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Money Management

Why You Need a Buffer When Zero Based Budgeting

Why You Need a Buffer When Zero Based BudgetingThis post may contain affiliate links. Check out my Disclosure Policy for more information.

We hear it all the time in the personal finance field, zero based budgeting. It’s an incredibly powerful tool and I know for me, it has been the tool to help me pay off $100k in student loans in 3 years.

If you don’t know what a zero based budget is, it basically means that your budget equals zero by the end of your budgeting period. Basically all money that has come in, then goes out by the end of that budgeting period.

I’m not saying you spend all your money by the end, but that you have sent your money to start working for you based on your goals. My long term goal is to reach financial freedom and my goal right now to get there is to pay off my student loans. This means that at the end of my budgeting period, I do monthly, all my extra money goes to my debt.

It takes some time to incorporate and I know a lot of people are scared to use this model of budgeting, which I totally get. I was nervous to since it means all my money I earned goes somewhere else by the end of my month.

I’ve been utilizing a zero based budget for 4 years now, and I made a mistake this month. I wasn’t anticipating my old student loan provider would pull a payment since my loans were paid in full by Earnest once I refinanced (Use my referral link to refinance and get $200!). However, out went $621 on a zero balance loan and caused me to overdraft.

I acknowledged the mistake and immediately started creating a plan so this doesn’t happen again. You see, I am in a unique situation where I live at my parent’s house while I pay off my debt. My bills are minimal because of this. I also kept a $500 buffer in my checking account and assumed it would be enough since my bills are so low.

However, the perfect storm brewed up in early September (checking account at exactly $500 since I’m a teacher and had used my entire summer sinking fund by then and a payment withdrawn on a zero balance student loan I wasn’t anticipating) causing my entire system to fall apart.

There are two ways you can prepare yourself for these types of things to happen. You can have a buffer in the account you use to pay all of your bills, like I have used. I would suggest having at least 1 pay period of expenses saved up, which is what I didn’t do.

Or, you can get to a position of living on last months income. I give so much credit to people that do this! I think it’s because I’m so angry at my debt for preventing me from reaching my goals sooner that I can’t let money just sit in my account. I need to send that to debt ASAP.

Basically what you would do is that you would save enough in your account that you eventually are at a point that you are living on the previous months income. It’s an incredible concept and tool, but I’m just not someone that has been able to implement this strategy.

Figure out what works for you, and get that zero based budget into action. I promise, it will change your financial life if done correctly. I’m happy to help you with this, just shoot me an email 🙂 How has zero based budgeting helped your financial life? I’d love to hear about it in the comments!

 

Money Management

The Solution to Cash Management

The Solution to Cash Management

This post may contain affiliate links. Check out my Disclosure Policy for more information.

If you’re just starting out on your financial journey, you probably feel overwhelmed and frustrated by money. I know I did when I first started. I felt that I couldn’t escape the burden of my debt and no matter what, it would always be with me.

The thing was that I was constantly living in a scarcity mindset and didn’t know how to break it. When I started making steps to change my situation, my mindset slowly started to shift. This shift is important.

It can be hard to figure it out on your own. It took me months of searching the internet and reading personal finance books to get myself to a place where I was empowered by my money, instead of controlled by it.

Recently I got the opportunity to connect with Brie Sodano, founder of From Sheep to Shark, who has created an incredible cash management webinar that teaches you how to stop bleeding money. Brie is an incredible woman that has a goal to help 1 million woman improve their money situation.

Lets be real, I love talking money and personal finance, but I enjoy the topic and have an entire blog about it. I know personal finance and managing money is a tricky concept. It can be difficult to navigate when there are so many different things at play (It’s incredible just how much of your life impacts your personal finance and your ability to manage it).

Brie’s Invisible System to stop bleeding money and start stacking cash has truly covered every aspect of cash management in an easy to follow format. She lays it right out for you and tells you in simple terms how to go about cash management.

Cash Management

The reality of cash management is that there is no one size fits all fix since there are so many things that impact your money. Brie recognizes this in her Invisible System course. She shows you how to overcome these obstacles, like habits and ideas surrounding money and cash management.

In my opinion the most valuable part of Brie’s Invisible System course is that it is realistic. She considers the reality of the everyday person and all of our imperfections. This allows you to find the extra money in your budget and break the cycle of scarcity.

Cash management is one of the hardest parts of getting your finances in order I have learned from my clients. This course solves that problem for you by providing you a manageable system to use.

Money Management

Why You Need to Start Cash Flowing

Why You Need to Start Cash Flowing

There are so many terms when it comes to personal finance and so many ways of doing things out there. I mean with a simple search on the Internet you will find endless resources for personal finance and how to go about getting your finances together. The most important is absolutely getting a budget together, cutting expenses, and increasing your income, but it’s also super important to create sinking funds and cash flowing larger expenses.

What is Cash Flowing?

This is one of those terms that is thrown around the personal finance world a lot and it makes sense, it’s super important. Cash flowing is when you have a larger expense and you delay the purchase until you have enough cash saved up for the expense. This tool is used when it is something you didn’t necessarily see coming (unlike a sinking fund that is for known expenses in the future). For example, I am cash flowing a new to me car instead of financing it. Of course, I could go out right now and get a car and finance it, but that would increase my debt. Something I am not interested in doing because I want to live a life of financial independence.

How to Start Cash Flowing.

You’re obviously not going to always use cash flowing, there is a time and a place. If it is a known expense that is happening in the future, like an oil change or yearly membership fee, you should have a sinking fund for it. If it’s something that you need to purchase and have time to save, then cash flow it. I’ll use my example of a new to me car. This isn’t an emergency and I have time to save for it. So, I’m adding money each month to a car fund I created. You need to decide where your priorities are and how quickly you want to cash flow the purchase. For me, I want to have it cash flowed by October, so I am sending a lot of my extra income from side hustles to this fund each month while still sending extra to my debts. Once you have made your decision, you can tweak your budget to find the cash for your purchase. Remember, a budget is not meant to restrict you, but to allow you to make the purchases you want.

Cash flowing has been a total game changer for me and my budget. Just by delaying a purchase until you have the cash to afford it, you can avoid putting yourself into debt. As I said earlier in this post, in order to obtain financial freedom, you can’t be burdened by debt and having to pay companies for past purchases with interest. Have you ever cash flowed a purchase?

Money Management

The Most Important Lesson Budgeting Taught Me

The Most Important Lesson Budgeting Taught Me

Recently I’ve been sharing my tricks on how to save more money by making simple fixes in your daily life. It’s incredible how much the little things add up when it comes to your budget. A lot of little changes make a big change in your entire budget. When I first started my journey in 2015, I tried to budget for the first time and cut spending at the same time. This was such a fail I try not to even think about it! I’m glad it happened though because I learned a valuable lesson that I have taken with me in all aspects of my life.

Ever since I can remember I have had a problem with getting an idea and going a thousand miles in that direction. I throw myself into whatever I’m doing and get all of these ideas that I try to put into action. But the problem with that is it’s just too much at once. I have almost always failed when I try this approach. When I tried it with budgeting and taking control of my finances I went into it with everything I had and wanted to make all the changes right away. But that doesn’t change the behaviors, it just puts things down on paper. When I slowed down and made small changes to my budget each month I was so much more successful. Yes, it took longer, but ultimately I was more successful in the end.

I’ve now applied this to all areas of my life and it has made me more successful and much more productive. I no longer have all the ideas and no action. I now have ideas and know how to plan them into action. With my new teaching jobs I have used this to be more successful with my students. I have applied it to this very blog and have found myself putting so much more into action now, rather than just ideas in my head and on paper. I’m getting things done finally and being successful because of my lesson learned through budgeting.

I encourage you to try this strategy in your life, don’t try to tackle the big changes all at once. It can be overwhelming and most likely will only make you quit. Try to break down the big, scary goals and changes into smaller manageable tasks until you have reached the goal. What is the most important lesson you have learned through this process?

Money Management

Why I Use Credit Cards During my Debt Free Journey

Why I Use Credit Cards During my Debt Free Journey

Now, I know this probably sounds totally crazy. This girl is in massive student loan debt, $127k right now to be exact, and she’s going into more debt?! And I know, I am a Dave Ramsey follower, and I do follow the baby steps that he outlines, I’m currently on baby step 2. But even those, I don’t follow exactly because I can’t give up the compounding interest I’ll benefit from by starting my investments now, even if they are small. So no, I don’t use the envelope system he preaches, and maybe that doesn’t make me a true DR follower, but when I tell you my reasons, I think it is more than justified.

Why I Use Credit Cards During my Debt Free Journey

Of course, I follow a very strict budget each month, one of which includes paying my credit cards in full each month. This is the only time using a credit card is beneficial. If you ever pay any interest on your cards, you’re losing money. No matter how great your rewards are, if you pay interest, it’s not worth it. The habit you are developing of not paying your card in full is much worse in the long run. Set it to auto pay in full and never turn back. When you don’t pay interest on your cards and only reap the benefits of a rewards credit card, it is totally worth it to use them instead of an envelope system. Currently I use my rewards strictly as cash back that goes directly to my student loans. I earn FREE money just for using the card because I am paying my card in full each month. Just using this strategy alone, I’ve applied $400 in cash back to my student loans in the last two years. I’d say that’s worth it, but I also never even think about carrying a balance.

Why I Don’t Recommend This to Everyone

This strategy will absolutely not work for everyone and I don’t recommend this if you are working to pay off credit card debt. My only debt I have is student loans and I’ve never had credit card debt, except the amount I pay each month. If you are someone that is working your way out of or have had credit card debt in the past, then I absolutely don’t agree with you using any type of credit. If you know you have had issues with credit cards in the past, it is a horrible rabbit hole to fall down again. You definitely don’t want to open yourself up to potentially getting back into debt or increase your current debt.

This won’t work for everyone, and of course it is not recommended for people that strictly follow the Dave Ramsey model. But, this works for me and has been a great tool to pay off a chunk of my debt. So, where do you stand on using credit cards?

Money Management

Using Gift Cards to Get Through the Hard Months

When I began this debt payoff journey I was $200k in student loan debt, just starting my first year teaching, moving back home with my parents, and had no idea how I was going to manage this whole thing. I had a plan, I had a job, and I was starting to create some great side income streams. Then, the summer started. This should be the best time for a teacher, right? Wrong. No paycheck for 2 months when you have a $1,400 minimum loan payment to make each month is stressful. Of course, I had saved money throughout the school year for those two months in order to make at least my minimum. And of course I had some side hustles going on to bring in some income, but it was no where near my salary. That’s when I discovered using gift cards to get through the hard months.

Using Gift Cards to Get Through the Hard Months

When you don’t have your income like you’re used to, but you know it’s going to happen, it’s great, solely because you can plan for it. I was able to save enough money each month to cover my bills in the summer and start thinking creatively about my money. That’s the crazy thing about being in crippling debt, you start to think super creatively in order to get more money in your pocket.

About the same time I started to panic about not having my paycheck, I was also doing a huge purge of my things. I was hoping to sell some things to make some extra money. In the process, I found a TON of unused gift cards. That’s embarrassing to admit HA! I literally stashed them probably years ago and totally forgot about them. But, that got me thinking, why don’t I use these to help me in the summer?

So I survived my first summer without my salary and knew what I needed to do for the following summer. I saved each month for the summer so I could pay my bills and I hoarded every single gift card I received. Now, to clarify, if it was a restaurant one, or clothing, I didn’t necessarily keep it. The ones I kept were the ones that could be used anywhere, like Visa or Mastercard gift cards. And I absolutely kept Target gift cards because this teacher loves that place for back to school! So, what are the creative ways you have come up with to make ends meet when your pay isn’t consistent?

Money Management

Being Financially Prepared for the Unexpected

Being_Financially_Prepared_for_the_UnexpectedOne of the things I always read about on personal finance blogs was to financially prepared for the unexpected. You never know when something is going to happen that’s going to rock your budget and make you frantically scramble thinking how you’re going to afford this. This happened to me when I realized I broke even on my budget, before I even applied my extra student loan payment I make each month. Life throws curve balls at us everyday and it’s important to be financially prepared for them so they don’t hurt us as much.

June was an interesting month for me. I had two large unexpected expenses that basically was my entire extra student loan payment I plan for each month. The first one was my new teacher mentoring fee that goes to my mentor teacher, $550. The second was when I brought my car in for an oil change and they told me I needed all new brakes and two rotors replaced, see ya $955. The second was completely unexpected, and what really hurt my budget. I take my car in for it’s oil change and they always inspect the brakes for me. Everything was fine at my last oil change and suddenly 4,000 miles later, new brakes and rotors are needed.

This was hard for me and made me make a tough decision. I could either make my extra loan payment for June and pull the money from my savings, or not make my extra loan payment and not need my savings. My immediate reaction was to make the extra loan payment and pull from my savings because of my aggressive goal to payoff my loans by the time I’m 31. I looked at my savings and realized even if I did pull that $1,500, I would still have enough in my savings to last me a couple of months.

This made me decide to make my extra payment to my student loans in June. When hit with the unexpected, you need to closely look at your goals and decide what is most important now and for the future. For me, paying off my student loans as soon as possible is my most important financial goal. How have you planned for when unexpected expenses come up?