How to Fix Money Problems

Hi kids,

I’ve spent a lot of time working with some of you when you have problems with your finances. Sometimes money problems crop up because of unforeseen events in your lif such as a job loss or medical bills, but more often than not your problems are brought about because you suck at managing money. Don’t worry though, you can fix money problems and Mama Vic is going to show you how.

Are credit cards bad?

Before we get into the nitty gritty of money management, I think it’s necessary to give you a little advice about credit cards. Credit cards aren’t bad. It’s credit card abuse that’s bad. Some of you should be spanked because you’ve heaped on a pile of debt with them. You did this because you want what you want and you want it right now. STOP THAT! If you want something, save up the money and then buy it. When you borrowing money to buy a new TV or electronic gadget, you’re being stupid.

You have been led down the rosy path believing you can have anything you want for just $10 a month. That’s advertising hype, don’t fall for it any more.

If you’ve managed to bury yourself in credit card debt, you need a plan to get out from under. You also need to stick to the plan or you’ll just keep burying yourself in debt. Now we’re going to move on the the real meat of solving your money problems: the plan.

Fix your money problems with this plan

First you need to figure out the root of your money problems.

Have your lifestyle choices gotten you in trouble?

• Have you purchased a house with hefty mortgage payment, maintenance costs, utility costs, homeowner fees, taxes, insurance?
• Have you purchased expensive toys such as boats, cars, etc.?
• Do you indulge in expensive habits such as eating out and/or impulse buying?
• Have you failed to consider the cost of of unforeseen events such as: job loss ,medical expenses, uninsured property damages, pet expenses and estate expenses?
• Have you failed to adequately plan ahead for known expenses such as a divorce, or college expenses?
• Have you spent money you shouldn’t have by using borrowed money from friends, family and or a credit card?

The purpose of this exercise is to help you avoid making these same mistakes in the future. Now we’re ready to move on to the steps to recovery.

Step 1: Take a look at your spending habits. To do this, dig out your records for the last 12 months including checks you’ve written and credit card statements. If you’ve thrown those away, get copies from your bank and credit card company.

Step 2:  List all revenue streams such as rents, salaries/commissions, bonuses, stocks/bonds, part time work and money you have in the bank.

Step 3: List all expenses under two categories

1. Mandatory spending such as food, clothing ( be careful with this one), household necessities, housing (mortgage/rent), utilities, insurance (car, house, medical), money set aside for eventualities (calculate this as 10% – 20$ of your income).
2.  Optional such as cable TV, high speed internet, extra cars, entertainment, travel, pets (for me this comes under mandatory expense, for you it might be optional, additional cell phone or TVs.

Step 4. Determine your bottom line

To do this, deduct your total expenses from your total income streams. You will end up with either a positive or a negative number. If it’s negative, you’re flat on your butt broke. If it’s positive, you either had an unforeseen expense that ate into your assets or you just plain spent too darn much money.

Step 5. Evaluate your results to create a plan

• If your bottom line number turns out to be positive; you made more than you  needed to spend. Prepare a simple budget and that should take care of the problem. We’ll discuss budget preparation later.
• If the above number turned out to be negative, it’s time to scrutinize your spending habits carefully. Start with the optional expenses first. Write down each item that can be cut or reduced. Now go into the mandatory expenses, this will be the hard part of the task because it often involves changes in the lifestyle to which you have become accustomed. Be vicious. Ask yourself the hard questions:
  1. Do I really need this 4000 square foot house for just two of us? (No)
  2. Do I really need this BMW, or boat? (No)
  3. Can I save money by moving into an apartment? (sometimes it’s a lot cheaper)
  4. Can we survive with one car? (Maybe, be brutal here)
  5. Do I need high-speed internet? (only if you use it for work)
  6. Do I need HBO? (No you don’t)
  7. What is a reasonable clothing budget? (Goodwill is a good option to save tons of money)
  8. Do I have assets I can sell such as antiques, extra cars, a boat, etc.?
  9. Can you consolidate multiple higher interest debts into one smaller payment?
  10. Carefully examine other areas where you can save such as:
      • Food costs (eat out less),
      • Laundry – Many of you wear it once and throw it in the laundry. Try wearing it twice unless you’ve really gotten it dirty.
      • household items
      • phone service (You can save a bundle here with careful planning)
      • auto including gas – let one trip serve multiple purposes
      • pets – Taking good care of a pet is an important reflection on the kind of person you are so, be sure and select pets with cost in mind. A small dog is cheaper to maintain than a big dog. A cat is less demanding than a dog. However, both involve vet bills.
      • kids – They really don’t need every toy known to man. They also don’t need to be involved in every single expensive activity. Older kids can earn the money and buy the extras they want themselves.

Step 6. Now you’re ready to do a budget

•  Put total income stream at top of page. This is the money you have to work with
•  Now add each of your necessary expenses.
•  Add each of the optional expenses you would enjoy keeping
•  Total the necessary and optional expenses. Your results will fall into one of the following categories:
  1. If the total of necessary expenses is still greater than your income, it’s time to take serious action. See below “What to do when there’s just not enough money to cover necessary expenses”. Don’t panic. Stress can clog clear thinking and clear thinking is what you need.
  2.  If there’s enough to cover the necessary expenses, but none of your optional expenses and the optional expenses are important to you, you will need to earn extra income to keep them. If you’re not willing or able to do this, you will need to eliminate the optional expenses for now.
  3.  If there’s enough to cover the necessary expenses and some of the optional expenses, delete the least important optional expenses from your budget or find a way to earn extra income or forego them for now.
  4.  If there’s enough to cover your necessary and optional income, you’re in good shape

Step 7.  What to do when there’s just not enough money to cover necessary expenses.

Understanding the value of soft assets – Soft assets are the people in your life who can help you out of your financial problems. They may offer you a job that pays more than you are currently receiving. If it’s a stay at home spouse, s/he may be able to pick up some part time work. Right now you need people you know or will soon know to help you help yourself. Don’t pride put its ugly foot on your head. However, this is not licence for you to enter into the world of leeches. If your wife/husband gets a part time job, chip in and help them with the tasks they normally perform. If you end up moving in with family or friends temporarily, make yourself useful and remember to contribute to the food supply and help around the house. In other words, show your appreciation and don’t take advantage.

• Check to see if it would be possible to refinance or consolidate bills to bring down monthly costs.
• Evaluate what additional skills you would need to land a higher paying job and invest in getting them. Okay, I can hear you whining, “If I don’t have enough money to even cover the essentials, how am I going to invest in my education?” Ever hear the words “library” and ” internet.” Both can provide you with many skills to improve your income potential.
• Once you have a basic grasp of the skill you want to learn, offer to work for someone needing those skills for free for a month or two to gain the experience. Who knows, that might even lead to a job offer.

Come on kid of mine, you can do it. It won’t be easy, but with a little imagination, you can do anything you set your mind to. Remember, I’m Mama Vic and I NEVER lie!

One last thing, remember to pay yourself first. Ten to twenty percent of your revenues must go under the category of necessary expenses, so don’t cheat and stick it under the optional column. For right now poke that money into a savings account. That’s only slightly better than stuffing it into your mattress, but once you’ve accumulated enough it’s time to invest. Mama Vic’s going to get into the investing topic later.

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