Jul 14 2014
Who likes budgeting? Who am I kidding, no one does!
Who likes living for today? Yeah!
Who wants to work the rest of your life? Buzzkill man…
Budgeting and financial planning is unfortunately a necessary evil in our lives if we ever want to get ahead of the grind at some point. However, there is a bright spot because the process doesn’t have to be a pain in your tookus.
Regardless of the amount of income you earn (everything’s relative ya know), we can all get control of our financial situations and start winning at the money game.
This is your starting point. Use this foundation to build upon. Every journey begins with the first step so put those noses to the grind stone…buck it up…rub some dirt on it…and let’s get started. You can do this.
1. Determine Where You Are Now.
If you don’t measure, you don’t know where you are and whether you are making any headway. Don’t make this difficult on yourself. These can be ballpark. You don’t have to count to the penny.
- First, write down your income.
- Second, identify your fixed expenses. These are things you can’t control. The costs are fixed like rent, mortgage, insurances, and utilities—all payments where you know you owe X-amount every month whether you like it or not. Not credit or loan payments, yet.
- Third, identify your variable expenses. These are items where amounts fluctuate from month to month or they’re amounts you can control. Examples are food, clothes, your vehicle, home improvement, entertainment. Not credit or loan payments, yet.
- Fourth, now credit and loans. We want these separate from the other expenses because we want to call these out for special attention. You want to see these amounts hitting you in the face and focus your efforts to annihilate these entries.
- Finally, your savings and investments. This is an area that may not exist now or is in short supply but over time it will assume the space left vacant by credit and loans.
Here’s an illustration of what living paycheck to paycheck may look like for you:
Everything coming in goes out. There is nothing left for savings or investments. You don’t have the flexibility to help your primary causes. Note how the variable expenses are squeezed to make room for the expenses you have to pay and your debts.
If you are living on credit cards, the outflow may be more than your inflows and the green part of this pie chart is smaller than the other parts combined. Stop spending and living off credit. You cannot live on credit without making big trouble for yourself.
Paycheck to paycheck is not a fun life because you are under the thumb of others. Think of the debt as a huge hole that you have to fill up with your income. As long as that hole exists, your income does not belong to you. You can’t use your income for your higher purposes like your major causes or for building your assets that create wealth. Vow to take back control over your life!
If your financial life isn’t to your liking, put yourself on a track to change it. Realize you hold the power to control both income and expenses.
For better income you can:
- market yourself better and get a new job
- do the things necessary to make you more marketable to get a better paying job
- create your own job
For most of us, doing the things necessary to be more valuable to employers meant that we gave up other expenses to afford more education or training—you live cheaper now to have a better life later. You can take a class or two at a time while you work.
If you are short of money, there are financial aid programs to help with education costs or ask your employer about training assistance or pick a less expensive school. Your main commodity is time. Fill up your waking hours with activities that help you increase your value or teach you the skills to start your own business. Try to minimize education debt, but if managed well, education debt is actually an investment in your future and higher lifelong income.
We all make choices about our living expenses. Find places in your budget to cut the fat. Prioritize your spending. What are spending requirements and what are the nice to haves?
We have one life to get this right. The price to pay for not getting this budget thing right is a life of work or a retirement of just getting by on Social Security.
Start visualizing what you want your pie chart to look like in the near future then plan and work to make it happen.
2. Where You Should Be Now—Or In The Near Future.
If things are going well, your income covers all your expenses, allows you to have a life, and you are saving for the future. How does this happen?
People on the right track live within their means. They pay themselves first (savings and investments) and live off the rest. If you don’t pay yourself first, there is never enough money left over for savings after all the “necessary” spending. You can’t use credit as a substitute for an income.
It’s about making the right choices when faced with a financial decision and not defaulting to the easiest or pleasurable choice. You have to be disciplined in controlling your outflows. It’s hard; we’ve all been there.
Outflows come in two forms, liabilities and assets. Liabilities are expenses where you never see your money again. You own your assets and they grow over time to create wealth. You have to minimize the liabilities and maximize your assets. That’s how the money game is played successfully. Assets allow you choices and freedom.
3. Where You Should Be In The Future.
People who think about and plan their future financial situations tend to be successful. They envision a future like this:
- Reduce your fixed expenses over time
- Increase your savings and investment amounts
- Eliminate your loans and credit
- Keep your variable expenses under control
- Increase your income over the years to help accomplish the above points
You have to start paying yourself first and living off the remainder. Constantly increase your savings and investments as you change jobs, get promoted, and get pay raises.
Have a plan to decrease your “financial footprint” over time. Your financial footprint is how much you owe anyone and everyone. Going into retirement you want the smallest financial footprint possible. Having a small financial footprint means you either require a lot less income to live comfortably or you will have more income to live a fun life. Win-win!
4. Mission Accomplished.
Interested in learning more about how to square away your future? Check out MOAA’s Financial Planning Guide, available for PREMIUM and LIFE members. MOAA’s Financial Planning Guide provides more in-depth information and guidance on financial decisions most service members encounter. You can also talk to one of our certified financial planners for personalized advice about your situation.
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