Daily Preparedness

Before we get into our next face of grasping your financial bull by the horns, check out the new page entitled ‘Frugalmania’‘. The tab is at the top of the page and it will direct you to the first four categories of frugality tips. Have one to share? Email it to us! New categories will be added shortly and the newest items in each category will be written in italics.

All self-promotion aside, if you followed the instructions from last week’s post, you should have a clear idea of where you stand financially. You should know how much money you make, how much you spend, how much you owe and how much you have saved. Don’t you feel clever? You should and now it is time to make some decisions and plans to reach your GOAL ! ! ! !

It is time to sit down, plan, think, confer, decide, make a list, plot a course and move onward. The only tools you will need is the financial information you have gathered, a pencil, a calendar, a calculator and a notebook or other sturdy type of writing surface.

First, if you are in debt and have not already done so, go through last week’s check list and slice everything you haven’t sliced from your budget. Your primary goal will be to get out of debt as soon as possible, build up an emergency nest egg and STAY OUT OF DEBT! Keep that in mind as we move forward with making plans.

Look at your nice blank calendar for the year. Fill in all gift giving occasions, including birthdays, known weddings, holidays, Mother’s Day, Father’s Day, graduations, Valentine’s Day, Easter and Thanksgiving. Why Thanksgiving? No gifts are involved but there are usually increased food and social costs so you need to plan for them. If you have detailed enough records, look back and see if your spending spiked during these periods. Was it a reasonable amount or was it too much? Either way, you will need to work these extra expenses into your savings plan.

Do any of these events incur travel expenses? Can you afford that? Can you plan far enough ahead to cut your costs? If they are family events, can extended family members help with travel expenses so that they can meet your new little bundle of joy? Estimate realistically what these trips are going to cost you.

On your piece of paper, develop a budget for these events and divide the cost over the next 12 months. Add that amount to your savings projections.

It might be helpful at this point to start a spread sheet or a month-by-month cost analysis for the major categories. It will help you keep track of what you are saving for and the amount you have available to you. Only you and your family can prioritize many of these categories and decide where you can or want to cut back.

Next, write down any household repairs, car repairs (including emissions, safety, tires, etc), or major items you know you will need for the next year. Add those amounts up and divide by 12. Enter into your monthly expense chart.

Now, you get to write down things you would like to purchase or trips you would like to take. Think about even mundane things such as a new mattress, a new freezer or new television. Set a realistic budget for these items. It might be worthwhile to do some research about the items you believe you want to purchase, typical prices, features, etc. so that you can be prepared.

If you can chart all of these items in addition to the ‘regular’ household expenses you previously figured out and still have money left over–wahoo! You have a plan!

If you cannot cover all of your regular expenses and pay off your debts while covering these other expenses, you will have to cut items from your newly formed ‘wish list’ and/or your regular expenses.

For those that are out of debt and saving on schedule, the purpose of the exercise is for you to identify not only what you might need for the next year, but what you want. If you and your family/spouse agree on the list of priorities, your discretionary income will be better channeled. The biggest secondary benefit is that by identifying the items you will need/want for the coming year and doing the preliminary research, you will be prepared to pounce on a good deal when you find it.

Example:

You want a new stainless steel refrigerator. It is on your list and everyone agrees that it is a good idea for the coming year. You do some preliminary research to know what size your kitchen can hold, what features you want, which brands are best and the expected cost. You have the money set aside, but no strict deadline for purchase. One day, you stop at a store for an item and decide to browse through the appliances. And there it is–your perfect stainless steel refrigerator with every feature you want and it is the last floor model. It is marked 50% off the normal price. Eureka–you did it! You knew what you wanted, what it should cost (so you knew the 50% off was really 50% off the retail) and had the money!

Likewise, if you want to go to cousin Freddy wedding in August, you know it will cost your family $2000 to go. You’ve carefully shopped for hotels, tickets and even calculated in the cost of clothing. By doing your analysis, you see that you simply are not going to have the $2000 in time. You will know have to decide if there is another way to accomplish your goal (can one family member go or could you find a cheaper place to stay?) or decide that going to cousin Freddy’s wedding is not something you can do this year. If you can afford it, you have plenty of time to shop, plan, bargain hunt and get the best possible prices on everything before August.

Having a plan also helps develop self-control. It is easier to tell yourself, “I don’t really need this dress and I want to go to cousin Freddy’s wedding more” than it is to tell yourself just plain “No”.

If your goal is to simply get out of debt (and that is a FABULOUS PLAN that should be your first plan), give yourself a visual reminder of that goal. Fill an empty jar with beans. Mark the jar (a permanent marker will write on glass) in increments of debt, proportionate to the debt and your time table for paying it off. It can work best if your first few marks are fairly small amounts–say what you can pay off in a week’s time. You can lengthen the increments as you get further into the plan.  For example, if I had $10,000 in consumer debt that I was going to pay off in the next year,  I would make my first mark at $200 which would be a little bit more than one week’s ‘pay down’. I would do this for the first several months worth of weeks and then lengthen it to monthly. Unless you need constant re-enforcement! You might add a bean to your wallet to remind you of your goal. As you pay off that debt, take out the beans to that line. When the jar is empty, you are FREE!! Pat yourself on the back, roast a marshmallow, sing a song and enjoy the freedom–then stay that way!

Having a plan helps family members understand cut backs in other areas and gives you a common goal to work towards. Just remember to keep saying, “Nothing feels as good, looks as good or tastes as good as being financially free!”