Get You What You Need
When my wife and I cleared away our debt and got control of our finances a couple of years ago, I never imagined that it would lead to us helping so many others do the same. Now I’m the guy who teaches Financial Peace University two or three times a year, and consumes money and finance and work and business books one after the other. Lately, I’ve had the opportunity to help a couple of different friends put together a cash flow plan for their home.
(Which is great , by the way. I love doing that. If you have questions about it, please feel free to get in touch with me.)
I’m not an expert on this (yet), but having worked through the process myself, and now with others, it’s helped me begin to firm up a handful of steps to take when you’re writing a monthly home budget.
First, you need to start tracking your monthly expenses as they stand right now. Doing that will firm up your numbers for your first run at a budget. It will also reveal where you’re grossly overspending. More on that in the future.
The next step is to identify your basic needs.
In a perfect world, I wouldn’t have to explain what the word ‘need’ means. Apparently some of us are still confused by the term, though, so let me clarify. Your microwave is probably not a need. Your flat-screen TV definitely isn’t. Your car probably is. I define a basic need as something that keeps you breathing, safe, or productive.
Breathing: Food and (sometimes) medicine.
Safe: Shelter and basic utilities.
Productive: Transportation and communication.
Let’s not drill down on each of these individually, but just keep in mind that the idea is to keep the cost of your needs as reasonable as possible. So, food doesn’t mean eating out every week, and utilities doesn’t mean satellite service. You’re trying to discover margin in your budget, not gobble it up.
Making sure that you’re covering your basic needs gives your budget a foundation to build on. It shows you that, no matter what else happens, you can keep the lights on, put food on the table, and stay employed. Any other money troubles you might have won’t seem quite as big when you aren’t struggling over the basics. It gives you room to think.
Every dollar earned above that foundation is then free to be used reaching financial goals (like getting out of debt and building wealth). You’re free to decide to stop living for right now, imagine where you could be in two (or five, or ten) years, devise a plan, and accomplish something great. Take care of what you need so you’ve got the opportunity to have what you want.
Questions: How have you defined your needs? Do you clearly know what it takes to cover the basics every month? What do you think of my definition? Is a dishwasher a need? Leave a comment and let me know!
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