Episode 27: The Wealth On Any Income Book – Section 3: The Spending Plan Register – Transcript
Hi Folks, Welcome to the Wealth On Any Income podcast. This is where we talk about money tips, techniques, attitudes, information and provide inspiration. I’m your host, Rennie Gabriel.
In the previous episodes I spoke about your five year financial goal; the difference between good debt and bad debt; how good debt can support you to create wealth. We discussed how to complete a Balance Sheet and determine your net worth so you know how close you are to Complete Financial Choice®. In the last episode you found out there are many sources of income in addition to a paycheck, and that when you focus on expenses first you’re rewarded with more income.
Today, I will continue reading the third section of the Wealth On Any Income book. This section is where I cover the tools, tips and techniques that will lead to you having Complete Financial Choice® in your life. Today I’ll talk about the Financial Coach Spending Plan Register. This tool tells you if you are on track to your financial goals in less than 5-10 seconds. Like I said, you can see where your money goes in 5-10 seconds and you can measure the level of pleasure based on the money you’re spending.
It will be around 15 minutes today.
As I read, I could stumble over some words. I am not a professional voice over actor so please forgive me if that happens.
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The following tool will let you know in 5 to 10 seconds how much money you will have available to spend in any category you choose to track, without using a computer or smart phone! In addition, you have the opportunity to measure your pleasure: You will be able to see if you’re receiving the level of pleasure you are paying for based on the questions you can ask as you make a purchase.
Tool #5: The Financial Coach Spending Plan Register
If you took action from the previous section you’ve now guessed at your expenses and determined if you have a positive or negative cash flow using the Income and Expense form. Now it’s time to verify the figures. In the back of the Wealth On Any Income book, I provide you with several pages: Two of them are: 1.The Financial Coach Spending Plan Register you can tear out and copy. And 2. The Cash Flow Memory Jogger you can use to set up categories for yourself.
You can get copies for free of all of the forms I describe by sending an email to Rennie@WealthOnAnyIncome.com
When you fill out The Financial Coach Spending Plan Register for the first time, use it find out where your money is going. Simply pick from any of the categories on the Cash Flow Memory Jogger for the category where money leaks out during the month. It may be meals out, groceries, clothing, transportation expenses or entertainment.
You don’t need to use the register to write down your rent or mortgage payment. After all, once you’ve paid this, it doesn’t show up again for another month. I do not suggest bi-weekly mortgage payments. There are ways to reduce your mortgage that provide better recordkeeping than this method. Also, one of the country’s most popular companies that performed this service committed fraud and embezzlement . In October of 1994, Bi-Weekly Mortgage Acceptance Corporation, better known as Billie Mac, collapsed. It was shut down by court order. Its president, Jeffrey R. Brown, was charged with the theft of more than $1.3 million worth of homeowner funds.
In the following example, I’ll use the categories Meals Out and Groceries to illustrate the primary two ways the register is used. A third use is to show how well you’re saving up for something. When saving up for something, like a $3,000 vacation, put the goal at the top. As you set aside money toward this, subtract from the goal to see how much you have left to save.
In the example for Meals Out, on January 1, I spent $10 for lunch. It was cash. I have the room for notes to show who I had lunch with, and this is also valuable at tax time. When I’m having business meals it can be noted here. (In my register, I actually keep two separate columns, one for personal meals and one for business meals. You can structure your own register to gather any data you want).
It’s so simple to keep the records because it’s right with the checkbook that I always carry. A client of mine wrapped his cash in the register like a money clip. He used more cash, and I used more checks. Or if you use a debit card, place that in the register.
I don’t have to wait until I get home and load it in some computerized money tracking, budgeting or check writing program to have some answers. I don’t have to fumble around in a three-ring binder, iPhone, Blackberry, or Franklin Planner. It’s right where the money came from. If you choose to use a program on a smart phone that’s fine. Just make a notation with every single expenditure right then and there.
So, if I spent $10 having lunch with Bill I write it in the column. Let’s say the next day I use a credit card at lunch and charge $22 on Visa. I put a circle around the $22 because this identifies money I spent I didn’t have. At any time I can go through my register and, by adding up all of the circled items, I know how much will show up on my credit card statement when it arrives in the mail.
With the next entry, the Smith business lunch, I add the $22 to the $10 I spent previously and it tells me so far I’ve spent $32 in Meals Out. The shaded area is for additional notes and the subtotal. The next day I go out to dinner and charge $26 on my American Express. Again, I circle the number. Now I see I’ve spent a total of $58 in Meals Out. On the fourth, I write check #123 for a dinner with my wife. I spent $22. Now I’ve spent a total of $80 in Meals Out. It’s just that simple. I write it down and add it up. It takes no more than 5–10 seconds after each expenditure.
Measure Your Pleasure
In the book Your Money or Your Life, two key concepts are presented. In the first, money is converted to life energy you’ve used up. Any income level can be converted into an hourly rate. That hourly rate is used to measure the cost of items you purchase. As an example, a common work week of 40 hours would be 2000 hours per year. If your annual income were $60,000, you would reduce it by the taxes you pay and the other deductions from your check. You would then add up the additional hours you spend related to your work, such as driving there, bringing work home, buying or cleaning work clothes, and so on and add that to get to the real total of hours you spend related to your work. In this example, it would reduce the hourly rate from $30 ($60,000 ÷ 2000 hours per year) to $21.33. ($48,000 after taxes divided by 2,250 hours.) You are trading each hour of your life energy for $21.33.
The next step is to use the concept of asking questions. You use the hourly rate of life energy given up to measure the level of pleasure you get for the money you spent. As an example, repairing your car for $853 isn’t spending $853. It’s giving up 40 hours of your life to repair the car. Now, you ask questions like, “Did I receive pleasure and value based on how much I spent?” “Is this expense in alignment with my values?” “Would I spend money in this way if I didn’t have to work for a living?” I also suggest you ask questions for items you don’t track, like rent, mortgage or car payments. Based on your answers, you can put a rating at the bottom of the various expense category columns.
If your answer is positively strong put a plus (+) sign at the bottom of the spending plan column or next to the payment in your checkbook. If it was fine at its current level, put “O.K.” If it was unsatisfactory, or you would like to see it decrease, put a minus sign (-). You can measure a whole category, or item by item; it’s your choice.
Now that you’ve discovered where you’re spending your money by writing it down in The Financial Coach Spending Plan Register, you’re ready for the second and primary way it’s used. In my example I will use the Groceries column. Here I decided I only need, or choose, to spend $300 on groceries. I arrived at this figure based on finding out what I usually spend on groceries and the level of pleasure that amount of money provides to me. I used the system I just described.
Where it shows last month’s balance there’s a negative $25. This means in the previous month instead of spending $300, I spent $325. What I do is subtract $25 from the $300 I planned to spend. I am only going to spend $275 this month. I guarantee you can live within your income in 90 days if you use this tool as described.
There is another way I could handle the $25 shortage. If there was money left over in another category, like Entertainment, I could reduce the amount I plan to spend there and transfer some of that money to the Groceries column, or vice versa.
On January 2, I spent $25 at Vons. I subtract that from my $275 and have $250 left. The next day I write a check to Safeway for $31. I now have $219 left. By doing this, instantly, I know how much money I have left to spend on groceries, or any category I choose to track.
Let’s say it’s half-way through the month, I buy some groceries and I have $100 left. Right then and there, immediately, I know I’ve got to slow down. I’ve got one-third of the money left and half the month to go. This tool yields instant information on where your money is going and how much you have left to spend in any category you choose to track. Again, In the Appendix of the book you’ll find a sample Spending Plan Register which you can tear out and use. And if you send an email to me, Rennie@WealthOnAnyIncome.com I will reply with all of the forms. Just put All Forms in the subject line.
In my TEDx Talk I spoke about a TV program on the life of John D. Rockefeller. This is the man who established the Standard Oil Company and at one time was the richest man in the world. The TV program showed a ledger (or register) he used when he was eleven years of age. In it, he tracked every penny that came into and out of his life, where it came from and where he spent it. He kept this habit his whole life.
These are the habits of the wealthiest people in the world and you can use them to transform your life. It’s not about penny pinching. It’s about consciously choosing where you will spend your money, measuring the level of pleasure it provides, and spending in alignment with the results you want to produce in your life. Your spending will be based on your values, not the values of your neighbors, co-workers or politicians. If these habits benefited the wealthiest people in the world, don’t you think they would also benefit you?
Here are some valuable, helpful and powerful guidelines when it comes to spending or borrowing money:
When you’re excited about buying something, like a new car, new clothes, whatever, DO NOT MAKE A DECISION THAT DAY. Wait two to three days for small purchases. Wait one to two weeks before making a decision on a large purchase.
When you are stressed, or in fear, you cannot make a good selling decision, like you’re behind on a mortgage, rent payment, car payment, a stock has declined due to a market crash, etcetera. In those situations do not sell an asset when influenced by fear, scarcity or lack. Next, before selling, speak to an expert, like your CPA, an attorney, or “neutral” investment advisor. It’s best to get input from at least two experts and three would be preferred. This will also take the time that will allow you to cool down, whether you are buying or selling something.
Finally, do not borrow money when you are excited or afraid.
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Here’s your opportunity to grow: Send an email to me and request all the forms I talk about in this, and the next several episodes. Put All Forms in the subject line and email your request to Rennie@WealthOnAnyIncome.com.
In the next episode we’ll continue in the third section of the book where I cover the three solutions when your expenses exceed your income. And bankruptcy is not one of them.
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Until next week, be prosperous. Bye, bye for now.
