1. Budget. Know what you make, what you spend, and how to make it work better.

You need at least a simple monthly budget like this:

A) Money you make, less
B) Money you spend, equals
C) Cash savings

If C) is negative, you are likely spending too much and might be accumulating debt. You should avoid this by simply looking at your monthly costs and cutting out the stuff that isn’t necessary. Examples include, daily $5 lattes, premium cable television or eating out too much.
The average American family makes $5,000 a month after tax. Now, subtract the average monthly cost of things needed to live: home $1,600, car $800, food $400, health $400, clothing $200 for a total $3,400/month, leaving $1,600 cash. This is cash most people spend on stuff they “want” but don’t really “need” like daily $5 lattes, eating out, entertainment and expensive clothes.

2. Control the big stuff. How?

Home: This is often the biggest cost for most people. The average American spends $1600/month on their house, condo or rental apartment. Aim for under 30% of your paycheck, and downsize if your cost is way too high.

Car: Average cost for a car ranges from $600-1000/month, including lease, insurance, gas etc. Do you need a car? If yes, try smaller, pre-owned, and save 20-40%, using a trade-in to trade down, or try car pool or car share to save even more. Later in life, you can get the fancy car once you’ve got tons more cash.

Food: Spending for food at home by the average family is about $400/month. Avoid crap and don’t buy more than you’ll eat. Money well spent on good food, fresh fruit and vegetables and unprocessed food and meat can help you save on costs and improve health. Be smart!

Health: A typical family with an employer health plan spends $400/month on health. Best way to reduce costs is to get health and, stay healthy by exercising and eating well. Know your health care plan, and use the web to check “fair costs” before getting treatment. Don’t let anyone or any hospital in the system rip you off.

Clothing: Average spending is $200/month. This should be easy to cut because of you control your “wants” and you probably have enough clothes to cover your “needs” for years. So stay away from expensive shops and website. Only buy what you know you will wear. Your new approach will also be better for the environment which is cool. A massive amount of good clothing ends up in landfills!

3. Limit what you spend on crap!

Expensive clothes and fashion: Americans spend as much as $200/month or $2,400 per year on clothes that likely end up collecting dust in their closets. Only buy the essentials. Skip this year’s fashion trend that will likely end up in the back of your closet.

Coffees, lattes: Only $5/day is $1,800/yr. Wow. Maybe drop latte, for regular coffee. Drop it all, or make your own coffee or tea.

Eating and drinking out: One or two nights per week? Spending $100/wk is $5200/yr. Wow. That can be a mega-hangover. Maybe change to max one night out and BYOB. Try cool new lower cost spots.

Entertainment: $250/month is $3000/yr. Avoid big ticket events. Find events that are free like outdoor festivals, museum exhibits, or cost little like a movie.

Gifts: $200/month is $2400/yr. Be smart not cheap. Give thoughtful books, framed photos, bake something instead of buying something overpriced.

All that stuff is over $15,000/yr and that could be cut to nearly zero! Or at least cut in half. Check your credit card bills to see what you spend on stuff.

Ok, life should be fun, so save some and spend some. Take 20% of each pay check for saving and investing in assets. That should still leave you plenty for stuff you want but don’t really need. These numbers are for the average American and you might be different. Maybe begin saving 10% and work toward 20% after over time. Use these concepts to make money work for you.

Make sure you get the point of this budgeting stuff. If not, read again.

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