Create A Budget

I wanted to spend a little more time on this subject , since I believe it is the most important. You can’t change your financial situation if you don’t know what your financial situation is. Simply put, how much money comes in and where does it go? Like I said before, most people wince when they hear the word budget, but don’t be scared, it wont hurt I promise.
Start with a sheet of paper and write down All of the money that come IN to your household each month. Its OK to estimate if you don’t know the exact numbers, but be conservative. In this case a low estimate is better than a high one. This is usually pretty simple, your paycheck and maybe your spouses paycheck. It could also include interest or dividends from investments, rents from investment properties, a lot of things any money that comes in to your household should be accounted for here.
Next take all of the Bills that you pay every month write down everything. The mortgage, the car payment the electric bill, the trash bill…you’ve got it. Your doing great. Now subtract the bills from your income and what is left over is your “disposable income.” One quick side note, if the number you get is negative you have to find a way to cut the monthly bills or increase your income. We are going to talk about ways to lower your bills in steps to come, but you will never get ahead financially if you spend more than you make.
Disposable income is the money we have to do the fun stuff. Movies, restaurants, morning coffee. A key step in budgeting is tracking what you do with your disposable income. My challenge to you is to track it for one month. Any time you spend money keep the receipt and take a look at all of the receipts in 30 days. You’ll be surprised what you find. It’s a very eye opening experience to realize that you buy $100 worth of coffee on your way to work in a month, or $300 because you refuse to bring your lunch, and if you smoke or drink alcohol regularly be prepared to see some shocking numbers. I once helped a friend of mine figure out that if she and her husband quit smoking and drinking beer, and invested that money to earned a very conservative return, they would have enough money to retire in just over 10 years. She and her husband were just over 40 and earned $10- $15 per hour respectively.
When you figure out your disposable income put it into your budget. Is there any money left? Probably not, most people spend what they make, but if so good for you. We are going to take this money and put it to work for you. If there is no money left look for a few simple ways to free up some money to use in the up coming steps. Would you give up a cup of coffee, a night out, or bring your lunch to work once in a while to become financially free. I would. Take another look at your budget and look for ways to invest in your future.
It really is simple, but it all depends on your willingness to stick too it. How much are you willing to change the way you live now for your future? It’s all up to you.