Configure the Figures
As you make attempts to build a better mindset for money, you will have a lot to learn about your figures. And for those who had trouble with math in school this may sound overwhelming. However, I want you to relax. We are talking about simple math. Anything more complicated than adding or subtracting has a simple formula to follow.
Keep in mind that compiling figures will help to tell the story of your money matters. I want you to experience what is real and what potential you have for financial freedom. I will offer some glimpses of what that may look like for you as I explain the figures you need to work on for yourself.
Face Reality in Figures
For those who have not already done so, I want you to acknowledge what is real in your financial figures. You will be able to make some progress by using a budgeting process which starts with your current spending habits and income stream, which defines your present financial position.
You will not be able to mark any improvements until you have figures you can compare to when you do make some positive changes. And, by positive, I mean changes that help your income stay above your spending. That would mean a positive cash flow.
As for your income, most of you can see that easily. However, spending is more challenging. I am a bit old school and keep receipts. Of course, if you use debit cards instead of cash most of the time, you will have a fairly good idea of why money was spent based on the name listed on your bank statement. However, whatever the source, you will find that you spend more than you thought in a variety of ways. That is your current reality. And some of those habits will have to be modified.
The Stories They Will Tell
Yes, I made a living compiling numbers for corporations, as an accountant. So, I know it is not easy, even if you love math. However, like in business, you can learn a LOT from the figures you compile of your own spending categories and income sources.
By accumulating information over a two- or three-month period, you should have a good average of your spending habits to analyze. Not everyone will have the same categories of spending habits that will eventually become the basis for your budget. Keep it simple to start, even use Miscellaneous, if you must.
To make the figures talk even more, put percentages by each category. This will help when you set goals to better control or keep your spending less than your income. What do you spend that amounts to 20 percent, 30 percent, 40 percent of your take home pay?
Percentage = Part divided by the Total (100 percent)
“I Do Not Have Enough Money to Budget”
Many who go through this exercise of facing their reality will find that their spending is higher than their income. The assumption here is that the difference between the two is being covered with credit card debt. (Been there, done that!)
And, yes, the conclusion they make is that why bother when they can see something they already knew, “I do not make enough money to budget.” That is not the point of the lesson I have suggested. The message is that now you know why you have spent more than your income.
You spent more than your income because you ignored your income and spent based on what credit was available, not what cash was available.
Build a Bigger Box
You may have many credit card companies willing to give you credit. However, it will have limits. What will you do when you reach those limits? Ask for more?
The credit limits are not the problem. The more you use a credit card the higher your payment will be due next month, which also reduces what cash you have available to spend, which adds to the pressure to use the credit card if you do NOT control your spending.
You will eventually find yourself in a box that will be difficult to get out of unless you make some positive changes. Some of which may hurt or at least be uncomfortable.
Focusing on income instead of spending will help you build a bigger box. That will give you room to work on spending cash instead of using credit.
Tape Measure or Ruler?
Though a ruler will help to draw straight lines for your manual budget sheet, I thought I should add a few practical thoughts for money matters.
First, most banks look at you funny when you apply for a loan, and you say that you have little or no savings. You would think to yourself, “If I had savings, why would I be coming to you for a loan?”
Smart thinking. Remember that as you compile your budget. Get into the habit of paying your savings account first! Then, you will have savings and no need to go to the bank for a loan!
Second, being aware of what you have coming in and going out is a BIG step in becoming a good money manager. This is important because it is what you have available for all expenses. Not enough? Don’t spend it!
Third, be aware of what you do not want to have, which is DEBT!
Essentially, you bought things or services when you did not have the cash to pay. You now have a claim against future earnings. That means your future earnings have LESS spending power (a concept lost to millions of people).
So, How Do I Correct That?
The first step to correcting that mindset is to pay attention to paying off debt early.
Second, cut some spending on fun things until the debt is paid. That is most likely why you have debt anyway.
Finally, learn to earn, cut the debt, pay yourself to build savings!
Like a Diet
It is so much fun to gain weight, eating all those goodies, and so hard to lose weight, by not eating. So, it is like making positive changes (not always fun changes) in your spending.
It can be uncomfortable. You must be very conscious of the details with a goal in mind.
Now and Later
Regardless of your current situation, I am hopeful that you are reading this to learn how to make your situation better. That is great news, since the will to do better is the basis for learning. And using the knowledge you gain will give you hope for better times.
Making positive changes will have a long-lasting effect. Though the effect may take a while for you to see from that hole you dug for yourself. Have some faith. Think long-term. And soon, you will fill that hole and build a mountain!
Mark Your Progress
You can set milestones that will help you keep your enthusiasm up while you make the necessary sacrifices and allocate the needed payments to reduce debt. Then, you can focus on building savings and working on improving your income.
As your situation requires, you may have to work through this process for many months. Setting up a budget will help you get things under control. It will take a while to regain control. Be patient.
I would suggest you track the following figures:
- Each debt balance by card or bank.
- Your savings account.
- Your investment balances (if you have any).
- Your monthly income (Remember: bi-weekly pay includes two months per year with an extra paycheck).
When you set milestones, make yourself stretch a little. Not every month will be a good month.
So, realize that some of your goals (milestones) will not be realized as soon as hoped.
They are just hopeful goals, but worthy of respect. You will learn as you go to adjust for real progress.
Set dates and balances to be attained by those dates. Go over the reasons why you did not reach your goal. What changes do you need to make? Are you not willing to make changes? Are you giving up? You can do this! Look for a way to do it and you will find it.