Part 10 of a series in how to be successfully self-employed
Are you like most people who look at their W-2’s each year at tax time and ask, “Where did all that money go?”
You can probably sit down and figure out the big expenditures – the mortgage or rent payments and how much the car payments were. You can see how much of a bite Uncle Sam took. You might be able to estimate how much you spent on utilities, groceries, clothing, medical expenses, hair cuts, and gifts. But we’re willing to bet that still leaves a gap. Where did the rest of the money go?
If want to quit your job and make ends meet for yourself, you will have to get a handle on your real financial situation. The first step in making sure you will have enough money to make it a reality is to determine just where your money goes. Until you know exactly what you are spending, you will not be able to differentiate your actual needs and wants from money spent unwisely.
Keep records
I’m going to suggest you do something that most people resist at first with all their being. WeI want you to start keeping records of what you spend – every penny you spend.
Gracie kept records of her family’s spending for two years before she quit her job. “I didn’t like doing it, but after a year we knew exactly where our money was going. We knew where we could cut expenses and where we could not. In the process, we had sorted out our ‘needs’ and our ‘wants.’”
If you quit or lose your job, you’ll still need haircuts. You’ll need the same amount of electricity and insurance and toothpaste as when you were working. But when you track your spending and see, for example, how much you spend eating out, you can then choose to spend that money differently.
But you must consistently and honestly write down what you’re spending. Write it down daily or as you spend it or you’ll forget. Keep a little notepad with you to note what you spent during the day. Add your spouse’s input in the evening. Total up the month’s expenditures at the end of each month and at the end of the year.
Be easy on yourself. Find a method of record keeping that will work for you. Purchase a record book from an office supply center or make up your own, with headings of categories that are specific to your own needs. Gracie used these headings: income, savings, mortgage, utilities, groceries, eating out, medical/dental, clothing, transportation, health and beauty, education, household equipment, furnishings and supplies, insurance, laundry/dry cleaning, gifts/contributions, entertainment, losses, vacations, interest, taxes and licenses, pocket money, miscellaneous, pets, landscape/garden.
You’re going to read magazine articles and advice columns that say you can keep records of your spending for only a month. Don’t you believe it! Spending emergencies get spread out throughout the entire year. You might sail through one month with just average spending, then get stuck with bills to replace tires on your vehicle the next month. Only if you keep track for several months will you be able to reliably average out your monthly spending.
Follow Gracie’s example. Don’t give up. If you let up for a day or two, you will find, like dieting, that it’s hard to get back to it. Keep in mind your main focus – I want to make a living myself. Think, “If this will help me make that happen, I’ll do it.” One more benefit of making this exercise part of your daily routine is that it will help you establish discipline in your life and help you build that all-important foundation upon which you’re going to erect your new life.
In the process of writing down every penny you spend, you will begin to see a pattern to your spending and you’ll probably find some surprises. You’ll uncover questionable spending (did I really need that cute collectible teapot that will join the 20 already gathering dust in the kitchen?). Some of your spending may even be downright wasteful and excessive (the emerald ring you just had to have; it was on sale, after all).
As you evaluate each month’s spending, start cutting down costs in areas where you find you can save money. The sooner you start spending less, the sooner you will be able to attack your debt.
Here’s an idea you can use to reward yourself for your spending discipline. Every time you choose not to buy something, put that money in your savings bank. If you skip a latte, that $3. If you walk instead of take the bus or subway, another $2 or $3. Pack your own lunch and pay your bank $10. I won’t be long before you have a tidy sum in your savings bank.
Part 11, “How to Cut Your Expenses,” continues the series on being successfully self-employed.