Personal Finance - Comparing Spending and Your Income Part 2
Well Done! You just took the most important step on the road to financial recovery. To varying degrees, we all live in a self-imposed fog when it comes to spending money. Spending becomes a comfortable habit just the way you go about your daily life and habits are always hard to break. But you're certainly on your way.
Now that you've committed yourself to recovery, you can take a closer look at where your money is going, consider the possibility that overspending is a habit, and, if it is, examine ways to deal with it.
When you have a total annual income amount and a total annual spending amount, subtract your spending total from your income total.
If the final number you calculate is negative, you can probably guess what that means: The amount you are spending is more than your annual house-hold income.
You may be financing your lifestyle by using credit cards and cash advances, and/or you may be falling behind on some of your obligations. Furthermore, you may not be paying some of your bills at all, which means that if you add the amount of those bills into your calculations, you have an even bigger deficit.
If you ended up with a positive number, your finances may be in better shape than you think. Or not. If the number is small, you may be just barely staying ahead. And if your bottom line is positive only because you're paying just the minimum due on your credit cards each month or because you've stopped paying some of your debts, you have no cause for celebration. If this describes your situation, you are treading water, at best, and a financial set-back such as a job loss or expensive illness could be devastating.
Okay, documenting your expenses has proven the obvious: You've wasted money and probably made some lousy financial decisions. Who hasn't? Now that you have a handle on the problem, you're in position to take control. With the right attitude, eliminating unnecessary expenditures can be a little like a treasure hunt.
There's extra money out there you just have to find it! Although we don't presume to tell you how much to spend on any particular item that's your call here are a few things to zero in on:
Credit card payments: If a big chunk of your monthly income is going to pay credit card bills especially if you're paying minimum payments), bankruptcy may be the best solution by far. If this is the case, you're just spinning your wheels in the worst of all worlds paying interest without significantly reducing the principal amount of the debts.
Daily dribbles: We all live our lives amid daily patterns that eventually become habits. Many times, these habits include unnecessary spending that provides no real benefit or enjoyment. What seems like small stuff eventually adds up.
Extravagances: True, one person's luxury is another's necessity, but you really need to think long and hard before plopping down 100 at a restaurant or 60 for a pay-per-view prize fight on TV. It's sometimes helpful though painful to figure out how much work you had to do to pay for a particular treat. If a night on the town costs you a day and a half of work, is it really a good return on your investment?
Impulse purchases: If you're like most people and us you'll see tons of stuff you've bought but rarely, if ever, use. Simplify. And go further: Sell.
Gifts: Studies show that many folks spend lavishly on gifts they would never buy for themselves. Christmas, of course, is the granddaddy of budget-busters. Scale back gifting.
Overwhelming mortgage payments: If you obtained your mortgage recently, most of your monthly payment goes toward the interest. You may not have much equity, and the home may not be worth keeping especially if it's a second mortgage.
Huge car payments: New cars are awfully expensive these days. If you're struggling to maintain payments on a new car, you may want to consider selling it and buying something more affordable. Plenty of reliable, moderately priced used cars are on the market.
Now that you've committed yourself to recovery, you can take a closer look at where your money is going, consider the possibility that overspending is a habit, and, if it is, examine ways to deal with it.
When you have a total annual income amount and a total annual spending amount, subtract your spending total from your income total.
If the final number you calculate is negative, you can probably guess what that means: The amount you are spending is more than your annual house-hold income.
You may be financing your lifestyle by using credit cards and cash advances, and/or you may be falling behind on some of your obligations. Furthermore, you may not be paying some of your bills at all, which means that if you add the amount of those bills into your calculations, you have an even bigger deficit.
If you ended up with a positive number, your finances may be in better shape than you think. Or not. If the number is small, you may be just barely staying ahead. And if your bottom line is positive only because you're paying just the minimum due on your credit cards each month or because you've stopped paying some of your debts, you have no cause for celebration. If this describes your situation, you are treading water, at best, and a financial set-back such as a job loss or expensive illness could be devastating.
Okay, documenting your expenses has proven the obvious: You've wasted money and probably made some lousy financial decisions. Who hasn't? Now that you have a handle on the problem, you're in position to take control. With the right attitude, eliminating unnecessary expenditures can be a little like a treasure hunt.
There's extra money out there you just have to find it! Although we don't presume to tell you how much to spend on any particular item that's your call here are a few things to zero in on:
Credit card payments: If a big chunk of your monthly income is going to pay credit card bills especially if you're paying minimum payments), bankruptcy may be the best solution by far. If this is the case, you're just spinning your wheels in the worst of all worlds paying interest without significantly reducing the principal amount of the debts.
Daily dribbles: We all live our lives amid daily patterns that eventually become habits. Many times, these habits include unnecessary spending that provides no real benefit or enjoyment. What seems like small stuff eventually adds up.
Extravagances: True, one person's luxury is another's necessity, but you really need to think long and hard before plopping down 100 at a restaurant or 60 for a pay-per-view prize fight on TV. It's sometimes helpful though painful to figure out how much work you had to do to pay for a particular treat. If a night on the town costs you a day and a half of work, is it really a good return on your investment?
Impulse purchases: If you're like most people and us you'll see tons of stuff you've bought but rarely, if ever, use. Simplify. And go further: Sell.
Gifts: Studies show that many folks spend lavishly on gifts they would never buy for themselves. Christmas, of course, is the granddaddy of budget-busters. Scale back gifting.
Overwhelming mortgage payments: If you obtained your mortgage recently, most of your monthly payment goes toward the interest. You may not have much equity, and the home may not be worth keeping especially if it's a second mortgage.
Huge car payments: New cars are awfully expensive these days. If you're struggling to maintain payments on a new car, you may want to consider selling it and buying something more affordable. Plenty of reliable, moderately priced used cars are on the market.