When you hear the word budget what do you think of? Many people think of a big list of dos and don’ts that restrict how you spend your money.
Well, if that is what you think of then you are doing it wrong. Budgeting is the best way for you to spend your money the way that you want to do it, and keeping a good budget allows you to keep track of all of your dollars so that it becomes possible to live the way you want to live.
Why A Budget is Important
Let us start off with the importance of budgeting. I work on cases all the time where the parties make tons of money, millions of dollars to be precise. You would think these people don’t want for money or they don’t need to worry about a budget.
From a distance, this might be the case, but once you dig into their finances you see the issues with their way of life.
These people live the same lives you and I do, just on a bigger scale.
They deal with car payments, it’s just for five or six cars instead of our one. They have boat payments and mortgage payments that cut into their incomes and cause them to struggle with debt just like us.
These people don’t realize that if you spend more money then it is almost like you don’t have more money. There are clients, however, that budget and they always are in better shape: less debt and a sound understanding of what they spend their money on.
The secret is budgeting and you don’t have to have millions of dollars to live the life you want.
So, we have established that it doesn’t matter how much money you have. Rich people still struggle when they don’t budget and I’m sure the same goes for everyone, especially myself.
So, how do you make budgeting interesting and how do you make it so it is not depressing?
Firstly, you have to change your mindset about what a budget is. Instead of looking at it as a restriction, think of it as a way to get the things you want in life. You work hard for your money, so you deserve to spend it on what you want.
Also, because you work so hard for it you should want to know where all your dollars go. The budget should include things that you enjoy in life. Life is meant to be enjoyed and in our society money is a big way we pay for the things we love.
Make sure to add those things you love to your budget before some of the things you don’t, that way your budget becomes fun and it starts to benefit you.
A key to a budget is to pay for what you can afford, don’t fool yourself into thinking that you can buy really expensive things if you just don’t have the money for it.
Don’t pay with things with your credit card if you don’t have the money to pay it back within a month.
The most important part of a budget is knowing what you can afford. If you want to afford more then you need to make more, but that is a topic for another day. Now that we know we can’t go crazy on buying expensive things we can build a solid budget.
A Simple Budget Outline
Let’s build a quick budget to show you how easy it is and how it can be the key to buying the things that you want.
A budget should change every month and work with your earnings.
You should sit down every month with your significant other, or maybe just an honest version of yourself so you can make good decisions for your finances.
The first thing you should budget for is your housing. Make sure you have a roof over your head before anything else, which is going to be your rent/mortgage, your utilities, and any other expenses dealing with your living conditions.
You should shoot for these expenses eating up 25 – 30 percent of your monthly income, if this is not the case you may want to consider moving or downgrading. If you prefer to live in a swankier place then that is fine, that is the beauty of the budget but you will have to make a cut somewhere else.
Next, make sure you set aside money for your food, everyone needs to eat and for some, this is the area they splurge in, but if you aren’t one of those people then maybe eat rice and beans for a while so you can spend your money on other things. Your food should be around 15 – 20 percent of your income, so now you have 50 – 60 percent of your income to spend.
Make sure to save some, I would suggest around 20 percent at least goes into savings, and that can be saved for retirement, or a house, or a big purchase you want to make just make sure to save some. The rest is up to you want to spend it, and you should spend it however you want.
This can be spent on vacations, restaurants, hobbies, or whatever else strikes your fancy. This is the beauty of budgeting is now you know where your money is going and you make the rules, not anyone else. You decide if you want to spend less on an area this month so that you can splurge in another. You are literally taking control of your finances and making your money work for you, and not the other way around.
Make sure you spend your money on what you want, treat yourself! Don’t let anyone tell you that it is dumb to spend your money on this or that, it is your money and it should make you happy.
My brother has a large action figure collection, and he loves it! His wife and some of my family think he is silly for spending money on it, but who cares what they think? He can be a nerd all he wants, it’s his money and it is what makes him happy.
With proper budgeting, you can have these hobbies and truly enjoy life.
Please reach out if you want to learn more about budgeting and the many tools that are at your disposal. It’s time to take back your finances and realize that money is supposed to work for you!
To learn all the tools to gain financial self-mastery in your life, enroll in the Financial Self-Mastery Program today!
Blog post written by Garrett Fronk, financially trained mentor and trainer for the Financial Self-Mastery Program.