The Butler Project

Looking for money? Aren’t we all? Whether you’re trying to finance a new business start up, consolidate some debt, or looking to get into your first home, there’s an option that you may not have considered before: borrowing from friends and family.

Now, I know, it’s not wise to mix money and relationships (look at the divorce rate in the US and one of the top reasons is money), and I would rarely suggest it to the average Joe. But with the mortgage crisis the way it is and you looking to be frugal and creative with your resources, the idea of borrowing from someone you know might be worth another look.

You have to be committed.

First of all, don’t consider this option if you do not 100% trust yourself to pay the loan back. If you have a history of going back on your word, or starting things you can’t finish, pulling friends or family into your mess is not worth it. Not worth it. If you can’t honestly trust yourself to pay the loan back as promised, don’t go into debt. I don’t care what the interest rate is, or what a deal you’re getting, don’t go into debt.

That being said, if you need a creative source of money to invest in a home or an income producing asset, you might want to consider a personal loan.

The problems with personal loans.

The problems with personal loans are generally tied up in the people: they have different memories of how much and when the loan was to be repaid; they fail to nail down an interest rate; they forget to make payments; they argue over late fees. No wonder personal loans are generally trouble.

The best way to make or take a personal loan.

However, if you have (or are yourself) a willing lender, you can make the process much easier, and safer by making the loan legal with a promissory note. We took advantage of owner financing when we bought some property a few years ago. A local title company drew up the papers and processes the monthly payments. They take care of all the tax documentation for both the borrower and lender. In fact, we have no contact with the lender, and he has no headache with paperwork coming from this loan.

Protect yourself.

Besides the convenience, there are several advantages to putting the loan officially on paper. First of all, with the terms of the loan legally recorded, both parties are safe from the other “forgetting” the original agreement. This will, in theory, save many a personal relationship from the obvious pitfalls of a personal loan. Secondly, the IRS requires lenders to pay tax on interest income for a loan over $10,000, that means more paperwork. Third, if the borrower does default on the loan, the lender can prove it and take a capital gains loss on his/her income taxes.

Put space between the two of you.

If you use a service as we are with our title company, they will, for a small monthly fee, take care of the IRS forms and process the payments. Not only does this save you time working on paper work, it puts some “space” between you and and your friend or relative. The title company will charge the late fees, if needed and make the collections phone calls if it comes to that. The lender then can’t give the delinquent borrower a break as all the terms of the loan are on paper, and therefore legally binding.

If you’re not comfortable finding a local title company, you can find these services on the web. www.virginmoneyus.com has a particularly nice site with many options to really tailor the loan to your needs. Even if you don’t need a loan, I would recommend checking out this site as it is just another example of Richard Branson’s brilliance when it comes to filling people’s needs and making money doing it.

P.S. Mark says this post “reads like sales copy on a loan site” and seems to be keyword stuffed. It was written as neither of those; I just thought personal loans were something our readers might be interested in. Anyone want to chime in on this? Please do.

Let’s face it, getting out of debt, sticking to a tight budget, or building a new business is not always fun. In fact, many days you might feel downright depressed about it. And that’s OK because it’s hard work to make up for past mistakes, delay gratification, and keep at it when results are few and far between. Does that mean you should quit? No! That just means you accept that some days will be hard and you’ll figure out how to deal with them.

Try some of these solutions; they work for me.

1. Do something physical.

Lift weights, go for a walk, take a hike, ride your bike, run around the block, go for a swim, play Frisbee in the park, whatever you enjoy doing, do it! Physical activity will not only distract you from your cares, but it’s scientifically proven to boost your mood.

2. Play.

I have kids, so I always have someone to play with. It’s amazing how a short game of pretend, Chutes and Ladders, or kick ball can improve my mood.

3. Serve others.

Nothing is a quicker antidote to a pity party than helping others. Do something nice for your spouse, your children, even your mother. Send a card, perform a secret act of kindness, help a neighbor with yard or house work. It doesn’t have to be a big thing, just think about someone else and act on their needs for a minute.

4. Gratitude.

Gratitude goes right along with service. You can’t help but feel better as you count your blessings, and nothing makes your blessings more apparent than serving people in tough situations. Oprah made gratitude journals famous a few years ago. It’s not a bad idea to start a little notebook where you write down the things you are grateful for. It’s amazing how many things you start to notice when you’re paying attention.

5. Avoid sugar, caffeine, and other stimulants.

Yeah, yeah, we all know we need to eat well. But junk food tastes so good, especially when you’re having a bad day! Did you know stimulants, including sugar and caffeine actually increase anxiety? Check out what not to eat here

6. Make a visual.

Sometimes we need a visual reminder of where we’ve been and how far we’ve come. I’ve made a simple one to show how much debt I’ve paid off (remember my vending machine venture?) and have that reminder that I’ve done a good job. The visual reminds me that by continuing to do the hard work, I’ll be through with debt soon. If you don’t have debt, make a net worth visual or a bar graph showing your business’s improvements over the last few weeks, months, or years. Include your goals in the visual and post it somewhere you’ll see it often.

7. Get to work.

I loved this post about whining. Quit whining. Get to work. If all your work is done, play; play hard.

8. Surround yourself with Success.

If you remember Dan, one of Mark’s interviewees, he read books every day:

Dan: [Read] self help books– it could be anything, it could be Tony Robbins, it could be sales books, it could be Zig Ziggler, Tom Hopkins, whatever . . . Just get in the habit of reading, even if it’s only for 20 minutes a day or a half hour a day where you wake up and you start your day with that and it just gives you ideas; it gets you in the right mind set. [Basically] you need a personal mentor, and I use a lot of those books kind of as that to get me upbeat and get me going.

Read blogs about other people who are working at doing what you’re doing. They’re proof it can be done.

Read the Butler Project. Every time I listen to or read about a millionaire interview, I am inspired and feel like I can take on the world. They did it. So can we!

9. Reward yourself.

When you get to a certain point, you’ll have some financial and business breathing room. Think about a “sunny” day fund. Even if you’re just saving $10 a week of your grocery money so you can go to lunch with a girlfriend or buy a pair of shoes in a few weeks, it’s a good idea to have plans for you.

10. Remember, it takes time to change your life.

Whether you’re working on paying off debt or building a business, expect that it will take a significant length of time to produce significant results. Our family owns an ecommerce site. Last summer, after working on it for a good 10 months, we were all pretty much ready to throw in the towel. We were doing a lot of work for a very little money. We took 2 months off. After the break, we got together and decided to make some significant changes on the site and with our suppliers. Then we got to work. It was a lot of hard work and still, the results were meager.

Then the Christmas season began, and business picked up. We were enthusiastic and eager again. January came and we expected the same serious slump we had experienced the previous January. It didn’t come. In fact we held steady through January and February and now we’re setting new records for traffic each week.

Remind yourself it takes time. All the hard work we did months ago (setting up accounts with new suppliers and entering literally thousands of products into our database) is paying off now. We’re not entering new products anymore, but we are enjoying the results of that hard work months later. The little things you do today (saving that 10 bucks, or advertising your business, whatever you’re doing) can make a big difference tomorrow or next week or next year. It takes time.

Recently Oprah did a show about Living With Less. She introduced her viewers to two families who live wasteful and, I think somewhat unconscious lives. I recommend you follow the link above and check the story out for yourself, but I’ll give you a quick recap here too.

The Dominguez Family

First was the Dominguez family. They admitted to being wasteful in many ways:

• heating or cooling the house to the same temperature outside
• throwing leftovers and other perfectly good food away
• cooking three or four different meals for dinner because the kids are picky eaters
• drinking half of a water bottle and then throwing it away

Oprah also highlighted the fact that the family spends a lot more time with their personal electronics (ipods, dvd players, Tvs, video games, cell, phones, etc) than they do with each other.

The Keegan Family

Next was the Keegan family. They waste a lot of electricity and food; they go through a roll of paper towels and many paper cups and plates a day. The kids are addicted to consumer items including vanilla steamers from Starbucks and video games.

Oprah challenged each of these families to live with less–to turn off the TV, to take the bus to school, to share the same meals, to drink tap water, to eat out less, to use less electricity, and to generally think more about their consumption.

After the week long challenge, the families ultimately found they were happier and more connected. They both claimed they would continue to make changes and live a simpler, less consumer oriented life.

I loved that one of the moms, Kriss Keegan said, “We were checked out. We’re checked in now.”

Shannelle

After the families, the viewers were introduced to Shannelle, who had been living a life centered on consuming just a few years ago. She was making 6-figures, eating out most nights, wearing the best and most expensive clothes, and was completely unaware of how her lifestyle was affecting her. “Before I saw the Debt Diet show, I was focused on just consuming and not really knowing what I was consuming,” she says. “I had the hottest, the latest, the cutest, the best. I lived in 675 square feet, and I couldn’t understand where my money was going.”

Shannelle, after watching Oprah’s Debt Diet show, made serious changes to live on less, and do more for herself (like styling her own hair). Her new philosophy: “I want to make sure that I only use what I need, not what’s available to me,” she says. “Life is not about spending. It’s about living.”

Harpo Studios

At the very end of the show, Oprah told the viewers that her studio goes through about $41,000 a year in disposable cups. After staging a “no paper cup” day at the studio, she decided to make it permanent.

What can we learn from this show?

What struck me about the families highlighted was how unaware they were of their lifestyles. It seems to me that their lives were lived in reaction to what was going on instead of deciding how they wanted to live and making it happen. They weren’t considering what was going on and if that was really how they wanted to live.

In Business

Take Oprah, for example, she feels very strongly about “going green,” recycling and not wasting precious resources. I’m sure it was a shocker to her when she realized how much money she was spending and how much trash she was creating through the use of paper cups. That’s not okay with Oprah, so she made the conscious decision to change the situation and bring it in line with how she wants to live her life.

In Parenting

If you’re a parent, think about how often you just let your kids watch TV, play video games or spend hours texting because it’s easier? When our kids are engaged in electronics they are quiet, they’re not making any trouble, they don’t require any brain power from us . . . we parents can do what we want. But we’re reacting to life instead of looking at the situation and thinking about how we really want it to go. If you’re looking at what’s really going on, you know you are the parent; it’s your job to raise this child into a responsible adult. You know video games and TV do little to help with that responsible adult role. You know you only have a limited time with your child. So, you decide to put down what ever you’re doing and take a few minutes with your child: read a book, ride a bike, help with homework, do a science experiment.

In Finances

Same with finances. Mr. Dominguez’s comment at the end of their segment was “Some months, I have to borrow money. If I get a bonus, I can pay back my mother or friend. Right now, I’m on the brink of, borderline, where I’m going to lose everything.”

I’m sure it’s not really okay with Mr. Dominguez to ‘lose everything’ over cell phones, half empty water bottles, a thermostat set too high, and a garbage can full of perfectly good food. I’m sure he and his family could sit down and make some decisions about how and where they want their lives to go and then figure out what role money needs to play in getting there.

Thank You

We can all learn from these examples; we can all take a minute or an hour or a week to examine our own lives, our own spending, our own family time and consider if we are really living the lives we want to live.

Thank you Oprah, and thank you Dominguez and Keegan families for having the courage to share these stories.

Back in October of 2006, when Ford announced it would no longer be making the Taurus,  Saturday Night Live’s comment was, “Now, people in their 30’s will have to find another way to announce to the world that they have given up on their dreams.”

While a lot of people bought the Taurus, it did always fall short in the style category.

What does your car say about you?  What do you imagine people think as they see you climbing in or getting out of your car?  Do  you hope your car tells the world you’re successful and smart?

Does It Matter?

Maybe, maybe not, you’ll have to decide that for yourself, but one thing that matters to all of us (whether you want to think about it or not) is the bottom line of owning a car: How much will it cost, and how will you pay for it.

Your Plan

How does a car purchase fit into your financial planning?  Are you preparing for it by socking away a car payment each month in your savings account?  Or is your plan to sell some stock or other asset to come up with the money?  Will you take out  a loan and “figure out” how to pay for it as the need arises?

If there is one thing I’ve noticed about the millionaires we’ve interviewed, it is that they don’t like debt.  They think about their finances and plan more than the typical person how to make and how to spend their money.  They stay out of debt.

What does this say about buying a car?  It’s pretty much all about what you can afford.  How much car can you afford?

A Car Is Not a Good Investment

We all know cars depreciate–they lose some of their value every day, at an average of 15-20% each year, even more the first year.  That means that a car that was worth $24,000 new will lose approximately $4800 of it’s value the first year you drive it.  Would you invest in an investment that was guaranteed to lose 15 to 20% every year?  I think not.

A car is an expense. And not just the purchase price, everything about a car is an expense.  When you’re planning how to pay for a car, remember after you buy the car you pay tax, license, and registration, you fill the tank with gas, you pay for insurance, repairs, and maintenance.  You pay to wash it; you pay to park it.

I’m not telling you this to depress you, I’m telling you this to open your eyes to the way a car fits into your financial plan.  Avoiding unpleasant thoughts, like all the extra expenses associated with a car is the way we get ourselves into debt and other financial troubles in the first place.  Taking the time to examine your feelings and the total cost of ownership is actually the way to take control of your finances instead of being controlled by them.

So, Think About It

How will  you pay for the car?  Will you go into debt?  Will you really go into debt to lose a guaranteed 15 to 20% of your money each year?  Ouch.  You don’t have to go into debt.  You could be saving money each month in anticipation of your next purchase.  You could find ways to spend less and choose a less expensive car to drive.

There Are Ways To Make Purchasing A Car Smarter

Here’s how one of the millionaire couples featured in The Millionaire Next Door does it: As farmers in cotton country, they shop for quality, late model, used Japanese cars every 2 to 3 years.  They find they can get better prices in the city from private owners, they drive those cars for two or three years and then sell them in their rural community for close to the price they paid.

Why Japanese cars?  It seems they hold their value well and require few repairs during those first 5 to 6 years.  This millionaire couple lets someone else drive the worst of the depreciation off the car and then finds cars that will sell well in their area when they are done.

You too could figure out a system where you’re not taking the brunt of the cost of owning a car.  The Internet is full of information to help you. Sites giving new and used car prices abound.  Edmunds.com has listed cars by depreciation rates.  There is great cost of ownership information at the Internet Autoguide.  Many auto insurance sites will give you a quote if you’ll give them your specifics.  Use that information to find out which car models you’re considering cost the most or the least to insure.  Cars that cost less to insure typically cost less to repair.

Points to remember:

• Don’t be defined by what you drive.  Get a car you like, but don’t let your emotions take over the car buying process.  Driving more car than you can afford might look good on the outside, but having control of your finances feels good inside and out.
• A car is not generally a good investment.  You can, however, find ways to minimize your depreciate costs through researching depreciation rates, insurance costs, and total costs of ownership.
• Take the time to plan how you will pay for your next auto.

Last Friday I talked about what it would mean to your financial situation if you could earn an extra $500 per month. Using that $500 wisely will make a huge difference to your financial goals if you’ll stick to it over a 15-30 year period.

Here’s the problem: most of us don’t have that kind of attention span, and it’s hard to stay enthusiastic about goals that won’t really pay off for a couple of decades.

So, today I wanted to take the idea of the extra $500 a few steps further. See, you always hear about how money compounds, and how a little money invested at a conservative interest rate over a long period of time will make you financially independent. It’s a sound philosophy, and I don’t challenge it. I hope everyone that reads this will save and invest as aggressively (and wisely) as they can.

But what about those of us that don’t want to spend the next 30 years becoming financially independent? Is there a faster way to do it, without falling into a ridiculous get rich quick mentality?

I believe there is. If you want to become wealthy in less than 15-30 years, you have to leverage more than your money and the financial markets. You have to leverage yourself. The Richest Man in Babylon says a key to becoming financially independent is to “Increase Thy Ability to Earn.”

There’s more to the wealth equation than spending less and saving more - you also need to consider what earning more would do for your situation, and how it would accelerate all your financial goals. And I’m talking about more than an extra $500 per month.

Let me see if I can stretch you mentally a little. Work through this mental exercise with me, and see what you come up with. I’ll warn you in advance that you’ll finish this exercise with more questions than answers. That’s the point.

I’m going to give you a Six Year Plan for earning an extra $100,000 per year. Write this down, because it’s bulletproof. There is only one prerequisite to making this plan work: you have to be willing to invest the time. How much time? 15 hours per week.

Year 1

In year one, you’re not required to earn any extra money at all. What you have to do is invest 15 hours per week into the discovery of how you could earn an extra $500 per month. Read, research, talk to people, investigate, figure it out. The only questions that really matter in year one are: 1)How could I make an extra $500 per month?, and 2) Am I willing to do the work associated with the opportunities I’m finding?

Are those easy questions to answer? Nope. Is becoming wealthy and independent easy? Nope. Deal with it. Do the work.

By the end of year one you need to have chosen a vehicle for earning your extra $500, and you need to have started doing the work associated with making the extra income happen. Your time requirement is still 15 hours per week.

Year 2

By the end of year two, the $500 should be rolling in every month. You’re not rich yet, but who couldn’t use an extra $500 per month? For anybody making less than $60,000 per year, that’s more than a 10% raise, and for anybody making less than $100,000 per year that’s at least a 5% raise. Not bad at all.

Year 3

You’ve entered year three now. Year three has only one purpose: figure out how to turn that $500 per month into $1,000 per month. How? Great question. Figure it out.

By the end of year three you will have found your answer and you’ll be making an extra $1,000 per month. I hope nobody disputes that $12,000 on top of whatever you’re household income is makes a big difference to your stress level and your belief in your financial goals. This is some real progress.

Year 4

Guess what you need to do in year four? That’s right. Figure out how to turn the $1,000 per month into $2,000 per month. Again, the question is How? And again, the answer is you tell me. But oh what a difference that $2,000 per month is going to make when you have it.

According the Census Bureau in 2006, median family household income is about $59,900 per year. An extra $24,000 per year would represent a 40% increase in income. And all you have to do is anwer that question: How?

Year 5

You’re making a great supplemental income at this point, but we’re not finished.

You’ve completed year four of the six year plan, and in year five you have just one task. Turn the $2,000 monthly income into a $4,000 monthly income. And remember - you’re only allowed 15 hours per week to work on this project. Seem impossible? I guess it probably does to many of you. But somebody is going to figure out How, why shouldn’t it be you?

By the end of year four, you’ve succeeded, and an extra $4,000 is flowing to you each month. At this point, you’ve probably seen some changes in your lifestyle. Your ability to pay off all debt and invest wisely has been multiplied ten times or more. If you stopped here, and managed your money wisely, you’d be virtually guaranteed financial freedom in a relatively short period of time.

Year 6

I wouldn’t stop though. If you can just get through year five and throw yourself into year six, there will be a big reward.

In year six, double your extra income one last time. Take it from $4,000 per month to $8,000. I know I said $100,000 per year, but hey - you got this far. I’m sure you can figure out a way to make the extra $4,000 that will get you to a nice round $100k.

A lot of the people who read this post will call it ridiculous. “It’s not that simple - you can’t just earn an extra $500 per month and expect to double it every year for five years.” Maybe they’re right. Let’s say you throw yourself into this and you only get half way to the $100,000 goal? Are you still a lot better off? What if you only get 25% of the way to the goal? I don’t think you’d turn down an extra $25,000 per year.

The only question is “How?” There are ten thousand different answers to that question, and they’re all right. To end, I’ll give you another one of my favorite quotes. This comes from Peter Drucker, management legend:

“We greatly overestimate what we can accomplish in one year. But we greatly underestimate what we can accomplish in five years.”

$500 per month. What difference would it make in to your financial goals if you could scrape together an extra $16.67 each day? You could…

1. Pay off Your Mortgage

If you’re a fan of the school of thought that says get rid of all debt first, including your mortgage, you could apply the extra $500 per month toward that loan and it would make a drastic difference in how much interest you paid and how long it took to pay off your home. Here’s an example:

$250,000 Conventional Mortgage, 6.5%, 30 Year Term

If you make no additional payments, your total interest expense will be $318,861.22.

If you apply your extra $500 per month to your mortgage, your total interest expense will be cut by more than 50%, to $155,345.27, a savings of $163,515.95.

2. Pay Off Your Credit Cards

If you owe even $5,000 at 18%, it will take you about 26 years to pay off the card, and by the time you’re finished with it, you will have paid $7,115 in interest.

If that doesn’t blow your mind (it should), think of it this way: if part of that balance was a pair of shoes you bought your 14 year old son for $75, by the time you were done you would have paid a total of $129 for those shoes, and you’d finish paying them off when your son was 40.

If you applied the $500 per month to that $5,000 balance, you’d pay it off in 11 months and only end up paying $458.11 in interest. That’s an interest savings of $6,656.89.

3. Accelerate Your Retirement

Let’s say you’re saving $250 per month in a mutual fund at 8% annual return.

After 30 years you’d have $372,589 in your account.

If you added $500 per month to that monthly savings plan, you’d triple your final result to $1,117,769.59.

It’s Common Sense, So Why Aren’t You Doing It?

None of the math here is mind-blowing, right? And it leaves an obvious question: “Sure, that’s all fine, but I don’t have an extra $500 per month, or anyway to get it.”

Don’t accept that kind of thinking for yourself. You gain a huge amount of power in your life when you stop saying “I can’t.” and start saying “How can I?” I can’t shuts your brain down, depresses you, and becomes a self-fulfilling prophecy.

“How?” Is the Most Powerful Question

“How can I?” triggers the creative and enthusiastic parts of your brain, and if you’ll ask yourself that question enough times, I guarantee you’ll soon have a flood of ideas.

True, most of your ideas won’t pan out. But only one of them has to work in order for you to put things in motion for you to achieve your goals so much faster than you would have otherwise.

Start asking yourself the question “How can I make an extra $500 per month?” and invest the mental and emotional energy into making your ideas a reality. It will be worth millions of dollars and even better, peace of mind.

Let’s say you have a rich uncle. You probably don’t, but let’s say you do. And let’s say your rich uncle dies, and since you’re the favorite niece/nephew of your rich uncle, he lives you $1 Million in his will. No, let me rephrase that - he leaves you enough money in his will that you have $1 Million left over even after you pay taxes. Incredible, right?

I know this is a stretch, but stick with me. This is a mental exercise that will help you learn something about yourself and your financial personality. And hey, it’s not a bad fantasy.

So you have the money, but there’s one problem…what are you going to do with it? I’d say most people don’t have any idea what they’d do with a million dollars if they had it. Work through this exercise with me. You’ll learn something about yourself, I guarantee it.

Discover Your Financial Personality

I’m not going to answer any of the questions below for you today. In a series of future posts we’ll take them on one at a time, but at this point I want you to do the work yourself. Sit down with a piece of paper and a pen and do your best to answer each of the questions above. Think of it as the beginning of your financial autobiography. After you’ve answered them, you need to justify your answers to yourself.

Here are a few questions to think about as you decide what to do with your million:

1. Would you pay off your mortgage and all other debt?

What would be the upside of paying off all debt? What would be the downside? Could there ever be a downside to paying off your debt?

2. Even if you paid off all your debt, you’d probably have some money left over (I hope!). What would you do with the remainder?

Would you buy a new car? Would you buy some toys?

Would you invest some or all of the remainder?

3. If you decided to invest the money, how would you invest it?

Would you buy stocks, mutual funds, or real estate? What about bonds? Do you know the difference?

If you were going to buy real estate, what kind of real estate would you buy? Rental property? Commercial or residential? Raw land?

Make Decisions According to Your Values

I’m guessing a lot of you won’t be able to answer the questions with any confidence. You may be able to answer the questions, but could your decisions stand up to direct attack? They’d better be able to, because your financial choices will be attacked every day - directly by the media and indirectly by the decisions you see other people make.

A big key to becoming financially independent is the ability to identify your financial values, make decisions according to your values, and then stick to those decisions no matter what you see your neighbors do or what the media tells you.

Take an hour to write down your answers to these questions. If you don’t write your answers down, you’ll forget your thoughts within minutes, and they’ll be of no value you to you. By writing them down, you make them concrete in your mind. This will pay off!

*Image credit: g.naharro

The Hard Work

Yesterday’s post was the warm up, today comes the hard work. Putting your budget on paper is difficult. Not only is it detail work that requires time, the process of putting your income and expense on paper dredges up a lot of emotions. There are two things you can do about that:
1. Keep reading this blog and find some books to help you work through the emotions of money.
2. Dive in and get to work.

Putting together a budget is not something that can be completed in one evening. Not even a long weekend, for most people. It’s going to take a good two weeks to a month to really get an accurate budget, and you will find it will still need some tinkering. That’s OK. Set aside some time to get started, and then work on it as the data becomes available.

Income

Sit down with a pencil and paper or an Excell spreadsheet and start with your income; I always list income before expenses to remind me the money needs to come in before I can spend it. Here you include your salary/wages, dividends, interest, rent, pensions, gifts, and any other income you take in. Total your income.

Expenses

To make your budget realistic, you need good data on your spending habits. Write down the categories where you spend money. Dig into your checkbook register and credit card statements and pull your expenses from there; if you have all of last year’s spending data, great. If you only have 3 months or even just 1, that’s a start. If you use a lot of cash, you’ll be looking through receipts or estimating. Be as accurate as you can be, and remember expenses that come less frequently, such as registering your car, trips to the dentist, insurance payments, and Christmas shopping. Take the next two-four weeks to keep track of every income and expense. For lists of possible expenses, scroll down on this page. Finally, total your expenses.

The Results are In

Now, hopefully your expenses are less than your income. Or, they are the same because you have already included your savings and investments in your expense categories. If you are spending more than comes in, you definitely need to start adjusting your expenses and think about increasing your income. Spending more than you make is absolutely unacceptable.

As you look at your budget, are you surprised by any categories? Did you know you spent that much on clothes or eating out? Can you believe how much you are spending on fuel or rent compared to the amount of your income? Are you saving as much as you could be?

This is where budgeting becomes so powerful! Right in front of you you can see where all your money goes each year. Do you like how those numbers look?

This is probably the part that people hate about budgets. Because the “happy/fun” things they spend their money on each day are the things that they think they “should” cut back on. If there are things, “creature comforts” perhaps, that you want to cut back on, be reasonable, know thyself, and act accordingly. Don’t cut back so drastically that you feel completely deprived and end up going on a spending spree and spending more than you would have before the budget.

It’s OK to include expenses in your budget that make you feel good. Budgeting is not about depriving yourself; it’s about using your money to give yourself the life you want, now and later.

The important thing right now is that you have your budget and you are not spending more than you are earning. as you keep learning, particularly about topics such as budgeting, investing, goals, retirement planning, saving, and making more, your budget will change as your priorities change. So get your budget on paper, and make some judgments about if your spending and earning is consistent with who you want to be.

Summary

1. Budgets are good things. Use your budget to make sure you are using your money to create the life you want to live.
2. Don’t listen to the “shoulds.” It’s your life and your money. Make it work for you.
3. Sit down and do the hard work of budgeting. This includes
recording all your income.
recording all your expenses.
making sure you are not spending more than you are bringing in.
making sure your expenses match your values and your goals in life.

Budget. There I said it. If we had a “report inappropriate content button,” would you use it? Do you hate the word “budget” or do you just hate the idea of living by one?

Why do people hate budgets?

If you think of a budget as financial shackles or the proverbial ball and chain, think again! A budget is one of the essential tools of personal economic growth. Unfortunately, the term “budget” has so many bad connotations because people don’t understand and aren’t willing to face the emotions that come with budgets. I’m here to tell you I have a budget, I use a budget, and budgets are good things!If you are the one who makes up your budget, you can allocate your money wherever you want. It’s all about funding your life. And by life, I am not talking about you getting up and going to work, getting through the day, and then grabbing take out on the way home. I’m talking about you deciding who and where you want to be and making sure your spending lines up with those goals.

Control, Freedom and Peace

Your personal budget is your plan for how to use your money. It helps you make sure you reach your goals instead of frittering away your hard earned cash on things and experiences that don’t take you closer to your goals. A budget is a huge part of being financially responsible and it allows you to TAKE CONTROL.

Ironically, you will actually find freedom in using a budget. The freedom comes from the fact that in following your budget, you are actually working towards your goals instead of just hoping you’ll achieve them.

In using a budget you will find peace. The peace comes from knowing everything is taken care of. Depending on your situation, this peace may take a little bit of work to find, but setting forth a budget is the first step on the road to taking responsibility and controlling your financial future. The Peace will come.

The Shoulds

The problem comes in then if you don’t know your goals or where you want to be. If you’re not confident and passionate about your goals, then you start listening to the “shoulds,” The “shoulds” are what other people tell you you ought to do with your money.

“You should have a college account for each of your children.”

“You should be saving 10% of your income.”

“You shouldn’t have spent that much on your house.”

I hate the word “should” and I’ve just about removed it from my vocabulary. You could do the same. (Doesn’t that sound better than “You should do the same”?) Your budget is not about what other people, even experts tell you “should” do with your money. Your budget is about how you want to use your money for your life. Of course, once you learn more about financial planning and decide where you want your life to go, you may take a lot of the expert advice, but it won’t be because you think you “should,” it will be because you’ve decided it’s the right thing for you.

Take Action Today

Today, start to come to terms with the idea that a budget is an essential tool for creating wealth and directing your life. Your budget, if you stick to it, can take you where you want to go. Think about where you’re going to start spending your money. Think about how you are going to start funding your LIFE.Tomorrow, we’ll look at the steps involved in putting it all on paper.*Be sure to check out the other great posts at the Carnival of Personal Finance!