As I sit here in Florida on a month’s vacation, I find it extremely difficult to compose an article espousing the benefits of creating and following a budget. My budget for this month has, well, let’s say, not followed my normal spending habits. But, if I had not created a budget early on in my life, there is no chance that I would have achieved financial freedom and been able to take a month’s vacation. In this article, I would like to introduce you to a tool to create your own budget, what skills you will develop as a result of creating a budget and dive into several reasons why a budget is crucial for your success in investing in real estate and achieving financial freedom.
I have embarked on a new learning experience and signed up with Dave Ramsey’s Financial Coach Master’s training. My desire was to learn a framework on sensible saving and spending habits and in turn teach and empower my children and Jake & Gino students to take control of their financial destiny. As so often happens in life, once a person thinks he masters a subject, he only begins to realize his ignorance. I totally underestimated the power and importance of a budget.
A budget is simply a blueprint of your financial future. In my coaching business, I have discovered that money and budget problems are seldom the “problem”. They are usually the symptom of something else that is occurring in the client’s life.
Let me now discuss the three types of budgeting problems. According to Mr. Ramsey:
The person does not have a big enough reason “why” to do it. If a person can find enough reasons why, they will find a way how. My story is the perfect illustration. I was a small business owner with a large family (six kids) who felt trapped in their situation. I finally built up enough energy and reasons why to escape my surroundings that I jumped into multifamily real estate and learned how to accomplish it.
If you don’t have a big enough reason why to create and follow a budget, you won’t do it. How many times do you have to end up with more month at the end of the money? Please read my article on motivation and how you can summon motivation when it is most needed: How You Can Summon Motivation.
The relationships that you are in may cause you to procrastinate about developing a budget. This may be a serious roadblock for some, but I want you to read on and see how you can convince or persuade your counterpart to commit to a budget. Would your partner like to see a 17% raise if they commit to a budget? I know I would. That is the statistic that Dave cites when his clients adopt a budget. Put the savings in real dollars to your partner and then show them where the savings will come from.
This is the easiest problem to solve. People do not know the mechanics behind creating a budget. Let’s start with a tool that I find extremely useful to begin your journey: Every Dollar. It is a fantastic tool that allow you to plan and track your income and expenses, link your accounts to the bank, and gives you a clear snapshot of what is occurring every month.
I was frustrated when I first began using the budget tool. Whenever you begin something new or vacate your comfort zone, that little inner voice will be screaming at you to quit. It will take you a few months to become proficient, so the key is to stick to it and not to beat yourself up if you aren’t doing it right!
The first thing I noticed when I created the budget with Every Dollar was that I was able to focus on what I was spending money on and where I should cut back my expenditures. I was happy that my housing costs were around 30% of my total income, but my food costs were a bit higher (six kids that love to eat). I was also spending more on my lifestyle than I should have. I had money left over at the end of the month, and I was able to allocate more to my charitable contributions.
A person who can focus his efforts is much more likely to succeed in life. In the case of the budget, the numbers don’t lie and I was able to spend money and gift money where I felt it was appropriate. Once I saw the inequity of my spending, it gave me the motivation to fix the problem.
Another amazing benefit of the budget was my ability to realize that my income was not fixed. I had the power to control how much I made that month. For example, I could focus on making more sales calls, expand the Jake & Gino community, solicit more coaching students and try to buy another multifamily property. It was a terrific feeling when I began to add more revenue as it was generated throughout the month. It actually made me work harder and smarter and target revenue producing activities.
The biggest benefit was taking responsibility for my actions and not blaming the economy or my current situation for my money problems. Responsibility, coupled with focus, has been the driving forces behind my recent success in the real estate space.