Beware of little expenses, a small leak will sink a great ship.
In order to go forward we need to know where we are going, and how we are going to get there. When we go on a journey we take a map of where we are going, if we have no map, we wander in circles. When we are talking about our financial journey, our “map” is the budget we use to track and plan our spending, and just like with our physical journey, if we have no budget (map) we wander aimlessly in circles getting nowhere fast. I think you have to agree that this is not the outcome we all want in life. So we need to set and follow a budget. There are many ways to make a budget, if you search online you will find lots of them. Most of what you find have been created by and for accountants. Now don’t get me wrong here. There is nothing wrong with accountants, I love my accountant with all my heart and soul, he keeps my money out of the hands of greedy politicians. Find a good accountant and treat him or her like your best friend, because on the road to financial freedom they are your best friend. They will help you start and administer your corporation, they will do your personal and corporate taxes and they will save every nickel possible for you in the process. These are all great things for an accountant to do, but remember you are not an accountant. So it doesn’t make a lot of sense to try and follow an accountants budget, does it?
MY BUDGET
My budget follows the KISS method. KISS stands for Keep It Simple Stupid. I try to implement this methodology in everything I do in life. The simpler something is the less things there are to go wrong. So when a problem arises in your life remember the KISS method it works.
On to the budget. There are three parts to this budget, Part one lists your income from all sources. Part two is all of your BASIC expenses. Part three is what is used for investments.
PART ONE
INCOME: Now when you are first starting out your main source of income is probably your job. So when we talk about the income from your job we are talking about your NET income. This is the money that goes into your bank account after all the payroll taxes come off. EG. Income tax, unemployment insurance, Government required Retirement savings, union dues, etc. All these things are taken off by your employer, then your employer gives you what is left over. This is what you will list in part one of the budget, under job income. As you invest in other forms of income generating activities they will be entered under their own headings. EG. dividend income, business income, real estate income etc. The goal here is to slowly grow these other sources of income to the point that they will cover all of the expenses in your life. When this happens you get to FIRE your boss.
HAVE I GOT YOUR ATTENTION!
Ok so part one of our budget is list all of your income from all sources. Job, stock portfolio, rental properties, part time job, mowing lawns on the weekend, the twenty dollars your mom gives you on your birthday, etc. If you get paid for anything it gets listed in part one.
PART TWO
Expenses: This is where you list all of your basic living expenses, your rent/mortgage payment, utilities, food, clothing, prescription medicine, car payment, insurance payments, car maintenance, gasoline, all minimum debt payments ( credit cards, lines of credit, etc. ). Every expense that you have except entertainment, this will be covered in part three.
Everything else gets listed here.
PART THREE
INVESTMENTS: Part one minus part two equals part three. So for example: Joe’s income is $3000 and his expenses are $2600 so his money available for investments is $400 dollars this month.
IT REALLY IS THIS SIMPLE!
Now what do we do with this extra $400 dollars? Again we use the KISS method.
- 10% Entertainment
- 10% Charity
- 20% Into a savings account as an emergency fund/save for big ticket items fund
- 20% Into a discount brokerage account for buying dividend bearing stocks
- 20% Start working a network marketing opportunity
- 20% learning how, then investing in real estate
So following our example above Joe’s part three will look like this.
- $40 dollars for entertainment
- $40 dollars for charity
- $80 dollars into his savings account for a rainy day
- $80 dollars into his discount brokerage account
- $80 dollars for his Synaura business
- $80 dollars towards his aspiring real estate empire
Now as you can probably tell, because these are all percentages of the whole they will all grow larger over time as more and more income is created from your investment activities. As long as you keep your expenses in check you will grow richer every month that you follow this budget.
All of these areas will be having their own page under steps to success except entertainment. So we will talk a little bit about that now.
At this point you are probably saying to yourself, “gee poor Joe’s not going to have a lot of fun on $40 dollars a month” right? Your absolutely right he is not. That $40 dollars is for coffees at work, the occasional drink with the boys after work and assorted pop candy and lotto tickets.
THATS ALL
It’s going to be tough on Joe for the first few months as he begins to learn and work on his road to riches, but remember because his entertainment fund is a percentage of his income, as it increases so does his entertainment fund. In essence the harder he works the harder he will be allowing himself to play, and as he plays harder he will be celebrating his hard work and his progress towards his goal of financial freedom. Instead of just playing hard to forget his dead end job for a few hours. Which do think is more fun?
As a final note I would like to say this. If your expenses are greater than your income at this point. If you are using one credit source to pay another credit source just to stay afloat. Do yourself and your family a huge favor and swallow your pride and call a trustee in bankruptcy and ask for HELP.
Remember Opportunities Always Knock have the Courage to Answer
Our friends