Straightening Out Your Finances: Part 2
This is the second part in a multi-part series about getting a handle on your finances.
Sample fixed expenses
Yesterday, we looked at getting an overview of your income and spending habits. Hopefully you signed up for one of the online finance utilities that I mentioned yesterday. In my experience these have become an invaluable tool for my own financial awareness. They have helped me become a conscious spender, much more mindful of where my money is going. Ultimately, I can thank Mint.com for saving me money. I always know what is in my bank account. I always know what the last thing I bought was. More importantly, I always know what I have left to spend thanks to my budgeting and awareness.
Budgeting is not all that hard
I have yet to meet anyone that actually enjoys creating a budget and abiding by it. Budgeting is really not all that hard. It may not be fun, but it doesn’t have to be a struggle. The most important thing you do is that you pay your fixed expenses every month before you look at discretionary spending. This will keep a roof over your head and your car on the road. If you look at the graphic at the top of the screen you’ll see an imaginary budget that I created. Lets look at how one month breaks out for fixed expenses:
- Student loans have a minimum of about $400
- Let’s say the real minimum is $100 but I want to pay a minimum of $500 of my credit card debt for that month to try and bring that total down.
- Rent and utilities are combined and cost roughly $1100 (no one can really predict utility costs, always build in extra to your budget
- That is a total of about $2,000.
Now lets suppose your income is about $3,000 for the month. After removing the fixed expenses this leaves us with $1042 to save, spend, and live off of for the month. That’s not a huge amount, but its not terrible either. Things could be worse. Remember: your goal is to grow your money over time. In that light, let’s set aside 10% of our monthly income to put into a high yield savings account to start saving money for an emergency fund. This leaves us with a total of $728.23 based on this break out for the month. Depending on your current financial situation paying $400 dollars more/month may not be totally reasonable. For a single 24 year old guy, living in a city with decent public transportation, this isn’t that bad. Everyone has a unique situation. The point of the fixed expenses chart is that you should lay out everything you feel you need to be paying every month to see what is left.
The next step
From here you can go back to the software you’re using to get your financial overview and look at how your spending money fits in with your current habits. Look at the percentages, and start to segment your remaining money. What can you cut back on? Where can you find cheaper alternatives to your current vendors? Don’t try to apportion all your money, remember you can still save more here to add to your savings, or pay off more debt.
