daily money management in a changing economy


Daily Money Management in

a Changing Economy

by Brian Schweitzer, Author

Based on the Book “Where Does the Money Go?: Introducing a simple method for real-time, adaptable

management of cash flow, expenses, savings, and debt,” ISBN 0595686931.


Presentation Overview

• The economic climate is continually changing

• Our personal financial needs will change

• Personal money management must be continually adaptable

• Only you can effectively manage your own spending

• Traditional budgeting methods do not provide adaptability

• Some of our largest personal expenses are not monthly

• The One Number Mindset method provides adaptability


• When the economical environment changes, we must

change our money patterns to adapt

2 primary changes we control – income & spending

levels

Spending levels should depend on:

income

debt levels

chosen expenses

other expenses

savings goals

lifestyle choices

• Personal financial situations are like fingerprints – no 2

alike

Daily Money Management


• No one but you controls what you buy or the level of

purchase

• No one but you will fully understand your lifestyle and

spending patterns

• Therefore, no one can provide you with an exact

quantitative money management solution that is

continuously adaptable



However, you can learn how to better manage your money

including:

• How to prioritize expenses and expense levels

• How to adapt to life’s changing economic climate

• How to adapt real-time to surprise or emergency

expenses

• How to control debt accumulation

• How to ensure savings for future needs and major

purchases



The method I will present:

• Will start you thinking differently about you money habits

• Will take time to fully implement and be a part of your

daily life

It is no more of a burden that your current method

(whatever that is) and may become less over time

• Money management takes some time regardless, but time

should be minimal after setup and most importantly,

effectively spent in terms of generating results

• Will not magically create money from ? or cash flow

(these are gimmick schemes)

Daily Money Management in a

Changing Economy


What this method is not:

• Not a quick get rich or debt relief scheme

• Not a patch for financial problems.

But your mindset will start changing, and any

results are possible within time

• Not about being extra stingy.

But spending more than your inflow for long

periods cannot bring any result other than debt

problems, and eventually necessitate lower

spending and major money management changes


Changing Economy


Long-term results of the One Number Mindset method:

• Realize more control over finances

• Realize more efficient spending

• Improve ability to meet savings goals

• Control debt accumulation that you can’t pay off


Changing Economy


Traditional budgets don’t work because:

• They are inflexible (more to come)

• They are a fixed list and level (amount) of expenses

• They don’t prioritize

• They don’t consider expenses more sporadic than monthly

Taxes, tuition, gifts, emergencies, repairs, projects,

large purchases, spontaneous purchases, etc.

• Frustrating because of the above – people usually give up

People budget to be precise.

• In reality, life is not precise or predictable, nor is spending

associated with it.

• You must incorporate flexibility into daily money

management to improve accuracy


Changing Economy


Why do you need flexibility?

• Assumed fixed monthly expenses can change!

Examples - swings in gas prices, utility pricing

changes, inflation can (will!) hit day-to-day purchases,

economy may necessitate moving/relocating,

technology changes (we like to stay current), etc.

• How do you include non-monthly expenses in a monthly

budget?

• Can we accurately predict non-monthly discretionary

purchases?

Clothing, household items, electronics, etc.

• Can we adjust our budget real-time for emergency or

urgent expenses?

• Do we ever purchase spontaneously?


Changing Economy


Why do you need flexibility?


Changing Economy

Year-on-year percentage change in monthly energy prices, food prices, and the rest of the CPI inflation basket Jan 1960 -October 2007. Source Bureau of Labor Statistics. Graph is not zero-scaled.



Changing Economy

What budgeting provides:



Changing Economy What you need:


Daily Money Management in

a Changing Economy

• If you don’t know where your money is going it will

disappear

• Getting control or personal finances doesn’t just happen,

and will not simply improve just because your inflow

improves.

• Conscious decisions and management are required to:

Adapt your finances to a changing economic world

Reduce debt and control debt accrual

Improve savings to meet goals



Changing Economy

How do you know where your money is going?

• Understand inflow

• Understand expenses

• Understand expense priorities

These can change over time due to improved money

management, changes in inflow, or financial

hardship

• Understand expense timeframes (i.e., forecast)

• Track and document monthly (at a minimum)

• Manage daily

• Balance accounts frequently (depending on experience

& comfort level)



Changing Economy

When you have money challenges, you may see or be tempted

by various schemes or methods to solve your problems, but

the answer usually is:

• To be more aware of your money spending patterns

• To balance your spending and lifestyle choices with inflow,

savings goals and debt levels

• Translate this balance to spending priorities

• Spend less (sometimes temporarily)

• Strive to save more

• Be careful with using credit



Changing Economy

It’s all about being thoughtfully

economic and foresighted, and

realizing the resulting benefits


PurchaseIdentified

Is Purchase

an Option?

Is

Purchase

Time

Dependent?

Can

Need

Must

Yes

No

No

Yes


Changing Economy

Expense Priority Levels

Must: required purchase, time

dependent

Need: also required purchase, but

timing is flexible

Can: purchase & timing is optional

Remember: You have some control

over the amount of all expenses

when you make a purchase



Changing Economy

What is the One Number Mindset?

• A daily money management method that allows you to

focus on one continually adapting number on a daily

basis to manage your money

• The One Number is basically your inflow minus your must

expenses

• Provides you with a mental picture of your money

situation and can be tracked with notation or mentally to

approximate



Changing EconomyMonthly Expenses

Musts Needs CansThe One Number Mindset Method

1. Prioritize your monthly,

quarterly and yearly expenses

(similar chart)

2. Forecast your expenses (with

monthly allocations for more

periodic expenses)

3. Manage Daily

4. Maintain Monthly


Monthly Expenses: Total Inflow*: : Total carryover from

bottom of must column

: Total carryover from bottom

of need column

Musts Needs Cans

Expense Amount Expense Amount Expense Amount

3

Monthly allocations for

quarterly or yearly must

expenses (from Worksheets 2 &

3)


quarterly or yearly need

expenses (from Worksheets 2

& 3)


quarterly or yearly can

expenses (from Worksheets 2

& 3)

: Total : Total : Total

minus (carryover to

top of need

column)

minus (carryover to

top of can

column)

minus

Primary

Number

(reallocate any left over

amount to musts)

*Assumes safety factor (10-15% of typical monthly inflow) is already established as a base in the primary account.


Changing Economy

Monthly

forecasting and

One Number

determination



Changing Economy

Key questions to ask before a purchase:

• Is it a must buy, or just a need or can? (i.e., discretionary)

• Is it a must buy right now?

• What level of purchase do I actually need? (vs. what I want)

• Are there alternatives for what I really need?

• Can I pay cash or pay it off immediately?

• Can I save for it before the purchase? (also gives time to reconsider)



Changing EconomyShort-term cash building strategies:

• Buy everything with cash

- if you can’t, don’t buy

• If you can’t pay cash, at least buy on your own terms (i.e.,

don’t charge it unless you can pay it off)

• Live on basics, minimize excesses & conveniences (e.g.,

buy basic foods/clothing, reduce or eliminate cable/cell

phones/subscriptions, do more yourself - laundry, lawn

care, etc.)

• Downsize or deluxurize your life - smaller car, smaller

house, fewer conveniences (above), etc.


Presentation Review

• The economic climate is continually changing

• Our personal financial needs will change

• Personal money management must be continually adaptable

• Only you can effectively manage your own spending

• Traditional budgeting methods do not provide adaptability

• Some of our largest personal expenses are not monthly

• The One Number Mindset method provides adaptability


Example: Debt Payoff

Options in Planned Period


Example: Debt Payoff Options in Planned Period

Assumptions: $5000 in credit card debt$1000 in discretionary cash each month after Must expenses$100 per month in interest charges for first 3 months (for simplification)$50 per month for the next 3 months (for simplification) No additional debt charged during period

Payoff Scenario 1:

Pay $1000 per month toward credit card, put $1000 in savings thereafter

$450 used for interest charges in the first 5 months.

Note: This example is for illustration purposes only and not meant as specific advice or to represent any particular situation

Period Credit Card Debt Savings

6 months later $0 $550




Assumptions: $5000 in credit card debt$1000 in discretionary cash each month$100 per month in interest charges for first 6 months (for simplification)$50 per month for the next 6 months (for simplification)No additional debt charged during period

Payoff Scenario 2:

Pay $500 month toward credit card, put $500 or any additional discretionary per month in savings

$600 used for interest charges for the first 6 months, $300 for the next 6 months







Comparison

Pay $1000 per month toward credit card, put $1000 in savings thereafter:







Pay $500 month toward credit card, put $500 or any additional discretionary per month in savings :

Cost difference is $400




The Key:

Have a plan to pay off debt within a fixed period of time, and eliminate or significantly reduce debt accrual

during that time

daily money management in a changing economy

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