Sunday, 24 November 2019

How To Budget Your Money (Best Strategy)

How To Budget Your Money

I'm going to share with you how to how to budget your money. How to manage your finances so that you can actually make sure that you're getting ahead in your life financially and that you're not just spending money on things that you don't need, you're not getting into debt, credit card debt which you want to avoid at all costs. Any high-interest debt you want to avoid.

Unfortunately what happens for a lot of people, because they don't have awareness around their finances, and the money that their making and where they're putting it and how they're spending it, they end up living paycheck to paycheck. Whatever comes in goes out. And the problem with that is how can you ever get ahead? How can you have money put aside to save for emergencies, or to save for certain opportunities that might come up? How do you expect to make more money if you can't invest in yourself? In your own knowledge and own skills so that you can make more money in the future.

Because a lot of it is the mindset of a lot of people, they want instant gratification, they just want to spend their money and buy things because it feels good, and a lot of it is the mindset of delaying the gratification.


  • By learning how to manage your money and your spending and to have a budget in place so that you do not overspend. I'm going to share with you a system in this article of how you can make sure you have a budget, but you can allocate your money and finances that is allowing you to achieve your financial goals longterm, but also enjoying your life as well, and improving to be the best that you can be.

Where Your Money Is Coming In From. How Much Money Is Coming In, And How Much Money Is Going Out

That is the first thing you've to be aware of. You've to know your income is, as well as your expenses.

  1. Income
  2. Expense

How To Budget Your Money

You first have to know where you're at. You can never be blind to your finances. And i find that a lot of people, including myself, because I had times in my life where I was broke and I was struggling and I got into credit card debt and the reason why you get into credit card debt, or any kind of debt, oftentimes is because of a lack of awareness and paying attention to these simple things. Your income and expenses, very important. And what happens for a lot of people is, because they know they're racking up debt and they're not tracking things properly, they avoid looking at this because they don't want to confront and face the pain of seeing the reality of being in debt.


  • I know for myself I'd get in those credit card statements every month and I'd avoid looking at it "cause I was like. man I know I'm in debt, I just don't want to know what that number is "cause it's going to overwhelm me, it's going to freak me out, it's going to feel uncomfortable and painful to face that number.

But here's the key here, you have to confront it and when you do you actually feel empowered by it because now you have a target and I'm going to share with you the system that you can get yourself out of that situation and of course get ahead in your life. Confront and have this awareness.

What Are Your Sources Of Income?

When it comes to income you've to know what are your sources of income. That's coming in every single month? And you have to write it down and track it. And what I recommend that you do is to create an Excel spreadsheet or a Google spreadsheet.

Some sort of spreadsheet online, it could be in the cloud, something that you can update on a regular basis, on a weekly basis, and ultimately an overall monthly basis. Very important to set up a system for tracking. 

I want you to go through your bank statement, go through your credit card statement, whatever it is and actually first identify how much money are you receiving on a monthly basis? What are those sources of income? And let's track that and put that in a spreadsheet so that we actually know how much money you have available.


How To Budget Your Money

Let's say you have a job. And you get paid a salary, for simplicity as an example you're bringing in $3,000 per month. That's $36,000 a year.

You have to factor in, if you're getting paid this at a job, most jobs if you're getting paid a salary, then they already deduct certain things like for taxes, maybe it's insurance, maybe a small percent goes to a 401k, retirement account, whatever it is, we have to identify that because otherwise, if you have another source of income, lets say, for example, you don't get paid a salary, but you instead get paid dividends, lets say from investments or stock, or maybe you get paid like a self-employment income. Like you have a business.

We've to know whether or not this amount of money that you're receiving, is tax-free? Because otherwise, you have to factor in, at the end of the year you're going to have to pay taxes on that amount of money, in which case we've to know that plan ahead so that we can take a certain percentage of that for taxes right away. That is an important thing you have to know.

One mistake that I made, when I first started a business when I was 21 years old, I and my business partner, we did not factor in taxes. So whatever amount of money we had come in, $3,000 let's say, we thought, great we can spend $3,000 a month. And sure enough, we did and then at the end of the year when it came to reporting taxes and we then realized that we then owed a couple thousand dollars which we didn't have because we were taking all this money and we were spending it. We didn't factor in the taxes. That is an important thing you have to think about when determining how much money you've got coming in.


What Are Your Expenses?

This is where you're going to have to go through your bank statement and your credit card statements to determine this. Here's one thing that I always recommend. I recommend using credit cards and not using cash. Why?

Because using a credit card is a great way to build your credit rating. the better relationship that you have with these credit card companies and, of course, making sure you're paying off your credit cards every month but that's a way for you to build your credit rating which is going to be beneficial for you in the future if you want to borrow money to start a business, if you want to get mortgage, if you want to to get a car loan or whatever it might be. Building those relationships and your credit rating is very important. So that's why you want to use a credit card.s 

The credit card also allows you to track things a lot better, versus when you're using cash, it's a lot harder for you to track things in a spreadsheet-like what I'm going to show you. And also credit cards can allow you to get points, cashback, sometimes you get air miles, you get little perks and things like that which can be useful, as well.

I use credit cards, but of course, you've to be aware of making sure you do not get into credit card debt. That's the worst kind of debt because that's the kind of debt that's very hard to get out of. When it's a 19% interest rate that's insane. And it's not that you don't want to be in debt, "cause sometimes there's good debt. 

Here's a tip, if you do have credit card debt, look to find another credit card where you could do a balance transfer. So you can transfer the balance you have from one card to another and there are credit cards out there where if you transfer a balance from one card to their card then they actually have, maybe for the first 12 months or the first 18 months they have a 0% interest rate.

That's what I did when I was in credit card debt years ago is I did a balance transfer "cause I was paying such a high-interest rate, moved my balance to another credit card, and that allowed me to pay it off easier because I was able to have a 0% interest rate for a year or 18 months.

Read: What is a Balance Transfer? How Does It Work
             
But expenses, having your credit card statements, bank statement, go through month after month to identify what are your common reoccurring expenses and let's track it, let's confront it, let's know what that is.

How To Budget Your Money


  • Income: $3,600 per month
  • Expenses: $2,536

Let's say your expenses are $2,536, maybe it's more than that because now we get to look at the difference. So the difference is you should have an extra $1,000 available in cash flow every month. 


  • Let's say that you do this and you're like, well Micheal, I'm making $3600, but I'm spending $3,600. Or you're spending more than $3,600. That's not good, now you're getting in debt.

We have two options here. The first option is, and we should be doing both of these simultaneously by the way.


1. Increase Your Income.

You have to make more money. There are many different ways you can do that, get a higher paying job, get a second job, start a business, start an online business. There's a variety of different ways, of course, you can be resourceful and increase this. but you've always had to be looking to increase your income. 


2. Reduce Your Expenses

Increasing your income could take a little bit more time, but the easier and faster way is to decrease your expenses. So how can we cut off expenses? How can we make some sacrifices? And don't be afraid to make sacrifices, I've had to. Because part of getting what you want is knowing what you have to give up in other to have that.

by sacrificing, it might seem like you're giving something up, but you're actually gaining something much greater.


How Can We Reduce Expenses?

How To Budget Your Money

How To Budget Your Money

I can share with you my story. I had a time in my life I was getting in debt, I had to cut out, my rent. I had to move in with my friend and live on his couch, on his futon for 8 months to a year. not easy to do, but I had to make that sacrifice to get myself out of debt. I had to get rid of my car. I was able to replace that with taking the bus, walking, taking a bike to get around. But those are some sacrifices I had to make.

It might not be realistic or attainable for you to do that, but I want you to be creative and think about some things that you could do. 

Let's say that you are in a positive cash flow. Great, you have money to put aside. What do you do with that money? 

Long Term Savings

How much do you want going towards that? 10% of your income. We've to take 10% of this $3,600, that's $60 ideally every single month to go into a long term savings account. You want to build this up until it's about 6 months' worth of your income. 


Emergency. 

That's if shit hits the fan in your life if you lose your job if there's a recession if some horrible medical occurrence happens in your life and need the money for that. You don't touch that money unless it's a rainy day unless it's an emergency. You have to build up that reserve, very important. 


Financial Freedom Account

You've to take 10% to put into this. This is money that you can use to invest, this is money that you can use to start a business. Things that will make you more money to bring up your income. Stock, real estate, bonds, mutual funds, different investments. 


Education.

You have to be improving yourself. You've to be putting money aside to invest in you because you are the most valuable resource that is going to determine how much money you make. You've to develop your own skills, you have to buy books, go to a seminar, go through course, training programs, mentors, and coaches. Always improving to reinvest in yourself.

The best investment you can make is not in stock, is not in real estate, is not in business, but it's in you. So invest in yours. Put money aside for that to take your own education seriously and your own success seriously as well.


Fun

You've yo enjoy yourself as well because if you're just working, making money but you're not rewarding yourself then you're not going to be motivated because part of it is you've had to enjoy some of the money that you're making. Put 10% into fun.


Give. 5%

You can modify all these numbers if you like, but this is a simple model, but giving and contributing is very important to building financial wealth and abundance. Why? Because what it does is it conditions your mind that you are abundant. That there's more than enough. 




Conclusion.

One thing that's important to understand when it comes to budgeting and managing finances, is not the amount that matters, it's the habit. "Cause here's the thing. 

If you can't currently manage the money you already have right now in your life and you're not budgeting, if you make more money but you don't develop this habit and this foundation, you're going to be in trouble. That's why, by the way, you see people that win the lottery, $100 million and then end up back where they started they lose it all "cause they didn't learn how to manage finances.


That's the best strategy for budgeting your money, hopefully, you learn something. Thanks for reading our article.

No comments:

Post a Comment