Most people don't sit down and take a look at where their money goes, simply because they don't want to know how much trouble they are in. It is a look in the mirror and can be quite an emotional experience. Not as bad as finding out exactly how much debt you have, but tough nonetheless. If you don't know where your money is going, you need to find out if you ever expect to get on top of it! My advice is to get a computer program to help you. I bought a copy of Quicken on EBay for a little over $20, but you can do it for free on paper or you can use excel spreadsheets. The point is to do it.
To start, get all your bills, receipts, bank statements, paychecks and anything else pertaining to your finances out for the past month. Add up all your money that you have made and write that number down. Then add up all the money that you spent(including credit card purchases) and write that number down. If the money going out is more than the money going in, you have to change your spending behavior immediately!
If you don't have records of all of your transactions from the last month, then start keeping track now. I have a special pocket in my wallet that only receipts go in. At the end of the day or couple of days, I pull them all out and put them into Quicken. I ask for a receipt for everything! If I can't get one, I ask for a piece of paper to write it down.
Next put all of your transactions out into categories by what was purchased. There are two major Categories that all the others fall under; indiscretionary, which means you have to pay them in order to survive/maintain your quality of life, and discretionary, which means your life could continue without it. For Example:
Utilities(not cable and satellite)
Anything required to fulfill your job duties
Cell Phone(you can survive without one)
If you aren't sure if something is discretionary or not, try to live without it for two weeks. If you don't die it's probably discretionary.
You should have a good Idea of where your money is going now. Once you have done this, you should have a pretty good idea of what you need to do next.
Friday, October 31, 2008
Rich or Poor is a frame of mind, not a set of circumstances. How many rich people have you heard about who who lost it all, only to become more wealthy afterwards? Better yet, how many poor people have won the Lottery, only to be poor again six months later? So with this in mind, you have to get your head right if you want to get your money right.