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For most people the concept of budgeting our expenses seems very daunting and, let’s face it, having a budget is not particularly fun. However, no matter what financial position you are in, understanding your expenditures and income is absolutely vital to financial health. Consider, for example, the average person who drives to work. What daily expenses do they incur along the way? If they’re like many people, they will purchase a coffee along the way to work. When lunch-time comes they will go to the local coffee shop or restaurant and purchase one. And, I might add, let’s not forget the gas to get to and from the workplace. Assuming the coffee is $1.20, the lunch is $10, and the workplace is about 10 miles away @ $2.20 for one gallon of gas, the estimated expenses just to get to work for this person are $268 per month or $3,216 per year!
If you’re in a similar situation, you might not have thought of your daily work routine as costing you over $3,000 per year. After all you just feel like you’re forking over a few dollars every day. As you can see though, your daily expenses can add up in the long run. Now, think about your debt situation – could you use an extra $200 a month toward your credit cards or mortgage payment? If so then here’s my advice: sit down and list all of your expenses (including your credit card and mortgage payments) and then list all your income from your pay-stubs. Make a very simple personal “income statement”. Then ponder over these two questions after you do so:
Question #1:
Do I need that, or do I want that?
In our example above, this person doesn’t need to have a lunch out every day, but he, like I, certainly wants that! Take a look at your income and expenses. Is there something like the lunch that you can cut out? Are you buying a coffee every day? Maybe you’re buying name brand clothes instead of cheaper ones? Look for ways to distinguish between needs and wants.
Question #2:
How can I get my income to be greater than my expenses?
The key to running a successful business is also the key to running a successful personal life. Make your income greater than your expenses. Have a high interest rate loan? Switch it to a company who’ll give you a lower rate. Want a nice meal out? Maybe you could skip that and use the money to pay down your highest interest rate credit card.
In conclusion, if you’re in debt, take a look at your financial situation. Make a “snapshot” of every month and see where you can reduce your expenses. Throughout the month make sure you try your best to stick to your budgeted expenses. Then put any “profits” towards paying off your debt. With enough determination to pay off your debts, and smart money management, you can not only one day become debt free, but also have a nice sum of assets as well!