“To attain wealth, understanding your financial figures is essential. How much do you allocate for groceries, entertainment, gifts, or even tipping?
Recognizing the challenge, it’s tempting to evade financial assessment when things aren’t ideal. However, there’s one crucial calculation: your bottom line, which is your income minus expenses.”
Although it may seem straightforward, as a financial consultant and a self-made multimillionaire, I’m frequently amazed at how few individuals can readily recall their bottom line figure.
No complex Microsoft Excel spreadsheet is necessary for this task; a notebook, pencil, and access to your bank accounts will suffice.
Step 1: Your income
This refers to the sum that lands in your accounts each month after taxes, encompassing earnings from full-time and part-time jobs, rental income, gigs, and more. Take the time to calculate all of it.
If your income tends to vary, calculate the average monthly income based on the past six months or year.
Step 2: Your expenses
Running a life requires significant financial resources. Often, we overlook certain expenses or are unaware of their actual magnitude.
Review all your transactions and make a note of the expenses related to the following categories:
- Housing (rent and mortgage)
- Utilities (gas, electric, heat, water, trash, etc.)
- Cell phone
- Dining out
- Public transportation
- Automobiles (gas, repairs, parking, insurance, etc.)
- Other discretionary expenses (hobbies, personal care, etc.)
- Shopping and clothing
- Student loans
- Auto loans
- Credit card payments
Once you have the total amount, you can determine your bottom line. Let’s consider an example from one of my community members, Jacqueline, whose bottom line number is $243.
The Significance of Your Bottom Line
If your bottom line shows a positive value, you can utilize it to work towards your goals, whether it’s paying off debt, investing, or purchasing a house. Regardless of the amount, whether it’s $100 or $10,000, it provides flexibility to make wise financial choices.
However, if your bottom line number is negative, there’s no need to lose heart. Instead, consider asking yourself the following questions:
The Insights Provided by Your Bottom Line
Make a list of expenses that you can focus on minimizing. For instance, you may no longer need to pay for Disney and Hulu if they are already included in your new cell phone plan.
Alternatively, you might be surprised to discover how much money you’ve been spending on takeout lunches at the office.
What Strategies Can You Employ to Increase Your Income?
Here’s some potential ways to generate additional income:
Consider your skills or interests that you could monetize. For example, if you play the piano, you could offer lessons to young children. If you have a passion for dogs, you can walk your neighbor’s puppy during your lunch break.
Explore the possibility of leasing or renting out any assets you have, such as an extra bedroom on Vrbo or your car through a car-sharing app.
Evaluate if there is room for a raise in your current job or start searching for positions elsewhere that offer a higher salary.
Taking a close look at your numbers can be daunting and stressful. However, you only need to do it once a year. Being aware of your income and expenses empowers you to make informed decisions about your finances.
In conclusion, understanding your financial figures is crucial for building wealth. By calculating your bottom line—your income minus expenses—you gain valuable insights into your financial situation. It’s surprising how few people can readily recall this number. Take the time to assess your income sources and track your expenses diligently. By identifying areas where you can reduce costs and exploring additional income opportunities, you can make significant strides towards your financial goals.