I don’t like watching the news and rarely do. I claim that not knowing exactly what is going on makes the world look like a better place. My parents call it the ostrich approach (you know sticking your head in the sand ;-)) But really, who am I kidding? Even if I don’t watch the news extensively, I still know more or less what is going on in the world.
I meet many who don’t want to know what their money situation is exactly. Most people are aware of how much exactly they earn, but when it comes to expenses, most people have no idea. The thing is that even if we don’t want to know the exact situation, most of us still have a pretty good idea of what is going on.
As you might have guessed, I am all for finding out your exact financial situation. Bu doing that, I believe that you can take control of your money instead of having them control you. In addition to that, you might find that it also relieves you of many worries and even stress. Who wouldn’t want that? Here are 4 steps how to:
Step 1 – What is your current situation?
The first step is figuring out your current level if income and expenses. On average, how much to you spend and on what? How much do you earn? In Table 1, plot in all expenses and incomes in the right categories from the last 3 months (using bank and credit card statement). This will give an average and a much clearer picture of what your current situation looks like.
Step 2 – What are your priorities?
We all have priorities. What is important for me might not be that important to you. Priorities should have a definite saying in how we spend our money and that is what Table 2 is for. Using the data found in table 1, you should go over every expense line to see whether or not you can cut something down in that category and how much. For example, let say that we say in table 1 that we spend this amount of money on clothes on average monthly. Is it something we can change? Can we cut some of that sum? Could it be spent better elsewhere?
Step 3 – How would you like your situation to look like?
So now we have your current spending and earning situation (table 1) and your thoughts in numbers of the changes you would like to make to that (table 2). Table 3 is for creating a plan for how you want your financial situation to look like. It is for building your financial framework, the budget. The most important part is the bottom line; don’t spend more than you earn.
Step 4 – How are you doing?
So you have your average spending, you have your priorities and you have a picture of how you want your future situation to look like. Now it is time to figure out if you are sticking to that plan. This is called the monthly follow up and can be found in Table 4. Here you see how much you are actually spending and earning and if you are staying within the borders of your plan, the budget.
It is an ongoing process, taking charge and responsibility of your actions and of your finances. It might seem like lots of work. Like everything else, though, practice makes (more or less) perfect, so it is really a matter of taking on the challenge. The results are worth it!