Mind your +s and -s
Alright folks, we are going to talk about something elementary today: pluses and minuses. Specifically where it relates to your income (pluses) and expenses (minuses). The result of netting these two is the money you have left over to either save or spend, also known as discretionary income. Since this is an important term here, we are going to give it its own symbol to help you remember it: ツ. Every time we talk discretionary income, think of this guy ツ.
Knowing what your discretionary income ツ is and using it to create spending habits is one of those things I talked about in the last post that a college spending mentality does not play well with. The reason I like to use the “plus and minus model” is because as far as say, seashells are concerned, most people can tell me how many are left over if
“each month Shelly earns 20 seashells. She has to give 6 away for rent for her beach bungalow, 4 for utilities, 3 for groceries, 2 for surfboard cleaning and another 1 for those delicious margaritas they make at the shack on the corner. How many does she have left to save or spend on a new dress? You got it, 4!”
But when it comes to our own expenses, we all seem to have a sneaking suspicion that we really spend less than we do. That somehow, since we were responsible and paid over our 13 seashells for rent, utilities and groceries, we’ve suddenly got 7 seashells left for a trip with the rest of our shell-sisters when they want to go on a bachelorette trip to Las Vegas because Becky who sells beads is getting married. And then we go and the whole time we’re like:
Why does this matter?
We can all do simple math, but get confused why we have less money in our bank accounts at the end of the month. I’ve got a system that I hope is foolproof and that can get us away from the idea that calculating what we need to spend (and withhold from spending on) is difficult. You can do this in your head, but I would highly recommend writing it out on paper because then you can refer to it.
I like this system more than a budget; budgets make me anxious because they seem to make me feel constrained to either spend money arbitrarily because I’ve allocated money toward something or by the same token, not spend money on unplanned things that bring me joy.
Budget’s got us like:
Knowing our discretionary income ツ, it’s got us like :
Here’s how your pluses and minuses look in as an equation. I’ve simplified it to work for everyone so that the things that might differ on when they come out of your paycheck can still be accounted for.
Above the line:
– If you have a loan payment, especially if it is credit card debt, this payment needs some serious priority
– Retirement savings contribution
– Health and auto insurance premiums
– Utilities (your electric bill, your water bill, that pesky internet bill, your cell phone bill)*
– Savings (any amount you want to set aside IN A SAVINGS ACCOUNT for a specific purpose)
– Gas or cost of transportation
– Food/groceries/household supplies (glamorous stuff like TP, toothpaste, detergent, etc. and don’t forget food for your four-legged friends)
Below the line: Discretionary Income ツ
I’d like to talk about things that are “below-the-line” versus “above the line” of your discretionary spending. It’s important for you to distinguish which expenditures are necessary, or above the line, and which ones are not necessary or below the line. I think if we start seeing our money as above the line versus below the line, it takes away much of the anxiety around where all of our money is going. We do not need to feel guilty seeing those above the line expenses coming out of our bank account because they are just necessary parts of life. Personally, I think it’s easier to keep track of $300 of discretionary income ツ than $3000 of income a month.
Making changes to your spending and saving:
In order to have more money on either side of the line, you have to add or subtract an equal amount from the other side (provided your income stays the same). This concept is very flexible and helps you to see how you would afford just about anything by adjusting how much money falls to different items above and below the line. A few practical examples come to mind:
- you want to start saving more money for retirement or put more away in a savings account
- you want to aggressively pay down student loans or consumer loans (yay for you!)
- you want to move and the rent is more than you’re paying now
- you want to start affording different below the line luxuries or find a new hobby that brings you joy and wonder if you can afford it
- your health insurance premiums are going up…where is this money going to come out of?
- mom and dad are kicking you off their cell phone plan…where does that put your below the line leftover money?
- your car breaks down and you need to start factoring payments into your above the line spending
- you need to care for a sibling or loved one and need to factor it into your above the line expenses
- you just want more below the line money for fun stuff!
The list above only mentions a few possibilities but the general idea is the same. Just keep in mind that for any increase to any one side, you’ll have to look how you can equally 1) cut back on above the line expenses, 2) cut back on below the line ones or 3) earn more money. I can tell you from personal experience that #1 is usually harder because the expenses are so limited to “needs” and that by cutting costs these one does not often find enjoyment. It’s hard to justify never turning your air conditioning on in the summer because it would cut your above the line spending, leaving you more below the line, “fun” money. Which leads me to my next point about cutting above the line spending…the expenses you’ll cut out that are typically small sums of money; you can quit using your air conditioning but that’s only saving you, tops, $100, $125 in a house and even less in an apartment.
Cutting spending from #2 gets a little easier and we will discuss how to do this in future posts in greater detail, I promise. The first step to cutting these expenses is actually knowing what your discretionary income ツ is and staying within that number each month.
A few words on earning mo’ money…
#3 is an interesting one…how do you make more money? This one is daunting and the answer is unique for everyone. I have something cool to tell you, though, everyone has the opportunity to make more money whether it’s at their current job, at a new one, by getting another job similar to the current one, by buying and selling things, and by having a side hustle (that isn’t related to their current job). A few notes on each of those:
Your current job or a new job:
- One of the best places to make more money is at the employer you are with now–is it time to negotiate a raise or perhaps time for a promotion? Check your employer’s internal job postings, there are often jobs that are not posted externally in the hope that they can promote or rotate and cross-train existing employees. It’s expensive to hire new people, so they can save money in the long-term by hiring you even if they have to pay you more.
- If your current job is like mine, your skills are likely transferable between employers. When you change jobs, the bargaining process should have you talking about money. They will likely offer you more money, they may offer you better hours or work-life balance and you may be doing a job similar to the one you had at your current employer. I’m not encouraging you to work for whoever pays you the most, but it’s important to be aware of your options if you need to make more money, need a change of environment, or just need to know what you’re worth. There’s nothing wrong with putting your feelers out there to gauge what your job is paying elsewhere.
Buying and selling things:
- This one gets trickier. I don’t have a skill set for this because I really don’t enjoy the hassle of dealing with buyers and sellers online. If you are going to foray into the buying and selling of used goods or just goods in general on sites like eBay, Amazon or Craigslist, it helps to be knowledgeable in the product. I can tell you from experience that I know not the rules of selling designer purses nor iPhones well enough to buy and sell them with success. Also, since we are talking about selling stuff, consider whether there is still a strong market for the type of good you decide to sell.
Having a side hustle:
- This one has become increasingly popular as the “sharing economy” has dominated much of the last decade; it allows you to be part of this economy where and when you have time to work because there is dynamic demand for the service and it is usually cheaper than more traditional options. Jobs like driving for Uber, selling your handmade or vintage stuff on Etsy, completing tasks for others on TaskRabbit or even renting out your pad on Airbnb.
- Blogging or freelance writing–these guys have some excellent tips on how to turn writing into a full-time, money-making job or just how to make money on the side. Plus they’re pretty fun to read about, even if you are not considering freelancing or a blog as a source of income
Some final thoughts:
I know this post was a long one, but I wanted to set up a very simple system for how you might come up with your own framework that can help you decide the money rules that work for you as they relate to saving and spending both above and below the line. I truly hope this system can help you in sorting out your financial situation each month. While I want to continue to talk about new ways to save and make more money in the future, I would particularly love hearing about some rules that have worked for you or maybe your thoughts on the above and below the line business I presented in this post. Send me an email: firstname.lastname@example.org.