It seems simple enough, right? Know how much money you make and know how much you have to spend, when paying the bills and other expenses. This is the easiest way to start figuring out how much money you can afford to save each month, yet I’m not sure how many people actually take the time to do it. So many people live paycheck to paycheck… paying bills, spending money, and never really comparing their monthly income to their monthly expenses. It’s so simple and very effective! As you read this, most of you will probably think, “This is some really basic information.” Well, I start with the basics because it’s the basics that have helped me to save as much as I have over the years. You never know, maybe one little thing in here will get you thinking a little differently…
Write it Down
Yes, I said write it down. You know, with a piece of paper and one of those writing utensils. Ok, well maybe you don’t have to use a pen and paper, but believe me it helps! Seeing something written down on paper can make it a lot clearer to you. It’s the same reason people always say you should make a “to do” list. It makes it easier to see what you’re up against rather than just thinking about it in your head.
Get Out the Old Calculator
I like to use the old fashioned calculator because I like the satisfaction of pushing the buttons and seeing the numbers on the little screen, but you can use whatever you want… a computer, an abacus or maybe just some pebbles on a smooth table. Using a calculator makes it easier when we start getting into percentages and then adding and subtracting income and expenses.
Most people know what their yearly gross income is and they see how much they get in each of their paychecks. That’s simple. Did you ever actually look to see what percentage of your gross income is taken out for state and federal income taxes? You should probably know what income tax bracket you’re in. It will be more important when I start discussing 401k and IRA contributions because you’ll want to figure out the pre-tax percentages and blah, blah, blah… I’ll get into that in a future blog post though! This Forbes article, 2012 Federal Income Tax Brackets (IRS Tax Rates) can show you exactly what bracket you fall under. They take how much?!? Exactly.
So, you know how much your paycheck is, but how often do you get paid? Every week? Every two weeks? Twice a month? Once a month? You’ll need to know so that you can figure out exactly what you’re monthly income is. Getting paid once a month or twice a month is easy because you know exactly how much you’re making each month. Getting paid every week or every two weeks is more exciting though (at least I think it is). Here’s a couple things to think about:
- If you get paid every week, try to not live paycheck to paycheck, and look at the month as a whole. Always think of your monthly income as being 4 paychecks and that is exactly how much money you have to spend that month. Doing that will actually give you four extra paychecks during the year that were not counted in your monthly income.
- It’s the same thing with getting paid every two weeks, but you’ll have 2 months out of the year where you’ll have an extra paycheck!
I know, not everyone can do this because they need that money to pay bills and such. Think about it though and consider it while you’re planning out your budget. After you take a good look at your income and expenses it may be possible for you to think this way and having those extra paychecks is an amazing feeling! I mentioned it in my Introduction to Saving Money post a few weeks ago, and this is a good example of the mind trickery I was talking about. Trick yourself into believing you don’t actually have those paychecks until you actually do… make sense?
In my next post I’ll cover expenses and then give an example of how I would plan a monthly budget in order to figure out how much money I could actually save each month. You can read part 2 here: