Run to you dressor, put on your socks, because we are about to blow them off!
Power of a Personal Budget
Since you have made it this far, you must agree, creating a personal budget is a requirement to develop discipline to live within an affordable lifestyle. A personal budget gives us a tool, but we need to stay within our Living Expenses to manage our way to financial freedom.
A budget gives us a snapshot of what to do with every dollar we earn, we balance to zero. We learn that everything in intertwined and Living Expenses are the result of managing essential expenses, and essential savings.
A budget is a monthly representation of our earnings, our expenses, and our savings.
It is great to know we have a placeholder for every dollar, but what about real life? As you know, I work to give you detailed guidance on how to manage your budget in the real world.
Monthly Budget to Bank Account Reality
Now that we have our budget, what about our bank accounts?
Timing of your expenses
Here we focus on real dollars, paying your expenses, and understanding what the balance in your bank account means today and what it will mean in the future.
Follow along here, the power is in the spreadsheet, and detailed instructions are included.
In Part 2 you learnt a great way, (if I say so myself) to ensure discipline in keeping to your daily spending limit and your Living Expenses. You learnt to pay yourself to a second bank account.
What we are developing here is not your Living Expenses account, remember that is your spending account, once it is out, you are out. Rather the technique I develope here is for your “primary” account which your pay cheques, your essential expenses, your discretionary expenses, your essential savings, and your additional debt repayment and savings is managed.
What we want to accomplish is simple, ensure you have the cash in hand to pay our expenses. Need to pay a bill in 2 weeks time? Do you have enough in your account to pay for it?
You are saving money in your account, so your account is growing, do you transfer money over to a savings account now or wait for 3 weeks. The money is there, as you have budgeted for it, but timing can assist in ensuring bills do not go NSF. Or perhaps you do not want to go below a certain amount in your bank account (minimum balances assist in reducing banking fees) so now you know to maybe wait 3 days till payday before paying your bill (not saying to pay late, just when).
Lastly, another example, setting aside money for a vacation, you will be able to track when your account will have enough to purchase a ticket.. remember we do not want to buy on a credit card and carry the high interest expense.
This is a short post, because the power is in the spreadsheet. We work in reality on this blog and common question I receive in email is “TravelnVal.. you’re awesome, and budgeting is awesome, but my bank account doesn’t match my budget. I know I am supposed to have the money, but where is it? I have money in my account today, should I buy that thing I saved for now or wait? Help.”
Just because your monthly budget works, doesn’t mean that your expenses and income are balanced through out the month. Here, you will get a sense of when you bills come out of the account, maybe they are all clumped a the end of the month. So you think you are flush with money in the bank account only to have it drain down end of month.
Use this spreadsheet to get a handle on every penny you spend. Learn when your income comes in and your expenses go out. Bills bunched? Ask to have the payment date changed to balanced them out.
Saving for vacation, look in to the future and see when you will have enough cash in the bank account to buy the ticket.
DO NOT SPEND ANY EXTRA MONEY IN THIS ACCOUNT, remember, you have budgeted to zero, every penny has it’s place.