Budgeting can save lives – at least financial ones. It is a necessity for the majority of people, even if some could manage without. If you are talented in spending and challenged in saving – like most of us are – putting some guidelines around your spending can really change things. A big part of the benefit comes from the process of collecting information on your income and actual expenses. Once you have done this, your budget will then help you in reigning in your spending while finding ways to increase your income. With all this, you will ensure you save enough on a regular basis in order to be able to invest – and this is the process that is really at the heart of your million dollar plan. Learning to tell your money where it should go will really make a difference in your financial life.
First, when you decide to set up a budget, you start by tracking where your money comes from and – more importantly – where it goes to. You can do this by analyzing your past spend, or you can do it by starting to keep records of your actual spend each day and week. Whichever way you do it, you end up building a clear picture of where your money is going – and don’t be surprised if this picture is different and uglier than you expected. This is how it is for most of us – we spend on stuff that we don’t even notice we are spending on, and the levels of spending are much bigger than we expected. Small amounts spent regularly add up to larger sums on a monthly or annual basis, and what a difference these can make to our financial well-being!
Second, once you have a solid understanding of where your money goes, it is much easier to see where you could and should cut your spending. Some things are simply necessities, but even in these you can often adjust the level of spending, if you want. You need to eat, but what you eat and where you buy it can make a huge difference. Similarly, you need to live somewhere, but again you can choose how much house (or condo – or rental apartment) it is that you really need. Then there are all those things that are really nice to have but not necessary at all - the daily latte picked up on the way to work (and the other one in the afternoon…), the expenses branded clothes or sports gear, the lunches and dinners in that trendy restaurant around the corner. This list is long – and it’s so easy to feel all these things are necessary, too, part of your lifestyle, or at least a requirement for your mental well-being. Of course, no-one else can tell you what you really need and must spend. The decision is all yours, but your financial life is in the balance on the other side. The hard decision, part 1: which of your necessities are you ready to give up today in order to be really able to afford them tomorrow? This really is an element of your million dollar decision – and an essential part of your million dollar plan.
The process of setting up a budget is not complex – it’s mostly pretty intuitive and straight-forward. You can easily do it on an Excel sheet, if you want, but there are also tools to help out. YNAB (You Need A Budget) is a great piece of software that makes the whole process easier, while also providing some valuable training and other information on the side. Quicken and AceMoney are equally effective while each taking a slightly different approach to the process. There are also many other good solutions, including free ones, available to help you in the process, and just about all of them provide free demos. If you feel this could help you, just go ahead and take a few of them on a test ride, pick the one that seems to best suit your style and needs, and start using it.
Many people don’t like the idea of budgets and the process involved. They view the entire process as boring, difficult, and time-consuming. Yet, the reality is very different, as you will once you have done it. Budgeting is easy – the process itself is straight-forward, and nowadays there are plenty of tools available to make it even quicker and easier. As it takes little time and effort and teaches you a lot, it doesn’t get boring either – actually, some of the resulting financial discoveries can even make it exciting!
So now you are all set: you have all the information you need for your budgeting, and you have decided how to adjust your expenses in order to save and invest more. Congratulations, you have a budget now! All you need to do from this point on is to stick to it. By having gone through the information gathering and deciding on the adjustments to your spending, you are already on the right path. Besides making you more aware of your finances, this process has shown you hove much more you can save if you reduce your spending in the right places. This will help you to have the extra bit of discipline most of us need for getting your spending on the right path. By making your ends meet and then getting beyond that, you will start accumulating savings which you will invest on a regular basis. With this, all you really need is some time for the compound interest to start working its miracles – and presto, your journey to your first million is at a full speed!