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August 20, 2024 | Jeff Gill
How I Stopped Letting
Money Control My Life
Why is it that after you mention the word budget, you can hear crickets?
I was no different; I had every excuse in the book. I have it in my head: I do not have time; I do not like living a rigid life; a budget is for nerds.
The truth is I was never taught the real value of a budget. My financial education in life until age 25 or so was from others as broke as I was.
Self-made millionaires were rare in my circle, despite knowing many highly educated individuals.
Most acquaintances—teachers, engineers, managers—earned average salaries. They were stuck in a cycle of living paycheck to paycheck, just like most Americans.
And the crazy thing was, their education did not really help them get ahead financially.
So, I received my financial education from other people in the same boat.
Bad Idea!
So, I learned the hard way. I lived like everyone else from paycheck to paycheck until I was exposed to others who had more than others. More free income, more vacation time, more time to live and enjoy life.
Our incomes were not that different; what did they know that I did not? I set out on a quest at 32 to understand what I could do differently to get out of this financial rut.
I expected to find a magic bullet, but I was wrong. I had seen a new book out called “Rich Dad Poor Dad," and it sparked my curiosity.
I read it but, like most books, actions are never implemented and end up being useless knowledge. But it did change something in my thinking, as I learned years later.
By 34, my debt was still climbing. I saw a storm coming. So, I searched for solutions. I found Dave Ramsey's Financial Peace University.
I read his book, and I bought his course, and this was the start of a new financial life for me.
Something changed, and I drank the Ramsey Kool-Aid, and I have never looked back. I had broken with a negative net worth at 34 to now being able to retire at 55.
This is what I call Financial Freedom: the ability to live, work, and play wherever you wish and on my terms.
Does this mean I am rich?
To me, yes, as rich is having control of your life without the need or influence of others. Not private planes, not Italian sports cars, or fake photo shoots.
Believe me, I am not saying that the Dave Ramsey system is what did it, but it got me started. It was the baby's step into understanding the value of a plan, not a dream.
"If you don’t have a plan, society will create one for you” is this a risk that you want to take with your finances or family?
The secret here is to create a plan. But how, or where, do you start, you ask?
Easily distracted?
I understand. Complex plans often backfire. From experience, I have learned simplicity triumphs. Start small. Avoid elaborate schemes. They are a setup for failure. Success comes from modest beginnings. Keep it simple from the start.
I recommend starting with an official budget before proceeding. First, create it in phases.
This approach helps you understand your finances, identify weaknesses, and develop a money mindset. Here are the 4 simple baby steps to get started.
Track 3 months of expenses before deciding on your budget system to implement.
Track every expenditure in a spreadsheet; keep all receipts.
List a category for each expense.
Keep a running total for each category.
Identify wistful spending in each category.
Include your spouse or significant other if relevant. Everyone must be on the same page and be part of the accountability process.
If you ignore these steps your chance of long-term success could be compromised. To make a real change in your life there must be severe disturbance, and I assure you if you track your expenses to this detail, you will find disturbance within yourself.
Once this is complete and you have the burning desire for lasting change, it is now time to select the budgeting system of your choice.
All the 4 systems listed below will accomplish the task of becoming debt free. I personally started with the envelope system years ago but moved to a P&L (Profit & Loss) system for business reasons.
Personal Budgeting Systems
Envelope System
Allocate your earnings into distinct expense buckets—food, housing, leisure. Fill each with a fixed sum. When depleted, halt spending in that area until month's end.
This budgeting method enforces discipline by visually separating funds and capping category outlays. It helps curb overspending and promotes financial awareness.
Pros
Encourages disciplined spending by limiting cash flow in each category.
Simple and easy to understand.
Helps in visualizing where the money is going.
Cons
It can be cumbersome to manage physical envelopes.
Not suitable for online transactions.
Requires consistent tracking and updating.
Zero-Based Budgeting
Assign each dollar a role. Every cent of earnings serves a purpose. Balance income and expenses precisely.
When done right, nothing remains. This ensures that your account for every dollar and helps in tracking where your money is going.
Pros
Ensures every dollar is accounted for.
Helps in identifying unnecessary expenses.
Promotes savings and financial goals.
Cons
Time-consuming to set up and maintain.
Requires detailed tracking of all expenses.
Can be overwhelming for beginners.
50/30/20 Rule
This system divides your after-tax income into three categories: 50% for needs (essentials like housing and food), 30% for wants (non-essentials like dining out and entertainment), and 20% for savings and debt repayment.
This method provides a balanced approach to budgeting.
Pros
Simple and easy to follow.
Provides a balanced approach to spending and saving.
Flexible and adaptable to different income levels.
Cons
May not be precise enough for those with irregular incomes.
It can be challenging to categorize expenses accurately.
May not address specific financial goals or debt situations.
Profit & Loss (P&L) Concept
for Personal Finances
Manage your money like a CEO runs a company. Track income as revenue and expenses as costs. The bottom line? Savings become profit; debt equals loss.
This approach transforms personal finance into a streamlined business model. It helps in understanding financial health and making informed decisions.
Pros
Provides a clear picture of financial health.
Helps in identifying areas for cost-cutting and savings.
Encourages a businesslike approach to personal finances
Cons
Can be complex to set up and understand.
Requires detailed tracking and categorization of all transactions.
May not be suitable for those unfamiliar with business accounting principles.
Track every dollar in, every dollar out. That is the P&L way to financial mastery. This simple tool unveils your full financial picture - savings, debts, and all. With clear insights, you will spot winning moves and money drains.
Empowered by insight, you will navigate finances wisely, accelerate wealth creation, and steer your economic destiny with confidence. The P&L method simplifies money management, empowering you to take control and thrive.
Scrutinize your finances like a CEO examines corporate accounts. Apply this executive mindset to manage your personal wealth effectively.
This business-inspired approach instills financial discipline, mirroring corporate practices. By tracking income and expenses meticulously, people make smarter choices about their money. The result? A growth-oriented outlook and heightened fiscal responsibility.
Like a shrewd CEO, this approach puts you in control. Chart your financial course and shape your destiny. A money strategy guides wise decisions, fostering enduring prosperity.
Like a master builder, you will craft a robust future - your personal fiscal empire. This blueprint transforms abstract goals into concrete wealth.
The P&L system also makes it easier to identify cost-cutting opportunities. Budgeting illuminates spending patterns, revealing opportunities to trim costs. Track your money and you will spend less, save more.
When you track your cash flow closely, you can make smart choices that really pay off - and that means better financial health in the long run. This is particularly useful for those looking to improve their financial efficiency.
Furthermore, the P&L concept facilitates goal-oriented financial management. It allows individuals to set and track financial goals, such as saving for a house or paying off debt.
Focused spending and saving propels individuals toward financial dreams. Aligning daily habits with long-term objectives keeps one's fiscal compass pointed true.
Another advantage is the enhancement of financial literacy. Mastering the P&L system sharpens financial acumen.
Mastering your cash flow is a superpower. It lets you take control of your money, make smart decisions, and build wealth over time. You can turn your financial situation around and set yourself up for a bright future.
Plus, using a P&L system keeps you honest and open. It makes you track every penny, so you are responsible for your financial choices.
This transparency helps you catch mistakes and make changes, which means you will manage your money better overall.
Now that you have followed the instructions above and selected the system to implement here are a few last tips. Do not over complicate this or you will procrastinate and fail.
Do not use apps to track your finances for the first 3 months. I make this recommendation to allow you to gain a better understanding of your finances.
Like anything if it is too easy you will not build an appreciation of the process and gain valuable knowledge along the way.
This is to be done every week. You must balance your books every week.
Do not let this valuable lesson in life be wasted and teach others, including your kids.
Remember “Where focus goes, energy flows” Make your finances your focus and change your family's future.
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