– Odysseus Richmond – Medium

0
11
Go to the profile of Odysseus Richmond
– Odysseus Richmond – Medium


THE FIRST STEP ON THE ROAD FROM DEBT TO WEALTH

“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.”

~ Charles Dickens

If you want to get out of debt and build wealth, you must think of your life as a business. The difference between your income and your expenses is either your profit or your loss. It is that simple. As Ben Franklin said, “A penny saved is a penny earned.” The formula for success is very basic: if you live below your means and you spend less than you make for an extended period of time, then you can become quite wealthy (that is, with the proper saving and investment strategies, which I will cover in the future). However before you can start to get out of debt and/or build lasting wealth, you must first know what your income and expenses are, and how you can go about increasing the former and decreasing the latter. The way you go about doing this is by creating a budget. The word budget may scare some people. Personally, I think it is much scarier to not know where my money is going. Besides, I actually really enjoy budgeting. I love creating these colorful spreadsheets with logos and pie charts — they speak volumes about everything my money does, and I really enjoy making a game out of trying to figure out ways to cut back on my expenses every month. It’s like this great life hack that allows me to give myself a raise any time I want.

The way that I create my budget is this: I first begin with a spiral notebook. On a blank page I write the month across the top. I then number the page from 1 to 20. Then I list my expenses. First is rent. Then next is my utilities. By utilities I mean my cell phone bill, my internet bill, and my electric bill. Next I list my car expenses. This also consists of three subcategories: my car loan payment, my car insurance, and the cost of gasoline. After Rent, Utilities, and Car, there is one more essential category of expenses. This is food and home expenditures. This category includes groceries, home goods, and take out. Once all these expenses are organized on the paper, I then sign into my bank account. I go through all of my expenses for the past month, writing them down on the page one by one. (This process shouldn’t take too long; there shouldn’t be too many expenses, we are trying to save money after all.) After I have written down all of my expenses, I then begin to tally them up. (Some people might rather just use a banking app for all of this — to which I say, that’s fine but make sure the expenses are organized in such a way that you can understand exactly where your money is going).

Some expenses fall into categories I have yet to mention such as entertainment, interest fees, and clothing. And just because I have “Amazon” as a category on my budget does not mean that I should make use of it, I have to repeatedly tell myself. I do have an Audible subscription, however, so I can listen to audio books; I find that the return on investment is substantial. This is just an example of my thought process as I create my budget and how I make certain allowances. I believe that giving yourself a bit of wiggle room in your budget is of the utmost importance, because being too rigid is unrealistic. Not to mention it is something that will make you really start to dislike budgeting, which is the exact opposite of the point that I am trying to make here. I want you to love budgeting as much as I do. The prolific Roman writer and orator Cicero once said, “Frugality includes all the other virtues.” If he is correct about that, then that would mean that tending to your budget would make you a better person. (Just saying…)

After all my basic expenses are calculated, I then deduct that number from my monthly income to see how I am doing and what changes I need to make.

In what order are my expenses paid, you might be wondering. Well first things first. I always pay myself before I do anything else. Saving at least ten percent of one’s income is a must. The rest of my income then goes to paying my expenses in order of importance and according to due date. With what I have leftover (assuming there is money leftover) I pay down my debts. This gives me such a wonderful feeling. And looking to the future, once all my debt is paid off, this “extra” money will then be used as added savings in my six-month emergency fund and/or invested in a low cost S&P index fund, which if history is any indicator will return an average of ten percent year over year, compounded annually. It shouldn’t be hard to see how financial planning becomes very easy once you have a budget in place to be your blueprint and guiding light.

7 Helpful Tips to Remember When Budgeting:

1. Do not buy anything that you cannot afford. This should be obvious. Keeping up with others and falling victim to consumerism will lead you down a path of financial ruin. Remind yourself: It’s just not worth it.

2. Stop using credit cards — plain and simple.

3. Use only one debit card for all your purchases. Doing this will keep all your expenses organized in one place, and because debit is the same as cash you won’t be able to spend more than you have.

4. Give yourself some wiggle room in your expenses; be conscious of all expenditures but don’t be too rigid and cheap. Save for tomorrow, yes, but also live a little today.

5. Find places to cut back. Usually it is groceries, fast food, and take-out where we often find the most room to cut back in our budget. Remember, those morning and afternoon coffees really add up.

6. Money likes attention. If you show attention to yours, more money will make its way to you. When they say that the rich get richer, this is what they mean. Furthermore, giving money your attention starts with putting together a clear and concise budget.

7. Don’t ever be afraid to be charitable. Giving money away, if it is for a good cause, is never a waste of money. It is important not to be frivolous with money, but giving to charity is different. Depriving yourself is one thing, but depriving others who are in need is absolutely no good.

* Money can be a wonderful tool for good, which is part of the reason I love to budget so much. What is your reason for budgeting? Once you know the answer to that, then budgeting will make the most “cents” for you.



Source link