This is a direct follow up to the article The Basics of Creating a Budget and suggest you read that article before continuing with this one.
Introduction
Now that you have had a look at the basics of creating your budget, let’s dive further into the topic of budgets, particularly around planning and what exactly you can do to really start building your wealth.
Pay yourself first budgeting
There are some very powerful ways to start building your wealth through a budget, but only if you plan for it. The thing about money is that we spend what we have, so we need to spend it in the correct ways.
First a foremost, something you should do immediately is set up a plan to pay yourself first. Paying yourself first means that as soon as you are paid you will take 10-20% off the top that won’t be spent on frivolous things. You will plan where to put this percentage so that it can start working for you.
I’m referring to investment.
When you invest money, you are making it work for you instead of the other way around. Look for opportunities to invest, even if that is something as simple as a mutual fund. On average mutual funds give you a return of 5%. It is up and down, but often it will average out around there. Do you realize how much that is!? Most savings accounts with a bank will give you less than half a percent return. If you truly want to have more money to work with, then you need to budget out the money to invest in your future. PAY YOURSELF FIRST.
Supporting a Cause Budgeting
Once you have paid yourself, then you should seek to support a cause. I would suggest 10% of your funds go to this important facet. Whether you give tithing to a church, help a charity, or something else, you really do need to support a cause.
This is one of the secrets of money. When you let money flow through you, it also flows to you more greatly. When you are being the solution to others’ problems, there is a universal law that returns in kind. Zig Ziglar was famous for saying,
“If you help enough other people get what they want, you will then get what you want.”
Budgeting the funds for supporting others will attract more money to you whether you believe it or not. It is one of those universal laws.
Savings Budgeting
Finally, building your own savings should be incorporated into your budget. Here I would also suggest 10%. Put this money into a place where you will begin occurring positive interest on your money. Whether that be in a bank account or a retirement fund. You will never touch this money except in dire, dire need.
In fact, for the most part you should all but forget about this. One way to help in this endeavor is to have 10% immediately taken from your pay and deposited in a separate savings account. That way you don’t even have to remember and won’t be tempted to spend it.
Final Budgeting Thoughts
You may say: “70%! There is no way I can live on only 70% of my income!” but 90% of the time that is not true. There are rare occasions when we need more of our income to survive on, but more often than not, we adapt to spending whatever money we have.
So, when it is all planned out you can live on much less than you may have originally thought. We often spend much of our income on things of no worth, while wishing for something better. If you truly want to have something greater, then budgeting for the future with investing, saving and supporting a cause is paramount to that desire; that craving.
Budgeting will change your financial situation for the better, if you use it. There are no ifs ands or buts about it. You could think of budgeting as an if, then statement in math. If you do budget, then your finances will improve.
Finally, know that what is discussed above is the goal or finish line and not necessarily the beginning, the starting line. If you cannot budget out your income to live on 70%, then take steps.
Start smaller with your savings, investments and supporting of causes. Maybe instead of living on 70% of your income live on 85% and slowly work your way to 70%. What we really care about is progress and as long as you are heading in the right direction, then you will get to the finish line. It doesn’t matter so much about the speed you are hurtling forward at, as it does the direction you are moving.
In the coming week, make a plan for your savings, investments and what cause you will support.
Beginning at your next paycheck, put that plan into practice.
Example of a Budget:
10% Income = Savings account at my bank
10% Income = Investing in my friends landscaping business
10% Income = Pay tithing to my church
With the Remaining 70%:
40% Income = Car, health and house payments
10% Income = Food
10% Income = Recreation
10% Income = The unexpected
A good book you may want to read is: The Richest Man in Babylon by George S. Clason.