In today’s nugget you are going to learn How to budget money and get out of debt whether you are living on a low income or not.
Take Heed: On my previous post I have shared the 32 best ways you can save money fast and get out of debt even on a low income. 🤑🤑
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Before you roll your eyes and stop reading, listen up. I know what you’re thinking: I’ve tried that, and I couldn’t make it work. It’s boring. It’s not fun. I don’t get to spend any money.
I told you I knew what you were thinking. I have heard every excuse people make about how to budget money. But here’s the deal. If you keep doing what you’ve always done, you’ll get the same results—you’ll be neck-deep in debt, and you won’t be able to retire.
Do you want to work your whole life and have nothing to show for it except bills and credit card statements? I didn’t think so 😕.
Whatever excuses you’ve made before, STOP. It’s time for you to take charge of your finances. And the first step in making your money work for you is creating a budget
Chris Hogan said that:
If you want to live your dream retirement, one of the most important tools you will use is a budget.Chris Hogan
But do you know How to budget your money?
When most people create a budget, they begin in the wrong place—on a sheet of paper. Yes, you’ll do that, but that’s not the first step. The first step in creating a budget is dreaming.
Yes, you heard me right. Dreaming. What could your life be like if you weren’t drowning in debt? How would you feel if you could put away serious cash for your retirement—a retirement you want?
What kind of financial legacy do you want to leave for your children? Can you imagine the peace of mind that comes with knowing that you have money in the bank for emergencies, a plan for getting out of debt, and a goal for financial peace that you know you can achieve? That, my friend, is what a budget gives you.
You might have tried the budgeting process before and maybe it didn’t work, but have you tried CHRIS HOGAN BABY STEPS TO BUDGETING. this time will be different.
LET’S GIVE IT A TRY!
How to Budget Money: The 7 Baby Steps
Remember those retirement dreams? The first step in making those dreams come true is to get out of debt. And the best way to do that is to follow the Baby Steps.
The seven Baby Steps are like a roadmap for your money. They provide mini goals to reach and celebrate. They also act as guardrails to keep you from spending where you shouldn’t.
The Baby Steps help you get out of debt; save money for emergencies, retirement, and college for the kids; pay off the house; and give away buckets of money because you’ve been able to invest and save wisely. Check out the seven steps below and decide which one you’re on:
How to Budget Money: Baby Step 1
Save a $1,000 starter emergency fund. This may not seem important, but without savings in the bank, you’re just asking Murphy (of Murphy’s Law) to visit you—or possibly move in for a few months. Only use it in emergencies.
HINT: A NEW PONTOON BOAT IS NOT AN EMERGENCY!
How to Budget Money: Baby Step 2
Pay off all debts. Now pay off all debts except your mortgage—that’s another step—from smallest to largest with the debt snowball. To use the debt snowball, pay off your smallest debt first, whether it’s $15 or $2,000. Make the minimum payments on the other debts. Once the smallest debt is paid off, use that money to tackle the next smallest debt, and so forth. It’s like a snowball gathering speed and momentum downhill, only it’s your money that’s making headway— toward a debt-free life and the retirement of your dreams.
How to Budget Money: Baby Step 3
Build your fully funded emergency fund of three to six months of expenses. Notice I said expenses, not your salary. This fund will cover your food, mortgage, utilities, and other necessities in case you can’t work for some reason (illness, family Emergency, layoff, etc.).
How to Budget Money: Baby Step 4
Invest 15% of pretax income into retirement savings. If you make $3,000 a month, then you should invest $450 in a retirement fund like a 401(k) or 403(b). If your employer will match your contribution, take advantage of that opportunity. It’s like putting free money into your retirement account!
How to Budget Money: Baby Step 5
Invest for your kids’ college savings. I recommend using an Educational Savings Account (ESA) if possible. An ESA will allow you to invest $2,000 per year, per child, if your income is under $200,000. If you want more information about saving for your kids’ college, check out the articles and resources at chrishogan360.com
How to Budget Money: Baby Step 6
Pay off the house. No, I’m not kidding. Yes, this is possible! Imagine the money you can put toward retirement once you don’t have a mortgage to worry about! And before you say it, there’s no “good” debt—even for tax purposes. Say you have $10,000 in interest payments in a given year. The taxes on $10,000 (if you were in a 25% tax bracket) would be around $2,500. You’d be giving the bank $10,000 in interest in order NOT to pay the government $2,500. That’s dumb. As much as the government wastes money, I’d rather give Uncle Sam $2,500 than give the bank $10,000.
How to Budget Money: Baby step 7
Build wealth and give a bunch away. This is what you’ve been dreaming of! As you continue to invest your money, you can watch it grow to fund your dream retirement. The great news is that you also get to give to others, which feels great! You can give to charity, your grandkids (or even great-grandkids!), or a nonprofit whose passion you share.
Remember, debt isn’t just about borrowing money you don’t have. It’s also about borrowing from your retirement dream. Every dollar you spend to pay debt is a dollar you could have used for investing in your retirement future!
Let’s look at how to create a budget—that roadmap to your dream
When to Make a Budget
You’ll want to make a new budget before the month begins, and you need to make a new budget every month. There’s no such thing as a “perfect” budget that works for every month. Whenever that calendar flips, there are new birthdays, holidays, insurance premiums, utility bills, and so on. You’ll need to adjust your spending accordingly.
Remember, a budget is just a plan for your money. It tells your money where to go so you’re not wondering where it all went. When you write down how much you want to pay toward a specific debt then stick to that plan, the debt gets paid off. When you know what your money is being used for, you won’t spend it carelessly.
That’s why many people struggle with money in the first place—they don’t know where their cash is going. With a budget, you take control. You control your debt instead of it running and ruining your life. You control your savings. And you control your dream retirement.
Who Should You Make a Budget With
The process of creating a budget is different depending on your home situation. If you’re single, you can decide on your own how to spend your money. But you need a friend who will hold your feet to the fire so you stick to it. That person can help you avoid overspending and make sure you’re using the budget to work through the Baby Steps.lol
If you’re married, you should create your monthly budgets with your spouse. Not only does a budget help you get on the same page, but it’s great for talking about goals, your views on money, and what you want for the future. Fights over finances are one of the leading causes of divorce, but you can guard against that by talking about money openly and often. Working together on the budget over the course of many years sets you up to work together in retirement.
With years of budgeting together under your belt, you’ll be real pros
at planning how you’ll spend all the time, money, and togetherness
that will be at your fingertips in retirement (I’ll talk a lot more about
7 Tips for Making a Budget
Even if you and your spouse have different personalities, you can still work together to make a budget. Here are some tips for doing it right:
1. Set your goals beforehand
Before you create your first budget, ask yourselves what money oriented goals you want to achieve in the next six months, in the next year, and beyond that. You need to be thinking about your retirement, even if you’re in your 20s. Write down those goals and share them with each other. Agree on which ones you’ll work toward before you put your budget together. Where are you on your Baby Steps? How much money can you use to pay off debt? How much extra do you want to put away for your dream retirement? Having those goals in mind can guide you as you create your short-term and long-term. money plans.
2. Determine the best way to create your budget
There are several options you can choose from to make a budget. Some people like old school pen and paper, and others have a 10- page Excel spreadsheet with different colors for each category. Personally, I like the freeEveryDollar budget tool because it’s easy to use. Plus, I can use the app to see how much I have spent and how much is left in the budget anytime, anywhere.
3. Create the spending plan before the new month begins
It feels good to be ahead of the curve by having a budget ready to go rather than starting a new month with no plan in place. Inevitably, time will get away from you, and before you know it, you’ve spent your paycheck in the first week.
4. Let the Nerd take the lead
If the Nerd likes to put the budget together, let them. That goes along with their skill set. But they must come to the team meeting expecting the Free Spirit to change some things. The Free Spirit needs to offer helpful suggestions and not just say, “Whatever you want to do, honey.” That will drive the Nerd nuts! The Free Spirit needs to put in some effort and offer some ideas. When both of you work at this, both of you win at this.
5. Be patient as you learn how to budget money
Don’t get discouraged if the spending plan takes a little time to master. The first month, some of your numbers will be off since you’re new to the process, so adjust them as you go along. You’ll need to talk for a few minutes each week about what to change. The second month your budget may still be off, but it will look better than before. Keep making fixes where needed. By the third month, you should have it down. It will become second nature.
6. Look for little ways to keep your spirits up
Promise yourself a favorite snack or a movie rental once you agree on how you’ll spend the money each month. Notice I said little! Keep your long-term goal of retirement in mind!
7. Stick to the plan once it’s on paper
Planning without action is a waste of time! When your budget is set, don’t break it by overspending or buying something you haven’t agreed on. If you need to change a budget item, talk about it first. Only make changes you are both comfortable with. And changing your budget doesn’t mean ditching it!
Those are some guidelines to help direct you as you set up your
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