Navigating Your Future with a Budget

Your Financial Future is Easier When You Follow a Budget

When I was younger and I heard the word “budget” I didn’t think it applied to me.  It was either too hard, not something I needed to do, or I didn’t recognize the importance of budgeting.  Basically, I understood what it was, but, I didn’t do anything about it. If I did, it was never complete nor accurate. I wasn’t smart about money. I only knew that working was how you made money. I didn’t really “think” about it in terms of retirement, even when talking with financial planners. That was always something a long ways away. Plus, I was certain I would be a millionaire by age 30.

That time has come and gone now. But around 30, I started to apply new habits that have helped me change my future and give me guidance.

There are numerous examples and books and videos to learn what it’s all about. I would say, having all this information available and accessible is a game changer for anyone trying to address their finances. Let’s face it, if somebody is addressing their finances, they are seeing something important that they haven’t paid attention too until now. The good news is, if they take the right approach, this could be the last time they feel lost.

Here are the things that I found to be very helpful in getting hold of my emotions and concern over money management.

1. Budget
2. Paying yourself first
3. Pay off bad debt
4. Reviewing the numbers… A LOT
5. Having a WHY

Making a Budget

To start, you have to know your monthly expenses and your monthly net income. You should know how to make a spreadsheet to create a budget. You can use pencil and paper if you have to. If you have every tried this before, it feels like the hardest part is getting your exact expenses down. Although… it’s not that hard.  Here’s how, you can look at monthly bank statements to get an idea of what you are spending your money on. If you are not used to this, be patient with yourself.  You probably feel all knotted up inside and ready to quit.  Look at it until it makes sense, and start writing down your budget.

One tip to help keep things simple.  When figuring out your expenses for thing like dining out, I recommend you calculate your eating out into one total and don’t list every place you eat. So, instead of listing Starbucks 20 times, just add it all up and add that to your other dining expenses. Also, list groceries separately from eating out. Be sure to keep notes when the bill is due for expenses like rent, power, credit card, etc. so you know at a glance what payments are coming up. Most likely, it will be the same day of the month, each month.  With that information, you  can get into the habit of paying them ahead of their due date. Let me say that again, get in the habit of paying your bills early.

If you find that you have more month than money left, that’s not good.  It’s good to recognize when you have a shortfall.  The answer is out there, now that you know what question to ask.  Obvious, the first fix is to spend less money. So, look at how much you spent eating out, etc and put yourself on a cash budget. I set aside cash for entertainment/eating out, gas and groceries. That way, I know I have already accounted for in my budget. When I first started budgeting I had maybe $200/mo for eating out, as you reduce bad debt expenses and control your spending habits (rather than they controlling you), you can increase line items like your eating out budget. Secondly, you need to make more money. Okay, stop crying, I know. How do I make more money?! There’s no more time in the day! To control your finances will take some time, so breathe and slow down. You’re asking the right questions and will get the right answers.

On the flip side of not having enough money, I have known a lot of people who make a lot of money at their job, but end up spending it frivolously, a budget is good for everyone. Don’t let, “I have enough money,” get in the way of the marvelous things that come from actively managing your money. Remember the more you can keep each month, the more you have to invest in you!

HINT: Save $200/mo in your bank account each month. If you don’t have enough money for your desired budget, you simply have to make more. HOW TO START. Wake up at 5am, write down your dreams, what you want, how much money you want to make. Think about your dreams, look at this list every morning at 5am. Watch videos about inspiration. you want a W-2 job while getting out of debt, don’t worry about starting the next big thing until you start to understand money and budgeting. God gives more to the man who can manage little. Start small, grow BIG.

PAY YOURSELF FIRST

I am a big fan of the Pay Yourself First model (PYF). That’s where you take 10% of each paycheck and set it aside into a savings that you NEVER touch. You let that grow to a sizeable sum. This is money whose principal I don’t want to risk. I consider cash or hard assets a good place to hold that money safe. This is supposed to be retirement or money to pass on to heirs. Once it starts to become significant, you don’t want to just hold cash. With continued education, by the time you get to this stage, you’ll know what to do next.

PAY OFF DEBT

There’s no point in saving if you have high interest debt you’re responsible to pay off. Look into paying off debt quickly through the use of the debt snowball or debt avalanche payoff methods. This can take a few years to do, but don’t get discouraged. Remember your WHY. When you’re paying off revolving credit, destroy the card until it’s paid off, but don’t close the account, just stop borrowing. Credit cards should only be used for convenience (for now).

REVIEW THE NUMBERS

Use a software accounting package to track your accounts and view reports on your profit and loss statement and balance sheet.  I use Quick books, but also use a spreadsheet to track my monthly budget. I copy it to a new tab for each month, some months things change, so I have to check my numbers and make sure I’m not going over budget, if I am, I better have the money in the bank to cover the shortfall. That’s where I use the accounting software to know what my true numbers are at any given time.  Keep receipts and track all expenses. I look at the spreadsheet a few times each week, just to see where I’m at. By having set aside cash for my entertainment, gas and groceries, I don’t have to take out money for those items, I take that out once a month. I recommend paying yourself once a month. Make only one trip to the bank and don’t use the ATM, ever. Also, stop using credit cards, unless you’re able to pay them off each month.  That should also include debit cards, take them out of your wallet if you can, or only use in emergency, otherwise you may still rely on them.

WHY (Should you Care)

You need a why, a reason that is bigger than you. Your why can’t be I want to make more money because I want to be rich, why do you want to be rich? For most people with children, they are the typical why. Many times, after they are grown, the WHY might change. You need a reason, so that when everything sucks and you don’t feel like you’re making progress, you can remember why you’re doing this, why you’re struggling now to get in control.

This was my start to me getting in control of my finances when I was thirty. I wish I had started as a teen, but, maybe then, my teen years wouldn’t have been so fun.  Not because of all the money I had to spend, but because i didn’t spend time tracking all my details, although, now I wish I had.  Your budget is your first feedback mechanism that sheds light onto your exact financial picture and when done properly, you can have money working for you and feel confident rather than stressed out about money.

It’s Not Too Late to Start

If you have a huge stress over you, like a mortgage you cannot afford, you certainly have a lot of emotion. I had a house 60 days past due and heading towards default. This was a major stress for me. Fortunately, I was able to short sell it before it turned into a foreclosure. I still had to carry 7 years of negative credit marks and dig out of that financial hole. It took me several years, about seven, for all that to turn around. I am the happier for it. If you can get out from under a mortgage before it turns against your credit, make the move now. Try the suggestions above to prepare yourself for getting into a new home in the near future and avoid having this one drag you down.