Mind The Gap: Part 1

Dan Kresh |

Part 1: Find the "Gap"

On a basic level, the gap between your lifestyle and your means is the only thing that matters when it comes to accumulating wealth. If you’re able to have that gap be above your lifestyle and below your means you can be in great shape in the long term. However, if your lifestyle exceeds your means, that gap can become a bottomless pit.

First you need to determine if there is a gap, which means YOU NEED TO BUDGET. YOU NEED TO KNOW WHAT’S COMING IN AND WHAT’S GOING OUT.

It’s fairly common to feel like you know how much you’re spending or that you’re spending what you have to and don’t even want to know the details. Our experience has shown us that there are usually surprises and it’s easier than ever to keep track of income and expenses with the help of technology.

There are plenty of ways to track your spending and you know what your personality is like so it’s up to you how to track it. You could use credit cards that you pay off every month, which can make it easier to track but also easier to spend or only use cash and do it manually, which is more tedious but might help you cut down on some spending you would do with a card or contactless payments. There is no right or wrong way, but it is imperative you know about your household gap.

Unless you’re positive that you are saving money every month, trying to move forward without a budget is like trying to build a sandcastle at the water’s edge during low tide. You’re spending a lot of effort building something that can’t last. You might make something nice, but it will soon get washed away.

When it comes to your expenses you want to look at them in three categories. Essential, reasonable, and discretionary. Essential expenses are things you literally cannot live without, food, water, shelter, clothes. Reasonable is up to you, there’s wiggle room here but what’s important is that you find something within your comfort zone that allows you to stay on track, discretionary are things that you “want” but don’t “need”, things you could cut if you had to cut something.

Financial fitness and physical fitness have a lot of parallels and share a lot of behavioral traps you can learn to avoid. Exercise and income are both important parts of the equation. Don’t be fooled though, you can overeat any exercise regimen just like you can outspend any income. There is an illusion that your budget, of calories to consume or dollars to spend, can reach infinity but it can’t. You can always find ways to overconsume if you keep your appetite unchecked, so ground it in reality by looking at your income vs your spending to see what changes you could make to set you on a better path.

Once you can determine if there is a gap and if it’s the gap you want to grow or the gap you need to shrink you can move on to the next step.

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Photo by Alex Radelich on Unsplash