Personal Finance 101 – From an Unlicensed Professional

October 11, 2017

Does money ever stress you out?  That’s a stupid question.  Of course it does.  You would be a hippie if money didn’t stress you out.  And no one wants to be a hippie.  I would much rather be a millionaire.  Just think about it for a second.  You literally need money for everything.  Food, shelter, clothes, transportation, education, children, retirement.  The list goes on.  Money and success are often viewed as one in the same.  And although the vast majority of individuals would tell you they’d like to make more money, very few are willing to take the necessary action to experience financial success.

 

So full disclaimer, (in case you didn’t read the title) I am by no means a licensed financial advisor.  If you’re looking for a free consultation from a certified professional, you’ve come to the wrong place.  However, if you’re looking for raw, unfiltered advice from a twenty-five year with an above-average interest in personal finance, look no further.  Maybe you have a poor credit score.  Maybe you have a problem controlling your expenditures.  Maybe you have a seemingly insurmountable amount of debt and you don’t know where to begin. Whatever financial concerns you may have, rest assured, you are in very / somewhat capable hands.

 

I’m not going to cover everything in this blog, but I want to go through the basics.  If you’re not doing so already, you absolutely 100% no exceptions need to start tracking your income and expenses.  The easiest way to do this is to leave a paper trail and stop paying cash.  Obviously there are certain occasions where you will need to pay cash (you can come up with your own examples), but try to minimize these as much as possible.  It makes things more difficult to track.  If you work a job where you are paid cash, don’t use this as an excuse.  It is just as easy to store your weekly earnings somewhere safe and deposit cash once a week at the bank. 

 

There are a few different ways to track your income and expenses.  I have a reminder in my calendar once a week to log into my bank account and copy all line items from my statement into an Excel spreadsheet.  This way, I have all my financial history for the last few years in a format where I can easily analyze and manipulate the data.  Too lazy to spend 10 minutes every week getting your life in order?  Well, good news.  There is a great app called Mint that does this for you automatically.  Mint will categorize all your expenses and show you in detail where you are spending all your money.

 

Next thing you need to do is create your average monthly income statement.  If you don’t know what this is, I’m not sure I can help you, but Google sure can.  Start with your income.  If you get paid on a monthly basis, this is simple.  If you get paid on a bi-weekly or weekly basis, I have the utmost confidence you can figure this out (try multiplying x2 or x4).  Be sure to account for any additional income you may receive outside your primary job.  Now subtract taxes along with any pre- or post-tax deductions from your gross pay.  Hopefully you are contributing to a 401k or IRA (roth-preferred) as well as an HSA or flex spending account for medical expenses, but these are topics for another blog.

You are now left with your net pay.  From your net pay, you will subtract all required monthly payments (rent, utilities, car payment, car insurance, loan payments, phone, etc).  Do you still have a positive number?  That’s good.  This is your discretionary income.  In other words, this is what you can spend on cable, internet, food, drinks, extra clothes and entertainment.  But keep in mind, once you reach $0 for the month, you will be breaking even.  You want to stay positive after all expenses have been accounted for.  This is how you SAVE MONEY!

 

Gross Pay

- Pre-tax Deductions

- Taxes

- Post-tax Deductions

= Net Pay

- Required Expenses

= Discretionary Income

- Discretionary Expenses

= Net Income

 

What should you do if your net income is negative?  I’ll present you with three options.

  • Earn More

  • Spend Less

  • A and B (this is the right answer)

Maybe you’re saying to yourself, “Wow, what a revolutionary concept.  Thank you so much, Andrew, for the incredible insight!”  Well first off, you’re welcome.  Second, let me ask you a few questions. 

 

When was the last time you received a raise?  When was the last time you asked for one?  Could you be making more at a different job?  If you work a full-time job Monday through Friday, could you pick up a part-time job on the weekends?  Do you have an extra room you could rent?  Maybe you like painting in your free time and could start selling your artwork online.  Maybe you enjoy baking and could sell baked goods to local businesses or at farmer’s markets.  The point I’m making is that there are countless ways to increase your income, as long as you are creative and willing to put in the time and effort.

 

If your brain can’t come up with any ways to increase your income, you can always focus on minimizing your expenses.  How do you I do this, you ask?  It’s pretty damn simple…  Cut out all unnecessary spending.  Get rid of your Netflix, Hulu, Pandora, Spotify and any other monthly subscription services that aren’t required.  Stop going out for drinks.  Pack a lunch.  Work out from home.  Find a roommate.  Stop buying new shoes.  You get the point yet?  It’s not rocket science.  It’s just exercising discipline and restraint when it comes to unnecessary purchases.

 

Like I said earlier, I only wanted to cover the basics.  This still turned out to be the longest blog I’ve ever written.  Shows you how much I like talking about money.  Anyways, I hope you found some of this information useful and applicable to your personal situation.  If you have specific questions, feel free to reach out to me directly and I’ll provide my unfiltered, unprofessional opinion free of charge.  Until next time!

 

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