Managing Your Money Before It Manages You

by Kay Cross, MEd on Apr 01, 2008

Learn how to create healthy fiscal fitness in a debt-burdened world.

It is a beautiful January day in Texas, and I am sitting in my home at my favorite writing spot (the kitchen table) with my laptop. At this moment in time, the United States is experiencing its worst housing crisis in 17 years with a 10-month supply of unsold homes (Deener 2008). In addition, housing starts are down 40% from a year ago, and the subprime mortgage crisis continues, with more foreclosures on the horizon. Some economists believe a recovery in the housing sector is 5 years away. Crude oil is at a record high, and there is a strong probability that the U.S. will experience a recession this year.

According to the article “Disposable Income,” “In 2005, disposable personal income [DPI = personal income – personal income taxes] dipped into negative territory for the first time since 1933. This means Americans spent their entire DPI and added to debt for further spending” (Investopedia 2008b). Another Investopedia article states that the personal savings rate in the U.S. declined roughly 10% from 1985 to 2005, and that the debt-to-income ratio nearly doubled. The U.S. Department of Commerce found that, for 2006, American households had a savings rate of -1.0%, which proves again that they are spending more each year than they make, digging themselves deeper into debt. Other countries practice much higher savings rates. The Netherlands, Italy, Norway, Germany and France have personal savings rates of 10% or more, and countries in Asia average rates of 30% or higher (Investopedia 2008a).

All successful businesses have one thing in common—they budget their money. Why? Because it works. If multimillion-dollar Fortune 500 companies have to budget their spending, then cash-flow planning can certainly work for you. As the statistics reveal, either the vast majority of Americans don’t have a budget, or they don’t know how to use one. Debt is not “normal” and can be destructive if it is not tamed. Ignorance, poor planning and indulgence are the three personal traits that lead to debt.

Two weeks before Christmas, a news report indicated that, for the first time, Americans’ number-one goal for the New Year was fiscal fitness, not physical fitness. To catapult you along the road to financial independence, this article will provide you with a fiscal fitness program that works by tackling ignorance (no understanding of finances) and poor planning (lack of a proper budget). As far as indulgence goes, you must begin applying what you teach your clients in regard to weight loss and fitness: sacrifice and discipline. Here are my suggestions on how to manage funds coming in and going out and how to develop a healthy attitude about the life tool we call money.

The Funds Coming In

Growing up, my stepdad always said, “It’s not what you want, it’s what you get, that counts.” Every time he said it, it irritated me. But now I fully understand what he meant: the real measure of character is what you do with what you already have. Regardless of how much people earn, there always seems to be a hunger for more. But it is what you do with what you earn, not the amount you earn, that determines whether you will be debt-ridden or financially independent.

Create an Orderly System for Getting Paid. In order to make it easier for me to create a cash-flow plan, I began billing clients on a monthly basis, with payments due on the first of the month. Clients pay for 1, 3 or 6 months of training and/or coaching, and I send out bills by mail each month. By altering my billing practices to match those of other service providers, I made it simpler to collect payment without having to ask for it or chase it down.

Sell Services to Keep Money Coming in. Tip #1: Sell exactly what your clients and prospects need. Do they need a combination of coaching and personal training or just personal training? Do they need weekly sessions or just monthly appointments? Do they have time for 60-minute sessions, or would 30- or 45-minute sessions work best for both of you?

Tip #2: Practice regular marketing whether you need it or not. There have been times when I’ve been so busy and had such a waiting list that marketing has seemed like a complete waste of time. But I have been in business 20 years and have learned that the slow times come right along with economic recessions. Your business must stay fresh in people’s minds, so devise a monthly marketing plan and stick with it. Nothing beats personally marketing yourself at local events. I also use direct mail to my own personal mailing list.

Tip #3: Sell gift certificates with a 90-day expiration date. Sell these incentives to your current clients for their friends and families. It is a great way to make their shopping tasks easier, and you might also bring in new clients. Create five different gift certificates; for example, a 1-hour assessment; an assessment plus program design and instruction (2 hours); one coaching session; three coaching sessions; and 1 hour of nutrition basics. Gift certificates can fill your slow times and give newcomers a taste of your services.

Balance Your Fluctuating Income. It would be nice if my income was exactly the same each month, but it is not. The key to making your cash-flow plan work with a fluctuating income is to base your budget on your average monthly income from the previous year, or on your worst month. If your average month brought in $4,000, then create your monthly budget based on that. What do you do when you are depositing more in other months? You set that money aside as extra in the same account or move it to a savings or money market account to keep you from spending it. Then use that extra to pull from in months when you are depositing less than your budgeted average.

Adjust and Raise Fees as Necessary. Tip #1: Give yourself a cost-of-living raise every 2 years. Most personal trainers and coaches I work with are not giving themselves cost-of-living raises on a routine basis. These fee increases are absolutely essential to keep up with the rising costs of utilities, insurance, food, gas, education, clothing, medical, etc. In general, I increase fees every 2 years by 7%–10% to make up for rising costs. Clients know to expect this from the beginning, because I state it in my training policies.

Tip #2: Adjust your fees to reflect your expertise and the local market. Invest a couple of hours this month in finding out what your competition charges. Be sure you compare your education and credentials with those of comparable trainers and coaches. If you are undercharging and you feel confident and comfortable raising your fees by 10% or more, do it. You can increase fees only for new clients or apply the increases to your existing clientele as well.

The Funds Going Out

Fiscal fitness, like physical fitness, is a daily choice. Will you work out today or make an excuse to skip again, thinking there’s always tomorrow? Will you create a spending plan and follow it, or will you once again throw caution to the wind and plan a $3,000 vacation on your credit card? Attaining your financial goals requires discipline, sacrifice and hard work—the same exact habits needed to achieve and maintain physical fitness.

Develop a Cash-Flow Plan (107020). The first step in financial planning is to create a budget, or cash-flow plan. We are going to use the “10–70–20” plan. It is a personal spending and savings plan designed to eliminate debt and work toward financial independence. Before you begin work on this cash-flow plan, some background is necessary:

  1. Determine your average monthly income based on last year’s earnings.
  2. From that number, subtract your income and social security tax (some of you won’t have to do that because your employer may be subtracting that out of your paychecks). The resulting figure is your DPI.
  3. If you are self-employed and have business expenses, subtract your business expenses from your DPI (personal cash-flow plan = DPI – business expenses). That final number is what we will use to determine the 10–70–20 breakdown.

For example, let’s say you and your spouse average $7,000 per month in deposits, but you need $500 per month for taxes and $450 per month for business expenses. That leaves you with $6,050 per month to work with. Here’s how to use the 10–70–20 plan:

Step #1: Calculate 10% to be used for savings. In our example, 10% of $6,050 = $605. There are 3 goals for this savings money:

Goal #1: Build up an emergency fund equal to 3–6 months of essential living expenses.

Goal #2: After you have created your emergency fund, use the 10% for cash purchases (house, cars, anything).

Goal #3: You can use the 10% as extra retirement savings, college funds, etc.

Step #2: Calculate 70% to be used for living expenses. In our example, 70% of $6,050 = $4,235. To make this amount work, you may have to drastically cut back on your expenses for a while. The short-term sacrifice will have huge long-term rewards.

Step #3: Calculate 20% to be used for debt retirement. In our example, 20% of $6,050 = $1,210. Use this money to get rid of all debt above and/or including your mortgage. At most, the only debt you should carry is your mortgage (at least the interest is tax-deductible). Choose the debt with the highest interest rate, and pay on it until it is gone. Do not add any debt while going through this process. This will be painful, but it is the only way to fight your way to financial freedom.

Step #4: After you have paid off all debt, or if you currently have no debt, continue to follow the 10–70–20 formula. Use 10% for savings, 70% for living expenses and 20% for retirement savings, cash purchases, etc.

Establish a Retirement Account. Many of you probably already have a retirement account. If not, open one after you have paid off your debts. You can then use the 20% from the 10–70–20 formula to max out your retirement contributions. After I bought my first home, I decided to pay off my house in 7 years by using the money I would have put in my retirement account to pay as extra principal with each house payment. In the end, I saved thousands of dollars! As soon as my house was paid for, I began contributing the maximum to my retirement account again. Make sure you create a retirement portfolio that is in line with your goals, time horizon and risk tolerance. Here are some retirement savings guidelines based on the age at which you begin saving:

20s: 10%

30s: 15%

40s: 20%

50s: as much as possible!

Keep Detailed Records. Half the battle in keeping your cash-flow plan working is keeping up-to-date and accurate financial records. I spend several hours every month recording expenses in each budget category so that I know where we stand at any time. My preference is still the ancient method of writing it down on paper. This year I may actually catch up with the times by using Excel or another software program. Find a system that you like and use it. Make record-keeping and budgeting easy by creating your own spreadsheets on Excel or by purchasing financial software such as Microsoft® Money or QuickBooks®. Enter all your financial data weekly or monthly and adjust budget categories as you work the kinks out of your plan.

The Right Attitude

I have noticed that, in some cases, people’s attitudes about money mirror their attitudes about life and relationships. They may push things to the limit, seeking aid only when it really begins to hurt and life starts crumbling around them. Money is a tool. We’re served best if we can take that tool, thoughtfully examine it and decide the smartest way to use it for our benefit. What we earn is what we have to work with. According to findings reported in The Millionaire Next Door, “People become millionaires by budgeting and controlling their expenses, and they maintain their affluent status the same way” (Stanley & Danko 1998). There is no magic gimmick or lottery win that catapults people to wealth. It takes hard work and discipline—the same qualities practiced by the 5-days-a-week guy at the gym who has a great body and very little body fat. He looks the way he does because he works out 5 days a week every week of his life!

Thankfully, I had a mom who taught me how to budget money when I was in high school. I learned early on that when you have “x” amount of dollars, that is all you have to work with. It wasn’t a cue to go grab the plastic and charge it. She told me that when she sent me off to college with a fixed dollar amount to exist on per month, I never asked for an extra cent the entire 5 years. Why? Because she had taught me to spend what I had and no more. The borrower will always be servant to the lender, regardless of how wonderful the opportunity looks. If you want to insulate yourself from high oil prices, a housing crisis, a banking crisis and a recession, you need fiscal fitness. Fiscal fitness can be acquired only by eliminating debt and controlling expenses. Now is the time to decide: Do you want to live debt-laden or free?

SIDEBAR: Cutting Your Losses

Here are some tips to consider when re-evaluating your budget.

  • Stop frivolous and excessive spending (indulgence).
  • Ask yourself if you really need those never-ending payments (cell phone, satellite, cable, subscription radio, storage facility, etc.)
  • Quit living on borrowed money—credit cards. If you can’t pay the bill in full each month, you can’t afford it.
  • Stop the new-car cycle. According to Investopedia, when you can’t afford to pay cash for a new car, that means you can’t afford the car (Investopedia 2008c).
  • Don’t buy or live in too much house.
  • Do not refinance your mortgage to take cash out. You are handing the ownership over to someone else.
  • Get rid of things in storage.
  • If possible, do not accumulate long-term debt.

SIDEBAR: Live Your Life Now

If your income was reduced by 50%, could you still survive in your current home? The following ideas may help you live at or below your means today.

  • Review your insurance coverage and deductibles. Does your coverage meet your needs?
  • Review your business expenses and business debt. Do you need to do a drastic overhaul on that budget?
  • Your mortgage payment should not exceed 25% of your DPI.
  • Your mortgage, utilities, insurance and maintenance bills should not exceed about 35% of your DPI.
  • If you’re not yet wealthy but want to be, do not purchase a home that requires a mortgage that is more than twice your household’s annual realized income.
  • Get rid of all consumer debt that is not tax-deductible.

SIDEBAR: Budgeting Expenses

Use the following itemized list to help you determine exactly how your 70% living expenses break down. Remember that if you are self-employed, you will subtract your business expenses (e.g., continuing education, office supplies, rent, marketing, etc.) from your DPI before you determine the 10–70–20 breakdown.

Living Expenses
(70% of your personal cash-flow plan)

Housing (mortgage, taxes, utilities, maintenance)


Clothing & Dry Cleaning

Transportation (car payment, gas, maintenance)

(dining out, movies, magazines, vacation)

Medical Expenses (doctors, medicine, dental, vision)

Communications (phones, satellite, Internet)

Insurance (auto, home, life, disability)

Children (tuition, allowances, activities, lunches)


Miscellaneous (personal, hair care, pets, etc.)

SIDEBAR: Habits of Millionaires

  • Millionaires
  • live below their means (spend less than they make);
  • have a carefully planned budget or cash-flow plan;
  • invest 15% of their income before they pay bills;
  • are goal-focused and have clearly defined daily, weekly, monthly and yearly goals;
  • spend twice the amount of time planning their investments than the average person;
  • put financial independence over displaying high social status;
  • are economically self-sufficient;
  • are self-employed;
  • are college graduates;
  • are disciplined;
  • are grateful;
  • are hard workers;
  • are self-confident;
  • utilize wise and experienced advisors; and
  • practice religious faith.

Source: Stanley & Danko 1998.

Kay L. Cross, MEd, ACC, CSCS, president of Cross Coaching & Wellness in Fort Worth, Texas, is celebrating her 20th year of business. She is a certified business and personal coach, an IDEA Master Personal Fitness Trainer and a motivational speaker. She can be reached at

References and Resources

Burkett, L. 2001. Debt-Free Living. Chicago: Moody Publishers.

Deneer, W. 2008. Anatomy of a bear market. Dallas Morning News (Jan. 2).

Investopedia. 2008a. The beauty of budgeting.; retrieved Jan. 25.

Investopedia. 2008b. Disposable income.; retrieved Jan. 25.

Investopedia. 2008c. Seven common financial mistakes.; retrieved Jan. 25.

Stanley, T.J., & Danko, W.D. 1998. The Millionaire Next Door. New York: Pocket Books.

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About the Author

Kay Cross, MEd

Kay Cross, MEd IDEA Author/Presenter

I have retired from personal training to return to my passions: painting, dance and coaching. I am a professional artist specializing in watercolor and pastel. I am also a creative life coach helping people discover their true self and passions again to live their purpose. You can find my artwork at as well as information about my coaching services. Kay L. Cross, MEd, ACC, CSCS, president of Cross Coaching & Wellness in Fort Worth, Texas is celebrating 29 years of business. Kay is a trained and credentialed life coach through the ICF. She is a national presenter and author of more than 60 published articles. Are you following your passions? Are you living your dream? Is your life full of good things? Are you listening to your spirit? Kay conducts coaching sessions by phone and can coach clients anywhere in the world. Visit us today at