If you’re committed to getting your financial act together, where do you start? In the previous entry we talked about defining what matters to you and why it matters to you. Assuming you have identified and defined what matters most, it’s time to assess the road you must travel to get to your stated goals.
Where do you start? You need to first to determine where your greatest disservice is coming from. What are the sources that are blocking you from achieving your financial goals? What are some common problems? The first one that comes to mind is debt. Often times people incur credit card debt that has a very high interest rate. Most items bought are not worth a 20% associated interest rate that many credit cards can incur when payments are late. Unmanageable debt must be killed as soon as possible.
Bad spending habits is encompasses many activities. Such activities are a significant hindrance to reaching ones financial goals. It’s often a leading cause to getting into debt as described above. Frivolous spending is a disaster. To make things worse, marketers have discovered long ago that putting items on sale is equivalent to throwing blood into shark infested waters. People gravitate to sales regardless of need and value. Whether something is on sale or not, the bottom line is whether it is actually needed. If it’s not needed, then it’s killing your larger financial goals. The sale is not a deal, but a delusion. Think of that every time the itch comes to spend money on something that’s unnecessary. Shall the minuscule dreams or the big dreams be your master? The choice is yours.
Having a 100 pairs of shoes and credit card debt is not going to get you a new home, new car, your kids through college or exotic vacation. It’s an awfully high cost to look cool. The same goes for all types of spending that is derailing your larger dreams.
Enough pontificating. It’s time for the rubber to meet the road. The Monthly Budget Tool on this site is a simple spreadsheet that allows you to list your monthly income and expenses. The kicker is that you are entering variable and fixed expenses. The variable expenses are things that you have some control over on a monthly basis. For example, if I go out to eat five times a month, I’m probably going to incur at least $100 in charges. Yet, the next month I may choose to go out one time. I still have to eat regardless, but by not dining out allows me to reduce my food costs by shopping for more reasonably priced foods. On the other hand, I may have a fixed expenses such as rent or a mortgage that is going to be much more difficult to change from one month to the next. This would be a fixed cost. The cost of servicing debt, such as paying down a credit card, might be a fixed expense, too.
After you’ve completed the spreadsheet, you will see what variable expenses exist. These expenses are where you can have the most immediate impact. What costs can be reduced in the future? How can these reductions help to get you toward the goals you’ve set for yourself?
Before you decide to go any further in fixing your personal finances, it is critical to know what variable expenses you are incurring on a monthly basis. This is where you will be able to gain strength and momentum. Change takes effort and seeing success in the early stages can give way to a further belief that what is sought can be obtained.