While you may not be burning through a couple million each month, it’s important to consider your financial habits. With that in mind, here are 3 ways to manage your money, no matter how much you make.
1. Keep an eye on your cash
The key to a healthy money relationship is being proactive with your finances. Check your accounts often, balance income and expense reports, and have regular meetings with the financial professionals in your life. Mr. Depp is in litigation with his former managers because he’s now $40M in debt. Whatever the outcome of the lawsuit, it goes to show that you personally need to keep a careful eye on your money.
2. Don’t spend without limits
It may sound like a no-brainer, but spending less than you earn is a pretty simple premise, but so few actually do it. A good rule of thumb is the 50/30/20 rule, which states the following:
50% – goes towards necessities: housing, food, cars, utilities, etc.
30% – goes towards discretionary stuff: nights out, movie channels, etc.
20% – goes toward your financial priorities: debt payments, retirement contributions, savings, etc.
Keep in mind these percentages come out of your net pay after taxes.
3. Regularly review your spending habits
In order for corporations to succeed, they must perform regular audits of how the company functions as well as review the profit and loss breakdown. If they fail to do this, it could spell disaster for the future of the company.
Likewise, it’s vital to regularly review your spending audits and locate areas where you can streamline. In the case of Johnny Depp, he spends millions each year to maintain his homes across the globe (including a 37-acre French chateau3). Since you can only live in one place at a time, why not dump a few houses, or maybe even some islands? The same applies to you, what expenses can you cut?
No matter how much you’re earning, be careful not to get too comfortable with your current financial situation. Money can be very unstable and your circumstances could change in an instant. Whether you’re a movie star or just an everyday Joe, it pays to follow a plan.
If you’d like an objective second opinion about your finances, please contact Michael Shea, a CERTIFIED FINANCIAL PLANNER at Applied Capital. Email him at [email protected]
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