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3 Simple Steps to Control Your Finances – Steven Burke – Medium

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I’m sure you’ve read the articles on how to get rich by following the “easy” steps, only to find out that the steps are too complicated or beyond your current financial ability. The United Way Alice Project found that in 2017 44% of Americans said they could not cover an unexpected $400 expense.

So how can you set yourself up for financial stability so you don’t have to reach for that credit card every time an unexpected expense comes knocking at your door? Begin with these 3 simple steps:

  1. Understand how much you earn and spend each month

It is critical to understand how much money you’re making and spending each month. This exercise is so critical to the financial success of every household, yet there are only a handful of people that actually take the time to do it. I recommend taking out a sheet of paper and listing everything you spend money on during the course of a month. The values aren’t important to begin with — just write down as many things as you can think of in 5 minutes. After you have your list, begin assigning values to the different line items. If you don’t know exactly, or the amount fluctuates month-to-month, just give your best estimate. There is time later to be exact — this is a brainstorming exercise just meant to give you an idea of where you stand.

After your initial brain-dump, I suggest downloading a finance tracking app such as www.everydollar.com or www.mint.com. These apps will help you track the money you spend over the course of a month. At the end of the first month, use the app values to compare to your initial brain-dump list. How close are they? What are things you overvalued? Undervalued? Completely missed?

For expenses such as car insurance that may be paid on a frequency different than monthly, I recommend averaging the expense out so that there is a close monthly expense you can budget for. Remember, the purpose of budgeting is not to restrict your spending. The purpose of making a budget is to find ways to free up money that you can use to invest in your future.

2. Label each expense as a “need” or a “want”, then prioritize

Once you have your list of expenses after a month of accurate tracking, I recommend labeling each line item as a need or a want. Some of you might find this exercise difficult or confusing. For example, if you pay $100/mo for car insurance — one could argue that a car in and of itself is a want because you don’t really NEED a car. However, if your car is how you travel to work, bring the kids to school, or travel to family Holiday’s — I would label that as a need. Please be honest with yourself during this exercise, and Netflix is NOT considered a need! 🙂

3. Eliminate your expenses starting with the lowest priority want

Cut your “wants” out of your budget until your expenses total 90% of your income — then begin to save the remaining 10% in a savings account separate from all of your other money. This is the most challenging part of these exercises because as humans we are conditioned to view loss or elimination as a negative emotion. I urge you to think otherwise. There was a study conducted that researched the differences between millionaires and the average working American. The study concluded that the major difference between these groups of people was not their inheritance, education, job, skin color, or gender. Is was their time horizon. The wealthy have a time horizon much longer than the average American. They understand that the financial decisions made today produce a small ripple that eventually will turn into a massive wave.

It is not easy to remove items from our lives that we have been accustomed to purchasing, but it is simple. If you’re finding yourself struggling from paycheck to paycheck — life is difficult anyways! If you can find the courage to be financially disciplined for the next few years, you will be setting yourself up for financial stability and success. As T. Harv Eker said, “If you are only willing to do what is easy, life will be hard. But if you are willing to do what is hard, life will be easy.”

To your success,

Steven

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