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Don’t Be Afraid to go Back to the Basics

The basics of money

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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Grayson is the owner of Debt Roundup and co-owner of Sprout Wealth and Eyes on the Dollar. After going to battle and winning against consumer debt, he decided it was time to learn how to use credit wisely and grow his wealth. He discusses all things personal finance and is not afraid of being controversial. He also is a freelance personal finance writer and offers blog owners blog management services.

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