Now I will tell thee an unusual truth about men and sons of men. It is this: That what each of us calls our “necessary expenses” will always grow to equal our incomes unless we protest to the contrary… All men are burdened with more desires than they can gratify.
– George S. Clason, Author
A budget is simply a way for you to gain control over your money. It is the tool you use to protest against your necessary expenses growing to equal, or exceed, your income. There are many different ways to budget, and everyone has to experiment until they find the method that works best for them. We are going to review some budgeting methods that have worked for others, starting with what I call The Simple Budget.
This budget is for those who naturally recoil against the restraints of a traditional budget, and don’t want to spend a lot of time or energy on personal finances, but need to gain better control over their money. To implement it do the following:
- Simplify your financial structure – A simple budget demands a simple financial structure. Have only one checking account, along with a savings and investment account. Stop using credit cards and close any credit card accounts without balances. Make a plan for paying off credit card accounts with balances.
- Pay yourself first – Every time you get paid place a percentage of your earnings in your savings or investment account. If you wait until everything else is paid you will never pay yourself. The percentage you save is up to you, but at least ten percent is a good rule of thumb. If you are paying off debt you may have to reduce this temporarily, but start saving at least something. Establishing the habit of saving is the important thing.
- Live off the rest – There are no categories to tie you down. Everything else goes into one category, with the simple rule that you can’t spend more than you make. Pay for necessities first, and if there is any left use it how you wish, without guilt. You need to carefully track the amount in the checking account to make sure you don’t overspend, and you should reconcile, or balance, the checking account monthly.
As promised, this method is simple and easy to implement. It is not very sophisticated or precise but, if adhered to, it will help you gain control over your money and begin saving for the future. Over time you might want to fine tune this method with some of the other ideas we will discuss, but simply doing this is a great start in the battle to keep your necessary expenses within the bounds of your income.
I would add that a person should also set aside a charity, giving, or tithing amount before expenses this money will return to you in ways that you will never imagine, I promise. With the money you pay yourself first focus on building your assets, use the left over to reduce liabilities.
I agree that putting money aside for charity should be a part of every financial plan, but since I labeled this “The Simple Budget” I wanted to keep it as simple as possible. Under this scenario the contribution to charity would fall under the “spend the rest on whatever you want” category. Hopefully giving to charity would be included. I think most people need a more detailed budget than this, but this would at least be a start.
I would say this is a “Must Read” for Sir Peter