For years I struggled with money but the thought of getting on a budget never crossed my mind. What I’ve learned is that budgeting is the foundation that helps you get out of debt, build wealth, and succeed financially. Learning to budget is where everything stops and starts.
A majority of people want to jump straight to investing and talk about building wealth (because that’s the fun part), but the only problem is that nobody knows how to actually have money left at the end of each month to invest (which is where the budget fits in).
Like most things in our lives, we want the end result without actually having to work to get there.
So, whenever people hear the word “budget” they freak out.
Men and women alike get upset because they ‘don’t want to be told how to spend their money.’ God forbid that you have a limit placed on things.
On the other hand, some just don’t want to see what the budget reveals to them. You may know your budget is tight, or even worse, you may think there isn’t enough money to cover bills each month. That fear paralyzes you, and you decide that taking no action is better than facing reality.
Instead of finding out how much you’re short each month, or how tight your budget really is, you just avoid it and use the trusty credit card if there happens to be “too much month left at the end of your money.”
Hopefully you’re here today though to learn how to budget because you realize it might help you. Maybe you’ve heard the Dave Ramsey stuff, or found a different blog, and just want to know how to get started. Well, I’m here to help!
Learning how to budget isn’t overly complicated. My hope is that over these next couple of weeks you’ll learn some valuable lessons and figure out how to budget better than 95% of this country.
Before we get to next step: how to create a budget, I have to throw down a couple of rules that you must follow (or this will be a complete waste of your time):
Budget Rule #1: “A budget is telling your money where to go instead of wondering where it went.” – John Maxwell.
I can’t think of any better description, so I use this quote often. If you want to learn how to budget, you must understand this rule.
I’ve run into dozens of people that tell me they budget through Mint.com or Quicken. What those sites do have no relation to what a real budget is. They’re a reactive way of managing your money: they show you what you did with your money (past tense) over a certain period of time.
Instead, a real budget involves being proactive by telling your money where it’s going, and how you’re going to spend it, before it actually happens.
I bank with USAA and they have a very similiar tool to Mint.com and Quicken, but I don’t use it because it’s absolutely worthless. The only inch I’ll concede here is that if you have absolutely no idea (I mean “0”) as to how much you spend on various categories (eating out, groceries, gas for the car, etc) then it might help a little. But it’s still not a budget…whatsoever.
Budget Rule #2: You must live on less than you make – regardless of what that looks like. I know, that sounds very simple, very lame, and very-much common sense. However, it’s not.
Very few people in this country actually do it. Do have debt? Any debt at all (cars, credit cards, student loans, medical bills, personal loans, etc.)? If so, you don’t live on less than you make. You’ve borrowed money to finance something because you couldn’t really afford it (because you spend more than you make).
Budget Rule #3: Never go into debt again. 75% of the Forbes 400 says that the #1 way to build wealth is to get out of debt and to stay out of debt. If you’re consistantly making payments to the bank every month, then you’re hindering your ability to build wealth.
Not only that but it hurts your budget and your ability to make ends-meet. So, if you’re following Budget Rule #2, then that technically would mean you’re also following this rule.
I separate the rules out because the normal view of borrowing money is so twisted that people somehow think they’re “living on less than they make” while going into debt. Sorry…but that’s not how it works.
Budget Rule #4: Create a plan & stick to it! It doesn’t do any good if you don’t execute what you’ve promised yourself (and your family) you’re going to do.
Learn to say “no,” have some discipline, and execute.
Budget Rule #5: Be willing to sacrifice. Some say the definition of insanity is doing the same thing over and over again and expecting a different result.
If you “get on a budget” but your lifestyle and spending limits haven’t changed, then the budget isn’t going to do you much good. Sacrifice is real and you can’t expect things to change if you’re not willing to change something.
Budget Rule #5: If you’re married, remember that you’re a team. If both spouses can agree that you must stick to Budget Rule #2, then you are headed in the right direction. After bills and necessities get paid each month, there typically isn’t a lot of money leftover and decisions to be made. So if you’re adhering to Rule #2 and #3, then you’re only left with a minor conversation on the reality of where your remaining dollars can and should be spent.
A budget doesn’t work with only one spouse on board. On numerous occasions I’ve been asked to coach an individual spouse, however each time I’ve had to decline. It simply won’t work. You and your spouse may have varying opinions on how money should be spent (very likely…opposites do attract), but it’s imperative that both sides have a say in the budget and how the “remaining dollars” are to be spent. Both sides must also be committed to each other and their futures.
*Important note for spouses: it’s okay to lose a battle (or two) and still win the war. You’ll have to learn to compromise and communicate.
If one spouse refuses to get on a budget and be a responsible adult within the family – especially when budgets are tight or you’re going through a difficult time, then you should have them sit down with the entire family and have that spouse admit: ‘I’m selfish. I’m really a child and haven’t learned to grow up and be a man/woman. My current personal desires have priority over the future of our family (or the present). Sorry.’ And of course they’d throw in the, ‘I still love you though,’ at the end of the conversation.
Obviously I don’t suggest that this really take place. That was a joke. However, it is the reality in many situations and is a difficult thing for many spouses to handle. More on this extremely important topic another day.
The rules in this lesson may seem fairly simple to you, but all I ask is that you just think about the principles over the next week. I understand these are just words on a screen, but take some time and let the reality of their implications sink in.
Applied knowledge is true power, not knowledge itself. Merely understanding what I’ve written today will do little for you. You must apply it to see tangible change in your life.
If managing money well, living on less than you make, and building wealth were easy…well, then everybody would do it. But the reality is that it is not.
You must learn the rules of the game before you’re allowed to play.
The articles are written by personal finance enthusiasts (not certified professionals) based on their personal experience. What works for them may or may not work for you, and you should always consult a financial advisor before making important financial decisions.
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