Do you really care about your money? “Of course”, is the obvious answer. Let’s explore that idea and layout a few well tested steps you can follow to not only help you care more about your money but to put you in control of your money.

Think for a moment, if you had a precious heirloom watch, wouldn’t you want to be careful where you placed it and then control where and when you use it? The answer is a resounding…yes. So, we need to exercise that same care and control with our money.

Here are 7 steps to help you care more about your money and to take control.

Step 1: Create a “0” based budget. That is, create a budget based upon “need” rather than “want”. To do that write down a list of the necessities such as shelter, food, transportation, etc. and the monthly cost. While it might be difficult to admit, the high end cable network might not be a necessity of life.

Step 2: Record your net income and subtract the “needs” from step 1. Write down your monthly net income and see what monies are left from your income after the necessities of life are deducted.

Step 3: Consider a contingency fund and record planned expenses. Record and put aside (save) monies for contingencies-those unplanned for but needed expenses. (No, I don’t mean that night out with friends, etc. but something like car repairs.) Don’t forget to record those every six month or every 12 month bills such as car insurance. (Do that by recording a monthly expense as if you were paying it every month. Of course the latter is not a contingency, but a planned expense.)

Step 4: Add in the “want” items. After subtracting the contingencies and planned expenses, if there is money left over, only now should you start to add those “very important” nice items such as the “monthly night out” to your list of expenses.

Step 5: Review and revise your list of categories and monthly expenses. Of course, once your list is finalized, this is your monthly budget. While most folks create a budget, few create them as we have done in this article, by starting with Zero based budgeting.

Step 6: Track it. Now that you have created this budget, it is time to keep track of your daily spending. (This is where most people forget various items.) Yes, record everything. Keep track of that 16oz. beverage purchase every weekday too. Why? Because 20 days X $1.50/day = $30 per month, $360/year.

Step 7: Create a Cash Flow Statement. Don’t stop now. Some people just want to “go with the flow” of spending what they take in and stop after step 6. But, if you are really serious about caring for your money and controlling it, this step is a necessity. A cash flow statement can tell you how much money flows in and out of your financial world over a given period of time (3 months, 6 months, etc.) and helps you get a better view of your total finances. Here is an easy visual that I have used with adults of all ages. It usually brings about a laugh, but the mental picture that remains is everlasting. With water representing money, imagine a paper cup filled with water (your savings). Now, punch a few small holes in the bottom of the cup to represent your expenses. Then take another cup of water and trickle a steady stream of water (income) into the cup. This visual Cash Flow Statement shows how much water (money) is flowing in and how much is flowing out and if you have any water/money left in the cup for the month. Unfortunately, many of us have too many holes in the bottom of the cup and in reality may need to plug a few holes (remove some expenses) in order to ensure we do not run out of money by the month-end. (Try this link for a step by step description of how to create a cash flow statement. http://www.fpanet.org/ToolsResources/TipoftheWeek/PastTips/Other/Buildin.... While does take a bit of time, the resulting knowledge of your financial picture is powerful and will allow you to not only care about your money but also take control.

 (Bajtelsmit, V. L. & Rastelli ,2012)

So, don’t just say you care about your money, perform these 7 steps and not only care but take control of your money.

Reference

Bajtelsmit, V. L.&Rastelli, L. G. (2012). Personal finance: Managing your money and building wealth. Hoboken, NJ: Wiley

Betty Zak is a Lead Faculty/Area Chair for the College of Humanities and Subject Matter Expert for Personal Finance at the University of Phoenix. She also provides consulting services in personal finance, business and systems applications and education/training thru her company.