Return to Your Notebook
Remember when we started this journey? You got yourself a pocket notebook and a pen/pencil. The task was to record every purchase, every day for 30 days. That journey is coming to and end and we need to evaluate our spending habits. If you’d like to review this approach, the original post is here.
Negative Net
If the results of your budget was negative, this means there’s more money going out every month than coming in. We need to get that value to at least zero. Take a look at your notebook. What are you spending money on? Are you stopping for coffee daily? Are you eating fast food daily or multiple times per week? What else. Look closely. Making a budget is hard and you need to make some hard decisions. If your monthly net is negative, it’s time to make those decisions. Review your notebook and review your budget. You need to find areas to cut and no, there’s no magic wand to make this happen. It will take sacrifice but a sacrifice that will be worth it in time.
Net is Zero
If your net is zero, congratulations. You’ve achieved the first step. I bet you know what’s coming next, right? Yeah, we now need to get this value into positive territory. Remember, we still have that prioritized list of outstanding debt, This still needs to get paid. Follow the same steps you did when the net value was negative. Trim those expenses even more. Again, there is no magic wand, we still need to pay our debt which means we need to cut our expensive. It may have been fun spending/charging without a care in the world, but now it’s time to face reality head on. Make the cuts. Get that net into positive territory.
Positive Net
If your net is positive, congratulations, this is where you need to be consistently. I’ll post more about this in a separate post, but I’m sure you already have an idea on where we’re going here. We need to pay off that outstanding debt and we need to have a positive net to achieve that. Don’t worry. This exercise will be helpful and once you get that outstanding debt paid off you can really start to build a financial future.
Our Notebook
Our notebook is paying off. You should be able to see patterns in your daily spending. You now have a full month of entries to look at. Review them, group them into categories. Do you see patterns? (coffee, eating out, impulse spending, etc?) This is all part of the financial education. You certainly need to know, specifically, what your financial situation is, but you should also know how you got there. If you don’t want to continue to make the same mistakes, then you must learn from past ones. Again, there’s no magic wand. You are responsible for your own finances, nobody else. You don’t need to be an accountant, you just need to be conscious about how much money you have coming in, going out and a plan to start building wealth.
More to come.