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A budget is an estimate of your income and expenditure that covers a particular period of time, typically a month. Most people receive their income on a monthly basis and as a result, they allocate the amount they plan to spend out of their income on a month to month basis.

There are other people that receive wages on a daily, weekly, or bi-weekly basis. The same concept still applies. Budgeting allows you to properly allocate your income so that you can fulfill the various categories of your monthly expenses. Some of the monthly recurring expenditure for most people includes:

  • Housing
  • Feeding
  • Transportation, and
  • Utilities.

There are other categories of expenses that you may need to expend on a quarterly or annual basis. This may include:

  • Home owner insurance
  • Property Taxes
  • Home warranties, etc.

To win with your money, you need to ensure that your properly allocate your income into all the different categories of your expenses.

A budget let you have control over your money since it allows you to allocate your monthly based on your interest and priorities.

MONEY EQUATION

There are two sides in the equation of money management. 

There is incoming side which covers all the money you earn either inform of salary, wages, royalties, rental income, dividends, and earnings from business investment. 

The other side of the equation is the outgoing side, which deals with the money you spend. And this includes but not limited to money you spend on food, clothing, housing, fun activities and so on. 

The secret to winning with your money is to make sure that your outgoing is always less than your incoming. That way, you will have surplus, and you can invest and make money work for you.

If you desire to make more money and increase your lifestyle, then you must figure out how to make more money.

Do not fund your lifestyle with debt, it is not a winning strategy and it is not sustainable.

BENEFITS OF BUDGETING

Your budget helps you to allocate your income into the different spending categories that you have each month. If you comply with your budget at the end of each month, you will derive the following benefits:

  • You will be in control of your money.
  • You have the necessary line of sight to where your money is going at the end of each month.
  • You will be able to develop and meet your money goals.
  • You will be able to budget for surplus
  • You are able to save for unexpected events.
  • You will know when you are overspending and avoid potential debt problems.  
  • You will position yourself for wealth creation.

BURDEN OF DEBT

Debt is a drag on your life and it can hold you back from fulfilling your desires. Debt is an obligation to the past which denies you the benefits of the future. The following are some of the issues that may result from debt burden:

  • Stress and constant worry (Health related illness)
  • Inability to plan and take risks.
  • Limited options and choices in decision making.
  • Dissatisfaction with life.
  • Resentment

AVOID STRESS FROM DEBT

BUDGETING TOOLS

There are various tools that you can use for budgeting purpose. Here are some tools to get you started:

  1. Excel spreadsheet
  2. Mint
  3. Acorns
  4. You Need a Budget
  5. PocketGuard

They all serve similar purpose. They let use synchronize your bank account and credit cards with the apps so that all your income and expenses are tracked with the apps.

Ensuring that you comply with your budget is the key to winning. 

Keep your commitments to yourself.

HOW TO SET IT UP

Setting up a budget is not a difficult process, all it requires is just some level of organization from you. If you do not already know all your monthly expenses, you will need the following to get started.

  • Bank account statement (3 months)
  • Credit card statement (3 months)

The purpose of this is to help you get organized and able to know your past expenses. It also helps your budget to be as accurate as possible.

Next, we break down your monthly expenses into categories. To make it easy, I have come up with three main categories:

  1. Essentials: This cover your expenses that are absolutely necessary for each month. Example includes: Rent, Food, Transportation and utilities. 
  2. End Game: This category includes monthly allocation towards the future. It includes savings in your retirement or college savings for your children (if you have any). This category provides you safety & security.
  3. Extras: This category covers expenses that you make to derive some form of satisfaction for your immediate needs. This category provides you comfort. Example includes: Personal spending for eating out, vacation, and charity donation.

RULE OF THUMB:

  • To win with your money, you have to budget saving as expense.
  • Don’t save what is left after spending, spend what is left after savings.
  • Use your saving to build your investment portfolio and create passive income.
  • If you are in debt, you should put your debt under essentials.
  • Before you start building wealth, you should have at least 3 months of your monthly expenses saved as an emergency fund.

BUDGETING TEMPLATE

Below is a budget template for John Smith. This is for reference only. It will not work for everyone. The purpose of this is to act a s a guide for you so that you can set up your own budget.

90-DAY CHALLENGE

If you want to be on top of your financial game and control your money, it is time to set up your budget. You might have a budget already, but you are not keeping to it, now is the time to become more intentional and win with your money. Here is a 90-day challenge that will help you to keep track of all your expenses and income and set up a working budget:

STEP 1: FIRST 30 DAYS

  • Keep tabs on all your expenses to the last cent.
  • Write them down (excel spreadsheet preferably). If you do not have a computer, go the old fashion way and write them in a note pad.

STEP 2: FIRST 60 DAYS

  • Continue with the 30-day activities.
  • Put all your expenses into categories (Essentials, End Game, Extras)
  • Evaluate your financial goal and adjust your spending appropriately.

STEP 3: FIRST 90 DAYS

  • Continue with the 60-day activities
  • Evaluate your earning. Are you budgeting for surplus or deficit?
  • Evaluate if you need to cut some spending
  • Evaluate if you are saving enough
  • Create your financial goals

STEP 4: Repeat the 3-steps

  • Practice makes perfect.
  • Let it become your habit.

COMMITMENT

The goal of budgeting is to help you win with your money. In order to make this realistic, you need to stay committed to the steps highlighted in this lesson. Your commitment to your budget is ultimately what will help you to put your finances into order and help you properly allocate your income to ensure that you are in control of your money.

You are now in charge. The only thing you need now is your commitment to your budget and use it control where your money goes at the end of each month.

Here are some steps that will help you commit to this program and achieve the result:

  1. Develop the right mindset: This is to ensure you avoid the myth associated with budgeting.
  2. Make the budgeting process a habit: Ensure you track your daily expenses. Be persistent.
  3. Be ready to make some little sacrifice:
  4. Focus on your goal: There will be times you will feel like giving up, you may not see results earlier on in the process, but focusing on your end goal will help you stay engage every month and will help you improve your financial condition.
  5. Hold yourself accountable: You work hard for your money. You are accountable for how you spend it. If you spend it wisely, you deserve the credit. If you misuse it as well, you take responsibility and make amendments.
  6. Celebrate small victories: You just paid off a credit card debt. Give yourself a pat in the back, you should be proud of yourself and you can find a way of celebrating the progress you are making.
  7. Forgive yourself: You will not be perfect after the 90-day challenge. You will still make mistake, but you should quickly forgive yourself, learn from your mistake and avoid them in future.

Final Thoughts

Success require discipline. Budgeting is a process of becoming a discipline manager of your money. Stay committed and you will win.

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