In this blog post, I’ll give you the loving being clever budget plan to systematically create passive income and financial abundance in my life 🙂
WHY SHOULD YOU HAVE A BUDGET?
Most people don’t realize the reason they’re not as financially successful as they like is because of one simple reason, they don’t plan for it. So if you want to become the best version of yourself with the habits of the rich, having a financial plan will catapult you to soaring heights.
WHY USING THE RIGHT ONE IS IMPORTANT
Most people think of a budget as a piece of paper that just shows your income, expenses and what is left over.
The extremely powerful budget i’m about to show you is a lot better than that!
Normal budgets lack 3 VERY important things.
- A passive income section
- Asset section
- Liabilities section
To download, click the link above
BENEFITS OF USING A BUDGET PLAN
- Clear road to financial freedom and abundance
- More money to spend on things that bring value
- Minimizing cash wastage
- A clearer vision of the future
- Having an emergency fund
- Security
- Sense of focus and confidence
- Becoming a smarter human being
CONSEQUENCES OF NOT HAVING ONE
Not having a budget might seem like not a big deal. But after the years go by you might start to notice some of these things…
- Working harder as you get older
- Wasting money on things that don’t add value to your life
- Lack of personal direction
- Accumulating bad debt
- Accumulating materialistic items
- No emergency fund
- No sense of security
- Your at the mercy of the economy
Alright, so now that we know why we need a budget. Its time for me to show you the 7 steps to create a wealth-building budget plan!
STEP 1: WRITE DOWN INCOME IN YOUR BUDGET PLAN
In this step, we’ll start by gathering all of our income from our job or other sources and add it up into weekly or monthly blocks (whatever is most practical for you).
Secondly, any passive income coming in from your business or dividend portfolio, you’ll need to insert that into the passive income section. Once that is done, we can now add the total amount by writing it into the total income box at the bottom.
Use the fillable spreadsheet iv created for you or click the link below to access the google sheets software 🙂
(Example)
In the picture Iv filled out an example for you to see…
$1,000 (Per week income) x 52 (weeks in the year) = $52,000
$52,000 / 12 (months in the year) = $4,333
$4,333 is your average monthly income!
STEP 2: WRITE DOWN EXPENSES IN YOUR BUDGET PLAN
Alright, this is where we spend most of our time thinking about where our money goes. To make things easier, you should print out all of your financial statements with all the debit card(s) and go back and look at the past 6-12 months of spending history and put them into the spreadsheet.
STEP 3: SEPARATE YOUR EXPENSES
When I started out my personal finance journey I quickly identified that there are two kinds of expenses that you’ll usually have. They are…
Good Expenses and Unnecessary Expenses
Good Expenses
These are the things you need to live comfortably. Like paying…
- Tax: You’re going to have to pay some sort of tax to the government. It’s just a consequence of living in a civilized society 🙂
- Mortgage/ Rent: You gotta live somewhere!
- Home Utilities (Electricity, gas, water, internet, rates, property taxes)
- Food
- Education (college, university)
- Transport expenses: (car, bus, train)
- Work clothes
- Child expenses
Unnecessary Expenses
Often referred to as “luxury items” are the things you can live without.
- Eating/ drinking out
- Subscription services (Netflix, Spotify, gym memberships)
- Take away coffee
- New clothes
- Online shopping
- Vacations
- Concerts, shows, gigs, festivals
Once we’ve identified your expenses, now we take your total income and minus it by your expenses.
What you SHOULD have leftover is a positive number.
This is your “monthly cash flow” and is the figure you keep every month.
Put this towards whatever you want. Ideally, this will be used towards buying assets that will bring you even more money passively =)
STEP 4: THE ASSET COLUMN
Ok, so this is one of my favorite things in the world! I like to call this the wealth section, its where I can manage my wealth directly and where I play the game of money. Let me show you how the assets and liabilities work…
Add your savings into the reserve box on top
Now, your assets are all the things that put money in your pocket! Cha bling bling!
I love real estate so invest my money there! The green column is all the money I own, referred to as a liquid asset.
Real estate is an asset because It puts money in my pocket from the tenant’s rents, so I add the income into my income statement. =)
STEP 5: LIABILITIES COLUMN
This is the section where we write down all the money that we owe.
So money that we owe to the bank, like credit card debt, mortgage debt…anything like that.
The focus of this section is to have these numbers “ideally” at zero or as low as possible. I know this is not really possible in a short time frame like your mortgage but the fewer liabilities we have the smaller our expenses will be to service these debt payments which equals MORE CASHFLOW!
I focus on paying small debt first and worry about the mortgage last as it is “good debt”. The more good debt I can get into the more financially free I become because mortgage debt is debt that pays me!
STEP 6: REMOVING EXPENSES AND LIABILITIES
Here, we get to pick and choose what we want to cut out to increase our “monthly cashflow”
In order to increase our monthly cash flow quickly, the first thing we can do is to remove items in our expenses and liabilities columns. In doing this it will free up our cashflow leaving us more every month 🙂
At first, saving is the quickest way to increase your wealth.
With all the money you saved you can invest that back into buying another property, house furnishing, a holiday or whatever you want.
“Its not about how much money you make, its about how much you get to keep.”
Robert T Kiyosaki
I’d begin by cutting out as much as you can, especially at the start, but starting small is ok too. Cut out the things you can live without first.
As long as your doing something. Create momentum and move in the right direction! =)
STEP 7: CREATE A PROGRESS SHEET
There’ll be no point having a budget if you fill it out only once and never check it again. So Iv created a simple sheet for you here. Fill this out straight away!
Month by Month:
https://docs.google.com/spreadsheets/d/1viwKDWn6_cUJG-z-SeGk6t3wD1KJ3VKJa8oW3xt4H0k/edit?usp=sharing
Week by week:
https://docs.google.com/spreadsheets/d/1ghNdUf-K7WXPVcrGrWqxiYiq1WnWe6oJRwIL00pBSLs/edit?usp=sharing
THAT’S IT! RELAX AND FOLLOW YOUR BUDGET PLAN
I want to personally congratulate you. You should feel great about yourself for taking the first steps in controlling your destiny.
In completing your first budget and following it, you will start to see progress and you’ll start to see things a little differently. How to save money here, how to make money there. I know that’s what it was like for me.
You know what they say, “if you fail to plan then your planning to fail”.
Budgeting is the fundamental first step, if you want to make money in the future you first must manage what you already have. Financial success is a skill, that’s it, nothing more.
It has nothing to do with luck or special talent, it’s just something you practice and you get better at it over time. So it’s good to start as early as you can.
In the beginning, it’s like baby steps, get good at managing $1000 cashflow a month, then $2000 a month, then $5000, $10,000 and so on…..
If you try first to just make more money you will probably run into a lot of mistakes because you won’t know how to manage what you already have.
Get good at managing what you already have, then move forward.
THINGS YOU CAN DO RIGHT NOW
Do you drink tea or coffee? Substitute it for purchased stuff from the supermarket and take a travel mug to work!
Seriously though, cafe shop coffee is so damn expensive. Especially when you add it up over time. One single $4.00 coffee a day for every workday is $960.
That’s a return airfare
That’s just one simple example!
Establishing your foundations always comes before building the skyscraper.
Having money problems is like a having a tooth ache
The problem with not having a budget is that it creates problems that lead on to bigger problems.
Not fixing the toothache can make you unproductive and irritable at work. Being unproductive at work can means you can lose your job. Not having a job means you cannot pay for the cost of living, and not being able to afford the cost of living means you are out on the streets.
Now not only are you on the streets but you still have the toothache!
See how having a small problem and not fixing it makes other areas of your life worse. Sometimes without realizing it.
To your financial tool belt!
Thanks for reading!
Kristian
