Your budget can be a perfect simple plan. It's perfect because it puts you in control. You can learn more about how to achieve control over your life in Larry Ferstenou's book You CAN Retire Young. This article is based on Chapter 9.
Take Control of Your Spending
By Larry Ferstenou
Based on You CAN Retire Young
If you don’t want to work the rest of your life, saving money should be your priority. Two ways to accomplish that are: (1) track expenses so you know where your money is being spent, and (2) set up a household budget. A budget can be a great tool for providing guidance and focus, as long as it is realistic and you are committed to making it work for you. Tracking your expenses tells you where your money has been going; your budget establishes where your money will be going. The difference between those two can be your newfound savings.
Setting up a budget can be as simple as: (1) listing your categories in one column—rent/mortgage, utilities, insurance, groceries, entertainment, clothes, etc., and (2) listing your estimated expenses for the year for each category in a second column. You can be as general or specific as you want in listing your categories, but the more detailed it is, the more helpful it will ultimately be. Our current budget has 24 categories.
To know whether or not you are living within your budget, you must keep track of your expenses in each category. No budget is perfect and you may spend more or less than you estimated. But the idea is to set up a budget that is as realistic as possible and then make the best effort to stay within it. Each year gets a little easier because you have a track record from previous years.
In January of each year look at your previous year's budget and expenses. Focus on each line item and decide if you are spending more or less than you need to. This is the time to make adjustments; your goal should be to trim expenses as much as possible. The less you spend the more you save, and that is how you increase net worth.
Setting up a budget is a waste of time if you have no intentions of following through and using it to your advantage. Conversely, it can be a great tool if you are serious about taking control of your spending and growing net worth to achieve your long-term goals.
Larry Ferstenou retired over ten years ago at age 42 and is the author of You CAN Retire Young: How to Retire in Your 40s or 50s Without Being Rich (American Book Business Press, 2002). More information can be found at www.youcanretireyoung.com. Copyright © Larry A. Ferstenou, 2002–2003.
Articles by Larry Ferstenou
Based on His Book
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