- Personal Finance»
- Frugal Living
Budgeting for Success
What is a Budget
In this Hub I want to discuss the ever dreaded subject of budgeting. The reason that I think this is important is because most people do it wrong and have a wrong concept towards it. I would venture to say that the vast majority who budget are budgeting towards poverty instead of budgeting towards increase.
Let me use a very simple yet pertinent example. When I started this Hub I knew that there had to be a category for budgeting. There was and I found it, it was a sub-category of "frugal living." Even within the placement of this category budgeting is geared toward "not having."
What exactly is a budget for? A budget is to put you in control of your money instead of your money controlling you. It is for the purpose of you "having" the things that you feel are important to your life. Unfortunately most do not control their money, but instead their money controls them. From a statistical standpoint, most that are reading this Hub would have to ask their money if they could go out for dinner tonight. For many of these their money would tell them "NO!, we can't afford it."
Money is a horrible master. The Bible even teaches that money is a horrible master. Money is a tool that has been given to you in order to make your life better. Learn to control you money you will find that it is a much better that way.
Budgeting for Poverty
Budgeting for poverty is the normal way of budgeting. It is the "frugal living" concept that focuses on paying the bills and leaves the person with a "we don't have the money" attitude. I don't know about you, but I have done this and it isn't any fun.
Budgeting for poverty places everyone else at the top of the pay list. What we do in this type of budgeting is we start off with our net income. Then we start subtracting all the bills that we have to pay like the mortgage, car, JC Penney's, food, electricity, and so on. We then subtract our expenses from our net income and see what "we" have left over. My emphasis here is on the "we." Do you see how this type of budgeting has focused on everyone else and put us at the bottom of the list?
Let me ask a question, if you are on the bottom of the pay list how will you ever get to the top? The answer is you can't that is why so many people struggle to just get by. They have strategically yet inadvertently placed themselves at the bottom while trying to reach for the top. The math will not work in your favor doing this and you will become very frustrated in the process.
Budgeting for Wealth
Now that we know what a budget is for and how most budget for poverty let's see how budgeting for wealth works. I am sure that you can figure out based on "Budgeting for Poverty" that in order to budget for wealth we are going to have to get ourselves to the top of this pay chart. In order to do this you are going to have to challenge your thinking and your lifestyle, but believe me it works.
When you start with your net pay you are going to have to place three line items deductions first on the pay list. I run the risk now of losing some readers, but stick with me this works. The three areas are:
Let me take each of these and break them down. If you are struggling financially your initial reaction to this is, "I can't afford to do this." That is because you have been budgeting for poverty. If you want to get out of the trap that keeps you having to ask your money permission to do anything then you are going to have to break out of the poverty cycle.
I am a Christian so I am going to use some Christian terminology. If you are not a Christian just accept the principle of giving which I am talking about. In the Bible there is a term called the "tithe." I know that there is a lot of debate about the tithe, but the principle of giving is still true.
In the biblical context of the tithe God states that a tenth of our increase is His. For the Christian they bring their tithe to their local church and support the ministry that they are involved in. For those who don't go to church (although you should) you may give to a charity and help those who are less fortunate than you.
There is another biblical truth that is a truth whether you are a Christian or not and that is "give and it shall be given to you." Giving is a powerful form of release that brings increase back into your life.
Look at the richest man in the world, Mr. Bill Gates. Besides the founder of Microsoft he is a major giver. It seems that the more he gives the richer he gets. I read one time that one of the Rockefeller boys made a decision that he was going to give away the families fortunes and ended up being the riches one of them all.
It is impossible to give and it not positively affect your financial life. Too many people want to wait until they can afford to give, but the truth is you will never be able to afford to give that is why we put giving at the top of the pay list. We are not going to wait until we can afford to we are going to make giving a priority.
From my own personal experience, my wife and I started out with the tithe, which is a 10th. We kept giving on the top of the list and increased it as we could. Every time we would increase we would increase the percentage of our giving. Sometimes we were able to increase it 1% some times only 1/2 of a percent, but we continually increased it as we increased. We are now giving 35% of our gross income and we are better off financially then we have ever been. I don't tell this to brag, but to illustrate that if you will give you will see increase come your way. Prioritize it!
The next area of priority on your budget for wealth is savings. You've got to have savings! Now, I am not a big "saver" in the sense of traditional savings. If you put money into a savings account, money market fund, or CD you should try out for the TV program, The Biggest Loser. While I know that program is about losing weight you still may be a contender because of what you are losing in your purchasing power.
Having said that everyone needs some cash on hand. You get a flat tire, an relative unexpected passes away and you have to travel 1,000 miles, or life just slaps you in the face. Because people don't have savings they end up charging these unexpected expenses to their credit card and then pay 20% or more interest on them and never get them paid off. STOP IT!
If you haven't done so already get a safe put in your house and secure it to the floor so no one can walk off with it. It is much better than a safe deposit box because if the bank you have the box with closes you are up a creek trying to get your stuff.
You need to keep a little cash on hand like $300 or $500 and it needs to be a "hands off" stash. The rest of the cash I would buy either gold or silver coins with it. Gold is trading at about $1,050 an ounce and Silver at about $17.50 at the time of this writing. Therefore a one ounce gold coin is going to cost you around $1,100 and a one ounce silver coin will cost you about $20.00. Depending on the size of your savings you can determine which coins would fit your budget.
Why put your "savings" in gold and/or silver? The answer is found in a couple of reasons. The first being that the US Dollar is tanking. Therefore, keeping "cash" is a losing proposition. Silver and gold is valuable in itself and many believe is extremely under priced at this time. Therefore, putting your savings in gold and silver will help you retain the value of your savings while also having the possibility to profit greatly from it.
Secondly, you will not be as apt to spend your savings. When you owe gold and silver there is a psychological barrier about trading them in. You will not spend them as easily therefore your savings will keep on saving.
Target: You should also target 10% of your income towards savings. Before you shout, "I can't afford that" remember what we are doing. We are putting ourselves at the top of the pay list. Before this is over I am going to show you how to make this budget balance.
Our third area of priority is investing. This type of investing has a specific purpose, which is to create passive income and capital appreciation. Why do we want to create passive income? Because passive income is working for you 24 hours a day. Passive income does not get laid off, but continues to create money in good times and bad. Once you can get your passive income to exceed your monthly expenses you really have become financially free.
There are two forms of passive income that are very good, but both will take time to learn, but the investment of your time is well worth the effort. They are paper assets and real estate. Both of these are a great way to create income streams that work for you no matter what. It really doesn't matter what the economy is like people need a place to live and the markets are going up and down. All create the ability to have income coming into your budget. You can easily and realistically create 10% to 15% passive income per month if you will invest some time and money into the learning process.
You need to budget another 10% into investing. I know that you think you can't afford to, but as the old cliche goes you really can't afford not to. Now let me show you how to make this work.
Bringing It All Together
I know that anyone who has continued reading this Hub is struggling with the fact that there is no way they can take 30% off the top and survive. The truth is, if you ever want to be financially free you need to put yourself at the top of the pay scale.
However, there is the reality that when you finalize your budget that you are most likely going to end up with a negative number. This negative number is the result of your expenses being larger than your income. Mainly because you started paying yourself first.
How do you recover from this shortfall? There are two areas that can be focused on. You can increase income or cut expenses. If you will read my Hub dealing with good debt and bad debt you will come to realize that you need to get rid of any bad debt. By reducing this debt you will reduce your expenditures, but the quickest solution is to increase your income. Do whatever it takes at this point to increase your income.
The biggest obstacle of transitioning from a poverty life to an abundance lifestyle is the transition period. Most don't like doing what it takes to transition, but if you will take the next 12-18 months and go through this transition period your life will never be the same. Living in control of your money is far better then being controlled by your money. Learn how and start budgeting for wealth by placing yourself at the top of the pay list.
Some of My Other Hubs
- Broke, Struggling, Rich: What Are You?
There are basically three levels of living from a financial standpoint, especially here in the United States. While I understand that we can break these down into more specific categories, in a general...
- How to Buy Silver and Gold
If you read my other blog called Financial Advice for a Stock Market Crash you will see how I take the common sense approach to being prepared for a possible stock market crash. As an overall strategy I am...
- Good Debt - Bad Debt
People have a lot of opinions about debt. There are many like Dave Ramsey (who I like a lot) that believes everyone should have plastic surgery. Of course the plastic he is talking about is your credit...
- How To Pay Off Your Mortgage with the Banks Money
Okay, so we know that our home is our castle, but it is also one of the most expensive item the average American purchases. While we have pride-of-ownership in our home and consider it our greatest asset we...