The North America Challenge
As North Americans, we lag behind the rest of the world when it comes to financial planning. If we turned financial planning into a competitive sport in North America, for instance, we would not settle for being at the back of the pack.
As North Americans, how do we move up from the back of the pack when it comes to financial planning?
My financial planning process through investment real estate is to help stop the madness of inaction. Part of this lack of planning is because of creating budgets that lead to analysis paralysis. Therefore, we need to take action now, and it does not come with a budget spreadsheet.
Rick, you are talking financial blaspheme.
In a past blog, To Budget or Not To Budget, that is the Question? No, I recommended you don’t waste your time creating a budget. You are far better off tracking your income and expenses for three months.
Don’t Get Someone Else to do Your Sit-Ups.
No one ever got 6 Pack Abs having someone else do their sit-ups. If I can convince you to do your financial sit-ups in your daily, monthly and yearly financial routine, you will be amazed at how you can unlock sustainable wealth. This method does not include a personal budget.
In other words focus on real life, not wishful thinking. Follow my process, and you can count on a productive life, not broken down dreams.
Mirror, Mirror on the Wall
Setting Up a Monthly Budget; is Not the Fairest of Them All
According to Wikipedia, in the Fairy Tale, Snow White and the Seven Drawfs, every morning, the Evil Queen asked the Magic Mirror the question, “Magic mirror in my hand, who is the fairest in the land?”. The mirror always replies: “My Queen, you are the fairest in the land.” The Queen is always pleased because she believes the magic mirror never lies.
The mirror is how I see most budgets; in other words, the magic budget mirror never lies to you. Are you living in the magical budget mirror and don’t know how to get out of this fairy tale?
There are three components to creating a budget; add up your income/revenue, project expenses and work out the difference.
Pull from the Past and Look Forward
As I mentioned earlier, document your actual income/revenue and spending for three months. After three months, you will either see money in your bank account or very little money. There is no better reflection of your true financial self than the view of your bank account balance.
The reality adds up to this; for instance, you either have not enough revenue or too many expenses or a combination of both. The beautiful thing about both is you can add to your income or get rid of costs. In my book, 31 Days to Purchasing and Renting Your First Investment Real Estate Property I describe a method I call Uber Time. In other words, you can always get a part-time job and get this additional income to help you improve your financial position dramatically.
One of my previous employers produced an income and expense statement every four weeks. I was paid part of my bonus on net income every 12 weeks; how is that for an incentive? This bonus would never be paid if the corporation didn’t produce a four-week income and expense statement, you can bet I was focused almost every minute of every day on revenue and costs.
Think of your positive net income as your bonus in life. This monthly premium is an accurate reflection in your life, not a magical financial mirror creating a false reality.
APP it Up
Today there are so many great apps to help you track your spending. If you use primarily one or two bank accounts, for instance, you should look at using your bank’s app.
Therefore, if you are comfortable using the app, I suggest you look at how the app records your income and expense categories and matches these groups to the income and expense spreadsheet I have provided. Transferring your numbers from your app to your spreadsheet will take moments.
My banking app has 12 expense categories.
The discretionary or optional spending categories, such as Dining Out, Shopping, Travel, and Entertainment, are grouped under Wants.
Categories related to your living expenses such as Home, Groceries, Transporation, Utilities, Education, and Health are grouped under Needs.
Transaction types not defined as a Want to a Need, including Gifts, Donations, and Taxes, are grouped under Other.
The neat thing about this banking app (TD Bank) is I can move a transaction to a different category at any time.
This Week’s Action – The North American Challenge
1. Download Your Banks Income and Expense Tracking App tied to your bank account.
Use the personal income and expenses spreadsheet I have provided to you through the Vault to Investment Real Estate Success website. http://www, vaulttoinvestmentrealestatesuccess.com
2. Make the spreadsheet yours but don’t spend a ton of time recreating the wheel.
3. Fill in your numbers; you can start at the beginning of the upcoming month and track revenue and expenses. Or go back three months and write in your numbers. Make sure you do this one month at a time. The most successful individuals and companies produce an income and expense statement every month; talk about financial reality.
Ready, Set, Goal©!!