Be Brave Not Safe

In prior posts we began covering steps to Mind the Finances.

In this post we’ll focus on paying our expenses on-time, every time…

Why is this so important? This is CRUCIALLY important, because not paying our expenses on time EVERY time results in:

1. Increased costs in the form of late fees and/or interest payments
2. A black mark on our financial reputation (a.k.a. credit score). This then places a limiting factor on our life which can manifest itself in many forms, including:
   • Paying higher interest rates on any line of credit that we attempt to establish, or worse, we may be outright refused!
   • We may have a more difficult time renting an apartment (landlords want their money on time every time).
   • We may not get that job. Many employers now check our credit before making a hiring decision.

So, missing ANY payment is a reason to think: my hair is on fire!

There are simple steps we can take to ensure we don’t EVER miss a payment, including:

• When we receive a bill in the mail (email or snail mail) handle it IMMEDIATELY. Don’t let it pile up in a stack of papers or in an out-of-control email inbox.
• Set it and forget it – For many of the services we receive we can ask the provider to automatically deduct the payment from our account each cycle. And, for the more disciplined (who like free money) we can have our service providers hit our credit card (which offers cash back) and we don’t need to worry about the balance in the account – because we pay it off EVERY month!
• Manage our payments as rigorously (even more-so) as we manage our tasks and appointments. As covered in a prior post, we can setup payment reminders for ALL our financial obligations in Mint.com. Then, as we periodically check the status of our accounts we are reminded of upcoming payments and can ensure the required funding is available in the necessary account.

Bottom-line: To eliminate noise in our mind and the resulting stress associated with the handling of our expenses, we only need to take a few very simple measures to manage the process. These habits are absolutely foundational to achieve Mind Like Water in our quest to create a life of effortless abundance.

More to come!

In a prior post we began covering steps to Mind the Finances.

In this post we’ll “begin” covering the process of Managing the Income and Outgo.

Again, why is all this so important? Because, the state of our finances can represent contentment or stress. To achieve Mind Like Water, we want to remove all forms of stress in our quest to create a life of effortless abundance.

So, let’s get to it!

Manage the Income and Outgo

The primary objective is that of becoming financially independent. Wikipedia defines this state as follows…

Financial independence is generally used to describe the state of having sufficient personal wealth to live, without having to work actively for basic necessities. For financially independent people, their assets generate income that is greater than their expenses.

Don’t you get a blissful feeling thinking about achieving such a state? The good news is that it is very possible – even before “normal” retirement age. Yes, for you too. That is, if you are willing to discipline yourself in the practices needed to get there!

In a prior post we covered the 2 paths which can be taken:

• Raising the bridge (increasing one’s income) – click here to view
• Lowering the water (decreasing one’s expenses) – click here to view

The shortest timeline results from doing BOTH at the same time 🙂

While doing the above, we must takes steps to carefully manage the flow of income and outgo. This includes:

• Projecting the next 30 days
• Paying expenses on time, every time
• Paying ourselves first
• Saving and investing wisely
• Contributing to worthy causes

Projecting the Next 30 Days

One challenge everyone will have at some point (certainly when starting out) is that of running out of money before running out of month 🙂 This can result from not planning for the flow and timing of our expenses as relates to our income. And/or worse, the habit of spending more (maybe WAY more) than we earn. I know, I’ve been there!!!

Common advice suggests that we prepare a budget. This includes creating a list of all expenses incurred and income received on a monthly basis, factoring-in those expenses which occur less frequently (quarterly, each 6 months or annually). From here we add up the income, subtract the expenses and see how things “should” look at the end of each month. This is an important step to create a “general” awareness of our financial situation. And, it allows us to make decisions on how much we should limit spending, on each category (e.g., groceries, clothing, eating out, etc.).

However, this doesn’t address the challenge related to managing the “flow.”

That is, we must account for the timing related to making specific payments against the receipt of income. Doing so ensures we avoid:

• Paying late (as we await funding), bouncing payments, etc.
• Having cash sit idle in an account that pays little to no interest, when it could be working at least a little harder for us

A key practice I put in place many years ago, which helps to manage flow, involves maintaining, on an ongoing basis, a 30-day projection of my finances. And, the available tools make this super-simple!

When using Mint.com we’ve already established the fact that we have up-to-the-minute balances for all our accounts, in a central location. While this information is good, it is only half the picture: like looking in the rear view mirror of our car. We can see where we’ve been but not where we’re going.

Let’s now project the future. Well, at least the next 30 days…

The first step is, using Mint.com, setting up payment reminders for ALL our recurring (monthly, quarterly, yearly) expenses. Upon doing so, we’ll be reminded of any upcoming payments within the next 30 days each time we login to Mint. Next, as payment reminders show-up we simply input a pending transaction in Mint, in the account for the date that it will hit.

In addition, we can do the same for our income, by setting up pending deposits for the date(s), in the next 30 days, we expect our paycheck to be “available” (a.k.a. cleared).

Once we’ve done the above we can view our account in Mint and it will display 2 balances (side-by-side):

• The current balance as known/provided by our bank (in green)
• The projected balance after all pending transactions have cleared

Voila! We now have a clear picture of what things will look like over the next 30-days upon covering the “known” / recurring obligations that we’ve established with our money. Now, all we need to account for are the variable expenses, which fall into 2 categories:

• Required – Groceries, gas, etc.
• Optional –  Clothing, eating out, concerts, new toy, etc.

Now, as we proceed through our lives, all we need to do is view our current 30-day projection to know how much of the above, if any, we are can afford (out of our cash flow).

In closing, the intent here was to cover foundational steps for managing the flow of income and outgo. In future posts we’ll cover:

• Paying expenses on time, every time
• Paying ourselves first
• Saving and investing wisely
• Contributing to worthy causes

More to come!