Crunching the Numbers
Episode #11 of the course Financial wellbeing: How to worry less about money by Maureen McGuinness
With the awareness of your current habits, an understanding of what persuades you to spend more and having tried ways to live with less, the final step is to apply this knowledge to numbers.
By now, you will have started tracking your expenses, which should have given you better insight into what you spend money on. Tracking your spending is not a reason to feel guilty, it’s a way of holding yourself accountable, and it allows you to make informed decisions. Creating a money plan without any information on how you spend/earn or save currently is like trying to make a cake without knowing how much of each ingredient to mix in. You’ll still end up with a cake, but it may not be edible.
For simplicity, I recommend taking the following steps:
1. Note your after-tax income. This is the amount that your employer pays into your account after all deductions have been made. If you spend beyond this, you will start accumulating debt. If you spend less than this, you can accumulate savings.
2. Figure out how much you owe. If you have any type of debt, this will continue to impact your wellbeing until you manage it actively. Instead of paying off the minimum each month, use the steps below to pay off more.
3. Note your fixed expenses. How much do you pay for where you live? How much do you pay in bills?
4. Calculate the difference between your income and fixed expenses. Once you have this number, you can assign a percentage to pay off your debt each month, so that you can pay more than the minimum. How much more than the minimum you pay is up to you.
5. Note your other expenses. If you’re unsure, this is where tracking your expenses diligently will provide insight. You’ll notice patterns in your spending that feel unnecessary. Once you see these patterns, you can re-engineer your spending habits. Can you do anything to reduce these expenses temporarily in order to put more money towards your debt? What’s an expense that doesn’t add any value to your life? Could you try a month without it?
6. Set a savings goal. You can start with $1 a day. If you live in the western world, $1 a day is a tiny amount. It’s a third of the price of a coffee from any popular chain. If you save $1 per day, you can put an extra $30 per month towards your debt.
Congratulations for completing this course on Financial Wellbeing. If you have any questions or feedback, feel free to send them to me.
If you enjoyed this course, you may enjoy one of Maureen’s books: Your Money, Your 20s and Top 10 Personal Finance Books of All Time. You can stay up to date with Maureen’s latest research and articles at The Life-Life Balance.
“The Simple Path to Wealth” by J L Collins
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