The biggest misconception with creating a budget is that you have to create this elaborate financial model that discounts your ten-year cash flow at a rate that’s equal to inflation. It’s true that money in the future is worth less than it is today, but you don’t have to take your budget that far if you don’t want to.
One of the biggest problems I’ve found is that every current template you find is confusing. There’s moving pieces everywhere and way too many colors and categories. Nothing about that teaches you the fundamental concept of creating a personal budget.
If you’ve been involved in any sort of sport, there’s a good chance you’ve heard the phrase, “practice the fundamentals.” When it comes to budgeting, it’s no different. Once you understand the relationship between the different moving parts, you’ll be able to manipulate your money and start using it for you rather than against you. The fundamental concepts are the same concepts that allow you to calculate your income and expenses to a minimal degree or allow you to build that financial model I talked about earlier.
Income And Expense
Understanding the difference between income and expenses and how they work together is the basis of what you’re going to build your budget on.
Income is the money you make or “bring in.” Some examples may be:
Expenses are an outflow of money, or what you spend your money on. Some examples may be:
It’s vital to your budget that you get as clear as possible about what you spend your money on and how much of it you spend. More often than not, you’ll find that your budget paints a picture of you having more money than your bank account shows.
Painting this picture will take time. You’ll be walking around Walmart and remember that you forgot to include your Netflix subscription inside of your budget. If this happens, make note of it, then very simply add it in when you can. Remember, you want to get as clear as possible about what you spend your money on and how much of it you spend.
How Will You Use Your Budget?
This is the very basic fundamental concept of what your personal budget will be built on. It’s entirely your choice to make your budget as simple or as complex as you want. Pay off your debt, make more money this year, and take that vacation to Costa Rica. All three can be done at the same time by manipulating your income and expenses to work how you want them to.
Drop any questions, comments, or concerns you have below.
When you’re at a family gathering and bring up the topic of money, you’re sure to divide the room in half. The more miserable side of the room argues that money is the meaning of life and every dollar you make needs to be saved. The more content side of the room argues that money doesn’t mean anything and will gladly give it away at the expense of providing a solution to someone else’s problem.
The saying used to be, “There are two things you never talk about: politics and religion.” I’ve adjusted the saying to reflect the current world; “There are three things you never talk about: politics, religion, and money.”
Money being the number one cause of stress in your life makes it a touchy subject. The last thing you want to hear about is how Cousin Billy paid off all his debt and got a new promotion making six figures a year. That mentality is the exact reason you’re under stress and have money problems. The first step to living a stress-free financial life is to change the way you think about money.
Change Your Money Mentality
The most common financial argument is, “I don’t have enough money.” While you are correct in a literal sense, you’re vastly underestimating how much money is out there available to you. This comes in the form of Other People’s Money (OPM).
You’re most familiar with other people’s money through the traditional means of financing your car or taking out a mortgage to purchase your dream home. In both cases, you didn’t have all the money available to you literally, but you were still able to complete the purchase because you borrowed other people’s money (in this case, the bank).
Let’s take this a step further with a simple question:
If banks are willing to lend you money in exchange for something agreed upon at a future date, would other people be willing to do the same?
The answer is a resounding, yes. The determining factor here lies in what you intend on using that money for. To understand more clearly, let’s take a look at the difference between good and bad debt.
Good Debt And Bad Debt. What’s The Difference?
You’re feeling lost because you were taught that all debt is bad and now I just mentioned the possibility of having “good debt.’ The difference, very simply, is good debt puts money into your pocket and bad debt takes money out of your pocket. Here’s an example.
The mortgage and car loan I mentioned earlier would both be examples of bad debt. Recall what the difference between the two is. In both of these cases, you’re paying monthly (taking money out of your pocket) and not getting anything in return. Yes, you need to drive to work and you need a roof over your head, but there’s a much better way to accomplish both and remain stress-free. The best way is to offset your bad debt with good debt.
Good debt provides a positive income stream. The most common example of good debt is rental real estate. In most cases, you would need to finance the purchase, resulting in a mortgage on the property. It’s important to understand that if you stopped here and decided to live in the property, this would result in bad debt. It’s only when you find someone to rent to and start collecting a net positive check every month that the property becomes a staple of good debt.
We’ve determined that other people are willing to lend you money, but it comes down to what you intend on using that money for. Other people will not lend you money on anything that results in bad debt because it creates too much risk for them; there’s no guarantee you will be able to pay them back at a future date.
The Truth About Your Narrow Mindedness
Your mentality about money is a direct reflection of how much you have right now and your earning potential over the course of your lifetime. It’s vitally important that you continue to become aware that money is all around you and equip yourself with an abundance mindset in order to both recognize and capture the opportunities that will present themselves sporadically throughout your life. We’ve been taught bad money habits from an early age and it’s only when we make a conscious effort to look at our financial picture differently that we can truly start to live a stress-free financial life. In doing so, we can move on to the second step: money management.
The second step to living a stress-free financial life is to learn how to properly manage the money you currently have. We will talk about creating an easy to understand budget and getting rid of all your bad debt.
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The 2020 year will go down as one of the worst years in history. Disregarding the economic crisis we’re facing, it was a year of emotional and mental abuse for many. It’s more important now than ever to get ahead in your life because the coming years are only going to bring more chaos. This is how you do it.
It’s no secret that the most popular trend that surfaces around the coming of the new year is setting New Year’s Resolutions. While they’re a great way to establish a direction, they become wasted because many of you neglect to stick to them. Your lack of patience plays a major role here; you want it too quickly and you don’t understand why.
You must first understand that failure is necessary to grow. You’re guaranteed to hit a wall when walking in a new direction and the only thing that separates those that change their life and those that don’t is how they respond to this wall.
Secondly, there’s a major difference between understanding why you’re setting these goals for yourself and setting them in an attempt to follow the herd and fit in. If you truly want to change your life and stick to the resolutions you set for yourself, it’s vital that you understand the importance of the resolution to you. It’s not enough to know what you want; you must know emotionally why you want it. When you run into the hypothetical wall I mentioned earlier, you will want to quit. Being emotionally attached to your reason why will stop you from quitting on yourself.
The Problem With Resolutions
You may be surprised to hear that 80% of people who set New Years Resolutions fail by February. Why do you think this is?
Lifelong change is a lifestyle change. If you truly wanted to change something, you wouldn’t wait five months until the beginning of the New Year to ‘be different.’ This mentality gives a false sense of hope and lowers self-esteem because every year you set yourself up for failure. Combine that with the unconscious self-talk of “I can’t” and you’re never going to believe in yourself.
Because it’s the beginning of the year, your ‘New Year New Me’ thoughts are still at the forefront of your mind. Fortunately for you, this puts you at an advantage because you’re focused heavily on changing your life. Chances are you made a list of what you wanted to change and are now working diligently to make that happen with no apparent reason other than “everybody does it.” Right now is the perfect opportunity for you to kill that thought, and instead, dive deep into your own mind and figure out why the resolutions on your list are important to you.
It sounds cliché, but start by asking yourself this very simple question:
“Why is (insert resolution) important to me?”
Chances are high that you won’t come up with an answer right away and that’s okay. The true intention here is to get your mind working subconsciously to figure out the answer. Remain patient, the answer will come to you when you least expect it to.
What Are Your New Year’s Resolutions?
While I didn’t write down a list of New Year’s Resolutions for myself, I am working diligently on one goal: making six figures in 2021. I want to prove that you can do anything you set your mind to, regardless of other people’s beliefs in you or your educational background. You have unlimited potential; all you have to do is learn how to tap into it.
What are you working towards and why? Share your resolutions below.
The greatest piece of advice I can give you is to question everything. The most important piece of advice I’ve ever been given:
As kids we questioned everything. We were dying to know why dinosaurs didn’t exist and why spiders had eight legs. It seems that growing up and dealing with the unnecessary stresses of life, we forgot a vital part of ourselves: our childhood.
What are you good at doing?
You can help any cause you want. What cause are you helping?
If money wasn’t an issue in your life anymore, how would you spend it?
Why do you listen to that person when they tell you that you can’t do it?
The reason most people can’t answer these questions is because the only way to do so is to dive deep into your own mind and spend time alone with your thoughts. While scary, it’s in doing this that you’ll discover the number one key to changing your life is believing in yourself.
When you fear nothing, you’re ruthlessly confident and it’s in this confidence that you truly start to progress your life forward. No more will you be listening to the outside world and adjusting your life according to their standards. Rather, you will understand where you want to go, and more importantly, the necessary actions you must take in order to get there.
You Want To Remain A Learner
The reason the most valuable piece of advice I can give you is to question everything is because asking questions keeps you learning. If Ninety-Nine out of One-Hundred people don’t know something, they will repeatedly say to themselves, “I don’t know” and never make an attempt to figure it out. There’s a unique opportunity that presents itself for the one person who doesn’t say “I can’t do it” but instead asks themselves, “How can I do it?”
Your mind works in a mysterious way. Yes, it’s true that if you believe you’re capable of doing something, you can do it. The opposite is also true. Henry Ford said it best:
“Whether you think you can, or you think you can’t–you’re right.”
You close your mind off to the idea of unlimited potential the second you become narrow-minded. Telling yourself that you can’t do something may not seem like a big deal now, but down the road when you need the confidence to take an action, on a subconscious level, you’ll believe you’re incapable of doing so because you believe you can’t. The idea here isn’t to know everything, or even act like you do. It’s much the opposite; become capable of figuring out the answer.