Are you ready to be honest with yourself? No! Really honest. No sugarcoating anything! No half-stepping. Brutal honesty. That’s exactly what this next step requires.
In order to move passed living check to check, you first have to see where your check is going. You need to know exactly how much money you’re bringing in. For example, At my last job, My salary said I was earning $64,000; however, when I calculate how much I was actually hitting my bank account each month, I was actually earning $46,270.68. The problem was I was living like I was bringing in $64,000.
RIGHT!!!! That was my response. I’m sorry, what! So you mean to tell me, I am losing $17,729.32 every year to taxes, insurance, medicaid, and retirement? That’s crazy!!!
This step requires you to see how much money is actually hitting your account and how much money is coming out of your account. By doing this, you can see exactly where you are spending your money. You need to take a look at the last three months of your bank statements and credit card statements to see what you are consistently spending your money on. We know that we are spending on the mortgage or rent, utilities, gas, groceries, cable, water, but what else are you spending on? Do you have habits that are costing you money?
Coffee? Nails? Hair? Makeup? Haircuts? Waxing? A gym membership that you aren’t using? Lunch? Dinner? Breakfast? Where is your money going?
What I saw when I looked at my own money was that I was spending on coffee. Where I was working was a very stressful job and I just needed a minute to decompress, so I would walk on my breaks to Dunkin Donuts up the street. Each time I went, I was spending at a minimum $3.00. So, if I took a break 1x a day for a week, that was $15/week, which amounted to $60/month. Then, when I was too lazy to bring lunch, I would have to go out and buy lunch. At a minimum, that was $10. If I did that 3 times a week, that was a minimum of $30. I have small children and sometimes their hectic schedules didn’t allow for us to get home in time for me to make dinner, so Chick Fil A it was. For a family of 5, that’s easily $40 a trip. So, eating out was taking a big chunk of my money. But here’s the thing, I couldn’t afford those trips to eat out, so they went on a credit card.
The first thing my snapshot showed me was that I needed to change my income. I needed to make more money. When folks hear “I’m a lawyer”, they automatically assume you are making a boat load of money. What they don’t hear is “I’m a government attorney”, which means I went to school for 7 years so that I can come out and make the starting salary of a person without a college degree. I started out, after passing the bar, earning $40,000. Now, at 24 years old, that sounded like a lot of money. To anyone else, it might be. However, it wasn’t nearly what I was expecting to make. In my mind, I was coming out of law school with a J.D., a B.S. in Finance, and a B.A.in Criminology. I was in the top 20% of my law school class, so I could demand at least $80,000. I was humbled very quickly. That is a story for another post though.
The second thing it showed me was the hole I had dug for myself. I had created so much debt in my early 20s from being prideful that I had minimum balances on my debts that were eating up 33.5% of my salary. Let me say it again for the folks in the back. I was paying 33.5% of my earnings in debt. This debt included credit card minimum payments, car payments, student loan payments, and furniture payments. That is not how one should live.
Take a look at your numbers and see what your snapshot is telling you. How much are you bringing in and how much are you expending? Are you living within the salary that you are bringing home or are you ballin out on the salary that your employer told you you were earning?