Welcome to Money Mondays! A new series on my YouTube channel where we share personal finance tips and answer your money questions! In this weeks episode, we’re covering personal finance 101. I’m going to tell you the first step in fixing your finances!
The biggest issue I see by far in my career is people not knowing how much money they earn versus how much money they actually spend. In other words, they can’t tell me how much they make in each paycheck and when I ask them where they spent their money they have no idea.
That’s why, rather than immediately assuming you need to make more money to keep up with your lifestyle, the first step in fixing your finances is to find out what’s going on with the money you currently have.
Personal Finance 101 Step 1: Determine how much money you’re bringing in each month.
It’s time to whip out your pay stubs and see how much bacon you’re bringing home! Note how much net income you’re bringing home. This is your paycheck after taxes and things like retirement contributions.
The next step after that is to see how much money you’re bringing in from a side hustle. How much extra income are you bringing in on average? Add that your income (once again, make sure to account for taxes that you will have to pay on the extra income).
Personal Finance 101 Step 2: Determine how much money you’re spending each month
Once you know how much money you’re bringing in, the next step is to determine how much money is going out. This will provide you with some clarity about your spending habits. There are two ways you can do this depending on your preference.
The first way is to track your spending for at least two weeks. That means you write down every time you spend money (and how much) over the course of at least two weeks.
The other option is to take out your credit card and bank statements from the last couple of months and see where your money went.
This will start giving you some clarity about where your money is going. For example, how much are you spending on necessities? And how much money did you spend on things you just wanted? Tally it up and start paying attention to your patterns.
In future segments in this series, we’ll cover what to do about savings and credit card debt.
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Disclaimer: This is meant for education purposes. Please consult professionals before doing anything with your money.