So, you’ve got your first big job (with a big paycheck), yet you still find yourself having no money after expenses? You’d be surprised how many people find themselves in your situation. As people make more money, their spending tends to ramp at a similar pace. The best way to mitigate this (other than maximizing your income) is to track and trim spending. To help you do this, here are 7 steps to change your financial picture.
Step 1: Price Out the Big Stuff
The first step to cutting spending is to figure out what is eating up most of the budget. These are expenses like rent/mortgage, car payment, big bills, etc. Anything that totals over $100 is written down under this category. When I say written down, I mean break out a pen and paper and write them all down– big! Calculate how much these things cost and put the price next to the corresponding expense. Try to put them in descending order based on price to keep it organized.
Step 2: Check for Rats
The big stuff is easy, but the little things add up. Just like rodents, small splurges on eating out and hitting the vending machine at work can infest your expenses. Set some traps, and write down all expenses under $100 in this category. Leave one or two lines empty in between to keep these separated from the big guys.
Step 3: Total it Up
This one is fairly simple. Simply add up all of your spending for a month and total it up. Compare this with your actual income, and evaluate how much you are left with. Disappointing, right? That’s what we are going to fix.
Step 4: Qualify
Now, next to each expense on both lists, put a star down next to each thing you absolutely need. Most of these will be on the big-ticket list, like rent and bills, but things like haircuts and filling up the gas tank count too. Anything you couldn’t (or shouldn’t) reasonably go without gets a star. Note: This can include date nights if you have a significant other, but keep it to once every couple of weeks if you can. Things that don’t get a star are Netflix subscriptions, fast food stops, or random gifts to yourself. These are nice-to-haves, not need-to-haves.
Step 5: Total it Up Part 2
Total up your need-to-haves, then subtract it from your total expenses. Wallow in shame for a moment, then shake it off– we have work to do.
Step 6: Set a Goal
Now that you have calculated the amount of “extra” spending you do, you can figure out how much needs to change. Set an initial goal of a 20% decrease in this final number. After you’ve done that successfully, crank it up to 35%. After that, 50%. You see where this is going. Do I expect you to get it to 0%? No, and neither should you. When you make six figures, your job probably ain’t the easiest gig in town. You deserve to let loose every once in a while. This is just meant to help you prioritize the ways you want to spend, and shed light on the little snack demons that are plaguing your income.
Step 7: Count Your Stars
Still not seeing enough of a difference in your leftover income? This probably means that your “needs” either aren’t all necessary or (more likely) they are overpriced. Paying $700/month on a fancy car that is rapidly losing value? Get out while you can. Buy used and save that “new car” premium. Decided that every “date night” has to include Ruth Chris and a hotel stay? Relax a little, you’re trying too hard. Nice things are nice, but being broke isn’t. Enjoy your money, but practice restraint so you don’t have to stress every month when the bills come around.
Do you think you can follow these simple steps to change your financial picture? Let us know in the comments below!