Lesson #1.3 Watch Your Money – The More You Look, The More You’ll See (1:40 mins)
The biggest reason most people feel overwhelmed by their finances is that they have no idea what’s going on with their money.
It could be a result of them not knowing what they should be tracking or they are too afraid to be honest with their financial situation and prefer to ignore it.
But the key to winning at money is to be clear, honest, and upfront about your financial situation
This means, being able to answer the following 5 things about your money:
1. How much money do you have?
These are your assets; this is any cash or value you have in your bank account, wallet, or even anything you could sell if you needed the money.
2. Who and How Much Money Do You Owe?
These are your debts and liabilities. From pesky student loans and credit card debt to the $10 you owe your roommate from movie night, calculate how much you owe
Easy peasy 🙂
3. What is the minimum amount you need to take home each month to survive?
These are your living expenses.
Overall, your spending can be broken up into two categories: wants (would like to have) and needs (things necessary for survival, making money to feed yourself, etc.).
If you had to, what’s the lowest amount you’d need to make each month to provide for your needs like rent, food, and utilities?
The Netflix subscription and hair appointments might be included for your regular lifestyle expenses.
But you also want your Egg and Cereal Budget.
The one you would go on if all you could afford is a carton of eggs to eat for breakfast and a bowl of cereal for dinner – surviving the zombie apocalypse type budget.
Alright, just two more questions.
4. what percentage of your money are you saving vs. spending each month?
PRO TIP: Some banks will automatically accumulate your spending and tell you how much you spent this month compared to the month before.
You’ll need to retrace your steps a bit here.
- Pull out your banking history for the last month or two, and calculate how much money you take home after tax each month.
- Then, figure out how much you spend each month.
What’s left is what you saved.
What percentage did you save vs. spend?
For bonus points, break it down even further and look at what percentage of your monthly funds go towards paying down debts!
Eventually, we want to hit a minimum of 20% of your income going to savings.
We’ll show you how to achieve this in our future lessons.
But for now, creating planned savings vs. spending goals is the first step to keeping your eyes on your paper.
Which leads us to our final question.
5. What things do YOU wANT to spend your money on?
That’s right — we’re not going to act like spending is ‘evil’ here.
Saving goals go hand in hand with spending goals. By knowing what you actually want to spend your hard-earned money on, you can double up on your wants and needs and save on the less important stuff.
That’s it! We’ll give you even more tools to answer these questions and mind your own money in the ACTION PLAN section of this module.