• WISE FINANCIAL MAN

Budgeting For Success

Updated: Jan 27


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I've often had people ask the Wise Financial Man the first step in beginning their path to financial freedom. Well I guess the first step would be making the decision to better your financial health, but if your here, you've probably already made that decision! The second major step would be learning how to budget and then creating your own budget! You may be asking yourself, "Why would anyone want to create a budget?" It's quiet simple, it's called Budgeting for success!


Budgeting for success first begins around the simple word BUDGET! Now before you take off because of the bad publicity surrounding the word, let's take a look at what a budget really is. A budget is a plan, clearly showing you where your money goes! It takes a look at your income, expenses, and the money left over! And with the money left over, it gives you the power to decide whether to put that money into savings, investing, fixing the car, buying new clothes, etc. (Fair warning, the Wise Financial Man suggest throwing that extra money into savings or investing if you ever plan on beginning your path to financial freedom!)


Congratulations, you've made it this far! So by now you may be wondering what are some of the benefits of creating a budget and following one? There are honestly too many benefits to list, but I've put together a list of the main benefits you may notice if you create and follow a budget!


Budgeting allows you to tell your money where to go!


Budgeting allows you to tell your money where to go! Think about it, if you aren’t telling your money where to go… then who is? Other people are deciding that for you, which in the short and long run, are not beneficial to your financial health or your financial freedom!



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You need to know where your money is going… A budget is a very easy way for you to take back control of your money, and give you the power to tell your money were to go. It will help you see your true income, your monthly and yearly expenses (which will probably shock you), and the money left over. A budget will allow you to find ways to reduce some of your spending and lower your expenses. And lastly, it will show you the money you have left over at the end of a paycheck, the month, and the year.


A perfect example of this is the cost of eating fast food instead of taking your lunch to work . According to CNBC: If you go out to eat every day at work, and spend an average $10 per meal, it comes out to an estimated $2,500 a year! If you take your lunch to work, you can easily save half if not more! You can literally purchase a lunchbox like this for around 15 dollars from amazon, and your good to go! This applies to all aspect of your life. Think about how much those Starbucks runs are, or spontaneous trips to the store cost.


Creating a budget, will help you decide whether those expenses like eating out are worth it. Or would you rather have the power to tell your money where to go, and decide to put that money towards savings, investing, planning that dream vacation you’ve always wanted to take. If you are serious about your financial health, you will begin budgeting for your success!


Budgeting Will Allow you to Organize your Finances


Budgeting allows you to take a close look at your finances. It will allow you to look at your true income. The income you bring home after paying your taxes, benefits, union fee's, and what other lovely fee's that unfortunately get taken out of your paycheck. It also allows you to take a look at your expenses.


While some expenses you can control like eating out, date nights, and all of the other spontaneous expenses you may have, some of your expenses are fixed or uncontrollable to a degree. Some examples of fixed expenses would be your mortgage, insurance, car payments, etc. By fixed expenses, I mean expenses that are typically the same amount month after month. Every month you know you're rent or mortgage payment will be due.


One of the biggest benefits in my view of creating a budget, is being able to organize your expenses. As many of you know, with adult hood brings many expenses. Your mortgage or rent, utilities, insurance, medical, cell phone, and all the other monthly expenses you may have to track. By creating a budget, it forces you to write down your expenses, which I use as a monthly checklist.



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I typically will use Microsoft Excel or Apple Numbers (a spread sheet software) and format it. I will then list any and all income sources I have, and add them up. Then below I will list my expenses beginning with my fixed and ending with my variables expenses. Some examples of my variable expenses may be my gas for the month, grocery bills, date nights, etc. You may be asking, since it's a variable expense, and you can control it, what do you put amount wise on the spread sheet? I typically look at my previous monthly spending in that category. I will then see if I can decrease that number if possible, and put a reasonable estimate. So for date nights I may put $200 a month which breaks down to $50 a week. I find that's typically more than enough to have a nice diner or catch a good movie.


My goal is to go under that amount of money just in case I go over my budgeted amount in any of the other categories. I also list investing under my expense category. The reason I do so is it forces me to plan to save money. I use Betterment for my weekly automatic investing, in which I have it set up to automatically take out (X) amount of dollars a week to invest in mutual funds, building my investment portfolio quickly. Remember to make sure to pay your self first or you will never save or invest!


Budgeting Will Show You How Much You Really Spend


One of the beautiful or maybe not so beautiful things about budgeting is it reveals your spending. For some of you, you may think you are doing pretty good. But for most of you, you will probably be shocked how much you are spending on random things such as eating out. For example, the typical American spends around $1,100 to $2,500 a year a starbucks. When I began my budgeting and started becoming frugal, this was one of the first things that shocked me that we ended up cutting out of our lives. I realized my Fiancé and I were going to starbucks nearly daily, getting two starbucks drinks and two pastries or breakfast sandwich's a day, averaging around $18 a day. Estimating going 4 days a week (4x18) that would be approximately 72 dollars a week! Then take that 72 dollars a week, times 52 weeks in a year, would put you out an estimated 3,744 dollars a year in coffee and pastries. That's just breakfast! Needless to say, we've cut that habit out and have made it a rare occasion!


That's just one of the many things that may shock you once you begin to create your budget. Another shocking think you may realize is how little you have left at the end of the month, save, or even invest. Typically the general rule for savings and investing is 20 percent of your income. Yet most American's have little to no savings. The average American saves less than 5 percent a year. That should be pretty shocking to you if you ever plan on paying off your debt, changing your life from living month to month, and pursuing the path to financial freedom. Budgeting will reveal shocking facts like the examples above showing you how much you really spend!


Budgeting Lets You Track Your Financial Goals


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Budgeting will allow you to set and keep track of your financial goals. After analyzing your spending and expenses, you can begin to see how much money you have at the end of the month. From there you can set financial goals to spend less or cut expenses, save more, or invest. Let's say your trying to free up $300 a month. You can make that a goal, look at your budgeted expenses, and figure out ways to make that goal come true. At the end of the month or the beginning of the next month, your budget should reflect whether you accomplished that goal or not.


Like wise if you set a goal to save let's just say $8,000 a year, a budget will help you make that happen, as well as keep you on track and accountable. That's what budgeting for success is all about! Creating financial goals, looking for ways to make it possible, and then proceeding, using your budget to hold your self accountable!


Budgeting Allows You to Pay Down Debt Quicker!


Lastly, Budgeting allows you to pay down debt quicker than ever. A budget with financial discipline will allow you to cut all unneccesary expenses. This in turn allows you to squeeze out every penny of your income, allowing you to put that extra money towards your debt, resulting in you paying your debt off quicker! This can be a very powerful financial tool for you to use if your goal is to get out of debt! And if you are in debt, in all honesty, it's probably time for you to create and stick to a budget. In the long run, I can promise you your financial health will be much better!


Conclusion


In conclusion, if your trying to better your financial health, and become a Wise Financial Man or Woman, you need to create a budget and follow it! There are too many benefits not to create a budget. It allows you to track your money and tell your money where to go! Budgeting allows you to organize your finances and reveals where your money is really going! And lastly it let's you pay down debt quicker, and create and track your financial goals. Yes, budgeting may take some hard work and financial discipline, but in the long run your financial health will be in a much better position! It's time for you to begin budgeting for success!



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