Creating a Budget for Financial Freedom
Some people don’t like to think or talk about their own budget. They may feel like it is work to do or they feel they won’t have anymore fun in life if they start following a budget.
Having a personal budget is like work. The place you work needs to spend less on expenses than they bring in for income. That is no different than your own personal budget. It is simple Math.
This is part of our Mills Way to Financial Freedom Action steps and rule that we covered with our boys. They don’t do a great job at it so we help them at least with the savings part of their budget and staying debt free.
Creating a budget is more than just making sure to place a spot of each expense. It is also important to create a payment accelerator amount in the budget. The payment accelerator amount is what we use to get our debt paid off faster and then to save towards or Financial Freedom goal.
Sometimes when I have worked with people, they had to make hard choices what they felt was hard to them. To other people their choices may seem like they should have been easy. For instance, if one family gives their kid’s $100 per week allowance and someone like us that doesn’t pay our kids an allowance, we would see that as an easy choice to cut back on in the budget. But they may not think so.
One family may spend $150 per week on Cable TV and another family like us has Antenna TV. So, for us that would be an easy expense to cut back on in our eyes but maybe not theirs.
Couples I have worked with in the past had a harder time agreeing on what to adjust than single person of course. Sometimes people made even larger reductions by downsizing their house or selling off an expensive truck they own.
I have budget sheets available for people I work with that we can break each expense out monthly and yearly. We show what the percentage of the expense is to total expenses. Then we can see that they roughly need to in investments to reach their retirement goal.
Of course, before they can save for retirement, they need to get their budget in-line and then get all their debt paid off.
Below are some suggested rough percentages that people could use as a rough guideline when doing a budget. The one I like to plug in first is 10% for your Debt Accelerator amount to get debt free and save towards Financial Freedom.
Our Budget has Needs and Wants in it. Remember we need Shelter, Food, Water and the rest of our expenses are negotiable. Yes, we need clothes but in reason. Our Clothes budget for the four of us is $1,380 a year. I have seen some people spend over $6,000 on just clothes a year. Some people think if Blue Jeans or Shoes aren’t over $100 than they aren’t any good. If people make the income to support $6,000 in clothes then good for them. But a majority of people have debt, no savings and spend more than they make so they need to look at every expense.
Here are some suggested percentage of your family take home pay after taxes and insurance. It is covered in Podcast.
Remember my disclaimer on millsway.com. I am not giving any legal or financial advice. This podcast and blog are just for entertainment.
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