Image Credit: © alancleaver_2000
So who is this financial wizard I mentioned? You! Or at least you should be. OK, maybe “wizard” is a bit of an exaggeration, but in this day and age you need to be pretty damn close to being a wizard to get along in this world financially.
Before I get too far into this, can I just say what this article is not about. It is NOT going to tell you how to “make money online” or “get rich quick”. Or anything like that. If that is what you were hoping for, then you are going to be disappointed. But hey, stick around, you just might learn something anyway.
Money Myths
I’d like to clear the air on a couple of myths that some folks seem to have about money and money matters. First of all, if anyone says to you that they are not interested in money or that money isn’t important to them, they are either lying to you or they’re very naive. Of course money is important and interesting. It is an essential part of our daily lives. The next time someone tells you that money isn’t important to them, you ask them to give all of their money to you. 
Money Myth #1: Money is the root of all evil. Hey it’s a quote from the Bible, it must be right. Well yes it is from the Bible, but no it is not right. It is misquoted. It comes from 1 Timothy 6:10, which says…
For the love of money is a root of all kinds of evil. Some people, in their eagerness to get rich, have wandered away from the faith and caused themselves a lot of pain.
Lets be clear on this, money is not evil, money is not the root of any evil. What can be is the love of money. And believe me, very few people love money. Most of us love what it can buy.
Money Myth #2: Money can’t buy you happiness. What I say to you is: You’re spending your money in the wrong shops. When people say that money can’t buy you happiness what they really mean is money, itself, will not make you happy. And they’re right. But it doesn’t take an Einstein to figure out that you can exchange some of that money for things that do make you happy.
Making Ends Meet (It’s Called a Budget, Son)
Do you find that you run out of money before you run out of month? The most common cause of this is simply lack of planning. You don’t plan what to do with the money coming in. Or you don’t plan it well enough.
Enter: The Budget!
Whip out your pad, pencil, eraser, and calculator (or spreadsheet, whichever floats your boat). It’s time to get your hands dirty in the joys of budgeting. A budget is simply a list of planned expenses, balanced against a list of incomes. Hopefully the income list has a slightly higher total than the expense list. Ideally you should have a budget that can show you figures for annually, quarterly, monthly, and depending on how frequently your income arrives, fortnightly and weekly. The reason for the different sets of figures (annual, quarter, month, etc.) is to help planning, and forecasting. But for this exercise I’m just going to talk about a monthly budget.
30 Second Math Lesson: Converting an income or expense to a monthly figure is…
The annual figure divided by 12
| Weekly…….. | NUMBER × 52 ÷ 12 |
| Fortnightly… | NUMBER × 26 ÷ 12 |
| Quarterly….. | NUMBER × 4 ÷ 12 |
| Annual…….. | NUMBER ÷ 12 |
Take your page and divide it into 4 columns. From left to right you want a wide column, a narrow column, a wide, a narrow. The headings for each are: “expense”, “amount”, “income”, “amount”. Those heading should tell you how wide to make each column. In the “expense” column, write down every single expense that you have. Don’t worry about the numbers just yet, concentrate on the names. And don’t worry about an expense’s frequency, if it occurs one or more times a year, write it down.
Go back through that list of expenses and double, triple, quadruple check it. And then check it again. This is the area where most budgets fail. They don’t account for EVERY SINGLE EXPENSE. So please take great care and make sure you’ve got everything. Did you remember “savings”? It is an expense and it should be at the very top of the expense column. Don’t forget “income tax“. Yes, even if your income tax is deducted from your salary before you get it, still include it here. How about an “emergency fund”? To cover those things that just seem to crop up out of the blue.
Hop over to the “income” column and list all of your income sources. Move to the next column right and put in the monthly gross (before tax) figures for all of your income sources. Add them up and put the total at the bottom of the column.
Now go to the amount column for your expenses and put in the numbers. Start with “savings” because it is at the top of the list and is the easiest one to work out. Here is the equation: TOTAL INCOME ÷ 10 Yes, I’m serious. You must save a minimum of 10% of your gross income. And this money isn’t for spending on a holiday or a new car or anything like that. This is so you can survive long past the time when you can’t earn an income any longer.
Next on the list should be “income tax“, you should be able to get this from your pay slips. Go down the page adding amounts for each expense item. For anything that you have no idea of the actual cost, just put an estimate (err on the side of caution). Pull out your calculator, add that column up and put the total at the bottom.
If your total expenses is a smaller figure than your total income, you have a surplus! Congratulations! But before you get too excited, are you absolutely certain that you haven’t forgotten any expenses? If it all checks out and you haven’t forgotten anything, add the surplus (TOTAL INCOME − TOTAL EXPENSES) to your “emergency fund” or “miscellaneous” items.
You’re done. You can go home early with a gold star.
If your total expenses is a higher figure than your total income, you have a deficit! Congratulations! But before you get too excited, are you absolutely certain that you haven’t forgotten any expenses? I ask that because the last thing you want after doing all this work is to discover that you have another expense that you haven’t thought of yet. OK, you need to cut the fat. I want you to draw a horizontal line underneath “income tax” and its amount. Below that line is where you can trim some fat off. Everything above is set in stone and CANNOT be altered.
The ways and means of reducing your expenses could fill several blog articles on their own. For the purposes of this article, stick to: Look at each expense item and ask yourself “am I prepared to sacrifice this so I can live within my means?”. If you say “yes”, nuke it! If the answer is “no”, can you find a way to reduce it? Then move down to the next item in your expenses list. You have to turn that deficit into a surplus, even if it is a tiny surplus of a couple of bucks.
If you can’t get your expenses down to anywhere near your total income please seek some professional financial advice. And do not, under any circumstances, borrow money to make this budget balance.
Making It Work
Making a budget work is tough. You have to sacrifice. You have to commit. Committing to a budget means that you NEVER EVER EVER spend any money unless it is covered in the budget. In fact your entire family has to commit to it, so involve them in the creation of the budget.
A Final Word
Your budget needs to be continually reviewed, tweaked, and updated. Keep it safe. Keep it current. And get to know it like the back of your hand.
Till next time…
Help me write more great articles like this, fuel my mojo with a coffee!
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I’m so sorry. I completely forgot to include this in the original post. It is just some further reading. But incredible reading at that. This book,
The Richest Man In Babylon should be required reading at every school on the planet. Yes, it is that good!
Twitter: SteveYoungs
Steve,
Just another thumbs up for your book suggestion! We have this book, and live by it’s teachings. It’s amazing what changing your mindset about money can do fo you!
Hi Erica!
Thanks for stopping by. Yes, the message in that book can honestly change your life.
Hope to see you again soon.
Kind regards,
Steve.
Twitter: SteveYoungs
Awesome and realistic. I have a saying that I’m trying to enforce on my wife, if we can’t afford it we don’t buy it!
We live on a budget of $75 a week for food and we stick to it.
Unfortunately some are used to having nice things or see the celebs with nice things and want that lifestyle no matter the future implications
Too many people have a “want it now” attitude to everything. They look at people who seem to have everything and they forget that these people have worked long and hard to get where they are.
The banks and finance companies are not helping the situation either, not with their eagerness to give us credit and loans at ridiculous interest rates.
Steve’s Law: Never borrow money for anything that depreciates in value. Or, to put it another way… only borrow for investment purposes.
Twitter: SteveYoungs
BTW, James, did you really mean: £75 which is about $130 Australian? That’s close to what we spend per week too.
Twitter: SteveYoungs
Something that works well for me is the 30 day rule
If you really want something – wait 30 days. If you still really want it after that and the funds are there then buy it.
Most impulses for something go after a week or so.
Nice tip, Ben. Now how do I explain that to my hedonistic wife who completely doesn’t grasp the idea of delayed gratification?
Seriously though, it is a great tip, and something that I think I’ll try.
Thanks, mate!
Twitter: SteveYoungs
Right on. I have always avoided a budget and as a result never had any savings or money for vacations. Now I am starting a budget and it is clear that the key is checking each month and making corrections to stay within it.
Hi Ralph!
Yep, one of the keys to making it work, aside from an absolute rock hard commitment, is to continually review and update it.
Thanks for stopping by, Ralph. Hope to see you back again soon.
Kind regards,
Steve
Twitter: SteveYoungs
Steve,
Thanks for visiting and leaving a comment. Now that I have a start at a budget, I’ll have to keep coming back to make sure that I don’t cheat myself.
Hi Steve,
Great post. I love the practical advice, really helps to see it all laid out pretty and explained so well. I am generally excellent with money – excellent at spending it
Seriously though, I am married to a very careful spender. It’s taken 10 years of marriage and three children but we’re finally reaching a point where we can negotiate our family spending to everyone’s satisfaction. That said, I’ll reserve judgement until the little one’s hit the teenage years
Excellent article, re-tweeting now.
You’re lucky! I have 2 kids that say to me every time I leave the house… “can you buy me a treat, daddy?”, and a wife whose eyes glaze over whenever you mention the words “shoe shop”.
Glad you liked the article, Eleanor, and thanks very much for the re-tweet.
Twitter: SteveYoungs