How do you plan for your own financial security while still enjoying what the day has to offer? I’m starting a series on financial management tutorials on our blog! In the course of the next several articles, I’ll be showing you how you can go from almost $9,000 in debt to a net worth of $1.5k in only 1 year! No bull, just sound advice that echoes the likes of Warren Buffet (and my dear old dad).
First, take out a sheet of paper or your bullet journal and start listing the categories of spending and roundabout numbers you need to answer the following questions:
- Get real with yourself: what is the bare minimum you need to get by each month? I’m not talking about shoes, purses, blue jeans, cars, makeup, etc. What keeps you alive, healthy, and able to work? Examples: rent, food, feminine hygiene products, heat/electric, water, garbage collection
- What things do you need to keep you up and able to make new income? Examples: car or bus pass, Uber rides, Dickies uniform slacks or work shoes, gasoline, Wifi, taxes***
- What do you need to stay organized so that you feel on top of your game when getting ready for work or when you’re at work? Examples: office supplies, coffee, briefcase, laptop, coworking space rental fees, a P.O. box
- What do you need to maintain basic transportation to and from your place of work?
- Emergencies? Examples: regular car maintenance, urgent care clinic copays, renters’ insurance, liability insurance, a couple hundred dollars of cash to keep under your mattress in case World War III, identity theft, or a tornado happened?
- Medical, dental, and/or vision insurance expenses + copays? Examples: annual checkups, well-woman pap smear, getting your teeth cleaned, flu shot, eye annual, recurring prescription expenses, etc.
***Look for the 3 asterisks (***) in the paragraphs below to find out how to predict how much taxes you will owe for the 2017 fiscal year!
Once you’ve answered these 6 questions, tally up the round numbers. Circle this total and label it “LIVE.” This is how much it costs for you to live. These costs are largely non-negotiable, though you may have to go back and look at your receipts or credit card bills to get a rough sense of how much these categories cost you in the previous year.
Next, add in a little “caviar” – what is ONE thing that makes you really happy? What is your regular source of entertainment? Is it Netflix? Is it Spotify Premium? Is it sewing? Is it bar hopping with friends? How about comfort foods? Shopping? The gym perhaps? List out your favorite things with the weekly or monthly price tags associated with each thing. Tally up this number, circle it, and label it “FUN.”
Add the two numbers together and box this number, labeling it “TOTAL EXPENSES.” This is how much you spend doing what you think you should be doing to live a reasonably comfortable life.
***Next, list out your source(s) of income. How much do you make per hour? Multiply this number by the number of hours you work each week (probably something like 40 hours if you are non-exempt from overtime pay) and by the number 50 (most people usually work about 50 weeks each year). This will tell you what you expect your annual salary to look like. Label this number “INCOME.”
***Once you know what your gross salary is, you must check the list of 2017 fiscal year tax brackets here. Find two numbers between which your annual salary would fall – for example, if my annual salary were $31,000 per year, I’d look for the $20,000 cutoff and the $59,000 cutoff. The $31,000 salary is below $59,000, so I fall into the 15% tax bracket. This means that I am required to pay $932.50 plus 15% of any money I earn above $9,325 in the 2017 fiscal year to the government. This is non-negotiable and should be included in the “TO LIVE” category you calculated above.
Now here comes the hard part: the reality check.What is the difference between “TOTAL EXPENSES” and “INCOME”? If this is a negative number, you know you have to cut back on the Entertainment section (look for items to cut out of the “FUN” number you just tallied). If it is “zero,” you still have some things to chop from this part of the budget – because you always need to plan ahead a little for your retirement and for emergencies (think somewhere to the tune of at least $3/week, EVERY week. That’s less than the latte you knew you shouldn’t have bought from Starbucks this morning on your scurried way into work!).
Whew! I know that is a lot to read and expect to understand in one go! I’ll post more about 401k, IRA, and other investments in another article soon! For now, just treat the “plan ahead” money I mentioned above as a secret jackpot – nobody touches it – for any reason! Let me know what questions you have in the comments below so I can help you out!
Rozalyn Davis holds an M.S., Chemistry, from the University of California, Berkeley, and a B.S., Chemistry, from Purdue University. Her interests include women’s empowerment, health and wellness, and environmental sustainability.