Yes, I am writing about the dreaded “B” word. Most of us hate the word budget and even more, we hate doing a budget. However, I have found that a budget is one of the biggest wealth building tools you can have. In my book, the chapter on budgeting is disguised under “S” for Spending Plan. There are two reasons for this: one is to make sure people read this chapter and don’t skip it and two is because a plan is a positive thing. Budgets need to be thought of as positive tools, not negative jails. If you went to build your dream home, you would not just start building and never have a plan. You would plan everything out and only start building when it was to your liking. And along the way, you would make changes as situations change, always improving. The same is true to build your dream financial situation. You must have a budget to lay out your money and tell it where to go. You will always be making changes as you go. Your budget will not be the same this month as next and in 5 years, it should be completely different.
Doing a budget is easy, 3rd grade math. The hard part and the part we don’t like is the other 90%, the emotional part. We hate to say no to ourselves and if we do a budget, we may have to say no sometimes. But without saying no sometimes you will never be wealthy. What if you make $3000 per month and you spend $3200 per month? That is spending $2400 per year more than you make. How will you know this if you don’t do a budget and how will you control this without a plan? When you spend more than you make, you will never be wealthy. It is not possible because there is nothing left over to save and invest. This is also one of the two reasons we have debt – spending more than we make and using debt to make up the difference.
If you are tired of your financial situation and stress, I want to challenge you to start a budget today. Start with July, but start today. You can do it on the computer, on a piece of paper, or use our budget form (Tools tab on our website – www.abcsofpersonalfinance.com). A budget is simply writing your income at the top, listing all of your expenses, and the difference is what is left over. You want the difference to be zero. Therefore, if you have a negative difference, you will need to cut some of your discretionary expenses or raise your income. If you have a positive difference, you will need to decide which financial goal is next (saving, paying off debt, home project, etc.) and put the money in that line item for the month.
I had the same dream as most of you have – to be out of debt and become financially free. I would never have achieved this goal without a budget. I started with a spending journal first because I wasn’t sure where all of my money was going. I did this for about 3 months and used that information to form my budget. Knowing where my money was going helped me to pay attention to my money more and use it in a positive way to achieve my goals. You work hard for your money; therefore, you should control how it is spent. A spending plan is the best way to do this. I know millionaires who still budget. It usually isn’t written down anymore because they have formed good spending habits using their budgets as a tool, but they don’t just spend like crazy now that they have a little money. If they didn’t continue to have limits (budgets), their money would be gone very quickly.
Begin building your financial dream house today with a good foundation – a spending plan!