Basic Budgeting Fundamentals

Before you can think about saving money and investing, you first have to break down your financials, and find how much money you're making, and how much money you need to pay your bills. When you're calculating your budget, you have to make sure you're writing everything down that you possibly spend your money on. I suggest you keep all your bill payments and all receipts that show what you spend weekly/monthly. This is going to be the easiest way to perfect your budget. I look how much my essential bills cost ... your electric, water, sewer, trash, heat, cable, phone, insurance, car payment, mortgage/rent and any other bills that you pay. The only thing I exclude from this calculation is the gas that goes in your vehicle and the food that goes in your cupboard/fridge. The example provided will show you the breakdown using simple numbers. You will have to plug your numbers in to the chart to begin your breakdown.

As you can see, all the numbers lined up equal to $1880.00. After you figure out the total amount for your bills, you will then divide that between four weeks of the month. Sometimes you will have five weeks in a month, and you will feel like you can go just spend extra money. But, that is a very bad decision. You need to budget properly and save that extra money. The number in the example divided by 4 weeks will be $470.00, and that is what has to be in the bank every week you get paid to pay your essential bills. If you are saying, "Luke that number is more than what I make in a week", then there has to be some other alternative. If your essential bills are going over that amount of income, then option one is to find a better primary job, option two is find a secondary job to supplement what your first job is not paying. My theory is, "If your first job is not paying the bills, then it's time to find a better job". But if you really like what you do, then add a second job. If having a second job is still not working, then an option like finding a cheaper place to live, find a roommate, or get some of your essential bills setup on a budget plan. For example if your heat bill cost $100.00/month for only 3 months of the year maybe setting up a budget with the company to divide the total of the $300 over 12 months. This is called a budget plan, some companies will work with you on a budget, and some companies won't. You would have to contact them and find out. If you're not able to meet the income for the Essential bills, it will be very difficult to get ahead. If you can pay over that Essential amount, that's a great step in the right direction.

Once you figure out your essential bill budget, you will then move on to the second step of this process called the cash carry method, which means not always using a debit/credit card. When you pay for gas and groceries, you're going to pay with cash. This is the approach I use. I know a lot of times when you go to the gas pump, you don't feel like running into the gas station. Especially when you have kids, and you have to get them out of the car and take them in with you. This takes extra time and feels like a lot of work, but this helps you with your spending habits. A lot of times, people have their bill money in their bank account and don't realize how much they are spending on their debit card and end up spending their bill money. You go in to the gas station and spend money on a soda, cookie, bag of chips, cigarettes, cupcakes, ice tea, lottery tickets, whatever it is ... but it's a dollar here two dollars there, you do that every day during the week, and believe me you're in a whole different world of money spending. What I do is, keep enough cash in my wallet to get me through to the next paycheck; the only money you need in your wallet is to put gas in your vehicle and to buy groceries. You should also save an extra $20 just in case you forget your lunch or something comes up.

Now if you are living in a joint relationship (i.e. husband/wife or boyfriend/girlfriend) at that point in time, you are going to want to split the money that it takes to be able to put gas in your vehicles. You're going to need the money to get you through the week or, if you get paid bi-weekly, then the money needs to last you twice as long. You will need to break this down to be precise, but give yourself enough movement when the gas prices go up. Today gas is $1.84 a gallon, which is down significantly, giving my family a little extra money for the week. The price of gas can change regularly, so you will have to be aware of the money you are spending when the gas prices start to rise. After budgeting for your gas, you will then want to budget the amount of money you wish to spend on groceries weekly/bi-weekly. Keep in mind, that when you are going to the grocery store, you should be able to spend a little extra to get enough to pack your lunch. Not packing your lunch can get expensive. You could easily spend $50 to $75 dollars weekly. Depending where you live in the country, the cost of food will vary. It could cost you up to $600-800 a month. In our house, one of the biggest expenses is food. Food is an essential, and when you use the cash carry method, you know exactly how much to budget for food. If you are not under the amount budgeted, you will run out of money before your next pay. Examples to keep the food budget in order would be to research the best grocery store in the area with the best prices. Take advantage of the local discount food markets and farmers markets. Shopping at stores with a reward point system can help to keep you in budget. You do not need to buy the most expensive apple, to enjoy a good tasting apple. Sometimes you are just paying for the name brand. Meat can be a huge expense at the store. You do not need to purchase a top of the line Filet Mignon. You can just get a middle priced meat, it will taste just as good.

Couponing is a great way of saving money on items when working with your budget. My wife is a coupon queen when it comes to grocery shopping. You can look through the local newspapers/ads to find the best deals in the area. When couponing, the number one rule is, just because you have the coupon, does not mean you need to buy that item, if it is not a necessity. Be sure to write a list prior to going to the store, marking which items you have a coupon for. Using a list helps you stay on track with your budget and not buying items you do not need. Another means of saving at the grocery store is to buy generic foods. Sometimes the items that you buy name brand, tastes just as good in the generic brand. I know that some items you need, you want to buy name brand, and that is ok too. We prefer to buy name brand ketchup. Think of how much money you would save if you bought generic name foods ... you would only pay $1 a box for pastas where name brands would cost you $3 or 4 dollars. Most generic foods taste no different, most are using the same ingredients. At that point, you are really only paying for the name/label. A lot of the generic foods are actually made by the same company that makes the name brand foods. If you are buying bottled water, looking at the quantity and price is a good way of cutting costs. For example, if the store is selling 30 bottles of water for $3.80 and 36 bottles for $3.99, it is a smarter choice to go with the 36 bottles for $3.99.

After you break down your essential bills, gas, and groceries, you will then see how much money you have left. If you have any money left, this will be the money that you will save. This is called the 60/20/20 split. This is the method that I use to have enough money for savings and to use for investment purposes. So after you pay your essential bills and get gas and groceries, the left over money will be split in half meaning 50% will be used as savings money and the other 50% will be broken down in the 60/20/20 split. For example, if you have $200 dollars left over you will put a $100 towards your savings money and the other $100 would go 60% towards your wants and family fun money, 20% towards precious metals (bullion) and 20% stocks, bonds, and other funds. (See breakdown below)

Example: Total left after essentials and gas and groceries are paid $200

[check] $200 divided by 2

[check] $100 for savings

[check] $100 left-remaining is broke down in the 60/20/20 split

[check] 60% of $100 = $60.00 towards wants and family fun money

[check] 20% of $100= $20.00 towards precious metals

[check] 20% of $100= $20.00 towards stocks and bonds and other funds

Even though you are trying to save money and live comfortably, you need to have some fun times in your life, or you will feel like you're working just to pay bills, and that is no fun. Your 60 % fund can be used to go out as a family. You may say ... "When I get a $100.00 we are going to go bowling". If there has been something that you have wanted to buy, it would come from this fund. Never buy something just because you have this extra money. Whenever I want to purchase something, I wait about a week before I go and buy it. That way, if it is an impulse buy, in a week this will pass. If you wait a week, and still want this item then go buy it. I find it is a good idea to set goals and celebrate with a day of fun or to purchase that item you have been wanting. It may take several weeks to get some money saved up to do this.

The best place to keep your emergency savings is in a savings account or a money market account. Savings accounts and money market accounts are very similar, but have some slight differences. Both will accumulate interest on your money. Usually the money market rate is a little better than a traditional savings account. Most money market accounts require a minimum balance to open the account. Some money market accounts will pay you more interest as you accumulate more money in the account. Some money market accounts will offer checks and a debit card as well, and will let you treat it like a checking account. Most savings accounts will not offer this and have a lower interest rate. It is always good to have some money on hand at your house, but I would not keep too much in your house. In the case something would happen like needing to replace a crucial household item or any type of car repairs you would use the emergency cash fund.

The second part of the 20% split is putting money towards investing into precious metals that would include gold, silver, platinum, palladium, and rhodium. There are numerous ways to purchase precious metals, and I will discuss this further in the book. The last 20% will go to stocks, bonds and other funds. This percentage will differ, if you also invest in your 401k through your employer, this will also be explained in further detail later in the book. I will also explain how I choose my stocks. When starting this approach, you may not have enough money left over to invest in precious metals or stocks right away, but having money for the emergency savings funds is a great start to get ahead in life.

For me, it took a while to reach this equation, but when using a budget you will need to realize what a want is and what a need is. You may have to sacrifice some of your wants. For example, if you see that you have extra data left over at the end of the month on your cell phone plan, lowering your plan can save you an easy $20 dollars a month. Or, if there is a better deal at another company, look into the benefits of switching. Cable is another example of cutting costs. Do you really need every movie/sports channel known to man? You can save money on your electric by just simply changing your light bulbs to energy efficient bulbs and unplugging items, when not in use. Sunlight can help with your heating bill, by opening up your blinds/curtains and letting the sunlight warm your house, preventing your heat from continual use. I found this cost cutting method by my good friend Charlie. He told me in the 70's there were no cell phones, or cable boxes which really made me think, do I really need all that I am paying for, or could I save money, if I only kept what I needed? Shopping around for deals in competing business will help to cut costs such as car insurance ... also keeping a clean driving record will keep your bill low. Only putting the vehicles that you drive on your policy keeps the bill lower. If you have a bunch of extra cars you're not driving, maybe think about selling one of them. Limit your water use by taking shorter showers and keeping up on any leaks and getting them fixed, if needed.

One key point to mention is, if you have any credit card debt, this is something to really consider paying as quickly as possible. I see lots of people that have made poor choices when making purchases and living on credit cards, then can't figure out how they are going to pay the payments to the credit card companies. Credit cards are not always a bad thing and can be a great credit building tool. Using a credit card responsibly is the key, and for a lot of people this is very hard. So my general rule when using a credit card is, "if you can't pay for the item you are buying today with cash, then don't use the credit card." When you are thinking about using a credit card, you need to ask yourself, "Do I have enough money to buy this right now"? If the answer is no, then you need to save more money until the answer is yes. When you say, yes I could afford to buy this today, and you want to use the credit card as a credit building tool, then it has to be paid in full when the credit card bill arrives, so you are not paying interest. Also some credit cards can have cash back and perks to using the card, but you can't get sucked into the heavy interest credit card debt just to receive an extra ten dollars in cash back for using the credit card. The main point is: using a credit card responsibly to build credit and to save money is ok. Holding a credit balance and paying interest is not a recommended decision.

I find that sometimes, lifestyle changes need to be made with your spending habits. Sometimes addictive behaviors can affect your saving habits, such as going out every weekend partying, and running up a big bill or going gambling on a regular basis with money that should be used for your bills. These things can be a serious setback. If you find yourself in this situation, you need to look at yourself in the mirror and figure out what you need to do to improve your own situation.

In summary, I find a lot of people want things, which is a perfectly normal human instinct. But when you are chasing wants, just because other people have them is a huge mistake. You don't know how many years they saved their money for that brand new car, or if someone passed away and left them a big sum of money. You don't know what they sacrificed to get that real nice house, and you don't know how hard they worked to get what they have. I compliment people when they buy something. That might have been something they have been working towards for years. The worst thing to do is try to compete with someone that seems like they have everything. Money doesn't bring you happiness. There are professional athletes that still have problems just like the next person. Just because they have money doesn't make problems go away. So running up a credit card or going in debt just because someone else has something that you want is completely absurd! Working as hard as possible day in and day out will give you the best feeling when you do make a purchase, knowing it came from hard work.

Budget Journal

Let's figure out your budget

• Step 1) How much is your essential bills cost? ____

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Answer divided by 4 weeks ___________________________

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• Step 2) how much is your weekly costs such as gas and groceries cost? _________________________________

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• Step 3) How much income is left after your essential bills and weekly costs are accounted for? ___________

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• Step 4) Take the total of step 3 and divide by 2 __

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This number will be what goes in savings ____________

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The other half of step 4 will be the start of your 60/20/20 split

• Step 5) what is going into your savings? __________

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• Step 6) 60% of the total in step 4 will be your family fun money/ wants money ______________________________

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What is the total of fun money? _____________________

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• Step 7) 20% of the total in step 4 will be invested in precious metals

What is the total invested in precious metal? _______

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• Step 8) 20% of the total in step 4 will be invested in stocks/bonds and other funds

What is the total invested in the stock market?

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