When you level up your budgeting game, you will instantly see the results in your confidence and bank accounts.
Most people do not live on a budget at all. They simply funnel their money into their direct deposit account and try to have one dollar left at the end of the month.
If you take a few steps further, you can ensure you have money for saving, investing, paying bills, and personal expenses. Let's get started.
The power of a budget. Is budget a bad word? If you read anything online, you would think budgeting is the worst thing ever.
The media will have you believe that a budget confines you and makes you too much of an adult. A budget is there to destroy your fun before it even starts.
But in actuality, a budget does the opposite; it sets you free to do whatever you want. You get this freedom by performing a balancing act.
Let's create a hardcore budget. Let's say your household (two parents, two minor children) brings in $10,000 monthly after taxes and 401K contributions.
Most people would pay their bills and have a general idea of their food, clothing, gas, and entertainment budgets. But we are going to go much deeper.
- Mortgage: $2,000 (Wells Fargo)
- Utilities & Miscellaneous: $1,500 (Wells Fargo)
- Family House Food: $1,000 (USAA)
- Family Dining Out: $500 (STASH)
- Saving & Investing: $3,000 (M1 Finance)
- Car Payments: $1,000 (Wells Fargo)
- Spouse #1 Personal Allowance: $500 (Discover)
- Spouse #2 Personal Allowance: $500 (Discover)
The key to dividing up your budgets is using separate accounts and automatic transfers to get the money into its correct place.
Moving money around. Let's say your $10,000 direct deposit arrives in your Wells Fargo account. Your mortgage, utilities, miscellaneous, and car payments come from there.
On the first of the month, you want to automatically have Wells Fargo transfer your cash to the other accounts.
Diving deeper into complex bills. You should have a detailed budget breakdown for your bills and miscellaneous expenses.
You want to track your gas, electric, water, trash, cable, and insurance bills every month. You must also keep a running tab of annual expenses such as car registration, Microsoft Office, gym memberships, and HOA fees.
I cover this topic more in-depth in "I Love Paying Bills: Because I Mastered It." It may seem like overkill, but if you budget correctly, you will start seeing extra money in your account at the end of the month.
Going deeper with food. If you allocate $1,000 per month to food, you will spend at least $1,000 on food. With inflation on the rise, it's easy to overspend here.
However, the tighter you keep your budget, the more money you will save. Instead of setting your budget at $200 per week, set it at $150.
You will have to make tough choices, but that's the fun of budgeting. Give your kids an incentive to help you stay under budget.
Three good books to read are "The Everything Budgeting Book," "Living on Almost Nothing," and "Early Retirement Extreme."
Each book will guide you to money and get better results from your shopping. For example, "Living on Almost Nothing" teaches you how to make your own laundry detergent.
Family Fun. You can practice the same principles with your dining-out budget. Sure, you can go out twice at $250 a pop. Or you can set your weekly budget at $50.
This low budget ensures you are searching for the best deals online or on the apps. If you skip a week, you can go somewhere fancier next week.
Life is about compromise, so make it fun for you and your kids. Whatever money remains in the family pot gets split amongst the family members or goes toward a staycation.
Getting personal with your personal allotment. We each need our own free cash that we can spend without remorse.
I like to split my spending limit into daily increments. In this case, $500 per month equals $16 per day. Why do I like the daily approach?
It helps me stay abreast of my current totals. The other budgets cover everything else, so this is my guilt-free money.
However, I will overspend quickly if I don't keep tabs on it. I can use my daily budget to balance my spending and ensure I buy what I want.
For example, say I want to buy a video game for $200. Instead of buying it early with the money, I stay on my best behavior for two weeks.
My budget shows I have "saved" $200 by underspending my daily allotment. I can now easily purchase my video game without remorse or second-guessing.
Saving and investing for the win. The best part is that you pay yourselves first by saving and investing.
In fact, as income investors, you will continue to add more cash flow to your household through dividend investing.
You can keep your hardcore budget but also understand that your dividends continue to grow your wealth and cash flow.
Your dividends are there for any occasion, including emergencies and vacations. It's nice to have something exercising the power of compounding at all times.
My wife and I like to put some dividends on our Dividend Debit Cards through Cash App. It gives us additional resources to survive each month in style.
Conclusion. This hardcore budget setup may seem like overkill, but it works wonders. I have never felt as rich as I do under this budget. I always find new money in my accounts; I'll show you how.
I have a $1,500 per month ($50 per day) budget in San Diego; I track this budget religiously daily.
I have between $100 to $300 remaining at the end of the month. However, I don't have a use for this cash; I just receive my next $1,500 allotment on the first of the month.
After a few months, I looked over my accounts and discovered I had $900 "sitting at the bottom" of this account.
When you budget, you only focus on your numbers, not your account balance. In fact, you rarely have to log into your websites at all (only to keep tabs on the banks).
The more you use your Excel spreadsheets and not your online banking to reconcile, the more money you will have left over. I love budgeting because it will make you richer than you can imagine. Good Luck!
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