Everyone seems to be striving to be fit lately. Following the latest diets and exercise trends. But what about your financial fitness? How's that coming along?Just like being physically fit takes a lot of continuous work, becoming (and staying) financially fit is a lifelong process. Fortunately - they both get easier with time. Today I wanted to share with y'all some of the key factors I consider to being financially fit, and some ways to help get you on your way there. Regardless where you may be on your journey to being financially fit, these tips will help keep your in your best shape!
Know. Your. Finances.
I know, this post is supposed to teach you how. But what I mean is, first you've got to know what you've got. Sit down and write out your fixed monthly income and your fixed monthly expenses. If you are married or have combined finances include all income and expenses.
For the purposes of these calculations, fixed monthly income is what you get on each paycheck after taxes. Your fixed monthly expenses are the expenses that you need or are already obligated to each month. These include things like hours payments (mortgage/rent), student loans, car loans/leases, electricity, water, cable, internet, gym, etc. While some of these expenses may not be considered "needed," it may be more expensive to get out of a contract than to keep paying it, so if you have any of those, assume for now they are fixed and not going any where.
At this point you should take your total income and subtract your fixed expenses.This is your discretionary income to spend how you choose. Of course there are still necessities that you need to consider that were not included. But - those amounts are not fixed, so you have room to budget and decide how much money to spend on any given item.
Set a Realistic Budget (and follow it)
Now quickly jot down all of the other items that you generally spend money on each month. Clothes, food, concerts, gifts, makeup, coffee dates, etc.
After you've written these items down, consider a few things and try to estimate how much you are already spending on these items each month. It is important for you to be honest and realistic. You, and perhaps a spouse, are the only one looking at this list, so there is no reason to fudge the numbers. Being realistic about what you have and what you can spend is KEY.
Add up everything on that list and subtract it from the amount you calculated above as your "Remaining Discretionary Income."
If you are left with a positive amount - great! This means that you are not spending more than you're bringing in. On the other hand, if you are left with a negative amount - that is your expenses are more than your discretionary income - you need to start considering where you can reduce your spending on certain things.
Depending on the deficit you see when you do this calculation, you may just need to make a few minor changes, or it may require some other major lifestyle changes. Below are some of the best recommendations I have to making changes in your spending. Alone they can each make a little difference, and together implementing any or all of these options can really make an impact.
During my Spending Freeze, I didn't allow myself to shop for clothes or any other items that I didn't need. For me, this primarily meant clothes and makeup, my two weaknesses. At the end of the Spending Freeze if there was something that I still really wanted, I let myself buy it, but this usually ended up being one item of dozens that I had considered over that time. Making myself wait for it really helped me to to think about whether it was something I actually wanted, or just something I wanted in the moment. I think at the beginning of taking that big leap into budgeting, a Spending Freeze is a great jump start to help you realize what you really can live without.
Alright, y'all, that's it! Easy, right? Of course not! Taking control of your finances can be a major task, especially depending on where you are in life, and the choices you've been making up until this point. The important thing to remember is that it's never too late, and there's never a bad time to start on this path. And seriously, every little bit helps. I hope y'all have learned a little bit - I'd love to hear some tips or tricks you have to staying financially fit! And as always, if you have any questions please don't hesitate to reach out!
Add up everything on that list and subtract it from the amount you calculated above as your "Remaining Discretionary Income."
If you are left with a positive amount - great! This means that you are not spending more than you're bringing in. On the other hand, if you are left with a negative amount - that is your expenses are more than your discretionary income - you need to start considering where you can reduce your spending on certain things.
Depending on the deficit you see when you do this calculation, you may just need to make a few minor changes, or it may require some other major lifestyle changes. Below are some of the best recommendations I have to making changes in your spending. Alone they can each make a little difference, and together implementing any or all of these options can really make an impact.
Track Your Spending
At this point there are dozens of different apps, programs, and plans you can use to track your spending. My personal favorite is Mint. In my experience Mint is very user friendly and is accessible almost anywhere. Mint allows you to connect (almost) all of your bank accounts and credit cards and will categorize your spending. Most of the time the program can identify what kind of transaction it was - health, gym, grocery, etc., but even if it can't - you can manually tell it what kind of transaction it was, and it will "know" that for future transactions at that location. When I first started using Mint I was shocked at how much I was spending on going out to eat, or getting coffee. Ten dollars might not seem like much for a lunch out, but if you do that a few times a week, every week, it can really add up. Tracking your spending is a great place to start because it also helps you see where you can cut costs, and you can see the actual dollar amount that you are spending on any given category.Careful Use of Credit Cards
Full disclosure - I do have a "regular" credit card through my bank, along with two or three store specific credit cards. I have always used credit cards for rewards, and generally pay off anything I charge to the card with in a couple of days. I can honestly say I have never used a credit card when I did not have the money already in my bank account. I know that I am probably in the minority, so for the rest of you, I urge you to use caution when you decide to open a credit card and do your research on websites like Credit Card Insider. After reading countless stories, and seeing first hand with clients (both as an accountant and attorney), credit card debt is a slippery slope and it is hard to dig yourself out. I do understand that there are scenarios when you will use credit cards, without having the money in your bank account, and it is necessary. However, the spending usually doesn't stop there. Once you've used that card and see how easy it is to buy something, knowing you don't have the money, the trend continues until you've racked up a bill that you'll have to pay off over 6 months with sky-high interest. I realize that sounds like worst case scenario, but it is becoming all too common, and is actually far from worst-case. My best advice to you would be that if you don't trust yourself with a credit card, don't open one. And if you already have one, but feel like your spending is out of control, cut it up right now because it will only get worse. It will be a long time before I can really say I'm debt free thanks to student loans and a mortgage, but at least I know that I'm not also having to factor in credit card payments from irresponsible spending for things I didn't really need in the first place.A Diet for Your Bank Account - Spending Freeze
There is nothing I love more than a good day of shopping. But a few too many shopping trips, and I immediately regret spending so much money. One of the ways I like to combat this habit, and in a sense make up for a few months or two of over spending, is to set myself up for a Spending Freeze (I totally made this term up). In the past I have either set the amount of time at exactly one month, or until a certain event was occurring, but still no less than one month.During my Spending Freeze, I didn't allow myself to shop for clothes or any other items that I didn't need. For me, this primarily meant clothes and makeup, my two weaknesses. At the end of the Spending Freeze if there was something that I still really wanted, I let myself buy it, but this usually ended up being one item of dozens that I had considered over that time. Making myself wait for it really helped me to to think about whether it was something I actually wanted, or just something I wanted in the moment. I think at the beginning of taking that big leap into budgeting, a Spending Freeze is a great jump start to help you realize what you really can live without.
Setting Your Budget
One last piece of advice I have for you - finances are a very personal thing. I don't just mean in a privacy sense, but also in how your lifestyle varies from someone else's, and what you choose to spend money on - or not - will not be the same as everyone. Searching Pinterest for "Budgets" can be very helpful, but it is also important to tailor a budget to your lifestyle. For instance, a lot of the budgets I've looked at include child care, or pet expenses, neither of which I have. On the other hand, most don't include student loans, which happen to take more than 20% of my income every month. It helped me to look at a few different ones and then create one just for me. If that is something you need help with, feel free to reach out. The accounting major in my loves nothing more than a good budget.Alright, y'all, that's it! Easy, right? Of course not! Taking control of your finances can be a major task, especially depending on where you are in life, and the choices you've been making up until this point. The important thing to remember is that it's never too late, and there's never a bad time to start on this path. And seriously, every little bit helps. I hope y'all have learned a little bit - I'd love to hear some tips or tricks you have to staying financially fit! And as always, if you have any questions please don't hesitate to reach out!
Have a great day, y'all!
