Anyone can create the lifestyle and legacy they want—even you, especially you! The good news is that if you want to experience prosperity, you don’t have to time the markets perfectly, make a six-figure income, or inherit a fortune from your deceased uncle. The bad news is that it’ll take work and you’ll have to do the exceptionally boring, yet all-important task to get you there: budgeting. I know it’s not fun or cool to talk about, but we must start here on your path to success. Just as pouring the concrete for a house is not very interesting, it’s essential to get the frame up, and it will keep your house strong through the storms of time.
Budgeting is the most essential part of your financial plan. Without it, you’re destined to fail; it doesn’t matter how much you make. High earners who make millions of dollars can still fall victim to bankruptcy if they fail to budget. Sadly, many of them are living paycheck to paycheck and are squandering their wealth on junk they can’t even sell at a yard sale.
Believe me, I’ve struggled with budgeting. We’ve all been there. During my second year as an advisor I ate out way too much, taking lunch meetings with clients and other advisors two to three times a week. To fit in with the rest of the “blue suits” I rubbed elbows with, I also spent money to update my wardrobe. A lot of the money I spent wasn’t necessarily in my budget. I recognized that I had a problem, so I got on a budget and for the most part, stuck to it. As a result, I was able to put more into my retirement savings than I spent on eating out that year. As a financial advisor I want to model the habits that I’m asking my clients to put into practice, so it was important for me to do this.
As humans, we tend to yearn for the next thing around the corner, be it a new car, house, relationship, or job. In western culture this often translates into dollar figures. In the age of seeking immediate gratification, workers will buy the next hot product in stores or take out loans for flashy items they can’t afford. Within a year these items no longer bring as much happiness, so they go off to buy the latest thing while still paying for the former things, continuously a slave to their lenders.
The concept of budgeting is simple—you should spend less than you make and then invest the rest. While the concept is simple, in practice it isn’t easy because you’re trying to change a habit, and that takes work. Imagine that you are a secretary making $40,000 a year but you save $5,000 a year for retirement. After 30 years, you could walk away with $612,000 and wave goodbye to all the executives around you who are stuck working until they die because they didn’t budget and save.
The importance of budgeting can’t be overstated, because it doesn’t matter how great your returns are in the markets if you can’t budget the money to buy into the markets. It doesn’t matter if you make $2,000 to 3,000 in the markets one year if you aren’t also saving an equivalent amount on an annual basis. As the saying goes: “a penny saved is a penny earned.”
Imagine what will happen if you are as intentional with your money as you are with organizing your closet or keeping your car nice and clean. What will happen if you tell every dollar in your budget where to go? What if you delay some gratification in your life today so that you can have more of what you really want in your life tomorrow? The choice is yours. Why not win with money? It starts with budgeting.
