I’d probably make half, a fifth, maybe even a tenth of that! This kind of thinking is the kind of thinking that leaves people broke…and quickly.
Making an Income Statement
The best thing you can do is start tracking your income as if you were a business. You have revenues, sales, or an income— whatever you want to call it. Then you have expenses; your mortgage, transportation, food, utilities, the cable bill, etc.
A basic income statement works best. At the top of a sheet of paper, write your income. Below that number, do your best to come up with each of your fixed expenses, such as cable, internet, phone, rent/mortgage, etc. Follow these fixed expenses with those that vary, and to error on the side of accuracy, I’d estimate my variable expenses–food, transportation and fuel, utilities–then add 10%, just for good measure. You can fit this on a Post-It Note.
It’s About Perspective
So why does it matter that I track my income as my earnings – expenses, and not just my earnings? I really earn a salary of $xx,xxx!
It matters for one very simple reason: how you value your money. After making an income statement I imagine that most people realize that after all their expenses they really don’t make that much money.
That $10 weekday lunch? “Pfft, that’s nothing, I make $60,000 a year!” No, you receive a salary of $60,000 per year, $5,000 per month, but that doesn’t mean you earn $5,000 per month. You may actually earn only $500 per month.
The difference between the two is actually pretty big:
Why it Matters
Even if you have no idea where your money goes, chances are good that you spend more when you “feel” rich and spend less when you “feel” poorer. If you consistently remind yourself how much you’re actually earning–the amount after all expenses and mandatory savings–then all those little (and so easily justifiable) purchases start feeling like punches, rather than pinches.
If we’re looking to save, then punches are a good thing. 😛