I know what you’re thinking… budgets are for poor people, and being ‘on a budget’ means two-minute noodles, being a tight *rse and having NO fun.
Well, that’s where you (and most of the population) are dead wrong.
Back in the early days of my financial advice career, I worked with wealthy people who were retired (or close to it). I was young, starting my own wealth creation journey, and managing the portfolios of the rich. A $2 million starting balance was what Finn and I required of our clients in our private wealth management firm, and most of them had a total net worth of well over $10m.
The best thing about providing investment advice to all of these amazing, successful and wealthy people was being able to find out their stories, and how they got to where they are now.
Many of them were business owners, some of them were executives at big companies. All of them told us roughly the same three things:
- They got advice from a young age, and stuck with it;
- They played the long game when it came to investing, chipping away little by little; and
- They used a budget and knew where their money came from and went to.
There’s a common misconception that being wealthy means you never have to think about money, and that the last thing you’d care about is a budget. But that theory’s for dummies. The truth is:
Not thinking about your money is what MAKES YOU POOR.
Not taking action with your money is what MAKES YOU POOR.
Not knowing where your money is going is what MAKES YOU POOR.
Preparing a budget is knowledge, and we all know that knowledge is power. Knowing how much mulla is coming in, planning what you’re comfortable spending it on, and then taking action with what is leftover (saving and investing) is what will MAKE YOU RICH.
Before you start poking sticks in your eyes, I promise it’s not that bad, and it’s not that hard, and I’m pretty confident you’ll feel good about it afterwards. Download our free budget planner (we created it specifically for Gen Y), and follow the below steps:
- The top section of the budget planner is for the Income section. It is designed for you to enter your in after-tax income (what you receive in your bank account on payday). If you are doing this exercise as a couple, there is a row for each of you. In the Amount column simply enter in your after-tax income, and then use the drop-down in the Select Frequency column to enter whether your pay cycle is weekly, fortnightly, quarterly or annually. You’ll notice the Annual Total column automatically tally’s up your income.
- Next is the Expenses section and will likely take the longest, although you’ll be surprised how much of it you know off the top of your head. Just remember to check that you are selecting the correct frequency of each expense you enter.
- At this point, you should hopefully have a positive figure in the Surplus/Shortfall column and you can move on to the Savings, Investments & Debt Reduction section. As you allocate money to this area, you will see the surplus decrease. Use this to help you work out how you want to split your surplus up to reduce debt, build up your wealth, or both.
When you’re filling out your expenses you may find that there are some things that you’re spending waaaay more on than you’re comfortable with (stuff that’s costing you money that just-just don’t value) and it’s often only when you look at expenses in an annual context that you have this revelation. Anything that falls into that category, cut it out or reduce it and watch your surplus go up. You can then use that additional money to build even more wealth.
See, it’s as easy as 1, 2, 3! and I’m betting you feel a little better already since knowledge is power and now you know where your money is going and what you have left over.
Preparing a budget is the first step to creating wealth so well done if you’re interested in taking the next step… book in for a free 1 hour financial kickstart session with one of our qualified financial advisers.
Article by Sarah Riegelhuth
Disclaimer: all information contained within this article is of a general nature and should not be relied upon when making financial decisions. Please consult a professional financial advisor or planner (like us!) before acting.