How to Budget to Invest￼
The purpose of a budget is not just to monitor your bills. It is a tool to help you manage money and build wealth. It is easy to view wealth like an unattainable goal. But you need to start where you are. Why do you need a budget to build wealth? When making a budget, the first step is recording your income. This is simple if you get a regular paycheck. Freelancers will struggle a little. The best thing to do is use the average of your lower incomes for a conservative estimate. Once you write down the number, you will see how small it is. Deductions such as taxes and insurance take a big chuck off your income. If you make too little, start spending less or find a part-time job to earn more.
Monitor your spending carefully. You cannot avoid spending. But to build wealth, you should spend less than you make. While it sounds simple, practicing the concept is difficult. With a budget, all your expenses are monitored and written down. Impulse buying, getting the newest gadget and buying things you do not need should stop. Anytime you acquire something that you do not really need, you end up with a worthless object. Money that should be earning you interest will be in another person’s pocket. It is not just the rich that invest.
A sensible investment will create wealth for you. And with a clear budget, you will save money to put into such an investment. It is important to save money. But the interest you earn from a savings account is not that impressive. A bank will keep your money safe for you, but it will not grow fast enough. For complete beginners, investigate mutual funds. Returns are not guaranteed (this is the case with every investment) but mutual funds are historically good for the ordinary investor.
The interest ranges from 3% to about 14%. This is great, compared to a savings account. To monitor these investments keenly, you can get budgeting software. A budget is a tool for setting goals. Small, wise steps typically lead to greater success over the long term. To some people, their budget is depressing, difficult and unpleasant. And if this is you, then you are missing the point. A budget is empowering. Knowing how much you make, how you spend it and the performance of your investments will push you to improve your situation. It will make you intentional in how you make financial choices, without feeling burdened. You do not have to start big. Set one small goal and go at it with all your mind. It may take longer but never give up. It could be paying off debt or creating an emergency fund. If you attain it, set another one.
Managing your money is not just about meeting necessary needs. And you do not need to be a mathematical genius—just know how to add and subtract. Good financial skills make life easier. They impact the level of debt you incur as well as your credit score. If you live paycheck-to-paycheck yet you make a lot of money, then you may have poor money management skills. Just because you have funds does not mean you can afford to make a purchase decision, especially a large one. Before you buy something, make sure you can afford it and that the money was not meant for anything else. For many people, budgeting is a boring process that involves listing expenses and math.
But if you have already established that you need help with money management, you cannot afford to make excuses. Taking a few hours every month to create a budget will help you get your finances in order. So why would you want to avoid it? Focus less on the boring process and more on how it will add value to your life. What good will your budget do if you never look at it? Use it throughout the month and let it guide you while making spending decisions. Keep updating it when you pay bills. Make sure you know, at any time, how much money you can spend. Your net income is critical to your budget.
This is the amount you have left after paying your expenses. You can use this money for entertainment or fun. However, create a limit—especially if it is for the whole month. Those purchases you consider small can add up very quickly and it is easy to overspend. Monitor your spending and see where you are overspending unknowingly. Save receipts and keep a spending journal. Even though your credit and income qualify for a loan, you do not have to take it. Remember that you must make the payments on time. Assess your finances and confirm that you can afford an extra monthly payment. If you can, try comparison shopping and pay the lowest prices for both services and products. Find cheaper alternatives, coupons, and discounts.
Delaying gratification goes a long way in money management. Instead of using a credit card or sacrificing essential purchases, put off a large purchase and save up for it. You will have enough time to compare different prices and determine whether it is necessary. If you are a spender, a credit card is your worst enemy. Do not use your credit card every time you are out of cash. Save every month, and deposit money into a savings account. Even better, make it automatic. At first, these habits will not come to you easily. Nonetheless, keep pushing until they become a part of your life. Change is reinvention. Whenever a big shift occurs in your life (such as a relationship, leaving a job, moving, or losing a loved one), you must choose who you want to become. Otherwise, you risk never achieving your potential.
Many adults have reinvented themselves several times in their lives. However, what many people forget is that you must choose reinvention. Every time you do it, you forge a new path for yourself, intentionally and with foresight. When you wait for your future to find you, you will wait in vain. You will be lost in sadness and confusion or find yourself in a situation that you do not want. When you have been struggling in a bad situation for a while, one day you will realize that part of the reason you have been stuck is that you have no idea where you want to go; you have no end goal. This happens when you are thinking about your past and not your future. Find a quiet place and sit with your eyes closed.
Imagine all the people, situations, and places that you know you must leave behind. Next, imagine your ideal future; it could be a group of people, a feeling, or even a situation—such as a great job. Imagine how you feel being in that new place. Imagine the sun rising behind your future and its warm glow lighting your face. Take a moment to stand and quietly voice your gratitude for all the things that came before. After thanking the past, look towards the sun, with appreciation and compassion, picture yourself walking away from it and into your future. Picture a scene from your reinvention or write about how you want it to play out.
Where do you see yourself living? What is your morning, afternoon, and evening routine? How do you spend your days and who are your friends? Keep writing until the excitement of the exercise wears out. Write everything from scenes, to dialogues, to plans. Keep the writing safe and look at it every now and then. Surround yourself with things that remind you of your ideal life. If you desire a job in a certain field, put images or objects from that place where you can see them daily. If it is a home, get a picture of the house of your choice and place it near your door.
Whatever it is, let it be something that reminds you of where you want to be. What do you have to do daily to create your vision? Find new friends? Looking for a job? Be specific. Create a list and a schedule of everything that you need to do. Commit yourself and do it, one day at a time. Each morning or evening, imagine yourself moving towards the rising sun and all your dreams. Remind yourself why you must do this. These habits define rich people. If you adopt the habits below, you will be on the path to a wealthy life as well. Unless you feed yourself properly, you will not feel well and, in turn, you cannot think well. Focus on healthy fats, protein, vegetables, and fruit. The lottery is otherwise known as the Fool’s Tax. You can never become rich if you use a significant amount of your income for gambling. Wealthy people set a single clear goal and set out to achieve it. Exercising and eating well go hand in hand.
Exercising boosts your energy and mood. Find something you enjoy like walking or running. When you are taking a walk or commuting to work, listen to educational or inspirational audios—feed your brain. Before you go to sleep, create a to-do list for the following day, even for small things. When you cross them off you will feel motivated! Volunteering increases happiness. Another thing, you can make valuable connections while volunteering which may prove helpful in future. People with close social relationships tend to be happier. The happier you are, the more successful you are likely to be. When you remember your loved ones’ birthdays, you foster the relationships.
Writing your goals down increases your chances of achieving them. When something is written down, it remains at the forefront of your mind. Reading should be a part of you. Find books that teach you something. Learn to pick your battles. You do not have to speak your mind every time. Sometimes you must be quiet even when someone is being difficult. Who you know matters! Your next big job or business can come from anywhere. Attend Meetups and industry events. There is almost nothing good about watching TV. Instead of wasting time, do something beneficial such as visiting a friend, reading a book, or making a healthy meal.
Watching TV can be justified but watching reality TV is just dumb. This cannot be said nicely. If you watch reality TV, you need to be better. Early hours are quiet and peaceful. Use this time to be productive because you have no one to interrupt you. Waking up early also allows you to start your day calmly. Teaching is more about adopting good habits so your children can copy them and less about teaching them. Many wealthy people believe that if you have good habits, you will have better opportunities. When you foster bad habits, be prepared for bad outcomes. For instance, failure to floss may lead to gum disease and, in turn, expensive dental work. Never stop learning. Take a dancing class, learn new skills—just learn something. The importance of reading cannot be emphasized enough. Many successful people will tell you that reading has partially contributed to their success.
Before Elon Musk became Tesla CEO, he read for 10 hours every day. Bill Gates, Microsoft CEO, completes one book every week. Warren Buffett spends 5 to 6 hours daily reading newspapers. He makes sure to read five different ones. He also goes through 500 pages of investment documents and recommends this to all investors. According to him, knowledge works like that. Like compound interest, it builds up. Everyone can do it, he says, but not many will not do it.
For anyone that wants to retire in comfort, attain financial independence and have a healthy financial future, building wealth is something they must seriously consider. The tips below will set you on the right path. Building wealth involves having more money. But it does not just mean having extra money in your account for an emergency or vacation. It is also not about being a multi-millionaire. When you talk about building wealth, you are talking about a life-long thing.
You build a strong financial foundation to ensure that you enjoy financial comfort for the rest of your life. How do you build wealth? There is not a one-size-fits-all formula. People’s financial situations vary. But the fundamental tips are constant and apply to almost every situation. Check them out. The first step to building wealth is knowing what you spend your money on and which expenses you should cut. To some people, the idea of a budget is intimidating. But the concept is simple: know what you are making and what you are spending. First, identify fixed costs such as health insurance and rent.
Next, trim some of your variable costs. These could be things like dog grooming, eating out, bar tabs, etc. The 50/30/20 rule has been recommended by many experts. You spend 50% on fixed expenses, 30% goes to variable expenses and the last 20% to saving and other financial matters. Debt is not good for your budget. The longer you go without paying it off, the bigger it becomes. It also ruins your credit, eats at your income, and makes it so difficult to build wealth. Prioritize paying off your credit card debt and any other high-interest debt.
Come up with a payment plan and do not deviate from it. Life is full of unexpected turns. Your basement could flood, you could lose your job, or someone could get sick. Have an emergency fund with 3 to 6 months’ worth of your living expenses. With an emergency fund all set up, you should start investing. If you are following the 50/30/20 rule, you should be using 20% of your income to invest. Long-term investments are the best. Your money will compound.
Cutting back on living expenses goes hand in hand with budgeting. Reduce your fixed and variable costs so you can have more to save. Find a cheaper neighborhood or even get a roommate. There are many rich people who still use coupons. They do this for one reason: lifestyle creep. It is a bad habit of adjusting your lifestyle as soon as your income increases. If you come into some new cash, continue living the way you used to. Save the extra cash and invest it. See what people in your industry and your position are getting paid. Go to your boss, highlight your achievements, and ask whether you can get a raise. If that does not work, you may want to start looking elsewhere.