Money Diary for Financial Independence

As the founder of Imagine Financial Services, I specialize in helping women and young professionals achieve their financial goals. A common financial planning challenge my clients often face is budgeting. Many experience paralysis-analysis when they hear the term “budgeting”. It sounds boring and restricting. 

How do I approach this foundational financial topic with my clients who are predominantly women?  I’ve softened the terminology to a more acceptable phrase. I call a client’s Budgeting Spreadsheet their Money Diary. This simple change of wording often helps to put my clients at ease. Then I work with them as their partner to learn about their money diary. Together we discover what is working and what needs some adjusting.  

First, I love to start the money diary discovery process by listing the income and expenses of the previous month. You can’t fix what has already occurred, but this starting point provides an incentive for what may benefit from some adjustments.  

The next month we re-address their income and expenses. The second month is a lot easier. We have already established the anticipated income sources and spending categories.  

Many have never really looked at monthly statements from their checking accounts or credit cards. Too often when we begin to review these documents or go online to access statements, we find that recurring expenses have been incurred for items they no longer use or from contracts they don’t remember initiating.  

This is when a money diary becomes fun! The client can begin eliminating unnecessary charges by canceling unwanted subscriptions. Also, they become aware of what they spend on some discretionary items, like eating out or novel pet supplies. It is easy to momentarily swipe and credit card and not think about what this means to your long-term financial well-being.    

In the third month, we compile figures again. This is when I usually see changes in spending behavior. These changes are due to the client seeing for themselves how certain expenses have gotten out of hand. They can then begin to feel some control as expenses are eliminated. They get excited to tell me they contacted their telephone service provider who was able to reduce their monthly bill by dropping an unused feature. Others have proudly exclaimed that they cut back on the expense of eating out by preparing more meals at home. This has also led to a conversation about feeling better because their home cooking made them more aware of calorie consumption and they even lost a couple of pounds!   

Differentiating between your needs and what you want can be difficult, but when you master these concepts, you will begin to experience financial independence.  

Monthly budgeting, also known as Money Diary 101

It is time to get realistic about your needs, wants, guilt spending, and splurge spending. To be financially successful, income must exceed expenses. However, if expenses exceed income one has to rely on debt to fund their lifestyle. Not only is this damaging to a person’s credit score, but it quickly begins to erode a person’s sense of financial stability as they constantly have to face creditor notices and calls. What can a person do to set their finances on a healthy and proper trajectory?  

  • Accept the difference between need and want expenses. You need to eat, have shelter, and pay for certain expenses like utilities. These are required expenses. A person wants but does not need a big screen TV or fancy new shoes. Income minus required expenses leave discretionary funds and want expenses must be covered by discretionary income.  
  • Did you pay all the necessary bills on time? Mortgage or rent, electricity, water, trash, car payment, auto insurance, and health insurance are requirements.
  • Are you spending too much on Amazon or Macy’s? Reel in your one-click shopping.
  • Instead of eating out all the time, could you save money and improve your diet if you prepare food at home?
  • Tracking your expenses can feel time-consuming and tedious, but it helps to shed light on where your money goes each month. Some expenses may not occur regularly, like new tires for your car which may only come up every couple of years, but when you can begin to see the pattern, you can establish how much you need to put away each month for various irregular expenses.

Do you need a template to get started? Imagine Financial Services has a simple budget or Money Diary template you can use to get started assessing your income and expenses. Click HERE to send an email requesting your Money Diary template.

ELIMINATING DEBT

Debt is a tool that can be used wisely or if used improperly may cause stress and even financial devastation. Good debt includes a mortgage, but only one you can afford. It is a loan used to finance what one would expect to offer a good return on investment over time (“Good Debt vs. Bad Debt” 2020). On the other hand, bad debt does not provide a potential return on investment, and you have no way to pay it off immediately or within just a couple of months max. Additionally, bad debt will most likely harm your credit score (“Good Debt vs. Bad Debt” 2020). What can be done to pay down or eliminate bad debt? It is important to pay more than your minimum payment due. If you can not pay off this debt within two months, go back to your budget and establish what is the maximum amount you can pay. 

EMERGENCY FUND 

Life happens and unexpected bills come up, so an Emergency Fund is an essential part of every person’s financial arsenal. How much should an adult have saved in an Emergency Fund? “Three to six months of expenses: It’s the golden rule of emergency funds”(O’Shea 2019). Some find it easier to save money for an Emergency Fund by transferring a certain percentage of monthly income out of your primary checking account into a secondary savings account, thus creating an out-of-sight-out-of-mind reserve. This helps to eliminate the temptation of dipping into this account to cover discretionary expenses you don’t need. 

Conclusion

Establishing a budget or Money Diary, eliminating debt, and establishing an appropriate Emergency Fund are all critical foundational aspects of a healthy financial lifestyle. 

Would you like help setting up your money diary?

Contact Imagine Financial Services to learn about the services provided and associated costs. 

  • New videos featuring financial topics and tips are regularly uploaded to the Imagine Financial Services YouTube Channel. Click Subscribe to receive updates when new content is provided.
  • Subscribe to the Imagine Financial Services monthly Newsletter HERE.
  • If you want to schedule a complimentary meet and greet with Marianne Nolte, Certified Financial Planner™ click this Calendly link 

References

“Good Debt vs. Bad Debt.” Equifax, 2020, www.equifax.com/personal/education/credit/report/understanding-credit-good-debt-vs-bad-debt/.

O’Shea, Arielle. “Is Your Emergency Fund Too Big?” NerdWallet, 27 Feb. 2019, www.nerdwallet.com/blog/investing/is-your-emergency-fund-too-big/.