Let’s recap… Step one: open your eyes to your financial situation. Before you read on you should have your income and expense ducks in a row. You should roughly know how much is coming in and how much is going out. You will also have likely found some startling spending patterns and habits. Now that you are more in touch with your current situation, it’s time to make some lists. I personally love lists. I love checking things off said lists even more.
List 1: Debts. Find remaining balances on ALL, yes I said all, of them. If you owe someone money it goes on the list and that includes the 20 bucks you owe your BFF for the bet you lost about which character would die first in the last Game of Thrones episode. Next put them in order, smallest to largest and get a total. There is some controversy about this ordering. Smallest to largest is the “Dave Ramsey” way and the theory behind it is that you will feel some financial wins at the beginning of your journey helping to keep you motivated for the long haul. This worked well for me personally, which is why I recommend it. The other option would be to list your debts in order of interest rate highest to lowest. Yes, financially this would make sense, but psychologically it doesn’t and half the money game is mental. If you pay off the debt with the highest interest rate first you will save on interest payments, but I’ll be frank with you, it is hard. Usually the highest interest rate debts are the on the larger side taking more time to pay off. Think that maxed out AMEX card with 22% interest. Plus you will still have payments on all your other debts as well. You’ll feel as though you’re working your ass off and barely able to keep your head above water. This causes burnout real quick so kick the small ones to the curb first. Besides the sooner your Game of Throne’s debt is paid, the sooner your BFF will shut up about how she was right.
List 2a: Expenses. This is all your outgoing for one month. Mortgage, utilities, life & health insurance, groceries, pet food, Netflix, Hulu, cell payment, gas/metro card, car payment and minimum balances for all the debts on your list. Your bank statements or bill pay history can be very helpful in making this list. These payments are the necessities. A roof with lights and running water over your head, food in your belly, access to medicine if you need it, a way to get from point a to point b and minimum payments on debts in order to keep creditors from knocking down your door. Don’t worry about trying to minimize the payments. List them as they are. PRO TIP: look back at your utilities (gas, power, water, trash, recycling, storm water, sewer) for the past 12 months and get an average. Utilities vary, for example, gas bill higher in the winter, electric higher in the summer. But taking the average will keep you on par over the course of the year. There may be a little more in there a certain times of the year and a little less during others.
List 2b: Wishes. This list is the most fun to make, but let me caution you… it may not always be the most realistic. This list will include expenses that are more like luxuries. Gym memberships, money for hobbies (canvas and paints, yoga classes, golf games) college saving for children, skincare, haircuts outside of Supercuts, home renovations, trips, brunch with your girlfriends and date night with your man. List the item along with how much you’d like to save per month for these things. You do need to live in reality while you make this list. Jotting down $1,500 savings per month to save for a trip to Italy in 3 months when you have $80k in student loan debt = unrealistic. Once this list is made, order it from most important to you to least.
List 3: Income. Sadly this is usually the shortest list, but hopefully it is one of the larger numbers. It’s also the easiest. This number is your take home pay (after taxes!). Money earned from your 9-5 and the babysitting or Uber driving side gig you’ve been working. Any and all monies coming in on the regular in one month.
Congratulations. You are well on your way to taking control of your dollars and sense again. Not only did you look, you had the courage to dig deep into your expenses, debts and income. The next step is creating the budget. Take a breath and until the next post, be a more mindful of your spending. Every penny counts.
A Pinch of Opinion 