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I believe with everything within me that your most powerful wealth-building tool is your income. Ideas, strategies, goals, vision, focus and even creative thinking are vastly important, but until you get control and full use of your income to build wealth, you will not build and keep wealth. To build wealth, you will have to regain control of your income.
When we fail to plan, we plan to fail and so there is always too much month left at the end of the money. Everyone needs a written budget.
Sometimes I hear, “Well, I kinda, sorta know where my money is, ya know. I know what it is going to, ya know. I do my planning in my mind, ya know.” Having a written plan is absolutely necessary. Kinda, sorta knowing what’s going on with your money isn’t going to get you to your goals. Developing a written plan gathers, organizes, categorizes and analyzes information about your money situation. As you do your written plan, you will be amazed that answers to money problems will appear easily.
Set up a new written budget every month. At first it may take a while, but the process will get faster. My wife, Sharon, and I used to spend hours on our budget, and now we only spend a few minutes each month. Don’t try to have the perfect budget for the perfect month because you’ll never have those.
Spend every dollar on paper before the month begins. Give every dollar of your income a name before the month begins—that’s called a zero-based budget. Income minus outgo equals zero every month. Look at this month’s income and this month’s bills, savings and debts, and match them up until you have given every income dollar an outgo name.
"Don’t try to have the perfect budget for the perfect month because you’ll never have those."
Every dollar of your money should fit in a category, even if you need to make up new ones. The basic categories include saving, housing, utilities, food, transportation, medical, personal, recreation and debt. Don’t forget to include saving for things that aren’t monthly, such as Christmas, birthdays, taxes and insurance premiums. If you have an irregular income due to commissions, self-employment or bonuses, you still must do a written budget before each month begins. In your case, adding up what your outgo is each month is a form of goal-setting. It tells you what you have to earn in order to cover all the outgo you will have. Prioritize your bills, savings and debts in order of importance, not urgency. Ask yourself, “If I only have enough money to pay one thing, what would that be?” Move this way through the list. Stick to it! As the income comes in, work your way down this list.
It may take two to three months before your budget is correct, but keep trying. This is key to your financial success.
Dave Ramsey is a nationally syndicated radio talk show host and host of The Dave Ramsey Show on Fox Business Network. He’s a best-selling author of many books, including The Total Money Makeover.
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