Spending money on the fly can be dangerous, and it’s hard to see the big picture during an unplanned big night out or while in the grips of new car mania. Money being a limited resource, you need to decide how you’re going to spend it before you get it. Make level-headed, well-thought-out decisions on how best to dole it out. This might take some getting used to if you haven’t done much planning previously. It’s necessary, however, if you want to start building your wealth sooner rather than later.
Saving Versus Spending
Estimating income and withholding for the rest of the year, and at the end of the year for next year is important. Be as accurate as possible and include income from all sources. Now you can decide how much of it you should save and how much to spend. Deciding your ratio between saving and spending is an important decision that will greatly influence your financial future, no matter what your income, so choose carefully.
A good estimate of your future income also comes in handy when trying to estimate your tax withholding for the year. Don’t risk a stiff interest penalty by the IRS by under-withholding, whether you pay that future tax liability via your employer’s W-4, estimated tax payments, or both.
Pay Yourself First
I recommend spending that savings first as soon as your paycheck clears. Take it right off the top. That money, after all, is your most important money. Of course, you’re not really spending it. You’re investing it into a customized investment plans devised specifically for each goal. This paying yourself first strategy prioritizes saving and investing over spending and puts your most important money to work for you sooner.
Once your savings is subtracted from your paycheck, that forces you to live on what’s left over. That’s why controlling your spending is crucial to your success. If you’re not able to put your savings before any excessive spending habits, it’s not going to get done and your wealth building comes to a screeching halt.
Don’t think this means you can’t have any fun money to throw around anymore. Just make sure to budget that in. Of course, there must be some give and take, given your income is finite.
Track Those Expenses
You must be brutally honest with yourself concerning your spending habits. Recording how every penny is spent with an expense gathering device will help. It doesn’t matter how you do it, just be sure to account for all the different ways you spend money: electronic transfers, debit and ATM transactions, cash expenditures, checks, credit card charges, and everything else.
Organize your spending into expense categories. Divvy up that spending into three categories or thirty–Whatever suits you. Just make sure those categories account for every penny spent. Periodic and variable expenses need to be converted into monthly standardized expense categories. If you’re not standardizing your expense categories, you’re just pretending to live on a budget.
Essential Financial Tasks
It helps to assign financial tasks to specific times. Put those dates, whether it’s the first of the month, the end of the month, quarterly, the beginning/end of the year, or tax time, into your calendar until they are ingrained into your schedule.
If you have a significant other and you’re in this together, assign that potentially math-challenged partner of yours some tasks too so they become familiar with the financial goings on.
Some financial tasks are more important than others and should be prioritized. For example, reconciling accounts for both for checking and credit cards should be done as soon as statements are available. This not only helps prevent identity theft but makes sure that your numbers add up to their numbers and the figures in your expense gathering device are correct. Like reconciling, these other essential financial tasks absolutely must get done if you’re to keep your financial house in good order. Be sure to complete them on time and every time.
Whether it’s just you or you’re in this together with your soul mate, knowing your financial house is in order gives you one less thing to worry about. Being financially organized helps you enjoy life without the burden of money troubles hanging over your head.