Income and expenses

Saving Money: Knowing Your Income and Expenses Part 2

Let’s just agree that expenses are the “not so fun” part of figuring out your budget. No one likes to give away the money they just made! I think it’s necessary though, if you plan to continue living and such. Some may disagree…

Before we get started on expenses, let me mention a few things:

  1. If you haven’t read the first part of this blog post, you should probably go back and read it.
  2. I know very little (almost nothing) about having a family and saving money. I can only guess what types of expenses a family has each month (diapers and a lot of food?), so this advice is based on my knowledge of having a single income and living with roommates or by myself.
  3. Based on #2, proceed with caution.

Your Expenses… Again, Write it Down

Yup, get that paper and pen again and write down all the expenses you can think of that you pay in a month. I suggest using the same piece of paper you used for your income and just make a new column right next to your income and list all of your expenses. Need some help? Here are some examples:

  • Rent/mortgage
  • Car payments (insurance, gas, maintenance, etc.)
  • Utilities (electric, gas, water, heat, cable, telephone, internet, etc.)
  • Groceries
  • Loans (student, personal)
  • Other expenses (dining out, entertainment, etc.)

A Quick Example

Meet John, he’s 28 years old and has a yearly income of $40,000. Here are the details of John’s income:

  • He gets paid every two weeks (roughly 2 paychecks a month)
  • After taxes and healthcare, his income per paycheck is $1,077
  • His monthly income is $2,154
  • Two months out of the year he receives an additional paycheck, giving him $2,154 in additional income each year that was not counted in his monthly budget

Here is a list of John’s expenses each month:

  • Rent: $600
  • Groceries: $250
  • Car insurance/gas: $100
  • Electric: $40
  • Gas/heat: $35
  • Cable/internet: $100
  • Cell phone: $80
  • Misc. expenses: $500
  • Total monthly expenses: $1,705

If John sticks to his budget, he’ll have almost $450 each month that he could save, plus an additional $2,154 every year from the two additional paychecks. That’s around $7,500 each year that could be saved.

Some may say that this is unrealistic, and maybe it is to some people. I’m not going to deny that some of these numbers are based on how I lived my life in New York City years ago. Sure, I wasn’t making that amount of money and I didn’t have car payments, but the amount I was saving was about the same. I even added in $500 for miscellaneous expenses which was a lot higher than I ever gave myself ten years ago. If you want to save money or pay off debt then you have to make sacrifices. Try to weed out the expenses that you don’t really need and stick to the expenses that keep you afloat.

What if Your Budget is Wrong?

I read something the other day about how people tend to underestimate their budget. I don’t always think that’s such a bad thing, as long as you’re not leaving out something like food. A lot of the time we’re forgetting to write down expenses that are “wants” instead of “needs” and that can be a good thing. If you get to a point where you paid your mandatory expenses and put away the amount you planned to save, then you realize that you don’t have any additional money to go out with friends or see a movie… well, you should pass then. I’m not saying you should never do those things, but you shouldn’t keep dipping into your savings like so many people do. The best way to keep that money in savings is to pretend you don’t have it (mind trickery!) once you put it there. So, pass on the “wants” if you didn’t put them in your budget, and work something into your plans for the next month.

In Conclusion

I understand it’s not always this easy, but I’d love to prove anyone wrong that thinks walking through your income and expenses like this will not help. As I continue with this blog, I’ll be posting even more ways for you to cut expenses, increase your savings and pay off your debt. Anything is possible, and I’m here if you have any questions.

Were you able to cut some expenses or save some extra money? Let me know in the comments!

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