At the risk of being mistaken for a personal finance blog, we’re going to talk about money a little bit more for the next two weeks. Having solid finances seems so critical to me that I can’t see how to separate them from any of the other aspects of managing a home. So here we are. I hope you find the information to be helpful!
Did you know that most millionaires have a budget? According to Thomas J. Stanley, Ph.D and William D. Danko, Ph.D, authors of The Millionaire Next Door, “They [millionaires] became millionaires by budgeting and controlling expenses, and they maintain their affluent status the same way.” Five years ago, I never would have guessed it. But their research was backed up in three other books and two articles I read recently on millionaires and their wealth creation. (There was a fifth book, but it was so annoying to read I promptly dismissed it.) And do you know what else? You need a budget too, even though you may be a far cry from a millionnaire, or may have no desire to ever be one. It is the framework of your entire financial “house.”
Why do I need a budget?
What’s in it for you? A budget is a tool. That is all. But a very powerful tool. Think of it as the way you choose to control your money. Spending money mindlessly is no longer an option for you. It is fun, but it it isn’t smart, or the way to long-term financial freedom and security. I recommend allowing yourself a small allowance to blow however you want every month, especially if the idea of determining how all of the money will be spent ahead of time makes you want to hyperventilate. Sometimes the feeling of too much control feels so restrictive. You need that little bit of fun money – it will save the rest of your budget. I didn’t do that for the longest time. And ended up killing my budget every month because of it. It took so long for me to realize I hated how restrictive my budget felt. If budgeting isn’t fun, you won’t do it. Not if you’re like me.
So how exactly do I make a budget?
Budgets can be really simple, or really complex. At first, I used a simple spreadsheet. My income wasn’t fixed, so I would budget bi-weekly instead of monthly. I estimated my income, subtracted all of my bills due those two weeks, and assigned the leftovers either to the next two weeks or to other categories such as gas for the car, groceries, etc. If I had a really good beginning of the month, and suspected that the next two weeks would be not so good, extra money definitely went into the “available income” category for those next weeks. Eventually I moved on to Dave Ramsey’s Gazelle Budget which was an online application. Now he has a free product called EveryDollar which I sooo wish had been available then. Because I quickly moved on from Gazelle Budget to YNAB (You Need a Budget) a *not* free software which synced with a phone app and let me update and view my budget on the fly. YNAB can be a little complicated, so it isn’t for everyone. Now I’m back to the spreadsheet, because YNAB gave my engineer husband a headache just looking at it. If he didn’t love the spreadsheet so much, I would so be using EveryDollar right now. Seriously, you should give it a try. Or if you are a pen & paper sort of person, here’s a link to Dave’s budgeting forms, complete with detailed instructions. These are also free. http://www.daveramsey.com/tools/budget-forms/?snid=start.budgeting-b
Can I really become a millionaire just by budgeting?
In short, yes. And no. Yes, because again, according to those four books and two articles, the majority of millionaires became wealthy in large part due to budgeting, and maintain their wealth by continuing to budget. No, because as I can attest to by life experience, simply creating a budget and attempting to stick to it does not turn you into a millionaire. Especially not overnight! To become a millionaire requires a change in your mindset, and the discipline of setting and sticking to some very concrete goals. Check out the recommended reading below for some great books to get you started adjusting your mindset if the creation of wealth is a goal you’d really like to achieve. And just remember – becoming wealthy is not evil. Money is not evil. How you choose to handle it is where the evil part can come in. A poor man can be just as wrong as rich man in his handling of money. Try out some of the recommended reading for some good perspectives on just how that can be.
- Financial Peace Revisited by Dave Ramsey – Chapter 9 has great info on how to handle bill collectors
- The Total Money Makeover by Dave Ramsey – This is a great “boot-camp” on getting out of money trouble, out of debt, and into financial freedom
- The 5 Lessons a Millionaire Taught Me About Life and Wealth by Richard Paul Evans – Really, really good. Helps give you a new perspective on wealth, the mindset of the truly wealthy, and becoming “the one who helps others…part of the solution” rather than part of the problem.
- The Millionaire Next Door by Thomas J. Stanley, Ph.D. & William D. Danko, Ph.D – Very interesting look at who the true millionaires in America are – what they look like, wear, how they spend their money, invest, etc. Gives you inspiration to do the same and start saving.
- All the Money in the World by Laura Vanderkam – Not a personal finance book, and previously recommended on the blog. Rather, it is recommended as a help in creating or improving a healthy mindset about money.