Making 2015 Your Money Conscious Year
There are many things to be excited about in 2015, with the current trajectory of the U.S. economy at the top of the list. Unemployment dropped consistently over the past year, with 200,000 new jobs added to the economy each month for 11 straight months. For many, 2015 may feel like 2005.
Many reaped the benefits of the sizzling economy between 2004 and 2007 with home values and stock market appreciation. All aspects of that economy weren’t great, though. Wages and salaries didn’t keep up with the 5 to 10 percent annual home, auto and gas price appreciation. What did keep pace with that appreciation, despite wages and salaries, was consumer spending. This spending helped facilitate the economic crash of 2008.
We must ask ourselves, what makes today’s economy different than 2008’s? Home values are up, in some places beyond where they were in 2008, and Americans are expected to buy nearly 14 million new cars in 2015. There is pent up demand for everything from new appliances to Levi’s Commuter Jeans. How will you make 2015 different than 2008 for you?
The Debt Free Guys suggest that you make 2015 your Money Conscious Year. What do we mean by “money conscious”? Far too many spent unconsciously heading into 2008. Like driving through an intersection and wondering afterwards if the light was even green, many spent via credit cards, home equity loans and other debt without truly knowing how much money they had in their bank account or how over-extended they were on credit. They were financially unconscious.
In our book, 4: The Four Principles of a Debt Free Life, the first principle to live a debt free life is to “Be Money Conscious”. Below we share how to adopt the Money Conscious mindset for 2015.
- Know how much money you really earn
- Know on what and where you spend your money
- Have a plan
Step 1: Know How Much Money You Really Earn
One mistake most of us make is with how much money we really earn. We often think that if we earn $40,000 a year, we can spend $40,000 a year. Wrong! We forget taxes, health insurance and retirement savings – and we better have some because social security as we know it won’t last much longer. Many items are deducted from our paycheck even before we receive it, so the easiest way to determine how much we can afford to spend is to look at our pay stub – specifically our net pay.
Your net pay is the amount deposited into your bank account each payday. If you’re paid weekly, take that net amount and multiply it by 52 and then divide it by 12. If you’re paid twice a month, multiply the net amount deposited into your bank account by 2. The total of that calculation is your net-monthly budget or how much money you can spend on a monthly basis. For example:
- Take home of $437.50 every week = $437.50 x 52 / 12 = $1,895 per month
- Take home $1,700 twice a month = $1,700 x 12 = $3,400 per month
Step 2: Know on What and Where You Spend Your Money
How much do you spend and on what? Do you even know? To become money conscious, first add up all your monthly spending, including your mortgage or rent, insurance, groceries, social life, car payments, clothes, etc. You may have to total a few months to calculate an average. Then, subtract this total of your monthly expenses from your net-monthly budget calculated above. If you have money left over after paying your monthly expenses, hooray!
What happens if your monthly expenses total more than your net-monthly budget? You have too many monthly expenses and you must make adjustments. Get your monthly expenses at or below 90 percent of your net-monthly budget. Here’s where you distinguish between wants and needs. No matter who you are, you can reduce your wants and this reduces your monthly expenses.
Find a simple way to track your spending. If that means daily or weekly totaling your spending on a spreadsheet, then do it. If you can only do this once a month, fine. Whatever money tracking habit you adopt makes you more money conscious of your spending and less susceptible to overspend.
Step 3: Have a Plan
Plan, plan, plan! Finally, create a debt-payment plan. Use your net-monthly budget calculated above as the basis for creating this plan. Subtract 90 percent from your net-monthly budget to pay your monthly expenses. Use the other 10 percent to put towards your debt every month without fail.
This is an essential step to pay off your debt or to reach any other financial goal. If you begin every month with a plan, you will surely get out of debt and get ahead financially.
Regardless of your financial situation, make that 10 percent a regular expense. Use it to pay off debt, then when your debt is paid off use it to reach your next financial goal. Set up direct deposit into your bank account and automatic payments from your bank account, so that no matter where your money must go it goes automatically, every month, without fail.
Being Money Conscious is as easy as 1, 2, 3, if you follow the simple steps outlined above. What we discussed above is only a small part of the first principle in 4: The Four Principles of a Debt Free Life. For more details to become money conscious and to learn the other three principles to live a debt free life, along with worksheets and a 12-week action plan, invest in a copy today.
With over 14 years of combined experience in financial services, Denver CO residents David Auten and John Schneider of DebtFreeGuys.com still found themselves with over $51,000 worth of credit card debt. With their self-made plan, they paid off their credit card debt within three years. Nine years later, they’re helping others learn to be debt free. To learn the three additional principles of living debt free, buy their book 4: The Four Principles of a Debt Free Life today.