by: Dan Jarvis
MOST PEOPLE DON’T THINK THE WORDS “EXCITING” AND “BUDGET” COULD EVER APPEAR IN CONTEXT TOGETHER – THAT’S WHY YOU SHOULD CALL YOUR BUDGET A “SPENDING PLAN.”
It’s simple, and it will set you free. Free from weekly worries about where money is coming from and where its going. Free from unremembered bills and unaccomplished financial goals. A spending plan is not a limitation on the fun you can have; in fact, it’s a plan that makes your life a whole lot more fun and more peaceful, secure, intentional, and successful.
EXCITING STEP #1 – WHAT DO YOU WISH FOR?
The excitement begins as you start to list out your goals even your distant wishes that will form the foundation of your spending plan. Would you like a dream vaca- tion on your 20th wedding anniversary? Would you like to retire to a beach house? Would you like to make some big contributions to charity? Would you like to offer your kids a 50/50 matching grant for their college expenses? Would you like to own your own home, free and clear from a mortgage? Would you like to save enough money to retire comfortably at a certain age? Would you like to eliminate your need for credit cards, forever?
If you are married, have your spouse make a financial wish-list as well. Then, plan a date to talk through your lists and determine your top priorities.
EXCITING STEP #2 – WHAT DO YOU HAVE TO WORK WITH?
List your monthly take-home income as a household, and any money you have stashed away. The goal, of course, is to get these numbers as high as possible in order to begin. You might even try selling off some old junk (or new junk) that you don’t really need to boost your starting position here. You’re going to need a little cash to kick off this exciting spending plan, and a garage sale or online auction might be just what the money doctor ordered.
EXCITING STEP #3 – WHAT DO YOU HAVE TO SPEND EVERY MONTH?
These are your “fixed” expenses the money you know is going out the door whether you like it or not. List out your minimum payments, utilities, subscriptions, average groceries and gas – everything. (If you have a few bills that come quarterly, break those down into the monthly price for your spending plan.) It’s very possible that you could eliminate or reduce some bills you think are “fixed” today (like trading in for a cheaper car, shopping around for new insurance, or living without cable). But for now, let’s tally up all these items. Now, compare that to your take-home income each month. Whatever you have left after your fixed expenses are covered is the key to your financial future.
EXCITING STEP #4 – THE REALLY EXCITING PART
This is where you take the money that remains each month and divide it up to accomplish the goals you wrote in Step 1. First and foremost, you want to get out of consumer debt. That means not relying on credit cards anymore even in emergencies which means you’re going to have to save up a chunk of cash so you can “borrow” from your own “emergency fund” rather than from the card. ($1000 is a good start for most people if you get serious about saving and selling off extra stuff, you can make it happen!) Once that fund is in place, you can start tossing all your extra money into debt repayment. (And if the car needs brakes, use your emergency fund, not your credit card!) With sacrificial resolve, pay off everything starting with the smallest debt and working up until you’re clear. For most people, this process will take a few years, but on the other side, you’ll have a totally new lease on life (only it won’t be a lease)!
Imagine what happens to your “spending plan” on the day you make your last debt payment (outside of your mortgage). How much money do you now have “extra” each month? No more minimum payments on credit
cards or cars, equity loans or store payments. You’re free! That’s when you get to go back to Step 1 again and revisit your goals. You get to set up your own “savings funds” for the things you want to do with the rest of your life. Dream vacation fund: $250 a month. Retirement: $400 a month. Kids’ college: $300 a month. Sponsoring an orphan home in Africa: $200 a month. New kitchen fund: $150 a month. Of course, if you want to eliminate the need to ever use a credit card again, you’ll need more than $1000 in your emergency fund. How about three to six months of living expenses? Perhaps $10,000, or even more? Make that one of your “funds” as well.
See? This can get pretty exciting. But there’s more. Imagine what your life will be like on the day you make your last mortgage payment. What will your spending plan look like with another $500, or $1000, or even $2000 a month freed up? At that point, everything changes. You could save even more, give even more, invest even more, enjoy even more – maybe even work a little less!
To get there, you have to have a plan. You have to know that every decision you make today contributes to either your future prosperity or your future misery. If you want a different life someday, then start living a different life right now.
EXCITING STEP #5 – WORK THE PLAN
Every time you get a paycheck (or any other income, for that matter), open up your exciting spending plan. First, go through and pay the things you have to pay – the bills and check them off. Then, treat your future goals as bills too meaning that you “check off” your giving, savings, debt payoff or emergency fund contributions. Every month you’re a little closer to your next goal, and even if you get set back by unexpected difficulties, you still know which way is up and what your next move needs to be.
Now, you’ve got a plan!