Many people get into debt because they spend more than they make. Combining credit cards with the need for instant gratification can be a costly mistake.
How do you win against debt? Know how much you spend. Most people know how much they make – it’s the other part of the equation that creates the obstacle.
Using the acronym “WIN” can help you identify what you spend and if you live within your means.
“W” is for withdrawals.
Withdrawals represent a list of what you buy with your money. All amounts in this category are negative since money is leaving you. Look at year-end bank statements and credit card statements to see how you spend. Total how much you spend into the following 10 categories:
- Home (mortgage/rent/lease, HOA fees, taxes, insurance, utilities)
- Transportation (car payment, maintenance, insurance, gas, public transportation)
- Personal care(cosmetic, clothing, dry cleaning)
- Entertainment (vacation, movies, concerts)
- Food (dining out, groceries)
- Pet (food, accessories/toys, pet hotel, annual vaccinations)
- Medical (co-pays, expenses not covered by insurance)
- Gifts (charity, presents for birthdays, anniversaries, Holidays)
- Miscellaneous expenses (bank fees, child care, job search, non-reimbursable business expenses)
- Savings (emergency fund, retirement savings)
Yes, “savings” is included in withdrawals because it is very important to pay yourself first for your future.
“I” is for income.
Income is the total of all money you receive. All amounts in this category are positive since money is coming to you. Include in this category money you receive for alimony, child support and other sources (parents, trust).
“N” is for net.
Add all your withdrawals (remember, this number is negative because this amount is leaving you) to your income and the result is your net. This net amount should be zero or positive – NEVER negative. If you end up with a negative number, then you are spending more than you make. Said another way, you are not living within your means. If you continue to spend more than you make, then you will go further into debt. To win against debt, consider either generating more income with a part-time job or reducing how much you spend. Review each of the 10 categories of your spending and determine what you can reduce.
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ABOUT THE AUTHOR:
Niv Persaud, CFP®, CDFA™, CRPC®, is the Founder of Transition Planning & Guidance, LLC. Her firm bridges the gap between financial planning and coaching. As a Transition Consultant, she offers sage advice in all aspects of life – financial, personal and professional. Niv does not manage money and does not sell financial products. Her services include spending plan development, divorce financial review, life strategy and professional progression. Niv actively gives back to her community through her volunteer efforts. She believes in living life to the fullest by cherishing friendships, enjoying the beauty of nature and laughing often — even at herself. Her favorite quote is by Erma Bombeck, “When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left and could say ‘I used everything you gave me’.”