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Day 3 Take Control of Your Budget

 

LEARN IT

Yesterday, we covered your income and showed how it determines your basic financial picture and the kind of life you’ll lead. Today, we’re going to talk about another crucial factor in taking control of your finances: your budget.

The word budget doesn’t sound fun. We know; we’ve heard it before. It reminds people of boring office jobs, of restrictions we dread most—like diets—and of the times people deny you something because, “It’s not in the budget.”

But, honestly, the idea that a budget is no fun is nonsense. The truth is, if you follow a budget for a while, it leads to something very fun: wealth.

Budgeting is like riding a horse. If you don’t use the reins, the horse will be in control of you (instead of the other way around) and may take you far from where you want to go. Similarly, if you don’t use a budget to control the flow of money out of your life, you will never reach your life goals, such as buying a home or enjoying a comfortable retirement.

RESOURCES: YOUR BUDGET

In the long road to building wealth, your budget is actually your best ally. Unless you win the lottery, you most likely will not wake up one day vastly wealthier than you were the day before. However, if you make a little effort every day, you will eventually get there. And that little bit of effort often boils down to a budget.

Budget Basics

As the saying goes, what gets measured gets managed. A budget is a way of handling your money so that it works for you, not against you. Beyond boosting your wealth, a budget helps ensure that your money goes toward the things that you need and want, whether that’s a vacation, buying a home, having a baby, launching your own business, retiring in style or that fabulous dress you’ve been eyeing.

The 50/20/30 Rule

Now we’re about to answer the question you’ve been wondering: How should you allocate your take-home pay amongst your major expenses? It turns out there’s a simple rule of thumb you can follow: the 50/20/30 Rule. After your income comes in, this rule recommends that your money goes out in this order:

  • No more than 50% of your budget should go to Essential Expenses. This will help you decide how much is feasible for your rent or mortgage, if you’re overspending on transportation and if you can afford to splurge this month at the grocery store.
  • At least 20% should go to Financial Priorities. Depending on your situation, you might even send more, especially if you have high student loan payments, are focusing on paying down your credit card quickly or are playing catch up on retirement.
  • No more than 30% should go to Lifestyle Choices. That means you don’t need to feel guilty about that expensive purse or ordering a nice bottle of wine at dinner … as long as you’re staying within budget!

Once you have a budget that works for you, you’ll never have to worry about paying for all these areas of your life. With a proper budget, money should flow in and out of your life in exactly this order:

In the next step, we’ll show you how to set up an ideal budget that helps you live the life you want and reach your goals.

 

GET INVOLVED

  • Christi Kreg

    I am going to try to bring cash to my outings, that way it’s a very visible budget. I (hopefully) wont be tempted to overspend in the heat of the moment. 

  • Kater

    I figure my discretionary budget for one or two weeks and take it out of the bank as cash. When it runs out it’s out and I have to wait until the next cycle (one or two weeks).

  • Marybethwhisman

    For Christmas this year I used cash only – I set aside desired amount to spend and kept cash on me – set a dollar amount for each person and stuck to it.  This is really hard for me but the reward is so good. 

  • http://www.facebook.com/AshleyVictoriaBurton Ashley Burton

    I use LV and Mint to keep myself on track, I suggest taking out things you need to pay in cash and putting in an envelope in your safe so it is tucked away safe and ready to pay out for your services or bills. And cash is king, so whenever I can pay in cash I want to do so!

  • Laura

    I have never tried this before, but I will be using the “envelope system” to keep on budget, starting with this paycheck.  It scares the bejeezis outta me!!!!

  • DONNA

    Go Green!  Use CASH $$$$$!