Budgeting is something that many people just avoid dealing with. Thinking about money can be stressful for some people, and too often, even saying the word “budget” makes people feel restricted. The reality, however, is that you need a budget. Even the very wealthy need a budget. Here’s a secret, in fact: the very wealthy are often wealthy precisely because they know how to budget. So how can you learn to budget like the wealthy?
Track Your Spending
Have you ever gotten to the end of the month, checked your account balance and wondered, “Where did it all go?” The truth is that many Americans do not have a clear sense of where they spend their earnings. “Tracking” your spending does not, by the way, mean keeping a mental record.
There are a number of smartphone apps that can help you easily and efficiently track your spending. Many come loaded with preset categories but also allow you to create your own categories. Every time you spend even a single nickel, note it. Record it in an app on your phone. Write it down in a notebook if you prefer. It doesn’t matter how your track it, just that you do track it by writing it down and eventually categorizing your spending. If you’ve never budgeted before, this is a good place to start.
Pay Your Savings Account First
When a paycheck comes in, save before you spend. Decide on an amount that you plan to save per paycheck; 10% is a good place to begin. When you deposit your paycheck, immediately transfer 10%, or whatever amount you have committed to, to a personal savings account. It’s estimated that 26% of Americans have no savings at all—if you’ve been having trouble with this you aren’t alone. It is essential that everyone have sufficient savings, however.
It’s recommended that everyone save six months’ worth of income. The idea is that if you were to suddenly lose your job, you’d be able to get by for six months while you find a new job. You may even want to explore purchasing insurance to insure your income in case of a catastrophic event; it’s recommended that you speak to your local insurance agent about this option.
In a Tight Spot, Do You Work More or Spend Less?
If finances become stretched, you should absolutely not live beyond your means. Sometimes it’s tempting to simply spend more using credit cards. This approach, however, will only create more stress, and it’s certainly not how the truly wealthy think about budgeting. Spending more than you have will not serve you well in the long run.
Instead, you need to make a decision to either work more, thus securing more income, or spend less if your budget is tight. Which of these options you choose is truly up to you. Maybe you value time with your family and don’t want to give that up in order to work more. That’s fine, but you need to find creative ways to cut down on spending. Maybe having more income will ultimately mean less stress in your life; in that case, working more may be the better option.
Thinking about a budget may be the last thing you want to do, especially if you are under financial stress. However, creating a budget and sticking to it is really the only way to start to deal with this stress. Only by knowing where your money goes, paying yourself first and making changes where you need to can you start to control your finances, rather than allowing them to control your emotional state.
These attitudes towards money are the attitudes of the wealthy. Make them yours, and you’ll be on the path to financial freedom.