How do you get off the paycheck-to-paycheck merry-go-round for good?
By following these 5 simple steps…
WARNING: these may be simple (because I love simple), but they are not always easy.
1. Write down on paper or in excel Where You Are Now (what you own, what you owe, what is coming in, and what is going out- also known as assets, liabilities, revenue, and expenses)
2. Take a close look at revenue and expenses. One of my former Mary Kay directors used to say “If your OUTgo exceeds your INcome, it’s your DOWNfall!”
If you find this is true, you have two options- increase revenue or decrease expenses. As my buddy Ben Franklin liked to say “the best is to do both at the same time”.
3. Create a budget. Yes, the dreaded “B” word. Please feel free to use “spending plan”, “income allocation”, or anything else that you like better. But, at the end of the day this is your plan for where your money will go.
This is probably going to be the most difficult of the steps for you, at least at first.
Start by looking at where your money is currently going. Put in all the known transactions like pay day, when the rent or mortgage is due, when your car/credit card/student loan payments are due, and so on.
I highly recommend doing this in an excel spreadsheet, although I know some people really like apps. Using an electronic format makes it easy to move things around or make changes on the fly.
I have attached my template to this post for your convenience. Feel free to copy and paste into excel if you like and PLEASE make it your own.
Make sure you include some kind of payment to your education, play, future, savings, and giving accounts. Even if it is only $1 each (keep them equal). You can find more information about these 5 “buckets” here in this website on the main page.
If you find your expenses exceed your revenue, this is where you can easily find ways to reduce them. What can you cut out? If you truly cannot cut anything else, find ways to increase your income. There is always a way.
4. On payday, update your spreadsheet and write your checks (or use billpay) for the payments you are scheduled to make.
If you are tempted to abuse the plastic, withdraw the cash for groceries, gas, play, giving, and any other discretionary spending items. You can make some really pretty envelopes (see Morgan Schulz for ideas or patterns- she did a video on this last Fall) to keep in your purse. She also created a tear off cash withdrawal form to give to her bank specifying how many 1s, 5, 10s, and 20s she wants each payday. Her bank tellers LOVE IT!!!
5. On a regular basis (monthly or quarterly), review where you are and what you are doing. Make sure you keep your old papers or spreadsheets so you can see how far you have come!
ARE YOU A BUSINESS OWNER OR ENTREPRENEUR? You can use these same steps in your business. Business finance and personal finance are very similar, usually only the emotions attached are different. Okay, and some of the tax consequences. 😉