My friend Carl Richards produces great drawings that get right at the heart of the financial issues we all face.
There’s been so much talk in Washington about our country’s debt ceiling, but what about your personal debt ceiling? My good friend Eric Kies of The Planning Center developed a tool called First Step Cash Management, which helps clients quickly take control of their household budget. One of the first tasks is to determine what money you’ve already agreed to spend (in housing payments, student loans, auto loans, etc.) and that sets your baseline. Whether you do anything else all month, you’ve got to spend that money. As Carl writes:
The math is simple: if you spend more than you earn, at some point things will have to change.
The key to not getting into this situation in the first place is tracking your three kinds of spending. Knowing what it costs to:
- Run your household and pay your bills for 30 days (mortgage/rent, loan payments, utilities, etc)
- How much you spend to support your lifestyle for the next 7 days (dining out, fueling you car, going out to lunch)
- How much you need to save each month for short and long-term goals (from building your emergency fund and paying your next auto insurance payment, to paying for retirement)
These three kinds of spending are all important, and all related. If you’re approaching your personal debt ceiling, your payments on your loans of various kinds are eating up your monthly income and over enough time, it will cause your family to fail financially.
Take steps today to take control. If you don’t know what it costs to run your household for 30 days, sit down and figure that out today. It should only take you a few minutes, and while you might not be happy with the answer, it’s important to know and knowing will help you make even better decisions in the future.