I understand that it can be hard. When your finances aren't where you want them to be, it's sometimes easier to just avoid looking at them. But at the very least, there's one number you need to calculate: your bottom line number, or your income minus your expenses.
It sounds simple, but as a financial consultant and self-made first-generation multimillionaire, I'm often surprised by how very few people can tell me their bottom line number off the top of their head.
You don't need an elaborate Microsoft Excel spreadsheet to do this — just a notebook, pencil, and your bank accounts in front of you.
This is the amount hitting your accounts each month after taxes. It includes any money you have from a full-time job, a part-time job, rental income, gigs, and so on. Sit down and count it all.
If your income is always fluctuating, use your average monthly income over the last six months or year.
It takes a lot of money to run a life. Many of us have expenses that we don't even realize we're paying for, or amounts we didn't know were so high.
Look at all your transactions and jot down the expenses for each of these line items:
- Housing (rent and mortgage)
- Utilities (gas, electric, heat, water, trash, etc.)
- Cell phone
- Eating out
- Public transportation
- Auto (gas, repairs, parking, insurance, etc.)
- Other discretionary (hobbies, personal care, etc.)
- Shopping and clothing
- Student loans
- Auto loans
- Credit card payments
Once you have the total, you can determine your bottom line. Here's an example from one of my community members, Jacqueline, whose bottom line number is $243:
If your bottom line is positive, you'll pull from it to reach your goals, such as paying off debt, investing, or buying a house. Whether it's $100 or $10,000, it's where you can find wiggle room to start making smart decisions with your money.
If your bottom line number is negative, don't get discouraged. Ask yourself these questions:
1. What expenses can you eliminate?
List the expenses you can work on reducing. You might not need to be paying for Disney+ and Hulu, for example, because you get them for free with your new cell phone plan.
Or perhaps you didn't realize you were spending so much money on takeout lunch at the office.
2. How can you make more money?
List all the possible ways you can make additional income:
- What skills or interests do you have that you could charge for? Maybe you play the piano and can teach young kids lessons. If you love dogs, you can walk your neighbor's puppy during your lunch break.
- Are there any assets you could lease or rent out (like an extra bedroom to Vrbo or your car to a car-sharing app)?
- Is there any room in your current job for a raise? Or you can start looking for positions elsewhere that will give you a salary bump.
It can be intimidating and stressful to take a close look at your numbers. But you only need to do it once a year. Being aware of what's coming in and what's going out will give you power over your transactions and inform your thinking.
Dominique Broadway is a self-made multimillionaire and author of "The Wealth Decision." After earning her bachelor's degree, Dominique worked at UBS and Edelman. A self-described millennial money therapist, she walked away from her extremely wealthy clients to help everyday people. She has been featured in Time, USA TODAY, Refinery29, Black Enterprise and MarketWatch. Follow her on Instagram.
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