You’re likely thinking, “I’m finally making money! Why do I have to be on a budget?” I always say it’s not how much you make, it’s what you do with it.
Time and time again in my field, I’ve seen people who make three times as much as their peers, but have more debt and loads of financial anxiety. Why? Spending. It’s so easy, but that simple swipe can quickly become the root of our misery.
I’m here to tell you it doesn’t have to be that way - even when you’re making less, you can still spend smarter to build wealth. Your income is your tool to build the life you want. If not used properly you can find yourself in the same financial situation 10 years from now living paycheck to paycheck or even scarier, worse off than you are today.
LOTTERY WINNERS Can Teach Us
Take lottery winners, for example. Did you know that 70% of lottery winners go bankrupt within the first 3 to 5 years? Data shows they’re actually worse off financially than they were BEFORE they won the lottery. That’s so sad. And it’s because they weren’t disciplined. They started doling money out to friends and family, quit their job, spent on travel, bought multiple houses, cars, you name it. If they had stashed away 60-70% of their winnings they could have lived a comfortable life for 40+ years. That’s a big difference from being worse off from before they won. I want you to build up to financial freedom and stay there.
I’m sure you’ve asked yourself questions such as, ”How much can I invest?” “How do I save?” or “Can I afford that house with the white picket fence?” To answer these, you first need to know how much money is coming in and going out every month and to do this you need - you guessed it to know your cash flow. As a business owner, know your cash flow in AND outside your business.
How to make a budget: 5 easy steps
Income - Enter the income that actually goes in your bank account every month after taxes, retirement contributions, etc. This is what you have to spend.
Bills - Enter all your bills on a monthly basis - car payment, rent/mortgage, insurance, utilities (for bills that fluctuate like electricity estimate on the higher end. It’s always a nice surprise to have more leftover than less.)
Spending - Under this section, enter all your categories that are discretionary, i.e. groceries, entertainment, dining out, uber/lyft, travel, personal care per month.
Do you have money left over? Subtract all your expenses from your income. Do you have money left over? If not, you need to decrease your expenses (or increase your income). Get to a point where you have money left over.
Now here is where it gets easy…
Track the amount you spend per month- Add up all your spending categories under the credit card line and get a total. Let’s say it’s $2,500. Every month only charge $2,500 on your credit card (get those rewards) and pay it off every month. Don’t pay interest. If you’re halfway through the month and you look at your credit card and it’s at $2,000 you know you have to eat ramen for the next two weeks and only spend $500. I recommend that you check your credit card balance a few times a week. This is an easy way to track your spending and not overspend without having to track each category daily or weekly. Who has time for that?
The reason I recommend this method is that I’m realistic, I know you will spend more money on groceries one month and less on dining out another. This is a great way for you to quickly see if you’re on track with your spending. Perhaps you can mentally break it down per day (or week by week), whatever is easier for you, but just make sure you don’t spend over that dollar amount every month.
Now you will have money left over to go towards your goals! Stash the surplus away for the trip you have been wanting to take to Bali, invest in your business, invest in the stock market, or save for your future home.
If you’re looking for some extra guidance in this area, or just don’t know where to start, I would love to speak with you. Schedule a free 30-minute call here. Finances do not have to be scary or overwhelming.
