Section   3

Simple   Step  by   Step

Taking   Stock   of   Where   You   Are

NOW

Assuming that you have taken each of the three previous sections of the Table of Contents to the left first - "7 Days' Outline to Perfection" section, "Welcome" section and "7 Steps to Success" section -  as directed before and ... THEN...   IF you have arrived at this point, you are serious about your future.  I commend you.  You are ready for this next section.  Congratulations!!!

However, ...  IF ... by any chance, you have not gone through the other three sections before arriving here, please ... STOP... and ... go back and read those sections first as you were directed before in the previous sections.  You are NOT ready for this section.  This program builds on the preceding sections, so you do NEED to do those other three sections first.  Sorry for the bluntness but YOUR success depends on you following directions and I want you to be successful as then your success will be assured and ... you will refer others to this program.  I DO know what works and also what does NOT.  Please listen and obey the directives.   So, PLEASE follow directions and do what you were told.  Again, please pardon my harshness for your future success.

This   Step   is   Taking   Stock

of   where   YOU   are    now

Physically  declaring  your  thoughts  and  emotions  is  this  all  important  next  step.

Mentally understanding what is behind your "finances" was the first step to financial wisdom and future financial liberty and financial freedom.  That was dealt with in the last section.  Now we start some of the fun stuff you'll love.  The all important formulating of your thoughts and desires and wants in an organized manner.  Later in this great section, we shall...


* Financialize your  goals,  your objectives,  your wants,  your desires.  In other words, how many dollars do you need,  for what reason,  and when will you need those dollars?  Be realistic.  Be neither too conservative nor overly generous, but  BE REALISTIC.

* Do some fact finding.  Ask yourself all sorts of questions like the following ones about  each source of income and/or  each expense.  The basic who,  what,  where,  when,  why,  and how much questions.  Gather your records and information to address the following:

Past experience - how much have you spent in each area in the last 12 months?  Was that any different than the previous 12 months?  More or less and why?  Guesstimates maybe acceptable in this section, ... initially.

Present situation - how much are you spending currently?  Is this a fixed amount at a fixed time frame or can it be or become a variable amount and a variable time frame?  Who dictates whether it is fixed or variable?  Are there any constraints surrounding an expense and, if so, what are the reasons surrounding those constraints?  Who dictates what the constraints are?  You or someone else?  Can they be changed and if so, by whom?  What would happen if they were changed?

Future expectations - what changes (income and expenses) are anticipated over the next 12 months?  What will induce those changes?  Are the amounts fixed or variable?  Are they  "definitely" going to take place,  "highly-likely" to take place,  "possibly" going to take place,  or  "would-be-nice" if they took place?  Would they fit in the  "must-haves",  "would-like-to-haves", or  "nice-to-haves" category?

Once all of the questions (who, what, where, when, why, how, etc.) have been asked with all of the answers thought about or considered, it becomes time to start filling out the forms allowing the "numbers" to fall where they fall... initially.  Later, we’ll deal with what you have logged on the forms.

To begin, please print out a complete set of Proposed Spending Plan Sheets below.  Again, an Adobe Reader will be required to view and then print these .pdf files.  If you don't already have the Adobe Reader, you may obtain the latest FREE version by clicking on the   icon.

                           Proposed Spending Plan Sheets

A.)  "Counting the cost" is this initial "nuts-and-bolts" or the "grunt-work" step to success behind the Life Finances ... Made Simple.   Read through this section once attempting to understand the big-picture principles before actually filling out the forms.  Remember that these are all-purpose generic forms for all income and spending levels so not every line may be used in every instance.  Use what is appropriate for you but DO go line by line and category by category systematically.

Step 1.  Fill out the Proposed Spending Plan Sheets, line by line and category by category, with the known fixed information (fixed amount and fixed time when received [i.e. a fixed paycheck] or due to be spent [i.e. a fixed insurance payment]) as you know it either in the "weekly",  "monthly",  "quarterly",  "semi-annually", or  "annual" column.  DO  THIS  IN  PENCIL  AND  HAVE  AN  ERASER  AVAILABLE  IN  CASE  OF  NEEDED  CHANGES  LATER.   

Comments:

All figures should be GROSS figures vs. the net figures.  For example, your paycheck should be listed using the GROSS income vs. the net income in the Income section while the deductions either for taxes or other reasons will be noted in the other corresponding categories.  You want to have each category as accurate as you can even if at first it may be somewhat a guesstimate (an estimated guess).  An educated guesstimate.  So splitting up common lump-sum items may provide later benefits we'll discuss in a while.

Sometimes you might receive or pay out items either every two weeks (26 times a year) or twice a month (24 times a year).  I don't list columns for these two situations.  Not to insult your intelligence, let me explain each extension as each column will later have its own merits.  Therefore, for those figures:

             - For the every-two-week figures, multiply by 26 for the "annual" total and put that figure in the annual column.

             - For the twice-a-month figures, multiply by 24 for the "annual" total and put that figure in the annual column.

Once you have completed as many of these fixed items as possible, ... then...

Step 2.  Fill out the Proposed Spending Plan Sheets, line by line and category by category, with the constant time yet variable amounts (i.e. constant monthly telephone expense, yet with a variable amount) in the appropriate columns.  Initially, it is alright to estimate the average amount.   Then...

Step 3.  Fill out the Proposed Spending Plan Sheets, line by line and category by category, with the flexible amounts and/or flexible due dates. (i.e. these may include those periodic items sometimes based on desires or values, availability of funds, the "possibly"s and the "would-be-nice"s, and the discretionary items) in the appropriate column.  Fill in your best guess.   Neither too conservative nor too liberal.  This step makes sure that each line of each category has been addressed before continuing.

Comments:

Most of the categories and items in each category are self explanatory.  However, some lines could have multiple definitions that might need clarifying. 

In the SAVINGS category, these are accumulating items vs. actual expenses.  For example, you may be saving up for your children's future education fund.  That savings would be listed here.  Whereas, once the payments OUTSIDE THE HOME actually begins, those would be listed under the DISCRETIONARY category under the banner of "Adult/other Education".

In the HOUSING category, these are regular "on-going" items such as maintenance & repairs just to maintain what you have vs. home improvements to upgrade what you have or some "not-critical-but-nice-to-have" items which would be listed in the DISCRETIONARY category.  Also note that  regular  telephones are listed in the housing category yet  cell  phones and  pagers  are in the discretionary category.

In the TRANSPORTATION category, these items are regular on-going items vs. in the DISCRETIONARY category would be listed transportation expenses associated with the non-ordinary items such as periodic vacations.

In the DISCRETIONARY category are all of those  non-critical  items that you  CHOOSE  to spend.  In addition to the above mentioned items, it also includes existing balances of any and all consumer debts such as credit card and store accounts that you might still be paying off over time.  (With your new  Life Finances ... Made Simple, you should plan on reducing all debts to zero so future balances will be paid in-full as the statement comes in.  Won't that be nice... no carry-over balances ... and worth looking forward to?  Keep progressing as we'll get to that shortly...)

Then... when each of the categories line by line have been addressed, ... then... 

Step 4.  Do the extensions once ALL of the information is listed as best you can.  Again, not to insult your intelligence, please allow me to make clear each extension as each column will have its own merits later.  For this section the two key columns are  "monthly", and  "annual".  The others are "nice-to-have" completed columns for the more advanced user as well as to help list how you might know of the income or expense and/or also for other specialized applications.  But the key is to have all extensions in the "annual" column and also the category total in the "monthly" column as well.

             - From the "weekly" column, multiply by 52 for the "annual" total.  Divide that by 12 for the "monthly" figure.

             - From the "monthly" column, multiply by 12 for the "annual" total.  Obviously, you'll have both column totals.

             - From the "quarterly" column, multiply by 4 for the "annual" total.  Divide that by 12 for the "monthly" total.

             - From the "semi-annual" column, multiply by 2 for the "annual" total.  Divide that by 12 for the "monthly" total.

             - From the "annual" column, divide by 12 for the "monthly" total.

Concerning the "Inflation Factor" section, multiply the gross income by the current inflation rate or use 4% as an average default.  Deduct this from the gross income for the "Net Actual Purchasing Power" total which represents what your gross income actually is worth in purchasing power after inflation has been considered.  I know of no other financial professional that takes inflation into consideration when discussing budgets, so you have a  UNIQUE  and  COMPLETE  system that you are working with.  Pat yourself on the back for wisely choosing this system to use for your future success in life.

Step 5.  Add up each of the categories and bring the totals of each category over to the Proposed Spending Plan RECAP Sheet.

Step 6.  Do the calculations of "% of the whole" for each category.  How do you do this?  Divide each category total by the total gross income for this percentage and round it to two places after the decimal point.  Bring these figures over to the Proposed Spending Plan RECAP Sheet.  Remember that this is a generic all-purpose guideline only.  No two Spending Plans will be the same.  Nor will they be the same several years in a row.  For example, using the Transportation category range of between 0% to 10%, consider someone who lives in the country vs. someone who lives in a huge city with one earning $20,000 a year and the other earning $2,000,000 a year and they both change jobs mid-year.  You decide who lives where.  Obviously, these % are just guidelines and nice to have to review.

Step 7.  Scrutinize and/or compare the totals from the Income vs. the Expenses on the Proposed Spending Plan RECAP Sheet:

             - Income minus the expenses leaving a  positive  equals an  "SURPLUS".

             - Income minus the expenses leaving a  negative  equals a  "(SHORTAGE)".

B.)  Make adjustments and re-calculate as needed.

* If positive - congratulations!  You are to be complimented!  Are you satisfied with this outcome?  Would you like to modify anything to increase or decrease any category amount?  You may want to continue reading the following "Shave 5 %, 10 %, even 25 %" and the "If negative" sections for additional ideas.

* Shave  5 %,  10 %,  even  25 % - Most people I’ve found can shave at least 5 % to 10 % off their expenses the first time they complete this exercise.  With serious effort, higher percentages are also possible.  It depends on the individual(s) and their seriousness.  If nothing else, it is an excellent educational understanding process as one couple told me.  Another person with a salary of approximately $35,000 and an attitude of "not wanting to change my life-style" went from an annual $19,000 negative cash flow to an $11,000 a year positive cash flow.  It took 5 attempts, but it was accomplished ... on paper.  (Actually, she had a slight positive at the end of the first year, which was a great difference than $19,000 negative.  She credits the savings to this system.)

By shaving 5 %, 10 %, even 25 % from your expenses, what could that extra "found" money be used for?  Pay off debt including your mortgage becoming debt-free and independent?  Increase your 6-months-minimum Cash Reserve?  Contribute to your favorite charity?  Accumulate money for another specific goal?  Your retirement fund?  Or your investment portfolio?

Spending Plans are the results of choices.  Sometimes, very serious choices.  These  Income  and  Spending  Plans can be fantastic financial planning tools!!!  Planning can and should pay for itself ... quickly!

I’m surprised that more financial professionals don’t spend an increased amount of time with their clients on this super essential subject other than saying "you need a budget" as it can be critical to the overall success of one’s financial well-being.  It does take time on their part and from their perspective, does not generate any income.  But as a former financial professional I've found that it IS a great "loss-leader"...  It DOES confirm the clients' financial situation demonstrating how much extra funds are available to achieve their goals.   Having said that, more and more successful professionals are now acquiring and/or highly recommending this do-it-yourself program for their clients so I commend those forward thinking professionals.

* If your calculations are negative showing a (shortage) - don’t despair.  You are not alone.  The first few times one does this exercise, it may provide a much-needed periodic reality-check.  A super duper wake up call.  Let's revisit each category and make some choices.  Maybe even some real hard choices...

In the Income section you have 4 choices:

1.)  How can you increase your income?  Perhaps part-time employment or a business?  Maybe a raise?  Work more effectively?  Take fewer days off?  Sell some assets?

2.)  Keep the income the same.

3.)  What would happen if your income dropped?  i.e. stopped part-time work...  Not always a bad idea as many expenses may be related to that income, especially in two-income households.  And think of the peace of mind that might be felt again...

4.)  Talk with your financial advisor and your tax advisor for additional opportunities.

In the Expense section you have choices:

a.)  Is this expense a fixed or variable expense?

b.)  Who created the expense?  You or someone else and for what purpose?

c.)  Do you need the expense?  What would happen if you eliminated it?

d.)  Can the expense be reduced or eliminated?  If so, how?  Under what circumstances?

e.)  Can the expense be postponed until sometime in the future?

f.)  What would happen if the expense or another expense were increased?  (i.e. new insulation and the effects on the heating and air conditioning costs.)

g.)  Compare importance of this expense vs. other expenses.  Here is where your values and choices come into play.  Is a sacrifice needed?  At least short term?

h.)  Other thoughts, questions, opportunities... and/or sleep on it ...

i.)  Sometimes a negative may be alright if the end is in sight.  (i.e. super short-term car financing can be a huge temporary expense until you pay for future transportation with 100 % CASH.  A loan or mortgage that is to be paid off soon.)

j.)  Are you still making investment (stocks, bonds, mutual funds, etc.) and/or retirement (401k, 403b, 457, various annuities, etc.) contributions that if stopped, at least on a temporary basis, could bring this into a positive?  More about this later.

k.)  Is your life insurance low cost level "Term" or higher cost investments incorporated "Whole Life" or "Universal" insurance?  Is the insurance for low risk needs such as under age 25 life insurance?  Or other risks that with a good 6 month Cash Reserve, the risk becomes more non-existent and manageable?  More about this later as well.

l.)  Do you have some assets that if sold or liquidated could lower or eliminate debts, bills or balances?  For example to get extra funds quickly consider:  reducing those interest-free loans to the IRS so you can get a tax refund each year;  reposition the cash balances in life insurance policies to work more appropriate for you;  liquidate and/or reduce any and all investments or retirement accounts that quite frankly you may never use; convert coin and other collections; etc.?

m.)  If still out of balance, it may be wise to talk with your Financial Advisor and your Tax advisor for their input.  Remember how many financial professionals have usually been taught to recommend advice and also how do they receive their income.  Is their income tied in any way to "money under management" or money they receive from you to invest?  Mine is not and perhaps why many professionals don't want you to know what I teach as I put YOU ahead of THEIR "hip-national bank".  More about this in future sections and subsequent newsletters.

* Once all individual categories in both the  Income  and the  Expense  sections have been revisited at least once, then re-calculate the totals.

How did it come out now?

Positive?  Great!

* Still negative?  Hang in there.  You are probably closer to a break-even than you were.  You may also have an extra difficult time choosing between your values, your goals, and your objectives.  I’ve seen the process take at least 5 or more attempts before achieving the positive.  Don’t give up.  Now may be appropriate to make some serious drastic decisions and actions, maybe even downgrading your life-style more than ever.

             - Revisit each category and recalculate until it is where it needs to be.

             - After 10 attempts, consider waiting a week and re-try.  Sometimes, time has a way of working things out.

             - If after another 10 attempts, consider discussing your situation with your financial advisor again.  There may be other circumstances involved beyond your own personal control at this point.  Or consider the following, which is excerpted from the November-December 2004 Royal Vision magazine, page 18.

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