for your accounts, go ahead and take whatever the latest paper bill
00:19:15.600 | is. Make sure you have one bill for each account. If you receive electronic bills, print out
00:19:21.360 | physically on paper the electronic bill. If you don't have a printer, get a piece of paper
00:19:27.040 | and write down the information from that electronic version of the bill.
00:19:31.800 | So some of you listening, you might not own a computer. You might just simply be doing
00:19:34.440 | everything from your cell phone. You don't have a printer, but you still get electronic
00:19:37.560 | bills in your cell phone. That's more and more a reality for many people. That's fine.
00:19:42.280 | Get a piece of paper. Write on it, "I owe the electric company on January 1, I owe them
00:19:47.680 | $150." And write down, "Electric company due January 1, $150," on a piece of paper.
00:19:55.680 | It's very important to have this information physically, tactically there. Not to be going
00:20:00.200 | and checking this app and checking this email folder. Have it on a piece of paper.
00:20:04.640 | What you find when you actually do that is because you can actually sit down and look
00:20:08.100 | at the information and look at the papers, it's no longer overwhelming. It's no longer
00:20:12.600 | hiding in the inbox. It's just a number on a piece of paper, an impersonal number on
00:20:19.760 | a piece of paper.
00:20:21.840 | Next, take all of those bills and you're going to organize them based upon their due date.
00:20:30.280 | So take their due dates, make a chronological order, put the newest one on top, and keep
00:20:38.640 | them organized in that manner. Don't try to write it on a calendar. Don't try to write,
00:20:43.760 | "Well, this one's due here." The problem with calendars is you can't actually see the numbers
00:20:47.040 | that are associated with it. So you just want to have the stack of bills. And any time a
00:20:50.580 | new bill comes in, slide it in in the right order. Anytime one is paid, you're going to
00:20:54.520 | remove it from the stack. Organize all the bills in order of due date.
00:21:01.160 | Next step, take the checkbook register, pull out your phone, pull up your bank account,
00:21:07.880 | write today's date and the current balance in the balance segment of the checkbook register.
00:21:16.340 | And from now on, because you've started with canceling every single automatic transaction,
00:21:20.640 | from now on, every dollar that gets spent, every check that gets written, every bill
00:21:26.520 | that gets sent out from your online bill pay, every time you swipe your card, every single
00:21:31.940 | thing gets written in that check register at exactly the same time that you buy something.
00:21:37.800 | If you're not in the habit, take your card, your debit card, and your checkbook, slide
00:21:43.360 | them into the register and put a rubber band around it so you cannot actually spend money
00:21:48.160 | on the debit card without actually taking money out and writing it on the checkbook
00:21:52.400 | register. You need to know at all times exactly how
00:21:55.920 | much money is in the checking account. So that if I come by and all of a sudden it's
00:22:00.720 | 3 a.m., I need to be able to wake you up at 3 a.m., shake you in your bed and say, "Tom,
00:22:05.680 | Susan, how much money is in your checking account?" And you immediately grab the checkbook
00:22:08.600 | register, which is on the nightstand beside you, and you say, "Ah, there's $463 in the
00:22:12.680 | checkbook register." It's very important. Tip for you, if you're married, working out
00:22:21.240 | of a joint account, this will be the situation for many of you where both spouses are spending
00:22:26.440 | out of the account. Number one, ideally in a moment we're going to try to put some of
00:22:29.760 | those things over to cash so we don't have to face this, but if you're married and working
00:22:33.520 | out of a joint account, one person needs to manage the checkbook. One person needs to
00:22:38.200 | have the checkbook within two feet of them at all times in physical proximity. The other
00:22:43.040 | person who's going to make an expenditure needs to send a text message before any expenditure
00:22:48.840 | with the amount to make sure that that money is in there when they're going to make it.
00:22:54.200 | So there needs to be a text message before the expenditure to make sure there's money
00:22:58.160 | in the account sufficient to make the payment. And then after the expenditure, you need to
00:23:04.080 | send an additional text message with the information on what was purchased, how much it was, and
00:23:08.920 | when the transaction occurred because it needs to go in there at the exact moment of the
00:23:14.560 | expense. Okay, I'll give you five minutes on either side. Hopefully this is useful.
00:23:21.040 | I'm being very precise, but these things are important. If you've got thousands of dollars
00:23:26.080 | extra that you keep in the checking account, that's fine. You can reconcile the accounts
00:23:31.680 | in a day or two. But when you're working with dollars and pennies, you can't run the risk
00:23:37.400 | of incurring a $35 overdraft charge. So it needs to be done and taken care of immediately.
00:23:46.280 | So in the checkbook register, you have today's date, you have current balance, and you have
00:23:49.480 | a total amount of money in the account. Next, pull out the notebook. At the top of it, write
00:23:55.000 | today's date. Write down current balance at the top right of the page and put those numbers
00:24:05.800 | there. You're going to organize that page exactly like you do the checkbook register.
00:24:10.240 | Next, take each of the bills that are in your handful of bills, and you're going to write
00:24:15.400 | them down on the page in order of chronology. So on the left-hand column of the page, it
00:24:20.760 | says January 1. The first bill is due January 6. Skip several lines between the initial
00:24:26.480 | number. Write January 1. Skip three or four lines. Write January 6, electric bill due,
00:24:34.040 | $167. Then skip a few more lines. Write January 9, cell phone bill due, $100. Next, go down
00:24:44.120 | and skip a few lines. Write in each of the bills on that sheet of paper. Rent due, mortgage
00:24:50.960 | due, you get the point. Put the entire list of all of the bills on the sheet of paper
00:24:56.040 | and then set the stack of bills aside. Then look at your pay schedule and figure out when
00:25:02.360 | any paycheck of any amount is going to be received into your household. So you might
00:25:07.000 | be paid on the 1st and the 15th. Your spouse might be paid on the 5th and the 20th. Estimate
00:25:11.880 | those numbers and go ahead and write them in on that sheet of paper. You're probably
00:25:17.880 | dealing with about a month or so of chronology on that paper depending on how many bills,
00:25:23.720 | how far out your bills are. Because you're dealing with current bills, they're probably
00:25:26.440 | all due within about a month. We're going to go with this process as far as we can go
00:25:31.760 | even if it's just to the next paycheck. But you're probably dealing with about a month,
00:25:36.160 | which is fine. Write down each of the paychecks. So if you get paid on the 5th, write January
00:25:43.040 | 5. That's why we skipped some lines. Write Tom's paycheck and put in the amount. And
00:25:48.440 | you're going to put these columns here with pluses and minuses in exactly the same way
00:25:51.920 | it's laid out on the checkbook register. So you've got your pluses and your minuses and
00:25:56.240 | your balance. Then take a look at that piece of paper and ask yourself, "What other money
00:26:01.720 | do you need to spend for things that are missing on that paper?" There's probably just a few
00:26:07.120 | things. Number one, it's food. We don't ever receive bills for food, but we do need a certain
00:26:11.320 | amount of food and that's very important. So ask yourself how much, just guess if you
00:26:16.800 | can, but ask yourself how much you actually spend on food. Let's say it's $100 a week.
00:26:25.180 | Go ahead and figure out when are you going to go shopping. Take a look at the calendar.
00:26:29.140 | So if Friday is January 7 and you go shopping on Friday nights, then write January 7, write
00:26:33.320 | $100. Other things that are probably missing would be things like gas. Try to figure out
00:26:40.920 | how much do I spend on gas and when am I going to do it. So if you fill up the car usually
00:26:44.240 | on Saturday, take a look and see if you can put $40 in there for gas on Saturday morning.
00:26:50.600 | Write that in on one of the lines that was missing. Go through and try to think of anything
00:26:55.440 | else that you're missing. Next, total the columns up and the goal is to see, "Okay,
00:27:01.300 | if I've got $1,000 in the account right now minus a $200 bill three days from now minus
00:27:06.360 | $100 on Friday to pay for food minus $40 on Saturday morning and then all of a sudden
00:27:12.440 | we get another paycheck of $500, just start totaling the numbers down and see if that
00:27:16.920 | account dips to below zero or see if we have money left at the end of the bills. Hopefully
00:27:24.560 | there's money left. If there's not, you're going to need just to go as far as you can.
00:27:29.840 | We'll come back to this in a moment. But hopefully there's money left. In an ideal world, that's
00:27:35.440 | the situation that you face. When there's money left, then you can go back and you can
00:27:40.960 | look and you can try to figure out, "All right, where would I like to spend a little bit of
00:27:44.240 | extra money?" Maybe on Friday we'd like to go out to eat, so you put down $25 to go out
00:27:48.840 | to eat on Friday and you write that in on the notebook paper. Whatever it is, maybe
00:27:54.760 | you'd like to send more money to the debt payments, doesn't matter. You just go ahead
00:27:58.320 | and slide those things in. The goal is to be able to cover out the coming month or the
00:28:04.920 | cycle of bills that you have in your hand.
00:28:07.040 | Now, at this point in time, the budgeting process starts to diverge depending on the
00:28:11.440 | situation. I'm going to quickly reach the end of what I can do in an audio discussion
00:28:15.560 | format. But after you have written those things out on the piece of paper, then you're going
00:28:22.460 | to go ahead and just start tracking the transactions. If the bill is due to the electric company
00:28:27.360 | in three days, you're going to go ahead and write the check. When you write the check,
00:28:30.760 | you write the check number, the amount, the bill, to whom it was paid in the checkbook
00:28:36.560 | register, and you total that account balance in the checkbook register. You start to record
00:28:44.000 | those transactions.
00:28:46.240 | Here's where we get into a number of goals for what you want to accomplish with the checkbook
00:28:49.440 | register. But this process is the most fundamental basic budgeting process that can be had. If
00:28:57.720 | I were in a situation where I was in intense financial distress, I would be doing this
00:29:04.140 | budgeting process at least weekly as far as on the pages where I'm constantly writing
00:29:09.800 | it down, refreshing it, writing down the bills, seeing what's due. I would definitely be doing
00:29:15.840 | it weekly at least until I'm current on all of the bills and have enough money to where
00:29:19.800 | I'm able to comfortably pay the bills and comfortably make those other transactions.
00:29:23.800 | My recommendation is if you're in a situation where things are that tight, you definitely
00:29:29.200 | want to move some of the expenditures over to cash. This will help.
00:29:34.200 | Let's say that you know, "Okay, Friday I'm going to spend $100 on groceries." What I
00:29:37.960 | would do is I would go ahead and I would swing by the ATM, pull out $100 of cash, and then
00:29:42.800 | here's our grocery budget. We're going to spend this with $100 of cash. That helps you
00:29:46.920 | when you're not near zero. That helps you to not overdraft your account because it may
00:29:51.840 | be I've been in these situations and help people in these situations where you've got
00:29:55.160 | $3.67 of a balance in your checking account.
00:29:59.600 | As long as you are fanatical about keeping that checkbook register current and making
00:30:03.800 | sure that you're not making any payments until there's money in the account, you can run
00:30:08.280 | this thing down to $0.03 without any danger because you're keeping track of it. It will
00:30:15.880 | help you to implement some habits of making sure that you're diligently, consistently
00:30:19.800 | checking your checking account. What I would do, install your bank's app on your phone
00:30:25.820 | every single night before you go to bed, sit down at your desk or at your kitchen table,
00:30:29.720 | pull up your bank's app, make sure that there's all the transactions that are listed in the
00:30:33.780 | account are carefully recorded and reconciled in the checkbook register. Then you can shut
00:30:38.960 | it down and go on your way.
00:30:41.760 | If there's any need to spend money that's not on that yellow piece of paper, you've
00:30:48.480 | got to put it on the yellow piece of paper first. Yellow was because there's a legal
00:30:53.600 | patent. You got to put it on the notebook first. Then you've got to rework all of the
00:30:59.440 | math. If you get to the point and you say, "Okay, wait a second. We're going to do something
00:31:05.040 | special on Saturday and we're going to spend $97," then you redo the entire page with all
00:31:11.120 | of the bills and all of the estimated expenses before you spend the money until you get to
00:31:17.220 | a point where you've got enough money in the checking account where you could comfortably
00:31:20.520 | do those things. Then we move to a different type of budgeting.
00:31:24.980 | This type of budgeting is very, very effective. It's very, very effective when you are in
00:31:29.780 | a situation where you have shortfalls because it helps you to be very tactical with knowing
00:31:35.560 | when and where the money is coming in and when and where the money is going out. If
00:31:39.160 | you need to juggle, you do all of the juggling on that piece of paper. You might reach a
00:31:43.800 | point where you're juggling. You can't make a payment. In that situation, you choose the
00:31:47.580 | payment that's going to be the least impactful to your life to skip.
00:31:53.820 | Here I would go with Dave Ramsey's priorities of you don't skip food. You don't skip paying
00:31:58.660 | the utilities. If you have to, you skip the credit cards. You keep your rent paid. You
00:32:03.300 | keep your mortgage paid. But if you have to, you start with food, utilities, gas in the
00:32:08.020 | car so you can get to work, housing expenses. If you've got to be behind, don't pay the
00:32:13.680 | student loans. Get behind on those but don't not have any groceries in the refrigerator,
00:32:19.060 | things like that.
00:32:20.060 | If you've got to skip though, this gives you the power to say, "Okay, I've got to skip
00:32:23.140 | or I've got to be a few days late." You can see it all on that paper. It also gives you
00:32:28.380 | the time and the opportunity to say, "How much money do I need by that date?" Maybe
00:32:33.180 | you can go and you can sell something and come up with the extra money and you can add
00:32:36.300 | in an additional credit there to that account.
00:32:40.220 | The point is this type of budgeting is very, very effective to get you going from paycheck
00:32:44.640 | to paycheck and making sure that you don't run out of money between the paychecks.
00:32:50.980 | The next step after this type of budgeting, we'll talk about another day, but that's where
00:32:53.740 | you would get to the concept of monthly budgeting, of knowing, "Okay, in this coming month, I
00:32:59.140 | know where these are the expenditures that I'm going to have. Here's the cash and starting
00:33:02.660 | to spend." We'll move into that maybe in a future show.
00:33:06.020 | But when you're in a position of financial constraint, you may not even be able to go
00:33:09.780 | month to month. You may have to go day to day, week to week. Take heart if you're in
00:33:16.460 | that situation because the process of carefully recording your data in the checkbook register
00:33:22.940 | and then carefully writing things out in the notebook page, list it out chronologically
00:33:27.100 | in the way that I have, that's exactly the same process that you're going to be doing
00:33:31.160 | when you're a multimillionaire. It's just there's going to be some bigger numbers. But
00:33:35.900 | it's no different in that process.
00:33:37.780 | So being diligent with what you have where you are is going to train you to be more effective
00:33:44.620 | down the road. If you are in financial distress, my closing encouragement to you would be this.
00:33:55.200 | Be diligent to take this control on a very physical basic level. Don't pursue any electronic
00:34:00.860 | solutions. Within a week or two, a couple of weeks, I'm going to be doing some interviews
00:34:05.180 | and launching with Jesse Meek, I'm founder of YNAB, which is an excellent budgeting piece
00:34:12.220 | of software. I'm going to be bringing him on the show to talk about YNAB. It's one of
00:34:15.620 | the more powerful budgeting softwares. You, the audience, love it. I've received tons
00:34:19.500 | of recommendations to bring it on as an affiliate link and I'm in the process of working out
00:34:24.060 | those details. But I'm going to be bringing him on.
00:34:26.860 | If you are in, my encouragement though, if you're in extreme distress, you don't need
00:34:30.980 | a budgeting software. You don't need an electronic solution. You don't need an app. You don't
00:34:36.140 | need any of that stuff. You need a piece of paper and a checkbook register. And the key
00:34:41.380 | value of it is because it'll train you to take control. And when you take back control
00:34:47.540 | and you diligently manage what you do have, that process will train you to be able to
00:34:53.260 | accumulate more for the future.
00:34:56.500 | Hope this is useful to you. I'm trying to keep this short and precise. At some point,
00:35:00.220 | I'd like to do a video on this. It's far easier to explain in a video format or a visual format.
00:35:05.740 | But for today, I felt it was important to do it in an audio format. And I hope that
00:35:10.140 | it was effective enough to help you if you're in this situation or to be of help to somebody
00:35:15.180 | else if you wanted to share it with them in this situation.
00:35:19.980 | If you've got any comments or feedback, I would be happy to hear it on today's show.
00:35:23.340 | If you've got solutions and ways of doing things that you find effective, go ahead and
00:35:27.940 | do that. In the future, in coming days, we will talk about other ways of budgeting. We'll
00:35:31.220 | talk about automating everything. I think that's a powerful thing, but not when you're
00:35:34.460 | in distress.
00:35:35.940 | And this system, by the way, you don't ever have to outgrow it. You'll outgrow it in the
00:35:40.900 | sense of having to carefully predict out each and every expenditure. If you keep a buffer
00:35:45.780 | of a few thousand bucks in the checking account, there's no reason for you to do this each
00:35:49.220 | and every, to track every single dollar on that piece of paper. That's the point of getting
00:35:53.780 | to a buffer, so you don't have to do that.
00:35:55.820 | But still, keeping a checkbook registered, keeping a single account, paying the bills
00:35:59.080 | manually helps you to never have overruns. The bills that come out of my accounts automatically,
00:36:05.260 | I don't look at them as much as I should. And so, from time to time, I'll go back through
00:36:09.660 | and I'll just do an audit of all the bills. And this can be a really useful way to do
00:36:14.620 | it.
00:36:15.620 | So, hopefully this will be a helpful resource for you. Thank you all so much for listening.
00:36:20.100 | If this has been beneficial for you and you would like to support the show, please go
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00:36:45.780 | Oh, also, one other request. If you wouldn't mind, please, wherever you listen to the show,
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00:37:15.380 | I'll be back with you soon. Cheers, y'all.
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00:38:04.460 | education, and financial enlightenment, but your situation is unique and I cannot deliver
00:38:10.660 | any actionable advice without knowing anything about you. Please, develop a team of professional
00:38:16.820 | advisors who you find to be caring, competent, and trustworthy, and consult them because
00:38:23.500 | they are the ones who can understand your specific needs, your specific goals, and provide
00:38:29.100 | specific answers to your questions. I've done my absolute best to be clear and accurate
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00:38:44.540 | Until tomorrow, thanks for being here.
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