The Easiest Way to Master Your Money
Beginning your journey to financial freedom is easy as 1-2-3
by Beau Henderson
I recently experienced the Midwest phenomenon known as The Mall of America. Currently tagged as the nation’s second largest shopping center – it even has an indoor amusement park complete with a roller coaster – I headed inside with the intention of finding a Barnes and Noble bookstore.
About forty-five minutes later, I had found a pretty nice pair of shoes, a Cinnabon, and a slice of pizza. I got distracted, yes, but I kept thinking, “I’ll just go a little bit further, it has to be there!”
Now, I know what some of you might be thinking, but this is about more than just one man’s unwillingness to ask for directions! It’s about taking the time to come to a complete stop.
I finally located one of those mall maps, stood in front of it for a few seconds, and found that little red star that says, YOU ARE HERE! Armed with that information, I set out on my way, and found the bookstore in less than three minutes.
With regards to finances, most people don’t take the time to stop and really look at where they are now.
Most people think, “If I just keep on moving, I’ll get there!” Meanwhile, they waste thousands of steps, and thousands of dollars.
Whether you are climbing out of debt, recovering from a long period of unemployment, or looking to purchase your first house, getting clarity about where you are now is the essential first step when mapping out your financial future.
It’s just like wandering around at the Mall of America: you’ll get distracted, find all kinds of things you never knew you wanted, and maybe even forget where you were headed in the first place! Don’t let that happen to you! Take the time to locate the little red star in your life that says, you are here!
Creating your Money Map is the essential first step and it can be as easy as 1-2-3
- STEP #1: Create a Balance Sheet
Think of this as a list of what you own and what you owe. Get out a piece of paper and divide it into 2 columns labeled ASSETS and LIABILITIES.
- Assets are those physical items you own which have a calculated worth in dollars. They include vehicles, real estate, and equipment. They also include your house even if it has a mortgage, retirement funds, and any savings. List each item alongside its valued dollar amount and calculate a total.
- Liabilities include all financial obligations including credit card balances, loans and mortgage payments. List the outstanding dollar amount remaining for any mortgage or loan. Calculate a total.
The difference between these two will give you a snap shot of your net worth, positive or negative. This will change over time as the value of what you own increases or decreases, and the balances of what you owe are paid off, decreasing your liability.
- STEP #2: Calculate an Income Statement
Your Income Statement will also have two parts; first look at what comes in and then look at what goes out. Label these categories INCOME and EXPENSES.
- Income calculation will be different for everybody. Some of us have reliable W2’s and predictable paychecks, while others don’t. If you are self-employed, work on a per commission basis, or have seasonal employment, average your income by looking at last year’s taxes, or by factoring in all income streams and dividing by twelve to find a monthly average.
- Expenses include all money that goes out and this is where you might find some surprises. Just how much are you spending each month at Starbucks? Look at credit card statements, paper receipts, and monthly bills. Include fuel for both yourself and your car, bills for phone, internet, and insurance. Also include a category for repairs and maintenance such as regular oil changes. Create a miscellaneous category to include those unexpected expenses that come up periodically.
- STEP #3: Identify FIXED and VARIABLE
Not all expenses are created equal! Fixed expenses cannot be changed or stay pretty consistent month to month, while variable expenses are changed by you. This is where it can get fun.
To play the BEAT THE BUDGET game, circle or highlight those expenses you can control and identify what you can do to free up that money. For example, bringing a thermos of coffee with you to work each day could free up an extra $150 a month to go towards debt reduction or saving for that house.
This allows you to take control of your money instead of having your money control YOU!
Everyone has a dream destination, and everyone deserves a chance to achieve their definition of a RichLife. Don’t waste precious time moving in the wrong direction! Step 1 is to find out where you are now. Take the time to get clear. Create your money map today!