Many prospective homebuyers I encounter face significant hurdles due to their lack of financial literacy. As a result, I have decided to launch a blog series dedicated to providing guidance on how to achieve financial stability before embarking on the home buying journey.
Today's topic: Understanding Your Expenses and Visualizing Financial Habits.
Disclaimer:
Please keep in mind that I am not a financial advisor, I am not a lawyer, and I am not your real estate agent. The information you will see below are examples from my personal and professional experience. I hope these examples provide you with ideas on how to take action in your own life and serve as conversation starters with the professionals who are currently or will be assisting you in reaching your goals.
Before You Get Started
Being honest with yourself and practicing patience is crucial for your success. Embarking on a budgeting journey is not a walk in the park. It can be an emotional and time-consuming process that forces you to confront your daily decisions and habits head-on, which can feel overwhelming. That's why it's beneficial to create a daily list of goals to accomplish until you have a comprehensive overview of your income and expenses. From there, you can begin identifying areas where you can reduce unnecessary expenses, work towards paying off debt, and ultimately start saving for your real estate aspirations.
Why Is Visualizing Your Habits Important
Gaining a clear understanding of your spending habits and the specific areas where your money goes is crucial to identifying where cost-cutting measures are needed. By recognizing the breakdown of your expenses and the amount spent in each category, you'll be equipped with valuable insights to better prepare yourself financially and find ways to reduce the expenses that harm your financial progress.
It's Important to embark on this project alongside your partner:
Wendy De La Rosa says that there are three important questions to ask your partner:
What are your financial goals?
How do you measure financial success?
What is the one thing you wished your parents would have done differently financially? (TED)
Wendy De La Rosa also emphasizes the concept of a "financial health day," where you dedicate time to review your finances and budget. Personally, I allocate 20 minutes each day for this purpose. While some may find it demanding, I find that it keeps me motivated to pursue my financial goals.If you have a partner, I encourage you to set aside time together for a financial health day as well. It holds significant importance in maintaining your financial well-being.
Steps:
Login to your bank account, credit card, and any other accounts where you pay your expenses from.
Download three month’s worth of statements from each individual account.
To prevent feeling overwhelmed, take a step-by-step approach when examining your expenses. By focusing on one expense at a time, you can avoid getting discouraged during the process. This allows you to give proper attention to each expense and explore potential areas for improvement without feeling overwhelmed by the entire financial picture.
Let's walk through an example of calculating the average amount spent on fueling your car:
Take a look at your statements from the past three months and focus specifically on the amount you spent on fueling your car (gas expense).
When examining your statements from the previous three months, underline, circle, or highlight each occurrence that shows a visit to the gas station.
Add all the numbers together, one statement at a time.
Here, you will find what you spent for the last three months:
March = $160
April = $200
May = $180
Add all three months together:
160+200+180 = 540
OOnce you have the answer, in this case, "540," divide it by the total number of months, which in this example is "3." The resulting answer will provide you with the average amount you spend on gas for your car, which in this case is "$180 per month."
The resulting answer will provide you with the average amount you spend on gas for your car, which in this case is "$180 per month."
After completing the calculations, here's an example of how your final numbers might look (for a single person with no children):
Light bill: $90/month
Gas bill: $95/month
Sewer/Trash/Water: $60/month
Car Note: $500/month
Credit card #1: $60/month
Credit card #2: $160/month
Rent: $1100/month
Phone: $180/month
Hulu+: $15.89/month
Netflix: $21.19/month
Subscription #1: $5.00/month
Subscription #2: $20/month
Service #1: $70.00/month
Gym Membership: $57/month
Take-out: $300/month
Groceries: $400/month
Savings: $50/month
Savings #2: $10/month
Personal loan: $300/month
Health Insurance: $300/month
Internet: $100/month
Gas in Car: $170/month
Shopping: $250/month
Misc: $400.00/month
Please note that these figures are for illustrative purposes and may not reflect your actual expenses.
For a couple with kids, their expenses might resemble the following:
Light bill: $125/month
Gas bill: $95/month
Sewer/Trash: $60/month
Water: $70/month
Daycare: $750/month
Car Note: $650/month
Car Note #2: $500/month
Credit card #1: $60/month
Credit card #2: $160/month
Rent: $1500/month
Phone: $220/month
Hulu+: $15.89/month
Netflix: $21.19/month
Subscription #1: $5.00/month
Subscription #2: $20/month
Service #1: $70.00/month
Gym Membership: $57/month
Take-out: $300/month
Groceries: $500/month
Savings: $50/month
Savings #2: $10/month
Personal loan: $300/month
Dentist Insurance: $15/month
Health Insurance: $300/month
Internet: $100/month
Gas in Car: $170/month
Eating out: $200/month
Shopping: $400/month
Misc: $600.00/month
Please note that these figures are for illustrative purposes and may not represent your actual expenses. Adjustments may be necessary based on your specific financial circumstances.
Citations:
TED. “The Money Talk That Every Couple Needs to Have | Your Money and Your Mind.” YouTube, 3 Feb. 2021, www.youtube.com/watch?v=Zu1kaPLt66E.
Up Next…
Now that you have a clear visualization of your expenses, it's time to consider what you can and cannot live without. This reflection opens up the opportunity to explore tricks and strategies that can help lower your bills and reduce expenses. In my next blog post, I will share some valuable tricks and tips I know to help you achieve exactly that. Stay tuned for the upcoming blog where we'll delve into practical ways to cut down on expenses and successfully lower your bills.
I sincerely hope that this information has provided you with value and insights. Remember, you are fully capable of navigating your financial journey. You've got this!
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