You might not have thought about it this way, but when you start budgeting, it is like getting an instant pay raise.
I feel like there is a mindset that budgets are those boring things, boring people use to track their boring money and do boring things with it. While this may be true in some cases, budgets are an important part of becoming financially stable and should be used by everyone.
The beginning of getting your finances in order starts with a budget. Going through life without using one is kind of like fighting a group of ninjas blindfolded. If you aren’t watching the ninjas, how can you know when one comes to attack you? You won’t see it and it will leave you on the ground bloodied and grasping for life. This is what happens to our money when we aren’t watching it. Ninjas come in the form of small, random purchases and slowly drain your funds until your wallet is empty and you’re wondering why your credit card is maxed out and your bank account is being over drafted. You need a budget, so you can take the blindfold off and start blocking the attacks on your wallet.
Creating a budget can be like getting an instant pay raise
By having all your expenses tracked, you can see where your money is going and cut back where needed. For example, let’s create a character called White belt Jimmy. White belt Jimmy works in construction making $50,000 a year and is completely drained by the time his shift is over. He always treats himself to a $5 snack on the way home from work. Let’s see what this one snack every day is costing White Belt Jimmy. $5 x 5 days x 52 weeks = $1,300. So, over a 40-year career (we won’t be working anywhere near that long here at Millionaire Dojo) He spends $52,000 for this one thing and effectively works a whole year of his life away to pay for it.
Everything runs smoother with a plan
Another useful thing about budgeting is, you can create a game plan for your money and start executing it. You can make a goal for every single dollar that comes in for the month. Money is a tool and you need to make it start working for you. Having your financial goals written down in the form of a budget makes you much more likely to reach them. I always invest at least 15% of my take-home pay and a budget enables me to know what will be left over for other expenses.
The two budgeting apps I prefer to use are Every Dollar and Mint.
Every Dollar has an easy to use interface. You enter in what you make every month, create all your expense categories, then set a dollar amount that you want to spend for each category. The free version of the app doesn’t give you the ability to connect to your bank account, so you’ll have to manually log each purchase into the app. You can pay for the app at $9.99 a month and connect the app to your bank account which makes tracking your spending stupid easy. If your goal is to become financially independent as soon as possible, you’ll probably just want to use the free version of the app and save your money.
Mint is completely free and offers a lot of other services besides a budget. The user interface isn’t quite as friendly as Every Dollar, so you’ll have to play around with it some to get your budget exactly how you want it. Some of the other services Mint offers besides budgeting are bill pay, account overviews and credit scores.
If you decide you don’t like either of these apps, there’s a whole world of other things to choose from out there that will work fine. Just make sure you are tracking your money in some way so you can optimize your financial situation.
At the end of the day, a budget is just a tool that you use to make sure you stay on point with your finances. Sure, you can probably become a millionaire without ever using a budget, but you would just be making things a lot harder on yourself.
Keeping track of things helps you progress towards your goals
About 7 weeks ago, I started counting calories. Just the simple task of counting the calories I put in my body has resulted in 15 lbs of weight loss. A budget works the same way, when you are conscious of everything thing you’re spending money on, you’ll spend less of it and be able to save more.
Here’s a sample budget of someone who brings in $3000 a month to give you an idea of how you should create yours.
- Paycheck 1 – $1,500
- Paycheck 2 – $1,500
- Tithes/donations – $300
- Mortgage – $750
- power – $150
- Water – $30
- Garbage service – $15
- Internet – $15
- Mobile Phone – $120
- Auto Insurance – $150
- Groceries – $250
- Restaurants – $100
- Netflix -$11
- Spotify – $10
- Amazon Prime – $10
- Left Over Money:
- Savings – $500
- Extra mortgage payment – $589
So with this budget, there’s $1,089 left over to go towards saving and paying off the mortgage. The goal of a budget is to optimize it so that you are cutting out all unnecessary waste and putting what’s left over towards bettering your financial situation. There isn’t much to cut back on this example budget but there are a few things. Follows these budget tips and you will really start to see progress on your path to becoming a black belt in finance.
If you haven’t started budgeting yet, start today and you just might get an instant pay raise!
Nathan created Millionaire Dojo to document his journey to reaching a million dollar net worth so that others may be inspired to follow the same path. He and his wife reached a net worth of one hundred thousand by the age of 25 and has been featured on Business Insider. His blog focuses on practical advice that can be implemented immediately in the form of saving money, earning more, and investing to create passive income.