Budgeting - The Foundation of Financial Success

The very foundation of every good financial plan is a cash flow plan, or budget. Budgets are actually fairly simple to create, but require that the budgeter is honest with themselves. Aye, there's the rub. As it turns out, most people would much rather not investigate the truths in their spending habits, as it is in those truths that their personal demons lie...

Some don't want to admit they spend that much money on "entertainment", others spend too much on shoes or other clothing items, some aren't interested in facing the fact that the interest costs on their short term debt are higher than what they allot themselves for food.

Yes, these are unfortunate issues. In fact, the lack of will to look plainly at their spending habits is the number one reason most people spend their entire lives playing catch up, rather than enjoying the fruits of their labours.

See now why it's useful to have a coach? Often I have spent time going over the budget specifics with clients of mine in order to assist them in getting smart with their cash flow. I once saved a family $1700 per month in unnecessary cash flow expenditures just by rearranging their debt. That's big money. Imagine what benefits you might find just by spending the time to investigate where all the money goes.....

How many of those monthly transactions that occur automatically out of your bank account are necessary? How many of those transactions can you even say for certain that you know what they are? Don't you think that it might be important to know where your money goes?

Now, why again can't you save an additional $50 or $100 per month?

So, the question becomes, what's the process? Well, the first thing to do is to begin documenting every transaction that you make. One of the often discovered side benefits of this particular activity is that, when you're actually forced to write down your purchases ALL THE TIME, it can sometimes change your decisions and curb some of those unnecessary impulse purchases.

Then, you need to start posting those purchases to individual expense categories, such as rent/mortgage, utilities, groceries, fast food and snacks, liquor, cigarettes, gasoline, bus passes, vehicular maintenance, car lease or purchase payment, subscriptions, insurance, savings, etc. You get the drift.

At the end of a couple of months, you'll see some clear patterns emerging in terms of each expenditure category. Here is where you need to actually spend some time thinking about what's really important. Ask yourself the following questions: Is this item important enough to my future goals to require this percentage of my income? Is this item more important than that item?

You need to start to prioritize. Again, this is where it can be useful to have a coach to whom you make yourself accountable. The simple fact is, most people will not go all the way through this process, as they're simply too weak to be honest with themselves.

How about you?

Once you've been through the thought process and considered your spending habits and patterns, once you've spent the time prioritizing the categories, you can begin to allocate your future funds to the individual categories. This, my friend, is your cash flow plan.

The next step is to stick to the budget. Again, useful to have a coach here to keep you honest. Nonetheless, however, there's simply no chance that you're going to be successful unless you monitor your expenditures, and stick to the amounts you've budgeted. This goes back to building good habits.

If you are able to create an honest budget predicated on genuine numbers and thoughtful consideration of your life goals, and then have the discipline to stick to that budget, you are on your way to executing your very own financial plan, and will very likely find considerably more financial success than most others out there. You can do it if you really want it.

But it does help to have a coach.

I'd be really interested to see comments below from readers who have spent the time to do a proper budget, and how that has been valuable to them. Thanks for your time and feedback!