Quick steps to get your personal finances back on track
Most of us start from a point of lack of enough finances to cover our monthly bills; which could lead to financial distress if it continues for a long time and debts accumulate beyond sustainable levels. To avoid falling into what Robert Kiyosaki calls the “Rat Raceâ€, you need to restructure your financial habits and realign them with your life goals. Simple steps such as budgeting and executing a well-planned debt repayment strategy could help you regain control over your financial freedom sooner than you thought it is possible. By budgeting, you are able to track all your expenditure and ensure it remains within you income levels. On the other hand, by repaying all your debts including loans for your small businesses that you might be running; you are able to recoup more money into your personal savings kitty for further investments.
Monthly expenses analysis
The budgeting process starts with an outline of all your monthly expenses. You need to list everything that takes money out of your pocket or bank account in a typical month and beside it record the amount of money spent on each of the items on your list per month. The list should be comprehensive and inclusive of both the necessary monthly bills such as rent, groceries and taxes; as well as your expenditure on leisure such weekend trips with the family to picnic sites or going out for a movie in the evening.
Once you have outlined your expenditures you will have a better and clearer picture of where your money goes every month. From your list of expenses, you will be able to analyze your monthly expenditure and categorize them into two groups of necessities and luxuries. From there you will rank the expenditure under each of the two groups according to their dollar value starting with the highest to the lowest. This further gives you more visibility into your spending habits and you are able to identify expenses that hemorrhage your bank account every month.
Monthly income analysis
After outlining your expenses, you then move on to identify your current sources of income every month in order to have a complete view of your budget. Note that expected sources of income are not listed here since you need to be budgeting for your regular income sources only. If you get your income daily or weekly, then you sum it up and record your regular total monthly income. Your monthly income figure shows what you can comfortably spend without saving or investing a dime on a monthly basis. Basically, your total monthly income is what you have to keep you afloat as you wait for the next month’s income; or else you become bankrupt.
Bringing it all together
Once you have you total monthly income and expenditures well outlined, you compare the two figures and if your expenses exceed your income, then you are in the red. To get out of this unsafe zone, you need to either look for extra sources of regular income to cover your all your monthly expenses or reduce your monthly expenses until they are the same level or below your monthly income. Finding new income sources might take a longer time and hence taking cost cutting measures becomes the easiest and the fastest to execute. While at it, luxury expenses become your quick wins; and if still you are in the red, you cut down the necessities to bear minimums then start implementing your new lifestyle.
The process of change is always painful at the initial days since you have to live without some things you were accustomed to, but the long-term benefits outweigh the short-term struggles. These changes become even more difficult for parents with young children who may not understand why their comfort is being distorted in the short term. However working together as a family to get over it makes it much easier to handle in the long run.
Finally when you start living within your means, keep track of your expenditure on a daily basis and start looking for ways to increase your income so that you have extra cash to save and invest for your future. Remember saving should not be your end goal; you should always be focused on how to grow your wealth and finance your dreams and the aspirations you have for life.
James is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.