# Budget – your friend, not your jailer.

2009

If you want to have money left over for what you want, you need a budget.

For many people, budget seems like a boring school math assignment. In reality, it is your key to be able to enjoy your life to the fullest. If you have a budget, and you track your expenses, you will have more money left over for fun stuff than if you do not. Lets look how to come up with a budget the easiest and simplest way:

- First, write two lists

- Next add up how much your needs list costs. Subtract the monthly cost from your monthly take home income.
- Now you have the amount that you can play with, but this does not mean that this is your play money. No, first you need to make sure that you have savings for rainy days.
- If you are just starting out and you have no savings, consider that for minimum you should have 6 months of costs in your savings account. If you have already some savings, figure out how much more you need to add to get to the target amount.
- Next figure out how much your wants will cost. See how well they fit into the amount you have left over from your costs.
- Next allocate how much money will go toward savings and how much will go toward wants. Ideally, you would initially allocate more to the savings, so that you get to your minimum savings rate as soon as possible. But always, leave some money for wants, as this makes it much easier to follow your budget.
- Once you have your savings account funded, do not stop putting this money aside and spending it on wants. Instead start putting this money aside for your retirement.

Why do I mention retirement savings to young people? Because the earlier you start, the less per month you need to put aside to get the same end result. Simple example; if you start putting $ 100 aside each month when you are 25 years old and this money earns 5% a year, by the time you are 65, you will have $ 152,000 dollars. To get the same result, you would need to save $ 200 a month if you started as a 35 year old, and $ 400 a month if you started age 45. If you put away $ 400 a month since 25 years old, you would have a cool $ 600,000 in your account by the time you are 65. If you started as a 45 year old, you would need to put aside almost $ 1500 per month to get the same result. Think about it. I hope my long, convoluted example has made my point – start retirement savings when you are young.

If after the exercise of coming up with your budget, there is not enough money for all the fun stuff you want to do and get, you have two options:

- reduce your costs – get a cheaper place to live, or a room mate; find ways to spend less on food, etc. Check out our Simple Living blog for ideas.
- bring in more money – get a 2nd job; sell stuff that you are not using; start a part time business that could grow into full time and eventually solve all your money problems.

In the end, you will be successful only if you follow your budget and your actual spending month to month and make it a habit.