This is part 4 in the series ‘Budgets for Dummies.’ You may want to check out part 1, part 2, and part 3 first.

So far we’ve talked about why a budget is so important, how a budget frees your spending and how to build a budget. All of these are key points to financial freedom, but this final one is the proverbial ‘final nail in the coffin.’

Think about you car. A car runs really well as long as you change the oil and keep up with the regular maintenance. But what do you think would happen if you never maintained your car? Well, at the very least, it wouldn’t last near as long as if you have taken care of it.

A budget works the same way. If you don’t regularly maintain it, it will fall apart.

Remember when we created the [tag]budget[/tag]? We tracked our [tag]expenses[/tag] for 30 days and then we had a family meeting to build the budget. Well, [tag]maintaining[/tag] the budget isn’t much different. As you go throughout the month, keep track of your expenses in each [tag]category[/tag]. If you have your budget on a computer it is a lot easier. Personally, I like either Excel or Microsoft Money.

Continue this for 3 months. Try to stay within your [tag]budgeted[/tag] amounts, but don’t stress if you go over in a few areas. At the end of the three months, schedule another family meeting. In the meeting look for areas in your budget that you overspent/underspent and [tag]adjust[/tag] the budget accordingly.

Repeat this cycle every 3 months. Life changes, needs change, kids grow up, incomes change, expenses change and your budget should reflect that. Re-evaluate your budget every three months and you’ll be well on your way to financial freedom.

A few tips:

• Try to spread your entertainment budget out evenly over the month. If you use it all up front, you’ll be more inclined to overspend later.
• Same applies to your dining out budget, spread it out
• Don’t stress if your budget isn’t perfect, it takes time
• Remember to look at your budget as something that frees you, not something that restricts

This has been part of the Budgets for Dummies series. You can find the rest of this series here, here, here and here.

So far we’ve talked about why you need a budget and how having one gives you the freedom to spend.

Now, when I start talking about building a budget, don’t let it scare you. Building a budget is incredibly easy and, as you’ll see in part 4, maintaining it is even easier.

We can knock out budget building in 3 simple steps:

1) For the next 30 days track your expenses: I think the simplest way is to get a notebook and record every transaction you make. This includes everything from the mortgage payment to your morning cappuccinos. Every time you spend money write it down!

2) Schedule a family meeting at the end of those 30 days. In the meeting you will make the [tag]budget[/tag]. Let the whole family participate. This serves 2 purposes. First, everyone will be familiar with the budget. Second, no one can complain later that they don’t like how the budget is set up.

Now take your notebook and look over all of you expenses for the last 30 days. Go through each [tag]transaction[/tag] and assign it a category. Here is a great tool to help you with this step. Using that sheet, enter the amounts that you [tag]spent[/tag] in each category, total them up and then calculate what percentage of your pay check it takes up.

If you prefer, you can set everything up in Excel or Google Spreadsheets. If you spent more than you make, then look over your budget, is there anything you can cut back on? Cigarettes? Starbucks? Dining out? If you’re having trouble deciding how much to allocate to each [tag]category[/tag] take a look at Crown Financial Ministries Spending Plan Calculator.

3) After 90 days come back again and review your budget. Are there categories where you [tag]budgeted[/tag] too much or too little? Are there some bills that you missed the first go around? Your budget won’t be perfect, it takes time to refine it. Which is exactly what part 4 is about – Refining Your Budget.

I hope that this helps you tremendously in your financial life. Having a budget is one of the cornerstones of [tag]financial freedom[/tag]. If you have any trouble building a budget leave me a comment below, I’d be glad to help.
Questions? Answers? Leave me a comment!

This has been part of the Budgets for Dummies series. You can find the rest of this series here, here, here and here.

Many people feel that budgets are restricting. The truth is that they are only restricting if you are predisposed to think that they are restricting. However, if you’re willing to put your rose colored glasses down, I can show you how budgets actually free you you spend your money. It leads to better money management and less financial stress.

So how does this actually work? How does a budget allow me to spend my money more freely? Think about this, how often have you wanted to go on vacation, but felt guilty about putting it on a credit card? Ever wanted to go to that exclusive restaurant, but felt like it was to much money? How about wanting a new car?

You see, all of these things can easily be done if you plan for them in your budget. Let’s say that you like to go on a big vacation every June and let’s say that it usually costs you around $2,400. In your budget you simply allow for $200 each month for a vacation. After 12 months you’ve got your $2,400 (basic math here….) You can now pay cash for your vacation instead of paying it off of your credit cards at 18% interest! The same principal applies to any big purchase.

For smaller items, such as the exclusive restaurant above, you simply budget for them. For instance, in my budget, I allow for $200 per month for dining out. At the beginning of the month that money is already marked for food and it won’t be spent on anything else. So I’m faced with a choice, I can go to McDonald’s and buy 200 McValue fries, or I can go to three or four nice restaurants with my wife. It doesn’t matter, and I don’t feel guilty for dropping $60 on dinner. John Maxwell says, “A budget is telling your money where to go instead of wondering where it went.” A budget is so freeing!

Next in the series is the real meat – how to create a real, livable budget that frees you from worry and financial stress.

What financial areas do you struggle with in your life?

This has been part of the Budgets for Dummies series. You can find the rest of this series here, here, here and here.

This is part 1 of the series ‘Budgets For Dummies.’

Suppose you only got paid once per year. You no longer get a check every other Friday. You get one check for $40,000 on January 1 and won’t get another one until the following year. What would you do? Would you go take a big vacation, buy a new new car, a new boat? How would you know how much you could spend on food or entertainment? What if you spent too much and ran out of money in September? The only way that you could survive is on a [tag]budget[/tag]. The word budget scares a lot of people. “I don’t want to live on a budget, it’s too restricting!” or “I don’t need a budget to tell me how to spend my money!”

I want to show you why you need a budget and how it frees your spending instead of restricting it. After that we’ll look at how simple it is to create and maintain a solid budget.

The example above is a little exaggerated, but it proves a point. Most people would go broke if they were only paid once per year. Well, the thing is, many of us are going broke and don’t even realize it. How many times have you looked at your bank statement at the end of the month and wondered “Where did it all go?” Many of us spend foolishly and don’t even realize it. We don’t know where our money goes and we never seem to have enough to do more than “make ends meet.”

• A budget keeps you on track
• A budget helps you to [tag]save[/tag] more
• A budget lets you track your [tag]money[/tag] easily
• A budget allows you to [tag]spend[/tag] more freely

Spend more!? If that doesn’t make any sense come back tomorrow for part 2 – The Freedom To Spend

More to add? Leave me a comment!

This has been part of the Budgets for Dummies series. You can find the rest of this series here, here, here and here.

If you choose to go down the road of being a faithful manager instead of the wasteful manager then you must know that it isn’t easy! This article looks great on paper, but it can be much more difficult to follow once you begin to put it into practice. I promise you that distractions will come up, life will get in the way and you’ll begin to slide back towards being the wasteful manager. To make it easier, I’ve broken this task down into smaller bites. First, please read through this entire article. Then I challenge you to print it out and hang it somewhere where you’ll see it. That may sound silly, but being a good manager isn’t just changing your actions, it’s changing your entire mindset. So post it where you can see it and think about it every day.

To be the faithful manager you must:

• Establish short term goals
• Establish long term goals
• Lower overhead
• Plan for down times
• Practice profit sharing

Establishing Goals. It’s been said that if you fail to plan then you plan to fail (I know that’s really cliché.) It doesn’t matter how hard you try, you will never make any serious progress without established goals. This article from Steve Pavlina’s blog is a great piece to read on goal setting. The reason you should set goals is so that you not only do you have something to shoot for, but you also have a sense of accomplishment when you actually do get there.

These goals should be specific, measurable and written. An example of a bad goal would be, “I’m gonna get in shape.” That may have good intentions, but it is not specific or measurable. A better goal would be, “I’m gonna work out every night” or, “I’ll walk 3 times a week” or even, “I won’t eat any more Twinkies.” The same is true in dealing with your finances. “I’m gonna get out of debt” has good intentions, but it isn’t very specific or measurable.

Short Term Goals. In finances, our short term goals generally manifest in a budget. If you don’t have a budget, a specific short term goal for you may be to establish a working budget within the next 30 days. If you do already have a budget then good for you, but you’re not off the hook. Try setting a goal to monitor your spending for the next 30 days and re-adjust your budget accordingly. I hope to build on this topic more in the future. Putting together a budget is one of the most foundational pieces of becoming financially free.

Long Term Goals. Long term goals are exactly what they sound like – they’re long term. Don’t get too caught up in the details of these just yet. They are very important, but you will never see them fulfilled if you don’t start with some of the more basic principles of getting your finances in order. These are the goals that most people are familiar with, but most people fail to achieve. These are the retirement plans – 401ks, IRAs, Roth IRAs, etc. A simple example of this type of goal would be “I will invest $50 per month into my Roth IRA for the next 30 years.”

Lower Overhead. This is a big one, debt reduction. This is the one that all of the best selling authors are talking about. Here’s the thing though, it’s more than simply reducing debt. When a business is going downhill, the manager doesn’t just pay off the credit cards and call it good. No! The manager cuts expenses. When the ship is sinking, the crew starts throwing cargo overboard. It’s no different in our personal finances. If you are in debt and living paycheck to paycheck then you must reduce your overhead. You’ll never get ahead if you are constantly trying to play catch-up. You’ve got to get crazy and reduce overhead. If you want to take control of your finances then you’ve got to be willing get crazy.

Here’s a foreign concept. Act your wage. I talked a little about this yesterday. We are like a bunch of grown up 5 year olds. The average American has $38,000 in consumer debt. That’s debt excluding a home mortgage. If that weren’t enough, the average 28 year old, who hasn’t had as much time to get into debt, has $66,000 in consumer debt. Sixty-six thousand dollars! The average American has $8,580 on credit cards. Want to pay that off? At 19.8% interest paying the minimum payment, it’ll take you 40 years to pay the balance off! Total cost? $68,000 dollars! Doesn’t that make you crazy!?

You’ve got to learn the concept of delayed gratification. Don’t buy those golf clubs yet. Don’t put the vacation to Cancun on the credit card. Your big splurges could end up costing you big money. But I’m not just talking the cost of paying off the credit cards; I’m talking about opportunity cost. Look at this: If you took that $8,000 at invested it at 12% for 40 years you would end up with $1,017,998.50! Think about that the next time you want to pay for it with plastic.

Plan For Down Times. Life isn’t always good. We can’t always expect the market to be up and everything to be fine and dandy. We have to plan for down times. We have to save for emergencies. Three things are sure in life, death, taxes and things break. So here’s what I recommend: Set up an emergency fund. Put $1,000 into a savings account. Now, this isn’t an “Ahh, it’s an emergency, we don’t have enough money for pizza!” fund. It’s a fund for when the car won’t start or when the dishwasher breaks. Instead of putting the repair on the card, we have the cash to pay for it.

Now, what happens when you lose your job? What happens when your paycheck stops coming? If you’ve planned for down times then there’s nothing to worry about. What would it be like if you have 3 months of your living expenses in the bank? It would be incredible! What a sense of security to know that if you’re laid off or if you’re injured and can’t work that you don’t have to worry about the mortgage payment or the car payment and you’ll still have food on the table.

Practice Profit Sharing. The final point is the most important in my book. I’m a firm believer in giving back as you’ve been blessed. I believe that we are called to help others. It’s in our nature to be giving. Doesn’t it make you feel good when you help someone out? It truly doesn’t matter to me if I’m ever incredibly successful. I’ll feel that my life is complete when I have really made a difference in someone’s life.