It is often said, Where did all my money go? Whether you have actually said this outloud, or simply thought it, it’s one of those things that seems to happen to everyone in some way or another. One of the simplest things you can do to avoid that happening to you is set up a plan for your future. Here is a good template to follow:
Start by breaking down the overall picture of your finances into smaller, more manageable chunks.
This is rather simple, but very easy to get carried away with. Some planning tools allow you to track everything and show your trending patterns, give it a months worth of expenses and it can extrapolate your whole year. But really none of that is going to save you money if you don’t understand it.
Don’t go past a year, you want these plans to be realistic. Even a year is hard to get a good handle on your financial outlook, so let’s break that down into months. If that is too much for you, then break it down into weeks. For most people, months will work just fine.
Take inventory of your resources coming in.
You most likely have income, so what does that look like? Is it steady each
month? Is it based on your performance? Is it seasonal? All these factors can
mess up your financial future if you don’t plan accordingly.
Maybe you have multiple sources of income, add those up and see what you have to work with.
Find where all your money is going.
Here is where things are easy to miss, like most of us, expenses are everywhere and range from automatic bills being paid online, to cash transactions. Our motto is keep it simple. You might not need to add up all your cash transactions, just use the sum that you withdrew from the bank or ATM. that will suffice for planning. One of the easiest methods is to use a spreadsheet as your one place to consolidate spending information. There is a reason accountants like spreadsheets, and it’s not for their symmetrical appearance.
Don’t forget your interest! Balances left on a credit card accrue interest, and that counts as an expense too.
Managing credit card debt is one of the most important factors in planning for the future because the amount you owe can vary drastically from month to month. A long term loan is easily planned for, but a short term spending spree on your credit card will hurt you next month if you are not prepared for it.
Sort through what is necessity and what is desire.
Don’t blur this line, We aren’t cutting spending habits yet so don’t think you have room in the budget. This is taking inventory, you are just sorting out what you can, and cannot live without. Don’t blur this line, it is so easy to justify a need when it really isn’t one. We all cave in to impulse purchases. Marketing companies have it so dialed in that you hardly have time to think before it’s in your shopping cart. But ask yourself if you really need it. Do you need that gadget that you aren’t even sure what it does? Probably not. Do you need to pay your mortgage, or rent, well not unless you want to be homeless with a gadget you still haven’t figured out yet. Do this with all your expenses till you have all of them sorted between those two categories.
Decide what to do with the finances that you don’t have allocated for necessities.
This is where you get to relax a bit and not be so critical of your finances. If you weren’t critical of your spending then now is the time go back and do step 4 again.
If you think you did a good job of dividing up your expenses, then total up what you call a necessity. Once you have that total, subtract it from your income. This is what you have to work with now.
So think back to what caused you to ask where all your money was going. Were you trying to save money but couldn’t figure out where it would come from? Was it the shocking realization that payday isn’t for another 4 days? Whatever you reason for asking yourself that question, here is where it gets answered. You now have a sum of money that you are choosing to either spend on something you might not need, Or save it for later down the road.
Also keep in mind that if your income isn’t steady, saving might be a good option to cover necessary expenses for those months when you don’t make as much. You don’t want to go into debt if you can help it.
Is that the best you can do?
Necessities are perfectly fine to have, but does that mean when the car breaks down you roll over and give away your hard earned cash. Of course it doesn’t! Shop around, get the best quote you can to fix that car. You need food, but is there a better place to shop for said food? Is there a coupon or a promotion you can take advantage of? Yes, things like this take time, but after you get the hang of it, you will spend a few minutes saving yourself a substantial sum. Some are so dedicated to this that they won’t buy something unless it is a deal for them.
They key to the whole thing.
You can make your plan as complicated as you like, but the best plan is the one you stick to. Start simple and work your way into it. Create the habit of planning. Make it fun! Make it creative, Make it something you want to do.
As Jim Rohn said “Motivation is what gets you started. Habit is what keeps you going.” You might have had a motivation for wanting to start planning your financial future, but the habits you create will secure that future, and prevent you from again saying, Where did all my money go?
If you wanted to lose weight, gain muscle and increase your athletic performance, you’d talk to a personal trainer. If you wanted to learn Yoga, you’d work with a Yoga instructor. You get the point, success in any endeavor is more likely when you model the appropriate behavior that has a track record of success. Tackling your debt is no different. You need to take action, to get out of debt as quick as possible, saving as much as possible, all while keeping your monthly payment as low as you can.