Help! My (fill in the blank) Ate My Paycheck! Where Do I Start?
Many people go to work everyday to earn a living, but don’t have a plan for the money they make. It silently disappears between paychecks; drained away by bills and day to day spending. They may not even know they’re over-spending each month until they miss a payment or receive a notice from the bank that they’ve overdrawn their account. For some, this is their wake up call and they begin to pay more attention to their finances and make changes to their spending. For others, life continues as is and their problems worsen because they don’t know where to start. Their answer is usually turning to credit cards and other loans which only exacerbates the problem and drives them into debt. Almost everyone has their version of an invisible drain on their finances. For you it may be your social life, the habit of eating out nearly every meal, shopping, traveling or any number of other things. If any of this applies to you and you want to move in a more financially sound direction, keep reading to learn where you need to start.
Start by thinking about your goals – what’s important to you, what brings you joy? Where do you see yourself in a year or five years? Write it down, make it specific, and set it aside. Next, take stock of where you currently stand – the good, the bad, the ugly. Before you can make progress, you have to understand your current situation so that you can prioritize the most important things to work on to get you closer to your goals. Begin with your estimated monthly income- all money coming in on a regular basis. Knowing this number is critical because it’s the boundary for your total spending and saving. Next, make a list of your monthly fixed expenses or must-pays which typically include rent/mortgage, car payment, insurance payments, credit card minimums, student and other personal loan payments, bills/utilities, childcare, gas, mobile phone and an amount for groceries. Subtract these must-pay expenses from your income and see what’s left. Now, read your list of goals again before you proceed.
Next, review your non-essential expenses such as cable, online subscriptions (NetFlix, Hulu, Spotify, Apple Music, etc), eating out, shopping, travel, entertainment, etc and ask yourself – is this expense getting ME closer to MY goals? This question applies to your fixed expenses also. If socializing with friends on the weekend, your gym membership, or your specialty coffee bring you joy, budget for it. Cut out the things that don’t. Start by clearing any low hanging fruit like subscriptions you aren’t using, or that don’t cost you anything if you cancel and resubscribe later. Look for any account fees and overdraft charges; these can usually be avoided if you monitor your account balances on a regular basis. After you go through the easier fixes, think hard about why you are spending money on certain things. What causes you to spend money that you don’t need to and doesn’t really get you closer to your goals? Is it bored online shopping? Convenience food delivery? Living in a certain area? Driving a new car? Be honest with yourself about what your habits that don’t support your goals are costing you. If you can’t find enough places to reduce your expenses, you’ll have to find more income. There are only 2 sides to this equation: money in, and money out. There’s no other way.
Once you know where you stand and where you’re going, using a tool that tracks your spending (like BrightDime) and creating a spending plan for your money can help keep you on track.
As you move ahead, if you regularly think about how the choices you’re making now will affect you in the future, you’re more likely to make better decisions and less likely to spend on the things that don’t ultimately get you to your goals.