Are you chronically broke?
If it’s any consolation, you might be relieved to learn that you aren’t alone. About 80 percent of American workers are living paycheck to paycheck. And with the COVID-19 pandemic giving the economy a drubbing, there’s no doubt many people are in a financial pinch.
Here’s the thing, though. You don’t have to be broke. At least not when you have a steady income.
Something needs to changes; otherwise, you’ll be stuck in this rut for a while.
Continue reading to learn how to get your finances in order
How Much Do You Earn?
This sounds like a basic financial question, but you’ll be surprised to learn that most people don’t know how much they earn. Well, it’s not that they are totally in the dark about their earnings. They just have an estimate of what they make every month.
When you want to get your finances under control, you don’t work with estimates. You work with actual figures.
Having a firm grasp of your income will make a world of a difference.
Here’s an illustration.
Let’s say you estimate that you earn $5,300 every month. In the real sense, you earn $4,500. Even from a psychological point of view, your consumption habits might be a bit different when you know you make over $5K versus when you know you earn under $5K.
As such, start by computing your net income (after taxes and other mandatory deductions). If you’ve got a side job or other regular source of income, add the income to your main income. You’ll end up with your actual monthly earnings.
How Much Do You Spend?
If you’re not a person who exercises financial discipline, it’s unlikely that you have a clear picture of your weekly or monthly expenditure.
Earn as you spend: it’s just how many people roll.
If you live by this mantra, it’s no wonder you’re ever broke.
To break yourself out of this situation, you must have a good idea of how much money you spend every month. Sure, expenses can vary from month to month depending on your consumption behavior, but what you need is an average figure.
List your fixed and recurring expenses. These are those expenses you have no choice but to take care of every new month. Think of bills like rent or mortgage, and power, water, and gas.
If you’ve got some insurance policies that have monthly billing, include them in the list of your fixed expenses. The same applies to debt repayments (hey, student loans!)
Now move to secondary expenses. These will typically fluctuate from month to month. For example, what you spent on groceries last month might not be the same as what you’ll spend this month.
Regardless of the fluctuations, monitoring your secondary expenses for a couple of months is enough to give you a fairly accurate average of your expenditure.
Address the Gap Between Your Income and Expenditure
To this point, the assumption is you know your income and your expenditure.
Subtract what you spend from what you earn. What’s the gap?
If you’re always broke, the gap is small. Or perhaps there’s no gap at all. And if you’re spending more than you earn, you’re certainly in debt.
This is where the real work begins. To start your journey towards financial freedom, you ought to find effective ways to widen the gap between your income and your expenditure.
There are two known ways to pull this off: increase your income significantly while maintaining the same expenditure level. Or, maintain the income while significantly reducing your expenditure.
Which path offers the least resistance?
Considering the state of the economy, increasing your income immediately is easier said than done. Your best shot is to lower your expenses.
Embrace a Frugal Lifestyle
The most immediate step you can take to improve your financial situation is to adjust your lifestyle. Perform a lifestyle audit and identify things you can live without.
Do you, for instance, live in a two bedroom-apartment alone?
Maybe you use the other room as a studio or home-office or a gym. The space is good, but it’s possibly one of the reasons you’re broke.
You don’t have to be spending $2,500 on such an apartment when you can spend half that on a studio apartment. If you can move to a smaller house and shave off even $500 from the rent, you could save up $6,000 a year.
If you have a mortgage and it’s really leaving a dent on your paycheck, consider refinancing. Interest rates are at an all-time low right now, which means you could get better loan terms.
You don’t need multiple streaming TV subscriptions. You can bump down your home internet speeds and get a lower subscription fee.
The coronavirus situation is forcing people to stay home more. Take this opportunity to develop a habit of making home meals instead of eating out.
Leading a frugal lifestyle doesn’t mean going off-grid and living like a lost sheep. You can still maintain your quality of life without overspending. And with the savings you’ll be making, you’ll be in a better position to save more and pay off debt faster.
Get Professional Advice
Sometimes it’s not so simple to work out your finances. Maybe you’re in massive debt and you need a solid plan to get out of it.
This is where you need to reach out to a reliable provider of financial planning services. These professionals will evaluate your financial situation and help you implement suitable recovery strategies.
They will charge you a fee, but you’re rest assured your finances are in the hands of professionals.
Knowing How to Get Your Finances in Order Is Life-Changing!
Personal finances are integral to our physical and mental well-being. Unfortunately, it’s so easy to mismanage your finances and end up in ruins. The good news is this situation isn’t a life sentence.
With this guide, you now know how to get your finances in order and achieve the freedom you deserve.
All the best and keep reading our blog for more on managing money.