Budget! A bad word but critical to financial freedom

When I say “budget”, many people get a stomachache.
Do you have a budget? Do you follow it?

Most people do not have one. I would say, in general, people with money problems do not have one.
Or, if they have one, they have a “deficit budget” and not a “surplus budget” and this is the problem.
Does this sound familiar?

A budget is simply a plan

Obviously, you do not build a house without a written and well defined plan. A plan that takes into account the need to build and coordinate expenses and resources.

Yet the majority of people do not have a budget. At the most, they have an idea of how much they spend and how much they earn. But this lack of a budget is the main problem.
If you don’t know what comes in and what goes out, how can you know what to do?

“I do have a budget, but it is always in the red.”

This is how people often respond to me when I talk about this topic, during my seminar “Money Makes You Happy” or during personal coaching.

If you have money problems because you have no budget then ok, do it, create your budget (of the right type, see below) and follow it.
But for those who have a budget and are still poor, it is crazy. Yet many people, even if they have thought about this and keep a budget, they are in this exact situation.

What is a budget that will always keep you poor? It is a Deficit Budget.
Money Makes You Happy is the book to get you off the hamster wheel and gain financial freedom

Deficit Budget: the budget to remain poor forever!

If you are poor, it is because you are spending more than you earn.
Which may mean either that you are earning too little or that you are spending too much.
One of the clients that I was coaching earned about 50,000 euros a month and spent about 60,000. He was poor but with a very high standard of living.

But of course there are many more people who earn lot less and find themselves spending everything they earn, and maybe even borrow “to get by.”

These people have a deficit budget not because they spend too much (maybe they do in some cases), but because they earn too little.
But they do not realize that problem and try to “spend less”, going to discount stores and giving up entertainment. But it is not by spending less that you will solve the problem.

You will understand this very well if you follow the rule of The Richest Man of Babylon, a financial education book that I suggest you reading.
The rule says: pay yourself first. Or create your surplus budget.

Money Makes You Happy the book that teaches the psychology of wealth

Surplus budget: the budget to get rich

Pay yourself. Think about it.
What does this mean? It means that you have to take some of the money you earn and put it away to create your capital for investing, for example, 10%, 20%, or 30%.
Each month, the percentage to be put aside for you is deducted before any other expenses. Because it is your money that is essential to your financial freedom

And if I say first of all, I mean first of all before all other expenses.
Before buying groceries or clothes. Before paying the rent or mortgage (Are you paying a mortgage in the house where you live? Read why this is a mistake). Before paying the taxes. First of all!
Take that 20% of your income and put it away, constantly. And then pay what you have to pay with the rest.

There are two immediate advantages to this:

  • unnecessary expenses will be easily eliminated;
  • if you cannot pay the expenses you have to pay, you have to earn more.

I know it is counterintuitive, but often the right things are. Unhinge habits that, even though they are harmful, are comfortable for you.
Normally you might say if there is any money left after the bills are paid, I will put it aside but this does not happen.

The new habit would be to say, “I am saving this X% every month, regardless of the expenses that I have, because I am building my possibility of acquiring wealth.

Money Makes You Happy, the book that teaches the psychology of wealth

When people get used to thinking in terms of Surplus Value, things change.
If the problem is unnecessary expenses these will be eliminated easily, because the pleasure of creating your own capital (which you will then have to invest) will be higher than that given by buying “things.” Things cannot be compared to financial freedom.
If the problem is too low an income, then you will understand that you have to do something. No “savings” means you now have to study how to earn more money.”

I do not recommend looking for a second job, but instead putting in practice the teachings of this blog and in my seminars. Start thinking about creating your own activity for investing (even starting very small with a few hundred euro per month).

To your financial freedom,
Alfio Bardolla

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