Why How Much Money You Make Doesn't Matter

"It's not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for."

 - Robert Kiyosaki

Do you sometimes feel like you don't make enough? Do you sometimes think that if you just made a little bit more money you would be better off? If you answered yes to these questions or have ever thought about these questions, then you're in for a real surprise. Making more money will not solve your problems. Many times, we're stuck just getting by because of how we spend, not because of what we make.

Let me give you an example. Let's examine this person that we will call Robert. Robert works as a warehouse manager and makes about $40,000 a year. If  you break that down monthly, he makes $3,340 a month. If you look at Robert's monthly expenses, you'll see that by the end of the month, Robert has a total of $3,040 that he spends on rent, bills, shopping, gas, food, etc.

Robert, Warehouse Manager
Monthly Income: $3,340

Monthly Mortgage: $1,050
Monthly Bills: $650
Other Expenses: $1,340
Total Monthly Expenses: $3,040

By the end of the month, Robert actually has $300 left over. This is is his monthly Cash Flow. Robert can choose to put these $300 in a savings account or he might just leave it in his checking account. Regardless of what Robert decides to do, he is making more money than what he spends at the end of every month. 

Let's look at another example. If you see below, you'll see that Stephanie makes about $90,000 a year. This equates to $7,500 a month. However, if you closely examine Stephanie's expenses, you'll see that her total monthly expenses add up to $7,715. This could be due to high school loan payments, more debt, etc.

Stephanie, VP of Finance
Monthly Income: $7,500

Monthly Mortgage: $1,595
Monthly Bills: $1,080
Other Expenses: $5,040
Total Monthly Expenses: $7,715

Most people who make more money tend to also spend more money. As you see with Stephanie, at the end of the month she actually has a negative monthly Cash Flow of $215. 

If you compare Robert to Stephanie, you would think that Stephanie would be better off because she makes more than double the amount of what Robert makes, but in these examples, that isn't the case. Although Stephanie makes more money, Robert has more monthly Cash Flow than Stephanie. If you annualize these amounts, you'll see that at the end of the year, Robert will have $3,600 left over because he makes more than what he spends. However, at the end of the year, Stephanie is -$2,580, thus spending more than what she makes. This will typically lead a person like Stephanie to attain more credit and get deeper in debt.

In conclusion, you want to make sure that you have positive cash flow consistently every month. It is not uncommon to see someone who makes what Robert makes be wealthier than someone like Stephanie. 

Do you have positive cash flow coming in every month? Comment and share. 

Don't forget to share this blog so you can encourage others: family, co-workers, friends. Give them something to get motivated! You never know what they might be going through. A few words of encouragement can go a long way.

The Question Most People Struggle With When Dealing With Their Money

"People with goals succeed because they know where they're going."

 - Earl Nightangale

Every month I meet with family and friends to help them go over their finances and put systems in place so that they have a budget to stick with. Every month, I also receive a phone call, or a few phone calls, from someone who frantically wants me to help them with their finances. When I receive that phone call, that particular person feels as though they're the only one struggling with their money and that their situation is unique.

I have yet to encounter a situation that is unique or a situation I truly believe can not be improved. However, you might think that most of the time I spend going over people's finances, I spend creating budgets, reviewing bank statements or teaching them about money. Although this is true, most of my time, however, I spend helping each individual answer one single question. This one single question is the toughest question to answer and is why I truly believe some people are struggling with their money. Most people can't answer this question.

The question most people can't answer is this: What do you want to do with your money? 

Most people earn good money, but they have no clue what to do with it so they spend it. Month after month, people receive a paycheck and month after month that paycheck disappears. What is the most common response to this question? It's: "I want to pay off my debt." Interestingly enough, the most common answer I receive with people has to do with spending it on their bills and paying other companies, not spending it for themselves. 

I don't want to make it seem like I have the answers to everything in regards to finance, but my purpose with these blogs are to help. If you have trouble answering that one simple question, now is the time to really start thinking about it. The following tips are ways I have tried to help others answer this question.

Ideas are OK
One individual I met with spent almost 30 minutes thinking about this question to only give me an, "I don't know." I then asked her to just jot down ideas and just think of what she would like to do. She told me she thought she couldn't answer the question because she hasn't really set goals for herself. I told her that's OK. An idea is a great start. All goals start off as an idea or a dream. It can be something as simple as "go to a Dodgers game," to "I don't want to work for my company anymore," to "I want my  kids to go to college." Later, we'll talk about goal setting, but you have to start somewhere.

Short-Term Goals are OK
I feel as though some people ponder that question so much because they try to look at their future a lot more. However, if you have trouble thinking long-term, think short-term for now. What are things you want to buy or have your money do for you in the short-term? Some people might want to take their kids on a family vacation in the next year. Some people want to go back to school this fall. Some people might just want to buy a house or move out of their crummy apartment. Although, I do suggest thinking longer-term at one point in your life, start off thinking about the next one month to three years. 

Get Educated

Some people can actually save well and have money saved up. Some people might be planning on saving money but might still not know what to do with that money. Eventually, these folks tap into this pool of money because they have no other choice. For those of you that might be dealing with this situation, I recommend doing some research. Just google, "what to do with money I have saved." For those that are thinking about investments, look into real estate investments or setting up an investment portfolio. Most people don't know how to do this because they were never taught these things. However, if you start asking the right questions, you'll start getting the right answers.

Spend this weekend trying to answer the question: What do you want to do with  your money? Discuss it with your spouse, write down some ideas and you'll see how things will begin to improve very quickly. Was this blog helpful? Share. 

Don't forget to share this blog so you can encourage others: family, co-workers, friends. Give them something to get motivated! You never know what they might be going through. A few words of encouragement can go a long way.

Do I Need A Budget For Everything? Even If I Just Want To Buy A Pen?

"Don't spend more money than you've got. Don't spend money before you've got it."

 - Lillian Vernon

A few months ago I was meeting with one of my 'clients' to go over how they did against their budget for the previous month and to create a budget for the following month. As we were creating their budget for the month of June, I asked the question, "Are there any birthdays coming up in June that I should be aware of?" The couple looked at me with a question mark on their face. "If so," I continued, "then it needs to be in your budget." The couple said that they had three birthday parties that month so we added a budget for those birthday presents. 

"Wait a minute," the wife asked, "so we should also have a budget for Father's Day presents?" I nodded, of course. "Is there something we shouldn't budget for or do we have to put a price on everything?" the wife asked. The husband finally chimed in, and jokingly said, "Yeah, should I create a budget even if I just want to buy a pen?"

When I first began to create a budget for myself, I realized that I was actually pretty good with sticking to most of my budgets. However, time to time I did go over on something. After carefully analyzing my spending habits, I then realized my problem. My problem wasn't that I was overspending on certain areas I budgeted for, my problem was that I was spending on areas I never budgeted for. These items were not emergencies, if that's what you're thinking (we'll talk about emergencies at a later date). These were items I did not plan to buy, that I could have easily planned a budget for. Below is a list of some budgets you might want to create to help you better plan your budget.

Birthday Parties & Special Occasions
If you're like me and you have a big family, birthday parties happen every month (and depending on the month, they might happen every week). Set a budget for birthday presents, birthday parties you might be throwing for your kids, anniversaries, and for other Holidays that require you to spend: Thanksgiving, Christmas, Valentine's Day. Set a limit for yourself so that you don't overspend and then regret it. For example, for birthdays presents, you might set a limit to not spend more than $20 per present. After you set your budget for the month, try sticking with it.

Trips & Vacations
Before committing to a trip or a vacation, try to set a budget first. You should think about gas or other type of transportation (i.e. rental cars, plane tickets, etc.), the hotel stay, food, entertainment (i.e. theme parks, zoos, etc.) and the shopping you want to do. If you like to take souvenirs, don't forget to add that to the budget. Try to avoid the spontaneous trips to the casinos or Las Vegas. Instead, make plans and make a budget. 

Big Purchases
When I moved to my old apartment, the goal was to make it look sexy. However, it takes quite a bit of money to make it look sexy. There were also some things we needed for the apartment such as an iron, a vacuum and a blender. I could have bought all those three items during the first month of us moving in. However, I decided to time my budget. The first month, I set a budget to buy the iron. The second month, I bought the vacuum and the third month we purchased the blender. Afterwards, I began to set a monthly budget to add to the sexyness of the apartment. However, it took time to purchase these items and every month there was a budget allocated for those items we wanted to purchase.

Remember, the goal is not to break your head trying to budget for the cost of a pen. The goal is to plan a lot better. Plan those dates with your wife. Plan for those birthday parties. Plan to buy that laptop that you need. Plan, plan, plan...and set a budget as you go. 

Can you think of any other things you should set a budget for?

Don't forget to share this blog so you can encourage others: family, co-workers, friends. Give them something to get motivated! You never know what they might be going through. A few words of encouragement can go a long way.

5 Ways To Create A Budget For Yourself - Anyone Can Do It!

"A budget is telling your money where to go instead of wondering where it went."

 - Dave Ramsey

A  friend of mine was sharing with me how much he makes a year but was angry with a realization he had the other day. "Allen," he says, "I just found out that I make $45,000 a year, but that I only have $238.53 in my bank account. Why don't I have $45,000 in my pocket? Or at least half of that!"

When I was in college, I too had this realization. I told my roomate that I felt like I was just a middle-man for companies. I get paid only to hold that money for a few days before I give it to Verizon, the electric company, and other companies that I have to pay on a monthly basis. Although, I won't go over how to stop being a 'middle-man' during today's blog (or getting out of the Rat Race as Robert Kiyosaki would say), I do know that budgeting is the first step to taking control of your personal finances.

The following 5 steps will help you budget a bit better. 

1. Start by knowing how much money you make a month, on average
For some of us, our monthly income is the same every month, but this is not true for everyone. Start by putting down how much money you make a month and if it's not a number that is constant, then just use an average. 

2. Use basic categories to track your expenses
Before you start to jot down all the expenses you have on a monthly basis, first start off with the basics. Below is a list that I use when creating my basic categories:

• Auto & Transportation
• Bills & Utilities
• Education
• Entertainment
• Food & Dining
• Gifts & Donations
• Health & Fitness
• Home
• Personal Care
• Shopping
• Travel

3. Break down the basic categories into subcategories

The more detailed you are with your budget, the more you'll understand where your money goes and where you want to allocate your money. From the basic categories that you created, create subcategories to track each transaction. Here's an example of the subcategories that I use:

• Auto & Transportation
• Gas & Fuel
• Auto Insurance
• Car Wash
• Maintenance
• Bills & Utilities
• Electric Bill
• Phone Bill
• Water
• Internet
• Education
• Student Loans
• Books
• Entertainment
• Movie Theaters
• Music (Yes, I still pay for music)
• Concerts & Shows
• Food & Dining
• Fast Food
• Restaurants
• Groceries
• Gifts & Donations
• Presents
• Donations
• Health & Fitness
• Gym
• Doctor
• Dentist
• Sports Team
• Home
• Rent
• Decorations
• Home Improvements
• Personal Care
• Hair Cut
• Spa & Massages
• Shopping
• Clothes
• Desired purchases (tablet, laptop, etc.)
• Travel
• Timeshare
• Hotel
• Food for Travel

4. Look first at where your money went

Before you begin putting targeted amounts next to each category, first find out what your spending habits look like. Most bills and payments that we make are the same, for the most part, so those can stay constant. However, you do want to find out how much you are spending on clothes, a hair cut, fast food and other expenses that might change every month. You might want to look at the last three months and see how much you were spending on each category. Then, you should continue into the final step. 

5. Decide where you want your money to go

If you truly did this exercise, you might already have gotten depressed before you got to this final step. Most people realize later in life that they are spending more money than what they make. This is the main reason why you might feel that you're struggling to make ends meet every month or every week. This is the same reason why you feel like you never have money. You're probably spending more than what you're true means are. If this is the case (and even if it isn't), you want to place controls and decide how you want to spend your hard earned money. 

As I mentioned in my last blog, this will not happen overnight. Take the time and have the discipline to do this consistently for at least a year and you will start to see positive changes. It's not how much money we make but how much money we actually get to keep. 

Was this blog helpful? Comment. 

Don't forget to share this blog so you can encourage others: family, co-workers, friends. Give them something to get motivated! You never know what they might be going through. A few words of encouragement can go a long way.

5 Easy Steps To Follow...For Those Struggling With Finances

"Too many people spend money they haven't earned to buy things they don't need, to impress people they don't like."

 - Will Smith

Some people call me the accidental Financial Planner. Well, actually, no one calls me that but I thought it was a catchy name for my informal title. Since last November, I have gladly spent numerous hours helping people trying to get their finances together. My goal has always been to help people control their expenses so they can have enough money to not worry about money. (Don't worry - I won't be disclosing any names!)

Interestingly enough, I found myself giving the same tips to different people over and over again. These tips are essentially very basic and simple and will make a huge difference with the way you handle your money. If you properly follow these 5 steps, you will learn a lot about they way you handle your money, where your money actually goes and what changes you need to make to ensure financial health for yourself and  your family. 

1. Track Your Expenses
The first question I typically ask someone when I meet with them is, "what do you spend your money on?" The most common response I get from parents is: "on the kids." However, after fully reviewing all expenditures, it always turns out that perhaps less than 15% of the total expenses are spent on the kids. Other people can't remember or don't even know how much they spent on their phone bill or that they had a gym membership. It is important for everyone to track their expenses. There are many free tools out there that will actually do this for you. Most banks have online banking but a great tool for those that might have multiple accounts, and my favorite tool, is mint.com.

2. Use Less Cash
Cash is bad for a few reasons. One reason: if you have cash, you will spend it. If you don't have cash, you won't have something to spend. Another reason cash is bad: most people who heavily use cash to make transactions, payments or to buy things don't track their expenses. Many people have the habit of cashing their paychecks or going to the ATM frequently to take out cash. Unless you are writing down why you took out $100 on July 2nd of 2014, you will never know where your money went. Use your debit card to make transactions instead so that your transaction can be tracked and you can truly find out what you're spending your money on. 

3. Tag Your Expenses
Most people are lazy. They want a program or their online banking system to track perfectly what they spent when they went to Target. I have yet to find a system that will read your mind. It's impossible for a program to know that on August 2nd, you went to Target to buy groceries and that on August 8th you went to Target to buy clothes. Most people don't want to tag the expenses appropriately. Spend two to three days a week looking at your account and making the appropriate adjustments to your transactions. 

4. Review Your Expenses
Usually, after I meet with someone for the first time to go over their finances, the individual is excited about making changes to their financial habits. They leave with a mint.com account and with some financial knowledge about where their money went. However, when we meet a month later, I ask the question, "how many times did you look at your mint.com account?" The typical answer is one to three times. If you're only looking at your bank statements or checking your budget one to three times a month, you are doomed to repeat the same financial mistakes. It's of no value if you have online banking or a program that tracks for your expenses if you're never looking at your numbers. Try looking at the numbers at least once weekly, and then get in the habit of looking at them twice a week. I personally look at my mint.com account three times a week. 

5. Create a Budget
Most people are scared of the word "budget". When I told a certain individual that we needed to get her on a budget, her response was, "A budget? A budget will just tell me that I can't spend my money!" This is actually not true. A budget is a way for your to plan how you want to spend  your money. So, if you deemed it valuable to spend your money on video games every month, then you can definitely do that as long as you create a budget and a plan to execute that budget. I personally love going to the movies so I have a budget every month allotted to going to the movies. A budget really helps you decide where you want to put your money. 

Taking control of your finances will not happen over night. This will take time and discipline. Many of us were never taught about budgets, expenses and money. I hope to educate those that might be struggling taking control of their money. Am I an expert? Absolutely not. However, those of you that know me well, also know that at one point, I was also living pay check to pay check, getting deeper in debt, having collections calling me and a law suit from a credit card company. If you're in a hole - trust me - you can get out. Anything is possible. 

Don't forget to share this blog so you can encourage others: family, co-workers, friends. Give them something to get motivated! You never know what they might be going through. A few words of encouragement can go a long way.

A Deeper Look Into Our Habits

"Successful people are simply those with successful habits."

 - Brian Tracy

Last week, I disclosed some results from a study that compared the habits of the rich and poor. I wanted to spend some time going over these results and giving everyone more insight into the numbers and what this all really means. 

"I maintain a daily to-do list" 
The rich have the tendency to have a set plan for the day and follow the plan as closely as possible. Many of us might have one or two things to do for the day, and we might get lucky if we accomplish one of those things. 67% of the rich complete at least 70% of their daily tasks. 

"I love reading"
Although 86% of the rich love to read, they don't like to read for pleasure. 88% of the rich read self-improvement books at least 30 minutes a day. The rich heavily focus on improving their skills, their business, their finances and their happiness. Only 2% of the rich read self-improvement books more than 30 minutes a day. 63% of the rich actually listen to audiobooks during their commute to work, whereas only 5% of the poor listen to audiobooks. The rich strategically use their time to improve, even if it's in the car. 

"I do more than my job requires"

A job is just a job - right? Well, the mental aspect of what we do many hours a week is crucial for our daily lifestyle. 86% of the rich work an average of 50 hours or more a week, compared to 43% of the poor who work as much. Yet, when surveyed, only 6% of the wealthy individuals found that they were unhappy because of work. 

"I focus on my goals every day"
Goals are one of the key differentiators between the rich and poor. Remember - a goal is not a wish. It is not something that you hope will happen but something that you need to make happen.  Interestingly enough, 67% of the rich put their goals in writing.  The wealthy set daily, monthly and annual goals. 

"I watch reality shows on TV"
Looking deeper into this comment, I found out that 67% of the rich spend one hour or less a day watching TV! No wonder they don't watch Keeping Up With The Kardashians. The rich don't watch TV because they're against it, they would just rather use their time doing something more productive and they don't think much about watching TV. Instead, they created a daily habit of reading. 

"I play the lottery regularly"
The rich decided not to play the lottery, not because they don't want to risk their money on the jackpot, but because they would rather not rely on luck. Besides, most people that win the lottery lose their money within a few years after hitting the jackpot. Instead, the rich spend their time building their knowledge and taking other risks with their businesses, purchasing businesses, taking over investments and managing risks. 

In the end, no matter what you want to do in life, many of what we succeed or fail to do will be determined by our daily habits. Where are you spending your time? With who? Are there any habits you need to get rid of or be more consistent with? Share your thoughts.

Don't forget to share this blog so you can encourage others: family, co-workers, friends. Give them something to get motivated! You never know what they might be going through. A few words of encouragement can go a long way. 

Are Your Habits Making You Rich Or Poor?

"Bad habits are like a comfortable bed, easy to get into but hard to get out of"-Anonymous

What did I do last week? What did I accomplish? How did I spend my time? These are questions I ask myself at the end of every week. For the last few years, I made it a habit to always evaluate my days and weeks, never keeping my eyes off of my goals and dreams. However, not everyone asks these questions on a consistent basis.

A few months ago I wrote a blog called Do You Have What It Takes To Be Wealthy?, discussing a study done about successful people. The study carefully examined the habits of successful people and it compared them to the habits of the poor. Your daily habits will determine your success in life. Thomas Corley spent five years studying the lives of both rich people (defined as having an annual income of $160,000 or more and a liquid net worth of $3.2 million or more) and those of poor people (defined as having an annual income of $35,000 or less and a liquid net worth of $5,000 or less). Below are some of the results of Corley's study.

"I maintain a daily to-do list"

• Rich people who agree: 81%
• Poor people who agree: 19%

"I love reading"

• Rich people who agree: 86%
• Poor people who agree: 26%

"I do more than my job requires"

• Rich people who agree: 81%
• Poor people who agree: 17%

"I focus on my goals every day"

• Rich people who agree: 62%
• Poor people who agree: 6%

"I watch reality shows on TV"

• Rich people who agree: 6%
• Poor people who agree: 78%

"I play the lottery regularly"

• Rich people who agree: 6%
• Poor people who agree: 77%

Next week we'll go over these results in a lot more detail. It's important to study the habits that might be keeping us from achieving some of our goals. The purpose of this study is not to come up with ways to get rich, but to compare how rich and poor spend their time and energy. Becoming rich might not be your goal, or my goal, but achieving certain financial goals, dreams, or aspirations might. 

Ask yourself these questions from the study. Which comments do you agree with? 
Share. 

Don't forget to share this blog so you can encourage others: family, co-workers, friends. Give them something to get motivated! You never know what they might be going through. A few words of encouragement can go a long way.