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I’d like to start off by discussing the purpose of this show. A mission statement, if you will. I’m gathering information for myself, and anyone who would like to listen, about how to become a little bit more financially sound and create a back to basics financial plan, all while documenting my current journey. In essence, while I learn about a subject for myself and as I implement it into my own life, I’ll record an episode on it. And if I ever happen to lose my way in the future, I have my own resources to reference as a guide. If it happens to benefit anyone else, then great.
Let’s lay down the foundation to everything I’ll be going over. The assumption going forward will be that this step will be completed and is maintained monthly. If not for this basic step, then none of the future things I’m going to talk about and implement will work.
The foundation I’m talking about is having plan… a budget. I like to think of a plan and a budget two sides to the same coin. A plan shows you what you want to achieve. A budget shows you what are are currently capable of achieving. They form a symbiotic relationship, so you can’t have one without the other. Creating a budget can help put plans into realistic terms, so that you can adjust your life accordingly.
I’ve tried to hold myself to some sort of budget for as long as I can remember, but only started putting it to practice for the last three years. I didn’t really think of everything when first making my budget. I continue to learn over time, and adjust my spending when I need.
When building a budget, you’ll need to ask yourself a few questions. How much money is coming in? How often and when do I get paid? How much money am I spending on things I don’t need? What are my bills, when do they post and when are they due? These kinds of questions and more will help you understand your personal financial situation.
At its simplest, you need to find out what’s coming in and what’s going out. If you’ve never created a budget before, this can take some time to figure out. If you’ve never stuck to a budget before, this can be a difficult adjustment.
Gather Your Information
First, find your bank statements. Do you use credit cards? Find all your credit card statements, too. Print or download each statement from the last year, if possible. We need the information. Analyze and record what is coming in and going out.
Budget and Plan
The reason I’m building a budget is to find the lowest amount of money I need on expenses, to live frugally, in order to save as much as possible. Living beneath your means is incredibly important regardless of how much money you earn. If you spend more money than you bring in, that can be a huge problem.
We’re not creating a budget at this point, at least not in this episode. We are analyzing our spending habits and behaviors. We are also going to come up with our financial plan. The idea here is to find out what your money is doing and what you’re going to do with it. If you don’t know what your money is doing, you will not have any control over your financial situation. This is how we take control.
Do you have any goals that could cost money in the future? Maybe you’re planning a trip. Maybe you’re buying a car or a house. Maybe you have an expensive hobby. Or maybe you just like going out for dinner every night. Whatever your plans and goals are, life costs money.
I’d suggest to write things down, if this is your first time. Lay it all out. What is your monthly income? What are your monthly expenses? What are you spending on that you probably don’t need to be spending on? Categorize them, if you need to. We will talk about putting together a budget in a future episode. For now, just find out how much you have coming in compared to how much you have going out. Hopefully you have more coming in than going out. Like I said, living within your means is important.
Will Power and Action
If taking control of your spending is not something you’ve thought of before, it can seem like a daunting and even boring task. I didn’t say this will be easy, but it will benefit you for the rest of your life. It only takes a few minutes a day once you’ve set everything up. The key is consistency. It’s not going to be fun, but you’re going to have to stick to the budget you set. If you don’t keep this up, you will regret it.
As I said, I’ll talk about different types of budgets and make a budget with you in future episodes.