How to Manage Money with Ease
As unsexy as managing money is, the peace of mind it provides is invaluable. The first step in the elusive financial independence puzzle is grasping the big picture of reducing debt and building wealth, which we strongly recommend Dave Ramsey’s podcast a listen or reviewing his 7-step framework to start. If you’re all set with a 401K and retirement, then consider subscribing to WSJ’s Secrets of Wealthy Women for different approaches.
What’s never really clear is how to connect the larger picture to daily habits, and more frustrating the lack of tools that simplify and effectively help manage income with spending, without leaning on credit cards. After all that’s said and done, the main thing most of us want to know is how much we can reasonably spend on little things that bring joy like Target runs, shoes, or coffee trips without hindering progress. We’ve created a template to help answer just that. It can be used by anyone of any salary bracket or freelance pay as long as you understand your overall financial health and goals.
How to Use this Template
Step 1. Write down consistent income and the most important, recurring expenses that affect your net worth or credit score such as rent, loans, utilities, savings, and other debt. I use EveryDollar to keep these recurring items organized on a monthly basis. Extra income that doesn’t occur consistently can be put towards paying off debt, savings, or spending. You’ll notice groceries and things like toiletries aren’t listed because they’re variables that can be adjusted. If I’d like to purchase a non-essential or dine at a restaurant, that fun money comes from the spending pool. This ensures the adult stuff is always accounted for.
Step 2. Organize payments by determining where payment dates fall with respect to paydays. Accounting for payments between paychecks makes it clear that just because you see $1,500 in your checking account, it doesn’t mean the entire amount is available for use.
Step 3. Make all payments on payday even if the due date falls later, then determine your spending money balance for the next two weeks. This figure should more or less be the same unless unforeseen income or expenses pop up.
I use an archaic, glitchy app called Balance to reconcile spending money but its simplicity gets to the point of what’s left to spend. You can also move funds to a second checking account dedicated to expenses or create cash envelopes for spending.
Step 4. Finally, the fun part! Determine how much money you can use to enjoy life. So, what will it be: dinner with the girls or a meal planning week to pay cash for new shoes?