So How Do I Get There From Here?

My mother always told me that the first step is always the hardest. The same holds true for starting a budget. The first step is not hard, but it can be very time consuming. You have to gather at least 3 to 6 months of statements for ALL financial documents. These documents include, but are not limited to:

Pay Stubs
Checking and Savings Accounts
Mortgage/Lease monthly statement
Home Equity Line of Credit (HELOC)
Credit card statements
Insurance statements (car, home, disability) – amount and type
Retirement account (401k, IRA, etc.)
College savings accounts
Rental Real Estate income, etc.

Once you have gathered all of these important documents, the second step that you need to do is set up a proper filing system. This could be as simple as an envelope up to scanning into a computer. This is perhaps the most important step mainly because you will be relying on these documents on a monthly, quarterly and annual basis. If you don’t like the system then you will not use it. Putting in a box or a drawer is not a filing system.

Depending on where you are financially will determine the next step. If you are in debt and just can’t stay afloat, then please keep reading. For the individuals who are not in debt, but just don’t know how to go to the next level, check back in a couple of weeks.

Now for the folks who are drowning in debt your next step is to add up all of your income (paychecks, child support, etc). Your next step is to then add up all of your debts. These include, but not limited to, all credit cards, car payments, rent/mortgage and any other creditor. This even includes loans made by your family members, friends, etc. This will bring us to our next topic­ – Net Worth.

I'm Not Like Them

So many people in America are lying to themselves about money. If you don’t believe me, just read the newspapers and watch the news. Money is the #1 reason for divorce in America today, for both young and old couples. Even for the marriages that survive, many more people are filing for bankruptcy. Debt is really becoming an epidemic in America today.

Around Thanksgiving, I saw a very interesting news segment on one of the popular 24 hour news stations. It was quite funny to me. The guest on the show was explaining to the host, what Lay-A-Way was. Being a product of the 70’s that was how my mother shopped. And the funny thing is that it did not kill me. The stores would not allow any items to leave their store until AFTER it was completely paid for. This was the true meaning of delayed gratification.

Now, there are some people in America who truly are wealthy. However, these people normally do not even “look” rich. According to Thomas Stanley, author of The Millionaire Next Door, most of these wealthy folks are teachers, small business owners and other non high-income earners.

The thing about high income earners, like Mr. Griffin from the previous blog, is that they have to spend a lot of money just to maintain their status. This includes spending thousands of dollars a year on clothes, jewelry and automobiles. This leaves them with little money to invest for later in life. I do have to admit that there are some high income earners that are very good with managing money.

If you are one of the few people that are in good financial condition, I would like to say congratulation. However, if you feel that there is room for improvement, financially speaking, then stick around. We will begin explaining some simple steps in which you can use to improve your finances. Just remember that it is never too late to take control of your finances.

Rich vs Wealthy

According to websters-online.com the following are definitions for both rich and wealthy:

Rich: having an abundant supply of desirable qualities or substances.

Wealth: the state of being rich and affluent; having a plentiful supply of material goods and money:

It never ceases to amaze me how many Americans confuse being rich with being wealthy. Just because someone is rich, or a high-income earner, does not mean that they are wealthy.

I will use a recent television show as a prime example. While channel surfing on vacation, I came across a reality show about an actor named Eddie Griffin. As an actor I’m sure that he has earned millions of dollars over his career, however this episode shows the pitfalls of poor budgeting. After coming home from a shopping spree, he heard a tow truck outside his house. After running outside, he realized they were there repossessing his prized Bentley. Of course he cussed and threatened the driver to no avail.

After watching his Bentley be hauled off, Mr. Griffin made a bee line to his accountants’ office. Blowing pass the receptionist, Mr. Griffin proceeded to cuss out Marty, the accountant. After about 10 minutes of threats to fire Marty, Marty finally said what I had been waiting to hear. Marty told Mr. Griffin that because he spends his money as quick as he gets it, there is nothing left to pay all of his bills. Marty then explained that not only did Mr. Griffin not have enough money to pay his car payment, but Mr. Griffin did not have enough money to pay his mothers mortgage payment that month. Wow! And he is rich.

Now let’s compare Mr. Griffin to Warren Buffet, the second wealthiest man in the world. I once saw a documentary on Mr. Buffet that was very interesting. Not only does he live in a small city, Omaha, he lives in the same house for the past 30 years in a middle class neighborhood. And guess what kind of car he drives. An American made Cadillac not a Bentley.

In conclusion, making a lot of money does not mean that you are wealthy. The best gauge for determining your wealth is to figure out your Net Worth. This topic will be discussed in a future blog.