Smart Strategies To Create Your Expense Ceiling
In order to build wealth, you must first lay a foundation of security that protects your journey from annoying setbacks. An Expense Ceiling is something I refer to as the maximum monthly income that this dedicated to paying for all fixed expenditures. Examples of items included in the Expense Ceiling are:
- Savings & Investments
- Mortgage or Rent
- Transportation (car note, gas, etc)
- Personal/Household items
- Cell Phone Bill
- Subscription Services
- Debt Minimum Payments
These items are the “I pay this every month” items. The Expense Ceiling is the total dollar amount of all these items +$100. The goal of the Expense Ceiling is to put a cap on the growth of monthly expenses. The principle of this strategy negates a horrible truth about people and money. No matter how much more you earn, you will absorb that extra income with new expenditures.
We have the predisposition to use all available resources. It is a basic economic principle, our wants are unlimited but our resource (money) to satisfy those wants are limited. Scarcity, marketing, and consumption focused culture make the decision to place a ceiling on household expenses a concept that many may have a difficult time grasping.
Step #1: Calculate Your Expense Ceiling and stick to it!
The smart thing to do is calculate your Expense Ceiling (aka cost of living or break even point), as this is the monthly financial number that prevents disruption of your necessities. Keep control of this number is key to maintaining your budget.
Step #2: Did you notice that “Savings” was the first expense?
The Richest Man in Babylon teaches us that we are only a slave of masters if we fail to pay ourselves first from the money we earn. I suggest 15% of take-home pay, but It doesn’t matter the amount! If you save $1 per month it would be greater than the savings rate of many Americans. Does it not follow the same wealth pattern? Each month would you not be richer than last? Broke people are broke because they fail to grasp this principle.
Step #3: Increases in income should = an increase in savings rate or debt reduction, not spending.
I have a few weird systems to maximize my savings. For example, I don’t use change, I use Acorns for rounding-up change, and when I get raises and bonuses from my employer I give it to my investment accounts. Most individuals receive a raise each year and it is simply lost as a buffer of wasted funds. I suggest that you make use of it by increasing your savings, you aren’t using it anyway.
Step #4: Get rid of unnecessary subscriptions and expenses
Apple Music, Netflix, And cable tv can be either eliminated to save some major coin or substituted with less costly or even free services.
Step #5: Move all payments to 1st 5 days of the month. It simplifies your budgeting process when you pay all of next month’s bills at the end of this month. This not only allows you to make payments on time and takes the stress from tracking due dates, but it allows you to set up automatic bill payments from your bank.
Now that all your bills are being paid on a single day, all funds that get deposited into your account this month sit in your account until bill payment day. This is a simple, stress-free, and very organized way to manage your expenses. You also have your magic number to keep you in line, your Expense Ceiling.