It's all about the budget. It's just one of those lessons that cannot be addressed enough. If you and your family want financial security, establishing and adhering to a budget is the only answer. They are the window to your future and a reference to past expenses. Putting your income and expenses into a written form, for your eyes to see, gives you so much power. Why? Because budgets systematize your mind and your wallet. They help you prevent spending money you don't have. You'll notice good and bad spending habits and make more informed choices. They prepare you for the planned (vacations, special purchases, etc.) and the unplanned (emergencies). They get you ready for retirement and best of all, you'll sleep better at night, because an organized mind means organized time.
To establish a budget means simply to figure out what money is coming in (Earnings) and how much is going out (Expenses). Every single dollar in a budget will have a job...even if that job is for emergency savings, charity, or cash flow planning (saving for something special in the future). But no dollar will be left unidentified or left behind. These are the soldiers under your command and you must account for every single cent.
First Step: Determine your take-home (a/k/a "net") and get it expressed into a monthly figure. Let's say I get paid every Friday. After income taxes and deductions, what goes into my bank account is my net pay. I will multiply that amount by 52 (weeks) to come up with an annual figure and then divide that amount by 12 (months) to determine my monthly net pay.
Second Step: Look at all your bills, which are typically due each month: Rent, Mortgage, Gas, Electric, Water, Utilities, Loan Payments and Credit Cards (let's concentrate on the minimum monthly payments for now).
Third Step: Establish expenses. The ultimate goal here is to end up supporting your Four Walls, which are 1) housing, 2) food, 3) clothing and 4) transportation. But start with known regular expenses: Mortgage/Rent, Utilities, Loans (Auto, Credit Cards, Personal Loans, etc), and then add in your estimation of food and clothing.
Fourth Step: Subtract these expenses from your income (on a monthly basis) so that you can get a picture of where you are. Do you have money left over or do you need to generate more income?
If your answers are somewhat nerve racking, DO NOT PANIC! Panic leads to reckless decisions that will put you deeper in the $ hole. If you want someone to hold your hand through the initial phase, hire a financial coach. We will talk you off the ledge and coach you to the place you want to be.
It's important that you realize, nothing is out of your reach, when you practice sound habits. You are going to learn to master your time and finance skills one step at a time, until you have the perfect rhythm. Like any new skill, it takes practice, repetition and results measurement. What are you waiting for? Start a budget!
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