If you aren’t careful with your spending habits, you may get caught up in a cycle of trying to pay back old bills with money today that needs to go to current bills in order to live right here and right now! This is a habit we all should try to avoid.
1. Make a Budget
The first step to making sure something like this doesn’t occur is to sit down and create a budget. Many people I know enjoy making the mental calculation of how much they make each week/month, make sure they pay their bills, and spend the rest sporadically throughout the month on an assortment of things only to repeat the process the next month.
2. Understand your Income
Whether you’re savvy in excel, use an app like mint, or prefer to use pen and paper, begin with calculating any source of income you make in one month (if your income is inconsistent, an average is okay).
3. Track your Expenses
This next step is where most people begin to fall into a trap. Write down everything you spend money on underneath your 'income'. Be honest with yourself and think of the small things you buy everyday that may add up over the course of a month.
The goal is to break this down to be able to track daily. For instance, and in the example below, I was able to track the daily expenses based on a monthly budget for someone who earns $2000 a month.
You can adjust the values based on your actual scenario, but the goal is to have money directed to savings and investments just as we direct it to our bills each month. As long as you can complete this simple task of saving a portion of your income each day, you can live a financially stress free life.
4. Reallocate Funds
Spending $20 on Margaritas with your friends one night may not be ideal when you recognize someone who makes $2000 a month really only earns $67 a day. That’s a third of your income on margaritas! Once you have the data in front of you, CONTROL IT! Whatever percent of your daily income you’re trying to save, you may have to move some funds from the “want” category.
The cool thing about implementing a budgeting method like the one above is that it can become your world map to your personal finances. Once you can zero in and look at your budget broken down daily, you can start to adjust your spending to where you actually want your budget to be and start saving towards something you always wanted to do, such as a trip to Baja.
Comments