Live Debt Free

Pay off debt. Save. Give. Live your mission.

Discretionary Spending & The Spending Journal

by //

If you want to increase your success with budgeting and money management, start keeping a spending journal.  Period.

Before starting our spending journals we could not get a solid handle on our budget.  Discretionary spending is the silent killer looking to wreak havoc on your budget.

discretionary spending – (economics) The amount or portion of a person’s or group’s expenditures which is used for non-essential or voluntary disbursements; the amount or portion of one’s expenditures which one may make as one sees fit.  – wikitionary

I sense a high degree of passion for debt freedom in most of you, but know the pitfalls we all face while trying to get there and have found our spending journals to be a cornerstone of financial success.

What is a spending journal?

A spending journal is a small notebook for recording your daily discretionary spending.

“A small leak can sink a great ship” – Benjamin Franklin

You do not have to record every penny! What?  That’s right… despite what you may have heard, you do not need to record every penny that flows through your budget in your spending journal – you only need record expenditures that are not part of your regular monthly payments.

For example: You do not need to record your car payment, phone bill, rent/mortgage payment, insurance payments, etc.  Instead you want to focus on the little “nickel and dime” purchases you make throughout each and every day.  You know… the ones that drain your checking account each month and leave you asking, “where did that extra $400 go?”

Note: You do need to keep track of all your money, but your spending journal is only for keeping track of discretionary spending.

Why keep a spending journal?

It will help you control your money rather than you being controlled by your lack of money.

  1. To track the small, everyday expenditures that are causing the small leak in your great ship!
  2. To help you curb spending.
  3. To help you prioritize your spending.
  4. To make budgeting much, much, much easier.
Note: Budgets fail because people have a hard time controlling and tracking discretionary spending.  That trouble ends with the proper implementation of the spending journal!

How to keep a spending journal

Keeping one is easy – don’t let anyone tell you otherwise.

You spend a dollar, you write it down.  You spend $100, you write it down.  Can’t write it down right this second?  No worries – keep your receipt and write it down later – just make sure you write it down!

  1. Keep it simple.  You do not need to be über math geek.  Simply record the date, the amount, the item, and the budget category.  For example, if I purchased a coffee for $1.25 on the 2nd day of the month my entry would look like this:  2nd – $1.25 on coffee = dining & entertainment.
  2. Keep it on your person.  Ladies:  carry it in your purse.  Fellas:  I carry a man bag (I swear I’ll write more about it someday) and keep my pocket-sized spending journal and pocketbook inside.  I keep the bag with me most all the time.  If you’re too manly to carry a bag then keep your spending journal somewhere you frequent daily like your kitchen counter, your vehicle, or at work.
  3. Save receipts. If you cannot record the purchase right away, keep the receipt and record it when you get back to your journal.
  4. Write down every discretionary penny spent.  Not every penny that comes through your checkbook, just the random purchases not already accounted for in your budget.
  5. Total it up each months end. You may hear others advising to total it up every day… don’t bother, that is too complicated.  All you need to do is add up the overall total along with the total of each budget category.
  6. Add the totals to your budget. Now that you have successfully tracked and categorized your discretionary spending, go add the numbers to your budget being careful to fill the proper amounts in for each category.
  7. Adjust your budget accordingly. This is the really cool part. Adjust the amounts for next months projected budget based on the numbers you spent the previous month.  Continue to do this each month, deriving averages in your monthly discretionary spending and always looking to “trim some fat” whenever possible.

Some say to do this for a month or two… I say do it for the rest of your life.  Trust me, it’s easy and it makes all other financial planning/budgeting much easier and less overwhelming.

Note: I’m not talking about using Quicken, or Mint.com… I’m talking about good old fashioned pencil and paper record keeping kept on your person.

Challenge:

Try this for one month.  I’ll bet it makes an enormous difference  in your financial life – even if you thought you already had it in order!

What say you?  Are you in?

Like this article?  Here are 3 free ways to join the community and follow the progress – Sign up for email updates, Subscribe to my RSS feed, And/or follow me on Twitter.

DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

The Modern Pocketbook – A Spending Journal and a whole lot more!

by //

What is a Pocketbook?

What exactly do I mean when I say “pocketbook.”

If you do a wiki search for “Pocketbook” you will end up on a page detailing the definition of the purse – this is thanks to the original British use of the term.  I don’t see it this way… here’s why:

  1. A purse is small bag in which money and belongings are carried.
  2. Pocket•book broken down gives us the two words – pocket and book.  When these individual terms are defined then rejoined, we see that a pocketbook is simply a book of exclusive notes carried somewhere on your person.

Therefore… my modern version of The Pocketbook is simply the book I carry – on my person – that helps me record, remember, and regulate the goals, events, and details of my life.

Why not just call it “A Planner”?

Good question.

  1. Calling a pocketbook a planner won’t work because each of us already has a preconceived notion as to what a planner is.  For a select few, I’m sure a planner is defined and used much in the same way as I intend to use my pocketbook… but for most it is not.
  2. More importantly, I like to create my own way.  I like to take existing ideas… simplify them, and make them my own.  I am also a proponent of bringing back old fashioned (perhaps forgotten) ways of life that just plain work.  And to me, a pocketbook is all of that and a bag of chips.

Why Carry A Pocketbook?

“A small leak can sink a great ship”  ~ Benjamin Franklin

Use it as a guide to reinforce your positive habits and as an obstacle that makes it hard to justify your slip-ups.

See your “Pocketbook” as a symbol of your commitment to achieving your goals – financial and otherwise.  While it may appear like a daunting task… always remember that it’s an extremely high-leverage habit once formed and getting started is as simple as you want it to be.  I started mine as a simple spending journal, then watched it slowly and naturally morph into more of a life achievement cornerstone. Whatever reason you come up with for carrying one you need to carry it with pride!

For starters, a pocketbook can help you:

  • Gain control over your goals – Set long term goals, break those down into manageable smaller goals, then slowly and steadily work to achieve those goals by breaking them down further into daily tasks.
  • Gain control over your finances – You’ve heard it is good to record your expenditures for a month or two, I say keep a daily spending journal for the rest of your life as a way to always stay on top of what is going out.  Reread the quote above…
  • Gain control over your time – Some say, “Time is money.”  I take that a step further and say that “Time is everything.”  It is more precious than gold.  You can always make more money, but you can never earn more time.  Therefore one could convincingly argue that how you spend your time is more important than how you spend your money!

Make the commitment to join me in embracing this lifestyle change.  I promise you won’t regret it.

Why not just Use Computer Software?

Computer software is not the most effective tool this Information Technology guru has found to organize and structure his time, finances, etc.  I have actually found more success in the simple and old fashioned exercise of manually cataloging my days.

Sometimes it is necessary to ignore the buzz and just simplify things instead!

That said, I am never an “all or nothing” type of guy.  I use technology when it delivers the best solution.  Down the road I see myself complimenting my Pocketbook system with a solid, simple, software system… but right now I am focused solely on tweaking and perfecting the use of the book itself.

What Do I Record in My Pocketbook?

I’m glad you asked.  I used the above photo in this post because it captures the birth of my pocketbook.  The entries you see there are the actual and inaugural entries of my new virgin companion.

Although it started as a simple spending journal, it quickly morphed into a book that I intend to use as a way to accomplish my life goals. Here is a list of all of the information I am looking to record in my pocketbook.

  • Spending Journal – As I mentioned above, I keep a daily ledger of every penny I spend.  I organize the ledger by month and include the date, amount spent, what was purchased, and where it was purchased.  Keeping a spending journal is a very powerful exercise and as I mentioned above… it was what started me out on this path to apply the daily record keeping and organization of “a pocketbook” to other necessary areas of my life.
  • Long Term Goals – Although I was never much of a goal setter in my youth, it is a practice I have adopted that is turning me into a much more productive person!  I always liken it to running a race:  if I do not know where the finish line is… how can I pace myself or even know which direction to head in?  The answer is simple – I can’t.  That is why I decided to set long term goals for my life, things that I want to achieve before I pass on to be with my Lord.
  • Monthly, Weekly, and Daily Tasks – I then take those long-term goals from above and break them down into achievable tasks for the applicable time period.  For example, at the end of each month I write down all the goals I want to achieve for the next month.  I also do this at the end of each week, for the next week… and break that down further to plan out each days events.  This is a simple yet powerful concept that allows me to break my larger goals down into attainable daily tasks.  The monthly and weekly tasks are usually broad one sentence statements, but the daily tasks are broken down into notes about the task, time estimated time of completion, then updated with actual time of completion.  I also assign a “critical level” to each task of A, B, and C – where A tasks are the most critical and therefore the first to be tackled each day.  I attribute this system to one of the forefathers of time management – Alan Lakein, who laid out these ideas in his book, “How to Get Control of Your Time and Your Life”.
  • Time Management – Expanding on what I touch on above, I am using my pocketbook to organize my days.  This organization not only includes recording and prioritizing tasks to help me achieve goals, but also the simple yet necessary recording of dates and appointments.  I am the type of guy who needs to structure my days, because if left to myself… I will let my days structure me!
  • Personal and Business – I always reserve a section for both personal and business entries.  The “business” tasks are not things I need to accomplish at my current 9-5 career, but rather my own entrepreneurial endeavors that I am looking to bring about.  For example, I have just begun to use my pocketbook to lay out a more stable and consistent posting schedule for Debt Free Adventure.  In doing this my long term goal is to publish at least one post every weekday.  I break that down into daily writing tasks, which helps me better record and organize my ideas.

Remember… this is a living document!

By no means is any of this set in stone… for me or for you.  A pocketbook is a personal article that needs to be tailored to each individual and their unique goals.  My desire today is to simply give you an idea, a kick in the pants, and a basic outline of how you can get started.

What Should You Use as a Pocketbook?

Your pocketbook can be as cheap or expensive as you would like it to be.  Personally, I use the $10 Day Runner Daily Agenda book.  Some people buy $100+ “planners” while others (including Erica Douglass of Erica.biz) prefer to use a $0.99 spiral notebook, proving there is no correlation between the price of your pocketbook and how effective it is.

For some people carrying a pocketbook with them is more than they want to do, I know it was for me.  That was before I discovered the joys of carrying a rucksack!  Instead of carrying mine in my pocket, I carry it in my rucksack (a.k.a. “man purse”)… which is a whole separate post topic which I will reserve for another day!

Like this article?  Here are 3 free ways to join the community and follow the progress – Sign up for email updates, Subscribe to my RSS feed, And/or follow me on Twitter.

DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

Debt Reduction – Emergency Fund Savings – The Balanced 75/25 Method

by //

“The average millionaire can’t tell you who got thrown off the island last night.”  – Dave Ramsey

A little background on the 75/25 Rule…

Recently I have been receiving a lot of questions regarding my approach to paying off high interest debt versus contributing to emergency fund (and other) savings.  This topic has been an orbiter in many of my posts so I figured I would address it directly for everyone to read, analyze, critique, love, hate, smile about, cry over, and provide feedback to.

If you are immersed in debt reduction you are most likely following either the “debt snowball method” or the “high interest first method” of repayment.  Regardless of which method you choose you will almost immediately run into the following question:

Should I build my savings first or pay off more debt first?

The popular speaker, author, and fellow debt slayer Dave Ramsey would tell you to approach this question as follows:

  1. Start an Emergency Fund and focus on building it up to $1,000 – then…
  2. Shift 100% of your available funds toward high interest debt reduction using the debt snowball method – then…
  3. Resume contributions to your Emergency Fund until it can cover 3 – 6 months of living expenses.

As you read on remember the following Dave Ramsey quote, “You can’t go wrong getting out of debt.”  To that end, this post is not an attempt to exploit some “flaw” in Dave’s approach… because I do not see a flaw.  Personal finance is… PERSONAL.  Every situation is unique and each person/family will have their own intimate and unique approach that works for them.

So what works for me?

I am one of those people who likes to see my savings grow… no matter what!  I LOVE to see my debt decrease in HUGE numbers, but I also need to see my savings grow each week.  I feel this way for three main reasons:

  1. Always pay yourself – I do not like to see ALL my money go out each month without paying myself at lease some of it.
  2. $1,000 is not enough for us – we built our initial $1,000 EF and a few weeks later the transmission on our only vehicle died costing us $1,600.  Shortly after that we ran into another even larger unexpected expense.
  3. Balance is always good – when I see 100% of my money going out, but none staying home with me, I do not feel properly balanced.

Combining Dave’s great advice with the 2 statements from above, I set out to do what I always do… come up with a strategy that works for me.

I like to cook, and whenever I have a craving for a particular dish that I have never prepared, I find at least a couple highly rated recipes and combine them into a recipe that suits my own tastes.  For me, it is no different when it comes to debt reduction and emergency fund savings.

With this in mind I developed what I call The Balanced 75/25 Method.

Here is a detailed breakdown of how I balance my Emergency Fund savings contributions with my debt reduction contributions.

  1. Contribute 100% of my available monies to build a $1,000 Emergency Fund.
  2. Once the initial $1,000 is there, start attributing 75% of my available resources to high interest debt reduction and 25% to all my savings funds*.
  3. Once my high interest debt is gone, resume 100% contributions to EF until it reaches $20,000 (6 months worth of expenses for my family).
  4. Once that savings is fully funded we plan to fix all (or at least a vast majority) of our available funds on our low rate mortgage and student loans.

*My current Personal Saving Fund goal amounts:

  • Emergency Fund – $20,000 – (70% available resources go into this fund)
  • Auto Fund – $10,000 – (15% available resources go into this fund)
  • Vacation Fund – $2,000/year – (15% available resources go into this fund)

What about you?

Remember above all things… “You can’t go wrong getting out of debt!”

That said, what plan do you follow?  Do you follow the Dave Ramsey plan to the tee?  Do you follow some other popular debt reduction/personal savings plan to the tee?  Or do you create a personalized plan?

Like this article?  Here are 3 free ways to join the community and follow the progress – Sign up for email updates, Subscribe to my RSS feed, And/or follow me on Twitter.

DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.