September 24, 2010 in Money and Finances
Real estate investors often find themselves working with people that have financial challenges. Whether we are trying to help one of our tenants become homeowners, doing a lease option contract with another, or just happen to find ourselves in the position of “counseling” some of the people that have contacted us about renting or buying one of our houses, there are often ways that we can help these folks realize their dream of being in a home. One of the common challenges that seem to come up with people experiencing financial challenges is budgeting.
One of my investor friends has all of his prospective tenants come into his office and have a scheduled meeting with his office manager at the time they sign the lease. They are given a binder that holds all of the company procedures and policies, and the office manager goes over each and every one of these during the meeting. Included are forms for requesting non emergency repairs, copies of move in/move out procedures, and pretty much everything this tenant will need to know about their rental home. This is also the place where they can keep a copy of their lease and any other correspondence. He likes to say that you need to “train your tenants” right from the very beginning on how to be a good tenant, and he does this by letting them know right from the beginning exactly what is expected of them.
I love this idea, but I would like to take it one step further. Many of these folks are renters because of a lack of financial understanding. Why not include some information on budgeting in this packet? Giving these folks the tools to help them succeed will only help you create tenants that will be more responsible and pay YOU on time.
My Budgeting Handout
This is the budgeting handout I developed a while back for my tenants which I included in my tenant information “binder”. And by the way, giving them an actual binder with all of your policies and procedures already in it is an excellent way for these folks to “remember” what is expected of them.
Why Do You Need A Personal Home Budget?
Whether you are just starting out on your own or you are managing the finances for your family, you need a personal home budget to keep your spending on track. Good financial habits are required if you ever want to be able to save money and still have the lifestyle you want to afford.
Without a personal home budget, there is no way to track how much money you need every month and how much you actually spend. It is very easy to mismanage money and end up in debt. Mismanaging your money and getting into too much debt can affect your ability to buy a home, take vacations, get car insurance and even cancel your retirement plans. Follow along here and get the basics you need to come up with a personal home budget.
Where Does All Your Money Go?
The stress of never seeming to have enough money can affect your health and your relationships. Worrying constantly that your debt is growing every month because you are spending more than you are earning can cause a variety of health related problems. Before you can set up a personal home budget, you need to map out where all of your money actually goes. By knowing exactly where your money is going each and every month, you can set priorities, and you can decide where to spend your money.
How Much Money You Make?
The first thing you need to do is to figure out exactly how much money you have coming into your household each and every single month. Once you know how much you have coming in each month it is time to move on to the next step.
How Much Money Do You Spend?
The next thing you need to do is sit down and figure out where you are currently spending it. Keep a record of everything you spend for 30 days. Jot it all down in a notebook. Yes, the trips to the coffee shop do count. Write them down. You will need to do this every month for a few months to get an accurate picture of your spending habits.
At this point, you don't want to make changes. You need to learn where you are spending your money BEFORE you can correctly decide where you need to make changes.
Some expenses will be the same every month like your mortgage, car payment, insurance etc. Others, like utilities, will fluctuate some from month to month or season to season. Some expenses like food, clothing, entertainment and gifts will also change every month. This last category will also be the one that you will have the most control over in your budget.
Your Personal Home Budget
Now that you know exactly how much money you bring in every month and how much you are currently spending each month, it's time to examine all of this information and figure out where to make some cuts. This is the painful part, but you have to do it.
If you are spending more than you are bringing in each month, there are really only two choices. You have to make cuts somehow or make more money. You cannot continue to spend more money than you earn or you will end up so far in debt that you won't be able to get out. Too much debt will lead to bad credit eventually which will impact your ability to buy a car, buy a house, rent an apartment or a house, buy car insurance, etc. So cut out all of the extras you can. If this still isn’t enough, look at ways you can earn extra money. You may need to get a second job. Sometimes, even a few hundred dollars a month can make the difference between breaking even and spending more than you make.
Sticking To a Personal Home Budget Means Financial Freedom
It isn't pleasant or easy when you have to limit your spending. Feelings of being deprived can quickly set in and you are tempted to stray from your budget. Sometimes setting larger goals like buying a new house or a new car and posting them in a visible and prominent place can make it easier to stick to a spending plan. Every time you are tempted to spend money you didn't plan on, review your goals and remind yourself why you are trying to limit your spending and stick to a personal home budget.