Leif’s Money Makeover Week 2
Note: Leif has no credit cards and all of his debt is from student loans. He uses his debit card for his purchasing. He is an independent contractor and has to pay his own taxes.
Now that we know where your financial avatar is right now (your current net worth: –$110k), the next step is to understand where your money goes.
Step 1 – Reconcile the past
How much money have you made in your entire life? The U.S. government keeps track of what you pay and what you have earned. Go to http://www.ssa.gov/myaccount/ and create an account. Download your Statements of Earnings. Consider what your hard work has brought you.
Step 2 – Open a Mint.com account
This will help you visualize your expenses. Mint is a good tool, but it’s still just a tool. You have to check it regularly.
Step 3 – Understand Your Fixed Expenses
Write down all your current FIXED expenses. These expenses are expenses you can expect to pay on a regular basis. Some fixed expenses vary in amount each month. For these types of expenses, calculate the average. The Mint.com account you created in step 2 can help you with this.
Fixed expenses include (a non-exhaustive list)
- Cell phone
- Car payment
- Car insurance payment
- Civilization (Income tax)
- Health insurance
- Long term disability insurance
- Short term disability insurance
- Renters insurance
- Minimum debt repayment
Step 4 – Understand Your Income
Figure out your monthly income. How much money do you earn from your job each month? If this varies each month, calculate the average. With this information, we’ll figure out how much in taxes you’re expected to pay and set up an account to automatically set aside an appropriate amount each month.
Step 5 – What’s left?
Calculate how much you have left over for your variable expenses each month. Take your average monthly income you calculated in Step 3 and subtract your average monthly fixed expenses.
Average monthly income – total average monthly fixed expenses = __________
Step 6 – Who helps with what?
Write down all the expenses that your parents pay for you.
That’s it for now. Next week gets fun!