Ever wanted to know how to save or budget? Have you not been budgeting, or have you been but want to improve your ability to budget more efficiently?
The purpose of this article is to give you a short, concise way how to create a budget and savings plan so that from your income you’re able to see what freed-up cash you have left over.
After finding out the cash you have leftover you can use that cash and put it away in savings and then ultimately use it for future investments.
All wealth starts with a simple process. You earn money, store it then invest it. If you care anything about your freedom it is highly recommended, we take concepts of financial plans seriously.
Money plans or simply an organized way to track and allocate cash coming in and going out. The result is to plan and protect yourself so you’re never in a situation where your life or family is negatively impacted by the most sudden and unexpected changes.
The average American uses less than 4 and a half hours annually with planned time on their calendar for savings and budgeting. Another statistic from the Gallop Research company found only about 1/3 of Americans keep a household budget.
There is a reason why some have more money than others. It is carefully planned that way through basic financial budgeting practices. There is more to financial planning or savings goal setting but they’re all under the category of personal finance.
Storing your cash is always a wise thing to do especially since we live in a capitalist society where everyone is trying to sell you on something.
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Budgeting Basics
You want to make this very simple. This is one thing I did to get started. It doesn’t have to be high caliber. Simply, just take out a sheet of paper, write down income towards the top left of the paper, and then go a fair distance all the way towards the right and then write down expenses.
Calculate the average income that you make in a month and write down your average expenses for the month. Take your time with this because you don’t want to forget anything them have to come back and make changes.
Sometimes that does happen but for the most part try to get everything you remember on paper for income and expenses.
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Detail Your Income & Expenses
Make sure you write in detail everything, even look at your bank statements and any debts that you might be paying off, and write them all down.
I guess a typical example would be a person he or she brings in $3,000 a month which is the net income, so that’s after taxes in this case.
Check your paystubs it gives you all the breakdowns. Next, is the expenses like rent, car payment, credit card payment, consumer goods and their debts you’re paying on monthly.
An example is like a subscription service like Netflix or an exercise bike a person is paying off.
Also, include your average grocery bill, average fuel for your car, or your transportation costs, trying to get as much and all those expenses in there as far as averages.
Focus on averages because things may change from month to month in terms of how much you’re spending on certain things.
Many times, you can check bank transactions to get these numbers, or you can create the averages yourself moving forward.
Once you’re done calculating income and expenses, you’re going to minus your total expenses from your total income which gives your monthly freed-up cash or cash left over. The example from before, as I said, is $3,000 coming in.
Let’s say you add up your expenses and they are $2,200. Now $2200 taken out from $3000 leaves you with $800 in free cash.
Now you know the average amount of money you have freed up in cash. After you know this number, you can allocate the cash in whatever manner you want. If you want money for entertainment or just free spending, you can plan accordingly before you even paid.
This helps organize your personal finances and will serve you long-term. So as mentioned earlier in the examples there is $800 left.
A person can allocate as the following: $300 in general savings, $100 in retirement, and the other $400 for all other things such as entertainment, dating and relationships, travel, etc.
As a professional, you can decide what to allocate and how much of it you want. The rule of thumb is to save a minimum of 10% of your monthly income per month.
I used the net income for this example but regardless of using your gross or net income make sure it is at least 10%.
Here is a quick story. In 2016, I started to study money management, asset management, cash flow management, and all other equivalent financial planning terms and concepts.
This was a result of my making $12 an hour at a job I hated and often felt a large heavy force on me when going to work.
Wondering why my life was full of low-paying jobs and no fulfillment my escape was locking myself away from society and dreaming about being a wealthy businessman with no limits.
This led me to start at the basics of why some people succeed and others don’t. From there I begin setting goals and a part of that was readying and using the best personal finance techniques even with my low salary.
I started small and did ok at budgeting, but costs continued to rise. My biggest lesson was when it took me a full 12 months to save $1000.
This milestone made me happy and excited even with my low salary but right around the same time, my car started to have issues, and guess how much it cost to fix. If you guessed $1000 you were right. This wiped me out and destroyed my confidence.
I knew I had to earn more in the future. I realized wealthy people, even before their wealthy, mastered earning more money to increase the gap between their income and expenses so the difference between these becomes your saved cash can be used to buy, create, or acquire assets that make them richer in richer.
As I switched industries for work my salary tripled and I had more money to save and budget, which made me happy.
I said goodbye to the days of not having enough money for groceries. The lesson here is to save what money you have regardless of how little then later focus on earning more.
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Develop Months’ Worth of Expenses in Cash
When you’re getting started, you want to work your way up to at least having six to eight months of expenses in total cash.
In the example, with $2200 in expenses six to eight months of expenses in cash would look like $13,200 to $17,600 saved up.
Make your starting point simple save what you can at 10% then work your way up to getting your six to eight months of expenses saved over time.
This is a safety measure for if a person is out of work for a longer period, then average this helps you, so your life isn’t completely disrupted. you want to have that as a starting point.
I know that may seem hard but if you can make that your aim over time it will dramatically improve your savings or as some call it a safety net.
If for whatever reason 10% savings is too high, then start saving 1% then increase it by 1% every month until you’re at 10%.
For some people, it takes them a year, for some people it takes two years, some people take three years. But believe me.
It will be an amazing accomplishment and make you feel good. Once you’re at six to eight months of expenses all of it is available so that you’re not freaking out about what you’re going to do if tragedy or a life-altering event occurs.
This solves the issue and stress of not having cash and you will be able to meet your obligations and bills on time.
Once you have that six to eight months of expenses then you can go investing more into your retirement accounts or you can build six to eight months of cash reserves while at the same time pouring money into your retirement. The choice is yours.
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Conclusion
One thing all successful people have common is personal development. Learning how to budget within your personal life is an essential part of your success. Take the budgeting concepts and act on them and this will make the difference in how large your bank account is later in life.
This ensures your stability and gives greater freedom in the future. Feel free to follow my social media pages. I give away tips, strategies not based on my opinion, but based off case studies, data, and all the things that are working and sort from people who’ve made it, and all the best minds in the world. I try to give you the best content that I possibly can. Thank you.
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