home loan finance blog
The title above may sound dorky if not impossible at first glance. This post is a must read for those who are looking for that first step to get their financial house in order so then can achieve monetary Wealth.
I just read an article today in fact about the “Ten Commandments on personal finance”(1) These are good guidelines to live by but if it were so easy then wouldn’t millions of people be financially stable? I think the devil is in the details. I am going to talk about the the details of organizing things, but I must strongly urge that it takes strong discipline as well. My partner Matt has a great starting article. The link is below.
In order to budget your way to Billions you must start by sitting down and figuring out where all of your money goes each month. Do you ever find yourself asking “Where does all of my money go?”. I’ve been there before and so has Matt. There are many financial software programs out there such a Quick books, Quicken, etc. that can help track your income and expenses. I have found that the first supplies needed to answer the above question are pen and paper. That’s right.. just a nice pen and a clean sheet of paper is all you need to get started on the road to financial Wealth.
I challenge you to first write down your billed expenses that occur every month. In business terms these would be your “fixed costs”. Examples such as car payments, car insurance, utility bills, rent/house payments, etc. These are your first priority and must be paid each and every month.
Secondly write down your expenses that are pretty much there every month but you don’t get a “bill” for them. These are secondary or “variable” expenses. You should include items that you could cut down on but probably never eliminate for your expenses. Things such as food, clothing, gasoline, cigarettes, household supplies, entertainment etc.
Thirdly write down any items that you may have bought, or services that you paid for last month that are not normal. These can be one time, or once every several month type purchases. Examples such as oil changes, new computer, gym memberships, etc.
Last but not least leave room for what I call Misc. (short for Miscellaneous). This is where I like to leave room for those things that I know I buy or pay for but just can’t think of on the spot. I will usually put $50-$100 in this category because I’ve got my expenses spelled out. If you are new to this, you may want to set aside more.
Now the moment of truth… add up your paychecks from last month, and subtract all the expenses you wrote down. If you have a positive number then you are in a good place to start. If you have a negative number then you will benefit even more from this post!
You have just created a template to project your expenses for next month! You should ask yourself: What things did I buy that were not needed?
$4 a day for cigarettes is $120/month
$2 a day for coffee is $60 a month.
Above, I ranked the expenses into “Fixed”, “Variable”, “One time”, and “Misc”. Once you have your finances spelled out there is one payment, one bill, one expense that should come before all others. This is a habit I personally use and recommend along with many other teachers of Wealth:
Pay yourself first.
You must decide how much this is. You have the power to make it as much as you want. This money is what you will use to invest in stocks, real estate, bonds, liens, businesses and more.
If you leave this post with no other lesson it should be to minimize frivolous expenses in order to maximize the outcome of your income.
Stop back for future posts about budgeting.
A.D.