A Bodey in Motion

Building momentum, one step at a time

FPU Lesson 3 – Cash Flow Planning

The third week covers how to create a complete and thorough budget. Below are my notes from the lesson, including the key points that I highlight from the video when leading the class, and some supplemental material that I think could help the class go further on this topic.

Financial Peace Unversity

Lesson 3, Cash Flow Planning

Key Points

Spend all your money on paper before the month begins. When it comes to cash flow planning, the emphasis is on the plan. Making a plan puts every dollar you earn to work towards some goal. It’s true that reality might interrupt your plan, forcing you to adjust, but having no plan to begin with turns what would have been an interruption into a crisis.

Use the envelope system for successful cash management. Debit and credit cards sell us on the convenience, but what the really do is numb you to the amount of money being spent. To gain control over spending, you need to see and feel the money leaving. Setting aside cash for items on your budget (such as groceries, restaurants, clothing, etc.) can help rein in costs in those categories.

Give your budget 90 days to really start working. It takes time for a new skill to develop into moderate proficiency. Don’t think you’re going to be the exception. Even four years later, my family is still learning ways to improve our monthly money management process.

Challenges

What Are Your Four Walls? Build a strong foundation for your budget by determining which things must be taken care of each month.

Balance Your Checkbook. Don’t fake it when things don’t add up. Making the effort here can really pay off.

What’s Your Car Worth? You’ll need to know to fill out your consumer equity form. The Kelley Blue Book website can tell you. (www.kbb.com)

Go Deeper

Here are some resources for helping you refine your family’s value system when it comes to life and money:

  • Purpose Driven Life by Rick Warren
  • QBQ! by John Miller

Next week, Lesson 4 – Dumping Debt.

March 20, 2013 Posted by | Christ and Church, Past and Future, Work and Money | , , , , , , , , | Comments Off on FPU Lesson 3 – Cash Flow Planning

Zero Is My Hero

Fair warning: We’re talking about writing a monthly home budget again this week. I’ve done it a few times before, especially since I’ve started doing more and more home finance coaching. If the word ‘budget’ scares you, I’m sorry. Try calling it a ‘cash flow plan’ instead and keep reading.

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We’re in the thick of June as I write this. In a couple of weeks I’m going to sit down at my computer, open up my budget cash flow plan spreadsheet and work out where the money is going to go for July. Some things are the same every month, like groceries or the mortgage. Some things change, like school supplies or medical bills. Did the cable bill go up? Do the kids need haircuts this month?

I do this usually the weekend before the first of the upcoming month so my wife and I have time to go over the details and make any changes, and so we can both agree where every dollar of our income is going to go. Our income equals our outgo, and our spreadsheet ends with a big fat ZERO at the bottom. It’s called a zero-based budget, and it changed our financial future.

See, before we did that, we were like a lot of people. My wife would figure out how much we needed to pay the bills and take care of our outstanding expenses. Whatever was left we’d leave as carry over for the next month.

The problem was that it never carried over. In fact, we would often over-run and let our credit cards catch the slack. It’s one of the biggest reasons that we were saddled with unnecessary debts and failed to gain momentum with our finances for as long as we did.

When you’re staring at several hundred (or even a couple thousand) extra dollars, it looks like a lot of money, and that list of things you’ve been wanting to buy pretty much writes itself. Plus, if some small purchase comes up, you write it off as no big deal, because there’s “plenty of extra cash this month.” Yet, no matter how big the pile, it’s never really as large as we imagine it is. It could never cover all of things we want.

That’s why you have to make a plan for every dollar that comes in. Nothing gets left over. It all gets spent, saved or invested somewhere. Zero is my hero, because it puts all of my money to work.

Give every dollar of your income a name before the month begins…Income minus outgo equals zero every month.

– Dave Ramsey, The Total Money Makeover

Now, having drilled into that like an over-eager dentist, I need to clarify a couple of things.

1. Saving to cover a general category is a good thing. You don’t need to get overzealous about specifically naming every dollar. For instance, we save ahead for car maintenance. We don’t have money set aside individually for each upcoming oil change, and tire replacement, and minor repair. Instead, we have a general Car Maintenance Fund that we sock a little away into each month. In the same way, we save for medical expenses by putting a little away into a Medical Fund. And so on.

2. Your budget needs to end with a zero, but your bank balance doesn’t. Not everyone is going to be comfortable with draining every last penny out of their accounts to achieve financial goals (like paying off a debt). That is perfectly alright. In our home there is a figure in the bottom of our checking account lovingly referred to as the ‘bounce’. When I create a budget for the upcoming month, and I’m looking at our current balances, I pretend that amount doesn’t exist. It gives my wife peace, and that lets us work together on every dollar that’s left.

So, what’s your plan? How do you make the most of every dollar you earn?

June 11, 2012 Posted by | Work and Money | , , , , , , , , | Comments Off on Zero Is My Hero