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The Most Important Step When Creating a Family Budget

Updated on November 29, 2011

Creating a family budget is the first step to creating wealth. You’re probably saying to yourself, I don’t want to create wealth I just need a little more month at the end of the money. There is one important step most people skip when creating a family budget. Before you spend any money, you need to pay yourself first.

It is common for the average employee to deposit their check into their checking account, and pay their bills, whatever money is left over, is the money they get to keep. This is the worst possible scenario you can create for yourself because there never seem to be any money left.

When you first start paying yourself first, it’s doesn’t seem like it makes much of a difference in your savings account, but over time, you will start to see impressive results. Starting off slowly and saving just 1% of your income doesn’t seem like a big deal, but like Darren Hardy says (publisher of Success magazine) “it’s the compound effect that starts to show its true power”.


Pay yourself first

Anybody who knows anything about creating wealth will tell you, you need to pay yourself first. Robert Kiyosaki, author of Rich Dad Poor Dad has a simple idea to start creating wealth, take 3 envelopes, and on each envelope write what it is what you’re saving for. An example would be, investing, down payment in a home, a new car, tithing, family vacation, manicures, college and savings in general, you get the picture. You just need to start with three envelopes and continue to contribute to them first before paying any bills, this includes any money you get, not just your pay check.

This may not seem like it’s very beneficial in the beginning, but after a year of creating a habit like this, you will see the results start compounding. If you start by have one envelope for investing, this could be used to invest in anything with a high rate of return, including yourself, say there is a seminar you really want to attend but you don’t have the money, start saving a little each paycheck, investing in yourself has the greatest return on your money. This money can also be used to invest in stocks, real estate, education, certificate of deposit, bonds or anything that will give you a greater return on your money other than a basic savings account.

One envelope I encourage everyone to create is the one for tithing, I don’t believe tithing is just for church, If you want to pay money to pray, that’s up to you, I’m talking about tithing to your local charities, or to the sports teams of your local schools, or how about the little girl scout that comes to your door to sell you cookies. Jim Rohn has a great story to tell about that, after I read that story I started a fund just for that reason. I always hated not have the money to buy from the schools next fundraiser, but now I never have to worry, I have the money.

Start your three envelopes today
Start your three envelopes today

Start with 1% and grow from there

If you start small, it will be less painful and you probably won’t even miss the money. Starting with small amounts of money, it’s easy to acclimate your budget, removing the money first and working with what’s left over, is easier than running out of money and trying to find more. It’s most likely you will find places to cut back, like your morning coffee, or lunch at the local deli, or maybe you can discontinue some unnecessary channels you’re paying for on your cable. Once you have your envelopes set up and you’re putting money in each week, you can start to grow the amount you put in from each paycheck, eventually your goal is to put at least 10% of your income into each of the three envelopes, that’s 30% of your income, I know that sounds impossible, but if you can reach this level of financial stability, you will be well on your way to a wealthy life, not rich, but wealthy.

Remember that it’s the little things that we do in life consistently, that create the most change in our lives. If you cut 100 calories from your daily diet, in one month you probably wouldn’t notice much of a change, but continue this for a year, and you definitely notice yourself losing weight. It’s easier to start small than to jump in with both feet, but you must stay consistent, it must become your new habit.

 Where do you spend your money ?

Seeing believing, if you don’t know where your money is being spent, then you can’t save any more then you are saving now. Darren Hardy suggests we carry with us a small notebook so we can write down every penny we spend, even the half dollar to go through the tolls. It’s a real eye opener to see the money going out and the silly things we spend it on. Chances are, you will probably find an extra $25 a week you can save just by creating this one habit, challenge yourself to see how much you can save by being frugal and cut frivolous spending.

Gene Simmons says it well “if you can’t pay cash for it, don’t buy it” In other words, if you want something, and you don’t have the cash in the bank to buy it, then don’t buy it. If you have the cash, then borrow the money from someone for little or no interest like a family member or a friend, and save your money in the event of an emergency. Be sure to pay the debt back in full within a reasonable amount of time, if you’re borrowing from a family member or friend, money relationships can get real ugly if the debt is not paid. 

Where will you hide your nuts?
Where will you hide your nuts?

 Family budget conclusion

There is plenty of software on the market to help you create a budget for your family, there are even apps on your iphone or droid to help create a budget, the possibilities are endless. If you can find extra money before you spend it, or just try removing it from your paycheck before you pay bills, you can start a nice little nest egg.

 Take a look at the examples we get from nature, if you watch the squirrels in the summer, their gathering their nuts and even burying some for the winter, they are saving their nuts for when there are none, we should do the same, we need a reserve to fall back on when we are running low, just like the squirrels. Squirrels are not very smart, but yet we can learn from their example, if the squirrels know what to do with their nut, why don’t we?

If you’re starting a budget, it means you’re looking for ways to save some money and get a hold on your finances, these little tips will get you started and if you stick to it each week, you will notice small incremental changes in your finances that will compound into massive rewards over time, just stick to it. A thought to ponder, it’s not what you get when you create this new habit, it’s who you become.

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    • eddiecarrara profile image

      Eddie Carrara 6 years ago from New Hampshire

      Thanks Millionaire Tips, It's amazing how much you can save if you have a plan. Thanks for stopping by and commenting.

    • Millionaire Tips profile image

      Shasta Matova 6 years ago from USA

      It's a great idea to create a budget and save for a rainy day.