Developing a Spending Plan
I am pretty sure you would have expected me to put this one on the list (and fairly high up) so I am pleased I’m not going to dissappoint you!
At the start of every year you will hear all of the money guru’s giving their tips for a prosperous 12 months ahead and without fail they all say to do a budget.
I liken this advice to a mechanic telling you that you should go and service your car. Probably great advice but it’s not going to help you much unless you actually know how to lift the bonnet and do all the work that needs to be done. You will need the right tools as well!
Of course the money guru’s are right! Every successful government, business, club and household has a budget. Nobody succeeds financially without one!
So their advice is sound, but unfortunately I have never heard one of these ‘experts’ take the time to tell everyone how to do a budget. It’s as if they are under the impression that you were taught in school how to do a budget and you just need reminding.
So the reality is that if you do take their advice you are left to invent your own system! Sadly that puts most people at a serious disadvantage and their efforts don’t produce the results they hoped for. Many end up coming to the conclusion that they personally are the problem because they are no good at budgeting and they give up completely.
This frustrates me seriously! It is so easy to fail when you don’t know what to do and once you say you are no good at something it becomes the truth even if it is not based on reality.
So many people do not have an effective budget plan and as a result they have money stress in their lives and it just does not need to be this way!
If you are one of those people who agree you need to do your budget and you have made the decision that one day you will do one, I can only assume you are putting it off because you don’t know what to do OR you think doing a budget is going to limit or hurt you in some way. Maybe by putting it off you think you can avoid that pain a little longer.
Let me tell you that from the moment you do a budget the right way your life will get better, your stress levels will come down and things will start to improve financially (and probably in other ways as well).
A budget that works will be three dimensional. That is, it will include Income, Expenses and Timing.
This is the secret to why Simply Budgets has changed so many people’s lives for the better. Most budgets are two dimensional! They do not include timing and so at best they only tell you whether you earn more than you spend or vice versa! Bringing timing into the picture allows you to see where your highs and lows will be and whether you need to take action now to avoid a problem in the future.
To create your spending plan and budget successfully follow these steps:-
1. List all your expenses, when they are due, how much you expect them to be and how often they occur.
2. Add all your expenses for the year to get a total spend and then divide by the number of pay cycles in a year to calculate your required regular deposit amount.
3. Place all your expenses for the entire year onto a spreadsheet or if you are not so keen on a spreadsheet write them onto a calendar.
4. Use your calculated deposit amount from above as the deposit on each pay day for the year (even if your income varies or you don’t always get paid regularly).
5. Starting from $0, add all the deposits and subtract all the expenses and generate running balances for the entire year. If you find there are negative balances (and it is extremely likely that you will), find the largest negative balance and add that amount to each day’s running balance.
You then have the perfect budget for the next year!
Now I’ll be the first person to tell you that your next year will not happen exactly like that plan shows but when you have something to aim for you have a much better chance of making it happen and the crucial low points you will have identified throughout the year show you the times where you really need to pay attention and stick to the plan.
So there you go; finally someone has told you HOW TO DO A BUDGET that works! You can see it requires a lot of calculations and that is why people purchase my Simply Budgets software which does hours of work in seconds!
That is the second step in achieving a wealthy life taken from my Simple Wealth Steps course; ‘Prepare A Three Dimensional Budget’. Or if you prefer to call it a Spending Plan I’m OK with that as well!
That’s all for today.
Have a goody!