MindsofWealth.com

Things may come to those who wait, but only the things left by those who hustle.

-Abraham Lincoln

“One who fears failure limits his activities. Failure is only the opportunity more intelligently to begin again.”

-Henry Ford

In Budget Your Way to Billions Part 2 Matt talked about how to make your savings automatic. This is fantastic stuff! Everyone loves easy, and the easier something is the more likely you will stick to it.

In Part Three I will talk about what you can do after you have wrote out all your expenses and income.(Budget You Way to Billions Part 1) .

I started doing this years ago, but I didn’t quit doing it after the first time. I re-evaluate my expenses every month and see how I could have done better.

When I have my list of expenses in front of me I ask a very important question: How can I lower my expenses?

I also asked myself: What things did I buy that I didn’t really need? Am I buying things that I could be buying cheaper somewhere else? Am I spending money on things that will increase my knowledge?

The most important thing is to be honest with yourself. Only you can decide which things are necessary. At the moment you are fully conscious of what you are spending and see on paper the money you could have if you reduced your expenses you will be well on your way to Billions.

The Technique

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Here I will talk about my own personal technique on how I minimize variable expenses, and easily keep track of them on a monthly basis. This technique is simple and effective but I encourage you to copy it, change it, adapt it to your own lifestyle. I have found it very helpful and have put the same practice into our lawncare business. The Technique is to set a high level budget. I like to use post-it notes. I write down each bill, the amount and the due date. Every single month, every single time. You can get the information for this from the expenses you wrote down in part 1. I also add a section for Income. Like most people I am paid twice per month. Each time I get my paycheck I write in how much that is. I currently work in a job that pays commission so my paychecks vary from month to month. You may know your monthly income beforehand.One of my “expenses” is my ING Direct Savings account. This is where I pay myself first, just like Matt talked about in part 2.

Another expense is my “credit card“. I’m blessed enough to have several different ones, but I only use one. I would suggest using one that gives you reward points to maximize your benefits. I charge everything during the month that I possibly can to this card. Gas, groceries, dining out, entertainment, cell phone bills, clothing, online purchases, etc.

There are several advantages for doing this:

# 1 You don’t have to write down every transaction in your checkbook. This eliminates the chances of forgetting something, and/or overdrawing your bank account due to an error.

#2 Any unauthorized charges that may happen are not holding up your cash, they are holding up what I like to call “MasterCard’s Money”

#3 In most cases you are given a 20 day interest free grace period when you pay your balance in full each month. By making most purchases with the card you are getting an interest free loan for 20-40 days. That’s using MasterCard’s Money for free! On my last statement gas I purchased on June 20th was not due until August 1st. That’s 41 days!

#4 At the end of each month you get all the transactions on one statement. Its easy to sort out what is what. You get 1 bill, and make 1 payment. This makes your high level budget so much simpler. Instead of writing down gas, groceries, entertainment, clothes, etc. You write out one thing: “Credit Card“.

Don’t get me wrong.. you still need to take a careful look at the statement to make an assessment about how much you are spending on each of those things. The goal is to make sure those expenses are minimal and under control. This constant evaluation will be the key to your success.

Challenge yourself. I like to set goals to lower this “credit card expense”. For example let’s say last month I charged $500. This month my goal is $450. Because its a high level overview I can reduce spending in any area as long as my overall total comes to $450 or less. I can login to my card’s online billing to check on my balance from day to day.

Another key expense I have is called: “ATM” This is the budget I have for actual cash purchases during the month. I generally only use cash for small off-hand purchases. Lunch at work normally, or maybe a drink at the bar. A rule of thumb that has helped me out is the less cash I have on me the less I can spend. I know there are many people out there who enjoy carrying lots of cash on them. Others carry ALL of their cash on them because they don’t trust anyone else to have it. I challenge you to try and carry only a minimal amount of cash on you. My magic amount is $40. When I go to the ATM I only withdraw $40 at once. I will not go back to the bank until I have zero. I’ve found this to be effective because I’ve developed a feeling that lets me know if I’m spending money too fast. If $40 normally lasts me one week, and all of a sudden I’ve visited the ATM twice in the past 5 days then I need to cut back on spending the rest of the month. If you set a monthly budget of $240. Then you can only visit the ATM 6 times. Once again, I always try to challenge myself to “Beat the Budget”. If I can cut that down to 5 times, I can lower my budget next month and stick the extra $40 in ING.

So alas, we have all of our income, and projected expenses for the month. I take my income minus expenses. Whatever total remains is the exact amount I deposit into my savings account. This is the first transaction of the month, every single month. If your budget has a remainder of $0(mine does on occasion) I put down zero, and push myself harder next month to make sure I have something going into that savings account.

“Beat the Budget”:

I always leave $100-$200 extra in my checking account at all times. I use this as a safety cushion for unexpected things. Its important though to not leave more than a minimal cushion. Excess money in your checking account is costing you interest in your savings account. I had a hard time with this because when I was in college my checking account balance was very frequently below $100 . Now that I am finally in a position to avoid that I must tell myself its O.K. to only have $100-$200 left in the account. I only need to check my savings account balance to re-assure myself that I’m doing the right thing.

The beauty of this technique is that it can be applied if you make $100,000 a year, or $20,000 a year. Managing your money is a step you MUST master before you can take the next step to buying assets. I know people who are making $40,000 a year that save twice as much money as those making $100,000. What path will you take? The Path to Wealth starts Here…

A.D.

We will talk about more details in future posts such as how to build up credit, how to increase your income, what to do with money that you have saved, how to buy assets with other people’s money and more!

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In the previous article, “Budget Your Way to Billions,” Adam talks about paying yourself first. How do you do this you ask? It’s actually quite simple. First you should make this habit AUTOMATIC. Here is what I mean by this.

If you have a 401K or a savings account there is usually an option for the money to come right out of your checking account or direct deposit. This will automate the process so that the money you save is out of your check before you even get it. When I worked for a well known cellular company this is what I did. I even had the ability to link my direct deposit up so that a certain amount of money went directly into my savings account.

A few tips to consider when doing this. Start out saving AT LEAST 10% of everything you receive. If you get a monetary gift for your birthday, take 10% and put it away. If it’s pay day, take 10% and put it away. You get the picture. This may seem like a fairly small amount but in all actuality it can turn into a lot over a year.

A personal goal I have set for myself this year is to save exactly 10% of everything that I earn each month. I put this money into my ING DIRECT saving account. This account works great because it links up with your personal checking account and allows for you to transfer money with the click of a mouse. Did I mention that they pay you close to 5% every month on your savings? Check with your personal banks savings account and see if it’s even over 1%. You will be shocked, I was.

After you do this, ignore it. Forget that money is even there. The faster you learn how to do this the better you are. Mark on your calendar when a year has passed and check to see what you have. This way you will have a sense of shock when you see how much you have saved. The next thing you can do is find an asset to invest in. Check the article we have on assets so that you are familiar with what to look for.

From this point on you should be miles ahead of most people. Did you know that 21% of people out there believe that the best way to amass money is to win the lottery? If you fall under this category and you are someone who likes percentages listen to this. “You have a better chance of getting struck by lightening than hitting the lottery.” Yes, this is true. If you think the lottery is bound to come up in your favor then excellent, go for it. But if you have been playing for years and realize that there might be another way, do what we have done and save.

Saving is not the only thing you can do with your money but it is the first step. After you have saved for a year you then have the fun of finding those assets we have talked about.

So start by making your savings automatic, if your banking institution does not allow it, find another bank or deposit the money yourself. Either way, the sooner you are able to save 10% the faster your path to wealth will be. Save that money and good luck.

M.B.

Continue to Part III Budget Your Way To Billions-The Technique

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The title above may sound dorky if not impossible at first glance. This post is a must read for those who are looking for that first step to get their financial house in order so then can achieve monetary Wealth.

I just read an article today in fact about “Ten Commandments of personal finance” These are good guidelines to live by but if it were so easy then wouldn’t millions of people be financially stable? I think the devil is in the details. I am going to talk about the the details of organizing things, but I must strongly urge that it takes strong discipline as well. My partner Matt has a great start here: “21 Days to Discipline”

In order to budget your way to Billions you must start by sitting down and figuring out where all of your money goes each month. Do you ever find yourself asking “Where does all of my money go?”. I’ve been there before and so has Matt. There are many financial software programs out there such a Quick books, Quicken, etc. that can help track your income and expenses. I have found that the first supplies needed to answer the above question are pen and paper. That’s right.. just a nice pen and a clean sheet of paper is all you need to get started on the road to financial Wealth.

I challenge you to first write down your billed expenses that occur every month. In business terms these would be your “fixed costs”. Examples such as car payments, car insurance, utility bills, rent/house payments, etc. These are your first priority and must be paid each and every month.

Secondly write down your expenses that are pretty much there every month but you don’t get a “bill” for them. These are secondary or “variable” expenses. You should include items that you could cut down on but probably never eliminate for your expenses. Things such as food, clothing, gasoline, cigarettes, household supplies, entertainment etc.

Thirdly write down any items that you may have bought, or services that you paid for last month that are not normal. These can be one time, or once every several month type purchases. Examples such as oil changes, new computer, gym memberships, etc.

Last but not least leave room for what I call Misc. (short for Miscellaneous). This is where I like to leave room for those things that I know I buy or pay for but just can’t think of on the spot. I will usually put $50-$100 in this category because I’ve got my expenses spelled out. If you are new to this, you may want to set aside more.

Now the moment of truth… add up your paychecks from last month, and subtract all the expenses you wrote down. If you have a positive number then you are in a good place to start. If you have a negative number then you will benefit even more from this post!

You have just created a template to project your expenses for next month! You should ask yourself: What things did I buy that were not needed?

$4 a day for cigarettes is $120/month

$2 a day for coffee is $60 a month.

Above, I ranked the expenses into “Fixed”, “Variable”, “One time”, and “Misc”. Once you have your finances spelled out there is one payment, one bill, one expense that should come before all others. This is a habit I personally use and recommend along with many other teachers of Wealth:

Pay yourself first.

You must decide how much this is. You have the power to make it as much as you want. This money is what you will use to invest in stocks, real estate, bonds, liens, businesses and more.

If you leave this post with no other lesson it should be to minimize frivolous expenses in order to maximize the outcome of your income.

Stop back for future posts about budgeting.

See Matt’s part Two: Budget your way to Billions Part 2

A.D.