Money Management and Learning

After I graduated college I was lucky, and was making a good annual salary. I was able to spend freely and not monitor my expense. No matter what expense I took on, it always seemed like there was enough monthly income to support it. When I spent money in a business capacity I never really cared what my return on investment was, and I had no awareness on my profitability. I discovered over time, that I was spending more on my business than I was producing income from that business. Basically, I sustained a extended period of operating at a loss. What this taught me was that working your ass off to break even or worse is a big waste of time. If you aren’t breaking even, spend time thinking about what you need to do to start winning. You may be completely surprised with what you discover. I have perspective as a coach, from life coaching- and I know from my experience with this that- as your coach I can’t tell you what is the most effective changes to make in your lifestyle or business to make more money. If I told you something that I pulled from the air or my own personal experience- it would just be something random more or less. Although, I do think there are proven methods, or exercises and what not that can be extremely helpful. Sorry for getting off on a tangent, the most effective changes to make will become apparent when you start to analyze your OWN experience.

Graduating college, I did not realize that there was such a thing as recession or economic boom. So I was very surprised by the real estate market down turn in 2008. The business cycle is based on human psychology, of the operating mechanisms of fear and greed. No matter how technological we advance as a species, I truly believe humans will continue to make the same mistakes. We learn firsthand through our own experience. Although, maybe that’s just my belief because when I am told what to do, and it differs from the decision I made, I rarely ever change my decision and continue on, to mild disaster. The tricky part about listening to others is they are always sometimes right and sometimes wrong. Nobodies infallible, including yourself.
With the economic downturn, people started having to work harder for less money. I started making less money than the year before. All of a sudden, my free spending was racking up credit card debt. I quickly found my credit cards maxed. I began paying expensive interest that began negative compounding forces. After struggling for quite some time, I realized if you can’t make more money, you can increase the amount of money you “make” effectively, by lowering your monthly expenses. You can either make more money, or work less. Both sound like pretty good options.

So the first thing to do is make a list of all of your FIXED monthly expenses. These are expenses that you can’t change. They are your cost of life, or the cost of doing the business of life. Here is what my list looked like:

Personal Expenses:

$925 Rent

$30 AUM (utilities)

$20 Gas for stove

$120 Car Insurance

$100 Electric/water

$60 GNC Powder

$80 prescriptions

$50 internet

$90 Phone (i have unlimited minutes, texting and data)

$375 car payment

$200 gasoline

$400 Grociers

$150 Eating out

$200 Music Lessons

2.8K a month Fixed

Assuming No auto repairs (I average about 3K a year on maintenance on the BMW)

I have no health insurance (*cough* *cough*)

I realized quickly after analyzing my list, that the best way to reduce my monthly expenses in a big way is sell the BMW, which I did and now drive a Honda Accord. That decision lowered my monthly expenses ~$500 a month between lowered repair cost, end of car payment, lower insurance, and better gas mileage.

As you can see from analyzing my list, my biggest monthly expense is my Rent. If I were creative, I could eliminate my rent completely by managing a building and living there for reduced rent or free. I could reduce my expenses by $40/mo. if I limited my cell phone usage, etc etc.

You have to decide what you are willing to do in order to lower your expenses. You may decide that some of it may not be worth enough to you to do, or would not have a high enough return on investment.

This list of fixed monthly expenses will sum up to the minimum amount of money you need to be making to break even. This is a really good number to know, you should shoot to do better than it each month. Memorize your fixed monthly expense. Remember it like your birthday.

Do you see any problems with the above list? For one there is no business expense list- my real estate business costs me a minimum of $5,000/year – and in the above list there is a very small fun budget for doing something like going to a concert or a movie or a date. Another omission is the annual expenses, like seeing a dentist, or traveling to visit family for the holidays (Plane tickets can be very expensive especially if you are traveling in a group and buying multiple tickets). There is no Toy budget. iPads, smart phones, music, there are all sorts of cool grown up toys to buy – although usually they are quite expensive. My electronic drum set was $1,000.

This was probably way too much talking for the simple activity of writing down your expenses and adding them all up. So let me give you the bottom line:

Make a list of all your expenses and add them up.

by James Colin Campbell