Budgeting is fun
What crushes people financially? Living beyond your means and putting yourself into debt because you have a standard you want to maintain but you do not have the means to sustain it. Also known as having champagne taste, on a beer budget!
I am going to share with you a concept that you will most probably want to immediately reject which is living on a maximum of 70% of your net income. You are probably thinking, “How can I live on 70% of what I am taking home in pay right now, heck I can’t even make ends meet on 100% of what I make!!!” yet if the government today imposed a 30% increase on income taxes what would you do? The answer as much as we hate it is to figure out a way to live with 30% less money or generate 30% more money with another source of income… you might want to consider doing both! Now I know you might also be thinking right now, “yeah right, well if I could magically just make extra money I wouldn’t be in the position I am in right now.” and although that may appear to be true to you, if you are willing to be open minded, you will see that in fact it's not going to be as difficult as you might think once you have completed this program.
Consider that 30% tax as self imposed and non-negotiable, meaning you should always pay yourself first and then live off the rest. Paying yourself first is never optional, the way you live on the rest of your money is completely optional. You can either become a minimalist, downgrade your lifestyle a little or you can generate more income to either maintain your current lifestyle or even give it an upgrade depending on how much more money you generate!
Now before we go any further, I believe we need to address the elephant in the room. That elephant is your NEED to create a lifestyle and uphold an image that is beyond your means. If you are spending more than you are making, then the real battle when it comes to budgeting is not the number crunching but the battle within yourself to humble yourself until you can get on the right track to financial prosperity. THIS will be your most difficult challenge but as long as you can see the finish line and see that it will bring you the peace AND the lifestyle you desire, you will activate within yourself the ability to make these difficult choices. If you lose sight of the goal, you will head down a road that will become your worse nightmare.
Creating a budget for yourself or with your partner is one of those less-discussed principles we must all take control of. Budgets can sound complex and difficult, but they don’t have to be. A budget is simply a best guess regarding the amount of income your household brings in over a set time period of time along with how you plan to use it.
Step 1: Determine Your Net Income
Gross income is the amount you have before taxes and deductions. For purposes of creating a budget, use your net monthly income or take-home pay. This is the amount you receive before spending begins.
If your household income is paid via a salary or on an hourly basis, your net income is likely stable. If it is through seasonal work, self-employment, or sales commissions, you will need to revisit the income section on a monthly basis.
Step 2: Pay yourself first
Before we start to break down how you should consider spending your money on a monthly basis, it is critical to understand that you MUST pay yourself first. Unless you understand and accept this as the most fundamental truth to creating true freedom, you will always be struggling through life financially. Paying yourself first does not mean buying a new wardrobe on the first of each month!!! It means putting aside money for your future self so that you can put yourself in a position where you don’t have to work but you get to chose if you want to work to generate income!
Most people do not place enough value on the effect of time and miss out on the incredible power of compounding. Pay yourself first and you will be among the top 4% when it comes to retiring with more money than you can spend.
You should consider splitting your savings into 3 separate categories…
1. Emergency Fund…
An emergency fund is your short term financial security. Should you ever find yourself in a situation where you lose your income for what ever reason, you should always have 6 months to one year of living expenses stored away giving you stress free time freedom to start generating income again. You have a few option when it comes to savings accounts. Later in the program we are going to explain the incredible value of setting up a discount brokerage account. They are as easy as setting up a bank account and the benefits are outstanding. A Self-Directed discount margin account could be a good place to put your Emergency fund account since you really hope this will not be needed and with the right market information like what we provide in our Real Simple subscription, you are able to earn better returns getting you to your emergency fund balance much sooner. Such an account is liquid, meaning you have access to it quickly if needed and if you are fortunate enough to avoid needing to use it, this money can act like passive income for your future. Note that making money through a margin account is considered capital gains and will be taxed accordingly.
Something to consider here is putting 10% of your net income into this account until you have hit your balance target. After hitting your balance target, continue to put this 10% in a Tax Free Savings Account and follow our SWAN (Sleep Well At Night) alert has can protect you from market crashes and provide your double the rumens you would otherwise earn in a standard retirement portfolio. The SWAN Alert is available in our Real Simple subscription.
2. Savings Account…
This account is used for multiple purposes, such as investing in yourself to help you advance in your career, giving to others in need, vacations and unexpected expenses that will certainly occur on a regular basis. Quick access to this money is very important but we should try to earn as much interest as possible while that money sits in your bank account. Speak to your bank manager about getting the best interest bearing account possible.
Another idea is to put a portion of your savings into short term treasury bill that can give you 2 or 3 times more interest than a savings account. Consider only putting in a portion in case you need quick access to your money because money that is invested in treasury bills or bonds are locked for a period of time.
Something to consider here is putting 10% of your net income into this account until you have hit your balance target. Ask yourself if a “5% of your annual income vacation” would be something you would get excited about each year? For example, if your annual household net income was $100,000 a year. Would a $5,000 vacation be acceptable? The remaining 5% will be used for smaller unexpected emergencies, courses and giving. As your income increases so will your ability to take more expensive vacations. Some people decide to take a relatively low cost vacation in year 1 and in year 2 they take a more luxurious vacation because they have more money rolled over from year 1, the choice is obviously yours but at the end of the day, the vacation needs to stay within your budget or it will take longer for you to get to that time where working becomes an option.
Special note; vacations should NEVER be put on your credit card.
The purpose of this category is to prepare yourself for your future. In retirement you want to be sure you have the money to do the things you have always wanted to do for as long as you live. Never having to depend on others such as the government or family members to provide you a comfortable golden age experience. It’s important to remind yourself that retirement is not the end of work, but the end of mandatory work!
If you started early enough and you lived within your means, there is a high probability that your home will be paid for when you are retired and it is probably worth 3 times what you paid for it. Nice work! You no longer have the responsibilities of raising children and so your expenses have really dropped significantly. It's time to live life to the max!
NOTE: taking care of your health during phase 2 is vital so that you will have the health needed to finally accomplish everything on your wish list. Of course there are circumstances that are out of our control and should you experience an illness that limits you, the extra money you will have in your account will offer you options that may still allow you to get the most of out life when you retire. Also take into consideration health related expenses as you get older.
There are multiple options when it comes to investments for the future but what most people do is set up a government registered retirement savings account which saves them taxes while they are working and is only taxed on the amount you take out each year.
For most people who have an employer-sponsored retirement plan, the employer will match a percentage of what you are paid. They might match 3% or even 7% of your pay check. You can get a 100% return on your investment each year if you contribute enough to get your full employer match, and this is the most important step to take to fund your retirement. This is FREE MONEY!
In the detailed investments section of this program, we will share with you some tactics you can use to generate long term income at an accelerated pace that will have a profound impact of your bottom line. The sooner you get started putting aside money for your long term investments, the more time you have for compounding to take effect.
Something to consider here is putting 10% of your net income into this account every pay check until you are no longer working to make an income.
Step 3: Add Up Mandatory Expenses
Mandatory expenses consist of costs you must pay every month. Examples include housing, which could be in the form of a mortgage payment or rent and this amount should not exceed 28% of your gross income, car payments, gasoline, parking, utilities, student or other loan payments, insurance, credit card payments, and food. For some people food becomes “what’s left over after all the bills are paid,” but you should have a rough idea of the minimum amount you need to spend on groceries and include it as a mandatory expense.
Subtract mandatory expenses from 70% of your net income. Remember that you are paying yourself 30% of your net income FIRST and the rest is used to live life. If for example, your household monthly net income is $8,000 and your mandatory expenses total $4,500, you would take 70% of your net income ($8,000 x 0.7) = $5,600 and subtract it by $4,500. This means you have ($5,600 - $4,500) = $1,100 per month to carry forward to Step 4.
Step 4: Divvy Up Discretionary Spending
Discretionary spending means paying for the things you do or enjoy such as eating out, watching cable/streaming shows, or wearing that “special” sweater for this year’s ugly Christmas sweater party as well as gifts for birthdays, holidays and special events. It also includes how much you spend on nights out with friends, sports, or for couples it can be any of several different types of activities that each of you do with others or by yourself. Beyond the basics, it could include clothes and electronics.
List all potential discretionary spending and categorize it. Discretionary spending typically is its own mini budget, created monthly based on available discretionary funds. In the example above, you have $1,100 left over for discretionary spending. Something to seriously consider is to live modestly (especially when you just get started earning income) so that you can put aside even more money for your long term investments which will reap you exponential returns in the long run.
As an example, I would like to use my 22 year old daughter.
Monique had been working odd jobs here and there throughout her time in university. This summer she landing a really good summer job through a university program, not because she was top in her class or I had special connections but because she volunteered to be a note taker in class, which helped her get better marks, develop her work ethic and get a letter of recommendation from one of her professors she did the note taking for. With her handy cell phone calculator she worked out that she could save 15,000 dollars by the end of the summer. I shared with her that by the time she graduates in 6 months, she should have a decent paying job she actually likes, her car paid for and enough money to buy her first home… her reply was what you would expect any 22 year old to say… “NO WAY!”
I explained that if she bought a $200,000 condo or townhome, that all she needed was a minimum of 5% to get started (more is preferable but not critical), which was $10,000. Her eyes lite up and she could see the possibilities that were non-existent in her mind only minutes before our conversation… You see she did not know what she did not know and in the absence of information, her subconscious mind will come up with an answer… “I am only 22, there is no way I can afford a home at this age”… no one actually told her that she couldn’t own her own home at 22 but because she did not have an answer on how it would be possible to buy her first home so young, she came up with an answer on how she could not… No evidence to prove her belief but it becomes her belief all the same and it could have held her back from buying her first home for years. In general, bankers don’t care about your resume, they are more interested in your cash flow statement, which is nothing more than your money in minus your money out each month.
Then, when I told her that since she was single she could have roommates which would cover a lot of her monthly mortgage payments, which meant she was now living in her own home for very little at age 22. “WHAT! Really dad, is that possible”… yes it is and so much more is too!
At age 22, my daughter was financially free, working towards financial security and setting up her multi-million dollar retirement account!
I shared with her that she would also never need to pay for a car loan ever again! “WHAT, really Dad, is that possible,”… Yes it is and so much more is too!
With a pencil in hand, we sat down and created a budget for her that she felt would allow her to live a lifestyle that would be a lot of fun and exciting, yet responsible.
- $4000 per month personally and $1600 per month from renters… Total of $5600 per month
PAY YOURSELF FIRST…
- 10% Emergency fund… ($560)
10% Savings Account… ($560)
10% Investment Account… ($560)
- Bank Mortgage… $1,400
Self Mortgage… $500
Car Payments to self… $500
Cell Phone… $50
Calculation… $5600 x 70% = $3,920 less $3,300 = Discretionary Budget is $620
- Gym membership... $20
Personal Items... $50
She was on track and she did not feel she was cramping her style in any way. Now its very important to note that she will most likely incur higher costs of living should she get married and have children but in todays society, there is a high likelihood that as a couple their household income would probably double, making it say $8,000 per month at an increase of 3% per year for inflation raises. I know that children are expensive but they certainly do not cost $4,000 a month! For a period of time, they would not incur too many more expenses and the extra monthly revenue can start building their long term retirement fund very nicely. Based on their retirement needs, once on track, they will not even need to add more money to their long term investments except for what they are entitled to via their Registered Retirement Savings account to take full advantage of tax benefits.
In the chapter titled Investing, we will identify how to determine how much a person needs at retirement to live the lifestyle they choose to live. In my daughters case, if she and her husband “to be” had $50,000 in their retirement account before they started their family and put in only $1000 a month in their retirement account (we recommend more), they could retire in 30 years with 4 MILLION dollars in their bank account using a 12% annualized return which is very modest using the information we provide in our Real Simple subscription. We have not even taken into consideration more real estate investments which is strongly suggested.
This is the key; start early, pay yourself first, live within your means, take advantage of compounding with above average returns and you can live the life of your dreams without ever having to depend on others for the lifestyle of your choosing.
If you are reading this and you did not get started when you were in your 20’s and you find yourself behind the 8 ball financially today, do not get angry with yourself and think its too late. We have many ways we can help you generate more income right now and get that money working for you as well.
One thing you should do right now is to write down how you are feeling about this information.
1. If you were speaking to people in their 20’s, 30’s or 40’s, would you encourage them to purchase this information so they could learn what to do to create massive wealth?
2. If you wish you had this information a long time ago and may not be where you want to be financially today, would you encourage others who may be in the same boat as you to purchase this information and share it?
If you said YES to either or both of these questions, then no matter what your age is today, you are well on your way to creating a “want to” “choose to” “love it” “it’s my idea” kind of life because for doing so, unifii will pay you incredibly well.
Our goal is to get this information into the hands of people from all walks of life in any part of the world. We believe the best way to do this is through word of mouth marketing and we are pleased to pay our members a very nice income for doing so. More on that in the multiple sources of income section.
Budgeting Apps that work
Now comes the fun part. Armed with your basic budget, you’re going to look for budgeting software that meets your needs. While almost any budgeting software program or app will work, we have included some that have features specifically designed to be used by couples should you be in a relationship. Four are described here.
Mint is an effective all-in-one resource for creating a budget, tracking your spending, and getting smart about your money. You can connect all your bank and credit card accounts, as well as all your monthly bills, so all your finances are in one convenient place. Mint lets you know when bills are due, what you owe, and what you can afford to pay (based on your available funds). The app can also send you payment reminders or warn you if you're approaching budget limits. Based on your habits, Mint even gives you specific advice to gain more control over your spending. The free credit score is a nice bonus, too.
You Need A Budget (YNAB for short) is designed around the zero-based budgeting principle that requires you to “give every dollar a job.” It works best for people who are willing to be involved in their finances and change old habits in order to make the system work.
Honeydue is a budgeting app specifically designed for couples and includes a feature that lets you and your partner decide how much you want to share with each other. This allows for tracking of shared expenses as well as individual spending.
Goodbudget, formerly known as EEBA, utilizes the familiar envelope budgeting system that requires you to divide monthly income into virtual “envelopes” for each spending category. When the money in an envelope is gone, that category is closed for the rest of the month.