Why Do I Need A Budget?

Budget. The word alone sends chills to many people. You might even be asking yourself, “Why do I need a budget?”

STEP ONE – Understand That Budgeting Is Nothing More Than “Telling Your Money Where To Go.”

This is the largest hurdle of any part of budgeting. The rest of budgeting is a breeze once you understand what a true budget is. Once you have internalized Step One, it is time for Step Two.

STEP TWO – Determine The Income (Take-Home Pay) You Will Receive During The NEXT Month.

There is a very key word in Step Two – the word “NEXT”. I have learned that preparing a budget for money that has already been spent is not very fruitful. It is like being a Monday-morning quarterback for your finances. You want to get that money back. You wish you could have that money back. But it is GONE!

The budget must be completed BEFORE the month begins and BEFORE the money ever arrives. You are developing a spending plan for your money BEFORE you ever get it. The only way I have found to stop saying “I can’t believe I spent my money that way” and “I wish I could have that money back” is to develop a spending plan BEFORE the money was paid to me for the month.

So, think about it. What income will you receive during the next month?

Here Are Some Common Ways That People Receive Money During The Month:

• Paycheck

• Bonus

• Side Job Income

• Child Support

• Alimony

Whatever your source of income is, write it down. In fact, write it down and put the dates that you will be paid this money during the next month. If your income is unpredictable, write down the amount of money that you can count on.

If you have at least one month’s worth of expenses in the bank, download the [Monthly Budget].

Because you have at least one month’s worth of expenses in the bank, you can sum up your total income and enter the total income in the Income section at the top of the budget form.

If you are living paycheck-to-paycheck, download the [Weekly Budget].

Because you cannot pay all your bills at the start of the month, you will need to develop a budget for each individual paycheck. Make the dates at the top of the budget form match up to your income dates and enter the income in the Income section at the top of the budget form.

This income is what you will be spending on paper BEFORE the month, the money, and the bills ever arrive!

STEP THREE – Enter All Of Your Expenses For The NEXT Month.

This is where you spend your money on paper! In Step Two, you determined your total income for the next month, and it is now time to spend it on paper BEFORE the month arrives!

These expenses are the real, actual expenses that will happen. Not averages! Enter the real expense because this budget needs to be highly relevant to the next month. 

If the expenses are not relevant to the next month, it is highly possible that you will consider the budget irrelevant for the next month. If you don’t know the ACTUAL cost (utilities, gasoline, etc.), enter an educated guess based on recent spending.

The Budget Form Has Some Excellent Features Built Into It: 

• If OUTGO exceeds INCOME, the TOTAL will turn RED and tell you how much you have overspent!

• If INCOME exceeds OUTGO, the TOTAL will turn YELLOW and tell you how much more money needs named!

• When INCOME = OUTGO, the TOTAL will turn GREEN … This is the ultimate goal!

Even if the budget TOTAL turns RED, keep typing in the expenses you know will happen in the upcoming month. The goal is to get all of the known expenses for the next month on paper.

YES, you will later have to remove some expenses or boost your income to get to GREEN, but the goal right now is to get all of the expenses into the budget form! By having all of the expenses in the budget, you can make a much more informed choice on what will be removed from the budget.

STEP FOUR – INCOME – OUTGO = EXACTLY ZERO

Your income is limited. If you bring home $3,000 during the next month and spend $3,320, your spending plan will not work! Where will the $320 come from? It will have to come from savings OR from debt – usually in the form of a credit card.

YOUR INCOME IS LIMITED! Let me take it one step further. Let’s say you are really blessed and bring home $70,000 during the next month (don’t laugh – many people do!). If you spend $71,320, your spending plan will not work! The $1,320 will have to come from somewhere – and many times it is made up with debt.

In STEPS TWO and THREE, we entered all of the income and expenses into the budget and, no surprise, the OUTGO exceeded the INCOME.

There Are Two Options When The OUTGO Exceeds INCOME:

1. Increase the INCOME – 2nd job, Overtime, side job

2. Decrease the OUTGO – Decrease the expenses

STEP FIVE – Follow The Budget!

You have followed all of the steps. You now have a spending plan for the next month. It is time to live by it! After all, it was YOU who told your money where to go! Why wouldn’t you follow YOUR plan?

As I have helped others develop their own spending plans, I have seen people completely break free of debt. I have seen people pay off their mortgages, marriages restored, and the hopeless become hopeful!

That is what your budget will allow you to do! Develop a spending plan every single month BEFORE the month and the money arrives and then FOLLOW it! You will never regret this decision.

5 Reasons Why Budgeting Is Important

“You need a budget.”

Chances are pretty high that you’ve heard that statement before.
If you are a saver, your heart started beating wildly (because you LOVE budgets). If you are a spender (like me), you probably felt the hair raise on the back of your neck and immediately felt flashes of frustration. For those of you who are spenders…

Here are 5 Reasons Why BUDGETING Is Important:

1. It maximizes every dollar you earn.  As a spender, I can “accidentally” spend money. Preparing a monthly budget (and an annual budget once each year to cast vision for the future) allows me to know that money is limited and ensures that I maximize every dollar I do receive.

2. It makes you aware of your impulsiveness.  This is not the most pleasant feeling, but it is very helpful to be reminded that it is much easier to remain broke than it is to win with money. My budget ensures that I am continually aware of my impulsiveness and the danger that presents to my long-term goals.

3. You can buy stuff without feeling guilty.  This is probably my favorite reason for budgeting! I used to play a round of golf and feel guilty because I knew it wasn’t in the budget (because we didn’t have a budget). I’ll never forget the day that I was able to just go enjoy a round of golf and KNOW it was in the budget and I had planned for it! It didn’t help my golf score, but it did help me and my marriage!

4. You have probably married a saver (or if you aren’t married, and hope to be someday, you will most likely marry a saver)  I married a saver. Jenn is a beautiful and amazing bride, but she just does not have any desire to go spend all of our money. So when we didn’t have a budget, I nearly drove her crazy with my random ATM cash withdrawals and surprise expenses. I am certain she was the one celebrating the most when I finally “got it” and began participating in the monthly ritual of planning our spending and following that plan!

5. Budgeting will fund your dreams faster.  I know that I said #3 is probably my favorite, but I’m taking it back. This one is my favorite! I love funding my dreams. Because of budgeting, my family has been able to give more money away than we ever thought possible. We have been able to take wonderful cash-paid-for-in-advance vacations, pursue our dream of launching this organization, and pay off our house! All in 10 years and 1 month! I can’t WAIT to see what happens in the next 10 years!!!!

Saving For KUEs

There are three things we should ALWAYS be saving for. 

1. Emergencies

2. Known Upcoming Non-Monthly Expenses

3. Dreams 

Of these three, our focus today is on KUE’s - the known upcoming non-monthly expenses. This savings bucket can tend to be difficult and can create budget issues.

Here’s why:

1. They are non-monthly  Because of this, we tend to forget about them until they show up

2. They are usually larger expenses  Property taxes, insurance premiums, Christmas, vacation, car maintenance, and repairs, and insurance deductibles usually have larger price tags than typical monthly expenses

3. We don’t save for the expenses monthly  We wait until the bill arrives and then we are forced to scramble in an attempt to pay for it

If not saved for probably these known expenses can become budget-crushing expenses!

Here’s a step-by-step way for you to eliminate “Budget Crushing Expenses” from your life:

1. Download our free “Known Upcoming Expenses Calculator” tool HERE.

2. Enter all your “Known Upcoming Expenses” into the tool – include the annual expense of each line item.

3. Enter your “# of Pay Periods Per Year” into the tool – enter “12” if paid monthly, “26” if paid every 2 weeks, “52” if paid weekly, and “24” if paid twice each month.

4. You have now calculated the amount you need to save out of each paycheck to ensure all of your Known Upcoming Non-Monthly Expenses are covered.

5 Questions To Ask Before Spending Money

Do you ever get caught in the cycle of  “see it, want it, and buy it?” Before you spend you haven’t stopped to think through what you’re buying.  Now you not only have a new purchase that’s all yours, but you also have a high monthly payment to go with it.

Let’s overcome that spending habit with these 5 practical questions to ask yourself before spending a substantial amount of money.   Practical questions that will help you truly understand the enormity of the decision, and help you make the decision that is best for you and your family.

Question 1: “Do I Need This?”

Pausing to ask, “Do I need this?”, can prevent a lot of poor spending decisions.   I’m not saying that I never purchase things that are pure “wants” – I am saying that when I ask the key question, I make much smarter overall decisions.

This question becomes a “gatekeeper” of sorts.  Something to help prevent impulsive spending.

BONUS: Wait overnight before answering the question!   It is amazing the clarity that a good night of sleep will bring to a spending decision!

Question 2: “Will This Item INCREASE Or DECREASE In Value?”

Chewing gum goes down in value.   So do cars, 4-wheelers, refrigerators, swimming pools, and clothes.

Businesses can go up in value.   So can houses, land, antiques, mutual funds, company stocks, bonds, and intellectual property (patents, licenses, etc).

Here is what I KNOW: Not all of your purchases can be for items that increase in value, but if ALL of your purchases go down in value – something ain’t right!

BONUS: Find someone you know who is prospering with their investments.   Invite them to lunch (pay for his/her lunch) and ask them to mentor you!   They will probably LOVE IT!

Question 3: “Do I Have The Money To Pay CASH For This Item?”

I know that the day I started asking this question was THE DAY that my family started winning with money.

If I do not have the cash to pay for it, I’m not buying it UNLESS it is a house or an asset that will increase in value (like a business, rental house, etc).   Even then, the answer is still usually “NO!” unless I have all of the money available to pay cash.

Question 4: “Will This Purchase Generate Income For Me Or Take Income Away?”

What an incredible question to ask – and what a difference it will make in the way you think about money!   I used to earn money and then immediately begin pondering which fun item I was going to buy.  I rarely (if ever) thought about the fact that I could use the money to buy in to a small business, purchase stocks and mutual funds, start a small business, or purchase a rental home.

Even more, I did not truly realize the ACTUAL cost of many of the items I had purchased.   I had purchased a new car (my smokin’ hot Chevy Cavalier) and I only thought of the bank loan as my “cost” to purchase.   In actuality, I also added the costs of insurance, property taxes, license tags, maintenance, repairs, and additional gasoline consumption. Not to mention the lost potential to make money with what I was currently sinking into all the bills associated with that car.

Before you spend, just stop and ponder the options available to you to use those resources to generate more income for you in the future.

BONUS: Review your budget to see how much your current possessions are costing you on an ongoing basis.  There are many purchases that are “gifts that keep on giving.”  By looking at things you’ve already purchased, or subscriptions you already have, you can find ways to lower your expenses.

Question 5: “Will This Help Me Achieve My Future Plans, Hopes, And Dreams?”

Without a longer-term perspective, it becomes extremely easy to fall into the trap of living for the minute, and immediately spending every single dime we earn.   As one develops a longer-term perspective, it really helps us recognize that spending all of our money right away will rip our future dreams away from us!

When my family first got started on improving our financial future (Dec 2002), I noticed that we started looking a few months ahead.   Now, eighteen years later, my entire perspective has shifted.   You see, I want to leave a legacy for my children and community.   I want to leave a huge inheritance to my family, church, and others.   My wife and I want to give our children a paid-for college education.   We want to give them a paid-for house when they graduate.   We desire to teach them to manage their finances recognizing that it is not just FOR THEM, it is FOR THEM TO HELP OTHERS!

So Before You Spend…

THINK!  Think about what this big purchase means.  Not just the temporary gratification, but how it will impact you in the long run.

My hope is that by slowing down and asking yourself these questions you will be able to gauge how important a large purchase is to you, and how it will benefit you.

Sustain Good Financial Decisions: Automate Your Banking

We’ve all had moments where we have firmly stated our resolve to do something different with our money. Usually, the outburst follows a negative financial outcome. Perhaps we’ve overspent on our vacation. Maybe we have the starting realization that there is no money in the college fund for our high school senior. It could be that we’ve dipped into the overdraft account again. Whatever the case may be, it causes us to commit to better financial management.

Here are some common statements people make in these moments:

• “I’m going to start preparing a written budget each month.”

• “I’m increasing my contributions to the retirement plan.”

• “Let’s open a 529 college savings plan and begin making monthly contributions.”

• “I’m cutting up the credit cards.”

There is just one problem with each of these statements: saying it doesn’t make it true.

For every statement and moment where we commit to better financial decisions, one must actually do the work to follow through. And, my friends, we all know that it is truly hard work. Life is so busy. We’re exhausted. Plus, many of these decisions require information and knowledge we may not currently possess. This is a recipe for failure to follow through on really good financial decisions.

And we’ve all been there, haven’t we?

Let’s flip the script, and put in place some “best practices” that can really help us sustain these good financial decisions so that we can reap the benefits they can provide us: fully funded lives, dreams accomplished, and freedom to live generously.

Sustain Good Financial Decisions – AUTOMATE

Many good financial decisions can be followed through with automation! This is perhaps the easiest and best tip possible because it is literally a “set it and forget it” solution that ensures your financial decision is put into practice. If there is any possible way to automate your decision, do it.

Here are some great examples of using automation:

• Committed to save money every month for the annual family vacation? Set up automatic drafts from your bill paying account to your savings account.

• Want to help your child with college expenses? Open a 529 college savings account and establish automatic drafts.

• Ready to up your retirement investments? Log in to your 401k (or similar RSP) account and adjust the automatic contribution.

• Want to ensure your retirement money is put to work right away instead of sitting in a savings or money market account? Establish automatic investment selections.

• Want to ensure all of your bills are paid on time? Automate every single bill payment. As an added bonus, you will spend far less time paying bills!

• Want to ensure your retirement investments become more secure as you approach retirement? Choose a targeted retirement date investment fund that will automatically become less risky as you near retirement.

What good financial decisions have you been making that could leverage the power of automation to ensure they are sustained into the future?

5 Easy Steps to Budgeting

One of the most common questions I get asked is, “How do I budget?” Many people have tried budgets…and failed! That leaves people frustrated and in turn, they say they will NEVER use a budget again.

Here are some things people equate with budgets: Restricting. Controlling. No Fun. Not Worth It…

In reality, a budget is nothing more than telling your money where to go. 

Here are 5 easy steps to budgeting:

STEP ONE:  Decide to decide
Until you decide that budgeting is crucial to taking your finances to the next level, you will always find a way to avoid this “unsavory” task. The very day that Jenn and I started budgeting was the very day that we started WINNING WITH MONEY! From this moment on, decide to live differently. Decide to not live paycheck-to-paycheck and in debt.

Decide to decide!

STEP TWO: Determine the income (take-home pay) you will receive during the NEXT month
The key work in Step Two is “NEXT”. Preparing a budget for money you’ve already spent is not very fruitful. A budget must be completed BEFORE the month begins and BEFORE the money ever even ARRIVES!

The best way to stop saying, “I can’t believe I spent my money that way” and “I wish I could have that money back” is to develop a spending plan BEFORE the money is received that month!

STEP THREE:  Enter all of your expenses for the NEXT month
This is where we get to actually spend our money on paper! So we have already determined our income for next month, now it is time to actually spend the money BEFORE the month arrives! The absolute best way I have found to input my expenses is to use real, actual expenses that will happen. NOT averages for the year. If you don’t know the actual cost, enter an educated guess based on recent spending.

If the expenses are not relevant to the next month, it is highly possible that you will consider the budget irrelevant for the next month!!

STEP FOUR:  INCOME – OUTGO = EXACTLY ZERO

YOUR INCOME IS LIMITED! If you bring home $3,000 during the next month and spend $3,208, your spending plan will not work! Where will the extra $208 come from? It will have to come from savings OR from debt – usually in the form of a credit card. If you spend more than you make, no matter how much you make, you WILL have to make that up somehow!

STEP FIVE:  Follow the budget!

Now you know all the steps. You have a spending plan for next month. Now is the time to live it. YOU told your money where to go now YOU make sure it goes there!

I’ve been able to see people completely break free of debt. I have seen people pay off their mortgages! I have seen marriages restored! I have seen the hopeless become hopeful!

Following a budget is about more than money. It’s about becoming FREE! Not being held by the chains of debt and despair. You will become financially free if you stick to a budget. This is a decision you will not regret.

Why not pull up a free budgeting tool and get started winning with your money today?

If you get paid monthly or have at least one month of expenses in the bank, use our Monthly Budget Form. If you are living paycheck-to-paycheck, use the Weekly Budget Form.

If you would like to learn more about how to budget, check out my book, I Was Broke. Now I’m Not. Click HERE to order!   

0% Balance Transfer Credit Cards

Do you carry a balance on your credit card from month to month? If so, you are likely paying hundreds, if not thousands, of dollars in interest year after year. You should consider transferring your balance to a 0% Balance Transfer Credit Card.

A 0% balance transfer credit card provides a way to eliminate credit card debt very quickly and can provide HUGE savings over keeping a balance on a high-interest card.

Many people look at 0% Balance Transfer Credit Card offers and wonder, “What’s the catch?” Is the interest rate really 0%? 

The answer is, “YES!” Many of these offers do, however, have a small transfer fee – usually around 3%. 

Example:

Suppose you transfer a balance of $5,000 from a card that has a 21.99% interest rate. You apply for a 0% balance transfer credit card. This offer comes with a 3% balance transfer fee, but it also provides 0% for 18 months.

Upon acceptance of your application, the 3% balance transfer fee ($150) will be applied to your balance on the new credit account making your total balance owed equal $5,150 ($5,000 balance that was transferred PLUS the $150 balance transfer fee).

Now comes the good part! You now owe 0% interest for the 18-month period – as long as you make all of your payments on time, of course. 

Let’s take a look at cost if you did not switch to the 0% balance transfer card. Assuming you made no additional charges and paid only the minimum payment due each month, you would have paid $1,162.70 in interest over the 18-month period!!

By taking 15 minutes to do a little research and apply for a 0% interest card, you can eliminate hundreds or thousands of dollars in interest and accelerate your debt freedom date.