Finance and Budget

The reason why we want left over money at the end of the month is so you can build your savings and invest. Let's say at the end of the month you have $300 left over. Instead of blowing that money on a fun vacation or splurging at the mall, hold on to some of that money. Finance and budgeting are some of the most important skills you will learn while on your way to financial freedom. Most investors will tell you to first get out of debt, save your money and invest your money. What I am telling you is to first build up your emergency money fund. My financial planner advised us to have an emergency money fund that would cover expenses for three to six months. To be on the safe side, we have set aside enough money to cover our expenses for six months and a little beyond. But it takes discipline to build that fund and not touch it!

Therefore, building an emergency money fund would be my advice to those who want to feel free in the emergency financial world with so much uncertainty. Once you have built your emergency money fund, and it might take months, even years to build the emergency money fund.... but once it's full, it's time to invest. My first advice would be to start investing in a Roth IRA. A Roth IRA will secure you when Social Security is depleted by the time you reach retirement age. We can no longer depend on the government to help us out with Social Security. It's now on our shoulders and a Roth IRA can get you financial security when Social Security is gone. A Roth IRA is something you contribute to on a monthly basis. We set up our Roth IRA through AXA Equitable with a financial planner.

Before you start contributing to a Roth IRA, you need to determine how much money you want to have when you're ready to retire. Do you want to live off of $100,000 a year once you're retired? Or are you expecting $1,000,000 a year? Or can you make it work with $50,000 a year? You must determine what you want to live off of first. Then your financial planner will be able to tell you how much you need to contribute each month to be able to retire at the age you want to retire at and have the money you want to have.

Once you're contributing to a Roth IRA, it would be wise to invest in stocks, mutual funds and real estate. The goal is to eventually make enough money off your investments like stocks, mutual funds and real estate, to the point that you no longer need to work. This means the money you're making off your investments is equal to or greater than the amount of money you need to live. But let's be practical, you must work for a little while to even get money in the first place to be able to invest.

While we're on the topic of investing, let's get one thing straight. The difference between an asset and a liability. In the #1 New York Times Bestseller Rich Dad Poor Dad by Robert Kiyosaki, the different between an asset and a liability is spelled out very clearly. An asset is something that will make you money either immediately or in the future. A liability will never make you money and in fact requires you to put a large bundle of money into it. So, focus on buying assets. Assets include stocks, bonds, mutual funds, real estate and businesses. Get creative with what types of assets you can buy.

The moral of the story in this article is to reach a time (sooner rather than later) that all of the assets that you have purchased are ultimately bringing in the equal or greater value of money than you are producing as an employee at a company. When this time comes, you can retire early, work less and play more.

Making The Most of What You Make

The title is simple: Make The Most of What You Make. Dave Ramsey states in his Total Money Makeover book that most people will have roughly two million dollars pass through their hands in one lifetime. As Ramsey puts it.... why not hang on to some of that? There are simple ways to "hang on" to some of that bundle of money passing through your hands, but it takes something

I call, discipline. Discipline to say "No" while at the grocery store, to say "No" while walking around the mall, to say "No" to that big boat that will put you in debt, or to say "No" to a house you know you cannot afford.

I've practiced discipline in many aspects of my life --money, food, working out, and morality just to name a few. My husband and I have even practiced the discipline of paying off a student loan before interest took control of our lives.

Making the most of what you make includes living within your means, investing, and saving. An easy way to live within your means is to keep an accurate budget. Now keep in mind, this doesn't have to do with how much money you make. You simply add up how much money is coming into your home each month and add up the necessary living expenses which include housing, groceries, gasoline for the car, etc. This part can be crucial when it comes to separating wants from necessities. After you have both sums --income and living expenses-- tweak your budget so that the sum of your living expenses column equals LESS than the sum of your monthly income. Now for some this may mean taking up a second or third job if necessary living expenses continually cost more than you are currently bringing in with your job. Another way to attempt to lower necessary living expenses is to move to an apartment or home you can afford, try couponing, drive less and walk more, lose the gym membership and go running around the block or do exercises while watching television, or even going grocery shopping while you're in a hurry. You'll have less time to wander around the store picking items off the shelf and dropping them into your cart.

We keep our budget sheet on Microsoft Excel. We type in the allocated amount of money for groceries, rent/mortgage, clothes, entertainment, eating out, gasoline, electric/gas bill, and whatever else you intend to include in your budget.

Now here is the trickiest part of the budget.... and it's not even that difficult: keep every single receipt from every item you buy over the month! It makes no difference whether you spend only 50 cents on a candy bar, or $1.00 at McDonald's on a drink, or if you spend $1,000 buying new patio furniture. Write it down or keep the receipt. A friend of mine who teaches finance at a local high school says families should treat their budgets just like a business budget. If you had a business, wouldn't you keep track of every single penny that goes in and out of your company? Well treat your family finances the same way. Keep track of every single penny so you know exactly how much is going in and how much is going out.

At the end of the month, we have a designated day called "Budget Sunday." It's the last Sunday of every month. That day the family sits down and brings every single receipt from the course of the month and we add up the numbers to see how close they come to our original allocated amount. For example, since we have a small family, we allocate $300/month to groceries and many months that number is very tight. If one number is too tight for your family, you can loosen it up, but that means you need to tighten another number somewhere else.

Now, in the next article we will talk about what to do with the left over money after the month's budget is complete. And we hope there is some left over money.... you'll see why soon.