Know Where Your Money Has Been Going
Step One is about all knowing where you you’ve been.
There are a few steps in creating your new plan to financial success. The first step is looking into the dollars that have been going out. We want to create a new fresh budget for you to follow that includes dept payments, but we have to first know what your current expenses are like. This step takes digging into the past and perhaps making a few assumptions.
You are going to take a month and calculate every single dollar that goes out. This is going to take some digging and looking into all of your accounts. Nothing from here on out is going to work to it’s full potential if you don’t spend time on this first task.
Please don’t pay someone for a budgeting tool. Spreadsheets are great, but even a piece of paper works. Listed below is a super simple calculating tool for you. Take this calculating tool and enter all of your expenses for an entire month. There’s an extra spot at the end for any miscellaneous expenses you may have that are not already itemized on the list.
It’s very important we spend extra time on this step. After you’ve completed your outgoing expenses, take another look. We’re establishing a starting point here – it doesn’t have to be perfect, but we do want to capture what your current lifestyle is. Check to see what you have recurring as well. Besides a gym membership, do you have any other monthly subscriptions or payments going out like Netflix, Car Wash service, Amazon, Walmart+, XM Radio, Apple services, etc… At one point I had more “monthly service” subscription fees going out than I was putting into my retirement account! Make sure you’re capturing these.
Do you like going to concerts? How much did you spend on tickets last year? Divide that by 12 and put it on your monthly expenses. Do you (or maybe your kids) participate in a sport that isn’t free? Take what you spent last year on it and divide it by 12 and put it on your expenses.
Income
Let’s look at your income now. What do you earn in a month from all income sources? This number is after tax and after retirement contributions. Be sure to not count any funds that are currently going towards retirement. Be conservative if you aren’t sure what you should put or it fluctuates from month to month. This is an after tax number…It is the total amount that you take home and have to spend. This final number is so important – make sure you always know it.
Now take that number and subtract out the expenses you tallied up. What is left? How do you feel about this number?
What You Should Now Know
- You have your past budget clearly spelled out. You know where every dollar has been going.
- You know how much you are bringing in each month after taxes and any current retirement contribution.
- You know how much (or little) you have left each month after your total monthly income comes in and all expenses are paid out.
Super important to know these three things completely before moving on to the next Step.
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