Hi, girls! We’re almost at the end of our introduction to financial planning series here at The Girl Writes! I’m very happy to have you here with me for this series! I hope the content has helped you so far. Let’s get to our fourth drawer? We’re talking about “Today’s drawer”!
For those of you who have just arrived or who already follow the series but need a refresher, in the previous articles we talked about: God’s drawer, the Gratitude drawer, and Tomorrow’s drawer separating 10%, 5% and 30% for each, respectively. If you haven’t read about the first three drawers, you’ll want to check them out first before moving on to our fourth drawer! ????
As I always like to remind you, the order of the drawers isn’t random and it’s extremely important to remember when separating your monthly income. Today’s drawer has one more secret.
This drawer, despite occupying fourth place, contains the secret for all the others to work! It’s an extremely important drawer and the one that most requires our attention every month.
Today’s drawer will contain all your monthly costs and expenses (I’ll explain the difference between these two terms below), so it’s important to plan beforehand. You need to know the amount that will be placed in Today’s drawer or Tomorrow’s drawer will be affected. The percentage I suggest for this drawer is 50%, so we can achieve balanced financial planning. I want to make it clear that you don’t have to feel bad if you can’t set aside this percentage now, but it’s important to work around this percentage so that you can cover every area of your life.
The first step is to understand the difference between the terms “costs” and “expenses”:
- Costs are everything that is necessary for your monthly upkeep, such as rent, food, water bill, electricity bill, internet, etc;
- Expenses are items that aren’t essential, but that you choose to include in your monthly expenses, such as a phone plan, gym, salon, subscriptions to various services (such as Netflix), etc.
Why is it important to know the difference between the two and identify where your money is going? Because the secret to facing financial crises is the flexibility with which you can adjust your total spending. This is true especially now when the world is facing a financial crisis due to the COVID-19 pandemic. What is one of the biggest factors that will force companies to declare bankruptcy right now? The inability to adjust their costs and expenses to lower levels of revenue.
The same applies to our personal finances. Rethinking your costs and expenses can give you more flexibility not only in times of crisis but also when you need to increase your savings, pay off any incurred debts, among other scenarios.
If the sum of your total costs and expenses are:
- Greater than 50% (which usually happens): costs need to be reviewed, looking for ways to achieve the same result with less money, and expenses will need to be carefully considered, questioning whether they are really necessary or if you can live without them;
- Less than 50%: congratulations! It’s also important that you review all costs and expenses, as you may be able to reduce them even more, but you can also spend a little more if you want, or take the opportunity to increase the value in Tomorrow’s drawer.
Once you understand the concept of costs and expenses, the second step is to schedule a meeting. That’s right, a meeting. The meeting will be between you and pen and paper. You will write down all your recurring costs and expenses, that is, ones that appear every month.
After listing all of them, you will ask the following questions considering each item:
- Is this a cost or an expense?
- If it’s a cost, is it the lowest amount I can pay? Can I do something about this price?
- If it’s an expense, do I really need it or can I live without it?
- If I really need this expense, is that the lowest amount I can pay for this service?
These four questions will help you see your costs and expenses as they really are. You will clearly see where your money is going and why. It’s important to keep in mind that, most of the time, you will find a way of doing the same thing with less money!
The third and final step inside this drawer is: check for leaks. Leaks? That’s right! Leaks are expenses that happen once or more times throughout the month. They’re usually very small amounts, so often they go unnoticed. However, have you ever left a tap dripping into a bucket for 30 days? At the end of the 30 days, your bucket will likely be full of water.
Here are some examples of leaks that you probably have in your spending:
- Snacks at school or work;
- Paying to have a chequing account;
- Paying to transfer/withdraw money from your chequing account;
- Mobile app subscriptions that you may not even use as much anymore;
- Subscriptions to more than one streaming platform (Netflix, HBOGo, Hulu), when one would probably be enough.
And the list of expenses that start with the phrase “but it’s only $10 a month” continues! So the meeting between you and paper and pen is important. Turning off the tap for a few leaks can make a big difference!
If you have read everything so far and you are feeling a slight concern about being able to do it all, let me tell you something: God also cares about your costs and expenses.
Do you remember that in the Gratitude drawer we said that God has a plan for every penny He allows to reach you? Then believe me! He is most interested in helping you to be more financially planned. You may think that money isn’t something you need to resolve with God’s help, after all, it’s an earthly thing, but there’s nothing that involves us that doesn’t deeply interest God. He wishes to help you in all things.
You can also pray about it, asking Him to help you be wise in your costs and expenses, showing you everything you can do differently. God must be your greatest partner in this journey!
See you in the last drawer! ????