You’re in charge of HOW you spend your money. I’m just concerned with HOW MUCH you spend.
People try to convince me how important Junior’s pan flute lessons are and honestly, I’ve heard it all before. It’s okay, I don’t begrudge anybody their “must-haves.” I just want you to have enough financial cushion between what you earn and what you must (or choose to) pay for. It’s called your MARGIN. You’ve heard companies worry about their profitability margins, and this is similar. Your household should focus on and protect its Margin. Too many “must-have” expenses will erode your Margin, and it’s your Margin that is the key to your financial well-being.
Add up all your direct deposited (after tax) income for a month and subtract EVERYTHING you spent. Subtract some necessary savings for annual expenses like vacations and camp. Fingers crossed, you end up with a positive number. That’s your Margin. Your Margin should be about $500-1000/month AT A MINIMUM. Yup, you heard me: $500-1000/month depending on your savings and goals, because your Margin is the best way to save for goals.
If you can drive what you drive, eat what you eat, play the way you play and still have AT LEAST $500-1000/month of Margin – have fun. I would not stop you. It’s when people come to me spending either exactly what they earn or a bit beyond it, that I recommend we trim. If you do not have enough Margin, you will have to rely on credit cards.
Or, maybe you just feel like you are living check to check. It’s stressful, and it’s because your Margin is definitely not $500-1000/month. The only way to get off the check-to-check treadmill is to spend less than you earn consistently month after month and build enough of a cushion that you have liquid savings set aside if you have a Rainy Day Expense.
If you don’t have the $500-1000/month Margin I recommend, start prioritizing. Next post I will talk about how to figure out what to trim, but for now, think about what expenses are most important to you. Remember, focus on MARGIN!