Where are you spending too much money?

Question Where are you spending too much money?

Answer  Only you can answer that question.

ExampleFor one month, Adam’s (imaginary person) income was $3,600. Tracking his expenses revealed the following; housing $1,170, car $590, credit cards $525 and lifestyle $1,500.

Income Expenses
Amt. % Amt. %
Take-Home Pay  $3,600  100
 Housing Expense  $1,170  33
 Car Expense  $590 16
 Credit Card Expense  $525  15
 Lifestyle Expense  $1,500  42
 TOTALS  $3,600  100  $3,785  106

Can you identify where Adam is spending too much money?

Complete Answer  You have all the information needed to answer that question.

  1. You know how to calculate income for the month. (Post of July 18, 2016)
  2. You can track spending. (Post of August 15, 2016)
  3. You know what a typical spending plan (budget) should look like. (Post of Jul,y 25, 2016)

In the above example, Adam’s total expenses ($3,785) are greater than his total income ($3,600). Adam will eventually go bankrupt if he continues spending more than his income.

To identify where Adam is spending too much money let’s examine his spending.

  • Housing Expenses which include mortgage/rent, utilities, cable/satellite/Internet  service, cell phone, insurance, et cetera. Adam is spending 33% of his income. The recommended amount is 30% and may vary between 25% and 35%. Adam’s amount spent for housing is a little on the high side, but within the recommended amount.
  •  Car Expenses which includes car payments, gas and oil, maintenance and repairs, license plates, insurance, et cetera. Adam is spending 16% of his income. A little over the recommended amount, but close enough.
  • Credit Card Expenses are in reality debt. Credit card debt will be address in a future post. For this example, we will assume it is debt pay down. Fifteen percent is within the recommended amount.
  • Lifestyle Expenses could be classified as discretionary spending, which would include such things as dining out, clothing, entertainment, hobbies, vacations; all those things that that you enjoy and like. Adam is spending 42% of his income on lifestyle things. The recommended amount for lifestyle is 25%. Adam is spending too much money on lifestyle things.

Financial Literacy Knowledge/Skill

Identify where you are spending too much money.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next week’s topic: What’s the difference between needs and wants?

How do you decrease your expenses?

Question  How do you decrease your expenses?

Answer  Cut down on your spending. A skit on Saturday Night Live makes the point very well. In this “commercial parody, a married couple are confused by their money woes, so a spokesperson presents them with Don’t Buy Stuff You Cannot Afford, a guide to prevent financial debt. [Season 31, 2006].”6  

Don’t Buy Stuff You Cannot Afford

Complete Answer   Other than income taxes, you get to decide what and how much you spend. In order to get control of your spending, the first thing you need to do is to know what and how much you are spending. You need to “Track Your Spending”. For example: How much does it really cost to “Take you out to the ol’ ball game?” It will include of course the cost of the tickets. Add to that parking, “peanuts and Cracker Jacks”, and a souvenir baseball cap so you can “root, root, root for the home team”.

There are a number of ways to track your spending. You may be naturally talented at remembering numbers. Great, that will save you a lot time if you don’t have to write things down. For the rest of us:

  • Some people carry around with them a small notebook to record their expenses.
  • Combining a debit card with a checking account is another way of keeping track of your spending.
  • There are a number of apps available for your smart phone that you can use to record your expenses.

Use whatever method or one that you make up, that works best for you. The important thing is that at the end of the month, you know exactly what and how much money you spent. Granted it’s a bit daunting and tedious, but with fortitude7 and a little practice you’ll become quite proficient. I starting by recording my spending in a small notebook. Gradually I progressed to using a spreadsheet on my desktop computer.

Helpful hints: You will have/receive a written record for most transactions; cash or credit card receipts, checks, and bill payment coupons. Most stores will offer a receipt if requested. For those few transactions with no written record; parking meter, vending machine purchases, or coin-operated laundry for example, make a mental note and record it when you have a chance. For those occasions that will involve a number and variety of transactions, attending a church festival or a day at the races with friends for example, count your money before you go and when you come back, the difference is what you spent. Will there be transactions you miss or amounts you couldn’t remember? Yes. Don’t fret, you will get another chance to be more accurate the next day and next month. I find it helpful to make it a daily routine to record my financial transactions from the previous day.

Financial Literacy Knowledge/Skill

Track your spending.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next Week’s Topic:  Where are you spending too much money?

How do you increase your income?

Question  How do you increase your income?

Answer  Work smarter, harder and more.

Complete Answer  Because everyone’s employment situation is difference, I will speak in general terms. I will address your “regular” job – the one which you work the most hours. It may not be your “dream” job or the career field which you would like to work, but it’s a starting point.

We live in and work in a competitive free market economic system. Which means that you compete with others for a job. Your potential employer will hire the most qualified person for the job. Your pay is based on how productive you are; the price that people will pay for the services you provide and/or the goods you produce. Most importantly, you are free to sell your labor to whomever you wish.

The first step would be to ask your employer, “What do I need to do to get a raise?” Then do it.

Work smarter: Take and attend any workshops or seminars offered by your employer. Take classes offered by your local community college that relate to your job. Learn a new skill offered online. Take advantage of “matching programs” offered by your employer. For example; some employers will match up to a certain amount, anything that you put into a 401 retirement account. It’s fee money and you need to fund your retirement account anyway.

Work harder: Volunteer for additional assignments at work. Volunteering to serve on the company’s scholarship selection committee or annual community cleanup event may not add anything to your paycheck, but it will certainly put your name at the top of the list when your company is looking to fill a new position, expand a department or start a new project.

Work more: Volunteer to cover for a fellow worker who has to miss work or work overtime when extra help is needed. Get a second part time job. (Note: Remember to change the W-4 Form for money withheld for income tax – a second job may push you into a higher tax bracket.)

Financial Literacy Knowledge/Skill

To raise your income work smarter, harder and/or more.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next week’s topic: How do you decrease your expenses?

Why are you having money problems?

Question: Why are you having money problems?

Answer: There is an imbalance between the money you are receiving (income) and the money you are spending (expenses).

Complete Answer: It is literally that simple. And I assume that if you are having money problems, it’s because your spending (expenses) is greater than the money you are receiving (income)—you are living beyond your means. You could be living below your means, with income greater than your expenses. But most people would not consider that a problem. Ideally, you should be living within your means. As was discussed in the recent July 25 post, you should be 1) paying all your monthly bills on time, 2) saving money for a rainy day and 3) be putting money away for retirement.

To solve your money problems, you will need to correct the imbalance between income and expenses. You will have to increase your income or decrease your expenses. We will address both in upcoming posts.

Financial Literacy Knowledge/Skill: You should be able to state clearly why you are having money problems. For example; “My income is too low” or “My expenses are greater than my income.”

Comments or Questions: Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and questions you may have about managing your money (Financial Literacy).

Next week’s topic: How do you increase your income?

Is your current Spending Plan working for you?

Question: Is your current Spending Plan working for you? Are you making the most of the money you receive? Are you a good manager of your money?

Answer: Only you can answer that question.

Complete Answer: It is safe to say that no two individuals have the same financial situation. We are all unique and our individual financial situations are also unique. There are, however, a few characteristics that are common to good money management (Financial Literacy). Your answers to the following questions will help you determine if your Spending Plan is working for you:

  1. Can you, and do you, pay all your monthly bills on time?
  2. Do you have money set aside for a rainy day?
  3. Is your retirement being funded?

If you answered “NO” to any of the above questions, your Spending Plan needs a little work. Be assured that you are not alone: One third of us are behind on our debts3, about one half of us could not come up with $1,000 in case of an emergency4, and one in three Americans have saved $0 for retirement5. 

Financial Literacy Knowledge/Skill: A good Spending Plan will enable you to pay all your monthly bills on time, put money aside for a rainy day, and save for retirement.

Comments or Questions: Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and questions you may have about managing your money (Financial Literacy).

Next Week’s Topic: Why are you having money problems?