Keeping Cash in Check

When Calvin Carter started dating Daisy Williams, he didn't know that along with a beautiful girl, he was going to get a lesson in money management. Daisy, a Wyoming native and BYU accounting major, has always taken care of her finances. "My parents were careful about saving their money, and encouraged all their kids to keep some money in savings. By the time I came to college, I was pretty set."

Calvin, however, hadn't had that luxury. And when Daisy showed him how to track where his money was going, he was pretty surprised. "I was spending way too much money on fast food," says Calvin. "I would eat out once or twice a day, and it would add up quick, but I wouldn't realize it." By using money management skills, Calvin and Daisy were able to pay for their June wedding in the Idaho Falls temple, and are now saving for Calvin's law school.

What's the secret?

We asked this young couple what makes their story so successful. "Basically, we just spend less than we make," says Daisy. Financial experts agree that this phrase is the key to money management. Steve Smith, president and CEO of Finicity, a financial software and services company, says, "As simplistic as it sounds, spending less than you make is how to budget. If you say that to someone, he'll say, 'Well, of course you should do that.' But people don't follow that rule and that's why there's so much debt in our country." Statistics show that the average American spends ten percent more money than they earn each month. Spending less than you earn is the only way to break out of this vicious cycle.

How do I get started?

Jared Garrett, an account executive with WeXL Business solutions, outlines a simple plan for creating that may work for many: (1) Spend what you normally do in a month and save all receipts, (2) Pull out the receipts at month's end and tally expenses, (3) Decide what you shouldn't have spent, then (4) Use your required expenditures to create a categorized budget. (Remember that you should check with your partner about expenses; it's never good to have one person controlling the finances.)

But even with all our good intentions to keep track of what's left in our budget, many of us get frustrated and confused and give up about two weeks into the month. We need more help.

This is where an easy-to-use program might come in handy. Smith's company, Finicity, has put a revolutionary twist on the old "envelope" budgeting approach, in which you set aside cash in envelopes for different expenses such as groceries, entertainment, car maintenance, and so forth. Once the money is gone from a certain envelope, there is no more spending money in that category for the rest of the month. Mvelopes, an online service that automatically tracks your expenses, uses the same approach by allowing users to take each paycheck and divide the money into virtual envelopes of their choosing, each for a different expense.

During the month, as it tracks your purchases, it automatically subtracts the money that you've spent out of that envelope. For example, if you have put $100 dollars in the "clothing" envelope, and you spend $20 on shoes with your credit card, when you come home and check your balance, the program will have removed $20 from your "clothing" envelope and placed $20 in your "Credit Card" envelope. This ensures you have set aside $20 to pay back the credit card at the end of the month and shows you exactly where your money was spent. Mvelopes is even accessible on your mobile phone, allowing you to track your spending - real time - wherever you are, so that you can make wise, more informed spending decisions.

"Because Mvelopes uses traditional envelope budgeting principles, combined with cutting-edge technology, users are often able to recover roughly 10 percent of their income from hidden spending," says Smith. How can I stay motivated?

They say that it's almost as hard to start a habit as it is to break one. Print out your budget and put it in a prominent place, so you are reminded of it everyday. Garrett says that another option to create a family goal, such as saving for a new car or a family vacation. "What's nice is that once you get started, you find that you are addicted to it. You find out where your money is going, and it's a liberating and empowering experience."

Do I really have enough money to save?

One of the most common misconceptions, says Smith, is the belief that "if I made more money, I could save money." "But the truth is, people spend what they make. It doesn't really matter what level income you are - you can still save money, as long as you spend less than you make."

How does budgeting help me get rid of debt I already have?

When people finally take a close look at their finances, most are surprised, disappointed, and sometimes frustrated at what they see. With everyone having multiple credit cards and bank accounts, it's really difficult to keep track of finances, and it's extremely easy to build debt.

"First, examine the debts that you have and create a plan to pay them off," suggests Smith. The simplest way is using a debt roll-down structure. Find how many debts you have and how much money you owe on each. Arrange them up with the lowest balance first, followed by the next lowest, and so on. Pay minimums on all your debts, except the smallest - and pay as much as you can towards that debt. Once you have paid off that debt, use the extra cash flow (that you are no longer paying on interest) to start paying off the second one. "It's a huge win just to get that first debt paid off," says Smith. "It's just a great feeling."

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