I’m fully aware of how much people hate to budget. But I need you to understand this: unless you make a TON of money, you will never become rich if you don’t learn how to live on substantially less than you make.
Period. End of story.
So that leaves you with a few challenges: learning how to budget AND living on less than you make! That’s why we’ve made this the 3rd part of “How to Become Rich.”
Now, you don’t have to go all nerdy on me and break out the excel spreadsheets (like I do), but you do need to figure out a few things:
The first part of ‘getting your budget on’ is pretty simple. Just figure out how much your take-home pay is each month (that’s the amount of money that’s deposited into your checking account, AFTER taxes).
Once you figure it out, write it down on a piece of paper.
As I mentioned before, it’s not extremely important that you account for every penny; the important part is that you simply get a good grasp of what’s going on each month. With that in mind, just use this as a guide to give yourself an idea of where your cash flow stands on a month-to-month basis.
Estimate how much you spend each month on the following categories (and write them down on a piece of paper):
Lastly, make sure to include ALL (minimum) monthly debt payments.
Once you’re done writing everything down, total all of your expenses and payments. How much does it come out to? Is it more or less than you thought?
Are you spending more than you take home each month? Or, are you spending significantly less than you make?
For a look at a great budget, check out this analysis I did for one of our readers and their budget.
How quickly you become rich is ultimately up to you and how much you’re willing to sacrifice.
The more you reduce your spending and the more sacrifices you make today, means the more that you’re going to be able to save (and therefore the more quickly you can become rich). However, the reverse is also true: the less you’re willing to sacrifice, the longer it’s going to take to build wealth.
With that in mind, becoming rich requires saving a substantial amount of money each month: ideally around 30-50% of your monthly income.
For many of you this will be rather difficult (in the short-term) as being able to save that much money is dependent upon how much you make. So, if you’re not making at least $100,000/year then saving this amount of money is unlikely — especially if you carry debt such as car notes, credit card payments, or student loans.
You can now also begin to see why our first lesson was so important: making a decent income is integral in becoming rich. With that in mind, keep working on implementing those suggestions we gave you.
While you may not be able to save 30-50% of your income right now, IT SHOULD BE YOUR ULTIMATE GOAL, and you should be taking steps to get there.
The sooner you’re able to start saving 30-50% of your income, the more quickly you’ll be able to retire and accomplish the goals you’ve always been dreaming of.
Our team has spent quite a bit of time writing about how to budget. So, if you’re looking to get more in-depth with this 2nd step then I’d encourage you to check out these articles:
Becoming rich and building wealth is a VERY simple process. However, it demands patience, perseverance, and continually saving money – month, after month, after month.
Despite the long-term commitment that’s required, you can take matters into your own hands by saving more money and the only way for you to save more money is by having a grasp of your budget and understanding what your cash flow looks like on a monthly basis.
So, for this next week, take the time to understand how much money you have coming in each month and how much money you’re spending. If you’re not able to save at least 5-10% of your monthly income then analyze your budget and figure out some ways that you can:
(1) eliminate expenses completely (getting rid of cable, bring your lunches instead of eating out, canceling a home phone line, etc)
(2) reduce how much you’re spending in particular areas (i.e. cut back on eating out, alocohol/cigarettes, groceries, cell phone plans, etc.).
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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