Budgeting - Why It Is So Important To Financial Success

Budgeting, though tedious, is probably one of the most important actions an individual, couple, or family performs - or SHOULD be performing. Without proper tracking of where you spend your money, you can never make much progress towards your Goals. Without knowing how much money is coming in vs. how much money is going out, it’s tough to progress financially. Instead, the majority of Americans resort to Credit Cards or consumer debt and dig themselves into bigger holes.

“A fool and his money are soon parted.” - Unknown

So I’m going to briefly cover some of the important points of Budgeting and learning to control your finances. Keep in mind that the majority of lottery winners end up broke again only a few years later, and it’s common for professional athletes who had earned MILLIONS of dollars over just a few years to lose it all and end up bagging groceries. This is proof enough that MORE MONEY will NOT solve your financial problems - unless you learn how to manage the money that you DO have.

First, make a general list of the financial obligations (monthly expenses) you currently have, such as: rent, power bill, food, gas, car payment, entertainment, etc. and write down or estimate how much you spend on each. (for non-monthly expenses, divide them to figure out a monthly cost - ex. A yearly magazine subscription of $50 = $50/12 = $4.16/month. I pay my car insurance only twice a year, so I divided it so I could set aside a set amount per month.)

Be sure to add in a column for all sources of income you have (monthly) so you can compare the two.

Now, the second step is to meticulously keep track of every dollar you spend for an entire month or more (as best you can). This way, you will often discover cash that you spent that you didn’t even know about. Often these are little things, like a cup of coffee every morning, or donating money to the Salvation Army at Christmas. These things aren’t necessarily bad, we just need to account for them. For many people this involves writing checks for everything and balancing their checkbooks. In my case, I pretty much use my Debit Card for everything, so my bank keeps track of most stuff for me. If you use mostly cash, or ANY cash, this means you must keep and save all receipts (many times you should anyways). Find a multi-sleeve binder or something to keep them all in one place.

Now, at the end of the month, or at the end of each week (to make it easier), record each transaction, the amount, and a category (ex: entertainment or car maintenance). Then add them all up, and you can see how much money you’ve spent, and where it went.

I use Quickbooks Online for this process. Once you set up your account, and set up the category accounts, I just enter in each transaction I made, and Quickbooks sorts them all into the categories and I can view my monthly or yearly “income statement” with the click of a button! I can also access it from anywhere I can get the internet.

Finally, the last step is to examine your own “income statement” and see if you are being responsible with your income, or if there are areas you can eliminate or cut back on expenses. Then you can set your final Budget and practice sticking to it.

CAUTION: Be sure to be consistent every week or month in accounting for your money, and review your budget often! It’s very easy to forget about it, or get out of the habit. Practice being diligent and set reminders if you must. Because once it becomes habit, you will be well on your way to your Financial Success!!!

One good book I’ve read recently regarding budgeting and personal finance was “Start Late Finish Rich” by David Bach.

In my opinion, it’s wise to master good money management before trying to make more money. But once you have it mastered, it’s time to MAKE MORE MONEY! If you don’t have much spare time, much desire, much risk tolerance, much ambition to study and acquire new information, or much care to do things on your own, then I recommend sticking to the “Get rich slowly” method of earning more and investing. However, if you have a mind open to new opportunities, and like to learn and search for new valuable information, and seek financial independence at a younger age, then I recommend forming a solid base of “Get rich slowly” investments, and then finding new streams of income or businesses that interest you.