Budgeting Doesn’t Have To Be Difficult

After reading Rich Dad Poor Dad I felt one thing in particular: entertained.  At best the information "gets you to think about your money" and at worst the more advanced information Kiyosaki presents is just downright dangerous and/or useless to the average person.  I would think seeing a huge credit card statement or a paycheck "gets you to think about your money."  The one thing I did notice about the book is that people who rave about the book have not really done anything to change their lives and habits.  They are still in the same (or worse) financial situation six months after reading the book than just before reading the book.

Keep 10% of everything you make for yourself.  PAY YOURSELF FIRST.  Why should you be paying other people with your hard earned money.  Pay yourself first.  Take the amount of money you receive in your paycheck (the part after taxes and insurance and Medicare and Social Security) and keep 10% of that for yourself.  10% means move the decimal point to the left.  If your paycheck is $528.23 then keep $52.82 for yourself.

Take advantage of the easy stuff!  This step also takes advantage of tax breaks and free money.  Max out your employer matching to your 401(k).  Let's say your employer matches 50% of your contributions up to 6% of your pay.  You put 6% of your pay into the 401(k) and you get an additional 3% free for your retirement!  (Often you must work for the same company a certain number of years before you get to keep the company's matching funds - this is called being "vested.")  Second, take advantage of our current federal tax situation by contributing funds to a Roth IRA.  Any earnings, dividends, interest, and gains you make will be withdrawn TAX FREE when you retire.  Taxable accounts can be taxed between 15% to 33% when you withdraw them.

Do not spend more money than you have.  That is my bedrock advice.  Take the amount you have left after keeping 10% for yourself, funding your 401(k), and funding your IRA.  This is the money you have for living.  If you get paid monthly, multiply your average take home paycheck by 12.  If you get paid weekly multiply your average take home paycheck by 52.  This is how much money you have to spend in a year.

  1. Take your rent (mortgage) and multiply by 12 and subtract this from your income

  2. Take your car payments and multiply by 12 and subtract this from your income

  3. Take your insurance payments and multiply by (1, 2, 12 depending on situation) and subtract from your income

  4. Take your required utilities (electricity, gas, trash, water, etc.) and subtract from your income

  5. Take your gasoline spending and subtract from your income (approximate by miles driven / Average MPG of your car (use EPA numbers -3 to be safe unless you drive really slowly/carefully) * $3.339)

  6. Set aside $500 a year for auto maintenance (tires, battery, oil changes, washing, waxing, etc.) or more for older cars

  7. Subtract your food expenditures

  8. Subtract your extra bills (phone, internet, NetFlix, iTunes Store, etc.)

  9. Subtract your subscriptions

Anything you have left is yours to keep or spend however you like.  If you don't have anything left, then you're in trouble.  The easiest way is to reduce the miles you drive, reduce waste (food waste, electricity, gas, water), get rid of "subscriptions" (companies love subscriptions and you SHOULD hate them... but we all use them), get rid of luxurious bills (NetFlix, Games, etc.), spend less on discretionary things (employ the Pareto principle)

This is a first step and you can add more categories if you want.  Make your "simple" budget today.  It takes about 30 minutes.  I have employed this very scheme and I seperate my paycheck as soon as I receive it.  Anything that's left is mine to spend however I want or put towards my savings goals.

See this post for MY BUDGET!