businessman saving moneyA recent story from Yahoo! Finance talks about how Panera Bread’s CEO Ron Shaich is attempting to feed himself on $4.50 a day—to promote awareness (for himself and others) on what’s it’s like living on food stamps.

The article said that the average person on food stamps receives $4.50 per day in assistance, as reported by The New York Times. Shaich, who is blogging about his experience on LinkedIn, was surprised to learn that he couldn’t afford coffee, fruit, yogurt, or milk when shopping with his weekly budget of $31.

The story says:

Shaich ended up settling on a daily breakfast of cereal without milk, a lunch of lentils and chickpeas, and a pasta dinner. He bought carrots to snack on in between meals.

By the third day of the challenge, Shaich wrote that his diet left him feeling “bloated and weak.”

On the fourth day, Shaich said his thoughts were “consumed by food.”

“When is my next meal? How much food is left in my cabinet? Will it get me through the week? What should I spend my remaining few dollars on? What would I eat if I had no budget at all?” Shaich wrote.

He also noticed a strain on his relationship with his wife, Nancy:

“I snapped at her for over-portioning my spaghetti. I felt so much anxiety about the possibility of running out of pasta that I completely overlooked my wife’s good intentions in helping to prepare my dinner. I have to imagine that this is a common source of conflict in households marked by food insecurity.”

I found this quite interesting after reading the article because Shaich’s endeavors can teach us all a little something about financial management.

More than 75 percent of Americans currently don’t have enough money saved to pay their bills for six months. And think about the state of our economy: job stability just isn’t what it used to be. Unfortunately, you could go from making $50k one day to unemployed and filing bankruptcy the next.

What Shaich is doing should be an eye-opener to us all to ensure that no matter what may unexpectedly come our way—whether that be job termination, medical bills, illness or an accident that keeps us from working, etc.—we should work to be prepared. And the first step in financial preparation is understanding our finances.

Important terms (with very simple definitions):

  • Assets: what you own
  • Liabilities: what you owe
  • Income: amount of money you earn (monthly/annually); amount of money entering your household
  • Expense: amount of money to be paid out on a weekly/monthly/yearly basis; amount of money leaving your household
  • Debt: amount of money you owe (including interest) and are required to pay back
  • Spending: amount of money you spend

When managing your finances, be sure to keep good records of all of the above. And just how do you do this?

1. Calculate your fixed expenses—these are expenses that are the same each month (or year). For example, your rent, car note, car insurance, etc.

2. Calculate your flexible expenses—these are expenses that change. For example, your electric bill, cell phone bill (possibly), water bill, etc.

3. Add up both expenses and subtract from your monthly income to determine whether or not you’re paying out more than you earn.

4. If your expenses do not exceed your income, yet you still find it challenging to save, look at your spending habits. A lot of the time it’s not how much we make that’s the issue, but how much we spend. Examine your spending habits to see where adjustments need to be made.

If your expenses do exceed your income, it’s time to make adjustments. Look for ways to downsize or cut out unnecessary expenses.

In every instance (whether exceeding or not), it’s important to create a budget and stick to it. Budgeting will help you always know where your money is going and how much is going there. It will also help provide accountability as you have a set plan for your finances.

And a final (and extremely important) action when managing money is to save money from every paycheck, even if it’s a small amount. Saving something every two weeks is better than saving nothing at all. Calculate a percentage of your income to regularly save and train yourself (and your mind) to live off that. For example, if you want to save 20 percent of your income—10 percent for regular savings and 10 percent for emergency savings—train yourself to automatically view your paycheck/income as 80 percent, not 100.

Financial management is the key to ensuring that if unexpected situations arise, unlike Shaich’s experience, you won’t have to struggle to make ends meet.

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