## Don’t Be Afraid to go Back to the Basics

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Money is not a complicated subject. Money comes in specific values and can be held or traded for goods and services. That is the basics of money. Unfortunately for most, their finances don’t stay along the basic path. We start saving money, earning interest, **investing**, buying real estate, getting into debt, **financing cars**, and much more. We make our finances complicated. When we start down this complicated road, it is hard to go back.

## Back to Basics: 2+2 = 4

Remember, managing money is all about math. While math can get complicated, most money equations are just basic math. If you can add, subtract, multiply, and divide, then you can manage your money from a mathematical standpoint. I know I have spoken with many who just don’t understand how compound interest works. I have also met some who don’t understand how simple interest works. While these might be easy to comprehend for some, it is not easy for everyone. You can’t argue with math, no matter how hard you want to.

We can extend this simple math equation to our finances. How do our finances add up? If we add up this check and that check, do we equal the money we need to survive? This is really just basic math. We don’t have to complicate it anymore than that.

## Money Coming In Minus Money Going Out

You have probably seen this around many times. The basics of money management is how much money you have coming in minus all of the money you have going out. If your math equates to a positive number, then you have something going for you. If you run the numbers and the result is a negative, then you have a problem. There is no point in skewing the numbers. If you have a negative staring you in the face, then it is time to make a change.

There are many ways to change your finances, but since we are talking about basics here, then that is what I am going to talk about. Some ways to change your financial picture are so obvious, they could bite you in the butt. Sometimes we want to over-complicate the solutions used to deal with our money.

## Separating Wants and Needs

When I am speaking with people about their money, I hear them speak about things they “need” to purchase. Heck, I used to use this term when shopping in order to justify the purchase. What do you really need to survive? You need food, water, clothing, and shelter. That is really it. Everything else is a want.

In order to get your finances in order, you need to differentiate your wants versus your needs. **It is a simple concept, yet there are many who still don’t seem to get it**. If you think you need the latest iPhone, then you need to check your priorities. If you are struggling with your money, then consumer products should be at the back of your mind.

When you create a **simple budget**, you first have to focus on having enough money to cover your needs. Once you have those needs covered, then turn your attention your wants. Make a priority list of your wants and see how much money you have left over after your needs are met. If you can’t afford all of your wants, then push off those purchases until a later time. Wasting money on your wants is taking money away from your needs. If I see another person walking around complaining about not being able to afford food, yet is talking on the latest iPhone, I will scream!

## Money Management is Basic Math

Let’s stop making our money so complicated. When we run a budget or look at our financial pictures, let’s just focus on the basics. If you don’t make enough money to cover what you are spending, then you need to go back to the basics. **You need to look at where your money is going and make cuts**.

Remember, math doesn’t lie to you. If you want an honest answer about your finances, then ask math. Sometimes the answer may surprise and shock you, but it doesn’t lead you on. This is why I love math. When my emotions want to fool my mind, I can turn to math to see if it makes sense.

When you are looking over your finances, makes sure to go back to the basics. Focus on finding out how much you have left over when you take your take home pay and subtract your expenses. If you are negative or close to zero, then figure out why. Don’t focus on your past issues, but make strides to fix those issues for the future. Money management is basic math and we only do ourselves a disservice when we try to complicate things.

Did you hate math as a kid or did you love it? Are you good with numbers yet have a hard time applying those math number skills to your finances? Have you thought about how budgeting might be made simpler by applying some basic mathematics to your efforts?

Photo courtesy of: MoneyBlogNewz

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## 45 Comments

Separating wants and needs is huge. Honestly, managing money is just simple math. If you can get in the habit of doing a budget, you’ll find all kinds of money just “laying around.” Nice post Grayson!

I just love when money is lying around. What a great thing to see when doing your budget.

We often rework our budget and our balance sheet in order to find more money to put towards our goals. Right now, it is all about basic math- and figuring out how to bring more money in! It’s easy to forget that it was “basic math” that got us into debt and is what will get us out!

Great point there Elisabeth. Basic math got you into debt and it will get you out. Definitely!

As an accountant everyone always assumes I am really good at math. I usually tell people that it is more about reading, comprehension and organizing numbers than anything else. Most of the math I do is simple: add, subtract, multiple, divide. I think the same can be said about personal finance- it’s all about understanding your numbers.

While personal finance math is pretty easy and there are a large amount of calculators out there, I like to be able to do the math in my head on the fly. I can do it when I am in the store and figure out exactly how much I am going to pay and then deduct it from my budget without tools.

“If I see another person walking around complaining about not being able to afford food, yet is talking on the latest iPhone, I will scream!” LOL! I’m with you there, Grayson. 🙂 Math always has fascinated me to no end. I just love numbers. I’ll work our budget over and over to see what I can cut, just for the fun of watching the numbers go down.

I love numbers as well. The funny thing is I used to be terrible at math in school, but over the years it has just started to stick. Now I can do most math in my head on the fly. I love working the numbers smaller and smaller.

Hey Grayson, another great post as usual. Ana and I just recently went back to the basics and were able to save a ton for our wedding as a result! Our biggest issue was separating wants and needs…but we got ‘er done! Thanks for sharing!

Thanks Josh and nice work saving so much for the wedding in one month. Keep it up!

As much as I love technology, I do miss the simpler times. I remember logging my transactions into my checking account register and balancing it out. It was easy back then because you really only dealt with cash and checks. Now you have credit and debit cards, you can pay with PayPal and the like. It becomes so easy to forget about a payment you made and screw yourself financially.

True point there. I still use technology, but basic math can be done easily without it. I have so many accounts that I need the help of technology to keep it all together, but I will do the math myself.

I agree, I think people spend a lot of time focusing on how to manage their expenses and forget all about the basics of determining what your income gap is and how to ultimately keep it as big as possible. As a kid, I always hated math. But as an adult who live minimally, I’m really into numbers no matter what the context is.

The income gap is very important. I am the same way as you. I hated math, but now I enjoy it.

Although I really don’t enjoy math and it definitely isn’t my strong suit, I think I’m pretty good at budgeting! If the numbers involved have to do with money, then it’s fun to me.

Math is not for everyone, but math has to be used by everyone.

“If I see another person walking around complaining about not being able to afford food, yet is talking on the latest iPhone, I will scream!” lol! so true! They are goggling ways to save money on their shiny iPad. 🙂 I was absolutely terrible at math. I’m missing that gene I swear! I still count on my fingers. But that’s not excuse not to be able to do your basic personal finance. Calculators and spreadsheets baby!

Haha, so that is why they have the newest device. How can they learn how to save on the internet without internet access on their iPhone?

Going back to the basics is always a solid tip. It really doesn’t matter what you are trying to accomplish; whether be in personal finance, sports, or at work, sometimes going back to the basics helps us solve problems that we think might be complicated.

Right on there Aldo. Sometimes I like to make things way more complicated then they should be. When I step back and go basic, I typically solve my issues.

You don’t even have to be good at math if you can use google docs to make a spreadsheet! Keeping it simple is really the best way to budget and track expenses.

That is true. While most things will figure out the math for you, I still think understanding how to do basic math in your head is a valuable skill.

Great reminder Grayson that healthy money management is really simple math. The issue that a lot of my clients have is categorizing wants and needs appropriately. We can all justify just about anything and when you justify too much, then at least you can fall back on the basic math to start over again.

Wants and needs are very difficult for many. So many, including myself, like to use the word “need” for almost everything. Once I figured out how to get away from that, I made better decisions.

I was never good at complicated math such as calculus but basic math I’m ok with. I can relate to the fact that people complain about not having enough money but then are buying expensive items or waste their money on crap they don’t need. I went back to basics when I incurred my consumer debt and it’s been working for me so far.

I was never good at calculus, but I find I don’t need that stuff. Basic math gets me where I need to be.

I’m pretty terrible at math but pretty great at earning/saving/investing. There’s no real need for math beyond the 5th grade, honestly.

My job involves a lot of math. But, again, a simple approach works nicely.

You are right there Will. Just the basics with regards to math can really get you far.

This is probably more of a tangent, but cash flow can be a bit “masked,” though I do think it’s a good thing to focus on. Such as investing in yourself by going to school. You will make less money because you have to spend time going to class instead of working (generally) though you may not see much impact on your finances until years later due to the various loan options out there. I also think sometimes people err in their thoughts of businesses. Most startups that are growing rapidly spend more than they make, and that can be true for years and years. That doesn’t mean they aren’t going in the right direction. In general though – and for personal finance purposes – I do think looking at cash flow is a good gauge of where you are at.

I think you bring up a good point DC, but that wasn’t really the point of this post. This was just to tell people to stop over complicating their money. Just keep it simple at first to understand where you are going wrong. Once you start bringing in investing in yourself or the stock market, it has gone beyond the simplicity.

I love math and it is my favorite subject when I was a kid. Yes I believe simple math is necessary to manage our finances. In the ancient teaching of growing wealth, first you have to set aside 10% of your income before you start saving.

The secret of financial success is based on basic formula of Income – Saving – Investment = Expenses.

See how simple that equation is! The problem is now the equation has flipped. Now it is Income – Expenses – Wants = Savings

Growing up, I was horrible at math. It was my least favorite subject in school. I love crunching numbers and establishing budgets, though. When it involves money, I’m all for math. For the most part, the basics are really all you need to figure out your financial situation.

I didn’t like math in school either, but then again, I like to learn on my own pace.

They should be teaching basic finances in highschool. I remember in college talking to a friend who didn’t realize the interest on your mortgage was paid every year. He thought it was just once during the whole life of the mortgage. Pretty basic stuff but even college grads get it wrong sometimes.

I completely agree Thomas. We are really setting up people to fail when we don’t teach them simple financial literacy.

Life can always get complicated. No need to do it with your money. Do what you know, don’t do what you don’t or you will lose or spend it all.

Great comment David!

Brilliant in your simplicity. Plus and minus is really all you need. I too get so tired of people saying they are having a hard time with eating while talking into their iphones. I wonder how many of those people are on food stamps?

You might need some multiplication and division, but you can get by with adding and subtracting. Still, all very basic math.

Now I realize how we sometimes make things so complicated in our financial lives. These are the basics, but the simpler the process the better the results.

This is what we really need to manage well our expenses and spending habits!

You nailed it with “the simpler the process the better the results.” So true!

Getting back to the basics can be important to put things in perspective. It can be difficult to do, though, because we make things really big and confusing in our heads when really they should be simple, and basic.

It can be difficult to do, but we still need to have control over how we make things seem. How we make them seem and how the really appear are two different things.

Great post! A timely reminder that the basics of a budget is to spend less than you earn. We re-assess our budget every other month, so make sure we’re on track 🙂