Hello, I'm your host, Mr. Chuck. I'm a retired accountant, turn truck driver, I have reduced my debt to zero in a short matter of time, debt reduction to achieve financial freedom takes commitment, confidence determination. Why is budgeting important? I'm going to talk about that subject plus much more, I'll be back in one moment going to explore our finances and figure out how to improve them. reduce debt increase wealth is a podcast to inform those to improve personal finances, whether it's eliminating debt or making smart investments. Why is budgeting important? That's the topic of this episode. I know that nobody likes to do a budget. A everybody views it as work. And I just don't want to do it for some odd reason. But before I get started, I have a quote, I like to go over, Opportunity is missed by most people, because it is dressed in overalls, and looks like work. by Thomas Edison. And that's probably the reason why most people don't like to do a budget, it looks like work. Maybe they dread doing it, maybe they just don't want to look into their finances. Before I go over why it's important. I'm going to review some different budgeting techniques to try. And I got this from an article the balanced calm. How many budgeting techniques can you choose from the start out with is the traditional budget, which is what I probably do more than anything. And that's what would probably come to your mind at where you list your income. You do it either on a piece of paper, or use a spreadsheet, you list your income, and then you list your expenses. And when I say expenses, that would be everything that you pay on a monthly basis, and then quarterly and then semi annual, and so on your expenses. And I guess your income can be put in two categories. A category for your income could be pay payroll or paychecks for you and your spouse. If you have a part time business, you could have self employment income, or whatever the name of your part time businesses, and categories for your expenses would be would be all your loan payments would be one mortgage, second line Line of Credit on Your home, auto loans, credit card payments, etc. Another category free expenses could be utilities, would be your gas, electric, internet, telephone, etc. Another would be transportation, insurance, food and entertainment, I'd say food and entertainment, I would do them separately, and so on. And you list out what you are required to pay on a regular basis. And then you would put in there you for like groceries or gas for the automobile, you would figure out over the last three or last month for say last 30 days. How much did you pay add them together divided by the number of times you made payments and use an average. For me, I do an average of my income because my paycheck I get paid every week. And my paycheck is different every week. So I figured out an average. And that's what I use. Once you get that set, you then know your income less expenses, how much is left over an ideal world, you would leave a minimum balance in your checking account of say three to $500. And then the rest of that would be transferred to your emergency fund savings account that you do not touch until you have an emergency. Then over the period of the month, you would keep track of how much you actually spent versus how much your budget would be. Now when you're doing all this, make sure you leave some money in your budget. You can have a fun account, just call it fun, entertainment, whatever you want to call it, and put some money in there that you can use to enjoy yourself. So it's not meant to throw you in jail and not have any fun. You need to put that category in there. And make sure whether you enjoy going to movies, or going out to dinner with your spouse once a week, whatever is your thing, the goal of your budget is to never spend more than what you earn. That's the idea. And that's a traditional budget, then we have a budget where it's a little bit simpler, they say, and that's the 50 3020 50% of your take home pay should go towards essentials or needs. 30% should be devoted to once and 20% should go into savings. Also, that 20% range is also your credit card or debt payment. If you're like most Americans, your debt payments may be foreign above that 20%. And that's probably why you're in trouble. So that's the 50/30/20 budget, then they have budget that's even easier as th 80/20 budget. And that's whe e you put 20% of your take hom, pay into your savings, leave t e rest of it in your checki g account. And that's all you d. Just don't spend more than 8% of your take home pay. That m y work for some people just got o make sure you don't overdr w your checking account. Becau e you don't want to take the mon y back out of your savings accou t to cover things that you spen. You can also use a 70/30 bud et or a 60/40 budget. If you wan to be more aggressive, saving ore money to be realistic. He eed to know your categories. s I call your happy numbers, how much do you pay every month and utilities to total? Not individual but just the to al? How much do you pay for automobile expense, how much you pay for entertainment, how uch are your groceries, you sh uld know these numbers and hav an idea. That's the idea f a budget is to help you keep t ack of things you need to pay fo so that you have the money to pay for it when the time comes. And then there's a sub sav ngs account method where you ave multiple checking accounts ith the same bank, you in ach checking account is used f r a specific purpose, or mult ple savings account, where ach savings account is to save f r a particular goal, such as a own payment on your home, or own payment for purchasing a new car, or to buy a car and pay cash or for a vacat on, whatever. That's the sub sav ngs account. And order to ge to these. A lot of people, not everybody uses some sor of application, a program th t's designed to help you keep t ack of your money. And to mak it easier to set up a budget. You don't have to do that. You can do it manually on paper. You can have spreadsheets set up w ere you do it, and it does the ath for you. But no matter what you do remember that if you budg ted $300, for groceries, and hat was your average, don' be overwhelmed and tried to tay within that $300 maybe one month, it might be $280. ano her month, it might be $375. ano her month might be $125. You k ow, so and they'll keep adjustin up and down until you see a ood solid trend over a six m nth period, let's say and now yo've you started the $300. Six mo ths later, you look back and you total all your months. And you see your own lane, the hig est month you spent was 209 90, our lowest month was 190. So m ybe you could just that budget own a little bit from 300 to $ 50, for example. And that's wh t I call tuning in your budget. I'd like to now just talk about why it's important and why you should be doing it. Before I get to that point. I want years and years and years and I've ta ked about this in previous epis des where I had credit card deb, I made extra payments, and hen something came up I had something else do that fo got about and I had to pay that and I didn't have enough money to go to the grocery store or put gas in the car. So I was living paycheck to paycheck and I made ok money, not by today's standards. By making these extra payments to my credit cards, I was making a harder on myself. And I really never had a budget, I really didn't know what's coming. I knew every month that I had, my mortgage was due on a certain day and I had to pay, you might utility bills. But I probably couldn't tell you what day it was. I had a ballpark idea about how much I owed. But I would forget about like, my auto insurance when that would be coming due, and then I wouldn't have enough money to pay it. So I had to rob Peter to pay Paul, or take money out of my savings account. And it never really worked out. And I was I just always thought I was broke, I was able to pay my bills and get by. But I really didn't have any that extra money to do things I really would like to be doing. And then I finally got serious. And that was in April of 2017. When I realized that I'm going to be retiring in five or six years. And I cannot be retiring and have a mortgage of line or credit or car payment and multiple credit card payments. Even though I could get those credit cards paid down to zero and go months, you know, maybe six months without having it. But then I would pop up again, something would happen. I would like put tires on the car or something, then I wouldn't be able to pay it down again. I decided I needed to get serious and set up a budget and follow it and make my life easier. And get my debt under control. That was my goal before I retired. I started that April 2017. December 2020. I am 100% debt free. And here's how much I paid off. Their principal paid was$132,367. So I paid off $132,367 and three years, eight months, the interest that I did not have to pay was $31,266.88 that's what I saved in interest$31,266.88 about a half year's salary, or a half year's income for me. For a lot of you that might be a whole year's worth of income. So that's a significant number. And how did I manage to do that? It was simple. I set up a budget and my budget I know my income what comes in and how often it comes in that my paycheck is and I'm using an average so much weekly. And I have retirement income on a monthly basis. So that's my income and then I know my budget like utilities, everything that I pay every month, utilities food and dining, which would be groceries and for me it was dining through works I'm overrode truck driver on that home all the time. So I do pay for food when I'm on the road automobile expense, which is gas and oil auto insurance repairs, home insurance. I have a category for medical expense, which would be my pharmacy cyclicals and doctor or dentists that I pay on a monthly basis which is usually zero. I have investments, money that I actually contribute to investments like transferred to some type of an investment account. Whether it's a high yield savings, or into a stock market. I have the money set aside in my budget for that estimated taxes that I have to pay which would be federal city occasionally state my real estate taxes on the home since the home's paid for and then I have subscriptions which would be like my on my computer, my security subscriptions. And for my podcast different monthly expenses that I have for the podcast, TV subscriptions, which is I have some of it under utility Hey, kids summer on a subscription. I don't know why, but that's what I did. So that's the expenses, I pay them, I have another category that I call accounts, which was everything that I owe was actually my checking savings accounts. And then everything I owe every credit card, every loan, every car loan, my mortgage, my line of credit on the home, all that type of stuff is under accounts. And again, those are all things that are paid on a monthly basis. So I separate that out for why I don't know, but it's just easier to keep it separated. And then I was able to take my check register balance of today, and look forward, a pay check, or a month or two months. And I just put in all these things that was in my budget and when they're due, and my accounts, my loans and stuff, when they're due what it is and how much so I kind of did my check register, instead of and from history coming forward. I did it today going forward. So my check register, I'm looking into the future, how much do I owe? Who do I owe? And when do I get paid? And when do I owe those people and it has a running balance. So I know whether or not I'm gonna, you know, have enough money to cover or when I have extra money to transfer to my savings. And that's what I did. And it worked like a charm. I'm happier. I gave you the numbers $132,367 and three years and eight months, I saved $31,266.88 and interest that I did not have to pay. If nothing else. That's why having a budget and doing a budget is important. It helps you keep track of your money. And my other article and both of these articles that I'm referring to are from the balanced.com. I have links in my show notes. And reasons why you should budget your money by Merriam caudwell is where I'm at now. It helps you stop your overspending. If you follow it and keep track of it. It will do that. And again, make sure you put in your budget some fun thing, leave yourself some money to do something they enjoy doing. Or give us some money for something that's a hobby. Don't be so restrictive on your budget that you no longer going to enjoy life. So that helps stops overspending by helping you keep track of what you have. It helps you reach your goals. Once you quit overspending, you'll have more money to put aside into savings account and build an emergency fund, or build those accounts to so you can reach your goals helps you save money, and helps you stop worrying and enjoy your money more. When you're budgeting you get to decide how much you spend in each category. So if you want to put a significant portion of your money towards leisure activities, you shouldn't feel bad about that as long as you're still saving and meeting your other needs. budgeting is not about limiting the fun in your life. It's about opening up opportunities to have more fun, and helping you worry less about your future, you will know how much you have to spend on each category. You have less reasons to be anxious about paying for future expenses. And number five is going to allow you to be more flexible. Budgeting can be flexible. You can move money between categories as you need throughout the month. January should restrict yourself from touching the money you have set aside for savings. But you can adjust the amount you spend on each category as you go. It's another way you can keep yourself from overspending and also allows you to recognize issues and adjust so you do not end up eating Ramin at the end of the month. Budgeting lets you adjust to cover unexpensive expenses as they happen. You can easily transfer money between categories in your budgeting app or software. So what they're saying is, it's an ongoing process. You have to start somewhere so you need a starting point. my starting point was figuring out the average for the last 30 days. Maybe the last 30 days wasn't a good average. Maybe it was higher than normal, or maybe it was lower than normal. For whatever reason, maybe you're as on vacation. Maybe you was working a lot, and you just didn't spend a whole lot. There's multiple reasons. And it puts you in control. You control your money and don't let your money control you. Budgeting can help you gain a feeling of control your money allows you to prioritize your spending, track how you are doing, and realize when you need to stop. It puts a solid plan into place that is easy to follow, and gives you the chance to plan and prepare for the future is the biggest tool you have to change your financial future. And it gives you the power to make changes starting today. checking on your budget each day can help you maintain control and prevent you from overspending. Making decisions at the beginning of the month makes it easier to manage your money. And it can be simple. You can simplify the budgeting process by using percent of your income for sat expenses, savings and spending money. That's the 8020 rule. You put 20% of your money into the savings account, you have 80% leftover to pay your bills and do whatever you want to do. I believe they call that pay yourself first aid, keep at it, and it'll be refined and you'll get used to it and you'll get better at it. If you're married hold regular budget meetings with your spouse can make Hannon your money much easier. If you have a spouse or significant other they should be in on this also because you both are having the same problem. And as I have talked about in the past, you got to identify your problem, overspending why you're doing it, and how to break those bad habits, you got to set yourself up a plan, then you got us if you have a debt problem, you have too much debt, then you have to set yourself up a debt reduction plan. I went over that the last three episodes of season one, I cover those three topics, each topic, it was an episode. If you had not listened to those, it may be a good idea to go back and listen to it. So having a budget is important. Because planning what you're gonna be doing with your money in advance will make your life so much easier. You will then help you pay off that debt faster, and increase your savings faster. And you're never too poor to budget, and you're never too rich to budget. In fact, the last you make, the more you need a budget. The more you make, the more you need a budget. Because if you're poor, and you have very little money, you need to know when those bills are due and when you need to pay it and how you're going to get the money to pay it. If you're making more money is easy to overspend and get into bad habits. It's just as important if you're making $300,000. Or if you're making $18,000 knowing what your income and your expenses are on a monthly basis. And throughout the month, not just once a month, every week at the least you need to look how am I doing? What categories Do I have What have I already spent, how much I have left to go for that particular category. And the important categories would be groceries, gas and oil for the car and your credit card debt. My plan on handling your credit card debt is to make the minimum credit card payment build up your emergency fund. If you don't have an emergency fund, which is a savings account, set one up, your first goal is to get $500 in there, then your second goal is to increase it to $1,000. Once you get that much in there, then you leave it there. You keep building it up. And a budget will help you get that done much faster. And once you build it up to $3,000 you have 2000 What you need for your emergency fund, and you use that $2,000 to pay off, pay down at credit card debt, which we talked about in the past. Be back in one moment with my final thoughts. If you listen to this podcast using an apple podcast app, please rate and review this podcast for all your non Apple users. You can download iTunes on a Windows machine and go to the upper left hand corner, select podcast, do a search, reduce debt, increase wealth, he can subscribe to the podcast. And you can also rate and review the podcast. I appreciate any feedback that I get the importance of having a budget so that you know what your income is. And you know what your expenses are. Keeping track of your money is important. Whether you're trying to pay off debt, or to increase your savings or your investments so you can get an early retirement or live a normal happy life. When you retired.