subject: The Smart Way To Live On A Budget [print this page] Ever gotten that gut wrenching fear in the pit of your belly or that feeling of anger and despair when you thought of making a budget? Then chances are you've never looked up the word in a good dictionary and learned all about what this word means, and how you can use that to your financial advantage.
Here's the good news: living on a budget does not mean you have to cut back on the quality of the things you buy or deny yourself anything fun. What it does mean, is that you have to figure out how to make enough money to afford the things you want and to keep your spending within the limits of your income.
The even better news is that the most valuable asset you have is yourself and your income earning potential. If you want a bigger budget, then figure out a way you can be more productive to earn more money.
Another definition you need know is this: a budget is the amount of money it takes for the organization or household to function, and to attain its goals.
Let's look at the first part of the definition; what it takes for you and your business or household to function. Add up all the money you spent in the past year, including what you put on credit cards plus interest. Divide that by 52 weeks, and multiply it by 1.036. The result is your weekly budget. That is the exact amount of income you have to bring home every week just to function plus barely keep up with rising prices. That doesn't include paying interest on the interest on credit card debt.
More than likely, you have financial goals you also want to attain (the second part of the definition.) Attaining those goals must become part of your budget as well. For example, a couple wants to take a $2,000 cruise 6 months from now plus start saving for a $20,000 new used car to replace their current car 2 years from now.
They divide the cost of the cruise by the 26 weeks they have before the cruise date and learn they have to set aside $76.92 every week to have the cash for the cruise. This gets added to the budget, meaning the additional amount of income they have to put into the bank every week.
Now they divide the cost of the $20,000 car by the 104 weeks they have in 2 years, and learn that they have to set aside $192.31 each week to pay cash for the car. This also gets added to the budget.
Most importantly, if you want to attain the goal of financial freedom - working because you want to instead of because you have to -- then the most important part of the budget needs to be the wealth building money you set aside in a savings plan and never touch. Figure out how much you would need to have in savings to live without working. Divide that dollar amount by the number of weeks until the time you would like to be financially free. Figure out how to make that much more income each week, and you are truly on the right budget track to financial freedom.
For example, do you want to be a millionaire in 20 years? Figure out a way to set aside $961.54 a week in savings for the next 1,040 weeks and you have made it! The interest growth will be a bonus that more than keeps up with the rise in the cost of living every year.
The Smart Way To Live On A Budget
By: Jess Shaw
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