Every so often (for most of us at mid month when our cash is out) we will look at our personal finances and wonder, ‘where does it all go?’. We do our annual tax returns, look at the money we took home as net pay, and we can’t account for most of it, and we resolve to budget and plan the next year.
The question no one seems to have a practical answer for is how do we budget? How do we use our money wisely?
For me, this has been a tricky area, despite the fact that I’m a finance professional, and I’ve had to just study up, and surprisingly, the principles in personal finance books match so closely to those in the Big Book.
This posts outlines the basics, I hope to do several posts on personal finances even to help me clarify my thoughts.
Where do we start?
- Where is the money going? For one to have a working financial plan, they have to answer that basic question. Unfortunately, there’s no shortcut to this, than tracking your day to day spending. Experts recommend you track your expenses for 3 months. In my opinion, one month is quite enough to have a basic budget, then refine it in the next 2 months. Live normally for 30 days, let the money run out on the 17th like it usually does, but note down every single cent you spend. Too much work? Well, how important are your personal finances? Then classify these expenses. My classifications usually are something like this; Food (critical), food (luxury), clothing, utilities, transport (critical), transport (luxury), entertainment, giving etc
- Choose a percentage of income on which to live. We all live on a percentage or our income. Be it 50% or 150%, a percentage is a percentage. After you track your expenses, you’ve got to make a decision to reduce on certain non critical expenses, to arrive at a healthy percentage.
- Get Rid of Dumb Debt. What is dumb debt? Debt which is valued higher than the asset you bought using it. High on this is credit card debt, followed closely by car loans. Have a plan to clear your debt faster than the bank recommends and work on it. Chances are, once you have a plan in place and you’re making extra payments, you will clear that debt faster than you even planned.
- Deliberate Giving – This is non negotiable. Whether your a Christian or not, the principle of giving always works. Practically, giving to the less fortunate breeds contentment in you, as you realise how blessed you are, and on a higher level, it does come back to you. The order should be Give, then Save, then Spend. This is a growth area for most of us, and it’s healthy to start at a small percentage, then increase it as you go. Where to give? That’s up to you.
- Choose not to buy. Culture and peer groups force us to spend on stuff we don’t necessarily need. For example, do you need to upgrade your car? There’s something very empowering in knowing, I can drive that Land Cruiser, but I chose not to buy it, compared to saddling yourself with a Land Cruiser on loan, just so you own it. It’s more fun to choose what you will not own, than own something you cannot afford.
Most of this post is borrowed on the Lost Series, by Andy Stanley of Northpoint Community Church. Get the podcasts, they will change your life!
Contributed by Kellie over at the Rookie Manager. Kellie is a blogger and an avid outdoors sports lover. She also loves motorcycles.