This is our first excerpt in a series, taken from our book, Frugal Luxuries (Bantam, 1997).
"The good old rule....the simple map."
Just as choosing random articles of clothing in the morning may result in a jarring clash of colors and patterns, random spending can result in a chaotic financial situation that will leave you feeling disempowered and out of control. To live your financial life on instinct alone could cost you more than money--it could rob you of the future you've always dreamed of.
If you do not currently follow a budget, now is an excellent time to establish one. If you already map your money, perhaps you’ll want to reexamine your spending patterns, priorities, and goals and adjust your map accordingly.
A money map should answer the following questions:
How much income do you bring home?
How much money do you spend each month?
How much money do you need for basic monthly living expenses?
How much money will you have after basic expenses are met?
In what way should you use the remainder?
There are also three important questions that you must ask and answer:
Am I spending less than I earn?
If so, am I reducing or eliminating debt, and saving or investing the remainder?
If not, what can I do to reduce my monthly spending in order to spend less than I earn?