Getting Started with a Budget
Today's podcast on building wealth is focused on budgets. First we have to believe that it is possible. One of the first steps towards believing that building wealth is possible is by saving. Before you save, you have to see what you have coming in and what you have going out. After visualizing these numbers you will be able to develop a budget. Once you develop a budget, the next step is to find strategies to stick with the budget. Most people have a very difficult time sticking to a budget because of the culture of consumerism and the desire to satisfy immediate wants. Discipline is key to successful saving. If you can't discipline yourself, there are ways you can force yourself to save. But before we talk about that, lets delve into the steps.
If you have a computer and you know how to use a spreadsheet, start with a blank spreadsheet. In the first column, write in the amount of your paycheck. Next line, multiply that by the number of paychecks you would get throughout the year. If you get paid biweekly then the number to multiply is 26. Take that total and divide it by 12 months. On the next column, write in Income, and underneath that write in the amount that was divided by 12. On the next column write in the word Expenses. List your basic expenses such as rent or mortgage, electric bill, water bill, total groceries you spend in one month, and incidentals like toilet paper etc. Total your expenses. Now take your monthly income and minus the total for expenses. Do you have at least 10% of your income left? 10% is the minimum but the more you have to set aside in savings the quicker you will build your wealth. If you don't have at least 10%, then we need to find ways to earn additional income, but chances are you do have at least 10% or more.
Now how do you discipline yourself to stick with this budget? Off the top, take that 10% or more and set it aside in a savings account. The discipline is not to just save this money but to not touch it no matter what. This is not an emergency fund or a vacation fund. Look at it as money that is gone just like money that you use to buy groceries. Can you get that money back? Of course not. So treat this money the same way. If you know you cannot stop yourself from taking this money out, then open a money market savings account where you can make deposits but cannot withdraw without a penalty. Or find someone you trust to hold this money for you. Maybe a parent, or a friend that you trust not to spend your money and not to give it back to you even if you beg them to. There are other ways to do this but I will cover that in my investment podcast.
Next, is to stop yourself from impulse buying by staying away from merchandizing traps. Before you go shopping, put together a list of things you need. When you go shopping stick with the list. There will be items in the middle of aisles or at check out to trap you. People are so good as rationalizing the need to buy something because it is on sale. A sale is irrelevant if you don't need it. If the sale has to do with bulk buying then of course you buy it but remember to deduct that from the following month’s budget so it will not look like you have extra money that following month. If you don't do this, it is just another trap people set themselves up for failure. So set yourself up for success in sticking with your budget and the discipline to save. My next blog will be about ways to increase your earnings if you don't have at least 10% left over. For those who have at least 10% left, the next podcast and blog will be for you to increase the amount you can save and therefore increase your wealth. And I will show you how this will help decrease your tax liability therefore increase your tax refund.
Until my next blog
Bye for now,
Dr. KnowItAli