Originally answered Sep 1, 2019

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List estimates for all of your monthly expenses. Use categories such as:

  1. Housing (rent or mortgage, insurance, taxes, maintenance, upkeep, improvements)
  2. Utilities (water, sewer, septic, trash, electricity, gas, propane, cable, internet)
  3. Technology (TV, audio gear, camera, phone, watch, tablet, PC, software, cloud, storage)
  4. Subscriptions (newspaper, magazines, streaming video, music)
  5. Furnishings (dishes, utensils, tools, linen, bedding, interior design, decorating, furniture, artwork)
  6. Household supplies (cleaning, dish washing, laundry, paper products)
  7. Home services (cleaning, cooking, lawn care, snowplowing, maintenance)
  8. Professional services (legal, accounting, financial)
  9. Clothing (clothes, shoes, accessories, laundry, dry cleaning, shoe shining)
  10. Food (groceries, dining out, home delivery)
  11. Beverages (coffee, tea, hot drinks, soft drinks, water, seltzer, beer, wine, liquor, bar tabs)
  12. Stimulants (smoking, vaping, cigar lounges, hookah bars, recreational drugs)
  13. Health (prescriptions, over-the-counter medications, doctors, therapists, insurance, deductibles, co-pays)
  14. Dental (dentists, tooth care, insurance, discount cards)
  15. Private care (aides, nurses, assisted living, long-term care insurance)
  16. Therapy (counseling, psychotherapy, psychiatry)
  17. Fitness (gym membership, classes, workouts, personal trainer)
  18. Vision (glasses, contacts, doctors, surgery)
  19. Personal care (toiletries, wellness, vitamins, supplements, nutrition, spa, massage, plastic surgery)
  20. Grooming (beauty, makeup, hair, salon, barber)
  21. Car (lease or loan payments, insurance, maintenance, repairs, gas, parking, licenses, rental)
  22. Transportation (taxi, subway, train, bus, ferry, ridesharing, car sharing, biking, boating, flying)
  23. Entertainment (cover charges, clubs, shows, concerts, movies, plays, sports)
  24. Travel (vacations, visits, trips)
  25. Media (books, magazines, music, videos)
  26. Mail (stamps, postage, shipping)
  27. Gifts (presents, money, trips)
  28. Pastimes (hobbies, collections, sports, recreation)
  29. Insurance (life, disability, liability, casualty)
  30. Banking (checks, fees, safe deposit box)
  31. Payments (credit cards, loans, layaway, installment purchases)
  32. Taxes (federal, state, local, sales, personal property, preparation fees)
  33. Fees (licenses, dues, membership, fines, penalties, tickets, bail)
  34. Losses (gambling, lottery tickets, bad debts, margin calls, writeoffs)
  35. Contributions (charity, donations, endowments)
  36. Luxury items (boats, planes, RVs, jewelry, artwork, extravagences)
  37. Pets (purchasing, feeding, grooming, vets, walking services, boarding)
  38. Education (instruction, training, tuition)
  39. Family (children, spouses, parents, relatives)
  40. Death (burial plots, caskets, funerals)

List estimates of your expected monthly net income:

  1. Take-home pay
  2. Interest
  3. Dividends
  4. Investment profits
  5. Royalties
  6. Rents
  7. Repayments
  8. Annuities
  9. Pensions
  10. Social Security

Compare the sum of your expected monthly expenses to the sum of your expected monthly net income.

1. If your expenses exceed your income, reduce your spending until it is less than income.

  1. Eliminate them altogether, e.g., cancel a subscription.
  2. Reduce them, e.g., take half as many trips.
  3. Replace an existing expense with a less expensive alternative, e.g., for car insurance, find a lower-cost company, increase deductibles, eliminate comprehensive coverage for older cars, or get multiple car discounts.
  1. Ask for a raise.
  2. Earn a promotion.
  3. Find a higher-paying job.
  4. Take a second job.
  5. Change your investments to receive higher payouts.

2. If your income exceeds your expenses, save and invest regularly:

If you struggle to make ends meet, and you regularly run out of money, follow this plan.

  1. Make paying off any credit card debt your top priority. Cut up all of your credit cards and keep only a debit card. Treat your debit card as an ATM-only card. Don’t use it to make individual purchases: use it only to withdraw cash twice a month. Have your paycheck directly deposited into this bank account, and have your regular mandatory monthly expenses automatically transferred from this account. Use cash for all other expenses, unless a check is required, in which case, write a check.
  2. Subtract any automated monthly withdrawals from your monthly take-home pay. Then subtract your fixed expenses (rent or mortgage, car payments, insurance, utilities, cell phone, credit cards payments) which leaves your discretionary expenses. On each payday, withdraw a fixed amount of cash, which you will need to make last until the next payday, to cover food, laundry, transportation, and other essentials. For example, this might be a $400 withdrawal twice a month. Whatever is left in your bank account, if you don’t touch it, will gradually build up your savings.
  3. Do everything in your power to spend less than this $400 (approximately $200 a week) so you don’t have to withdraw more cash or use your debit card to make a purchase. Make a fun game out of this, like the $24 in 24 hours show. Try to find outrageous deals, see how little you can spend, and how much under the $400 you can get. If you have money left over (if you spend less than the $400 in cash your withdraw between paychecks), then you can reward yourself with a treat by using the leftover money (but only that money).
  4. Once a day, at the same time, look at your checking account balance to make sure it is as expected. Take note of any checks that cleared, automatic payments, or other transactions. Always know your recent balance, and watch it grow as you leave the extra money (that you didn’t withdraw from your paycheck) to build up.
  5. For the next six months, don’t purchase any big-ticket items, go on any big nights out, or indulge in any unnecessary spending. Live a simple life, and enjoy the free things in life like walking in the park, attending free events, and watching the sunset. When you get a gift of cash, pay off debt or save most of it, spend a small portion of it as a one-time splurge, and then return to paying only for what you can afford out of your regular cash withdrawal.

See also:

  1. What are some effective ways to reduce your personal spending?
  2. What do you prefer, saving or investing?
  3. What are the best ways to invest money?
  4. What personal finance mistakes should everyone avoid?

Written by

Knowledge Management Author and Speaker, Founder of SIKM Leaders Community, Community Evangelist, Knowledge Manager https://sites.google.com/site/stangarfield/

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