Income and Expenses and The B Word

Everything I write after today will reinforce, support, or simply restate this one rule. This first rule is so important. Nothing else I tell you or teach you on this blog will ever work if we don’t all follow this first rule. The first rule is:

Spend less than you earn.

Sounds easy, right? Then why, according to MSN Money, does the average household have over $8,000 in credit card debt alone? That’s not car loans or mortgage payments, or student loans. That’s 100% consumer debt. Bad debt.

I’ll tell you why: Banks and department stores make it easy for us to spend more than we earn. They sometimes even reward us for spending more than we earn. Credit card companies are on college campuses giving free shirts and free pizzas to anyone who will sign up for a credit card. These are students, who, for the most part, don’t even have jobs! Zero income and they’re being given credit cards. Or when’s the last time you shopped on Amazon? Did you notice during checkout that Amazon offers you $30 off of your order if you’d just sign up and checkout with their credit card?

It is way too easy to spend more than you earn. When I turned 18, I wanted a new car. I applied for a loan at my local bank. I was making $8/hour, I had zero savings, no plans at that time to further my education… and they approved me for a $12,000 loan. I was making $8/hour! I couldn’t afford a $12,000 car! But I got one. Bank made it easy. And I didn’t know any better. Or maybe I did, deep down, but I wanted that new car anyway. That was the beginning of a long and painful road to debt.

So, how can you avoid spending more than you earn?

First, you have to look at your income and expenses. You can do this on notebook paper, or get fancy in an Excel spreadsheet. Either way, on the left hand side, write down all your income. Include your job, obviously, but don’t forget about other sources of income. If you write a blog with AdSense on it, if you’re a YouTube partner, if you mow your neighbor’s lawn, if you sell old text books on eBay. Whatever. Include that income.

Then, take a look at your checkbook and credit card statements and on the right-hand side write down all of your monthly expenses. You have the big things like rent, groceries, gas, insurance. But don’t forget the small stuff. The movie you rented last week, the soda you bought at the gas station, the stack of John Green books you ordered off Amazon to get your $30 discount when you signed up for their new credit card…

What we’re doing here, is creating the outline for a budget. But shh, don’t tell anyone. That B word scares a lot of people.

If you want to see an example, here’s my monthly budget.

Now that you have your total income and total expenses for the last month written down, subtract your expenses from your income. Do you have a positive number? If so, congrats! But, you’re not out of the woods yet, we still need to take a look at what you’re doing with the money you have left over at the end of the month. Do you have a negative number? If so, don’t panic. That’s where I was two years ago. And that’s where many other people are right now too. We’ll spend the next few posts discussing ways to fix that. For now, just make sure your budget, or, your list of income and expenses, is complete and accurate. Make sure you didn’t leave anything out. We don’t want any surprise expenses messing up the plan we are going to build together.

Let me know if you ended up with a positive or negative number in the comments below.

Tagged as: Budgeting