Are you finances a source of stress? How often do you find yourself constrained by money? Are financial limitations putting constraints on the kind of life you lead?
Most of us would answer yes to that last question. After all, even the very rich can’t do and buy EVERYTHING they would want.
But then again we are not talking about mega-yachts here. We are talking about the very reasonable desires of middle class folks such as you and me.
We are talking about a dinner out with our spouses and families.
Drinks and happy hours with friends.
A couple vacations a year.
Home maintenance projects.
A nice massage every now and then.
Overdue updates to your wardrobe.
The simple things.
If you find yourself unable to afford what would be considered the “basic” luxuries that would constitute a middle class lifestyle in America, then it is time to do an evaluation.
Are you being suffocated by your income or your expenses??
Tweet ThisThe typical advice to anyone struggling to manage their finances usually ranges somewhere along the line of “stop buying Starbucks” to “cut off your cable” and other such cliches which may ignore some nuances of one’s financial situation.
In order to understand your true financial picture, you must first have an accurate accounting of your income and expenses.
Here are the steps you must first tackle on the road to figuring out the true culprit behind your financial struggles.
1.Understand Your True Income Picture
Those of us with a W2 job typically know how much money we are taking home each month after income taxes and deductions.
If you are self employed, it is a bit more tricky. You will have to analyze a few months of your bank statements to get an accurate picture of how your money is flowing in.
2.Understand Your Expense Picture
Analyze your fixed costs such as mortgage/rent, utilities, healthcare costs and other monthly obligations. Have a ballpark figure of how much it costs to administer your life each month.
3.Understand Your Debt Picture
What are the minimum monthly payments on bills such as student loans, car payments and credit cards? You need to understand how much money you are spending on debt service each month.
4.Understand Your Income, Expense and Debt Relativity
Are you making enough money for the area you live in? Are you underpaid or underemployed for your education and experience?
How about your housing expense? Are you living in a more expensive home or rental than most in your area? Are your utilities typically much higher than most people you know?
Finally, do you have massive student loan debt? Are you driving a car with a giant payment? Are you suffering under the weight of credit card debt?
Your answers to the 4 items above will start to shape a picture around your finances. Themes will start to emerge to give you more clarity around your financial picture.
Once you have done these evaluations, you can read my upcoming articles in this series that will go deeper into identifying the root causes and propose solutions to these dilemmas!
The post Are your Finances Suffocating you? appeared first on Afford a Life.