Today I’m gonna share with you how to budget your money. How to manage your finances? How To Budget Your Money? So that we can make sure that you’re getting ahead in your life financially and that you’re not just spending money on things that you don’t need, you’re not getting into debt, credit card debt which you want to avoid at all costs. Any high-interest debt you want to avoid. And unfortunately what happens for a lot of people, because they don’t have awareness around their finances, and the money that their making and where they’re putting it and how they’re spending it, and How To Budget Your Money? They end up living paycheck to paycheck. Whatever comes in goes out.
How To Budget Your Money
Now how can you ever get ahead? How can you have money put aside to save for emergencies, or to save for certain opportunities that might come up that you need to make sure that you have the excess capital that you could then invest in? Or how do you expect to make more money if you can’t invest in yourself? In your knowledge and own skills so that you can make more money in the future. Planning long term, guys. ‘Cause a lot of it is the mindset of a lot of people, they want instant gratification, they just want to spend their money and buy things because it feels good, and a lot of it is the mindset of delaying the gratification, right? By learning how to manage your money and your spending and to have a budget in place so that you do not overspend.
I’m gonna share with you a system in this content of how you can make sure you have a budget, but you can allocate your money and finances that is allowing you to achieve your financial goals long term, but also enjoying your life, as well, and improving to be the best that you can be. So I’m gonna draw something out here for you guys. The first thing that you’ve got to be aware of is where your money is coming in from, how much money is coming in, and how much money is going out. So what I’m discussing here is, first of all, your income. You’ve got to know what your income is, as well as your expenses. Now you first have to know where you’re at. You can never be blind to your finances. And I find that a lot of people, including myself, because I had times in my life where I was broke and I was struggling and I got into credit card debt and the reason why you get into credit card debt, or any kind of debt, oftentimes is because of a lack of awareness and paying attention to these two simple things.
Your income and expenses, very important. And what happens for a lot of people is, because they know they’re racking up debt and they’re not tracking things properly, they avoid looking at this because they don’t want to confront and face the pain of seeing the reality of being in debt. I know for myself I’d get in those credit card statements every month and I’d avoid looking at it ’cause I was like, man I know I’m in debt, I just don’t want to know what that number is ’cause it’s gonna overwhelm me, it’s gonna freak me out, it’s gonna feel uncomfortable and painful to face that number.
Here’s the key here, guys, you have to confront it and when you do you actually feel empowered by it because now you have a target. I’m gonna share with you the system that you can get yourself out of that situation. Of course, get ahead in your life. To confront and have this awareness. So when it comes to income. We’ve got to know what are your sources of incomes that are coming in every single month? And you’ve got to write it down and track it. What I recommend that you do is to create an Excel spreadsheet or a Google spreadsheet. Some sort of spreadsheet online, it could be in the cloud, something that you can update on a regular basis, on a weekly basis, and ultimately an overall monthly basis. Very important to set up a system for tracking. I know there are software’s out there too, like mint, I mean back in the day I just used a spreadsheet and that was more than enough.
So first thing, I want you guys to go through your bank statements, I want you to go through your credit card statements, your bank accounts, whatever it is and actually first identify how much money are you receiving on a monthly basis? What are those sources of income? And let’s track that and put that in a spreadsheet so that we actually know how much money you have available.
How you’re going to budget?
Let’s say you have a job. And you get paid a salary, okay? And let’s say just for simplicity as an example you’re bringing in $3,000 per month. So that’s $36,000 a year. Now you’ve got to factor in if you’re getting paid this at a job, most jobs if you’re getting paid a salary, then they already deduct certain things like for taxes, maybe it’s insurance, maybe a small percent goes to a 401k, retirement account, whatever it is, we’ve got to identify that because otherwise if you have another source of income, let’s say, for example, you don’t get paid a salary, but you instead get paid dividends, let’s say from investments or stocks, or maybe you get paid like a self-employment income.
Like you have a business. We’ve got to know whether or not this amount of money that you’re actually receiving, is tax-free? Because otherwise, you have to factor in, at the end of the year you’re gonna have to pay taxes on that amount of money, in which case we’ve got to know that and plan ahead so that we can take a certain percentage of that for taxes right away. So that is an important thing we’ve got to know.
One mistake that I made, guys, when I first started a business when I was 21 years old, me and my business partners, we did not factor in taxes. So whatever amount of money we had come in, 3,000 a month let’s say, we thought, great we can spend 3,000 a month. And sure enough, we did and then at the end of the year when it came to report taxes and do all that sort of thing we then realized that we then owed a couple of thousand dollars which we didn’t have because we were taking all this money and we were putting it, we were just spending it. We didn’t factor in the taxes. So that is an important thing you’ve got to think about when you determine how much money you’ve got coming in. So I’m just gonna do a simple example here.
Let’s say the dividends, let’s just say you get $100 a month from that. Maybe you’ve got a little side business, maybe an online business, you do some freelance work and let’s say you bring in, let’s say $500 a month. So we could total up what your income is on a monthly basis and let’s say it is $3,600 a month.
We’ve got to know what that number is. We’ve got to know how much you’ve got coming in. So make sure you have that in a spreadsheet. Now the next piece is we’ve got to know what are your expenses? And this is where you’re gonna have to go through your bank statements and your credit card statements to determine this. Here’s one thing that I always recommend. I recommend using credit cards and not using cash. Why? Because using credit cards is number one, a great way to build your credit rating. The better relationship that you have with these credit card companies and, of course, making sure you’re paying off your credit cards every month but that’s a way for you to build your credit rating which is going to be beneficial for you in the future if you want to borrow money to start a business.
If you want to get a mortgage, if you want to get a loan for a car, or whatever it might be. Building those relationships and your credit rating is very important. So that’s why you want to use credit cards. The credit card also allows you to track things a lot better, versus when you’re using cash, it’s a lot harder for you to track things in a spreadsheet-like. What I’m going to show you. And then also credit cards can allow you to get points, cashback, sometimes you get air miles, you get little perks and things like that which can be useful, as well. So I use credit cards, but of course, you’ve got to be aware of making sure you do not get into credit card debt. That’s the worst kind of debt because that’s the kind of debt that’s very hard to get out of. When it’s a 19% interest rate that’s insane. And it’s not that you don’t want to be in debt, ’cause sometimes there’s good debt.
If you might buy a house and leverage the banks to borrow money, get a mortgage, and you can get a low-interest rate, or on a car that could be useful because that low-interest rate is not a significant amount and if you know business or investing, then you can actually get a better return with other, by not putting all your money into that and borrowing money you can get a better return for your money and your business or investments, okay? Okay so that’s how you’ve got to think about debt sometimes, but it’s the credit card debt that 19% debt is very hard to recover from. Although here’s a tip, if you do have credit card debt, look to find another credit card where you could do a balance transfer. So you can transfer the balance you have from one card to another and there are credit cards out there where if you transfer a balance from one card to their card then they actually have, maybe for the first 12 months or the first 18 months they might actually have a 0% interest rate.
What I did when I was in credit card debt years ago is I did a balance transfer ’cause I was paying such a high-interest rate, moved my balance to another credit card, and that allowed me to pay it off easier because I was able to have a 0% interest rate for a year or 18 months. So that’s a little tip for you guys to look into. But expenses, having your credit card statements, bank statements, go through month after month to identify what are your common reoccurring expenses and let’s track it, let’s confront it, let’s know what that is. So maybe determine you have rent, or let’s say a mortgage, and maybe you’re paying $1,000 a month for that, okay? And then what else is there? Maybe there’s your, you know, your car payments.
Maybe you end up paying $300 a month for that. Maybe you have your car insurance. Maybe that’s $200 a month. I’m just using examples just for simplicity here for you guys. But we’re gonna look at gas, how much are you putting there? Maybe your gas, you’re spending $100 a month. Maybe you have public transportation, like a bus pass, if that’s the case factor that in. We also want to look at other expenses, like let’s say your utilities, can be your water, electricity, maybe for you that is $50 a month.
How about your phone bill, your cell phone? How much is that? We’ve got to know these numbers guys, you’ve got to know this. Let’s say it’s $50 a month. How about your internet bill, how much is that? We’ve got to know every little detail. Say that’s $50 a month. How about your groceries? Again, we have this all in a spreadsheet, that way we can easily update it month after month and make sure that we know what these numbers are. Let’s say your groceries are $300 a month.
How about eating out, dining out? How much are you spending a month on that? Let’s say you eat out quite a bit, maybe it’s $300 a month there. How about entertainment? You know when you go to the movies with your friends you go to get drinks. Entertainment, going out to movies, concerts, shows, nightclubs, bars, dancing, whatever it might be. Let’s say that’s $200 a month. I can go on and on and on, but let’s look at what are your expenses? Maybe your gym membership is $30 a month. And let’s add it all up, let’s add it all up, okay? So we’ve got $1,000, we’ve got 1300, 1500, 1600, 1700, 2000, 2300, sorry 2300, 2500 plus 2550, 2580. So let’s take the total of this. Let’s say your expenses are 2580, maybe it’s more than that because let’s say you buy some gifts and you buy gifts for people’s birthdays or Christmas or holidays or there might be some additional things that you might have.
Let’s just for simplicity, let’s round this up to 2600. 2600. So now we get to look at the difference. So the difference is you should have an extra $1,000 available in cash flow every month. Now the key here guys is to have positive cash flow. Let’s say that you do this and you’re like. I’m making 3600, but I’m spending 3600. You’re spending more than 3600. That’s not good, now you’re getting in debt. Now we have two options here, two options. The first option is, and we should be doing both of these simultaneously by the way. The first option is we have to increase this number. You’ve got to make more money. Now, there are many different ways you can do that, get a higher paying job, get a second job, start a business, start an online business.
There’s a variety of different ways, of course, you can be resourceful and increase this. But you’ve always got to be looking to increase this number. And simultaneously what you’ve got to be doing, ’cause this one can take a little bit more time, of course, but the easier and faster way is to decrease this number, okay? So how can we cut off expenses? How can we make some sacrifices guys? And don’t be afraid to make sacrifices, I’ve had to. Because part of getting what you want is knowing what you have to give up in order to have that. Listen, if you want to have a great body, you want to be fit and sexy, you’re gonna have to sacrifice something. You’re gonna have to give up and sacrifice eating junk food and going to McDonald’s every day and eating a lot of sugar, right? It just doesn’t, it’s not gonna work and by sacrificing, it might seem like you’re giving something up, but you’re actually gaining something much greater, right? We’re delaying gratification. We’re giving up that instant gratification, learning to make these sacrifices for the long term betterment and future of your life? That’s how we gotta think, that’s the mindset. So how can we cut this out? How can we reduce expenses? I can share with you my story.
I had a time in my life I was getting in debt, I had to cut out this, my rent. I had to move in with my friend and live on his couch, on his futon for eight months to a year. Not easy to do, but I had to make that sacrifice to get myself out of debt. Hey, you know what? One point in my life I had to get rid of my car. I mean I had a beat-up Honda Civic, 1989 Honda Civic and I got rid of these expenses and I was able to replace that with taking the bus, walking, taking a bike to get around. But those are some sacrifices I had to make. I was able to cut out the gas, of course, as well. It might not be realistic or attainable for you to do that, but I want you to be creative and think about some things that you could do. Maybe you decide, hey my phone plan, there’s a cheaper phone plan that I can downgrade to and save some money or internet plan, or maybe there’s a different company that I could explore, a different phone company, an internet company I could switch to that might be cheaper. Dining out, that’s an easy one because now you can prepare meals at home and that’s gonna be a lot healthier for you anyway. Entertainment, maybe you have to make some sacrifices there. So you’re gonna have to look at ways you can reduce your expenses and then what you really got to do is you’ve got to identify what is the budget that you’re gonna stick to? So what is the hard limit, the hard cap that you’re gonna limit yourself with dining out? So let’s say we’re gonna budget and we’re gonna stick here to, we’re gonna cut back a bit to $200 a month.
The budget you’re going have for dining out. Entertainment, let’s cut that back a bit to 150 per month. And all of a sudden, if we just do that, we can save $350 a month. Just little things like that you’ve got to think about and set those budgets in place. But you’ve got to make sure, I’ve got to make this clear, you have to make sure you have positive cash flow. You have to be in the positive, not even or negative, you have to get to a positive by doing both of these simultaneously. Now let’s say that you are in positive cash flow. Great, you have money to put aside. What do you do with that money? Well, let me share with you guys what the ideal should be in terms of how you actually budget things. I’m gonna share with you how to allocate your finances.
This is a simple method that I actually learned from T. Harv Eker.T. Harv Eker wrote a great book called The Secrets of the Millionaire Mind, highly recommend it. And this is known as the jar system. A way to budget and allocate your finances. So here’s where you want your money ideally going and looking like. So the first jar you have is called necessities. And you want 55%. 55% of your expenses to be necessities. So necessities are what? Your rent, your car, your insurance, your gas, utilities, your phone, internet, are all for the most part necessities. So right now what percent this here is greater than 55% and that’s not good because that is gonna limit you from being able to get ahead in your life. You need to make sure we have the other 45% of your money going to things that will get you ahead. That’s why you’re getting stuck every month is because you’re caught up just paying your necessities, you can’t get ahead to become financially free. We’ve got to change that. So this is how you’re going to budget. 55%, we’ve got to bring this amount to be 55%. Next, we’ve got to have what is known as long term savings.
How much do you want to go towards that? 10% of your income. So we’ve got to take 10% of this 3600, that’s $360 ideally every single month to go into a long term savings account. Now you want to build this up until it’s about six months worth of your income. That’s an emergency. That’s if shit hits the fan in your life. If you lose your job if there’s a recession if some horrible medical occurrence happens in your life and you need the money for that. You don’t touch that money unless it’s a rainy day unless it’s an emergency. You’ve got to build up that reserve, very important. You don’t touch it, that is for, that was close, that is for the long term. And then the next one you need a financial freedom account. Very important? You’ve got to take 10% to put into this. This is money that you can use to invest, this is money that you can use to start a business. Things that will make you more money to bring up this number. Stocks or real estate, bonds, mutual funds, different investments. And you’ve got to make sure we build this up because there will be opportunities that come up that we’ve got to make sure you’ve got the money to take advantage of it.
The worst thing is when there are opportunities that come up, but you can’t afford to take advantage of it and you missed out. It can be an amazing course or training or business opportunity. Hey, you know what? It could be there’s a recession in which case if you have money put aside for it, you can buy companies and shares of companies and stocks at a discount and really blow up and create some incredible wealth. Like if you had this put aside, guys, let’s say you built up a couple of thousands of dollars and 2008 happened again where there’s a recession and you could buy some of these stocks at a cheaper price, like Bank of America. What would that be worth today? But it’s because a lot of people, they don’t have the money put aside and they’re not able to take advantage of these opportunities that they miss out and they never get ahead. So we’ve got to make sure we build that reserve for investing.
A business opportunity, real estate, whatever it is to make more money, bring this up. The next one we need to have, this one’s probably one of the most important ones, is education. Guys, you have to be improving yourself, okay? You’ve got to be putting money aside to invest in you because you are the most valuable resource that is gonna determine how much money you make.
You’ve got to develop your own skills, you have to buy books, go to seminars, go through courses, training programs, mentors, and coaches. Always improving to reinvest in yourself. Warren Buffett, the multi-billionaire says the best investment you can ever make is not in stock, is not in real estate, is not in business, but it’s in you. So invest in you, okay? Put money aside for that to take your own education seriously and your own success seriously as well. And then from here what we also have is fun. You’ve got to enjoy yourself as well because if you’re just working but, making money but you’re not rewarding yourself then you’re not gonna be motivated because part of it is you’ve got to enjoy some of the money that you’re making. So put 10% into fun, into play. Getting that massage, buying some clothes, going out with your friends.
This fun can be your entertainment, right? Your entertainment should be here. And have that and spend it guilt-free. There’s no shame, you’ve earned that money, enjoy it. But don’t overspend it if you don’t have the finances for it. Don’t go on these trips and vacations if you haven’t put the money aside for it. Save it up and put it aside in this account for it. And then the last one is to give. 5%, okay. And you can modify these numbers if you like, but this is a simple model, but giving and contributing is very important to building financial wealth and abundance. Why? Because what it does is it conditions your mind that you are abundant. That there’s more than enough. And you can be ruled by money and have so much attachment for it. I often use the example that if you receive money, this 3600, a lot of people, they have a scarcity mentality, they’re so afraid of losing it or giving it away so they clench it up and they keep it tight.
The problem is when you have a closed fist like this is that more money can’t flow in. You’re closed off to new opportunities. And so instead you have to be detached from it. You have to be willing to give up some of that money, contribute, train you there’s more than enough, that’s what gives you true freedom. And make sure you’re giving is a great way to condition that.
Now, one thing that’s important to understand when it comes to budgeting and managing finances, it is not the amount that matters, it’s the habit. ‘Cause here’s’ the thing. If you can’t currently manage the money you already have right now in your life and you’re not doing this, if you make more money but you don’t develop this habit and this foundation, you’re gonna be in trouble. That’s why, by the way, you see people that win the lottery, $100 million and they end up back where they started they lose it all because they didn’t learn how to manage finances in the first place.
So understand you have to manage the money you have now by managing that and building that habit. Then you’re gonna be able to handle and manage higher amounts of money in your future, okay? So it really comes down to tracking awareness, a system for managing your money, making more money, being creative, being resourceful with that, cutting down your expenses, and I would do this every single week. Every single week. Every week when I first started doing this it would take me 15 to 20 minutes. I would just go through my bank statements, credit card statements, every purchase, I would identify which category, I throw it in that spreadsheet. Add it up, make sure I’m sticking to my budget and because I’m checking every week I can make sure that I’m staying within this range.
So I can know if it’s the 15th of the month, I’ve already spent 100 bucks, I’ve only got 100 bucks available and I have to plan for that. I might have to say no to certain things that people invite me for dinner or to do this or that. I might have to say no because I know I have a certain budget that I have to follow. So by tracking every week, it allows you to plan out the week and see how much you have left and to really manage and budget that properly. So every week, I love that. If you do it every month you’re gonna overspend. You’re gonna pass your budget. You’re going to not have that same awareness and you’re probably gonna procrastinate because I know when I tried doing it every month it’d take me like an hour, hour and a half. A lot more time, but if you do it every week it’s fast. 15, 20 minutes and I actually enjoyed it because I felt empowered, I felt in control of my finances and that I was actually getting ahead and I was making smart decisions. And that has really served me to this day of managing large amounts of money, millions of dollars. Today I’ve got bookkeepers and accountants to help me with that, but this was a simple way when I was making small amounts of money to really build it up and grow it. Now you might be thinking, well Stefan, this model, what happens when I’m making over $100,000 a year or much higher amounts? Do you still follow this same model? For me, no. For me, I follow this model up until a certain amount.
It could be my first 100,000, 200,000, but anything excess over that, where do you think I put it? I put it into these accounts mostly. Let me put that in a different color. So I invest the excess money that I have. I have a certain amount that I’ll put towards fun and I’ve got enough savings and my lifestyle, but I put that excess money into my financial freedom account and my education so I can invest in myself. These two here, guys, are the keys to the financial abundance to becoming a multi-millionaire. Make sure you focus on these. Investing in a business, investing to make more money, stocks, real estate, whatever it is, and improving yourself, growing constantly. That’s really where you have to put and focus and probably the most important ones to really get to where you want to go to bring this number up to very high amounts. And then when you bring it up to high amounts you don’t have to be as anal, I guess, about your tracking and have as many details of it.
You can have more flexibility and freedom because you’ve created financial abundance to do what you want when you want with whomever you want and it’s great ’cause when you’re in that place you don’t have to look at the price tag. You don’t have to look at the price before you buy it, you know that you have that financial abundance, in which case you don’t have to track things as much as you did before. But this is the foundation to start with, to budget and to really get your finances together. And if you’re in debt, like credit card debt, student loan debt and you want to pay that off faster, then you can take some of that money, what I’d recommend, I’d take some of that if it’s high-interest debt, the long term savings after you’ve got up six months worth you put that additional 10% into one of these two categories. But from there I would start taking some of the financial freedom money to pay it off. I probably wouldn’t take off the education, to be honest with you because this is the one that is really the key foundation for everything. ‘Cause if you’re not growing and improving yourself how are you gonna get ahead? How are you gonna learn new strategies, new ways to make money, etc? So education is important, but I would probably take the 10 to 20% here to pay off that student loan debt and that would be the way that I would handle paying off that debt.
Hopefully, this is very useful for you, this system. I really want to make sure you take action. Don’t just be passive, actually apply this. It takes maybe a few minutes to set it up, open up a Google spreadsheet, Excel spreadsheet, some sort of document, start listing it, develop the awareness. Take action right away. You have right now to actually put that into action. Take this energy you’re feeling and put it into action to start to go through your statements, your credit cards, track all of this and then decide on a certain day every week, it could be Monday, it could be Sunday, where you can go through your statements, you’re gonna update your spreadsheets, and you’re gonna have that awareness of it.