Your 3-month number is one of the first things you want to calculate after you have decided to take the managing of your finances more seriously. If the questions were ever asked how much money you make in one month, most people could give a fairly accurate number within a few dollars. On the other hand, when asked how much money you spend in one month, the majority of people are left thinking, calculating, needing a few minutes before they make a guess, giving a ball park answer not really knowing how accurate it is.
I recently had a conversation with a close friend about how much we spend on groceries in a month. Their answer blew me away. “Hmm, I’m not to sure exactly. Probably around $300 or so.” The reason I was shocked because this was coming from a married mother of 4. Four kids, a husband and a dog and you only spend $300 a month!!! Please tell me how you do it! Some people are so oblivious as to how much money is going out every month, and this takes such an enormous impact on your ability to pay off debt, save and invest. You can not invest or pay off debt if you have no extra money or you keep going deeper. You won’t have any extra money if you do not create a budget. And you cannot create a budget if you have no idea how much of your money you are spending, and where it is going.
The best place to start when you are ready to take action with your finances is with your 3-month number. Here is how to calculate your 3-month number:
Add up all incoming money over the last 3 months.
Break down in DETAIL and add up all outgoing money over the last 3 months.Step 2 is the long part. But the most necessary. You need to check your bank statements, credit card statements, anything reflecting money spent. Filter through it and categorize all the money you are spending. You need to know exactly where it is going, so you can decide where to cut back.
Other Debt payments.
Take your 3-months of incoming and subtract your 3-months of outgoing.
- 3-month outgoing
= 3-month number.
In the end, if your 3-month number is in the positives, you’re in good shape and off to a good start. If your 3-month number is in the negatives, you are in some serious trouble and need to get some things sorted out. You are spending more than you make and digging a deeper hole. Regardless if your number was a positive one or a negative one, take the time to really look over where all your money was going and start the process of creating a budget, cutting down were you see best fit. It is up to you at this point make the necessary improvements.
“At first they will ask why you’re doing it. Later they’ll ask how you did it.”