Reduce Debt Increase Wealth

Benefits of Budgeting

July 10, 2022 MIsterchuck Season 3 Episode 121
Reduce Debt Increase Wealth
Benefits of Budgeting
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Show Notes Transcript

People do not like thinking about making and maintaining a budget. The B word is almost like a bad word to most, but the benefits out weight the time and effort to get a budget set up. Maintaining a budget will prevent the problems that are common with most households. The too much debt problem and the lack of money to reduce the debt. 


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Charles McDonald:

Hello, I'm your host, Mr. Chuck, I retired accountant turned truck driver, I reduce my debt in a relatively short period of time. debt reduction to achieve financial freedom takes commitment, confidence, determination. Benefits of budgeting, people do not like thinking about making and maintaining a budget. The B word is almost like a bad word to most, but the benefits outweigh the time and effort to get a budget setup. Maintaining a budget will prevent the problems that are common with most households. That too much debt problem and lack of money to reduce the debt. And my show notes I have two links to articles that you can refer to 10 Amazing Benefits of budgeting your money. Budgeting is the most basic tools for managing your money. Still, a vast majority of people avoid having a debt budget, because it's extra work. Oftentimes, people believe that budgeting also dictates that you no longer allowed to have fun and joy things. Let me tell you from over a decade of budgeting This is completely false. Honestly, it does the exact opposite. And I agree with that 100% But budgeting truly accompanies it, it clearly shows you how to allocate your money. It provides you as a detailed understanding of what you can afford to spend your money on and knowing your financial limitations. Budgeting will save you that grief of overspending and possibly cause you to climb into more debt, something many of us struggle with. There's so many benefits of budgeting one of my favorite is that does not stop you from enjoying things you find happiness from in life and actually does the opposite and allows you the freedom of doing more of the things you love. Number one, provide you 100% control over your money. Think about this for a second. If you're not controlling your money, is it controlling you? I budget is a savvy way of intentionally controlling your money. Budgeting allows you to live with far less stress without having to worry about those unexpected expenses that come up way too often my ad and allows you to understand where your spending habits are weakest. That daily cup of coffee can really add up over time. According to ABC News, the average American spends close to$1,100 per year on coffee alone. Budgeting will help you decide if given up your morning cup of coffee is worth the savings to put towards somewhere else, like paying off debt or saving for your next family vacation to let you track your financial goals. Another advantage of budgeting your money is helping you avoid spending on unnecessary space, services and products that are cutting into your financial goals. If you have a fixed income budgeting will allow you to make ends meet easier each month without all the stress. So sit down and write down your financial goals. Once you have them written down on paper, you take control of your money, it's less likely not to meet them. Three, budgeting will open your eyes. Budgeting allows you to know exactly where your money is coming from, where it is being spent and how much you have at the end of each month. It does provide you with a complete understanding of your finances. A budget allows you to understand that what you can't afford make the most of buying and investing opportunities and plan for our way to lower your debt. It also shows you what is important to you based on where you're spending your money throughout the month. This will allow you to adjust your spending habits in the right direction to reach your goals for will help organize your spending when starting to budget. Start by breaking down all your expenses for the month such as cable, the internet, mortgage insurance, groceries, entertainment, restaurants, gym memberships. Printing a budget will help you stay organized are organized. This makes it easy to quickly view exactly how much you're spending on individual services each month. Another reason to break these down into categories is is allows you to see if the bill goes up with a company. Recently our garbage Bill was raised by $10 a month budgeting allow us to see this change quickly. So I was able to call and get a bill back to the original price number five, to help create a cushion for unexpected expenses. A trip to the hospital, car repairs, plumbing problems are all unexpected costs that comes up from time to time. And it's important you have money set aside for these types of events, aka an emergency fund. The last thing we want to do is not have enough money to cover costs and have to charge it to our credit card. They already have a running balance on we keep at least $1,000 in savings account to help cover these unexpected expenses that arise. You should shoot for building up your emergency fund as your number one priority in getting hold of your finances. It's critical imbalanced the waves life will throw at you. Six. Budgeting makes talking about financing must easier. Talking about finances to your parents, girlfriend, boyfriend or spouse can be challenging, sometimes, some may even say is taboo, which is ridiculous. Having a budget allows you to have cold facts when it comes to communication. This makes having a calm conversation about money much easier. Find the answer the most common argument between married couples and doubt. One of the biggest benefits of budgeting is reducing the overall stress surrounding the money conversation. Talk to your significant other and get on the same page. Open and honest communication always wins and marriage set aside discretionary category in your budget. This allows you to both have a limp limit but also allows you to spend money the way you want makeup Amazon, eBay, fancy football, video games protein, etc. Seven. Having a budget lets you say a safety net. When an issue arises in life like unemployment, you'll be ready. I hope this never happens to you but budgeting will allow you to be paired if it does. Having a safety net keeps you afloat if your income stops coming in. The saying goes have enough in your safety net to last up to six months with no income. Without our safety net I probably would have been able to quit my job and start blogging full time. Trust me having a safety net will open doors you will never feel trapped again. Eight allows you to pay down debt quickly. gone to school taking out a mortgage to buy a new cars are some ways we people go into debt. Understand your debt is extremely important. Making sure you understand your interest rate terms and length of loans will be critical and controlling your debt. Budgeting will give you a clearer understanding of how to pay down your debt, you will find that you can easily start to cut in other areas so you can afford to make extra payments on your debt. Even after you complete college continue education is required among many jobs including nursing, physical therapies and other health care workers also accounting and legal. A friend of ours is a physical therapist and says take an online course education courses and using discounts like the medbridge promo code had saved him $175 This year, regardless of your job or specialty. Finding ways to save money on required expenses like continuing education is key to making your budget last and paying down debt. Nine. Budgeting helps you invest. Investing is a great way to have your money work for you. contributing to your retirement early and often should be on your radar so you can retire as planned. Some people use a rule of whatever is left at the end a month out put into my retirement. This is backwards thinking. Try changing your mindset to pay yourself first, meaning knowing how much you need to put away for retirement and paying yourself before anything else. Obviously this takes time to learn how to balance it correctly so all your bills still get paid. But this is by far the best way to reach your investment savings goals. Know how much you need to contribute and work at that into your budget. We have investment accounts with etc. And they list three of them 10 Last but not least allows you to live a better life. We have said this before and we continue to say until someone proves to us otherwise controlling your money will have a huge payoff. positive impact on your life. Budgeting has enabled us to have 100% control of our money, allow us to travel more, start our blogging business, quit my job, spend more time with our families and much more. So get started on setting up a budget today. My budget, what it did for me was get me out of debt, I was getting close to retirement. In fact, I'm almost retired now. But I knew that if I had car payments, second line of credit on the home, first mortgage and a couple of credit cards that I was never able to pay off, that I wouldn't have much money when I retired, because my retirement income, it was gonna be a whole lot less than when I was working about 50% less to be to get down to the point. And that's where most people find themselves in, maybe you want to retire, but you're unable to because you have too much debt. So that's what this podcast is all about is how to get out of debt, the whatever reason you have, keeping your debt under control is important. Too much debt will kill you, it will put stress on your life, it will ruin your marriage, it ruins everything, you argue about little things, because you're trying to pay, make those payments, and you're barely making ends meet. So by having less debt will free up more money. And the more cash you have available, the better off you're gonna be overall in your life, whether you're retired or not, whether you say two or $3 million, which I never did. But when no matter how much you save, if you got a whole lot of debt, it doesn't matter. Because if you take it out a retirement account, you're gonna have to pay income taxes. And that in itself could ruin your overall budget and your way of life the way to be comfortable. My second article is manage your money well is all about careful planning, it's easy to let your spending get out of control, if you don't know exactly how much of your money is disposable income. So that's the second benefit. If you know what all your needs are housing, transportation, daily living expenses, insurance, entertainment, should be all budgeted for. And you can look at a budget and know if you're spending too much money in a certain area. For example, your mortgage payment on your home or your rent on your wherever you live should not exceed 46% of your gross income. If it does, you're going to be struggling to pay for other things that you will need. Now that's this the loan amount or the rent amount. That under housing way I have a budget setup is I include mortgage, rent, mortgage or rent, utilities on that home. Internet, because it's usually attached to that home, you can't really take it with you streaming on TV services or cable TV. And I look at all that and plus, you know, homeowners insurance plus real estate tax, I look at that overall should be under 46%. If you can keep that around 35% You're gonna free up a lot more money to pay for other items that you may need, such as groceries, insurance, health insurance, disability insurance, gas for the automobile, your car payment, you know, little things like that, that you need in life to get by. Whether you go into work or you're retired, doesn't really much matter. And again, this article says about the same thing gives you control of your money helps you focus on your financial goals, whatever they may be, keeps you on top of what you're spending budget will also help you if you have a spending problem because you'll be able to see that you're overspending on items such as clothing, or home furnishings are things that are as a once and not necessary and neat. And you can budget for those items. But you got to keep it under control. So having Budget, seeing what the dollar amounts are seeing what you're spending in the current month will help you keep those things under control. So that you can focus on reducing your debt, or increase your savings or and hopefully both of those makes it easy to stay aware of your savings and debts, help you save for unexpected costs. And help you know that you have some money you can put in a savings account, and you should be paying yourself first. And your emergency fund may not seem important today. But down the road, it could be important, the price of gasoline is going up almost every day is going up at least once or twice a week. So if you know that three months ago, you spent $100, for gasoline, and the price of gasoline goes up, you could just your budget up so that you know that that expense is gonna be coming along shortly in the near future. So either what's gonna happen is that's either going to reduce your savings, which is could reduce your emergency fund, or it could reduce how much debt you're trying to pay off, or how much you're trying to invest. Here, you can look at other areas within your budget, such as entertainment, and make adjustments there, maybe cancel, two of those subscription streaming services that you're no longer using may be cancelled at gym membership, that you're no longer going to the gym, because it's summertime, and you're working out, out home or outside. So you can stay on top of things as things change in your life makes talking about money with your family easier, because you have it set in stone, it's black and white. And you can say, we need this amount of money to pay for housing, we need this amount of money to pay for transportation, we need this amount of money to pay for groceries, we need this amount of money to pay for clothes is there and black and white. And you'll know. And there's no arguments, you can have everybody work on trying to reduce their spending. Not only you may not only have a spending problem, your spouse may have a spending problem. Maybe you give your children some credit cards, maybe they have a spending problem. So you can keep those type of things under control. He can put limits on what they can spend, he can reduce it down so that you can have your life and your finances under control. I have talked about easy ways to create a budget. And it's not all that difficult. And the number one way that you have to do is start tracking everything, tracking all the income coming in your checking account, your savings accounts, all the spending through your checking account through credit cards, which includes your loans, your debt, maybe student loans, and you can plan ahead, maybe you need a new car, and in next six months, you'll be able to get an estimate of five, buy this used car and I have to pay $20,000 And I finance $18,000 You can go online and you can figure out what that loan payments gonna be. And you can figure out how am I gonna fit this into my budget? Well, maybe because you get rid of a car, and you get rid of that loan, and you can get a loan to replace it. Hopefully, for less money, get your loan reduced. And if you have a significant amount of money in your savings account, your emergency fund, you can up your down payment on that car, so that you borrow less, it's gonna cost you less, and you can pay it off sooner. It also shows you where your money issues are likely to come from. And I would venture to say that would be overspending in the areas of entertainment and food going out to eat at restaurants. And that should be a separate character category. You should have food, groceries from the grocery store and from restaurants. And if your restaurants spending is more than your groceries, you need to cut back on going to restaurants and you need to start cooking at home more. If you don't know how to cook, you can go online and you can learn how to make multiple dishes. You can do one at a time and you can get better at it. You can adjust it for your likes, and helps you figure out what you can borrow To let you know how much money you have available, that you can use to get that new car loan, or whatever loan you're trying to attain. I'll be back in one moment with my final thoughts. If you want to contact me to request my spreadsheet for the budget, or leave a comment or ask a question, he can send it using my email, reduce debt, increase reduce debt, increase wealth is all together no spaces. If you'd like to ask a question, put question in the subject. If you'd like to request my monthly budget, put a budget spreadsheet in the subject matter if you want to leave a response of any kind is put a comment in the subject matter. I will get back to you as soon as possible. Well, that was a quick overview of the benefits of budgeting. I know it takes time, specially the first time to get started. That's why I came up with an easy way to create your budget, I do have a spreadsheet that you can request if you would want it. Or you can go online and find any budgeting spreadsheet. Through Excel, I recommend that you use a spreadsheet and use Excel or Google whatever to keep your budget and keep it for multiple months. Save it for a year, and you have January through December. And you can look back in June, you can work on June, for example. And we know that your spending is going up because your budgeted amounts are maybe too low because of inflation, whether it's the price of gasoline going up, maybe you bought a new car or you got another loan, maybe you did a consolidation loan to try and pay off credit cards, but you didn't quite get them all paid off. And you now you got this new loan. If that's all part of your budget, you'll already know about it. And you know that when it's due, you know how much it is the interest rate, how many months you got to pay, and when it's due, and you can try to adjust your spending in other areas, so that you can maybe make a little extra payment and get it paid off a little bit faster. That's this an example. My method is tracking I use count about which is an online program. Kinda like any other checking account program, you can put in multiple checking accounts for multiple savings accounts. You could put in multiple credit cards, multiple loans. Every time that you pay something now your checking account, every time you get paid, it's in there. And you need to know how much money is in your checking account, your savings account, and how much you owe on all your credit cards at all times throughout the month is not a one time thing. Every time that you spend money, you need to put it in there, you need to record it in your check register. That's all it is. Instead of being a manual check register that you write down like you used to do in the olden days. Back in the 70s and 80s. It does it for you it does all the math. So it makes it quick and easy. And count about has categories already set up. The main thing here is to be consistent on where you post the same type of spending. Say you go to a gas station, well, you may go to one gas station on Monday, your wife might go to a different gas station on Wednesday, but it's still gas for your car. So it should be posted, even though it's at a different gas station should be posted under the same category. So it lumps it together. When at the end, the month comes you do a report by category and that gives you the totals by categories. And then when you go to create your budget, you already have the dollar amounts and you got the categories. It's 90% Done. You put the money you put it in there and now you have a budget amount for the next month. And then through your budget spreadsheet. We have a column called actual Every week, you keep your registers all up to date, that's credit cards every, whether it's a payment, whether it's entrust that they posted on your account, whether you're charged something new, whether you took money out an account to go buy coffee, you know, spending money, $100, whatever it's in there. And you can consistently categorize it in the same category, month in and month out. Consistency is the name of the game, because you need to compare apples to apples, if you're not consistent, and you have too many different categories is going to be all over the place, and your budget is gone to become more difficult to understand and to maintain. So that is important. I have episodes about it, I'm gonna do episodes about this same thing, again, coming up very soon. So once you have the budget, and you know, you know, we have the budget, we know that you know, our monthly mortgage, or rent, or utilities, our car payments, or credit card payments, how much we owe on the credit cards, how much interest is on the credit cards, because you want to try to pay off the highest rate loans first. Because that will reduce your interest over time, and you'll end up paying a whole lot less, which will free up some more money to pay off other debt, or pay for other items you may want to do. So knowing that and being consistent with your budget, and knowing some percentages, like what's your housing, what percent of your housings to your total income should be I saying around 46%. And that's basically just for the mortgage, or the rent, your automobile, your loan payment shouldn't be more than 12%. Your clothing in daily living expense should be around five to 8% of your income. If you got these categories in, you're exceeding those percentages, you need to reduce your spending in that category because you're spending way too much. Now sometimes you can't reduce a particular category, say you have a mortgage. And it turns out it's about 40% of your income. Well, they gave you the money, they loaned you the money. It's you know, if you knew about that before you borrowed the money, you knew it was gonna be a struggle. So if you knew it was gonna be a struggle you would cut back and other areas may be canceled those vacations until you get your debt on control, maybe sell something. Maybe you have three cars or three car payments. If you only need two cars, get rid of the third one that you're not using, or get rid of that loan if you possibly can. And sometimes you have to sell an asset in order to achieve your goals. And if your goal is to be debt free when you retire like mine was it's simple to do. It's easy because you have a plan in place and without a plan. You're planning to fail