The Personal Finance Mountain

  1. The Oh, Sh*t Moment

This moment is different for everyone, but it’s the point where you realize you’re not happy in the foothills anymore. For an awful lot of people, it seems to be related to debt.

For me, it was when I really wanted to quit a job I hated, but realized I couldn’t because I still owed a bunch of money in student loans. I hated that feeling and I decided then and there to figure out how to make sure I would never be trapped in a job I hated again because of money.

For some people, it’s a desire to escape the rat race way before the average retirement age.

For others it’s something entirely different.

However you want to slice it, it’s a realization that your money is controlling you, instead of the other way around. And that you’re just not going to put up with that crap anymore.

If that’s where you are, congrats! Welcome to the personal finance mountain.

  1. Budget

This word gets such a bad rap, but a budget is actually empowering! How can you get a job done if you don’t even know what tools you’re working with??

Here’s the deal – grab a bottle of wine or your favorite mocktail or whatever you generally choose to eat/drink your feelings – and just do it.

A budget is breakdown of your monthly and annual expenses.

It’s important to do both because those one time annual expenses like eye doctor visits, contacts, car insurance and registration, etc. can really eff up your monthly budget if you leave them out (I speak from experience).

A monthly budget includes set expenses like rent, loans, car payments, Internet, cell phone bills, etc. It also estimates variable amounts like groceries, electricity, and gas. You also include amounts for occasional items like gifts, medical expenses and entertainment.

You know you best, so adjust the set up so it works for you. If you do most of your spending using a credit card, you can just backtrack a month and add up each expense to get an estimate of what you’re currently spending on each category. If you usually use cash, you’ll have to collect your receipts for the next month so you can see how much you’re spending.

Once you know what you’re spending each month, you can look at your income. If everything is covered, great! If it’s not, you’ll be able to see where you can cut back.

Once you’ve got an outline of your monthly budget, you can do your annual budget, which is usually a little easier. These are your annual expenses that occur a few times a year or less. By figuring them out in advance, you can save a little each month for them so the money is ready to go when you need it.

Here’s the great thing about budgeting and the personal finance mountain – at the start of your climb, it’s your best tool. The more carefully you tend to it, the better everything is going to go for you, but as you climb further up the mountain, if you did a good job with your budget back down at base camp, you don’t need to tend to it as much later on.