The number one rule to financial success can be summarized like this: spend less than you earn. No doubt you know exactly how much you’re making and where it’s coming from. However, do you know how much you’re spending and what you’re spending it on?
Building the perfect budget begins with tracking your spending and ends with financial freedom. Once you have the basics of financial freedom out of the way, consider following the Infinite Banking Concept to turbocharge your savings. But first you’ll need to take care of the basics like budgeting. Ready to get started?
Determine What You Have
When you’re ready to make a budget, sit down and add together all of the money you have in any account and even in cash. Every. Single. Penny. Needs to be accounted for. You then need to determine what your expenses are and write all of them down. Does your bank account come with annual fees? Make sure you account for everything.
Determine Your Net Worth
This is typically a real eye-opening experience when it comes to budgeting. Why? Because most Americans actually have a negative net worth. They owe more than they have or even make yearly.
After you’ve found out how much money you have, how much you owe and have determined your recurring expenses, you can compile all of it and determine what you need to set aside each week for spending, how much to set aside for savings and how much to set aside for emergencies. The goal is to cut it 50/50. 50% of your after-tax income should go to savings and the other 50% is for bills and fun spending.
Don’t Punish Yourself!
One of the biggest reasons people are scared of having a budget is because all they can think about is having to go without something they love or have to live really uptight and never have fun. This couldn’t be further from the truth if you’re budgeting properly. Don’t punish yourself. It’s okay to get out and live a little every now and then. It’s okay to have that $2 cup of coffee every morning if it’s important to you.
Just cut back in other ways. Save on gas and walk or take a bicycle. If you want that new shirt, look around online for a cheaper close alternative. If you can’t find one, throw a yard sale to get rid of clothes you hate and use a little of the money you make on the clothes you really want. Do you have expensive hobbies? Find ways to cut back without giving up what you love. Instead of buying everything you need, see if there are some DIY alternatives. You can probably use materials you already have sitting around and have fun making the things you need. This also lets you throw some more in savings and feel good about cleaning your closet out!
There is nothing limited about a budget. If you feel limited, it’s because you’ve tied yourself down. Let loose and live free. A budget is the first and best step to take on the road to financial freedom and peace of mind. What’s not to like?