One of the most important things when it comes to personal finance is taking control of your money, instead of allowing it to control you. You need to track your monthly income and expenses, and give every dollar a name and a job. All income should be assigned to an expense category, or to a saving category. Every penny. If you allow your excess income to remain unassigned, it will disappear, I guarantee it. (I know from personal experience.)

Budgeting Programs To Help Track Your Money

Tracking your family budget is becoming easier all the time as new software options appear on the market every day. Here’s a giant list of some of the best budgeting options available.  Some programs are free, some have free trials, and some do cost money.  Both Mac and Windows programs are included.

Desktop And Online Applications

• Ace Money Lite: A freeware personal finance manager.
• Buddi: A personal finance and budgeting program.
• Budget5000: Plan your personal budget, track spending
• Budget Ace: A monthly personal budgeting program.
• Budget Simple: A free, easy to use online budget
• Budgeting Spending Plan: A budgeting guideline that shows amounts you should spend in certain categories.
• BudgetPulse: Organize your cash flow, expenses and bank accounts in one place.
• Budget Tracker: A feature rich money management tool.
• Buxfer.com: Easy online money management.
• Cashbox for Mac OS: Track your personal accounts and analyze and categorize your spending habits.
• Cha-Ching: Easy and flexible personal finance software Mac OS.
• Dave Ramsey’s Personal Finance Software: Straight from the folks at DaveRamsey.com
• Financial Envelope Software: An envelope based budgeting software.
• Fortora Fresh Finance: People friendly finance management.
• Geezeo.com: A set of free online financial tools to help you reach your goals.
• GnuCash: A personal and small-business financial-accounting software.
• iBank for Mac: A slick looking financial manager with a ton of features.
• iCash: A personal finance manager for Mac and Windows.
• JGnash Personal Finance: A free personal finance manager with many of the same features as commercially-available software.
• JustBudget: A free online web application to manage your personal budget.
• Liquid Ledger: Mac OS personal finance manager.
• Microsoft Money: This is the main software that we use at our house, although it is no longer being supported. If you’re just getting started, you may want to choose something else.
• Mint.com: Easy to use and full featured online money manager that allows you to check all your accounts in one place. Includes budgeting and saving tools.
• MiShell Budget Calendar: Take control of your finances with this easy to use, intuitive software that shows all transactions in an easy-to-understand calendar format.
• Moneydance Personal Finance Manager: Organize your finances, manage your budget, track your portfolio, or just automatically balance your checkbook. Moneydance can do it all.
• Moneystrands: Free money manager that  automatically pulls together data from your bank, credit card and investment accounts to provide an accurate, up-to-date picture of your financial life.
• Moneytrackin’: free online webapp that allows you to track all your expenses and income easily.
• MoneyWell: Mac OS envelope budgeting.
• Mvelopes: An online personal finance and spending management system based on the envelope system.
• MySpendingPlan: Free online budgeting software and planning tools.
• NeoBudget: An online budget system that uses the envelope method to help you track your spending habits and stick to a budget.
• Out Of The Dark: Online personal budget.
• Pear Budget: A simple budgeting and expense tracking service.
• Piggy Budget: Track your spending without complicated accounting.
• PLCash: PLCash is a platform-independent personal financial program.
• Pocketsmith.com: The unique forward-focus of PocketSmith tells you what sticking to budget means for the future of your money. It is a crystal ball for your bank accounts.  Very cool!
• Quicken: Great desktop application that does it all.
• Quicken Online: Free, full featured and easy money management – online.  Also works and syncs with the Quicken Iphone App. (Quicken Online to be merged with Mint.com next year)
• Rich Or Poor: Track income, expenses, assets, liabilities, and much more
• SimpleD Budget: Free Windows application for personal financial management.
• Squirrel for Mac: A personal finance application for Mac OS X.
• Snowmint Creative Budget: Manage your money to get out and stay out of debt.
• Wesabe.com: Online money management service that has a variety of financial tools.
• Yodlee MoneyCenter: Free online money manager to track spending, pay bills and more.
• You Need A Budget : One of the more popular personal finance programs in the personal finance blogosphere, YNAB is highly recommended.  Save 10% by using coupon code (expires Nov. 30th, 2009): biblemoney
  

Excel Budget Templates

• Budget Spread:  Spreadsheet from gatherlittlebylittle.com
• Budget Spreadsheet: Spreadsheet from MrsMicah.com
• Dave Ramsey Allocated Spending Spreadsheet: Spreadsheet from angus65.com
• Enemy of Debt Budget: Spreadsheet from EnemyOfDebt.com
• Financial Snapshot & Budget: Spreadsheet from BudgetsAreSexy.com
• Google Docs Budget Templates: A bunch of usable budget templates.
• Punch Debt In The Face Budget:  Spreadsheet from PunchDebtInTheFace.com
• Vertex42 Budgets And Calculators: Budgets and a variety of other excel calculators.
• Windows Excel Templates: A variety of excel budget spreadsheets are available here.
• Zero Based Budget: Spreadsheet from ratestate.com

Iphone And Ipod Touch Apps

• Bank Of America App:  If you have accounts with BoA like I do, this may come in handy. Includes bank and ATM locator that uses Iphone’s GPS.
• Bill Minder: Track recurring bills, mark bills as being paid or unpaid, and manage payment info.
• Bloomberg Mobile: Mobile version of Bloomberg’s financial news, stock info, etc.
• Cha-Ching for Iphone: Mobile version of the Cha-Ching Mac OS personal finance manager.
• Chase Finance: If you have an account with Chase, this is their online banking app.
• Daily Finance: Money news, stock quotes, stock market news, etc.
• Day Bank: App that allows you to track daily spending.
• iBank Mobile:  iPhone app that lets you keep track of your day-to-day spending and account balances on the go.
• iBearMoney: An intuitive personal finance manager.
• Mint.com Iphone App: Great app for always knowing where you are with your finances – gives you a complete picture of all your accounts.
• Moneystrands Mobile: Mobile version of the online application above.
• My Money: Multi-account financial tracker.
• Pay Off Debt:  This app is dedicated to helping you run your debt snowball.
• Pennies App: An expense tracker that helps you track your spending against budget goals.
• PocketMoney: a full featured budgeting and account tracking tool.
• QuickBank: A simple multi-account financial management application featuring a tabbed interface.
• Quicken Online Mobile: Syncs with the Quicken online financial tools mentioned above.
• Save Benjis:  App that helps you compare prices and find the best deal on what you’re shopping for.
• Spend:  Simple application that allows you to track your budget. Also includes a free version.
• Splash Money: Full checkbook and finance tracking tool.
• Squirrel for Iphone: Mobile version of the MacOS personal finance application above.

So there you go.  There is no shortage of options when it comes to personal finance tracking and budget software.   There really is no excuse for not doing a budget.  So why not get started today?

Do you have a favorite personal finance software – either online, desktop or mobile?  If you do, let us know about it (and leave a link) in the comments.  We’ll add it to the list!

*some links may include affiliate links.

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The Great Big List Of 75 Budgeting Tools, Finance Softwares And Iphone Money Apps

Financial accounts are a modern day necessity.  Most people have an account at a bank, if not multiple banks.  At that bank they are likely to have a checking account, savings account, and even a CD.  In addition, it is quite common for people to have multiple active credit card and debit card accounts.  Unfortunately, each of these accounts adds a layer of complexity. One of my current financial goals is to simplify my finances – hence the need for a simple budget and fewer financial accounts.  In this quest to simplify finances I have found that there are many reasons why multiple accounts are a bad idea.

Why Are Multiple Accounts A Bad Idea?

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How Many Financial Accounts Should You Have?

Jason Price is a volunteer financial coach and personal finance blogger at One Money Design. He helps people manage money wisely for everyday life using practical ideas and Biblical financial principles. If you want to get his free money management tips and put your personal finances in order, follow him by Email,  Twitter, Facebook, or RSS.

Cash flow management, managing what’s coming in and what’s going out, is critical to maintaining control of your spending and staying in financial balance. Some people manage it to extreme detail and others manage it up to the high level. Either way, its cash flow management and it’s our jobs as wise money managers to exercise it often.

Reflecting back on what I’ve seen work well; I thought I’d share some cash flow management tips that can make all the difference in the world to living within your means and making progress, month by month, towards your financial goals.

• It’s a daily exercise. Performing good cash flow management and staying in financial shape requires a daily exercise routine. Not matter how you track money going out, coming in and balancing each expense with your checking account, you need to find time to do it daily. The daily exercise just takes a few minutes to review receipts and either writing the amounts in your tracking form, or inputting into your personal finance software. If you’re tracking manually you can capture your expenses at the point of sale.
• You need to know where you’re at today. At any point in time, you should no how much money is in your account and be able to quickly determine how much money is left for each spending category. How do you have this information at your finger tips? If you track manually, you can keep the balances in a pocket book. If online, you can view category balances through mobile interfaces (or on via the web) available with most major applications. Either way, you can quickly determine how much money is left in the grocery category.
• Determine what works best for you. There are a lot of cash flow management tools. I’ve had experience using software and paper tracking forms. Software can save time, but there is something about tracking money by writing it down that allows you intimacy with your financial situation. I once had someone tell me they felt like they were on a Weight Watchers diet when writing down expenses manually. The more they had to write down their expenses the less they wanted to spend. The point is to find what works best for you and implement the tool into your routine.
• You can’t guess your way through it. Don’t try to keep track of your spending decisions or actual expenses in your head. I don’t know anyone that can successfully do this for their entire budget. Don’t try. You’ll eventually make a mistake or never really be able to determine where your money is going each month. Trying to manage in your head or via the summary balance in online banking won’t give you the measuring stick needed against a monthly spending plan.
• It’s typically an eye opening experience. If you’re convinced you need to track your spending, you can save money. It’s easy to go back at the end of the month and add up all the times you went out to eat or determine how much you’ve spent on cable TV in the last year. Having this information will enlighten you to your spending habits. And some of your spending habits may frighten you once you can go back and look at them. Cash flow management provides a great opportunity to curtail careless spending and keep discretionary spending under control.
• It’s a routine thing. If you’ve ever gotten into the habit of a regular exercise routine you’ll appreciate where I’m coming from with this one. Once you’re in a regular routine and miss a day or two, you feel empty. You feel like you’ve lost something that you have to gain back by getting into the gym again. When you manage your money, it’s the same feeling. Eventually, it will become natural and if you skip a day of managing your expenses or don’t plan your spending for the next month, you’ll feel like you’re getting out of financial shape.
• It requires commitment. I think it’s too easy to say “I need to start tracking my money or managing spending better”, but too many times people talk about it and don’t do anything about it. You have to be about it! There is a reason why people who commit to managing their money avoid debt. As a money coach, I’ve never worked with anyone who was diligent and committed to their finances and kept spending carelessly. The two just don’t go together. If we’re committed to managing our money, we are also typically committed to spending wisely and using a spending plan.
• Closing Thought – It’s not easy, but everyone can do it. As with most things in life that have big reward and pay off, it’s not easy. We can all add and subtract. That’s easy and the fundamental skill required. However, what’s not easy sometimes is going a little bit outside the norm.

I’m willing to bet the majority of the population doesn’t read 15 minutes a day. I don’t have any solid facts; it’s just a theory. If you’ll roll with my theory I think you would find reading 15 minutes a day would put you well in advance of the average in terms of information and knowledge you posses.

And so goes the same, in my opinion, with cash flow management. Why not do an out of the norm thing and practice just 15 minutes of managing your money each day? My theory, if you choose to believe it, will bring your finances in order, balance, and onto the path of debt free day.

What’ the best way you’ve found to manage what’s coming in and what’s going out?

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What You Need to Know About Cash Flow Management

I have always enjoyed detective movies and shows.  I envy people who can walk into a room and know minute details about your life just by looking around your desk at work.  When I meet people I secretly guess what their subtle habits and practices include.  My favorite place to go in someone’s house is their library.  By taking a quick look at what they read you can get a good sense of what they are interested in.  What they are interested in reveals a lot about their personality.

Many Christians have Statements of Faith.  They verbalize what they profess about Jesus Christ.  His deity, his resurrection, his relationship to God the Father.  What if we were to consider our budgets a statement of faith? What if one of these insightful detectives looked at your budget.  Would his conclusions about your faith be accurate?

A detailed budget may reveal:

• What you care about
• What you love
• What you are afraid of
• What you are planning for
• What you are looking towards
• What you believe about money
• What your needs are

On and on this list could go.  These feelings and emotions are deep parts of who we are.

Thus, we could ask: is budgeting spiritual?  It is spiritual in the sense that every dollar you direct reveals something about your relationship with God.

So here are some not-so-typical suggestions for spiritual budgeting:

1. Pray when you set up a budget. Invite God to join you in the process.
2. Review your budget from a spiritual perspective. Ask, what do these numbers say about my faith?  What do these numbers say about my belief?  What do these numbers say about my relationship with God?

What do you do to keep budgeting a spiritual discipline?

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Budgeting: A Statement Of Faith

My wife and I have been out of debt except for our mortgage for a couple of years now. I can still remember paying off that last debt, my student loan, and how good it felt. It was like a weight had been lifted off of my shoulders, and we were now free. I can’t even imagine how good people feel who have finally paid off every debt, including their mortgage. You must become weightless, and float off into the sky! Free like a bird!

Since we’ve been debt free we’ve also been following some other good principles of personal finance like following a budget, spending less than we earn and making do with what we have instead of spending to buy new.

One of the big changes that we’ve made is that now we’ve started not making any big purchases without first saving up the cash for those purchases. If we can’t pay cash, we don’t buy it.

Saving Up For Big And Small Purchases

Saving up enough cash to buy some things this is no big deal.  When we decided that it was time to upgrade our old 5+ year old computer that we had been nursing along for the last few years, we needed to scrape together a few hundred dollars in order to buy a new one.  We set our savings goal (about $300) and reached that goal in one month.   We did our research and found a nice refurbished Dell computer for $300.  The computer was much faster and less frustrating to use than our old one.  Done deal, and we paid cash.  We declined to finance our $300 purchase using Dell’s “easy monthly payments”.  The computer just runs so much nicer knowing that it’s paid for!

Some things require a bit more discipline in order to save for them.  For example, we paid cash for my new car that I purchased last October.   The car we bought was a nice 2  year old used car (we’ll probably never buy a new car, even with all the rebates and tax credits available today).  The car was just under $10,000, so saving up for this purchase took a bit longer.

A while back when we knew we would need a new car within a couple of years, we started saving for that purchase.  Using a plan similar to Dave Ramsey’s “Drive Free Cars And Retire Rich” plan, we set a goal for  new car within 3-4 years, and started saving towards that goal.  Instead of making a car payment (since we didn’t have one on our old car either) we just started paying ourselves a monthly car payment, and over a couple of years we had saved up enough money to buy a nice used car.

My car ended up dying before it’s time last October, so we didn’t quite reach our complete savings goal, but in the end we found an extremely nice used car for the amount that we had saved.  The car had under 30,000 miles,  and cost us less than $10,000.    We probably would have spent more, but now I’m glad we didn’t because I absolutely love my car now!

The best part is, my car is paid for.  The car is a beauty, and when people ask me how much my monthly car payments are on my nice new car, I tell them, “What payments?  We paid cash for this car!” .  We get some quizzical looks, because paying cash for a car (or other big purchases) just isn’t normal these days.  Taking on debt of all kinds IS normal.

I’ll tell you what, I may not be normal, but I don’t care to be.  And my paid for car?  It drives so much nicer without a monthly payment.

Have you ever tried paying cash for the things you buy, instead of financing them?  Did it change how you viewed that purchase, and did you get more enjoyment out of it? Do you find that you spend less when you pay cash – since the purchase is that much more real?

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Saving Up And Paying Cash For The Things You Buy Makes The Purchase More Enjoyable!

The past week was a sad one as we saw the passing of several well known celebrities. The week started off with the passing of affable Johnny Carson sidekick and veteran of two wars, Ed McMahon. He was always able to light up the stage with his easy going demeanor, and he seemed to be a genuinely nice guy. The week went on and we also saw the deaths of Farrah Fawcett and Michael Jackson. Farrah and Michael both died too young, with Farrah passing after a hard battle with cancer, and Michael passing after having a heart attack (source unknown?).  How many of us have memories of Michael Jackson’s music from our younger years?

Two of these celebrities have something in common, more than just their celebrity status. Both Michael Jackson and Ed McMahon had been in financial trouble within the past few years. Seems they both had problems understanding one key financial concept that remains constant whether you’re making $20,000 a year or 20 million.   If you want to succeed, you can’t spend more than you make.

Ed McMahon And Foreclosure

Ed McMahon has been in show business for decades.  We all remember him from the Tonight Show with Johnny Carson,  Star Search and all of those Publisher’s Clearing House ads.  Over the years Ed McMahon had earned a fortune through his various endeavors.  By all accounts his financial situation should have been quite secure.  The problem was, Ed wasn’t the greatest with the finances.   One rep described his money problems:

His rep, Howard Bragman, further felt McMahon’s money mess was a result of a confluence of “bad health, bad economy, bad housing market.”

When you look a bit deeper, however, you’ll see that McMahon wasn’t very disciplined in his spending. According to a variety of sources he was generous to a fault, always being overly generous to everyone around him. One friend who helped write two books with McMahon said,

“Being Ed McMahon was an expensive proposition,” he said. A lot of cash “went to tips,” noted Fisher, who recalled walking through hotel lobbies with McMahon as he would hand out money to anyone who helped him.

He also lost a large amount of money helping his 3rd wife to launch a failed clothing line.  Add to that several expensive failed marriages, and within the past year Ed McMahon found himself in over 1.5 million dollars worth of debt.  What did he owe on?

He owed approximately $644,000 in payments on a nearly $5 million mortgage loan.  He also owed American Express almost $750,000 in unpaid bills, along with having an outstanding loan of $135,000 to yet a 3rd company.

Ed McMahon had been facing foreclosure on his home within the past year and had been scrambling to scrape up the money to cover his expenses, even doing a commercial along with MC Hammer for a company called “Cash4Gold” in his last year.

If only Ed had learned earlier the importance of having a solid financial plan, and of spending less than you earn, he might have left a larger financial legacy.

Michael Jackson And His Millions In Debt

Michael Jackson is an even more severe case of someone who didn’t live out the concept of living within a budget.  Despite the fact that he had made hundreds of millions of dollars over his career, Michael died with a mountain of debt, by some estimates at the time of his death he was in debt by over 400 million dollars.  Before he died he was planning on coming out of retirement  in the coming months to help pay for some of those debts, and to struggle to get his life back on track.

During his career Michael sold over 61 million albums, owned rights to the Beatles catalog, and even had  a popular ride at Disney World.  He had made hundreds of millions of dollars, and because of it he was able to live a lavish lifestyle. Even so, he lived a bit too lavishly.   During one of his very public trials, the details of Michael’s finances came out in the public eye.

One forensic accountant testified that the singer had an “ongoing cash crisis” and was spending $20 million to $30 million more per year than he earned.

Jackson was known to go on lavish shopping sprees, spending millions of dollars on antiques, toys and other things.    There are stories of him flipping through high end catalogs and ordering every item on every page.  Or other stories of him spending $150,000 in a few minutes at London’s Harrods store, or $250,000 on antiques in Beverly Hills.  And of course there was the millions he spent on plastic surgery.

At some point Michael took out a 200 million dollar loan against this Beatles catalog rights, in order to continue to finance his lifestyle.

What legacy does he leave for his 3 children?  A mountain of debt, and the possible hopes of being able to dig out of the debt in order to have something left over?

What Do Their Stories Tell Us

What can we learn from Ed McMahon and Michael Jackson’s stories of financial woe?  What could they have done differently?

Personally I think their stories point out how even the most basic of personal finance advice can be excellent advice – at any income.  The advice?  Make sure to spend less than you earn, and save and invest the rest.

Make sure that you have a solid financial plan, and at the very least that you have someone around you helping you to make good decisions about your money.  It sounds to me as if neither of these men had anyone there to help keep them accountable, and that they both just enjoyed spending money on the things they wanted, or the people that surrounded them.  In the end even though their incomes were as large as some small countries, they spent more than they had made.  It lead them to financial ruin.

The last point that this illustrates to me is the futility of trying to spend your way to happiness.  Money has never yet made someone happy. Sure, it can buy you momentary fun, and fleeting happiness, but in the end you can only find true happiness and inner peace through a relationship with Jesus Christ.

Jesus said again, “I tell you the truth, I am the gate for the sheep. All who ever came before me were thieves and robbers, but the sheep did not listen to them. I am the gate; whoever enters through me will be saved. He will come in and go out, and find pasture. The thief comes only to steal and kill and destroy; I have come that they may have life, and have it to the full. John 10:7-10

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Spending Less Than You Earn. Sound Advice At Any Income

If there’s one thing I’m good at, it’s starting a budget. I have no problem tracking our spending for a month or two or setting up income and expense categories. I’m even able to setup a working zero based budget where we allocate every dollar to a category, leaving no money left over to just disappear.

The problem is, I’m also good at letting things slide. Once we’ve been doing a budget for a month or two and things seem to be going pretty well, I have a way of slowly moving back towards bad spending habits, and not keeping track of where our money is going. I fall victim to the slow creep of budget malaise. I no longer care to do the budget because it’s just too much work (just feels like it) and it’s not fun any more.

The past few months has been one of these off-the-tracks scenarios for me. I keep getting back on track with our budget, and then off track again. We’ve been going through health issues, hospital stays and general job craziness, and through it all the budget just hasn’t been as important. It’s been tough to get excited about doing our budget when other things seem so much more important.

Getting Back The Budget Mojo

So how do you get the passion back for doing your budget? I’m not sure I have a perfect answer, but I have one that seems to work for me. I take a month off.

I know, that doesn’t sounds like the greatest idea, but I’ve found that most things in our budget are on auto-pilot anyway, and sometimes you just need a break to collect yourself.

Taking a month off from the budget doesn’t have to mean going crazy for the month, but it might mean not worrying about hitting every expense category on the head. Maybe this month you’ll shoot for your goals, but not be stringent about them.  If you spend slightly more in the dining out category, that’s OK, don’t fret about it.  Just realize that you’re having an off month, and next month you’ll be buckling down again.

Staying Focused With Goals

Another thing that can help you stay focused and get back on track is to actually write out your goals, and keep them front of mind by putting them on the fridge, or having them on the desktop of your computer.   Remind yourself that you’re working towards something.  If you don’t set goals, it’s extremely easy to get off track and forget why you’re even doing a budget.

Make both short and long term goals so that you have something to work towards, both in the coming months and the years to come.

• Short Term Goals: Goals to be met within 2-3 years.   Set goals like saving for birthday gifts, saving for a new car, or paying off that nagging credit card debt. Watch as you get closer to reaching your goal, and have a mini-party when you pay off debts!
• Long Term Goals: Goals to be reached in longer than 3 years. Set long term goals like retirement savings goals, college savings goals and mortgage payoff goals.  Keep track of your goals as you go.

Stay Accountable

Another thing that really helps is if you have someone who can keep you accountable and help you get back on track.   If you’re married, your spouse is usually your best choice.  If you’re single, talk with someone you trust that can keep you accountable, and tell you when you’re not practicing good financial habits.

Do you have your own tricks or tips for staying on track with your family budget?  What helps to keep  you accountable?  Tell us your thoughts in the comments.

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False Starts And Budget Malaise: Getting Back Your Budgeting Momentum

I recently published a series of articles on the topic of emergency preparation and titled it, “In The Event Of An Emergency“.  The series is devoted to the topic of planning ahead for life’s little (and big) emergencies that we all know will come our way.

The series covered topics ranging from making sure you have insurance coverage and an emergency fund, to making sure your family is provided for in case the worst case scenario happens.

Today I thought I would do a quick recap of the posts and bring all the articles together in one spot.   So without further ado, here they are:

In The Event Of An Emergency

• What Should I Put In My Safe Deposit Box Or Fire Safe?
• What If I Die? Make Sure Your Family Has All Your Important Information In One Place.
• What Types Of Insurance Should I Have?
• An Emergency Fund Will Help Reduce Your Risk Of Financial Catastrophe.
• Setting Up A Good Financial Plan Can Help You To Weather Any Storm.

Conclusions

Something that I’ve taken away from writing this series is that we all go through hard times, things that were unexpected or unplanned for.  While we can’t keep ourselves from experiencing all of the pain associated with these events, we can plan ahead and minimize the impact.  A medical problem can go from being a bankruptable life event, to a bump in the road.    A fire in your home can go from being life changing to just putting your life on hold.

The point I’d like to get across in this series is that while we can’t always avoid life’s little emergencies, we can still plan ahead for them, and put ourselves in the best possible position to avoid having them become more than they need to be.

User Submissions

• How To Be Prepared For a Storm and/or Emergency @ goodfinancialcents.com
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Have your own article on the topic of preparing for the unknown?  Let us know about it in the comments, or send us a link through our contact page and we’ll link to it here!

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In The Event Of An Emergency Series: Planning Ahead For Life’s Emergencies

The last few days we’ve been talking about how you can prepare yourself for emergencies, both big and small. We looked at what you should put in a safe deposit box.  We discussed making “What If I Die” spreadsheet, putting all of your important information in one place in case you pass on, or become incapacitated.   Finally we took a look at what kind of insurance you should have, and the importance of emergency funds.  Today I thought we could talk about an extremely important thing that can help you to weather just about any storm, a financial plan.

A Financial Plan

Having a sound financial plan is key to being able to survive an emergency of any kind.   When you have a plan, you’re going to be much more sure about where you are, and where you’re headed.  The confidence that comes from having that plan will allow you to put worry to the side, and just focus on remedying the source of your emergency.

So what are the different components of a sound financial plan?

• A budget.
• A plan to pay off debt.
• An emergency fund (we’ve already covered this one!).
• Transferred risk through insurance.
• Short, Mid and Long Term savings and investment goals.

Setting Up Your Budget

One of the most important steps you can take is to set up your first budget so that you can figure out exactly where you are, and what you need to do to reach your goals in the future.

Step one is to figure out what your total income and expenses are:

• Income: Write down all of the income that is flowing into your household through day job income, side income, gambling winnings (heh, yeah right).
• Expenses – Necessities: Figure out what you’re spending on the necessities.  Necessities would include food, clothing, transportation and shelter.  If you have debts, these would be included here as well.
• Expenses – Less Frequent or Variable: These expenses can be a bit tougher to nail down as they’re either variable month to month or they’re paid less frequently.  These can include things like food, entertainment, gas, property taxes, pets, hair care, etc.  To figure out these types of expense categories you may need to track your expenses over time, and modify your budget accordingly.

Once you’ve figured out what’s coming in, and what’s going out, it’s time to setup a monthly cash flow plan – a zero based budget where every dollar of income is allocated to either a giving, saving or expense category.

1. Write down net income.
2. Write down and allocate for all giving and saving and investing categories.  Come up with a total for giving, saving and investing.
3. Write down all set expenses (like mortgage, insurance, debts, etc).
4. Write down all your variable and miscellaneous expenses. It’s ok to be off your first couple of months – these expenses take time to figure out. Make your best guess.
5. Figure out a dollar figure for total expenses
6. Subtract total expenses and giving/saving from total net income. You should come up with zero as the final tally.  If you have money left over it needs to be allocated to a category, preferrably a saving or giving category – not miscellaneous expenses.

Once you’ve got a budget set up, track it month to month (preferrably using a software like Quicken, Microsoft Money or at least a software like mint.com.  You’ll quickly find categories that you may be spending too much in, and others where you need to allocate more than  you currently are.  By most accounts it will take 60-90 days to implement an effective budget, so if you don’t succeed right away, don’t worry. Just keep plugging away and it will come together after a few months.

Pay Off Debt

As part of your budget, if you have debts you’ll want to set up a plan to pay off your debts.  My preferred plan for getting rid of debt is the debt snowball.  The idea behind the debt snowball is this:

• Pay the minimums on all your debts.
• Pay all the extra that you can on your smallest debt.
• Once you pay off the smallest debt, take the extra money that you’re not paying on that paid off debt, and snowball it into extra payments on your next smallest debt.
• Repeat the process until all your debts are paid off.

In my opinion the debt snowball is probably one of the best plans for getting out of debt, but it’s definitely not the only one.  If you don’t like the snowball method, just choose an alternate method that you like better and go with that.  Remember, you can’t go wrong getting out of debt

An Emergency Fund

After all your debts have been paid off another huge step is to make sure you have plenty of emergency savings to cover you in the event of just about any emergency. We covered this more in depth in yesterday’s post, so I’ll just touch on the key points here.

• Save $1000 baby emergency fund before your debts are paid off (to cover most small emergencies)
• Save 3-12 months of expenses, based upon your risk tolerance, job situation, and other personal factors.
• When disaster strikes and you need to spend your funds, take some time to re-fill your emergency fund for the next emergency.

Insurance To Transfer Risk

Another important component of a complete financial plan is setting up insurance to reduce your risk in key areas to the insurance companies. Why take thousands or millions of dollars worth of risk when you can pay your premiums every month and transfer that risk to your insurance provider?

Key areas to get insurance:

• health insurance
• life insurance
• homeowner’s insurance
• auto insurance
• disability insurance
• long term care insurance
• umbrella insurance

Setting Short Term, Medium And Long Term Goals

When setting up your financial plan you will also want to make sure you’re setting goals for the near term, as well as for years down the road.  Those goals will help you to set up savings and investment plans, get rid of debt as well giving you the peace of mind of knowing you’re working towards something.

Short Term Goals

Short term goals are ones that can be achieved within the next year.  Examples of short term goals might be:

• Saving $3000 for a vacation in 7 months
• Paying off credit card debt in 11 months.
• Cutting spending by $100/month
• Saving for Christmas gifts

Medium Term Goals

Medium term goals are one that take 1-5 years to achieve.   Examples of medium term goals might be:

• Saving for a 20% down payment on a house
• Saving money to pay cash for a used car to replace a current one
• Increasing income by $20,000/yr

Long Term Goals

Long term goals are goals that take longer than 5 years to achieve. Examples:

• Saving 1.5 million for retirement by age 65
• Saving for a child’s education
• Being able to 30% of income to charity within 10 years

When setting your goals make sure to make them specific, measurable,  achievable, realistic and time bound.  If you don’t do those things achieving them will be that much harder.

Once your goals are set, work on ways to achieve them.  Set down specific things you’ll need to do to accomplish what you want to do.  Work your goals into your budget and your financial plan.

Your Complete Financial Plan

So the things I’ve mentioned above are all important in creating your complete financial plan.  Set up your plan and you’ll be well on your way to creating a sense of peace in knowing that you’re on your way to reaching all your goals.   The emergencies that you encounter along the way, while they’ll still be hard, won’t seem quite as daunting when you have a plan.

Are there other things that you think are important to creating a complete financial plan?  Do you have a financial plan setup? Tell us about it in the comments!

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Setting Up A Good Financial Plan Can Help You To Weather Any Storm

A couple of years ago if you had asked me what I would do if an emergency presented itself and I needed some money quickly, I would probably have told you, “That’s what credit cards are for!”.  Just put it on the card and pay it off when you can!  Emergencies aren’t really something you can plan for, so why try to plan for them, right?

Emergencies do have a way of coming up at the most inopportune times, but the fact is that you CAN plan for emergencies. You may not know when they’ll hit, or how hard they’ll hit.  But you do know that they will happen.  So it’s best to plan for them while you can.

Since we started our financial plan a year or two ago and saved up an emergency fund we have seen many family emergencies pop up.  We have gone through an emergency hospitalization where my wife was in the hospital for a month with a blood clot.  We had a car accident.  We had a car broken into and had a lot of stuff stolen from us. And now we’re preparing for another medical emergency where my wife will be having another unplanned surgery next week.

If this doesn’t prove it to you, nothing will. You WILL have emergencies pop up in your life, so get ready!

Reasons To Set Up Your Emergency Fund

• Emergencies Happen: The more time goes on, the more you realize that things do come up that you hadn’t planned for, and you’re going to have to pay for them. You’ll be on vacation and get a bad case of the flu.  Traveling to grandma’s house when the tire blows out.  Things happen, and they won’t happen at a convenient time.
• It Relieves Stress:  When you have an emergency fund saved, it has an added built in bonus.  Peace of mind! You’ll feel the weight lifted off your shoulders because you no longer have to worry about most small emergencies.  Once you get your larger emergency fund saved, you won’t have to worry about paying for most large ones either.
• It Reduces Risk: When you have an emergency fund (along with other things like health insurance, disability insurance and life insurance), you have a lot less risk of bad things happening.  You’re much less likely to go into bankruptcy, foreclosure or to start accumulating large amounts of debt.  In other words you’re making sound decisions to plan for problems, before they happen.

Where Should I Save My Emergency Fund?

One question that always comes up every time you talk about emergency funds is, “where you should I put this money?”.  Put it in CDs?   Bonds?  Money market account? High-yield online savings?

Personally,  I think it’s first and foremost important that you keep your money as liquid as possible.  You want to be able to access it when an emergency comes up!  You don’t want to be scrambling trying to convert your bonds back to cash, or waiting 3 months for your CDs to mature.  Put it in a good high yield (not as high these days) savings account where you can get at it ASAP!  Some good account options that I would suggest:

• ING Checking or Savings Account:  ING has some great account options available including subaccount options where you can save for specific savings goals.  A great way to save!  Check it out here.
• HSBC Direct High Yield Savings:  HSBC Direct has competitive rates and no fees or account minimums, which is important when you’re trying to get out of debt.  Check it out here.

There are other good options out there of places to keep your savings, but just make sure that the account is readily accessible, and your money liquid.

How Much Money Should I Be Saving In My Emergency Fund?

When we started saving our emergency fund we followed Dave Ramsey’s 7 Baby Steps plan found in his “Financial Peace University” class.  I think it’s a good plan to follow so I’ll outline the steps a bit here.

The first step in his plan is to save $1000 for a baby emergency fund.  The idea is to have a small buffer for most emergencies that come up, so you don’t have to go further into debt (if you have debt).  Most small emergencies like flat tires, needing a new alternator or a doctor’s office visit will be covered by this small emergency fund.

The second step in the Dave Ramsey’s plan is to get out of debt using the debt snowball.  Getting rid of your debt is integral to improving your situation, and in this step you get intense about finding extra work, doing a budget and living on less than you make so that you can cut into your debt.

The third step is to build up your emergency fund from your starting position of $1000, all the way up to 3-6 months of expenses.    To figure out how much that is you’ll need to do a family budget, figure out how much money NEEDS to be spent every month, and use number to figure  out how much 3-6 months of savings will be.  For some people 6 months of expenses will be $18,000.  For others it might be closer to $30,000.  It all depends on your personal situation.

So how much money should I save, and when?

1. Start a $1000 baby emergency fund.
2. Pay off all debts.
3. Save 3-6 months of expenses. ($15,000-$30,000 in most cases?)

In our current economic climate some people are even suggesting that you save 8-12 months of expenses.  This would be especially pertinent if your job situation is a bit unstable, and you’re expecting a layoff soon.  I would certainly have no problem with that, and would even encourage it if you really do feel like you’re in imminent danger of losing a job.

When Should We Spend Our Emergency Savings?

Another question that often comes up is, “What constitutes an emergency, and when should we spend our money in our emergency fund?”.

This is a question that you’ll need to answer for your own family at your family budget meeting.  Generally, however, an emergency fund should be used for large unplanned expenses that you would otherwise have to go into debt for.  Things like replacing blown tires on your car, or fixing your furnace in the dead of winter or paying for an emergency room visit.

Things you shouldn’t use your emergency fund for  include things like a vacation to Hawaii, that diamond ring you’ve been coveting, and that awesome new game system that all your friends have.    Things that you don’t really need should not be paid for by emergency funds.

The Emergency Fund Is Only The Beginning

Remember, an emergency fund is only the start of a sound financial plan.  Don’t forget to also start doing a budget, planning for insurance needs (to remove further risk), investing for your future, and giving to others in need!

Do you have an emergency fund?  If so, what sorts of things have you used your emergency fund to pay for?  What amount do you think should be saved in an emergency fund? Let us know in the comments!

Other Blogs Talk Emergency Funds

• 10 Reasons To Have An Emergency Fund
• Start An Emergency Fund
• Is 8 To 12 The New 3 To 6?
• Establishing An Emergency Fund
• How To Make Money With Your Emergency Fund
• How Big Should Your Emergency Fund Should Be?
• It Is Going To Rain. Get An Umbrella And Save
• The Secret To Building Wealth (Emergency Funds)
• Joe Taxpayer on Emergency Funds
• Creative Ways To Create Emergency Savings
• Reasons Why Your HELOC Can Be Your Emergency Fund (I don’t necessarily agree, but interesting read)
• How Much Of An Emergency Fund Do I Need?

Copyright © Bible Money Matters - please visit biblemoneymatters.com for more great content.


An Emergency Fund Will Help Reduce Your Risk Of Financial Catastrophe