Creating a Budget
We have all heard that we need a budget, but this simple practice is hardly not touched on in schools. Usually we have to learn as we go or reach out for advice. In some cases the advice we get is not that good (you can decide about this writing laterJ).
There are several books and radio hosts that discuss this topic in greater details. However, the dimpliest formula is to spend less than you make. I know very simple but is it doable.
The short answer is yes, this can be easily done if you distinguish between wants and needs.
You need to have a roof over your head, you need to pay for utilities, and you need food and water.
You don’t need a 10,000 sq. ft. house, you don’t need a swimming pool and hot tub, you don’t need to have ever single cable channel available, you don’t need to eat out every day and you don’t need bottled water. These are all wants.
One book, The Wealthiest Person in Babylon, talks about the 9/10 rule. In it says to take out 1/10 of your income and pay yourself, carry the money around, feel it, and hear it. The other 9/10 is for your living and other obligations. The book also speaks about not getting into debt. This is easily done by following what was discussed above, separating your needs and your wants.
Several wealth creation experts and books talk about investing 30% of your income for future growth. So if we are taking 30 percent plus the 10 percent that gives us 60% for our live style and other obligations.
Typically, housing is the most expensive obligation that one will have. Now you can minimize this by finding a modest place to live based on your income. Mortgage professionals will look at your gross income and base you monthly payment on no more than 30% of your gross. If you make 10,000 a month you are looking at a 3,000 a month mortgage payment. Depending on where you live this could be a modest house, apartment, or an extravagant house or apartment.
Some modest experts suggest that you should try to minimize your housing expenses and focus on no more than 15% of your gross income, using the above figures that would be 1500/month for house. This does not include utilities, only rent or mortgage, taxes, and insurance.
When it comes to food, one of the easiest way to stay within your budget is to not eat out. The best way is to make a weekly meal plan and buy your groceries based on that. There are some people who have written blogs and other books on an extreme food budget and sticking to no more than 1 dollar a day. Personally I think this is over kill. I firmly believe that you can comfortably provide food for an entire week for around $50/a person. Now this number will get smaller as the number of people grows because of certain economies of scale, but the $50 is a good base to work around.
The leaves you utilities and transportation.
Utilizes are usually regulated and there is not much you can do to conserve if you are already a light user. So once you have determined your monthly usage budget around that number.
Transportation is a variable because you can use any mode of transportation to get you from point A to point B. Some will get you their faster and in greater style, but there is a price for that. Figure out what your needs are, if you need a vehicle, I recommend you go with a good quality low mileage used vehicle. If you can pay for it in full, you will be steps ahead ß one advantage of paying yourself first, you will have savings to make large purchases without borrowing.
Now what you will have left are miscellaneous expenses. This is where we will add gym memberships, cable and internet, cell phone, going out to eat, shopping, and anything else that cannot fit in any of the above categories. I believe that you should enjoy the fruits of your labor, but in moderation. If you only have 100 left in your budget, don’t go and spend it all, or worse yet, spend more than that by using credit cards. I also believe that everything that falls into this category is not needed to survive, they also could be considered luxury items.
The above are just suggestions. At the end of the day you know your situation better than anyone else, and no one is responsible for you but you. The whole idea of this post is to give you some ideas, some motivation and encouragement to create a monthly budget and stick with it!
You can do it!