“The art of living easily as to money is to pitch your scale of living one degree below your means.” –Sir Henry Taylor
We all want our lives to be great. We have goals, dreams, and ideas for how our future should look. Last week, we outlined the first step…Dream. After you’ve outlined your dreams, it’s time to build a budget to accomplish them. Since most of us don’t have unlimited income, we need to budget to help reach our goals. Let’s take a look at how to do that…
Step 2 – Spend less than you earn (And be intentional where you spend money)
We live in a world of instant gratification: “If you want it, buy it!” Without self-control, it is EASY to spend more than you make and find yourself with little cash, too much debt, and basically living paycheck to paycheck.
You need to prioritize the important things, and then aggressively weed out cash outlays that you don’t value.
First, write down every expense you incur on a monthly basis (i.e. mortgage, utilities, cable bill, gym membership, etc.). It’s easiest if you do this in a spreadsheet. Then, write down any lumpy expenses that happen at less frequent intervals (i.e. insurance premiums, annual memberships, etc.) – turn those amounts into a monthly equivalent, so you get an idea of the monthly cost for those items. Finally, think of expenses that rarely happen or could happen in the future, and try to build those expenses into your budget (i.e. car repair, hospital bill, major home repair). Ok – now you should have a good idea of your total monthly outlays.
Look back at your goals (you should have created these from the last article: Step 1- Dream.) Are you putting any money in your current budget towards those goals and dreams? If not, they are NEVER going to happen!
Play with your budget, and see if you can think of ways to shift money from expenses you can cut/reduce to goals that you REALLY want to happen.
Let’s look at an example:
Car Lease: $350
Now, let’s say that travel is a huge priority for you. We need to weed out anything that you don’t really value. You may have to pick between leasing a new car and getting to take an international trip every few years. If you prefer to see the world, maybe you’d be better off buying a older car that costs $150 per month and saving the extra $200 towards your travel goal. WE ALL HAVE TO MAKE COMPROMISES!
Try to pick a handful of things and experiences that are really important to you and build your budget around those items. If you don’t prioritize your dreams and goals, the funds to make those goals a reality will “fall between the cracks.”
If you can build your budget around the things you truly value, you will end up much more satisfied than the average person. Don’t accumulate bills and expenses for things you don’t care about. Live intentionally and you’ll have much better odds of realizing your dreams.
Next week: Retirement planning in a nutshell…