Knowing Your Numbers is an important part of Building Wealth!
When we talk about saving money and investing money, we often don’t talk enough about tracking our spending, tracking our numbers and this is one of the most important things you can do when it comes to growing wealth and building wealth. There are some certain numbers you need to know and it’s not about having a budget. I hate the word budget. I’ve never personally lived on a budget. Instead, what I choose to do is to track and monitor my expenses and then make adjustments based on tracking and monitoring those expenses. Now, if you live on a budget and that works for you, that’s great. I don’t want you to change what works for you. If you’re in that category where, “Hey, I have no idea what my numbers are. I’m not a good saver. I don’t invest any money. I don’t know how much I spend.”
I want you to try this and this can change your life. Knowing your numbers is broken down into two parts. You need to know your fixed numbers, but then also the numbers that change on a monthly basis. The first number I want you to know is what is your take-home pay? Most of us know what our salary is. Let’s say it’s $50,000 a year. If you make $50,000 a year, it doesn’t mean you take home $50,000 a year. You have various withholdings from your paycheck. You have income taxes, you have FICA taxes, maybe you have a 401(k) contribution, benefits possibly. If you make $50,000 a year, you might only take home let’s say $38,000 or $40,000. Whatever that number is, most of us get paid biweekly, so every two weeks something gets deposited. We need to know exactly what our take-home pay is for the entire year.
Our first number to know, what is your take-home pay? Then on the fixed numbers side, things we can’t do too much about unless we maybe cut services or decide we don’t want all these bills anymore, but know your monthly bills. What are the monthly recurring expenses that you don’t have a lot of control over like your mortgage, or your rent, or your health insurance, or your car insurance, your utilities, your cable? If you have a list of these monthly bills, you add them up so you know these numbers. Now, once you have those two numbers, your take-home pay, and your recurring expenses or your overhead, when you subtract them, that spread is what you have left for this side of the ledger. Also for savings and investment. The first thing you want to do is you want to save about 10% minimally of whatever that spread is and you want to automatically put that in to your investment account.
I’m going to have another video that shows you how to do this. Once you have now saved, the rest of that money goes towards this side of the budget. This is how I track my expenses. It’s worked amazingly for me. I think this is really going to help you. The first category I have is food and drink. If I go out to a restaurant, if I buy groceries, if I have to stop for lunch somewhere, every dollar that I spent, I categorize it on food or drink. I categorize it into this one category and I track it on a monthly basis. Food and drink is the first category. The next category is life. Life happens. You don’t have a lot of control over this. Your dog has to go to the vet. You have to go to CVS or Walgreens. You have to go to the dentist. You have to go to the doctor. Your child may need diapers. Whatever the situation is, life happens. Categorize those expenses into one big category.
This is usually the category that we have the least amount of control over is the life category. The last category is fun. If I want to go float the river, out near Austin. If I want to go camping. If I want to go out with my friends on the town for the night. If I travel, if I want to go to wherever I go to, I categorize that into this fun category. Now, the one thing that I will do is if I go out with friends and we go out we have some dinner or maybe we have some wine or something, I don’t put that in the food or drink category. For me, I put that in the fun category. I do that because I’m choosing to go out that night.
I could stay home and I could make a steak and I could not spent that money but because I’m choosing to go out and have fun, then I put that in that category. One of the benefits of doing this is you don’t constrain yourself to living and worrying and stressing if you go over the budget or not. I was never successful with saying, “I’m going to spend this much money on this and this much money on this and this much money on this every month because when I went over, I would feel bad about that and then I would stop tracking. I would stop living on that budget and I’d say, “Screw it.”
What this does, the system allows you to monitor your expenses. I take 30 to 45 minutes on a Sunday as I’m preparing for my week once a month and I just categorize on whether it’s my credit card or my bank account the expenses into these categories. If I spent too much money on food or drink one month, let’s say I spent $1,500 last month on food or drink, and, “You know what? That was too much.” I probably shouldn’t have done that, I’m not going to feel bad about it and I don’t want you to feel bad about it but what I do is I pull it back in and I say, “You know what? I had my fun last month or I spent too much on food and drink, this month I’m going to cut it back.” When that decision comes up, “Hey, do I want to go out to eat or do I want to cook something at home.”
These next 30 days, I’m going to cook it at home because I’m going to pull those expenses in. Life, I don’t worry too much in regards to those expenses. I’m not going to not buy toilet paper or paper towels or paper plates or go to the doctor or dentist if that’s what I need to do. I just track it and I monitor it and I don’t worry about it too much. The last category is fun. If I take a trip somewhere or I go see a friend or I want to have fun no matter what it is, it goes into that category but if I have too much fun in a certain month, and let’s say I spent $3,000 there. I’m going to look at it honestly and objectively and say, “I spent too much money in this category, so guess what? The next 30 days, I’m not going to spend as much money having fun. I’m going to pull that back in.”
When I’ve tracked this over three months, or over six months, I look to see, one, how am I performing? If I spent too much money this month, am I really pulling it back in the next month? What it does for me is it creates a motivation, an incentive. I know these numbers. That means if I spent too much on food or drink, I know that I’m going to pull it back and it really helps me make better decisions with my money. If you want to be the true CEO of your life, you have to know your numbers. This is the way I categorize things and it works amazingly for me and it’s really helped me take the principles that I’ve learned from being the CEO of my company to being the CEO of my life and that’s what I want to help you do.
Hit that “Like” button below and what that’s going to do is going to tell YouTube that you enjoyed this video and you want other people to see it. It’s going to help us reach more people, help them become the CEO of their life. Comment down below also. I’d love to get feedback, see how you’re doing tracking your numbers, and I’ll create a video to respond and answer any questions that you have. Also, subscribe to the channel and then hit that little bell icon so you can be notified when we upload new content. If you have a friend or family member that could benefit from this, and you want them to be more connected to their money and then be more empowered to make good financial decisions, please share this video with them. [music]
