The #1 Key to Creating a Personal Budget That Works
The number one key to creating a budget that you will stick with, is to make absolutely sure that your budget is based on reality instead of on delusional optimism.
The only way you can base your budget on reality is to create your budget using your past spending as a guide. Only your past spending can provide the necessary proof that you have the self-discipline needed to stay within your budgeted amounts.
In other words, it's one thing to remove "ice cream cones" from your budget on paper, it's another thing to walk past an ice cream stand on a hot summer day without buying an ice cream cone.
If you are not meticulously tracking and tallying-up your day-to-day spending, your chances of creating a realistic budget that works are somewhere between slim and none.
The #1 Key to Tracking Your Spending
In my experience there is only one way to successfully track your spending, and that is:
If you allow clerks to put your receipts in a bag, or you fail ask for receipts, the written records of those expenditures may be gone forever, and along with them will go your chance at creating a realistic budget that works.
Once you get in the habit of always getting receipts, and always putting them in the same spot, the next step is to designate a time each day or week to:
- Remove your receipts from the designated spot in your wallet or purse.
- Enter all receipts into your spending tracker software or notebook.
- File the recorded receipts into a filing system
This will insure that you have everything you need to create a realistic budget that works.
The #1 Key to Getting the Greatest Return on Your Spending
As an "investor" of your money rather than a "spender" you will be more apt to weigh what you are giving up in return for what you are getting. What you give up is what's often referred to as, " The Opportunity Costs of Spending."
In case you're not familiar with the term, opportunity costs can be defined as the value of what you give up by choosing one alternative over all other available alternatives.
One of the most overlooked opportunity costs of spending money on non-appreciating purchases (items whose value does not grow over time), is the opportunity cost of lost interest earnings.
For every dollar of your income you spend on a non-appreciating purchase, you simultaneously give up the right to earn interest on that particular dollar ... for the rest of your life.
As the free personal budgeting calculator will help you to discover, the opportunity cost of lost interest earnings can add up to millions of dollars over the course of your lifetime.
Do You Love Spending Time at Your Job?
As an investor of your money, one of the things you give up when "spending" an amount of money, is the time you had to spend earning that amount of money.
Therefore, while creating a personal budget you should be asking yourself this question:
If you hate your job and/or you hate spending time away from your loved ones, then any emotional gains you get from spending your money needs to be high enough to offset the emotional losses you are experiencing from spending time at your job.
Otherwise, if the emotional loss from working to pay for the item is greater than the emotional gain from the purchased item, you will have suffered an emotional net-loss (poor investment) from your "expenditure."
Suffer enough of these emotional net-losses, and you could find yourself in emotional bankruptcy.
If you are suffering constant emotional net-losses from your "spending," I would suggest investing your money in investments that will help you to transition to a work you will enjoy (investments such as education, training, invest in your debt, etc.).