Category Archives: Day Finance

Common Borrowing Mistakes That Could Cost You Big

There comes a time for many people where they need a helping hand to cover the cost of a purchase. From applying for a mortgage to pay for a house to accepting a short-term loan to handle an unexpected bill, there are a lot of lending products out there to take advantage of. While they are designed to help you out of a bind when you don’t have the means yourself, often consumers abuse them and cause more trouble for themselves than it’s worth. If you’re thinking of borrowing funds soon, you’ll want to avoid these mistakes or face costly consequences.

Not Reviewing the Options

When you’re in need of cash, it can be easy to decide in haste. You select the first loan product that pops up without weighing the pros and cons. Often, there are a lot of options out there for you, no matter what your financial background. For instance, opting for a payday loan lender with short payment terms and high-interest rates instead of looking for alternative payday loan options for individuals with bad credit could cost you money down the line. Installment loans, which is a better option, gives you more time to repay the loan so you don’t run the risk of skipping payments and falling behind.

Borrowing More Than You Can Afford

It can be tempting to get preapproval emails worth thousands of dollars, however, if you can’t afford to pay those amounts back, it is not a good idea to accept the loan. Accepting a loan that is larger than you can afford essentially leads to a web of debt. You begin to fall behind on payments which tack on late fees and interest. The further behind you fall, the more collection actions are taken that ruins your credit. Instead, only borrow what you can afford to pay back within the loan terms.

Skipping Payments

Things occur in life that can derail you from your plans to pay down a debt. However, the biggest mistake you can make is to skip a payment and not communicate with the lender ahead of time. Skipped payments result in late fees and associated charges. Instead, contact the lender and explain your circumstances. They are more than willing to work out a new arrangement with you that will get your debt paid in full. This can also prevent them from tacking on additional fees.

Not Reading the Agreement

Whether you apply for a loan online or in person, it is imperative to read the agreement in its entirety. This document explains in detail how much you’re borrowing, how much interest will accrue when it must be repaid, and what the penalties are if it is not repaid. Failing to read this could result in you signing a contract that you ultimately can’t afford to keep.

Loans are convenient products that are to be used to help us out of difficult financial situations and/or to aid us in purchasing items that are beyond our economical reach (i.e. house or a car). There’s a lot of advice about loans out there, but being a responsible borrower should be at the top of the list. Remember to review your options, borrow what you can afford, make timely payments, and read your agreement in full to avoid costly consequences like ruined credit and higher costs.

 

How Much Money Do You Need to Live in Los Angeles?

As the second-largest city in the United States, Los Angeles attracts residents from across the country and around the globe. As the epicenter of the multibillion-dollar entertainment industry, the city is a magnet for aspiring actors, directors and screenwriters. With idyllic weather year-round, beautiful beaches and a diversity of scenery, it is possible, during some months, for an Angeleno to snow ski in the morning and surf in the afternoon.

Los Angeles is a perfect study in how the demand curve works. When demand for something is high, prices rise. There is plenty of demand to live in Los Angeles. As a result, everything including rent, food, gas, and utilities is expensive. When considering a move to LA, the first order of business is understanding how much money it is going to take to pay the bills.

The following information is detailed in averages, but keep in mind Los Angeles is a huge, sprawling city. Prices vary wildly depending on where you plant roots. Rents in Santa Monica are not comparable to rents in South Central LA. By understanding the average cost of rent, utilities, food and transportation in Los Angeles, and then making adjustments based on your unique circumstances, you can narrow down the range of how much money you need to live there.

Average Rent in Los Angeles

As of March 2017, based on figures from Numbeo.com, the average cost for a one-bedroom apartment in the city center sits at approximately $1900 per month. If you are looking to get roommates, a three-bedroom apartment averages slightly over $3,420. The good news is that while these averages may seem scary to a new resident, they are skewed upward by the presence of extravagant luxury rentals in the wealthy areas of town. You can find plenty of Los Angeles rentals for under $1,500 per month if you go outside of the city center, though it is advisable when you find something that seems cheap for the area, to investigate the neighborhood and the apartment to ensure it is somewhere you are willing to live.

Average Home Cost in Los Angeles

If you can afford to buy in Los Angeles, prepare yourself for stiff competition and sky-high prices. According to real estate website Trulia, the average price of a home per square feet in Los Angeles is $554 as of March 2017, and current trends indicate this number will soar this year. Currently, the average cost of an LA home is hovering at $699,000. If you’re considering buying in the LA area, it is beneficial to get pre-approved for a mortgage as this will assist you tremendously when closing a deal with the seller. You can research current mortgages available for a home in LA using a tool like a mortgage calculator.

Average Utilities in Los Angeles

Like many parts of California, the Los Angeles region does not have a monolithic climate. Several micro-climates comprise the area. For example, the San Fernando Valley regularly reaches the triple-digits during the summer and can be quite cold for Southern California during the winter. Malibu, by contrast, rarely exceeds 80 degrees and has only dipped into the 30s a handful of times. Your utility bill can vary greatly based on the specific climate in your neighborhood. Citywide, the average utility bill is $133.50 per month for an 85m2 apartment. This figure fluctuates throughout the year and will vary according to the size of your home, but you can use it as a benchmark.

Average Food Costs in Los Angeles

Food in Los Angeles is significantly more expensive than the national average. A gallon of milk costs $3.79, and a loaf of bread costs $2.50. A dozen large eggs is $3.62. For a pound of boneless, skinless chicken breasts, the cost is $4.54. Even a frugal consumer, to be safe, should build $500 into his monthly budget for food costs in Los Angeles.

 

The Path to Financial Abundance

There are many paths to financial abundance: inheritance, marriage, lottery, business success, just to name a few. For most of us, however, the path to financial abundance will be paved with savings. It is a method based more so on self-discipline than luck. In that regard, it can be gratifying. The essence of saving is to spend less than what is earned. Yet this simple concept is easily lost in the complex world of digital money. Quite simply, it is very easy to over-spend.

To manage this potential problem effectively, it helps to look back to simpler times, remind ourselves what worked then, and adapt those strategies to today’s realities. As a young adult in the 1980s, I lived for years in a cash-only manner. I would cash my paycheck on Friday afternoons. The cash was then allocated to a series of paper envelopes labeled rent, truck payment, utilities, food and extra. Each of the first four would receive 25% of the required monthly obligation. Any cash left over went into the extra envelope. At month’s end my bills were covered, provided I remained faithful to the system week after week. Then my bills would be paid either in cash or by money order. I had no checking account, only a savings account.

Limiting Discretionary Spending

Any discretionary spending had to be paid from the extra envelope. This placed limits on my spending, a form of self-discipline. On those occasions when an unexpected necessity exceeded the contents of the extra envelope, I would “borrow” from one of the other envelopes knowing it had to be repaid from the next paycheck. With no credit cards on which to accumulate debt, my net worth grew over time.

With the benefit of hindsight, what made the envelope system work so well is that I always had a clear awareness of my cash flow. With that awareness, I had the information needed to make sound spending decisions throughout the month. My bills were covered and I knew how much extra was available at all times.

Tracking Personal Cash Flow

To bring that clear awareness and real-time management into today’s environment of credit cards, checks, automatic debits, etc., a different tactic is needed. There are some digital tools available, but I am a pencil-and-paper kind of guy. So, that was my challenge. My solution was to divide my monthly spending into two categories: normal and discretionary. Normal encompasses the recurring monthly bills which once upon a time had their own envelope such as mortgage, truck payment and utilities. This is the relatively fixed or inelastic portion of my household budget. I have those items listed on a monthly spending sheet along with the total amount required each month.

With this number in mind, I decided on an all-in spending number (normal plus discretionary) that was below the household income. This ensures a positive cash flow situation, the essence of successful savings. From the all-in spending number, I subtract the normal value leaving what represents the amount that would be in the extra envelope. The last bit of math is to divide that number by 30 so that I have a daily spending target. This discretionary spending of extra money gets tracked on a notepad every day. A running tally of the over/under is also tracked daily. It may sound overly-simplistic but I have been using this method for years. It really works! (For related reading from this author, see: What Are the True Costs of Your Household Expenses.)

Financial abundance is within reach for all of us. To achieve it, one must get and stay cash-flow positive on a consistent basis. With a clear awareness of income versus spending coupled with diligent tracking and management, everyone can succeed in this important quality of life issue. For more details and insights into this and other important financial topics, please see my book, “The Game Changer’s Guide to a Better Financial Life,” available through Amazon.

Save More Money Can Reduce Financial Stress

I’ve long held the position that even though we live in one of the wealthiest, most financially blessed countries ever, as a society, we also live a life of serious financial stress. I often joke that it’s probably less stressful to live in the rainforests of South America, hunting and gathering, than to live in our modern, tech-savvy society, paycheck to paycheck. A lot of this stress stems from the fact that, as a society, we just don’t save money very well. According to a past Marketwatch article, almost 69% of Americans have less than $1000 saved. That is an astonishing amount of us that are basically one paycheck away from homelessness, or at least raiding our retirement funds in case of an emergency.

Why Americans Have a Hard Time Saving Money

There is a plethora of reasons behind our insufficient savings habits, such as a lack of discipline and making bad financial decisions. Maybe, it is simply that good jobs and hourly rates just don’t exist anymore for the lower and middle class (which I would argue as a legitimate factor). We can even rationalize that the value of the dollar doesn’t go as far as it used to, therefore, neither will our paychecks. Regardless of the validity of these arguments, our financial habits have a direct impact on our ability to save and our overall financial well-being, regardless of the inflation rate or our income level.

How to Alleviate Financial Stress

If you find yourself significantly stressed out over money, there are several adjustments that can be made to alleviate that pressure and simplify your life. But it does require discipline and sacrifice, and a willingness to live with less. For example:

  1. Flip the “whip” – Many of us cannot legitimately afford the car parked in our garage; it’s possible we can’t afford the house it’s parked in either. If your car payment exceeds 15% of your monthly net income, not gross (we live off the net), then it’s time to consider downsizing or getting rid of your vehicle. I have done this before myself, and although it’s unpleasant, it’s better than living in stress and worry. Maybe 15% doesn’t sound like much, but if your mortgage or rent is near the recommended limit of 28-30% per month, almost half of your net income is being consumed by rent and a vehicle. The change is worth it. Alternative transportation could be used for the short term if available, such as public transportation, occasional ride-sharing with Uber or Lyft, and even carpooling to work. Assuming your car is not upside-down in value and you are diligent in saving in other areas, it shouldn’t take too long to buy a used, older car outright, completely eliminating a car payment. (For related reading, see: Options for When You Can No Longer Afford Your Car.)
  2. No cable – In my opinion, cable service is one of the biggest wastes of money. In the average household of three to four TVs, cable and internet services can run $200 per month or more. I recommend having only internet and purchasing a streaming device with no recurring monthly cost. These “sticks” allow you to stream movies or purchase programs or apps. I have recently done this myself, and eliminating cable alone is saving me close to $1500 per year. (For related reading, see: Alternatives to Cable TV.)
  3. Gym membership – these can easily cost $600-800 per year, depending upon how swanky the establishment and package that was chosen. With YouTube and DVDs, it’s so easy to get a quality workout at home without having a ton of money worked out of your wallet. Eliminate the membership, not the exercise.
  4. Side hustle – I have always been a huge proponent of a side hustle, or part-time gig. During my transition of leaving corporate America to go independent, I also had a part-time job while I built my practice. Even if you have a stable job or career and feel you could save more, find a good side hustle. Do something you enjoy and make some extra cash while doing it.

If you are feeling the monetary strain, downsizing your car, getting rid of cable and the gym membership, and finding a side hustle can have a dramatic impact on your budget. It takes a bit of courage, but one can transition from living check-to-check to having a net surplus per month, depending upon your situation. If you are having debt and/or budgetary concerns and you want to make some positive changes but are not sure where to start, reach out to a qualified financial advisor. If you change nothing, then nothing changes!

Key Tips for Budgeting Your Money

It’s almost a truism that budgeting is a critical step for anyone looking to get serious about money management. After all, you have to know where your money is going in order to make plans for the future. But if you haven’t ever tracked your spending, how do you get started?

Here are three tips that will help you set up a budget and start managing your money.

Determine Wants Versus Needs

The first step towards creating a budget is determining which expenses are wants and which are needs. Housing, utilities, groceries, transportation, clothing and childcare are generally considered necessities; entertainment, travel and dining out are thought of as “wants,” or what are known as discretionary expenses. That being said, there often is some gray area between a want and a need: You may need a car to get to work if carpooling or public transit is not an option, for example, but a flashy sports car may be a want. Everyone must buy clothes, but designer clothes are not requirements. If you can afford or have already purchased a luxury version of your necessary expenses, remember that downgrading is always an option if you decide that type of expense no longer fits with your lifestyle.

Figure Out Fixed and Variable Expenses

Fixed expenses – which, as their name implies, remain the same every month – are the backbone of every budget and should be the easiest to plan for. Examples of these might be your rent, car payment and student loans, which are likely to be the same, month in and month out. Variable expenses, no surprise, are the ones that change every month. Your grocery bills, consumption-based utilities (like oil/gas, electricity, phone service), clothing expenses, travel and car maintenance expenses are all variable expenses.

Budgeting for variable expenses, of course, is one of the harder parts of creating a spending plan. Here are a couple of tips to help make it easier:

  • Track your spending for three to six months, figure out the average over that period and, in the future, aim for the average every month.
  • Instead of tracking variable expenses monthly, try setting a six-month or annual budget goal. This is especially useful for expenses like car maintenance or travel, which might not crop up every month but still need to be considered in a budget as they can be big-ticket items.

Decide What Type of Money Manager You Want to Be

It’s important to determine whether you are a big-picture or a detail-oriented money manager. Some people like to know generally where their money is going but don’t want to have to track every coffee they buy; others like to know exactly how much they spend on their latte habit. Determining if you prefer a detailed or broad view of your money will help you decide what type of budget system will work for you. The one caveat: If money is tight, you may have to use a system that tracks every penny. Once your finances are more flush, you may be able to switch to a less detailed tracking system. Here is a closer look at each type of budgeting.

• Detail-oriented budgeting. This system helps you control the outflow of your funds and sometimes alerts you to wasteful spending that you weren’t aware of. You know the popular “you spend enough on coffee each year to buy a used car” scolding? This system will help you figure out exactly how much you spend on things like your java habit, and where you actually want your money to go – including into savings and retirement accounts.

While you can create a detail-oriented budget manually with receipts and spreadsheets, many people choose to use automated tracking tools such as those found at Mint or Personal Capital. These programs will track and categorize all of your spending, which makes it easy to see if you are overspending in different categories. An additional benefit: If you have expenses for your work that should be reimbursable (travel expenses, office supplies), an automatic tracker can help you keep them organized and make sure you get the full reimbursements you are due. 6 Best Personal Finance Apps will update you on good tools to try.

• Big-picture budgeting. If you have more financial wiggle room and less tolerance for tracking details, you may want to develop a big-picture budget. Create a list of all of the regular expenses that you consider “needs,” and include categories for savings, retirement, emergency funds, charitable giving and travel (if you travel often). If you choose to use a big-picture budgeting system, be sure to give yourself a sizable cushion for savings and an emergency fund. (For more on this, see Building an Emergency Fund and Why You Absolutely Need an Emergency Fund.)

Once you have determined your monthly necessary expenses, plus the additional categories included above, you can then spend the remainder of your monthly income however you choose. The only thing to track is the total spent from this “miscellaneous” fund, but you don’t have to track how much you spend on clothes or coffee. To make tracking easier, it can be helpful to have one bank account or one credit card that you use for your “miscellaneous” expense fund so that you can easily keep an eye on your total expenditures.

The Bottom Line

Budgets are a critical tool to help with money management, but ultimately they are just a general set of guidelines. If your current budget isn’t working for you, try another approach. The most important thing to do is to make a plan that works for you, and once it’s in place, to stick with it.

Budgeting a Success in the New Year

At the end of each year – and the beginning of the new one – most of us think about things we’d like to accomplish in the coming year.  It’s a time we engage in self-reflection, ideas for self-improvement, and new – or ongoing – resolutions and goals.

One of the most common resolutions is losing weight, but we all know how that goes: crowded gyms in early January, inevitable drop-off when February rolls around. In fact, a study done by the University of Scranton shows that only about 8% of people actually achieve their resolutions.

Financial resolutions often include starting – or finally sticking to – a budget. Unfortunately, that resolution is all-too-often hard to stick to as well.

Why do so many people have trouble sticking to their resolutions? One of the main reasons is having unrealistic expectations. Overconfidence doesn’t just affect fitness goals, it affects investors’ behavior as well.

How can you make this the year you stick to your goals?

Take Baby Steps

Be reasonable in assessing where you are with your finances and don’t try to tackle everything at once. Start by listing all the areas of your financial situation you would like to improve. Then prioritize the individual elements in order of importance to you, and start by taking on one or two at a time.

If one of your goals is to start – and stick to – budgeting, don’t give yourself super-strict boundaries. Instead, start by creating good habits one at a time. If you want to pay off all of your credit card debt, for instance, take a look at how much debt you have and create a realistic weekly or monthly plan to start paying it off.  If you want to buy a house in five years, you could decide to spend less now on something that you currently enjoy.

Focus on one or two goals at a time, see how it goes, and make progress – and adjustments – to stay on track.

Be Specific

Instead of saying “I am going to save more this year,” or “I am going to save $5,000 this year,” try to specify exactly how you plan to do it. Start with something like: “I will take $100 from each paycheck and put it into a savings account.” By giving yourself a tangible – achievable – steps, you’ll be better able to track how well you are sticking to it.

In addition, try to think about what it is that you are trying to accomplish. Why do you want to save an extra $100 each paycheck? Are you saving up for a car? Trying to pay off debt? Building up an emergency fund? When you add purpose to your goals, it makes it more compelling and easier to accomplish.

Stay Accountable

Know yourself: accept who you are and what that means. Are you someone who might let things build up then feel too overwhelmed to jump back on track? Think about sharing your goals with a friend or family member and set times to check in with them and go over your progress. If you want to go to the gym three days a week, think about getting a workout partner. If you want to save an extra $100 from each paycheck, see if there is a friend that has the same goal and you can do it together, comparing how it’s going throughout the journey.

Most importantly, understand that this is a process. Some weeks will be better than others, but, if you can follow these three steps – set realistic goals, set specific goals, be accountable – hopefully you will be part of the 8% that gets it done this year.

Strong quarterly as AI boosts increase

Internet giant Baidu is expected to report solid second-quarter financial results in line with consensus market estimates, as mainland China’s largest online search engine operator steps up its transformation into a global powerhouse in artificial intelligence (AI).Analysts anticipate Nasdaq-listed Baidu to provide on Thursday further details about its AI strategy, following the State Council’s announcement last week of an ambitious national AI development plan.”Laying out a road map for AI is a very encouraging sign of support from the government,” said Jefferies equity analyst Karen Chan.Baidu is forecast to post a 21 per cent year-on-year increase in net profit to 3.4 billion yuan (US$503 million) in the three months ended June 30, according to a Bloomberg survey of analysts’ estimates.That gain was attributed by Jefferies to a rise in average spending per online advertising customer and Baidu’s efforts in controlling its traffic acquisition cost.Revenue is estimated to be up 14 per cent year-on-year to 20.7 billion yuan. It would represent the mid-point of Baidu’s second-quarter revenue guidance, ranging from 20.5 billion yuan to 20.9 billion yuan.Investors this week will likely focus on Baidu’s search recovery outlook, mobile newsfeed advertising traction, content investment, and sales and marketing spending, according to Jefferies’ Chan.In the first quarter, Baidu maintained its lead in terms of total search revenue on the mainland with a 75.9 per cent market share, according to data from Analysys International and Jefferies.

Financial Tips

Keys to Financial Success Although making resolutions to improve your financial situation is a good thing to do at any time of year, many people find it easier at the beginning of a new year. Regardless of when you begin, the basics remain the same. Here are my top ten keys to getting ahead financially.

1. Get Paid What You’re Worth and Spend Less Than You Earn

It sounds simplistic, but many people struggle with this first basic rule.

Make sure you know what your job is worth in the marketplace, by conducting an evaluation of your skills, productivity, job tasks, contribution to the company, and the going rate, both inside and outside the company, for what you do. Being underpaid even a thousand dollars a year can have a significant cumulative effect over the course of your working life.

No matter how much or how little you’re paid, you’ll never get ahead if you spend more than you earn. Often it’s easier to spend less than it is to earn more, and a little cost-cutting effort in a number of areas can result in big savings. It doesn’t always have to involve making big sacrifices.

2. Stick to a Budget

One of my favorite subjects: budgeting. It’s not a four-letter word. How can you know where your money is going if you don’t budget?

How can you set spending and saving goals if you don’t know where your money is going? You need a budget whether you make thousands or hundreds of thousands of dollars a year.

3. Pay Off Credit Card Debt

Those little pieces of plastic are so easy to use, and it’s so easy to forget that it’s real money we’re dealing with when we whip them out to pay for a purchase, large or small. Despite our good resolves to pay the balance off quickly, the reality is that we often don’t, and end up paying far more for things than we would have paid if we had used cash.

4. Contribute to a Retirement Plan

If your employer has a 401(k) plan and you don’t contribute to it, you’re walking away from one of the best deals out there. Ask your employer if they have a 401(k) plan (or similar plan), and sign up today. If you’re already contributing, try to increase your contribution. If your employer doesn’t offer a retirement plan, consider an IRA.

5. Have a Savings Plan

You’ve heard it before: Pay yourself first! If you wait until you’ve met all your other financial obligations before seeing what’s left over for saving, chances are you’ll never have a healthy savings account or investments. Resolve to set aside a minimum of 5% to 10% of your salary for savings BEFORE you start paying your bills. Better yet, have money automatically deducted from your paycheck and deposited into a separate account.

A Few Financial Basics

1. Create a Financial Calendar

If you don’t trust yourself to remember to pay your quarterly taxes or periodically pull a credit report, think about setting appointment reminders for these important money to-dos in the same way that you would an annual doctor’s visit or car tune-up. A good place to start? Our ultimate financial calendar .

2. Check Your Interest Rate

Q: Which loan should you pay off first ? A: The one with the highest interest rate. Q: Which savings account should you open? A: The one with the best interest rate. Q: Why does credit card debt give us such a headache? A: Blame it on the compound interest rate. Bottom line here: Paying attention to interest rates will help inform which debt or savings commitments you should focus on.

3. Track Your Net Worth

Your net worth—the difference between your assets and debt—is the big-picture number that can tell you where you stand financially . Keep an eye on it, and it can help keep you apprised of the progress you’re making toward your financial goals—or warn you if you’re backsliding.

4. Set a Budget, Period

This is the starting point for every other goal in your life. Here’s a checklist for building a knockout personal budget .

5. Consider an All-Cash Diet

If you’re consistently overspending, this will break you out of that rut. Don’t believe us? The cash diet changed the lives of these three people . And whenthis woman went all cash, she realized that it wasn’t as scary as she thought. Really.

6. Take a Daily Money Minute

This one comes straight from LearnVest Founder and CEO Alexa von Tobel, who swears by setting aside one minute each day to check on her financial transactions. This 60-second act helps identify problems immediately, keep track of goal progress—and set your spending tone for the rest of the day!

7. Allocate at Least 20% of Your Income Toward Financial Priorities

By priorities, we mean building up emergency savings, paying off debt, and padding your retirement nest egg. Seem like a big percentage? Here’s why we love this number .

The Personal Finance Mountain

  1. The Oh, Sh*t Moment

This moment is different for everyone, but it’s the point where you realize you’re not happy in the foothills anymore. For an awful lot of people, it seems to be related to debt.

For me, it was when I really wanted to quit a job I hated, but realized I couldn’t because I still owed a bunch of money in student loans. I hated that feeling and I decided then and there to figure out how to make sure I would never be trapped in a job I hated again because of money.

For some people, it’s a desire to escape the rat race way before the average retirement age.

For others it’s something entirely different.

However you want to slice it, it’s a realization that your money is controlling you, instead of the other way around. And that you’re just not going to put up with that crap anymore.

If that’s where you are, congrats! Welcome to the personal finance mountain.

  1. Budget

This word gets such a bad rap, but a budget is actually empowering! How can you get a job done if you don’t even know what tools you’re working with??

Here’s the deal – grab a bottle of wine or your favorite mocktail or whatever you generally choose to eat/drink your feelings – and just do it.

A budget is breakdown of your monthly and annual expenses.

It’s important to do both because those one time annual expenses like eye doctor visits, contacts, car insurance and registration, etc. can really eff up your monthly budget if you leave them out (I speak from experience).

A monthly budget includes set expenses like rent, loans, car payments, Internet, cell phone bills, etc. It also estimates variable amounts like groceries, electricity, and gas. You also include amounts for occasional items like gifts, medical expenses and entertainment.

You know you best, so adjust the set up so it works for you. If you do most of your spending using a credit card, you can just backtrack a month and add up each expense to get an estimate of what you’re currently spending on each category. If you usually use cash, you’ll have to collect your receipts for the next month so you can see how much you’re spending.

Once you know what you’re spending each month, you can look at your income. If everything is covered, great! If it’s not, you’ll be able to see where you can cut back.

Once you’ve got an outline of your monthly budget, you can do your annual budget, which is usually a little easier. These are your annual expenses that occur a few times a year or less. By figuring them out in advance, you can save a little each month for them so the money is ready to go when you need it.

Here’s the great thing about budgeting and the personal finance mountain – at the start of your climb, it’s your best tool. The more carefully you tend to it, the better everything is going to go for you, but as you climb further up the mountain, if you did a good job with your budget back down at base camp, you don’t need to tend to it as much later on.