The following is a guest post. Enjoy!
“Where is All My Money Going?”
If the title looked at all familiar, you’ve struggled with the all too familiar problem of making ends meet. Most people live in this state at one time or another. There’s nothing wrong with that. The problem is, some people live this way their entire lives, which should be avoided if at all possible. Some of the conditions which lead to this lifestyle are unavoidable. But most, I’m sorry to say, just aren’t. If you don’t know where all of your money goes, it’s time, my friends, to make a budget.
A budget is all about active money management. Management isn’t easy for everyone. It can be hard to tell other people what to do, and to make consequences happen if they don’t or don’t want to. But it’s even harder for most people to manage themselves. It’s an uncomfortable task to look at one’s own life and identify personal behaviors which are creating problems for yourself and others. Creating a budget is an exercise in doing just that. And even though it’s not fun for most, it’s important and it’s the only way you’ll get ahead in your financial life.
Before you start a spreadsheet, it’s important to look closely at your bank statements from the last couple of months. Go over them with a fine toothed comb, and take note of any unexpected events. See any surprises? If you’re not used to looking at your finances on the regular, you’ll probably find at least a few. The first surprise is a payment that you make that you didn’t know you’re making. PPI is an example: a kind of insurance that was tacked onto mortgage applications in the UK. People paid for it for years before they found out they were doing so, in many cases. Other people will have automated payments for services they no longer use, or for subscriptions they’ve forgotten about. First things first, kill off all these unnecessary payments.
Now look at everything you’ve spent over the previous month for food, entertainment, housing, and other important categories. Be merciless and give yourself a specific total figure. This can be painful, because most people spend a lot more for things like food than they previously thought. You don’t want to spend more than 20-30% of your monthly income on food. If you’re way over that amount (as many people are), you’ve got to make some changes.
For the next couple of months, keep your spending to levels which are well beneath that which you bring in from salary and other earning opportunities. Keep up this behavior for a long time and you’ll find that your money isn’t so tight after all. But to begin this process, it’s essential to look at these behaviors closely. Without close scrutiny, you’ll only have a general idea of what you’re spending and where, at best. If you don’t get specific you won’t be able to ask the question in our title, not really.
