Make Your Money Smile E-Book

Jason Vitug

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 359

Veröffentlichungsjahr: 2024

Beschreibung

Are you tired of feeling overwhelmed by your finances? Do you wish there was a clear path towards financial well-being? Look no further than Make Your Money Smile, the groundbreaking new book by bestselling author Jason Vitug, winner of the prestigious 2023 Plutus Award.

Make Your Money Smile covers every essential aspect of personal finance with precision and compassion. Jason acts as your guide, sharing lessons and steps, and giving you knowledge and tools to conquer your financial challenges once and for all. In this book, you'll learn to:

• Manage Money: Elevating your banking relationships and going beyond budgeting to cash flow mastery.
• Earn Money: Optimizing your paycheck and discovering the many ways to multiply and diversify your income streams.
• Grow Money: Making money work for you, contributing to retirement accounts, and investing for financial independence.
• Borrow Money: Using credit to build wealth, enhancing your credit report and score, and eliminating debt once and for all.
• Protect Money: Safeguarding your identity, insuring your most valuable assets, and protecting your wealth through tax strategy and estate planning.

Don't let financial uncertainty hold you back any longer. Take a step toward a happier future. With insightful commentary and practical exercises, Make Your Money Smile is your indispensable companion on your journey to financial success. This book will empower you to take control of your finances and chart your course to your dream lifestyle.

Leseprobe

Table of Contents

Cover

Table of Contents

Title Page

Copyright

Dedication

Preface

Introduction

AN IMPORTANT MESSAGE

HOW TO USE THIS BOOK

YOUR FINANCIAL WELL‐BEING

Financial Wellness Checkup

Introducing the Smile Money Pillars

PILLAR I: Manage Money

CHAPTER 1: Elevate Your Banking Relationships

STEP 1: USING YOUR BANKING ACCOUNTS EFFECTIVELY

STEP 2: IDENTIFYING YOUR IDEAL FINANCIAL INSTITUTION

STEP 3: CHOOSING YOUR BANKING PARTNER

TAKE ACTION

CHAPTER 2: Create Your Budget

STEP 1: LISTING YOUR INCOME AND EXPENSES

STEP 2: UNDERSTANDING YOUR NEEDS AND WANTS

STEP 3: CHOOSING YOUR BUDGETING METHOD

STEP 4: SETTING YOUR FINANCIAL GOALS

TAKE ACTION

CHAPTER 3: Cash Flow Your Money

STEP 1: CALCULATING YOUR CASH FLOW NUMBER

STEP 2: ANALYZING YOUR FLOW

STEP 3: SPENDING LESS OF YOUR MONEY

STEP 4: SAVING MORE OF YOUR INCOME

STEP 5: AUTOMATING YOUR FINANCES

STEP 6: CHOOSING YOUR EXPENSE‐TRACKING APP

TAKE ACTION

MANAGE MONEY SUMMARY

PILLAR II: Earn Money

CHAPTER 4: Optimize Your Paycheck

STEP 1: IMPROVING YOUR NET PAY THROUGH DEDUCTIONS AND CONTRIBUTIONS

STEP 2: MAXIMIZING YOUR EARNINGS WITH EMPLOYER BENEFITS

STEP 3: MAKING MORE AT YOUR CURRENT JOB

TAKE ACTION

CHAPTER 5: Multiply Your Income Streams

STEP 1: UNDERSTANDING YOUR INCOME NUMBER

STEP 2: IDENTIFYING YOUR ACTIVE INCOME OPPORTUNITIES

STEP 3: FINDING YOUR PASSIVE INCOME STREAMS

STEP 4: STARTING A SIDE HUSTLE

TAKE ACTION

CHAPTER 6: Diversify Your Income Sources

STEP 1: UNDERSTANDING YOUR SEVEN AVAILABLE SOURCES OF INCOME

STEP 2: ASSESSING YOUR INCOME SOURCES

STEP 3: CREATING YOUR INCOME STRATEGY

TAKE ACTION

EARN MONEY SUMMARY

PILLAR 3: Grow Money

CHAPTER 7: Build Your Investments

STEP 1: GETTING STARTED WITH INVESTING: THE IMPACT OF TIME

STEP 2: COMPOUNDING YOUR RETURNS

STEP 3: EARNING MORE ON SAVINGS

TAKE ACTION

CHAPTER 8: Contribute to Your Retirement

STEP 1: PLANNING YOUR RETIREMENT LIFESTYLE

STEP 2: CALCULATING YOUR RETIREMENT NEEDS

STEP 3: PARTICIPATING IN A 401(K) PLAN

STEP 4: GETTING THE EMPLOYER MATCH

STEP 5: USING TARGET DATE FUNDS

STEP 6: USING A ROTH IRA FOR TAX‐FREE GROWTH

STEP 7: OPENING A ROTH IRA ACCOUNT

TAKE ACTION

Notes

CHAPTER 9: Invest for Independence

STEP 1: STARTING WITH INVESTING FUNDAMENTALS

STEP 2: CALCULATING YOUR FINANCIAL INDEPENDENCE NUMBER

STEP 3: DETERMINING HOW MUCH TO INVEST

STEP 4: OPENING A BROKERAGE ACCOUNT

STEP 5: CHOOSING AN INVESTMENT ACTIVITY

STEP 6: AUTOMATING YOUR INVESTING

TAKE ACTION

GROW MONEY SUMMARY

Notes

PILLAR IV: Borrow Money

CHAPTER 10: Use Your Leverage

STEP 1: UNDERSTANDING YOUR CREDIT USE

STEP 2: FINANCING YOUR PURCHASES

CHAPTER 11: Enhance Your Credit Report and Scores

STEP 1: REQUESTING YOUR CREDIT REPORT

STEP 2: REVIEWING YOUR CREDIT REPORT

STEP 3: DISPUTING CREDIT REPORT ERRORS

STEP 4: GETTING YOUR CREDIT SCORE

STEP 5: IMPROVING YOUR CREDIT SCORE

STEP 6: MONITORING YOUR CREDIT

TAKE ACTION

CHAPTER 12: Eliminate Your Debt

STEP 1: ASSESSING YOUR RELATIONSHIP TO CREDIT

STEP 2: LISTING YOUR DEBT OBLIGATIONS

STEP 3: PRIORITIZING YOUR DEBT REPAYMENTS

STEP 4: PAYING OFF YOUR CREDIT CARDS

STEP 5: FREEING YOURSELF FROM STUDENT LOANS

STEP 6: OWNING YOUR HOME FREE AND CLEAR

STEP 7: BREAK FREE FROM MEDICAL DEBT

STEP 8: GETTING HELP WITH UNMANAGEABLE DEBT

TAKE ACTION

BORROW MONEY SUMMARY

PILLAR V: Protect Money

CHAPTER 13: Safeguard Your Identity

STEP 1: SECURING YOUR PERSONAL INFORMATION

STEP 2: KEEPING YOUR DATA SAFE FROM SCAMMERS

STEP 3: REGAINING YOUR IDENTITY AFTER FRAUD

TAKE ACTION

CHAPTER 14: Insure Your Assets

STEP 1: PROTECTING YOUR MONEY FROM INFLATION

STEP 2: PROTECTING YOUR SAVINGS

STEP 3: PROTECTING YOUR INCOME

STEP 4: PROTECTING YOUR STUFF

STEP 5: PROTECTING YOUR LOVED ONES

STEP 6: PROTECTING YOUR LATER YEARS

STEP 7: WORKING WITH AN INSURANCE EXPERT

TAKE ACTION

CHAPTER 15: Plan Your Legacy

STEP 1: CREATING YOUR TAX STRATEGY

STEP 2: BUILDING YOUR ESTATE PLAN

STEP 3: CHOOSING YOUR MONEY TEAM

TAKE ACTION

PROTECT MONEY SUMMARY

Conclusion

BONUS: SMILE MONEY MILESTONES

Additional Resources

MY BOOKS

Appendix

FINANCIAL WELLNESS CHECKUP

MANAGE PILLAR

EARN PILLAR

GROW PILLAR

BORROW PILLAR

Acknowledgments

About the Author

Index

End User License Agreement

Guide

Cover

Table of Contents

Title Page

Copyright

Dedication

Preface

Introduction

Financial Wellness Checkup

Introducing the Smile Money Pillars

Begin Reading

Conclusion

Additional Resources

Appendix

Acknowledgments

About the Author

Index

End User License Agreement

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Make Your Money Smile

A Personal Finance How‐To‐Guide to Manage, Earn, Grow, Borrow, and Protect Your Wealth

5 Pillars to Your Best Financial Life

Jason Vitug

Copyright © 2024 by Jason Vitug. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per‐copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750‐8400, fax (978) 750‐4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748‐6011, fax (201) 748‐6008, or online at http://www.wiley.com/go/permission.

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Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Further, readers should be aware that websites listed in this work may have changed or disappeared between when this work was written and when it is read. Neither the publisher nor authors shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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Library of Congress Cataloging‐in‐Publication Data is available:

ISBN 9781394259090(Cloth)

ISBN 9781394259137(ePDF)

ISBN 9781394259144(ePub)

Cover Design: Wiley

Design Concept: Jason Vitug

To all the people I've met along the way and the readers I have yet to meet, this book is dedicated to you and your well‐being. Keep moving forward on the path—you're almost there!

Preface

Through the years, I've been asked about my take on the how‐tos of money. I have written many step‐by‐step personal finance articles on dozens of websites, including my own on thesmilemoney.com. However, I never really considered writing a book on it. I know that people enjoy reading books because there's a beginning and an end, unlike online articles, where there seems to be an endless amount of information to read.

Did I really need to write this book?

You see, there are many really good how‐to money books already published. I've recommended many, from Erin Lowry's Broke Millennial to Get Good with Money, written by my good friend Tiffany Aliche. They complement the mindset and habit‐focused books I've written. So I initially didn't feel the need to redo what's been done quite well.

It wasn't until I had multiple conversations with people during my happiness tour that I changed my mind. One particular statement struck me profoundly: “We haven't read the how‐to of money in your words.” Indeed, some people resonate with my voice and relate to my lived experiences.

Perhaps you're one of them, and sharing my how‐tos will help you reach your goals and dreams sooner. I wrote this book with a purposeful intent: to take you from where you are today to where you want to be tomorrow, and then guide you to where to go next.

This book covers the financial fundamentals and money steps aligned with my life philosophies. Make Your Money Smile is the third book of the financial wellness series. It follows You Only Live Once (a book on time and money) and Happy Money Happy Life (a book on happiness and money). It completes a trilogy I had envisioned many years ago.

The book in your hands is about all things money. It's a how‐to guide sharing my step‐by‐step approach to achieving financial well‐being. This book can stand on its own while incorporating the principles from my prior works. In some ways, it's an extension of my previous books, but it doesn't require you to have read them prior.

I could have written this book first, as it delves into the fundamental concepts of money. However, I firmly believe what stops our progress towards achieving goals is not the absence of steps but our mindset and habits. So, if you haven't read my previous books, I recommend adding them to your reading list.

Now, for those who've wanted step‐by‐step financial guidance from me, this book is for you. I have written all the necessary information you need to reach your financial goals and make your money smile.

With you on the journey,

Jason

Introduction

Make Your Money Smile is a how‐to guide on personal finance. It's tactical and practical. The focus is to give you foundational financial knowledge and the steps to help you master money. Although this book will walk you step‐by‐step, you will see my philosophy on living a fulfilling life intertwined with the lessons. Because money isn't the end goal; money is the tool to achieve the goals.

I've written this book with an intention: to be your compassionate and empathetic guide. As someone who didn't start with a solid financial foundation, I made every money mistake you can think of. I had my share of ups and downs, twists and turns, and experienced the stress of being a high‐achieving financial mess. I've also been judged. I've been ridiculed. But I persevered and triumphed. And I still managed a smile on my face.

I learned my way through the financial mess into personal success. I want to help you do the same. I will be your guide through it all. You'll learn the exact steps I took. You're also getting the knowledge of experts that I interviewed to help write this book, from money‐savvy friends to sought‐after financial experts.

Now, personal finance can be stressful when you don't know where to start. And a challenge to achieving financial well‐being is figuring out what to do next. You see, our financial needs continue to evolve as we adapt to different life situations and world events. So the answer that helped you yesterday might not apply to your situation today. For instance, budgeting might have been the most challenging financial issue you faced in your 20s, but now you're stressing about investing in your 30s or about funding retirement in your 50s.

I've experienced that stress of trying to figure out what to do next. That's why I developed the Smile Money Pillars—a simple approach that places every aspect of personal finance into five pillars. Each pillar has three parts, broken into chapters, focusing on one aspect of money in actionable detail. You'll come away from each lesson with greater insight and takeaways to help you reach your goals. In this book, you'll learn the following.

Smile Money Pillars

Summary

Manage

Your

cash flow strategy

directs your money to what's most important.

Earn

Your

income strategy

optimizes your earnings and diversifies your income.

Grow

Your

investing strategy

prioritizes your savings for retirement and independence.

Borrow

Your

credit strategy

shifts your mindset to build wealth using leverage.

Protect

Your

legacy strategy

secures your most valuable assets.

I've been where you are, lost and confused, and unsure of where to start: it can be overwhelming. Or perhaps you're more money savvy and simply want to know if you've got all your bases covered. Whether you are the former or the latter, this book has something for everyone. It has something for you.

AN IMPORTANT MESSAGE

Before we get started, I want to acknowledge that your situation is unique. Certain variables affect your life that don't apply to other people. So when it comes to finding solutions to your financial situation, the answer will always start with “It depends.” Because it does depend on a variety of factors that affect you specifically.

I'll be honest with you: I was never big on prescriptive financial advice. I don't believe in yelling at you to stop spending or shaming you about your debt. Doing so reduces us into mere caricatures devoid of the socioeconomic realities, systemic issues, and family structure and medical conditions that affect our financial decision‐making. Personal finance is personal. And financial decisions aren't simply made with numbers. That said, this book will give you the financial framework that will revolutionize how you think, relate, and use money.

HOW TO USE THIS BOOK

I wrote this book with a purposeful flow.

I recommend reading the entire book to see what it offers. As you do, dog‐ear page corners, add Post‐it Notes, highlight sentences, mark up areas, and fill in the book in places I've asked questions. You can also use a journal or notepad on your smartphone to take notes. I encourage you to revisit the pillar(s) you want to work on more. This is your book. Make it yours and interact with it.

But feel free to skip around.

Do you need help with budgeting? Go to Chapter 2. Do you want to invest for financial independence? Skip to Chapter 9. Do you want to improve your credit score? Go to Chapter 11. Do you want to create your estate plan? Head on over to Chapter 15. You get the idea. Each chapter can stand independently. So go to where you need the most guidance.

Also, the book has an appendix that includes all the tables and exercises you'll see in the chapters. You can also download them and find all other resources shared on these pages by visiting thesmilemoney.com/book.

Are you ready to make your money smile? Let's go.

YOUR FINANCIAL WELL‐BEING

We're about to explore a range of personal finance topics to enhance your financial know‐how and steps to improve your financial well‐being. But before we get into the pillars, let's begin with a financial checkup.

Financial Wellness Checkup

What areas need more of your attention? Circle your choice (Yes or No) and write down any thoughts that come to mind.

Do you feel generally optimistic about your finances? How you're feeling about your situation matters as it affects your health.

Yes / No

Do you know where your money is going? Using a budget or detailed knowledge of how you spend your money is essential.

Yes / No

Do you have an emergency fund? Having money to cover emergencies and unexpected expenses helps with peace of mind.

Yes / No

Do you have enough for monthly expenses? Your income should cover your needs, wants, and savings goals.

Yes / No

Have you recently paid any service fees? Paying bank fees, late fees, and nonsufficient funds (NSF) fees impacts your money.

Yes / No

Are you affording monthly debt payments? Debt should be minimized to reduce interest payments and improve cash flow.

Yes / No

Are you contributing to retirement? Take advantage of employer‐sponsored plans and IRAs to fund your lifestyle in retirement.

Yes / No

Are you investing for independence? Invest money into a general investing account to regain your time freedom.

Yes / No

Do you have other forms of income? Don't rely solely on a paycheck. Income diversification is essential.

Yes / No

Do you have a healthcare plan? Health issues are the leading cause of financial stress.

Yes / No

Do you have a tax‐saving strategy? Optimize your income withholding and reduce your future tax obligations.

Yes / No

Do you have life insurance? Protect your loved ones by giving them a safety net.

Yes / No

Do you have an estate plan? Indicate how you want your assets distributed.

Yes / No

Do you use all or most of your employee benefits? Use your salary and benefits to achieve goals.

Yes / No

Do you work with a money expert or a financial advisor? Get help and find answers to your specific financial situation and challenges.

Yes / No

How are you feeling? What are you thinking? This simple checkup increases your financial awareness. You'll notice areas of strengths and weaknesses. Note these areas, because they will be addressed in more detail in the following chapters.

Introducing the Smile Money Pillars

There are many parts to personal finance. It can feel overwhelming. At one point, I certainly was overwhelmed. So I started using a system that categorizes personal finance elements into five pillars, which I call the Smile Money Pillars. Each pillar focuses on a simple strategy:

Manage Money.

The first pillar is your cash flow strategy, to direct your money to what's most important.

Earn Money.

The second pillar is your income strategy, to optimize your earnings and diversify your income.

Grow Money.

The third pillar is your investing strategy, to prioritize your savings for retirement and independence.

Borrow Money.

The fourth pillar is your credit strategy, to shift your mindset to build wealth using leverage.

Protect Money.

The fifth pillar is your legacy strategy, to secure your most valuable assets.

You don't have to master the pillars in order. The system is meant to help you organize your thoughts about money, making it simpler to reference an area of highest concern.

In the upcoming chapters, you'll discover straightforward steps to improve your finances. The best part? You can jump around or revisit specific pillars needing more of your attention. If you're keen on investing, go to the “Grow Money” section. To boost your earnings, skip to “Earn Money.” Need to eliminate debt? Check out “Borrow Money.” You get the point: you have the flexibility.

Okay, let's get started.

PILLAR IManage Money

Cash Flow Strategy

Tell your money where to go so it's spent on things that matter.

Managing money is more than just tracking numbers; it's about finding harmony between spending in the present and saving for the future. It's about enjoying today while securing a better financial tomorrow.

Let me start with a question: what came to mind when you read the words “manage money”?

Was it the “b” word? Did an image of a daunting task involving spreadsheets pop into your mind? Was it followed by a sigh of reluctance? Or were you happy because crunching numbers is your thing? While budgets are crucial for everyone whether you like or dislike them, I'm here to give you a different perspective. You need a budget, but it's not the rigid, restrictive concept you might think it is.

So if budgets actually work, why do people struggle with them? Well, there's a misconception that budgeting is about deprivation and it's thought of as a restrictive one‐time task. Well, it isn't. In these chapters, you'll learn a better approach that changed my financial life and can change yours.

The first Smile Money pillar is Manage Money, the cash flow strategy.

Cash flow is about how your money moves in and out of your life. It's a critical aspect of personal finance because this is how you manage money. Here's a truth: the money you earn won't ever be enough if you don't know where your money goes and how to make it flow to where you want.

Mastering cash flow is the key to achieving financial goals. It determines success or failure in your financial wellness journey.

Manage Money

Direct where your money flows

.

You make your money smile through cash flow management—how money enters and exits your life. It requires developing a budget that accounts for income, expenses, and savings goals. By embracing better spending habits and differentiating between needs and wants, you'll reach your life milestones.

In this pillar, you'll better understand banking concepts, how money works, the products and services to manage money well, and steps to cash flow your money. It features three lessons:

Lesson 1:

Elevate Your Banking Relationships

Lesson 2:

Create Your Budget

Lesson 3:

Cash Flow Your Money

Let's get managing!

CHAPTER 1Elevate Your Banking Relationships

Contrary to popular belief, most people don't completely grasp banking. Sure, they know what it's for but don't truly understand how it works for them. And guess who benefits from this lack of knowledge? Certainly not you! The less you know, the more you pay in banking charges and fees.

The first lesson of the Manage Money pillar is understanding banking fundamentals, including financial institutions and their products and services. This might seem basic, but you must know them to manage your money better.

At its core, banking is both a financial service and a form of money management. Your banking accounts are the conduits through which your money flows, allowing you to perform financial transactions easily and conveniently. It's kind of like a car for your money. Just like a car takes you from place to place, bank accounts move your money from place to place too.

How does it all work? You can also think of banking as a game. Imagine yourself as a player in the banking game where there are two roles you can play: the saver and the borrower. Often, you find yourself in both positions simultaneously. As a saver, you might earn interest on your deposits, while as a borrower, you'll be required to pay interest on loans you take.

Now, banks, credit unions, and other financial institutions are masters at playing this game. They collect your deposits and then cleverly invest them, often through loans to other customers. It's a well‐oiled machine that repeats over and over, allowing these institutions to make a profit and thrive.

To illustrate, say a bank offers a 1% interest on savings and offers a personal loan at an 8% interest rate. The difference between the 1% and 8% is the “spread” in which the financial institution makes its revenue for operational costs and profit.

In this chapter, you'll learn the following steps to elevate your banking relationships:

Step 1:

Using your banking accounts effectively

Step 2:

Identifying your ideal financial institution

Step 3:

Choosing your banking partner

STEP 1: USING YOUR BANKING ACCOUNTS EFFECTIVELY

The first step is understanding the common types of banking accounts available. Financial institutions offer different accounts for various purposes. And it's more than likely you'll need a few of these accounts to manage your money. So what kind of accounts do you have? Using the right banking accounts is vital because each one serves a purpose. Let's dive into the different banking accounts one by one.

Savings Accounts

A savings account is designed to help you save money for the future while earning some interest. It's a place to store your money, and the bank will pay you a small amount for keeping it with them. Some banks may require a minimum deposit and may limit how often you can withdraw money or may charge fees for excessive withdrawals.

Checking Accounts

A checking account is a flexible transactional account that allows you to make deposits and withdrawals whenever you need to. It's handy for everyday spending and paying bills. While most checking accounts don't earn interest, some may offer a minimal interest rate. Be aware of transaction limits, minimum balance requirements, and fees associated with these accounts.

Debit Cards

A debit card is linked to your checking account and allows you to purchase conveniently at stores and online. You can spend only the amount of money in your account, which helps you manage your spending. Additionally, you can use your debit card at ATMs for deposits, withdrawals, balance reviews, and transfers between accounts.

Money Market Accounts (MMAs)

A money market account is a hybrid between savings and checking accounts. It typically requires a higher minimum balance and offers better interest rates than regular savings accounts. The interest rate may be fixed like a savings account or tied to financial market conditions.

Certificates of Deposit (CD)

A CD is a savings option with a fixed interest rate for a specific term, ranging from 30 days to several years. Your money is locked in for the agreed‐upon period, and in return you earn a higher interest rate compared with a regular savings account.

Individual Retirement Accounts (IRA)

An IRA is a specialized savings account for retirement. There are two main types: traditional IRA and Roth IRA. Both offer tax advantages to help you grow your retirement savings. You can learn more about IRAs in the Grow Money pillar.

Remember, each account serves a different purpose, so use the ones that align with your needs and financial goals.

Now, let's talk strategy: choosing the right banking partner. Selecting the financial institution that best aligns with your needs and desires is fundamental. Be mindful because they are not created equal.

STEP 2: IDENTIFYING YOUR IDEAL FINANCIAL INSTITUTION

There are many types of financial institutions out there, each with its unique brand and offerings, giving you many options to choose from. First, there are the traditional banks that we all know, available in various sizes, from national giants to local community banks. Then there are credit unions, the not‐for‐profit champions, offering products and services like banks. And finally, there are alternative financial services available.

What kind of financial institution resonates with you? Let's go over the different types in more detail.

Banks

When we think of banking, we usually picture traditional banks. They come in different sizes, such as local, online, and national banks, and are regulated by state or federal agencies. The FDIC (Federal Deposit Insurance Corporation) protects the money you deposit in these banks, giving you peace of mind.

Credit Unions

Credit unions are another type of financial institution. They are not‐for‐profit organizations regulated by state or federal agencies. Like banks, they offer similar products and services, but due to their not‐for‐profit structure, they often provide better savings rates and lower loan interest. The NCUSIF (National Credit Union Share Insurance Fund) safeguards deposits of participating credit unions.

Online Banks

Online‐only banks do everything through the internet, from account opening and management to transactions and customer support. Since they don't have physical branches, they can offer higher interest rates on savings accounts and lower fees for services, passing on the cost savings to their customers.

Alternative Financial Services

There are also financial companies known as neo‐banks, mobile apps, and financial apps that provide banking services. Examples include prepaid debit cards and mobile payment apps. These alternative services may or may not have a banking charter but often work with traditional banks and credit unions to hold your deposits securely.

As you've read, there are many different types of financial institutions. And there are even more potential banking partners in each of those types. For instance, there are over 4,000 credit unions in the United States to choose from.

STEP 3: CHOOSING YOUR BANKING PARTNER

If you didn't know better, you might still be paying more for subpar banking services, paying unnecessary monthly fees, or using check‐cashing services. Now that you know better, you can use a better banking partner. I want you to make a conscious effort and shop around.

Consider banking locally with community banks and credit unions.

Ask your family and friends what banking services they use.

Use the following questions to help narrow your banking choices:

What's the company culture? Its mission?

Where are they located?

What products and services are available?

Are there monthly or transactional fees?

Are there minimum balance requirements?

How can you access your money? What are the ATM network and fees?

Can you set auto‐transfers, auto‐payments, and transaction alerts?

Do you require a physical location (like a branch) or prefer a robust mobile app?

Does community banking matter to you, or do you want the nationwide presence of a big bank?

Are deposits FDIC or NCUSIF insured?

Take your time and explore your options to find the perfect match. And if you happen to choose a financial institution and learn it's not the right fit, find another. Again, you have options.

WHAT HAPPENS IF YOU GET DENIED A NEW BANKING ACCOUNT?

In some cases, a negative banking history can affect your ability to open new accounts. If, in the past, you've had multiple insufficient funds (NSFs), overdrawn accounts, or closed checking accounts because of abuse, these activities may be reported.

There are a few little‐known consumer reporting agencies that many financial institutions use to determine if a new account should be opened. One such agency is ChexSystems, which collects and aggregates your banking history reported to them by participating financial institutions. It's similar to what credit bureaus do with your credit history.

There is good news: you can request a copy of your report, resolve outstanding issues, and dispute inaccuracies.

Under the Fair Credit Reporting Act (FCRA), you are entitled to a free copy of your ChexSystems consumer report, at your request, once every 12 months. And if you've been denied a new banking account and ChexSytems was used in the decision, you can also get a free consumer report.

If there's no information available in your report, it means you never had an adverse action reported by a financial institution. Additionally, you can dispute the inaccuracies if you find negative information in your report.

To request your consumer report, visit chexsystems.com.

TAKE ACTION

Review your existing banking relationships using the checklist in the Appendix.

Request a free copy of your ChexSystems consumer report.

Elevate Your Banking Recap

In this chapter, you learned about banking fundamentals, the types of financial institutions available, and the products and services offered by them. The lessons presented the following steps:

Step 1:

Using your banking accounts effectively

Step 2:

Identifying your ideal financial institution

Step 3:

Choosing your banking partner

Remember, you have options when it comes to banking.

Congratulations! You've just finished your first lesson and elevated your banking knowledge. In the next chapter, you'll learn about budgets and the budgeting process that's best suited for you.

CHAPTER 2Create Your Budget

Many people think of budgets as limiting themselves or as an act of deprivation. It's neither of those things. A budget is a framework to allocate your money into areas of your life, including expenses, debt, savings, and retirement goals. It's really that simple. A budget tells your money where to go, so you don't wonder where it went.

Let's get through some basics: a budget is a financial plan for a given period, like a monthly budget. It's a detailed outline of how you intend to allocate your income across various categories, such as housing, transportation, food, entertainment, savings, and more. The purpose of a budget is to set spending limits and financial goals, helping you to manage your money better.

For example, if you create a monthly budget that allocates $1000 for rent, $200 for groceries, $200 for transportation, $50 for entertainment, and $100 for savings, it becomes your budget for that specific month.

So what's in a budget? It includes the following:

Monthly income:

The total amount of money coming in from all sources

Monthly expenses:

Your monthly obligations like mortgage/rent, utilities, loan payments, and discretionary spending

Financial goals:

The monetarily quantifiable objectives like saving for an emergency, downpayment on a house, or vacation

Now, having a budget is not the same as budgeting. You see, budgeting is the process of creating and maintaining a budget. It involves planning, tracking, and managing your income and expenses based on your budget. For instance, if you spend time each month updating your budget, recording your income, and categorizing your expenses, you are budgeting.

In this chapter, you'll learn all about creating a budget in four steps:

Step 1:

Listing your income and expenses

Step 2:

Understanding your needs and wants

Step 3:

Choosing your budgeting method

Step 4:

Setting your financial goals

Let's get budgeting.

STEP 1: LISTING YOUR INCOME AND EXPENSES

You need to know what is coming in and what is going out. Assessing your monthly income and expenses is an important first step in creating a budget. You'll need to list the following:

Income

from salary, bonuses, tips, hourly wages, side hustles, self‐employment, and investment sources.

Expenses

are necessary or optional spending that are paid monthly, including rent, mortgage, debt payments, utilities, groceries, streaming services, designer clothing, entertainment, and dining out.

Keep this in mind: the more detailed your expense list, the more you'll become aware of how your money is being used. It'll empower you to make crucial adjustments.

The following is an example of an income and expenses list. The worksheet is also available in the Appendix. Keep it handy because your income and expenses list will be used throughout the Smile Money Pillars.

Monthly Income and Expenses List

*

Income

Amount

Expenses

Amount

Salary

$3,500

Rent

$1500

Freelance work

$1,000

Utilities

$200

Cell service

$95

Student debt

$105

Car loan

$350

Income Total

$4,500

Expenses Total

$2,250

*See Appendix for the Monthly and Expenses List Worksheet.

STEP 2: UNDERSTANDING YOUR NEEDS AND WANTS

You might have noticed something after listing your income and expenses: perhaps you aren't making nearly enough to cover your lifestyle. Whether or not that is the case, it's vital to understand how you're spending money and if it's being used for things that make you smile.

Your spending will be used to meet either a need or a want. And there is a big difference between your needs and wants.

Needs are the essentials

:

things you have to have to live life.

Wants are optional:

things you would like to have to enjoy life a

bit

more.

For example, you need a car to get to work, but you want a luxury vehicle. It's okay to want nice things. And I for one believe there is absolutely nothing wrong with wanting nicer things. The question you'll have to ask yourself is whether you can afford it without sacrificing other goals.

Look at your income and expenses list. Identify what expenses can be categorized as a need and what is a want. Use the Needs and Wants checklist to determine what's necessary and what's optional.

What Are Your Financial Needs?

Your needs are things that are essential, like shelter. It can also include obligations, like debt, which requires repayment.

✓

Needs Checklist

Housing: Mortgage or rent

Homeowner's or renter's insurance

Property tax (if not already included in the mortgage payment)

Auto insurance

Health insurance

Out‐of‐pocket healthcare costs, copayments, prescriptions

Utilities: electrical, gas, water

Internet

Cell phone

Life insurance

Groceries and household goods

Transportation: car, gas, tolls, public, rideshare

Debt payments: student loans, installment loans

Credit card balances: minimum payments

Other loans: monthly payments

Child support or alimony payments

Wellness programs: gym membership

Care: childcare, adult care, daycare

What Are Your Financial Wants?

Your wants are things that are nice to have but aren't necessary. However, they might be essential to improving your quality of life. For instance, it's not necessary to dine at restaurants, but you may want to.

✓

Wants checklist

Entertainment: movies, events, concerts

Clothing

Dining out

Prepaid meals and food delivery

Conventions and conferences

Subscriptions: news, streaming shows, music

Travel: airline tickets, hotels, rental cars, etc.

Cable and home phone

Additional perks: cell phone insurance

STEP 3: CHOOSING YOUR BUDGETING METHOD

After listing your income and expenses and understanding your needs and wants, it's time to reallocate your money to what's important. It's time to choose your budget.

There are many different ways to budget your money, from buckets to envelope systems to software programs. You have options. My personal choice is a method I shared in my book You Only Live Once, which is closely related to zero‐based budgeting. You'll learn how to do this in the next chapter, “Cash Flow Your Money.”

With zero‐based budgeting, you must identify and track each expense. The goal is to have your income minus your expenditures equal to zero by the end of the month. It allocates all of your money to expenses, savings, and debt payments.

DIFFERENT BUDGET METHODS

The best budget is the one you use. And you're in luck. There are many types of budgets you can use. Some of the popular ones include the following:

50‐30‐20 Rule

The rule allocates your paycheck into three areas:

50% for essentials like mortgage or rent, utilities, groceries, etc.

30% for nonessentials like dining out, clothing, streaming services, other subscriptions, etc.

20% for savings goals like an emergency fund, retirement contributions, credit card and loan payments, etc.

80‐20 Rule

This simpler plan directs 20% of your paycheck towards savings goals. It leaves 80% for everything else, from the necessary to discretionary. For instance, as your income grows, so does the amount of money saved because you're always saving 20%.

Cash‐Only Plan

With a cash‐only budget, you're only using cash, which means no credit or debit cards or even checks. Basically, you're choosing to opt out of technology. This is often used with the envelope budget system, where you place cash for expenses in separate envelopes. Once you run out of cash, you stop spending. This is for the very tactile person who needs to feel the cash leave their hands.

What Method Is Right for You?

It really depends on your preferences. Any of these budgets can help you achieve your goals. Again, a budget is only useful if you adhere to it.

STEP 4: SETTING YOUR FINANCIAL GOALS