The truth is most of us have enough money coming in each month to do almost anything we want. (Within reason of course.) But few of us have enough money to do everything we want.
It is about priorities and choices.
The problem is when we approach life without a plan, our spending doesn’t always match those desires. Or worse when we run out of money before we have covered those desires, we pull out the plastic and live our lives on credit.
The spending priorities challenge
So here is my challenge for you.
Take out two sheets of paper. Or if you insist you can use a spreadsheet, but I think there is some value in actually feeling the numbers as you write them down.
On one page I want you to list everything you have spent the last month. You can group things how you want, but the categories should be meaningful.
It is important that you capture realistic numbers. If you say you spent $20 on eating out when in reality it was more like $150 then you are defeating the purpose of this exercise.
If you regularly do a budget or if you use a spending tracking tool like Quicken or Mint then it might not be too difficult to make that list of everything that you have spent this month.
If you have more of a fly-by-the-seat-of-your-pants approach to spending then chances are perhaps you really have no idea what you spent the last month. If that is you then we will adjust this challenge just a little. If you really have no idea what you spend on the various categories each month, then your challenge just for the next 30 days is to track everything you spend.
Now that you have your list of everything you spent for a month, it is time to prioritize.
Take that second sheet of paper and at the top I want you to write the total of all of your income for the month.
Now I want you to check out that list you put together of everything you spent last and find the most important thing on the list. This is the one thing you’d spend money on before anything else.
Write that underneath your total income and subtract.
Now look through the list and find the second most important item. Write it on your list and subtract it from the subtotal you just created.
And continue on with the third priority and the fourth and so on until you have accounted for every item on your list.
Time to evaluate
Now that you have prioritized that list the question is, “Where did the money run out?”
There are two possibilities.
Perhaps the money didn’t run out. You are able to cover all of your monthly expenses and still have money left over to spare. Congratulations! You are doing awesome. You are spending less than you make which is one of the first steps to financial freedom.
But maybe by the time you got to the bottom of your list your total was a negative. You had more monthly expenses than you had money coming in. That’s a problem.
The real point of this little exercise was to help you determine what items you buy each month that really matter to you and what doesn’t matter so much.
Take a look at what was above and below the line when you hit $0 left? Are there things below the line that really don’t matter to you? Then find a way to cut them.
Are their items that are below the line that you really wish were above the line? Then find ways to cut. Perhaps eating lunch out one day a week instead of everyday? Do you really need the super-sized cable package? What channels do you regularly watch? Are they all contained in a cheaper package? How about your cell phone? Could you cut back to a lower plan? Do you pay for features you don’t use? Call your providers and see what can be done to lower your bill. You might be surprised.
For me this exercise illustrates the point of the value of having a monthly spending plan or a budget, to use the dreaded “B” word. It isn’t about restricting you. It is about prioritizing your spending so that you are spending your money on what matters most to you.