Managing a budget for the average American can be a heavy lift. Recent events such as the Corona epidemic have all but reminded American households that when unexpected events occur, we must be financially prepared. What follows are a practical series of steps that you can take to protect your wealth even when you are living paycheck to paycheck, provided to you by financial expert, Bradley Atkins. Mr. Atkins owns Modern Capital, a diversified financial services firm that is on a mission to bring opportunities – previously available only to the ultra-wealthy – to the retail investor. Learn more at www.moderncap.com.
1. If you are living check to check, how do you assess your budget to see what’s really going on?
It’s important to have a handle on where your money goes each month. There are many apps out there that will get all of your transactions in one place through technology, but I find it just as easy to pull up my checking account and credit card statements and write them all down. There’s something magical that happens when you go through the exercise of writing down each expense. You create a true connection between your brain and your hand. Write down every transaction going back three months and dig in to find the random expenses that occur throughout that quarter.
Then, create categories so you can see a full picture. Don’t make this too complex. Five or six categories is plenty – housing, food, entertainment, transportation, insurance and debt repayment is plenty of detail, for example. Working through this process alone sheds light on where expenses can be reigned in. Remember that even the smallest expense compounds over time, not just the amount, but the life of interest you could earn as passive income for not spending it.
2. Why is it so difficult to stick to a budget? If you are adverse to them, what are some baby steps to get started?
The easiest place to start for most people is entertainment. Specifically, dining out. Morning coffee shop visits are easy to replace with a nice insulated mug and a coffee maker at home. Taking your lunch to work three or four days a week will result in hundreds of dollars of savings each month. Signing up for an online cooking class is less expensive than one nice dinner and can make eating at home each night fun. The added bonus is you’ll likely lose a few pounds, which can make you feel better and motivated. You don’t need to forego a new car or rush to pay off your mortgage too quickly. While those goals are nice, they tend to overwhelm most folks who just need to shave 15% or so off of their spending each month and direct it towards their savings.
3. If you don’t have any debt, but want to save money, what are some smart ways to squeeze more from your paycheck?
Easy, pay yourself first. Send 15% of your pre-tax earnings to your retirement plan, and then into an investment account. If you’ve got a few bucks, you really should find an advisor to work with too, they tend to help you keep your hands off of your money.
4. What are 3 ways to drastically cut your budget and reduce household expenses?
Pretend as if you just had a child and one spouse quit working.
Sell a car.
Stop dining out.
5. Which are some painless ways to cut your expenses?
Pack your lunch, cancel apps you pay for but don’t use, cut your cable and use online streaming services. Also, check to see if refinancing any of your debt makes sense (especially student loans and mortgages).
6. Which expenses are destroying American budgets, yet, we refuse to cut them?
Food and booze for sure, at least until restaurants and bars shut down. We now see people spending as much money dining out as they spend on housing. It’s crazy. Everyone wants to live a lifestyle of the rich and famous and it is destroying American budgets. If you are a two-income household living paycheck to paycheck, you can’t afford to be a foodie! If you want to feel closer to the culinary scene, take a class online or at the local community college and spend time cooking for yourself and learning about cuisine.
7. What are some ways to have free fun without the expense?
Americans seem to have lost the art of entertainment. Invite people to your house and have them bring a dish and their drink of choice. I’m amazed at the restaurant expenses I’ve seen over the past ten years or so. It’s not uncommon to see folks spending thousands of dollars at bars and restaurants each month. That expense alone equates to hundreds of thousands of dollars in lost savings over 20 years.
Sports is another way to stay fit and have fun for a minimal cost. There are many great leagues for sports that don’t cost a lot of money. Soccer, softball and basketball all have great leagues in most cities and don’t require thousands of dollars of equipment. They also take a couple hours out of your evenings that might otherwise be spent at expensive happy hours or attending other entertainment events.
You know what else is fun? A part time gig in a field you’ve always wanted to work in. Our firm is headquartered in a coastal city where I see a lot of folks working part time at marinas, golf courses and popular entertainment venues. When you’re busy, you don’t have time to spend money and the added income from a second job can have a huge impact on your financial life.
If you would like to learn more information about Modern Capital please visit https://www.moderncap.com