{"id":80509,"date":"2019-12-03T12:00:27","date_gmt":"2019-12-03T19:00:27","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=80509"},"modified":"2024-02-23T16:40:49","modified_gmt":"2024-02-23T23:40:49","slug":"steps-financial-success","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/steps-financial-success","title":{"rendered":"6 Steps to Improve Your Financial Situation (in a Way That Actually Lasts!)"},"content":{"rendered":"

“Annual income twenty pounds, annual expenditure nineteen (pounds) nineteen (shillings) and six (pence), result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”<\/p>\n

\u2014Charles Dickens, David Copperfield<\/a>\"\"<\/em><\/p><\/blockquote>\n

\u201cWhere did the money go?\u201d <\/span><\/p>\n

My wife\u2019s words lingered. I didn\u2019t have an answer. Several\u00a0months earlier we had received a very generous gift of $10,000 from a family member. Now it was gone. We didn\u2019t know where it went.<\/span><\/p>\n

It was hard to look in the mirror. When I did, I saw weakness and failure. It was embarrassing. We were doing it wrong. Life. I didn\u2019t know what right looked like, but this definitely wasn\u2019t it.<\/span><\/p>\n

Squabbles over money start in this dark place. My wife and I had managed to mostly keep money issues from having a negative impact on our marriage. But I could sense an underlying mutual mistrust creeping in. I was sure that I was partially to blame, but I didn\u2019t think that it could have been all me. Where <\/span>had<\/span><\/i> the money gone?<\/span><\/p>\n

There were other times. It seemed the instant we found ourselves with some money, there was always an \u201cimportant\u201d reason why it had to be spent. But if these reasons were so important, why could we never seem to remember what they were?<\/span><\/p>\n

Something had to change.<\/span><\/p>\n

First, Admit You Have a Problem<\/h2>\n

Some popular personal finance authors eschew the idea that you can become wealthy by living below your means, instead advocating a focus on increasing your income. But it\u2019s not an either\/or decision. It\u2019s both. No matter how big your paycheck is, you can\u2019t be financially successful if you spend more than you earn. Once you have control of your money, you can focus on increasing your income. And it will be far more effective when you do.<\/span><\/p>\n

Money troubles don\u2019t just sort themselves out. Focused on their careers, businesses or investments, sometimes people suddenly find themselves with lots of money. Things can seem easy for a while. But surprisingly, many lose substantial fortunes as the money slips through their fingers. Only those who are deliberate with their spending habits can make money stick. This simply won\u2019t happen unless you admit to yourself\u2014and to your partner if you have one\u2014that you aren\u2019t good with money.<\/span><\/p>\n

The good news is that getting money to stick is\u00a0an acquired skill. Some people are naturally inclined, but anybody can learn it. And it is actionable. While increasing your income might take some time, taking charge of your spending can start right now.<\/span><\/p>\n

\"writing-goals-down\"<\/p>\n

Related:<\/strong> The Foolproof Monthly Budget: How to Save Up Money to Buy Investment Properties<\/a><\/em><\/p>\n

Write It Down<\/h2>\n

It\u2019s time to talk about the “b-word.\u201d Most consider it a curse-word.\u00a0The first thing that people think of when they hear the word \u201cbudget\u201d is what they\u2019re going to have to give up. Usually, this is because they are going to have to give something up. <\/span><\/p>\n

But a budget is\u00a0actually all about mindset.<\/span><\/p>\n

I\u2019m into goal-setting. I think that many of us drift through a life of mediocrity because we achieved our original goal of becoming an engineer\/veterinarian\/lawyer\/accountant\/teacher\/whatever and then simply didn\u2019t set any more goals. We just let life happen to us after that. Having a clear set of goals propels you forward.<\/span><\/p>\n

A budget is nothing more or less than a set of goals for your money. <\/span><\/p>\n

To get started, create a spreadsheet using Google Sheets or Excel or whatever. I like Google Docs because I can easily access them from home, work, my phone, etc. <\/span><\/p>\n

Choose a period equal to how often you receive a paycheck. Everything you enter in the spreadsheet must align with this period. My wife and I both get paid bi-weekly, so it\u2019s easy to align. If the pay frequencies for you and your partner aren\u2019t aligned, use the shorter period. It is easier to prorate this way than the reverse. <\/span><\/p>\n

Create the following columns: Item, Income, Expense. <\/span><\/p>\n

In the first few rows, list all of the household income. For example, we\u2019ll have a row for my salary and a row for my wife\u2019s pay. In the “Income” column next to each item, list the net pay that you receive each pay period after taxes and other deductions.<\/p>\n

Start by using net income\u2014the money you actually receive in your account each paycheck. You can refine it later to account for taxes and deductions like retirement plan contributions. But if this is your first budget, you probably aren\u2019t going to change those things right away so they\u2019re not as important on day one.<\/span><\/p>\n

Count the Cost<\/h2>\n

Now go through your bank account and identify every payment that comes out of your account automatically. Enter these into your spreadsheet in the “Expense” column. You may have to scroll back through your bank transactions for a whole year. This can seem daunting at first. But we found that even once we thought we were on a budget, automatic payments would suddenly come out of our account unexpectedly. This was because some of them were quarterly or annual payments; we hadn\u2019t gone back far enough to catch them. You really aren\u2019t in command of your money until nothing comes out of your account unexpectedly.<\/span><\/p>\n

Related:<\/strong> 7 Toxic Money Habits That Harm Your Financial Future<\/a><\/em><\/p>\n

Prorate expenses that do not fit within your pay period. For example, if you have a car payment that is paid monthly but your pay period is bi-weekly, you should enter the bi-weekly amount needed into your budget. Simply multiply the monthly payment by 12 (months) to get an annual amount, and then divide by 26 (pay periods) to obtain the amount that needs to be set aside each pay period. I have a fourth column labelled \u201cNotes\u201d in my budget spreadsheet. In this column I usually make a comment about the actual payment amount. For example, if the budget number is $46.15 for my bi-weekly budget, I will write \u201c$100 per month\u201d in the Notes column. This just helps when you\u2019re looking for the expense in your bank records.<\/span><\/p>\n

Now identify all other expenses. Go through your account and identify each type of spending. Look back through at least the last three months, add up all expenses of that type, and average it out for a single pay period.<\/span><\/p>\n

You should end up with a fair number of rows. Our budget has about 60 rows in it. You can group these into categories of related expenses if you want to get a feel for how much you\u2019re spending in a particular area. For example, we group all of the car-related expenses, including insurance, fuel, vehicle registration fees, allowance for maintenance, etc. This allows us to add some additional data to our spreadsheet to see how much of our budget we\u2019re spending on transportation.<\/span><\/p>\n

\"Young<\/p>\n

Identify the Problem(s)<\/h2>\n

Once your spreadsheet contains\u00a0everything on which you currently spend money, it\u2019s time for a moment of truth. At the bottom, sum up the income column and the expenses column. Which one is bigger? If things aren\u2019t going well, then your expenses will be bigger than your income. <\/span><\/p>\n

If your income is greater than your expenses, great! Congratulations. The next question is by how much?<\/em> There is a variety of theories, but some suggest you should be living on 90% of your net income. Others suggest even less. Jim Rohn suggests 70%, and that’s what we’re currently aiming for.<\/span><\/p>\n

In either case, you need to figure out where you\u2019re spending money unnecessarily.<\/span><\/p>\n

We discovered that our money issues stemmed from two main behaviors:<\/span><\/p>\n