See Some Other Financial Network Maps @ Bargaineering.com – Jim has an excellent video on how and why you should try making a Financial Network map.
How to Get a Handle on Your Money @ Sympatico MSN Finance – Financial columnist Gordon Powers sums up financial network maps.
Should You Follow Suze’s Advice? @ The Centsible Life – Kelly gives pointers on how to determine whether your emergency savings should be as large as Suze Orman suggests (8 months).  She mentions my maps that calculate both regular income and a layoff situation.

Thanks for the mention, all!

I had a couple of people ask me how I made my financial network map.  I used the professional version of software called XMind.  There is a free version available that is a cross platform java application usable by Windows, Mac and Linux.  There is even a thumb drive portable version, and a plugin for Eclipse useful for software engineers!  Other choices can be found at the Lifehacker roundup of the Hive Five: Five Best Mind Mapping Applications.

Some readers said my map was complicated.  I think of it as detailed!  Mind mapping, of which this is a derivative, is an extremely flexible way of collecting information. It can be as verbose or concise as you need it to be.  You can tailor it to your unique situation.

For inspiration, check out these links:

Man vs Debt Financial Network Map – Baker at Man vs Debt created a financial map for his current situation and one for after he relocates to Australia.
My Financial Network Map – Kyle at Suburban Dollar was inspired by Baker who was inspired by Jim to make his maps!  Kyle has joint and separate accounts with the spouse, very similar to how my partner and I manage our finances.
The Wife and I Finally Implement a Plan – My Journey to Millions and his wife finally agreed on having a budget, and started with a financial map.
Rethinking My Bank Accounts – Stephanie at Poorer Than You put together a financial map as a new plan of attack on her debt.
My Financial Network Diagram – Live Money Smart shows all you need is a pencil and paper to make a financial map.  And maybe a scanner to post it!
My Financial Network Map and Virtual Envelope System – Sacha Chua has a very nice financial map organized by ‘envelopes’.
My Financial Network Map – Dash to Debt Freedom shows an attractive financial network map can be put together quickly!
Jabs Family Financial Network Map – Matt Jabs created his map in Visio.  The main benefit he saw was an overall picture without being overwhelmed by the numbers.

I was paying for a $39.99 600 minute plan per month.  Except after all the taxes and fees, the real total came out closer to $55 per month.  My statistical usage was between 300-450 minutes.  I had promotional rate, and the next plan down was 300 minutes for $39.99.  There was no benefit in downsizing my plan; it would not save me money, and cost the same with fewer minutes.

I switched to a pay-as-you go plan with T-mobile.  With my statistical usage, I pay $105 after taxes for 1150 minutes (1000 minutes plus 15% bonus minutes when paying $100) every 3 months.  With my monthly plan, I was paying approximately $165 every 3 months with a lot of unused minutes.

I used exactly what I needed.

Did you drop your monthly plan for a prepaid? How did it work for you? If you have a monthly plan, would you consider prepaid? Why or why not?

I also find it useful for plotting financial relationships between bills and income.  This is gaining popularity as a budgeting tool called a Financial Network Map.

One of the trickiest things about getting your finances together is getting a grasp on all of the different income and bills.  Financial planners and bloggers always recommend budgeting software or excel spreadsheets.

Budgeting software and excel spreadsheets are a staple of any financial toolbox.  You MUST have at least one of them.  The problem that I find is they are linear.  They don’t show you relationships.

A financial network map gives you another view that a pie chart and graphs won’t give you.  Pie charts and graphs are only a hammer in the toolbox.

What else do you need in a toolbox?  You also need screwdrivers.  You need to know how all your accounts are connected.

Here is an example of how my accounts are related.*

I get paid bi-weekly.  The number in the large bubbles are the monthly totals needed.  The numbers in the linked trees are the per check totals.  Because I get 26 checks per year, that means a little extra will fall into the account.  That’s ok – we want a little padding.

Now I can SEE how all my accounts are related.  I can find where there are inefficiencies and reduce and eliminate them.  You’ll notice that savings in this example includes retirement funds and savings goals, and totals a little less than half the total amount allocated with a fully funded Roth IRA and Health Savings Account for an unmarried filer.  This is with a ‘debt free’ plan.  If you have debt, you will need to cut back on your savings and retirement goals.  It seriously sucks.  That doesn’t mean you need to cut out everything, just prioritize aggressively.

If I was trying to fund an emergency account (called Cash Reserves), how would I figure out how much I need?

I would try to prioritize only absolutely critical expenses.  If I lost my job, this is about survival.  This means cutting almost all savings and retirement goals.

I eliminated all retirement contributions and most savings goals (except for paying my 6 month insurance premium).  I cut back on dining, fun, groceries and spending cash to half.  I calculated 3, 6, and 12 month totals, plus a 5% buffer.

Notice I did not cut out Netflix and World of Warcraft.  While these are not food, water, shelter, if I didn’t have something fun to do, I would go crazy and be more inclined to seek out a bar or club, which are definitely out of the picture for a little while.  I also include fun, dining and spending cash here.  There’s a little bit of leeway for me to go out and have a tear in my beer (a cheap American beer – not cocktails or wine).

This does not include unemployment checks.  Any unemployment checks I receive would be stashed in one of the reserve accounts that would be available in dire, dire emergency.  This might pay for any interview clothes I might need in a pinch, or a taxi ride to an interview if the car suddenly breaks down. It gives me a little bit more independence rather than relying on an unemployment check to get me through.

A few excellent mind mapping software are rounded up at LifeHacker: Best Mind Mapping Applications.  There are excellent free choices, however, all you really need is a piece of paper and a pencil.  Just start drawing the relationship of your bills and see how they all connect.

* The numbers here are for example purposes only, and are not necessarily my real numbers.

$260 on new car battery (long story, it should NOT have been this much!)
$500 on new bike (old one stolen – sniff)
$500 on power window motor breaking on my car (arggggg)
$500 on medical expenses (met deductible, not counting copay that I didn’t keep track of)
$150 on vet bills
$1200 on dental bills (I don’t have dental insurance and I hadn’t been to a dentist in a very long time {blush}]

Grand Total: ~$3110

Yeeeeeesh. And I don’t have kids – I can’t imagine what it would be for things like swallowing a penny or day care diseases. Yeah, so glad that I budgeted a rainy day fund savings account, even though I was carrying a high balance debt. I paid for all of this in cash while paying down my credit cards. I’m convinced if I hadn’t set aside the money, I probably would still be in debt because I would have underbudgeted my expenses, missed a payment, causing my low rate interest on the credit card to rise exponentially.

The Battery in My Car Died. I had the battery replaced, but the tech either overtightened the bolt on the contact, or the battery contact was larger than the terminal for my replaced battery. Turned out to be the latter. Mistakenly replaced the battery only to find out it was the terminal connector. Whoops… $260 total.

My Bike was Stolen. Went to a town hall lecture and some low life stole my bike. Used a cable lock – will only use U locks from now on. I have not yet replaced the bike, but it should be around $400-$600.

Illness. Had some sort of stomach/intestinal infection that did all kinds of nasty things. Went to the ER. Diagnosis is some type of bacterial infection. On home care unless things get worse (I’m doing better). Have not yet received the medical bill. I’m guessing since I haven’t reached my deductible for this year, it will be around $150.

It’s a great thing I have money socked away for this. My debt payments are on track, and I have plenty of money stashed for upcoming expenses. My oh-no-crap fund is doing it’s job nicely.

There are a couple of things she mentions that I can relate to:

She was against the idea of having money in savings when that money could be used to pay down the debt. I want to get rid of the debt, and I want to do it now. However, without money in savings, I will have to borrow against someone else’s money in a jam. With a savings account, I borrow against myself.

Emergency struck, she cried and was upset. Except with a savings account, she was in control. She paid for the money in cash she put aside for herself. No loans, no late penalties, no interest rates. Just straight up, paid up.

I was able to grow my savings by having it withdrawn automatically from each paycheck. I budget my remaining money for bills. Pay yourself first! Bank of YOU is investing in you. Everyone else gets the scraps, not the other way around. It’s amazing what a difference in that mindset makes. You are the most important bill that needs to get paid.

I used to take every available penny and put it into my debt after paying for food, gas, rent, etc. The problem was, when I had unexpected car trouble (the rotors on my Jeep were warped beyond all goodness), I had to pay for the rotors, brakes, and service on my credit card for about $1000. I consistently underbudgeted things like food, and with no available savings, I would have to pay on my card. The cycle of seeing my debt go down and up, down and up, was discouraging and distressing.

One of the best things I did to get my debt, savings, and spending under control was to buy two books. One was Jean Chatzky’s Pay It Down! : From Debt to Wealth on $10 a Day. The other was David Bach’s Smart Women Finish Rich. These books are my financial bibles – I keep them in my bookbag.

The key thing I got out of “Pay it Down” was I needed an emergency fund. I need that money to dip into instead of credit. What I got out of David Bach’s book was to automate the process. I setup my accounts to automatically deduct the money every paycheck into my savings account. I opened a Capital One Money Market Fund for my savings account (I wish I had opened with HSBC, but c’est la vie). Good interest rate, checks, and yet fairly inaccessible. I paid this money to myself first, before I paid rent, credit cards, electric bill, etc. That money was no longer in the equation. I budgeted my money on the remainder of my check.

Then a funny thing happened. Once I had that savings account and budgeted my money with the remainder, I no longer had to use my credit card for unexpected expenses. In fact, I didn’t touch the money at all for almost 6 months. I switched insurance companies, and paid the 6 month advance for the cheaper rate. I had plenty of money in my account to cover it! While not an emergency, I consider this a good use of the money as it saves me money.

It was a great feeling to see the savings account grow from 1 month worth of expenses, to 3 months, to 6 months. In case of the extreme (loss of job, medical emergency), I feel better knowing I can strap down to the minimums and cover myself without growing debt for up to 6 months. That sense of security has made a huge difference in my overall life. Now when I pay my credit debt, it only goes in one direction: DOWN!

-Cathy-

1. Keep your car properly maintained. Oil changes and air pressure in your tire will keep efficiency high. Regular oil changes with inspections will alert you to problems that could be very costly down the road. My last oil change and inspection showed my serpentine belt was starting to crack. While I wasn’t happy with the $115 bill, it saved me a potential $170 in towing fees to a garage during a breakdown.

2. Magazine subscriptions. The majority of us don’t read the magazines we subscribe to. If you aren’t reading every issue, get rid of it.

3. Cable TV. Are you watching all those channels? Probably not. Unfortunately, cable subscriptions do not make it very easy to get just the channels you like. However, a cheaper plan will probably get you most of what you want. Personally, since most of the video stores around my neighborhood carry television series box sets, I just rent the shows I like. I may get them a season later, but it suits my lifestyle better. I rarely am around when the shows first air anyway.

4. Cell phone plans. This can be a HUGE money sink without realizing get. Get an accurate assessment of how many minutes you are using. Shop around for plans/services that fit your needs. For me, this was switching my monthly plan to a pre-paid plan. I had a fabulous promotional plan of 600 minutes and unlimited nights and weekends. The problem was, I don’t talk on the phone that much. Most of my cell phone usage is during the day when I draw minutes anyway. I consistently use 300 minutes per month, yet I didn’t want to switch to the 300 minute plan because there are times when I exceed that. I do not want to pay the over minute charges. I’ve NEVER come close to using 600 minutes. Thus, pre paid was the way to go.

5. Internet subscription. Internet is more of a necessity for me than a phone or a television. However, this was still an area I could trim. I was paying Comcast $68/month for internet + TV (and they forced the TV on me). My connection speed and reliability were good for my area. The problem: the price. I don’t download a ton of media, I need a reliable connection for remote work, I mostly read blogs and download an occassional game from Big Fish Games. 768 down/450 up is more than adequate for my needs. It’s even good enough to play World of Warcraft. Seriously – you don’t need as much as you think. So I switched to ClearWire. It’s been handy for traveling purposes since it’s portable too. Plus I’m saving $48/month.

6. Dining out. This is a weak spot for me. I try to mitigate the cost by taking advantage of Happy Hour prices.

-Cathy-

Quicken has worked very well for me as an electronic checkbook ledger. The budget tool has never worked to my satisfaction or helped me balance my budget. I was intrigued by envelope based budgeting, which I was first introduced to at Mvelopes.com. I like web based tools as they can be used, theoretically, by any computer (I regularly switch between several locations with different computers) and platform independence (I use both Macs and PCs). In theory because it seems mvelopes.com doesn’t behave well in Safari.

However, the reason why I don’t use mvelopes is the subscription pricing. $94.80 per year with a 2 year subscription is much too expensive. My copy of Quicken 2005 has averaged out to $25 per year, and gets cheaper by the day. I don’t see why I should upgrade to the newer copy of Quicken as I don’t use any of the other features except for transaction downloads and the ledger. So I haven’t experimented with envelope based budgeting as I couldn’t find one that was stand alone.

I just found Budget from Snowmint Creative Solutions. I was thrilled by an envelope based budget system that was standalone and on the Mac! It also has a PC version, but sadly, the data formats are binary rather than open data based, like a xml format or the like. Nevertheless, I tend to do my productivity stuff on my Mac anyway, and the game fun stuff on my PC. Getting the copy for my Mac seemed the best choice.

I downloaded the trial version. I have to admit – as a Quicken user I was a bit lost about how to get my money allocated into envelopes the way I want. Unfortunately, by the time I got it figured out, my trial transactions limit had been reached! For $29, I thought it would be worth giving a try. I really wanted the ability to pre-allocate my money in each of my accounts.

After about a day of fiddling, I finally got my envelopes and accounts setup the way that I want. That is not to say the software is hard to use – quite the contrary. I just had to get used to the difference in budgeting. Instead of “categories”, you have envelopes as a visual representation. Each of your accounts has an “available” pool where you can move money into each of the envelopes. Every time you make a transaction, such as buying lunch, you make a “debit” transaction on the “Food” envelope. If you budgeted $60 per pay period for food and paid $5 for lunch, the envelope would show you have $55 for the pay period left. Simple and intuitive.

I created 2 envelopes and 1 envelope group for my Ebay and Amazon.com sales. I put my earnings in the “Sales” envelope and my shipping charges into the “Expenses” envelope. The higher level group envelope showed my total profit. I could then move my earnings into the “travel” envelope. I split my money market balance into “Debt Payment” and “Vacation” allocations. I bought groceries and deducted the cost from my groceries envelope. I can select the overview of all my accounts and see where I’ve allocated all of my money for this pay period. I pay for my car insurance in a 6 month lump sum, so I created an “Insurance” envelope, figured out my monthly cost, and budgeted it. It’s great being able to see that I have $80 allocated to Insurance and $37 to car registration in my savings account rather than just the account total.

So far Budget fits my needs for being able to separate out the money in my accounts in advance, rather than just a big total unallocated amount. I don’t think I’ll be replacing Quicken with it completely, as it still fits my needs for an electronic checkbook ledger.

You can setup an envelope based budget in Quicken. I’ve used split transactions in Quicken similarly. I’m liking Snowmint’s Budget software better because it was designed for this type of budgeting. Although, I *do* prefer to use one tool. I’ll have to see how Budget works out in the long haul.

-Cathy-