Work At Home Finance 101

Work At Home Finance 101

Do you know what comes in and goes out of your wallet every month? Do you have any extra cash to see you through a rainy day? Do you know your net worth?

If you decide to work part time from home you will most likely take a significant pay cut, so understanding your true financial picture is critical to achieving your work at home dreams. How do you do that? Make time to sit down with your spouse or significant other and calculate what it really costs to make ends meet in your household.

Let’s look at your income first. If you’re currently working full time as an employee, a large percentage of your current salary gets taxed to a good degree, so only take-home pay counts. Add up what’s left after all deductions and work expenses (daycare, drycleaning, etc.) to get your current monthly income number, or CMI.

Once you have your CMI figured out, the next step is to calculate your spouse or significant other’s CMI. Add these two numbers together to come up with your total household income, or THI.

Now you need to account for all your other monthly expenses. Your mortgage or rent. Groceries. Gas. The electric bill. Your cell phone. Any monthly entertainment costs such as dinners out and associated babysitting expenses, shopping sprees, or other disposable income. You need to account for everything.

Some people keep an expense diary for a few weeks or a month to help them really nail this information down. If you don’t keep a regular household budget this is an important exercise that will help set a baseline of your monthly expenses. Depending on your activities, some months may be more, some may be less. The longer you keep your expense diary, the more accurate your results will be.

Once you have everything collected together in one place such as a computer spreadsheet, it’s time to start identifying what can be cut or reduced. Do you really need to go to Starbucks everyday? Do you really need to buy Us magazine every week? Do you really need that weekly Barnes & Noble book fix? If you really do need those things, it’s important to know that now before you change over to a reduced work schedule.

Now subtract your total monthly expenses from your THI. Is it a positive or a negative number? Are you living below your means, paycheck to paycheck, or under water? If you’re not living below your means you need to aim in that direction, otherwise be prepared for some financial stress and strain. Learning to live below your means now while you’re still working full time is excellent practice that will come in handy later if you eventually do take a large pay cut.

And living below your means doesn’t mean doing without the things you enjoy. It’s more about changing the way you value your time and resources so that you can manage them more effectively. Knowing what things are really worth to you will help you evaluate your spending decisions a little more carefully.

What about savings? If you don’t already, make a commitment to save at least 10% of everything you earn starting today, and think of it as another monthly expense. By thinking of it as an expense, it becomes another line item in your budget. The easiest way to do this consistently is to setup an automatic payment program whereby your savings is automatically deducted from your checking account and deposited into your savings account at the beginning of each month.

You will be amazed at how much accumulates over time. You’ll want to have at least 3-6 months THI stashed in a safe, secure interest-bearing savings account that you can access easily if things get tight. This will give you the confidence to get through any unexpected expenses or cash flow crunches after you stop working full time. To paraphrase Robert Kyosaki, you want to make your money work for you so you don’t have to work so hard for it.

Money isn’t everything, but managing it well buys you choices. And if leaving the full time working world is high on your list you want to be able to afford that choice. Taking the time now to get a good grip on your finances will help you move closer to your part time work at home dreams.

About The Author

Mary Shaw is a part time work at home mom and the author of The Mommy Track: How To Live A Full Time Life On Part Time Income.

Get a free chapter at www.themommytrack.net/chapter1.html