24 Jan Start the New Year Right: Basic Budgeting to Free Up Your Money
There is nothing people talk about more and do less than budgeting.
Nobody wants to hear about it, and I get that. Yet budgeting empowers the purchases you do make and brings satisfaction for the purchases you avoid.
Budgeting gives you a whole new perspective on life — especially if you ever wonder where the money goes.
What better way to start your new year than setting up a system that takes some stress OUT of your life? Here are a few budgeting basics to get you started.
What Are My Basic Costs?
How much does your current lifestyle cost you? If you don’t know, it might be costing you a lot more than you think.
In the NFL, I saw so many players go broke because they failed to realize that they were only getting paychecks when they were playing games. For all but the 12 playoff teams, players were out of a job come January.
That meant no checks for anyone on those rosters from early in the year until the second week of September! That’s a drought pro athletes need to save for.
Hopefully, nothing that drastic will happen to you. But knowing how much your current lifestyle costs can prepare you for future changes, both an unexpected loss of income and growth in income.
It’s not as hard as you think to put this together. How much does your life cost you?
- Living expenses? Rent/mortgage, utilities, food, gas/transportation.
- Entertainment? Restaurants, bars, theater, sports.
- Trips or vacations?
- How much savings do you actually have? How much are you saving every month?
Be Accurate…and Then Round Up
The first step of owning your budget is to look at how you actually spend money now and be accurate about it. That’s a number you should know. Always round up, don’t round down like many people do. You are cheating yourself.
Somebody came to me for advice about budgeting and I asked them, “How much is your rent?”
They said, “Oh, about $1,500.”
I said, “No, how much is your rent — exactly?”
They said, “Well, $1,699.”
That’s a difference of $200! That much money could make or break a budget.
Be realistic. Do not deceive yourself. How much does your current life really cost you? No judgment, just take stock now.
Give yourself the information you need to act on. And round numbers up to make the math easier.
From here, you can start to paint a picture of where to cut spending and create savings.
Next: How Can I Free Up Some Money?
Now you know enough to be able to start seeing where you can cancel some spending and get more money back into your pocket. I’m going to stick to the main example of your housing, usually the biggest expense in your life.
One NFL rookie I knew asked me in his first year, “Ryan, you’re good with money. You taught me to save and how to invest. What else can I do?”
I said, “You’re single. Get a one-room apartment.”
He protested, “What if I have guests?”
I said, “That’s not your problem, is it? If somebody wants to visit you, they can crash on your couch or stay somewhere else. Or they can stay in your bedroom while you stay at a hotel before the game.”
My point is: How often does that happen? Your apartment is for you and your everyday needs first. When folks come to me for house-buying advice, I tell them, “Make your space comfortable for you, even if that means being uncomfortable for everybody else. It’s your space.”
At our house, yes, you’re welcome to stay. However, it will be uncomfortable to stay long periods of time. If you really need a place to stay, you’re not going be complaining about the couch anyway, so everybody wins.
Where can you reduce or cancel some spending costs? Ask yourself: Can I add a roommate? Can I move in with a loved one? Can I take three months (or a year) and move in with my family to save a chunk of money and pay it like rent into a bank account?
Or: Can I move for my job to somewhere cheaper? I just talked to someone who is leaving Silicon Valley because they can not afford to live there anymore. They will move and find a new job where the numbers are reasonable.
Know Your Price vs. Your Cost
There’s a difference between the price of something versus cost, and that’s a number you need to keep in mind. Whether I’m budgeting with NFL athletes, CEOs, companies or my teenage brother, price versus cost is key.
Say you want to go to a movie with a loved one, and you’re buying. The price of those movie tickets is $30. Maybe you’re getting some snacks and that’s another $10. So now you’re $40 in. Is that the price or cost?
You know how much you earn each month. The first thing you have to pay is your basics: rent, utilities, car, food, gym, phone. Only after those are paid in full can you go to the movies.
What I mean by cost, then, is how much it costs on top of your living expenses. So if your current living expenditures equal $2,100 a month, that movie costs $2,140. Enjoy it.
When you see the price of something you want and you can remind yourself of the cost, you can live your life, more and more, in-budget.
Any questions? Shoot them to me in a comment below.