The first step to any plan is to assess your situation and where you stand. That also applies to the first step in your financial diet. You need to know where you stand.
- Note down how much income is coming in
Before you start any plan you must know all the resources available to you. For your financial diet to work, you need to write down how much money you have coming in on a monthly basis, one-off payments such as a bonus, and any other additional income during the year etc. You can allocate that income by month and then also look at the total for the year.
- List the expenses you have
Your next step should be to list down all the expenses which you would incur. For example you could include items like rent, petrol, phone bills, electricity school fees etc. The first instinct for you may be to put down all the commitments you have which is a good start but you need to remember that going out for dinners and meeting friends need to be added too. Yes Netflix and Internet bills as well.
- Refine your expense categories
Once you have listed all your expenses try to club these expenses into categories. For example some of your categories can be as follows:
- Phone bill
- Friends’ time
- Nails and looks
- Write down every amount you spend
Your final task in step 1 is just to spend the month writing down every single amount you spent and allocating that amount to one of your categories. It will help if you can do that day by day. This task may not be the most fun but it is necessary so you can have a better picture of your financial position.
Remember this is just step 1 of your financial diet and you will need to have patience. You will need to remind yourself that you still haven’t reached the stage where you can take a decision to increase or decrease spending. You are still in the financial discovery phase. Stay in that phase for now.