Tuesday Tip of the Week: June 6, 2017
Understand Your Numbers
Welcome to Tuesday and my Tip of the Week. Yesterday I spoke about how important knowing your break-even number is. In this post, I am going to describe how to use your break-even number in relation to your budget. Several times I have brought up “typical” budget percentages and how they should relate to you. These percentages should correspond with your budget so that you are spending the right amounts on your life’s expenses. Here are the budget percentages I have spoken of in the past:
35% – Housing
25% – Life
15% – Transportation
15% – Debt Repayment
10% – Savings
Now, why are these numbers important? The truth is that they aren’t that important. What they are is guidelines that if you are lost you should follow. My personal budget is far different than this example. My personal budget is closer to this:
45% – Life
25% – Housing
30% – Savings
0% – Transportation
0% – Debt Repayment
The point of the guidelines is that if you are lost it shows you exactly where the average person should be spending their money. Organization is the key. My tip of the week is to have a budget in place so that you do not go over your monthly income with your spending. So what is a budget?
All a budget entails is the tracking of spending and regulating of it. I utilize a simple spreadsheet that shows where my money goes. Despite the fact that I know where every dollar goes, I still use the spreadsheet. You might ask yourself: why would I use the sheet even though I am essentially a budget pro. By not tracking what you are doing, things can often get out of hand. You wouldn’t believe how often I have seen this happen. There are people who make a decent wage and still have nothing left over at the end of the month.
It should be everyone’s goal to lower their break-even number. Even my parents who live fairly comfortable are still looking to eliminate expenses. It should also be everyone’s goal to raise their income. Those two combined will allow for true financial freedom. Remember that break-even number equals:
Total Income – Total Fixed Expenses = Disposable Income
Your Disposable Income should never be a negative number. If it is then you have a serious problem. Spending more on life than you make cannot last long. You either need to make more money or cut fixed expenses. I do not know many people where this is the case. The majority of people I deal with are making a good amount of money but end up spending too much of it on life. It is not the fixed spending that kills most people, it is their variable spending. They spend too much on the wants in life and not the needs. The good thing about this problem is that it can be fixed easily.
I have created a powerful spreadsheet that can help you track your fixed spending and show you where you stand when it comes to the budget percentage guidelines. It is a great way to get started with understanding your numbers.
Thanks for reading my tip of the week and tune in tomorrow for “Wednesday WTF,” my weekly rant on things that waste your money. Have a great day friends!
“Budgets are nothing if not statements of priorities.” – Jeff Merkley
https://budgetboss.ca/monday-june-5-2017/
Facebook – @JoeBudgetBoss LinkedIn – Joseph James Francis Quora – Joseph James Francis
Twitter – @JoeBudgetBoss Instagram – @JoeBudgetBoss
Joseph James Francis is a Financial Advisor. You can find him on various social media platforms and at budgetboss.ca.