Budgeting
Budget (noun)
an estimate of income and expenditure for a set period of time.
A budget is your financial road map. Budgeting reveals where and how you spend every single dollar and cent. Being able to visualize your income, expenses, and savings makes it easier to execute your financial goals. Having the discipline to budget, track, and monitor your spending brings clarity to your financial picture. Your budget will become a living document that must be updated with all of life’s changes.
Expense (noun)
the cost required for something; the money spent on something.
Expenses consist of all bills, liabilities, allowances, and any costs you incur monthly. These items are coming out of your pocket monthly for rent/mortgage, gas, food, phone bills, car payments, credit card payments, insurance (car, home or rental, life, etc), daycare, savings, personal spending, or emergency funds. Itemizing each expense and the cost will allow you to see how much money is going out each month. The goal is to keep your expenses lower than your income. If your expenses are more than your income, then you’re operating in the red/negative. You want to be in the green so you know that you can save for your future and your legacy. You’re only as rich as your expenses allow you to be.
Income (noun)
money received, especially on a regular basis, for work or through investments.
Within your budget, you want to track income that you make and bring home (after taxes are taken out) monthly. If you have a job that you collect a check from at least monthly, that’s your income. If you have a part-time job, side hustle, or a hobby that generates revenue, then that’s additional income you should account for as well. Knowing how much money you are going to bring home monthly is critical to your personal budget. Having more income than expenses is key. The more streams of income you have, the more financially secure you can become. Millionaires have an average of three or more streams of income at any given time.
Income types:
Earned- This is income that you actively work for, whether that consists of working 40 hours each week at your job or money that you are paid for your time, services, or goods. You can receive this income annually, quarterly, weekly, monthly, or sporadically.
Passive- This is income that you receive without having to provide labor, services or goods. This can consist of things like rental income from properties you own or royalties from music or acting. Passive income also consists of investment income that you can generate from a business or your investment portfolio. Creating passive income is the ultimate goal.
Portfolio- This is income that comes from investments, including dividends, interest, royalties, and capital gains. Your portfolio income can also consist of stocks, bonds, etc. all within your 401 K, pension, IRA, annuity, or any other investment coming from your portfolio.
Benefits of Budgeting
Allows you to organize your finances
Enables you to track your spending, savings, and EMERGENCY funds
Identifies and provides clarity to all of your debts
Increases your financial intelligence and confidence
Aligns your priorities and what’s most important in your life
Reduces your stress