Paul Morris, the co-author of 'Wealth Can't Wait' joined us to discuss the most effective way to create and stick to a budget. Check out his tips below:
1 . First, break expenses into– personal necessary vs. discretionary
- More important, WHAT is discretionary and what is necessary in both categories
Personal necessary: a haircut, a new coat, groceries
Personal discretionary: is an expensive trip to a Beverly Hills salon, expensive leather coat, daily Starbucks or avocado toast
2 . Balance sheet: INCOME VS EXPENSE: How much you make vs. how much you spend
a. Bad Debt and Good Debt –
i. bad debt is overspending for a vacation you have to put on your credit card;
ii. good debt – a loan for school for important skills or home improvement that adds significant value to your house
3. Gain awareness of which purchases will lead to wealth, and which will take you off track. “Does this purchase take me closer or further from my goals.”
- Where is money spent that is supporting growth and where is money spent that takes me in the wrong direction.
Personal necessary: new computer, a seminar, or class to further your career
Personal discretionary: a vacation you have to pay for on credit, a second car lease, lavish dinners
4. Do you have any money working FOR YOU?
Acquiring any assets that pay us (“mailbox money”) is building wealth.
Do you have a 401k, Roth, Investments, rental properties, etc.
5. Lastly, create a Dream Budget to lead you to make wise spending and saving decisions.
a. We use the Dream Budget to “price out” the lifestyle, freedom, activities of our dreams;
b. Critically, we include budgeting for savings, investing, and contribution so its not all about consumables which could end up hurting our finances.
c. Everybody has a dream, and the best way to create it is to budget for it!!!