No-Nonsense Financial Planning Guide for the DIY Individual (Pt1: Expenses)

Success in financial planning comes down to a few key principles. Define your goals, curb your desires, and have patience and discipline. Make the right decisions and habits.  Have the right plan.

When it comes to managing your personal finances, it’s not a game to win overnight—it’s more like a path to follow, one you try and follow the rest of your life.

So how can you make a solid financial plan for yourself?

Well, I’m not a financial planner.

But—we’ve written a ton of articles on this blog to help people start and continue on their path to financial freedom, through some no-nonsense advice learned from the school of hard knocks.

Let’s talk about the three core pieces of good financial planning:

  1. Income
  2. Expenses
  3. “Profit”

Just like so many moral decisions can be decided with the simple statement—treat your neighbor as yourself (the golden rule)—so many personal finances decisions can be decided with one rule…

Spend less than you earn.

It seems that much of the world believes that “if I just made a little bit more money, I’d finally be able to get my finances together”.

Being around the personal finance world a long time, you start to realize that this mostly isn’t true.

It may shock you how many people make 6 figures a year and yet still live paycheck-to-paycheck. And you may be even more shocked how many people make less than 6 figures, yet are millionaires (shout out to The Millionaire Next Door!).

So let’s get down to that bottom line.

Simple examples you can apply to your own financial plan to get your “profit” up, by both spending less and earning more.

Starting with expenses…

Simple Financial Planning for Reducing Your Expenses

There are so many great tips that you can use, today, to cut your expenses in so many ways. In fact, we’ve written a ton on the blog and I’ll link to some of those great resources later on.

But, the reality is that a few major expenses make up the vast majority of most people’s budget:

  1. Housing expenses
  2. Car expenses
  3. Food (and drink) expenses

Simply changing your habits in these categories and/or making the right long term decisions can have a massive, lasting impact on whether you succeed or fail in your personal finance journey.

Some of these might not be fun to talk about, especially since changing them can literally uproot your life.

But hey, I never said this would be easy.

Housing Expenses

For most people, the cost of housing can make up 25%- 33% of your income or more.

That’s a huge chunk.

Whether we’re talking about a rent check or a mortgage, this monthly expense can make spending less than you earn seem impossible… or, like a walk in the park.

The bottom line…

How much you pay comes down to location, location, location.

I can tell you firsthand that even in a country as prosperous as the United States, there are MASSIVE differences in the cost of living expenses depending on where in the country you are.

And if you’ve lived your life in the same place all your life, you might not realize just how massive these differences are.

For example, I grew up in Southern California, in an area where living expenses are definitely above the average in this country.

By moving to a lower cost area at a younger age, I was able to halve my rent. That’s with the same (or more) square footage and proximity to nice areas, by the way.

And then, while living here (Raleigh, NC), I learned that you can reduce your rent/mortgage even lower by driving a little further out, and have met people who felt my new rent was expensive compared to theirs.

Everything in this world is relative, and this isn’t always apparent unless you zoom out.

Not heeding this basic reality and applying it to your individual financial plan can make your whole process feel like running home in the snow, uphill both ways.

What’s someone to do then?

Uproot and leave your old life behind just to chase financial freedom?

That may sound like a simple solution and yes, it can make a massive difference. Whether that decision is right for you comes down to so many things in your life—relationships, career, children, family, interests, preferences—the list goes on and on.

Simply moving to a lower cost of living area to reduce your monthly housing expenses has many moving pieces and may not be right for everybody.

Like with so many things in personal finance, there are tradeoffs to each path.

You have to decide what’s right for you and your family, which can force some hard looks at yourself and potentially uncomfortable ideas and conversations.

But it’s worth going through because if you’re on autopilot in this regard, well that’s not really a great financial plan.

At the very least, take a hard look at how much you pay and how you could potentially reduce it… both in the short and long term.

Car Expenses

Second to housing expenses are car expenses, especially if you have a large appetite for certain big, shiny objects.

As much as we might like to think we’re making the right choice on our vehicle(s) decisions, the end game to our financial progress may be greatly hindered just because we have the wrong beliefs on it.

Cars are tricky because like housing (and food!), it’s pretty much an essential in most areas of the country—especially for those having to go back into the office.

It’s also tricky because you don’t want to live on the two extremes:

  • Spend too much and you’re lighting money on fire
  • Spend too little and you might constantly find yourself paying your mechanic

Nobody wants to drive an unreliable vehicle, though many are forced to because of dire financial circumstances.

Trust me, having been on both sides of the spectrum, I get it.

I don’t have a prescription for everybody to follow other than to say, try to find that balance for your personal situation, that tradeoff between convenience, desire, and reliability, vs expenses.

Rather than tell you what to believe…

Here’s a few things not to believe…

1—I need to spend a lot on a car so I’m not stuck on the side of the road

Look princess, unless you’re in a place where it’s the frozen tundra and you have a solid chance of literally dying if your car gets stranded for a few minutes, this probably isn’t true for you.

Getting a $500 car payment just because you don’t want to spend $100 per year at AAA for a membership with free towing, and have to potentially wait 30 minutes for the tow truck is not solid financial planning.

Yes, spend enough so you’re not on the side of the road every other day if you can afford it. But don’t justify a splurge just because you don’t want to risk having to get the odd repair once in a while.

2—I just need a vehicle that has a good reputation for reliability

Wrong. Having bought what was supposed to be the most reliable car in the world (Toyota Camry) with decently low miles only to have it die on me in less than 6 months…

How a car was treated can mean so much more about its reliability than what name brand the vehicle is.

Do your due diligence on a car, which includes its maintenance history, before you buy it. Spending the $35 on CARFAX to potentially save you from throwing thousands of dollars down the drain can be a fantastic investment.

3—My coworkers will look down on me if I drive a hoop-ty

Again, this is American culture seeping through and trust me I get it coming from Southern California. But I’ll leave it to financial coach Chris Grainger’s words on this one:

“Would you rather be broke, or weird? Because everybody’s broke, so you can be broke like them or not broke and weird”.

Food (and Drink) Expenses

If you have an appetite for fine dining, or getting out on the town (guilty), the reality of this is it can really add up.

If you’re super concerned with getting the right nutrition in your life, definitely a growing trend around organic/responsible raised foods, well the reality is that this can also be a substantially more expensive way to live.

What can make this expense category dangerous is in its nature.

Where housing and car expenses are pretty front and center, this one creeps into your budget and can go undetected because the dollar amounts are relatively smaller.

It can become an insidious death by a thousand cuts.

Getting into the nitty gritty of food expenses is beyond the scope of this simple financial planning exercise.

That said, we’ve got many great resources for you to dive into this rabbit hole. I’d start here:

The Bottom Line

We could really get into the weeds about ways to be frugal in this area of your life or that.

It’s really a worthwhile pursuit; it will look different for every single person out there. The truth is that one man’s trash is another man’s treasure, and so what might be a big sacrifice to me won’t be a big sacrifice to you, and vice versa.

Part of getting your expenses down is in making sacrifices.

Part of financial freedom is getting to choose what sacrifices you want to make.

But the harsh reality is that you won’t have any idea how to start unless you really know what expenses are eating into your budget the hardest (outside of the big 3).

To know that requires the b-word: budget.

You will be hopelessly flying blind until you take a cold hard look at your expenses, whether that means doing a full-on budget, using a budgeting app, or making a simple spreadsheet from the expenses which show up on your online banking account.

Almost everybody I’ve talked to who have turned their personal finances around has told me they were shocked about their spending until they starting tracking it. It’s always more than you realize.

They’ve also almost uniformly said that making that first budget was one of the most important steps in turning the financial ship around, and recommend it to everyone.

I’m with the consensus on this one.

Until I started listing my expenses on a simple Google sheet, I couldn’t figure out why I was running out of money at the end of every month.

Once I listed them out, then came the hard part of corralling it into shape.

We have more blog posts to help you with that part too:

Onto the next…

Now that we’ve established some tangible steps to reducing your expenses, it’s time to look at getting that income piece into shape.

While the game of reducing expenses can become really addicting to some, the reality of the matter is that you can only trim down to the bone so much. There’s a downward limit to how much you can cut; after all you gotta spend some money in order to keep your bare necessities in check.

Theoretically there’s no upward limit to how much income you can generate, and a few simple decisions can really change your life when it comes to having enough income to really increase the amount of money you are able to save and invest for your path to financial freedom.

Individual financial planning can become so much easier if you can just boost your income, once you have your expenses in check and can keep lifestyle creep down as your income grows.

Check our part two of this DIY guide to financial planning for ways to increase your income.

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