It’s the 28th day of the month and you are beginning to have that glimmer of hope in your eye that you have survived another month financially. You pick up the mail and as you are walking back to the house you notice a letter from the bank. With nervous hands you open the letter and that glimmer in your eye turns to tears when you recognize it as an overdraft notice. Your account is overdrawn by $5.23 and as a result you now owe your bank and additional $35 for overdraft fees!
A feeling of overwhelming desperation settles in as you walk through the door and collapse in your favorite chair. “When will I ever make enough money to make ends meet?” you ask yourself out loud.
After a brief pitty party, your desperation turns to determination. “Starting today, I am going to find smart ways to budget money so this never happens to me again! I’m not waiting another minute. But where do I begin?”
I’m guessing that many people reading this article have walked in those shoes at one point in their life. That was me, many years ago. Maybe that is you, today!
This article is intended to show you where to start and provide some simple methods that can have a big impact on your finances.
It All Starts In Your Head And Your Heart
Have you ever heard of Hysterical Strength? Wikipedia describes it as follows; “A display of extreme strength by humans, beyond what is believed to be normal, usually occurring when people are in life-and-death situations.”
That is the kind of strength and commitment I am talking about! Only this life-and-death situation is your financial future.
Are you ready to get a little uncomfortable? Are your ready to change your focus and your attitude about money? Are your ready to change your financial future?
I hope so, because that is exactly what I am going to ask you to do. If you’ve got what it takes, then let’s get’s this party started.
This is not a quick fix. Take it slow and easy, one month at a time.
Month 1. Tracking – Old School Style
Some people will tell you the first step to getting ahead is to budget your money. That is certainly an important step, but if your don’t know what you are spending your money on, how can you budget?
So let’s talk about tracking. Tracking is very simple actually. Take a small pocket sized spiral notepad and physically write down and keep track of every single expenditure you make. No matter how small. No matter how big.
Now everyone has specific monthly expenses we plan on; rent/mortgage, insurance, car payment, utilities… Those BIG things are the known, and you need to track them. But what is going to blow your mind is that the small, sometimes daily incidentals that add up to real budget busters!
The daily incidentals are what can destroy a person financially. A soft drink from the vending machine, a bag of chips, a cup of coffee, dinner with friends… These small things add up QUICKLY! Just like a small snowball rolling downhill, it quickly accumulates into something massive.
You will definitely learn something about yourself during this time. And as you track every expenditure, you will also find yourself starting to save money because you will start to think to yourself, “Do I REALLY need this item?”
Your Goal: For the next 30 days, write down every transaction you make; whether it is cash, credit, or debit. And I mean EVERYTHING! Write down every last penny you spend.
Month 2. Cut Expenses
Now that you know where your money is going, what is the next step?
Simple. Rewind and repeat. Start tracking again. Continue tracking, and never stop! You need to know exactly where your money is going every month. If you don’t, you are going to back at square one.
So now I am going to give you your goal first, and then explain it.
Your Goal: Cut $100 in expenses.
This is not a suggestion. It is an absolute must do!
As you were tracking last month you most certainly came across expenses you didn’t need. You may have wanted an item, but you didn’t need the item. These are called non-essential expenses. And if you want to get serious about changing your financial future, this is where it happens
You need to start getting specific and cut out ALL non-essential expenses. Look at your tracking expenses from the last 30 days. How much did you already save? $15? $30? Now determine what else you can cut to reach $100.
It is going to take some soul-searching and some number crunching. Here are a few possibilities;
- Cut out snacks – You probably recognized this as the first thing you cut out already when tracking. But can you cut out more?
- Reduce fees – Take a look at your bills. Have you noticed all the fees on your bills. Talk to your service provider on whatever bill it is and take some action to reduce them.
- Avoid late fees – NEVER be late paying a bill again.
- Adjust the thermostat – Lower the thermostat in the winter and put on a sweater. Lower the cooling system in the summer. Reduce the temperature setting on the hot water tank.
- Reduce your cell phone bill! – I know. This one hurts! If you have a smart phone, get a “dumber” phone. Do you want to pay for a fancy phone where you don’t use all the options or do you want to lead a more financially responsible life? The choice is yours.
- Cut back your cable television – Reduce the number of channels you subscribe to or cancel your cable subscription altogether. Buy a streaming player instead and watch hundreds of free channels with the many apps that are available. Or better yet; read a book or listen to an audio book on money management or financial well-being.
- Cancel the gym membership – Hit the open road or do your workout in the house.
Be smart. Get creative. And before you know it, you have just cut $100 in expenses. And what that really means is you have just given yourself a $100 monthly salary increase!
Month 3 – Earn $500
But how? As long as it is legal and moral, I don’t care how you do it.
Sell everything! If it isn’t nailed down, sell it!
Get a part-time job. Have a garage sale. Sell your expensive car and buy something more affordable.
$500 is the minimum. Once you have it, DO NOT SPEND IT! This $500 is your lifeline. It is a reserve account in case something bad happens. Put it in an account that allows you to withdraw it at any time with no penalties.
When you have money sitting in your account THAT YOU AREN’T GOING TO SPEND, it will bring you a peace of mind.
Month 4 – Budget
Now that you are tracking your money, cut expenses, and have your reserve account, you are ready to budget. And you actually have already started this process when you looked through your bills.
You will find that tracking and budgeting are similar. Tracking deals with knowing what you are spending, whereas budgeting deals with categorizing how much you can spend.
Budgeting is simply a detailed map of how much money you receive and planning to spend your money BEFORE you spend it. Your budget needs to be extremely detailed. Let me say that again. YOUR BUDGET NEEDS TO BE EXTREMELY DETAILED!
And here is the number 1 rule: Pay yourself FIRST! You absolutely have to budget in savings before anything else!
You need to account for every penny of your net income, or take home pay. It needs to take into account all anticipated spending. This includes gifts, holidays, dining out, groceries, and literally EVERYTHING you spend money on.
Your budget will be unique and tailored to you specifically. Don’t let this overwhelm you. Keep it simple to begin with. Have a simple outline and it will grow organically as you begin to realize all the items you need to budget.
Here is a sample (VERY basic) outline to begin with.
|Income (all sources)||$|
- PAY YOURSELF FIRST! Savings is your FIRST item in your budget.
- Your budget will be unique. It will be different from any other budget you can find as an example.
- Be extremely detailed. Your budget will grow organically. Start simple and expand.
- Be smart. There are smart ways to budget money and you know yourself better than anyone else.
- Be creative. I’m not saying live like Ebenezor Scrooge. Just be creative about how you spend your hard earned money!
CONGRATULATIONS! You are tracking, budgeting, saving money, and well on your way to changing your financial future. Now you need to start earning more monthly income. There are numerous ways you can do that from the comfort of your own home. Don’t know where to begin? Check out my #1 recommendation.
As with all posted articles, please leave any comments and/or questions and I will reply to you. Wishing you great success!