Watching what you spend – Your future is important

Now that we have discovered our ‘Golden Circle’ this new post is about budgets and how we should allocate our hard earned money to make it work for us. A budget is a key part of the ‘Golden Circle’, personal lifestyle, business plans and succession plans as it enables you to plan where you want to be financially and how long it will take to get there with your current earnings.

Nardia and I have always done a budget since we moved out together at an early age in 2007, it defiantly has not been easy and it has been quite frustrating at times but you can defiantly reap the benefits if you stick at it. I believe without doing a budget like we have done over the past 8 years we would not be where we are today.

ID-100275948What the successful people do

I have noticed so far in my research from Darren Hardy author of the ‘Compound Effect’ (my daily mentor), Jack Canfield author of the ‘Success Principles’ and George S Clason author of ‘The Richest man in Babylon’ that all successful people pay themselves the first ⅟10th of all they earn towards their future, ⅟10th to charities to help others (the more you give the more you receive in return), ⅟10th to self education and the remaining ⁷/10 to necessities followed by desirables.

It is a very interesting way to look at it, we have never used this strategy on purpose or intentionally but we have probably saved ⅟10th of all we have earned and put towards a house deposit and paying down our home loan quicker.

George S Clason mentions the key with the ⁷/10 for necessities and desirables is that when we experience the desirables in our life (big house, holidays, new appliances, a night out) we need to cherish them and celebrate them as our hard work has allowed us to invest in these desirables.

I constantly hear people that have children, high incomes, low incomes or are struggling financially that they just cannot do a budget as it is ‘impossible, you never know what you have to pay for’. I can understand the difficulties they go through but I believe without knowing your financial position how are you meant to understand what desirables you can indulge in and where will you be in 1, 3, 5, 10 years time without a plan. “We should all have plans in our lives instead of letting others plan our lives for us” Tony Robbins (motivational speaker).

This methodology that successful people use has got me thinking and revaluing what Nardia and I have done with our budget and lifestyle and has made me realise that we have fallen into the trap of the more income you earn the more expansive your lifestyle becomes.

What to do with the ⅟10th

In all the books I have read above they all suggest that the ⅟10th should be invested in investments that will multiply over time ‘Compound effect’, from George’s book he goes into the 7 steps to curer the poor and 5 laws of gold accumulation.

The main points that I gathered from George’s book is that we should invest our funds into investments that we are trained, skilled and experts in or have the approval from someone else that we trust that is an expert in that area. Try to avoid investing it in ‘Get rich quick schemes’ or by tricksters and schemers i.e. be cautious with our hard earn savings.

When you have found a sound and secure investment for your money, what it grow. The money that is accumulated from that investment should either be re-invested or invested in another investment. We are currently investing our money into paying down our home loan, the interest rate is 4.53% this makes it a good return for our money and a very secure investment. With re-investing our funds over and over again we can use the single most powerful thing in finance ‘compounding’.

Let me give you a simple example, if I saved $4 per day (a cup of coffee) and put it off our home loan we would accumulate the following over the years;
1 year $1,493.48, 2 years $3,056.16, 5 years $8,192.28, 10 years $18,466.90,
20 years $47,514.97 40 years $165,079.66.

As you can see by this simple example we can turn a cup of coffee a day into $165,079.66 in 40 years! Pretty exciting, but this is where the secret lies according the authors mentioned above.

I see a lot of people in business getting this wrong where there business (there investment) generates an income to pay for their necessities and desirables but does not make enough to invest for their future or contribute to superannuation. Your business needs to work hard enough for you that in the good times it enables you to invest funds to be financial secure so that in down turns, sickness or retirement you have saved up enough money to support your family.

It can be done

Setting up a budget is not easy and can be very daunting but it can be done and you can reap the benefits over time, short term pain, long term gain. I suggest first starting with the income you generate, work out ⅟10th of that income and put that aside for investing, the next 2/10 use that to pay all your credit cards and personal loans, then work out your necessities and whatever is left over, you can use for desirables.

This may be hard to do and if you find it too hard that you cannot even afford all your necessities let alone have any desirables then reduce the 2/10 to pay back the loans to something more affordable. If you’re in the position where you cannot afford the ⅟10th or the 2/10, make a 100% commitment to yourself that with your next pay rise that you have, ⅟10th of those extra funds go to your investments and 2/10 to paying all your credit cards and personal loans (clear your debt), the early you start the better you’re going to be.

If you find yourself wanting to do this but keep putting it off please contact me to assist you, I would be happy to help you and your family set up a budget. I can also assist you by keeping you on target weekly, fortnight or monthly depending on the assistance you may need.

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