Personal Finance: Step 2 - The Budget

Whether you are just starting out on your life’s journey, or you are already a seasoned veteran of the trials and tribulations of life. We must enable ourselves to become financially independent of all sources of wealth and income. This includes the most important aspect of handling money, The Budget. A budget in basic terms is a tool to use that identifies exactly where all your resources are being applied. In our discussion here, we will be talking about your Income, your expenditures, your expectations and your final income vs spending amounts I studied Dave Ramsey’s approach to budgeting and I have much respect for his teachings and coaching’s. Dave teaches his clients to do a “Zero” dollar budget in which every single dollar is spoken for and while this is a great idea. I found it nearly impossible to accomplish because of the strict nature of the calculations he uses. However! He is correct that all your money should be accounted for and put to use in the best possible way for success. Here is the step-by-step approach I used to get my finances and first budget under control. The Meeting: First and

foremost, the hardest thing I ever had to do was sit my wife down at the table, look her in the eye and say… “This ain’t working” (meaning our finances). ​ Even if you are single, sitting down with a realization that you might be upside-down in your income vs obligations is not an easy subject to look at. ​ I insist that you include your spouse in this. Even if they do not want to be included because either they trust you, or they believe you created the problem or any excuse. The meeting is to clear the air about the financial situation in the room. Backstory… I, me! The guy writing this was the 90% problem in our finances. From the beginning my wife trusted me with every aspect of money. This was because of a couple of reasons, one because she was a stay-at-home mother caring for one of our disabled children and two because she was not savvy in either money nor the calculations of budgeting. However! She was the frugal one in the family, able to adjust to the current in-home economy as she understood it. I was the “Big Spender”, the “High Maintenance guy” in the family, and I was also the member who could never say “No”. That is not a really good situation to be in when you are the sole breadwinner and spender in the loop. ​ Once you have sat down and cleared the air about the subject at hand, we can move onto the next step. ​ Income Sources: You must know what you are bringing into the household before you can determine the extent of the budget. ​ Write down all your income sources from your 9-5 job, part-time job, side hustles, rental properties, dividends, and other forms of money coming into your home. Some of these sources might not be monthly or weekly, so add them up and give yourself an average starting around the 3-month mark should do nicely. Total these up and put them at the top of your page marked “Income”. ​ Monthly Obligations: Here we go! Let’s write down every monthly bill you have from Rent, Electricity, Water, Garbage, Internet, Phones, Loans, etc…. “Every One!” ​ To the side of each one you must put the total cost of each item, if they vary month to month, average them out over 3-6-12 months. Add these all up and put the under the “Income” total you figured. Now subtract the monthly obligation total from the Income total and the result will be either a negative number, but we all hope you have a positive number. In any case how the number shakes out, this is the number you will have to work with and this is where the budgeting begins. ​ Discretionary Spending: These are the item that eat a budget alive! From the Daily Foo Foo Coffee, to the weekly date nights, all the way to the pleasure trips to wherever. We need to account for all those items we have no receipts for. This is the item that will send your budget into negative territory if you are living above your means. ​ Add these items up and subtract them from the total you came with after you figured your Monthly Obligations vs Income. ​ Financial Goals: Now is the time we look at each other eye to eye and figure out just what is that we want to have as a sound financial future. I suggest the first goal would be Debt Elimination (we will get into this subject at a future post). Some other goals could be: paying off the mortgage, planning for retirement, investing in the stock market, Bitcoin, commodities such as Gold or Silver, or even acquiring more real estate. ​ Notice that I did not say: Vacations, Auto purchases and other items that do not generate wealth. We are sticking to actual items that accrue wealth not pleasure. When you are out of debt, and have a retirement plan and saving on a regular basis, it is them that you can start again speaking about pleasure expenses. ​ Write these goals down in the order you would like to conquer them. They are also part of your budget. Subtract these from the totals from the above exercises. ​ The Budget: You now have a solid number to work with. You now can honestly look at the numbers and delegate your precious funds to the importance of each and every expenditure you have. It’s a very hard thing to look at the lifestyle we created for ourselves and wonder we flounder in debt, stress and turmoil. ​ For some of you the number might be positive and all you have to do is reallocate your funds to the desire of which you realized that you were lacking, but for most of us, we will have to sacrifice and whittle down on our lifestyles to accomplish just our basic needs for balancing our budgets to survive where we live. As you go through your budget you will need to keep track of this on a weekly, monthly and yearly basis. None of these expenditures should ever slap you in the face again, you should after a couple of months have a firm grasp on where every penny of your money is going. ​ The Conclusion: 15 years ago, I was in $30,000 of consumer debt, I had a bankruptcy on my record, my FICO score was 520. Terrible!!!! I was my own worst enemy. ​ It took me 3 years to pay off that consumer debt, 10 years for the bankruptcy to clear and 5 years to repair my credit. All because I was living well above my means. ​ I now own a home. I am Debt Free. My credit reports are spotless and my Fico Score is over 800. I did this by living under a simple rule. “Spend less than you make, Save for a rainy day, Invest in only things that you understand, and Give Back the knowledge of how got you there.” I hope this section helps you out on Starting your path to Financial Success, because it is you and only you who has control over your money and how it is spent.