Hi It’s the middle of the week again and it’s time to get down to business, right? Today I want to discuss what might be your most feared topic, budgeting.
It seems like such a simple way to save money and get out debt. But if budgeting was easy, don’t you think more people would be financially independent? I’m not asking for a medal here for being the first to talk to you about personal budgeting (at least I hope I’m not the first). I can, however, equip you on some easy ways to create your budget.
If you have been reading My Daily Thoughts for a while, it’s been six months since we discussed personal budgets. In other words, it might be time to reassess your budget again as well!
The first thing I suggest to any and every one when going over personal finances is to get a hard copy of your bank statement from the last 30 days! Along with your bank statement, try to write down everything you spent cash on. You don’t have to remember every single item, but try to write down as much as you can.
I always suggest hard copies because there is a mental disconnect between looking at numbers on a computer screen. You need to be physically holding those numbers!
With both of these handwritten pieces, follow the steps below:
1. Take out a handful of highlighters, and start assigning colors to different transactions. For example: Green for bills, pink for food, yellow for fun money, purple for misc.
2. After you have highlighted everything start adding up each category so you can visually see how much you are spending on food or “fun”. At the end of this exercise you should have 4 or 5 different numbers that represent your spending habits for the past 30 days.
3. You might be surprised at your personal spending habits, so now it is time to assess where you can cut down. Do you need to be spending hundreds of pounds on eating out?
This is usually where I get a lot of questions or people start defending their spending habits. “Andrew, eating organic is a necessity for me.” That is great for you! But do you need to eat all organic AND your £5 latte every day?
Your personal budget is just that, your personal budget. Only you know what is a luxury and what is a necessity in your life. Just realize in our society we have built up many so-called luxury items to be a necessity.
Remember: Always weigh your ego against your bank account. Is this transaction a purchase for my ego? Is going out to eat and getting drinks so frequently worth putting you behind on your bills? Is having the newest iPhone worth it? A few items might be worth it — but the second you start defending every luxury item on your bank statement is a sign your ego is butting in.
Look, budgeting isn’t easy, but it really can be simple. And the pay out of being out of debt is beyond worth it. Also, if you’re teaching your children great budgeting tips now, can you imagine how that will benefit them later on? Make this Daily Thought your topic at the dinner table tonight! Leave your comments here and share the link with your friends.
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