Monthly Income and Expenses
Do not be scared about starting to use a budget, I promise you can start to make immediate progress towards your Financial Fitness goals in the first month! There are several important factors to review when making a budget and the blog title includes the two most important ones: Income and Expenses
As mentioned in previous blog posts, in order to know your specific path to achieve Financial Fitness we first must know your current financial “location.” Anytime you plug an address into a GPS unit/app the first thing it will want to know is the starting point, usually your “Current Location.” The exact same is true for financial coaching; in order to help you achieve your financial goals, we (you and I) have to know your current financial location. Without this information, both of us will be completely lost and you likely will not achieve your desired goals.
The first component (latitude) we can easily obtain is your net monthly income. The “net” part means with all taxes, insurance, and deductions removed and it is the amount that physically is deposited in your bank account. If you are paid twice a month, multiply 1 pay check by 2 to get a monthly income. If you earn a commission, it will be more difficult due to variability but you should be able to calculate an average net monthly income. Any bonuses or business distributions are not included in the regular monthly budgets; those are covered more in-depth during coaching sessions if they apply to your financial situation. Think of this net monthly income as a bucket with water, and the level in the bucket will drop as we pay for things throughout the month.
The second component (longitude) is more complex and very often the aspect people struggle with the most: expenses. Most know their rent/mortgage payment, average utility bill, and cost of groceries, student loan repayment, auto loan payment, etc. What people miss or underestimate often are the times they grab a quick bite to eat, stop for gas, or just run to the store for 2 items but come back with 10-15 items. Do you want/need the $7 latte every morning? It depends on your financial location. Since most Americans are in debt, the answer is “no” and we can find a viable alternative.
We can think of a monthly budget visually as a bucket filled with water. The amount of water is your net monthly income, and each time you spend money a proportional amount of water is drained from the bucket. Little expenses can slowly drain your bucket (budget) via small leaks. At Blue Collar Budgets, my goal is to find all the little leaks and first point them out to you and second ask you if the leak needs to be repaired. Then we arrive at the end of the month. Does your bucket (budget) still have water (money) in it? Did it go dry (i.e. you’re BROKE) last week? Did the sum of all the small leaks (Buy it Now, add to cart, etc. purchases) drain your bucket further? Do you borrow from next month’s bucket in order to pay expenses this month? If you pay attention to when you get paid, need to know how much you got paid, waiting for your direct deposit to hit your account, or praying mid-month to hit the lottery, chances are you need a Personal Financial Coach to help you. Using the Grade My Budget application on my website can help you understand in a quick way, if you are spending too much of your income every month.
It does not matter if you make $10,000 per year or $1,000,000 per month, if your current financial location has you spending greater than 70% of the water (money) in your bucket (budget) each month you need at least a little Financial Help. Book a Session with me and we can start to unravel the perceived complexity of the monthly budget and get you on the road to Financial Fitness! Don’t be scared of a budget; realize the power and potential it has to create the beautiful life you have envisioned. All you need to do is: Ask for Help.
Proverbs 22:7 – The rich rule over the poor, and the borrower is slave to the lender.
