How To Budget Your Money
Now I want to share with you how to budget your money. You will learn how to manage your finances so that you can actually make sure that you are getting ahead in your life financially, and that you are not spending money on things that you don’t need, and you are not getting into debt, credit card debt which you want to avoid at all costs.
Unfortunately, what happens to a lot of people, because they don’t have awareness around their finances and the money that they are making and where they are putting it, they end up living paycheck to paycheck.
But how do you expect to make more money if you can’t invest in yourself, in your knowledge and your skills so you could make more money in the future?
I will share with you a system that will help you achieve your financial goals longterm, but also enjoy your life as well.
STEP 1. Know Your Income & Expenses
The first thing you’ve got to be aware of is where your money is coming in from, how much money is coming in, and how much money is going out.
You should know where you are at now. Don’t be blind about your expenses. So, confront and have awareness of your income and expenses.
- Create an Excel spreadsheet or a Google spreadsheet. This is something that you want to update on your weekly and overall monthly basis.
Don’t have time to create an Excel spreadsheet? Download the template I have created to save your time. Simply insert your own data instead of my samples, and your numbers will be automatically accumulated. Template (How to Budget Your Money)
2. Go through your credit card, bank accounts statements, etc, and identify how much money you are receiving on a monthly basis.
3. Put the data on a spreadsheet every week or month.
- You will need the same spreadsheet to write down your expenses.
- Go through your bank and card statements, etc every month. (TIP: Use credit cards not cash to track your expenses and build your credit rating). Among some expenses are gas, car insurance, rent, bills, groceries, dining out, entertainment, etc.
- Check the amount of money that goes on taxes. It doesn’t matter what kind of income you have, you will still have to pay taxes.
- Put the data on a spreadsheet every week or month.
After you have two numbers, your income and your expenses, you should find the difference. So, the difference you have should be an extra $1,000 available in cash flow every month. The key here is to have a positive cash flow.
STEP 2. Increase Income & Decrease Expenses
When you know two of your numbers, and in case you are already in debt, you should start doing the next options right away. Don’t lose time. You have two options that you should do simultaneously.
- Increase the number of your income. Get a better-paid job, start a business, do freelancing, etc.
- Decrease the number of your expenses. Share a flat, dine out rarely, switch to public transport, etc.
To get out of debt, you need to make some sacrifices. Just make sure that you have a positive cash flow after each month, that is how you will know you are doing great.
This strategy is not only for those who have debts, you should aim at having at least $1000 of cash flow at the end of a month.
STEP 3. Allocate Your Finances
Great, now you have some money to put aside, and what do you do with it? T. Harv Eker’s method from the book ‘The Secrets of the Millionaire Mind’ will help you. This jar system which is a way to budget and allocate your finances should ideally look like this:
- Necessities – 55%
(55% of your expenses should go for necessities like rent, car, bills, etc.)
- Long-term savings – 10%
(10% of your income goes for an emergency, ideally, your savings should be worth your 6 months of income.)
- Financial freedom account – 10%
(This is money you can use to invest, to start a business, stocks or real estate, mutual funds, investments, etc.)
- Education – 10%
(You have to improve yourself, develop your skills, buy books, go to seminars, go to courses, etc.)
- Fun – 10%
(Have fun as it is your one of your motivations, go out, buy clothes, etc.)
- Give – 5%
(Giving and contributing is very important to building financial wealth and abundance.)
STEP 4. Make a Habit of Managing Your Finances
One thing that is very important to understand when it comes to budgeting and managing your finances, it is not the amount that matters, it is the habit.
If you can’t currently manage the money you already have right now in your life, and you are not doing this, if you make more money but you don’t develop this habit and this foundation, you are going to be in trouble. That’s what happens with people who win the lottery, $100 million, and they end up back where they started. They lose it all because they don’t know how to manage finances.
Making a habit of managing your finances is crucial.
So, it really comes down to tracking awareness, a system for managing your money, making more money, being creative, being resourceful, cutting down your expenses, and you should do it every single week. Spend that 20-30 minutes per week to manage your finances, and at the end of each week, you will see how much left for the end of a month. If you track your expenses at the end of a month, you are going to overspend.
If you are in debt, and it is high-interest debt, you need to get rid of it quickly. You can take some of that money from ‘Financial freedom’ and pay off your debt after you’ve got up 6-month worth or take some money from ‘Financial freedom’. Don’t take from ‘Education’ because it is a foundation, you need to improve yourself and learn new ways to earn money.
Take actions and don’t be passive. I hope this information helps you. Please share it with your family, friends, and social media.