Can it be as simple as, “you’re broke because you spend more than you save”?
- Savings are important
- Spending matters
- Income – spending = savings
Where Does Your Money Come From?
If you’re working for a living, you should know how much money you make. It sounds simple, but for a lot of people it’s a difficult thing to pin down. What taxes come out? Do you contribute to a 401k or Solo 401k? Do you participate in a Flexible Spending Account? If you do, your money makes a few stops before it lands in your bank account.
Even if you don’t know down to the penny how much money you have in the bank, you should know close to the actual number. Why? So you know what you can afford, what you can’t, and what you might need to save for.
Where Does Your Money Go?
Besides knowing what you’ve got in the bank and how much comes in, whether it’s monthly or biweekly, you should really know where your money is going. How much do you pay for cable? Cell phones? Gas and electric? Rent?
If your bank account goes into the red every month, you’re likely spending money on bank fees you would rather not pay. Why spend money you don’t have to, paying the bank to handle your money?
If you’re working for a big company, do you know if you’re entitled to a discount on cell service? Can you write off your cable bill, to any amount? Knowing what you’re able to spend and save on can make a big difference in your overall financial health. And knowing what you want to spend your money on is most important of all.
Why You Are Broke
If you don’t know where your money comes from, or where it goes, you’re likely overspending and undersaving. Because if you don’t know what you have, you can’t tell where it’s from, where it’s going, or what you’re really spending it on.
There are plenty of articles that will tell you you’re broke because you spend $5 on coffee once a week. Or because you’re buying a cocktail on a Friday evening. But is that really why? If you don’t know what you have you can’t tell if you have enough money to spend, and definitely can’t tell if you can afford to splurge.
How To Help Yourself
Make yourself a budget, and be really clear what your interests are, what your intentions are, and what you’re looking to do in the future with your finances. Without a budget, which includes knowing how much money comes in and how much goes out, you’re lost at sea, and don’t know what you have to work with.
Start by listing all the income you have. Get paid twice a month from your corporate career? Receiving payments from a structured settlement? Include all sources of income and get a firm total of what your financial income looks like.
Next, make a complete list of what you have going out. Cable. Phone. Gas. Electric. Rent. Student loans. Car Payments. Insurance premiums. Internet provider. Groceries. Credit card payments. Knowing how much you have to spend will help you reckon with what you have going out. If you’re spending more than you take in, you’re likely living beyond your means.
Instead of living like you are broke, make a conscious decision to understand and befriend your money. Even if you don’t think you have enough coming in, you can only start from where you are. If you make $1,000 a month, don’t spend as if you make $5,000 a month. It sounds simple, and it can be, but it help for you to have a firm grasp on what your money is doing.