The Wealth-Building Power of Personal Budgeting (Part 1)
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Hey.
Hope you had a great week.
Today, we want to return to the centuries’ old power punch that builds wealth like clockwork: a personal budget.
Now, you may be thinking, “What in creation is Arthur talking about? Is he crazy?”
Read on!
In today’s post, we’ve changed up the format and are going with my favorite “TV Q&A Interview Method.” Which I think is an inviting and engaging way to learn.
Let’s get to it!
Arthur, why are you so ‘hot’ on personal budgeting?
In short, the best way I know to position yourself to build lasting wealth, lifetime wealth, is to manage how much money you spend.
For most of us, our income is fixed or largely fixed – a fixed salary perhaps with overtime pay.
Even with overtime pay, there are only so many hours in a day where we can work and work more. . .
A detailed personal budget gives you a solid handle on your income and expenses and cash flow – in other words how much money you can spend in a month without incurring a deficit or without running out of money.
Isn’t the key to building wealth investing money to grow your money – so you have more money tomorrow than today? Or to put it another way, so you have a pot of money to fund your living expenses when you want to retire?
Exactly!
But as they say, “It takes money to make money.”
Or in our case, it takes money to make investments; so you can build wealth.
And if you don’t control your spending, it’s likely that you will spend more than you can afford. And possibly incur credit card debt, which is super costly!
Both of which are Not good!
Don’t you often say that “Credit card debt is the fastest way to block your building wealth?”
For sure!
Credit card debt interest rates are typically 21% to 25% per year.
At the same time, the long-term rate of return on the S&P 500® has been approximately between 10% and 11% per year.
So, if you could potentially earn a 10% annual rate of return and you pay say 21% on your credit card debt, you’ll NEVER build wealth.
You’ll LOSE money every year!
In fact, you may even drown in credit card debt.
I did after I got divorced!
I can see your point, plain as day. I guess that’s why in your new book, 10 Easy Ways to Accumulate $1,000,000 Now!, you refer to credit card debt as the ‘Silent Killer’.
Yes.
I have heard that you think the term ‘personal budget’ is a misnomer – an incorrect name?
Over the years, when I have encouraged people to make a ‘personal budget’, they cringe and feel like a personal budget is a straightjacket.
To me, in contrast, a personal budget is really a spending plan that helps guide your spending.
Earlier you mentioned that your personal budget gives you freedom?
Yes. Financial freedom actually.
Freedom, confidence and comfort that you will achieve your financial plan and reach your financial goals. Be in a position to live the life you want.
I like to work.
But I also want to gain more financial freedom and enjoy more leisure time and travel. On my list is Tuscany, other places in Italy and Greece.
With a detailed personal budget that includes how much money you earn and a solid handle on your expenses, what’s left over after you pay your expenses, you can spend.
Throw into your expenses money for investment. And prioritize investing so you can grow your money and build lifetime wealth.
If we take a look at my personal budget, we would see that my income is fixed – a fixed salary. And what if my expenses were too high and I had to cut my spending?
That’s the point.
By creating a detailed personal budget which lays out your income and expenses, you can see whether you have enough money – free cash – to cover your expenses And invest in your future, to build wealth.
Although the bottom line isn’t always pretty, at least you’ll know where you stand and whether you have to take steps to increase your income and reduce your expenses and reduce your spending.
In order to free up cash – create more free cash flow. To reduce debt and lower your interest expense and create cash flow to invest.
To repeat once more, invest money to create lifetime wealth.
Nothing particularly magical actually.
In short, you’re saying that “The personal budget gives you a looking glass – a view into the current state of your financial affairs.”
Yes.
Armed with accurate, detailed and complete financial information, you have much better insight into what you have to do, what steps you have to take to modify your financial affairs – really modify your income, expenses and spending, in order to achieve your financial goals.
Next week, we’ll talk about the three types of costs so you can develop your financial plan. . .
In the meantime, to build more wealth right now, click here.
See you next week.
Arthur VanDam, CPA MBA
Budget and Grow Rich® – ISSN: 2992-9296 – USA International Standard Serial Number (ISSN)
Disclaimer: OH and Please Remember, we are Not financial advisors, financial planners, attorneys or accountants and are Not providing any specific financial, tax, accounting or legal advice here. Be sure to conduct your own due diligence and consult your own professional advisors to get sound professional advice that’s specific to your financial and personal circumstances, risk tolerance, time horizon and investment goals and objectives among other key factors!
Budget and Grow Rich® is the original e-book guide to easy budgeting and wealth-building. Gain financial freedom and pour money into your pockets today and for years to come.
Finally, the proven roadmap to building wealth – how to make a personal budget that really works. Explained in plain English – easy to follow, practical steps. Since 1974, personal finance expert and author Arthur VanDam has used this system to organize his finances, manage his money and amass wealth. Now you can too. This straightforward guide tells all! Handy spending plan worksheet includes 14 categories that does it all. Practical tips and ways on how to create a financial plan and put your financial plan on auto pilot. Budgeting At Your Finger Tips will help You save more money, build more wealth, gain peace of mind and enjoy financial freedom.
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