Need help structuring finances

Quote from treefrogrox : I thought about purchasing some tools from Dave Ramsey's website, but thought I'd rather get some input from all of you.

Tools for what? That will help you do what?

Ramsey and Orman make their money by applying [selling] common sense to people who have little or none when it comes to money. Most people I know have absolutely no clue what money, debt, savings, investment, etc really entail. Seems everyone kind of starts there and then moves on when they learn a lot of that type of investment dogma is just a bunch of fluff (i know, because that's how I started).

Instead of "spend as little as you can" try "spend as much as you want" within your budget? If you really struggle with budgeting, the first thing you need to do is take long, honest look at what you are spending. This is why people avoid it; because they don't want to actually see where it's going.

You cannot manage money just like you cannot manage time. You can only manage how you earn it and how you spend it just like you can only manage what activities you do day after day. It's an illusive concept IMHO.

Good question, and everyone is going to be different and in different situations.

I used to listen to a lot of Dave Ramsey. The trouble I have is with his one size fits all approach. He is very generalized "Debt Snowball" approach (pay off lowest balance first) that I don't really agree with.

For the average consumer trying to eliminate debt, it's a good idea. It doesn't require a whole lot of thought, and it gives a feeling of accomplishment that helps keep you motivated to continue. The problem here is, slickdealers aren't the average consumer.

Personally, I don't think you're really a slickdealer unless you're trying to save money everywhere. For example, what's the point of saving 50% off on an item when you're paying the minimum on credit card debt? Why try make interest in a checking account, when you don't have any retirement savings? Why try to make interest when you're paying more in interest than you could make?

Here is what my wife and I have done:

We looked at the last 6 months of expenses and put them in a spreadsheet.

We had a category for loans, like mortgage (including insurance & property tax, student loans, and car loans.)

So we had a category of utilities: Water, Power, Gas, Cable/internet, Cell phones, garbage, etc.

Then we looked at our other monthly costs, like gasoline, food, eating out (separate from food), hard goods (non-consumed goods we purchase), entertainment (netflix, going to movies, concerts, etc).

Seeing the total numbers gave us pause to look at ways we could cut costs. Can we reduce our cell phone plan? Drop cable? Reduce eating out? Eliminate some hard goods? etc.

I've included a snapshot from the file that is a few months old.

You'll see our categories, and we try to update it monthly with what we spent (it really doesn't take a lot of time, since most of the costs are recurring). You can see, we accounted for a refinance of our home, and it's costs. We also have anticipated "baby" costs (wife is due in February with our first), with a start for college savings. It also includes retirement (that is our Roth IRA's, note the large contribution in March for the 2012 tax year?)

"other" includes entertainment, minor home repair issues, medical/dental costs, pet costs, travel savings, etc.

This doesn't illustrate other items, like 401k contributions, and medical insurance premiums that come directs from our paychecks.

We added in our monthly income throughout the year (not included in the snapshot) and calculated what we would have remaining.

We have no recurring credit card debt, we pay it off every month. We try to put everything we can on our rewards card for the cash back. Our checking account earns 3% interest (local credit union) so we try to maximize that. Any loans we have are under 3% interest or we wouldn't have them (Mortgage is at 3.5%, minus tax deduction, brings it under 3%).

Another thing Dave Ramsey says is "Why invest money if you're paying a mortgage? Would you borrow money to invest it in the stock market? No, then why invest before paying off your house?"

To each their own on this one, but with such low interest rates, I don't see the push. I would rather max out my retirement, and THEN work on paying down the house than to do it the other way around. Paying down the house is a guaranteed 2.x%, whereas putting into retirement will typically do better (depending on what it's in).

In regards to spending as little as possible, that's not good either, since it doesn't feel rewarding to earn money. We budget for retirement, we save what we can when we can, but we also spend money when we really want to. If people spent more time looking at where there money is going, I think they would have more of it.

I hope this helps! It's what we do, so take what you want from it. There is no "plan" to follow until YOU make one. You can try a cookie cutter plan from Dave or Suzie, but they aren't going to work the best for you.

We found what works best for us, which is what I've shown here. Sure, people will have some disagreements on what we should or shouldn't do, but this is what works best for us. If someone has any thoughts, I'm always open to constructive criticism!

Quote from treefrogrox : I'm in an OK financial position, but that is because I've always been careful with my money, but I know I can do better. We are a family of 5 on two part time incomes. What I'm looking for is some structure and guidance, a plan to follow (tho I admit that I struggle with budgeting). My financial plan has always been summed up by "spend as little as you can". I've taken Dave Ramsey's FPU, I've read some of Suzie Orman's book, etc. but I'd like to know what do you do, who do you follow, what tools do you use, etc. I thought about purchasing some tools from Dave Ramsey's website, but thought I'd rather get some input from all of you. Hope this is the right place to ask. Thanks in advance for any help/advice.

Financially, where are you right now? What exactly do your finances look like? What are your financial goals?

To go off of Serus, open excel or open a quicken/mint account and put your past 6 months to a years expenses into category by month. Create a budget off of these amounts and do not forget to include a savings line and a misc or buffer line. Stick to the budget and keep track daily/weekly/monthly. Make sure you track ALL spending not just credit cards. Most people with bad spending habits spend tremendous amounts of cash without really knowing how much they spend a month. All those daily lunches add up real quick.

When you have a good idea of what your budget and spending is, start cutting. For example, there are no reasons you should be paying ATM or bank fees, quick savings right there. Good luck and do NOT buy tools from Dave Ramsey, its all just common sense stuff.

Here's what I do-

1. Decide on some sort of a goal. For example, my goal is to get a house, retire early, and be financial secure. Look at a few different possibilities, think about what you think is worth it for you. Save more and buy a bigger house, or spend more on other things and get a smaller house.. just have some sort of goal in mind.

2. Figure out what you need to accomplish your goal. For instance, a house will mean that you need to save enough for a down payment, and you need to save enough each month to pay the mortgage, any taxes/insurance, save a little extra for maintenance, etc.

To be financially secure, I want to have an emergency fund. Most people say 6 months of expenses, so I'll take a look at how much I spend in a month, cut out any non-essentials, and multiply by 6 to figure out how much I want in my emergency fund.

3. Track your progress. Excel spreadsheets are good, Google docs spreadsheets are better (access them anywhere, and you don't lose it if your hard drive crashes). See how much you spend each month and how much you save. You can also predict future income, future expenses, etc, and use that to predict whether or not you'll hit your goals. Don't forget about things like cars (buying a new one or fixing problems that come up), taxes, insurance, etc.

Like others said, look at your spending and see where you can cut some costs. For example, I got rid of cable tv and instead just watch Hulu/Netflix through a laptop hooked up to my TV. Since I'm not spending an extra $50+ per month on TV, I can go out to dinner a little more instead. Or maybe instead of buying a new car for $20k, you buy a used car for $10k, buy a nice new $1k TV, $1k laptop, and still end up saving $8k.

To give you more specific advice though, we need a little more info on what your goals are, what you're spending your money on, etc.

Hope that helps .

Thanks to everyone that took the time to respond. I totally agree that most of this is common sense and I should not need to spend money on a cookie-cutter tool, but I sort of feel paralized when I think about putting it all down on paper! I couldn't tell you how many times I've written some form of budget (sophisticated or crude - I've done them all), but then not followed them. And I've also gone and detailed out expenses on a spreadsheet - for AFTER the money has been spent, but projecting out into the future is - ugh! makes me queasy, so I usually avoid it.

So a little bit of background....We are a family of five and my husband and I are almost 40. I work part time (making decent enough money) and he works seasonal (which never pays well enough. He will be laid off here shortly, with no option for unemployment). He is in school full time, and we receive no help paying for it (we are spending a little over $10K per year for school!). Like I said, I've always been "good" with my money and hate debt, so we've managed to pay off our house and both of our cars. We have a small interest-free loan ($2100 that I pay $100/month on). We have around $1K in medical bills that will be paid off by the end of this year (waiting for my flex spend each month rather than using after tax money). Other than that we have a WAY TO BIG business loan that is totally upside down (bought some rental properties before the housing market crashed). I get sick thinking about this one. Currently the single rent we receive pays for the interest, but little else. I'm pretty sure I'm going to have to use personal funds to pay down this business loan, but there never is enough left in our own account to begin paying on that loan.

OK, so I guess I've figured out what my goals are. Before sitting down to pen this response I thought it was a) to build up an emergency fund (since we go down to one part time income every winter, and Lord help us if I lose my job) and b) begin planning for retirement but now I've decided that my focus should be on getting rid of our business debt since we pay some sickening amount in interest each month. I really stay out of the business side bc a didn't support the decision to buy the rentals 6 years ago and I've been stubborn in making him "sink or swim" but unfortunately it does affect our overall financials.

So, now you've got the background...

I've still got to decide on a tool. I'm pretty good in Excel, but there must be a template out there that I can begin with, right? Or should I go with something like Quickbooks, etc?

Seriously, I think my fear in doing all of this is what paralizes me...but I've just GOT TO DO IT! I have got to figure out a way to find more money in our earnings to start chipping away at the loan.

Again, thank you to all that responded. and I look forward to more advice!

Something to keep in mind, all of the paid for tools still require you to do what you don't want to do, that is document everything and follow through with keeping tabs on everything.

It sounds like you have a fairly limited income, and knowing where you are spending money and where to make cuts is going to be the first step in maximizing that income. You can't really save an emergency fund or plan for retirement if you don't have the money to do either! An emergency fund is definitely a good goal right now, along with eliminating your existing debt.

Document everything, find ways to cut. As suggested, mint.com is a great tool for monitoring your spending. It connects directly with all of your accounts, can categorize expenses for you automatically, and alert you when something is out of whack. This should help greatly in the "keep things up to date" arena. Mint in combination with an excel file does wonders.

Working only part time, and your husband being seasonal, managing your money is going you be your biggest benefit short of your husband working in the off season, or you going full time when he's not working.

As for the business loan, it sounds like you can benefit from some additional renters? If one is paying the interest on the loan, maybe push to get the others rented? The situation there is a little vague to really make a good recommendation.

All we are doing is offering the same advice that a paid "plan" would do. Managing money is like dieting, it only works if you make good decisions and follow through.