It’s been said that “the truth will set you free.” I agree strongly with this statement, but with a slight modification, the truth will set you free after it pisses you off. In the world of money this may be a truth you need to come to terms. Getting ahead financially is not about sticking your head in the sand and living ignorantly paycheck to paycheck, but being proactive and understanding your spending habits. Unfortunately, to do this takes one uncomfortable step; budgeting.
Because you simply spend what you make and there is no money left at the end of the week (or month) to get ahead.
Too much month at the end of the money as they say
We trick ourselves into believing that more money will solve everything. It becomes our plan to push off budgeting and financial planning until we get a raise, a new job, or win the lotto. It’s hard to believe, but this will not solve the problem.
So what will solve our current money problem? YOU. You must master your money by knowing how to live on and handle the money you currently make. This is done by designing a budget and sticking to it.
However, all money success builds on this foundation. So once you accept this truth the are some key steps that need to be taken to implement it.
The life changing exercise:
Step 1: figure out how much money (after-taxes) you have coming in each month
Step 2: plot your monthly spending habits by item, date, and amount
- Including calculating rent, cable, insurance, gas, food, cigarettes, and everything else you spend money on.
- You also must know the dates your bills are due and track your cash flow.
- The blueprint must make up 100% of your spending.
Step 3: live within your means. Ideally, your income should match (or preferably surpass) your spending.
Budgeting takes discipline. However, having the willpower to do this sets the foundation for a prosperous financial future. It sounds simple but everything that is simple to do is also simple not to do but if you can do this you have taken the first, most important, step towards financial freedom.
Austin Kelly, MBA