Last week I focused on the first part of my framework that I’m calling Finding Margin, which was Building a Life You Want to Live. The premise is that money won’t make you happy no matter how well you manage it if you aren’t building a life you want to live in the first place. While I have so much to be thankful for, I’m not there yet and my guess is there are things you’re still working on too.
But it’ll take work, and we’ll have to keep circling back to that as we dive deeper and deeper into a life well lived.
But in the midst of building that life, we need to keep traveling on to the second step of Finding Margin, which is Controlling Expenses.
Here is where I like to bring up the financial equation: income-expenses=margin
The margin is the money you have left over from your income after your expenses are spoken for and it’s absolutely crucial for meeting your financial goals.
Controlling your monthly expenses is also the hardest part of personal finance. Because it’s the human part. You may know what you should be doing, but actually following through with that is easier said than done.
While it would be easy to say that income could fix everything, it likely wouldn’t without learning to control expenses first. Any increase in income just gets spent if you aren’t using some sort of plan for where that money should go in the first place.
I should say this assumes you’re earning a reasonable income. It wouldn’t make sense to chide someone living at the poverty level to be more disciplined. You reach a point where the numbers don’t matter, it’s just not enough income to work with.
Otherwise, you need to create some sort of plan that allows you to assign your money to the most important places first, while ideally giving yourself some money to spend in ways that matter to you. That’s living with margin.
What we need here is a budget. Some people hate budgeting, some people feel like it’s hard to keep up with, some people think it’s crazy to try to keep track of every penny.
It doesn’t have to be super complicated, it just has to be complicated enough to work.
If you have a plan in place for what you want your money to do this month, you know how much needs to be put towards your goals, and you know what parameters you have to spend within, you’ve got a budget.
A budget needs to allow you to see how much you’re saving for the future(something we’ll talk about next week), see how much you’re putting toward the goals that matter to you, and see how much extra you have to spend guilt free this month without going over.
Your life may not necessitate using a budgeting tool to keep track of how you’re doing, but I can tell you that with as many different expenses as we have flying all over the place, we for sure need a budgeting tool to keep track of everything.
A budget answers the most important question, how much do I have left to spend here? A budget is a very fancy calculator, but its most important function is to set aside the money that means the most to you and keep you informed on how you’re doing on the rest.
I’ve tried several different budgeting tools over the years and my favorite is still YNAB. I think it’s the best tool for the job and the best way to keep track of your budget.
If you use a different tool than YNAB and it’s working for you, great!
The best thing your budget can tell you is how much you have left to spend in each category so that you still hit your current goals. Not having to add up things in your head, or think through how things are going is priceless. Just open up your budget to see how much you have left. No adding things up, no figuring, just check your categories.
Controlling your expenses allows you to ensure you prioritize the things that are most important in your life. It helps you make sure you’re carving margin out of the income you have today, and if earning more is a goal of yours, you’ll know that you can maximize that additional income when the time comes.
Leave a Reply