Have you ever felt fear in the pit of your stomach or anger and hopelessness when you thought about making a budget? Then you probably haven't looked up the word in a good dictionary to find out what it means and how you can use that information to make money.
Here's the good news: just because you're on a budget doesn't mean you have to buy cheaper things or stop having fun. What it does mean is that you have to figure out how to make enough money to buy the things you want and keep your spending within the limits of your income.
Even better, the most valuable thing you own is yourself and your ability to make money. Find a way to be more productive and earn more money if you want a bigger budget.
Another way to describe a budget is that it is the amount of money that an organisation or household needs to run and reach its goals.
Let's look at the first part of the definition: what you and your business or household need to work. Add up everything you spent money on in the past year, including what you put on credit cards and the interest you paid on that money. That number should be divided by 52 and multiplied by 1.036. The total is your budget for the week. That's how much money you need to bring home each week just to get by and keep up with rising costs. That doesn't include paying interest on interest on credit card debt.
More than likely, you also want to reach financial goals (the second part of the definition.) Getting to these goals should also be a part of your budget. For example, a couple wants to go on a cruise for $2,000 in six months and start saving for a $20,000 used car to replace their current one in two years.
They divide the cost of the cruise by the number of weeks until the cruise, which is 26. This tells them that they need to save $76.92 every week to pay for the cruise. This is added to the budget, which means that they have to put more money into the bank each week.
Now, they divide the cost of the $20,000 car by the 104 weeks they have in 2 years and find that they need to save $192.31 each week to pay cash for the car. This is added to the budget as well.
If you want to work because you want to instead of because you have to, financial freedom is the most important goal. The most important part of your budget should be the money you set aside in a savings plan and never touch. Find out how much you'd need in savings to live if you didn't have to work. Divide that amount of money by the number of weeks left until you want to be financially independent. Find a way to make that much more money every week, and you'll be on the right budget track to financial independence.
Do you want to be a millionaire in 20 years, for example? If you can find a way to save $961.54 every week for the next 1,040 weeks, you will have made it. The interest growth will be a bonus that more than covers the cost of living increase each year.
