Saturday, 20 February 2021

How To Budget Your Money From Paycheck To PayCheck

We're going to talk about how to budget your money from paycheck to paycheck. The steps that you need to take. The things that you need to do so you can budget your money correctly. 

Track Your Expenses

You can read this article about budgeting apps.  

The first thing you have to do if you want to start budgeting your money is to track your expenses. Right now, there are people who make six figures a year who are living paycheck to paycheck because they don't track their spending. There's this thing called the "ostrich effect", that when you do bad things financially you just stick your head in the hole, and you don't look at it, you don't look at your checking account, you don't look at your credit card balances. There are many people who are totally 100 percent unaware of how much debt they're in, where their money's going.

So the first thing you got to do is track your expenses. You need to know what money's coming in, and where the money's going out. Because I recommend that for the next month you track every penny that you spend. Carry a little notebook around with you, use the app on your phone to write down and to track all of your spendings because you're going to find leakage. This is unnecessary spending, this is spending that isn't in your best interest. This is spending that is going to harm your budget. So for the next month, just go ahead and track every penny that you spend to see where your money's going.

Financial Audit

The second thing you want to do is a financial audit. You want to look at all of your bills. You want to look at all of your subscriptions, cable, Netflix, whatever. You want to go ahead and create a list of all of your expenses and where your money's going.

Sit Down And Come Up With A Game Plan On How To Handle Your Money

This is where discipline is going to come into it because many people just make money, they spend money, there is no game plan, there's no rhyme, there's no reason, and one of the things that they don't do is pay themselves first. They just spend all their money on expenditures and expenses, and at the end of the month, they have nothing to show for it.

We're gonna change that, we're gonna stop that. So with the third thing is coming up with a financial game plan.

Eliminate Debt

After you've ascertained where you are, and 100% you know exactly where you are, you're going to come up with a plan of attack. let's say you're the average person and you have debt. So your first thing is you're going to track your spending, do a financial audit, then come up with a game plan. And your game plan is to eliminate debt if you have debt

I know there are many people who want to invest while they have debt, and unless you have an extremely high income where you could actually invest enough money to make a difference, that's really a bad idea. So what you want to do is to eliminate debt. So you've tracked your spending, you've done your financial audit, now you're coming up with a game plan. You're going to list your debts as the highest priority. Your most expensive debt down to your least expensive debt. If you have a mortgage we're not going to really deal with that because the mortgage is for most people is going to take decades to pay off, so that's going to just be to the side. We're going to address consumer debt, car debt, credit card debt, things like that.

So what you're going to do is you're going to figure out what you can get rid of through your financial audit and then you're going to start to vigorously attack this debt with this new game plan. Because you want to be 100 debt-free. I know that sounds crazy. I know that sounds impossible. That sounds like something you can't do, but I'm here to tell, you as a person who was homeless, as a person who had all types of bad financial habits, you can change, you can make these moves, you can go ahead and increase your financial knowledge and increase your financial habits and also increase your financial well-being.

Let's say in this scenario that you're a person who doesn't have a lot of debt, there are people walking around who really don't have a lot of debt so what you're going to do with your budget is you're going to start paying yourself first. If you're a person without debt you're going to create a strategy to start investing money, putting money in your 401k, increasing your investments, increasing your situation where you can become financially free in the future. 

Create The 50% Solution

There's the 50 30 20 budget where 50% of your income goes for expenses, 30% goes to pay bills, and 20% goes to investments. Well, I have something that's a little bit better and it's really doable, and if you stick with me, you can do this. It's called a 50% solution

This is where you invest or save 50% of your income. Now, if you're one of the 80 million people who make $33,000 a year or less, this could be very very hard. So you have to make more money. Maybe get a side hustle. Because once you achieve the 50% solution, your money problems will evaporate. They will disappear. Because money management is all about behavior. That's really the game plan. Essentially, my friend makes $360,000 a year. I know, that's more money than the average person. The money is sitting in his personal checking account and it's stacking up because he doesn't really spend a lot of money on bs and crap. And essentially, if he were to spend, he can have a situation where it's not going to hurt him because he makes so much money. But if you're not in that situation, every dollar has to have a destination. Because what you're going to do with your budget before you get paid is you're going to decide where your money goes before you get it. 

Because this structure, this habit, is going to dramatically change your financial life. It's dramatically going to set your financial life on fire and put you in an optimum position to win in the future. So once again, you're going to list all of your expenses and you're going to have a game plan, to where your money is going to go before you get it. And then you're going to decide how much money you're going to save. 

Now, this is just a recommendation, I recommend that you get your long-term emergency fund which will be 6 months to 12 months of expenses in the bank. I recommend that you get your short-term emergency fund which is $5,000 which will protect your long-term emergency fund from being eroded. And I also suggest that you have a family operating account which is 2 months of living expenses. So if you're one of those people who doesn't have debt, this is the plan that you need to be working on. Creating your long-term emergency fund, creating your short-term emergency fund, and getting your family operating account set up

Once you do that, now you're in the position to become an investor. And this is why, because once you get those funds set up, that's all the money you need to save, and then you're in the position where you can put a thousand, maybe $2,000 a month in investments so your investments can grow really really quickly, you can be at six figures investments in three to five years on this pathway. Shortly, in maybe 15 years you can be a millionaire through your investments on an ordinary income. i would say of $50,000 to $80,000. If your income is lower than that, then it's going to be a struggle.

You Need To Make More Money If Income Is $33,000/yr Or Less

If you're part of the 80 million people who make $33,000 a year or less, it's going to be a struggle. Because that's one of your issues. You're working hard, you're doing everything you can, and the average rent is $1,500 per month. That's $18,000 a year out of $33,000 a year. And if you have a car payment, if you have a few credit cards, you really don't have any money to pay off debt or to invest or to stack or to save. You're in a really bad situation. So for those people who are in that situation making $33,000 a year or less, you need to make more money. You need to become a producer. You need to create additional income. You need to work on that. Because that's going to be the thing that's going to save you. 

But if you're making $50,000 to $80,000 a year. If you put the proper money management protocols into place. Track your spending, do a financial audit, and come up with a financial game plan where you can start putting $1,500 to $2,000 per month towards investments, you can literally become a millionaire through investing in about 15 years depending on where you are, what you do, what you invest in. But budgeting is very important even millionaires need budgets.

This is why many NFL players, NBA players, major league baseball players, once their career is over, they end up in financial straights because they never learn how to properly organize their money. So go ahead and do these things, and go ahead and set up your monthly budget. Regardless if you're a doctor or NFL player or NBA player or movie star actor or rapper, you still need to have a budget. A budget is going to allow you to live a stress-free happy life. Because you're going to manage your money or your money is going to manage you. If your money is managing you, your money is going to make you look like food.


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