You Probably Earn More Money Than You Need - Learn How To Budget For Everything
A common complaint is not having enough money to cover the bills and have money left over for the sweet things in life. This is a misconception as most people already have more money than they need. It just goes to things that are "unaccounted for."
As long as you have some sort of income, it is mostly about how you spend your money rather than how much you make. If we make $3,000 or $30,000 a month we can find a way to spend it. Heck, if we had 30 million dollars in the bank right now we could find a way to spend that too.
The trick is to use the financial resources we have to cover the things we need and want. What we need is a workable system that shows us how to budget for everything. This article will show you the system I use to cover everything for my family of five: living expenses, savings, school, allowances, outings, travel and extra stuff - all on just $3,000 a month. Any income beyond the $3,000 goes for more savings, travel and so forth.
Give Yourself An Instant Pay Raise
When you cut down on how much money you spend it's like giving yourself an instant pay raise. You'll also have a lot more control over your finances.
There are lots of "hidden" expenses that eat away at our wallets. To become aware of them you will need to write down everything you spend money on in a month. Take a notebook and date it by day. Under each day list each item you spent money on and exactly how much was spent. Then total up the amount spent in that day.
At the end of the month total up everything spent. Split what was spent into different lists like junk food, water, electricity, movies, eating out, food, and so forth.
Go over your list and see where you can spend less money, or none at all. You'll probably be surprised at how much money goes to unwanted things! You need to know where your money goes to learn how to budget for everything. Make a commitment to yourself not to spend money where it is not needed.
Prioritize Your Money With Funds
The next step is to create Funds. Funds are where you will place a certain amount of money for a specific thing. Your money will be divided into the different Funds according to a percentage. The amount specified will be placed in the Funds on a specific day. This can be weekly, bi-weekly, whenever you get paid, or however you wish to do it. Just set a date and stick to it.
You need to create the following Funds:
Fund #1: Savings Fund
You should aim to save 20% of your income. This is the first Fund you will put money into. Don't worry about expenses, save your money first. By forcing yourself to save money BEFORE you pay the bills you will be forcing yourself to find a way to cover them. You will cut down on your expenses, make more money, or both. When learning how to budget for everything this is often the most difficult task, at first.
You should use some of your savings to invest in something that has solid potential with lots of returns, but always make sure to keep a cash savings as well. For example, you could take 10% of your savings and invest in properties, and the other 10% you could deposit into an interest earning bank account.
Fund #2: Fun Fund
Set a specific percentage of your income, or a fixed amount, that you will be placing into this account on your designated dates. This fund should be used mostly for DOING things rather than buying things, but buying is okay sometimes. This fund is to be used for exactly what is says - Fun! Go to the movies, go out to eat, take the family to a basketball game, take that dream vacation, visit the beach or go out for ice cream.
Place money into this account after you put 20% in your Savings Fund and before you put money into the Expenses Fund. As before, this will help force you to spend less on bills and more on living. However, you should make sure that you'll still have enough money to pay the essential bills.
Fund #3: Allowances Fund
This fund is optional. If you are single you'll probably want to skip it. If you have a spouse or children the Allowances Fund makes sure everyone in the family gets some of their own spending money.
I give the children their allowances every Sunday. The amount they receive depends on their ages. You might want to do the same. If you have a child who is 12 years old, you could give him $12 a week. A child of 8 would receive $8 a week. To develop good habits I make sure the kids always save up at least 20% of their allowance every week. That savings then goes into an interest earning account. I have found that by giving the kids an allowance they learn how to use their money well, and it actually costs me less this way because they are careful with the money rather than blowing it.
Fund #4: Expenses Fund
This is the last Fund to put money in, and for good reason. You force yourself to spend less on expenses, to make more money, or both. Your other Funds are always covered first. Most people pay their bills first, then if they have any money left over they might save it. That is why most people don't have much of a savings. Placing money in the other Funds first is absolutely essential in learning how to budget for everything.
Total up your monthly living expenses: rent, utilities, gas, insurance, food, etc. The things you really NEED. Start putting money into this Fund so you always have it when you need it. You should eventually have all the money you need for a month's worth of expenses in this fund, plus a bit extra. If your expenses are $3,000 a month, then you should eventually have this fund with more than $3,000 in it. The extra money is for any surprise expenses like a doctor visit, home repair, clothes, and what have you. Always keep this Fund charged up with just a bit more money than you need to cover all monthly expenses. This way you won't need to "borrow" from your savings, and you'll always be at least one month ahead with the bills.
You can create other Funds as you learn how to budget for everything. You might create a Business Fund, for example, or a Charity Fund. Put in the amount of money designated, at the assigned dates, as with the other Funds.
What To Do With Bonus Money
If you have a month in which you find yourself with extra money, give one or more of your Funds a bonus. You can put this extra money wherever you want without guilt because you know you have all of your Funds already covered. Bonus money is a great opportunity to give your Fun Fund a boost for things that cost extra money - like a trip around the world perhaps.
Where Will You Be In One Year With This System?
If you calculate how things add up over a year's time you'll probably be pleasantly surprised. It is amazing what can be done with limited amounts of money when properly planned. As the months go by, and you learn how to budget for everything, you'll get very excited as you see the plan working.
If you ever find it hard to stick to your Fund divisions, follow the steps outlined under the section called "Give Yourself An Instant Pay Raise." This will help get you back on track. Even after you learn how to budget for everything, continue to stubbornly put money in your Savings, Fun and Allowances (if applicable) Funds first, and you'll be forcing situations to bend to your planned will.
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