Overall, figuring out your money sounds simple. Money comes in, money goes out.
Figuring out your money can be as simple as in and out.
Or figuring out your money can be a lot more complicated.
How about we try to make figuring out your money easy?
Incoming
For those of us who have jobs, incoming money is pretty simple if our employer has automatic deposit set up. The money goes directly into the bank account on pay day.
It sucks if you’re paid with an actual check, because that means stopping at the bank.
And have you seen the line ups at banks these days? Out the door and around the side of the building while keeping six feet apart.
Have these people never heard of ATMs? It is so much easier to use your bank card in a machine and deposit and withdraw funds. It’s even easier to deposit your check if your bank has an app and you can take a picture of the check and the money is credited to your account.
Outgoing
What happens to your money once it’s inside your bank account? This part can be a little tricky.
Let’s simplify how to figure out that money. Basically – it gets spent.
Most of us have fixed monthly expenses like mortgage or rent, cable, phone, car insurance, and loan repayments. Fixed monthly expenses are the same amount every month.
We also have monthly expenditures that fluctuate like groceries, utilities, gas, clothes, and hair cuts.
Then we might want to have a little fun and spend money on movies, dining out, concerts, or splurging on a treat.
Simplify figuring out your money
Let’s keep things simple with this chart I drew up. Money comes into your bank account and then it goes out, spent on whatever.
What do you think? Simple, hunh? Money in. Money out.
Figure it out
Grab a pen and paper. This could get messy while you cross things out and write in things as you think them up.
You can use a spreadsheet if you really want to, but I find writing things down instead of typing them makes it more likely that I’ll take action.
The first thing is to figure out where our money is coming from and write it down at the top of the page. A job? Side hustle? Dividend income? Social security?
Just write down the places where your money comes from. At this time, we’re not concerned with an actual dollar amount.
Incoming money hits your bank account. Now maybe your life is somewhat complicated and you have various streams of income hitting more than one bank account.
Yikes!
We’re trying to simplify figuring our money out. If you’re married and have more than one income coming into your household, it’s also possible you have more than one bank account.
OK, the money is in one bank account. If you’re like me, your money probably gets deposited into a checking account and most of your expenses funnel through this account because of the free unlimited transactions. The checking account doesn’t earn interest. Let’s only keep enough in there to cover expenses.
Under “account”, we have two more sections that are simple explanations for what happens to your money. It is either for saving or spending.
The money that hits the saving account could be for an emergency fund, investments, a retirement account, a new car, a down payment on a house. These are very likely all separate savings accounts. List them. Include any type of savings account you’d like to start.
Remember all we’re doing here is putting a chart together of what happens to our money, not how much money is allocated to each slot.
The spending side includes both fixed and unknown expenses, some examples already listed above like rent, groceries, and gas. The actual cash for all these categories stays inside one checking account. Can you imagine having a separate checking account for rent, another checking account for car repairs, another checking account for the phone bill, and so on?
All you need is one checking account. That’s where the incoming money hits, and then that checking account becomes a “spending” account for all expenses.
If I’ve lost you, roughly, the chart you’re creating should look like this:
Except, of course, your “Spending” will have whole lot more going on than the example chart!
Dollars and cents
Let’s not worry about putting actual dollar amounts on any of the categories you’re listing. You can write some numbers in if it keeps you organized, but we’ll do that another day.
Today this chart you’re mapping out is to get you thinking. You see where your money is going. You also see where you want your money to go if you labeled a few extra savings accounts for things you’d like to start saving for.
This is your money map and you’re drawing out the places your money is going. You might get stuck. Who’s done that when you’ve been on a road following a map?
Which way do I go? Which way do I go?
Your money map might look messy as you change course. You’re figuring out where you want to go. You’re figuring out your money.
If you know you need more money coming in (yeah I’m raising my hand here!) that’s something you can put at the top of the money map. More money coming in could be taking on another job or maybe starting a side hustle.
For inspiration, see Nick Loper’s side hustle book, currently free on Amazon. (Disclosure: I’m an Amazon associate. If this book reverts back to its regular price and you buy it, I’ll receive a small commission for the referral.)
Money gaps
Find the gaps and build a bridge to cross them.
Again, it’s really important to use paper and pen, and scribble out any changes. Handwriting is more effective than using a spreadsheet on the computer while you’re at the mapping stage of figuring out your money.
Where are your money gaps?
Savings accounts? Do you even have any savings accounts? Or have you created several savings accounts each with specific goals like an emergency fund or saving for a new car? You know you want more of these types of accounts. Write them in on your map!
Let’s see where you’re going!
Once you’ve filled in the missing gaps, you’ll know what you have to fix. If you want to have an investment account, let’s make it happen. Write it down on your money map. Now that it exists, you can figure out how to fix it – put money in it! Don’t worry about where you’re going to invest the money you plan to put in that account just yet. Starting a saving account is the first, baby step.
You can see what you’re spending money on and if you need to plug any of those gaps. Are any items on the spending side of your map loan payments or credit card debt? These are things you have to fix.
Pay off the debt. Incur no further debt.
When you create a handwritten map figuring out your money, you can see your money is going everywhere!
It’s really overwhelming.
But look at you. You’re already taking the first step to figuring out your money!
You have a money map in front of you that’s easier to understand than a spreadsheet.
You’re seeing the whole picture on the piece of paper you just wrote all over.
Goals
OK, now I want you to flip over that sheet of paper that you’ve mapped your money on.
Write down your financial goals. You’re more likely to take action if you write them down.
If you need some inspiration, take a look at the post New Year’s Financial Resolutions Challenges on Low Income.
Make your goals achievable.
Maybe you want to save $500 for your Christmas spending fund. Figure out how many months until Christmas and then divide that number into $500 to figure out how much money you need to put into the Christmas envelope each month.
If you write down your goal is to win the lottery, that might not happen!
Here’s what my 2020 financial goals are, adjusted due to Covid-19.
- Incur no debt
- Don’t look at the current value of my investments
- Don’t sell any stocks
- No unnecessary spending
- Build up my emergency fund
- Try to save a little for next year’s TFSA
Change
As time goes on your money map will change. Your incoming money might increase or decrease.
Savings accounts change as your needs change. For example, I no longer have a Christmas fund.
Your spending will change as you pay off debt and re-evaluate your purchases and bills.
My money map from ten years ago looks very different than the money map from five years ago.
Today my money map looks very different from both of those maps, as my priorities have changed or I’ve accomplished my goals. And most especially dealing with one income, and a low income at that.
Your pen and paper money map has taken an overwhelming money situation and given you structure to chart your course.
Let me know how it goes!
More reading:
Yep! My plans are exactly like yours, at least the first 5. The 6th one doesn’t apply and it is extremely important to figure out your finances. I always find it amazing when l find people who don’t seem to know or care about money. It’s so easy to fall into debt if you don’t get a handle on things.
Well the TFSA is a Canadian product, so fill in the blank if you have a similar registered savings plan in your country! It’s a very simple financial plan for right now. In the past I’ve designated money to a travel fund every month, but that’s on hold.
I remember the collections department in the credit union I worked for phoning people reminding them they’re overdue on loan repayments, and their answer would go along the lines of they don’t know what happened, the money was in the bank account. Simply speaking, the money got spent. So yes, important to know where your money is going in order to meet your financial obligations, save for retirement, and have a little fun.