Gotta Start Somewhere!

I often get asked the question: “I’m completely lost with money, where do I begin?”. While many advisors would start by reviewing your statements, I like to start somewhere else.

Start with figuring out what you spend your money on. Show me your budget and I’ll tell you what your priorities are… and it’s probably not what you’d like your priorities to actually be.

Figuring out what you spend money on and being REAL about it is the first step towards creating a financial plan because then you can figure out how to reallocate your money towards the things that are your actual goals… my guess is that it has nothing to do with actively supporting Seamless!

Your budget is going to be a simple process but really take the time and energy to make it thoughtful.

Start with listing out all your fixed expenses. These are things you absolutely MUST pay for in order to live. If you lost your job, these expenses would not go away. Some common examples are:

  • Rent/Mortgage/HOA fees
  • Utilities
    • electric
    • gas
    • water
  • Telephones – home/cell phone
  • Insurance Premiums
    • Health
    • Auto
    • Homeowners
    • Life
    • Disability
  • Child care related expenses (if any)
    • medical care, food, a basic amount of clothing, diapers, etc.
  • Minimum payments on any loans or outstanding debt
  • Home repairs

Then, list out all your variable expenses. These are expenses that change with time and depend on your circumstances. If you lost your job, these would be the expenses you could eliminate or minimize to reduce the cost of your lifestyle. For this, you’ll want to make sure you have two columns. Label the first one “current” and the second one “goals”. For this exercise, really focus on the “current” column and figuring out exactly what you spend in each category. Be as honest and real as possible, even if the numbers on the page seem unrealistic. Some common variable expenses are:

  • Food expenses
    • Lunches
    • Breakfast
    • Snacks
    • Groceries
    • Dinners
  • Child care expenses
    • The cost you spend on a nanny or day care.
    • Allowances
  • Clothing
  • Laundry/ Dry Cleaning
  • Subscriptions
  • Memberships
  • Gifts
  • Donations/ Charity
  • Personal Care
    • Barber/Beauty Shop
    • Toiletries
    • Spa/Massage
  • Travel
  • Beer/Wine/Liquor
  • Entertainment
  • Pet Care/Supplies
  • Hobbies & Crafts

Once you’re done figuring out both your fixed and variable expenses, add the numbers together.

Now find your last few pay stubs or check the bank account your checks get auto-deposited into and figure out how much your net pay (the amount you get paid after taxes) each month is.

Subtract the number your got for all your expenses from the amount of pay you receive. There are 3 possible outcomes here: The number is positive, the number is negative, or the number is zero.

If the number is positive – this means you are SAVING money each month. Does the number you calculated match the dollar amount you save? If not, go back and figure out what you’re not counting.

If the number is negative – this means you are spending more than you earn. Take some time and re-evaluate your spending. Where can you cut back and NOW? Do you order out or go to nice dinners often? Maybe you’re too charitable. Maybe you can stay home a few more nights per week. You need to do the work to figure out how to live within the income you make OR find a way to make more income.

If the number is zero – this mean you currently live paycheck-to-paycheck. It is likely that you can cut back in a few places and get into the positive side to start saving.

If you’ve done all this – CONGRATULATIONS! You’re officially ahead of the 85% of people I’ve spoken to that have NO CLUE what they spend and how much their lifestyle costs!

We’ll get into next steps – next week!

Love, Life & Money,

Nika