Family $$$ Matters… Part 2 – Working out your plan…

If you’re coming in midway to this series, then before you read on go back and read my introduction to this series and my disclaimer in Part 1, so that you know where I’m going with this & why…

I ask myself a couple of questions to help me review this… It’s important to take a moment to do this first, because before I can go on and make any necessary improvements to my financial status/structure, it’s vital to first know where we’re at… and what I’m wanting to change.

… Do you know day to day what money in your account(s) is for what purpose?
… Do you ever get caught short and not have enough money in your account at the end of the week?
… Are you relaxed about money or is a a cause of stress?

After asking these questions, we should know how we’re doing now, and what we want to improve by this process.

The financial structure in which we operate, in my experience, has HUGE ramifications in whether our money is working well for us or not, that’s why I’ve dedicated a whole post just to cover it… Again, it doesn’t have to be high-tech or overwhelming. All a structure really is, is a definition/clear plan of how we organise our money and why… 

So lets take a look at a few common structures, then I will share with you what has worked for me…

When I was working as a consultant, and also just in my general experience – this is the most common type of structure that I came across:

There might have been some variants – e.g. a few extra bank accounts etc… – but in general, most people I came across operated one main account for most of their day to day income & expenses… 
Look familiar? Maybe? Maybe not?…

With the exception of a few very careful people, this wasn’t working for most people I came across. The reasons that this structure usually falls down are: 
** the day to day spending money, short term bill & long term bill money are all mixed in together… 
**  it’s generally so easy to access… 
**  it’s hard to put any control measures on or see where you are at any one point in time…

I mostly found that people who operated this type of structure were usually living week to week/day to day… It’s hard not to – it looks like there is money sitting there right – and it’s hard to know what it’s for – then all of a sudden it’s the end of the week, the mortgage has just gone out (hopefully without bouncing), there’s no money left but –  “ooohhhhh nooooo – the registration for the car is due, we won’t be able to do the shopping this week…” 
Sound familiar? It sure does to me!
…We used to have that structure & we lived like that constantly!  I practically used to get cold sweats sometimes just opening the mail box because God forbid there would be another bill in there!!! And you know what – that that was back when we were on 2 incomes & had the best cash flow of our lives! We just didn’t manage the structure of that cashflow very well… it turned out that it’s a common problem!

Luckily we learnt another way, because I know that I definitely couldn’t live like that now!! – Oh to have learnt these lessons when we actually had some cash flow going on though!! But anyway…

So a good structure needs these things:
** ease of use – if it’s too complicated then you will most likely give up.
** it separates your money into groups – day to day expenses, short term & long term expenses, savings – so that you are not inadvertently spending money for future expenses, but rather can see where you’re at
** it’s designed around helping you achieve both your current & future financial priorities


What your ultimate structure will look like, will depend on what those things above are for you. There is no one fix wonder… 

The real key though is in the segregation of money! 

One easy fix to the above structure, to separate your money without having to change much at all, is to withdraw your weekly expenses as a lump sum of cash (will go into more detail tomorrow about what those weekly expenses cover). That can work for many people. It easily separates the weekly discretionary expenses; groceries, fuel, spending money etc…, doesn’t require much change, and as long as you stick to it can really help you move from living week to week to achieving your financial goals.

That fix doesn’t work for me… I prefer not to carry cash – in fact there are usually moths living in my purse! If you also prefer not to carry cash, then this is another possible structure:

This structure allows one to continue eftposing away happily, but once your weekly quota has gone – it’s gone… 
As well as helping you reduce the potential to overspend, & operate in much lower stress way – this structure also has a couple of other advantages:
**  If you operate a transactional loan account (e.g. floating/flexi mortgage) then storing all your bill money in that account may save you interest and help you get out of debt faster. That is just a bonus option if relevant…
** People using this structure often find themselves getting ahead in their savings & financial goals faster. This happens because: 
say you budgeted $150 for your monthly electricity bill, but the bill only came in at $125…. you’d have an extra $25 left over that month right? – Now if that $25 was in your everyday account, chances are you’d spend it yes? I know I would! 🙂 But if it’s separated – into an account that you only use to pay bills and know you’re not to touch otherwise – then instead of being spent, over time that little bit extra would start to grow into a decent savings. Some of my clients used to absolutely amaze themselves – because they’d go from living day to day, to having a few thousand $$ in the bank within a few short months. Man that was exciting to watch!!
This can also then cover you in months that the bill comes in higher than your budget… or in months when you’re income was a little lower for some reason… extra protection! 

Conclusion:
 
So there you go, 3 different structure options explored, one-of-which or none-of-which may suit you. What structure will work for you will totally depend on what your money personality profile is (how you spend money), your other circumstances, and your financial priorities. But it’s essential for your long term financial strategy to have a good structure in place.


Totally talking to myself as much as anyone here – without a doubt need to update & reapply it to my life LOL….
Is this useful to anyone else? 

Tomorrow I’ll continue with “working out your plan” and discuss the system aspect…