When we think of budgets we normally think of the boring things like gas, groceries, and electricity bills. The way for people to stay on their budgets is with a budget “carrot”. If you use a goal or “carrot” to keep you on track you’ll achieve more of your financial goals. It works on donkeys and it works on me!
Now that you have all of your fixed budgeting from last weeks blog, deduct it from your income to see how much you have left over. Make sure you squeeze all of your cable, internet, mobile, energy bills, etc. I’d rather spend my money on a trip than give it to greedy cable companies.
Now make a list of all the things that we want to do this year or in the future. This is the fun part! Most experts focus on all our boring bills but to get people to stay on budget we need to focus on the fun costs. Take a piece of paper and write down all of the things we want to do or buy this year.
It could be a trip for $1,800, Italian lesson so you can speak to Nona $50 x 12 $600, saving for another degree $2,500 a year x 2 $5,000, or buying a cottage $50,000 for the down payment. Take some time and think of EXACTLY how you’d like to retire and then cost it out. Remember that things will be more expensive depending on when you retire so be generouse with costs. There are retirement calculators out there to help.
Take your goal like the trip and divide it by the amount of pays you’ll have until you can go. If you have ten pays until you can go, then you want to get an AUTO transfer from your account into a savings account for $180. In ten pays you’ll have the $1,800. When you have the money you can run out and buy your trip for cash and then fly away with only a feeling of accomplishment. PLUS saving any credit card interest you would have normally paid when you had bought it on your credit card.
Go through all of your goals and start allocating your free cash flow towards them. When you’ve achieved one, and paid cash, target the next in order of importance to you. You’ll quickly see how money that would have just vanished is now being re-directed at getting you the things that make you happy. And that is how we do it. (snap)
Next week I’ll show you how to use your petty cash and bring all areas of budgeting together.
Have an awesome week,
Dave
