Some say there’s a thin line between love and hate.
Well, often there’s also not a lot of wiggle room when you’re walking the line between your income and your expenditures.
Charles Dickens said it best:
“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
Spending more than you might be fun for a while. But if you keep it up, the exuberance turns into despair. Take it from someone who has been there…
When I owed $6,000 with an annual income of $4,000, there was nothing fun about having creditors hounding me about the money I owed them.
The good news is if you’ve been overspending, you can reverse the process and release your suffering by creating—and sticking to—a budget.
However, budgets aren’t just for people who overspend. Even if you make more money than you spend, creating a budget can help you create wealth and enjoy greater happiness in life.
What’s in it for you
There are two major benefits of creating a budget and having a financial plan.
First, it allows you to prioritize your spending and alerts you when you need to stop. And, second, it gives you a systematic way to improve your financial future.
Here are seven tips to help you develop a solid spending plan that can change your life:
1. Claim your power. Understand that you—not your creditors, your boss, or your clients—are in charge of your finances.
Acknowledging that you are in charge of how much money comes in and where and how it goes out, puts you in a position of power and control.
It’s critical that you do this. If you don’t take control of your money, making more of it won’t improve the quality of your life. You’ll just have a bigger house, car, or credit card payments.
2. Get clear on where you are. Know what you make, what your monthly expenses are, and how much money you spend each month and what you spend it on.
Keep track of every penny you earn and spend each day for at least one month. This will likely be an eye-opening exercise that allows you to see exactly where your money is going, and if there are areas that you need to adjust or eliminate immediately.
3. Pay yourself first. Make a part of what you earn (ten percent or more) yours to keep. Pay yourself before anyone else gets paid by having a portion of your income go directly into a special interest-earning account.
This should be an account that you seldom, if ever, touch until you have accumulated enough capital to make a wise investment. Seeing your money grow will inspire and motivate you to keep going, as well as give you peace of mind that you have an “instant estate” should anything happen.
4. Create a debt clearance account. If you have debts (not including your mortgage, which is an investment) that are eating up most of your paycheck, create an orderly debt repayment program.
Put twenty percent of your income in an account that is allocated to pay your debts each month. Then, make a list of your creditors and determine what portion of the twenty percent each of them will receive. Then, send that amount to them regularly until the debts are paid off.
Send a letter to each creditor letting them know how much you owe, that you will pay it off plus interest, and you are in the process of making yourself more financially stable.
Explain that you’ve created a debt clearance account and you will pay them the specific amount you have established each month until you’ve paid them every cent owed.
You will likely find that 95 percent of the people will cooperate with you, and this will take a great deal of stress off you.
5. Keep your mind clear. Now, you have 70 percent of your income to live on—to run the house and for entertainment.
From this point on, never think “debt” again—what you owe others has been taken care of. Keep your mind clear to focus on earning more money.
6. Get clear on where you want to be. Now that you know where you are, get very clear on where you want to be financially. Fantasize about how much money you want—and for what. Don’t just say you want more money to live better. Ask yourself how much better?
Get out a sheet of paper and draw up a list of all the “things” or “activities” that you want/plan to spend money on. For example, how much do you want to spend on food, your mortgage(s), clothes, car, education, vacation, recreation, insurance, savings, utilities—and anything else that is important to you?
Just let your imagination go and visualize how you really want to live. Then, fill in the amount of money it will cost you to do so. As you do that, you shift your mind from what’s currently in the bank to what you’d love to have in the bank.
7. Create additional streams. If you have a job, you only get paid while you’re working. However, creating passive revenue streams allows you to make money around the clock, leveraging your time to its fullest advantage.
With your mind clear of worries about debt and not having money should anything happen, spend some time thinking of ways to build sources of revenue that generate passive income continually. This may include becoming an investor, generating royalty income from creative work, or building a website.
Once you have one or several passive income streams, you can invest the bulk of your time in increasing your income by refining the existing income sources or creating new ones.
Your goal is to keep increasing your income until you reach the annual income you calculated in tip number 6.
All wealthy people have at least one thing in common—they earn more money than they spend.
If wealth has escaped you up to this point in your life, you are not unusual. Wealth has escaped the majority of people. What would be unusual is your decision to do something about it.
Regardless of what your present financial position may be, realize that you can have all the money you want, but you must earn it. The great majority of the population lives in ignorance of this fact.
Creating a budget that includes each of the seven tips I shared with you today can make you wealthy beyond your wildest dreams. So, make a committed decision to change your financial future by “Proctorizing” your budget today.
To your success,