So what do you do now that you’ve:
- Made the cable company cry by outright canceling (my preference) or renegotiating your rates?
- Verified that your cell phone plan is appropriate for your needs, and switched as necessary?
- Put the stake in any annual / monthly subscriptions not crucial to your long term financial independence?
- Began building a little disposable income to start working with?
Now you get the pleasure of building a financial budget!
Download this budget spreadsheet and fill in the blanks. I know it sounds dry, but it’s absolutely imperative to understand where your hard earned dollars are truly going.
I’ll let you explore the sheet, but there are a few parts of it that I want to point out. You’ll notice that it’s designed for you to input your Gross income, and then read from your paychecks the total amount of taxes, insurance, 401k deductions, etc. to put in the gross deduction section. I did this because it’s very enlightening to see in percentage form how much you’re paying to these various deductions (make sure you add them up from both paychecks). I also put a charitable deduction in this section because for many, charitable donations are as important as taxes, and are not an expense that can be cut later. Finally, I added arguably the most important deduction, “Cash Savings”.
I know this is a change of mindset; I’m telling you to pull money for savings before you’ve even paid bills. What the hell?? But, that’s the cold hard reality. How many times have you said, “I’ll pay bills and whatever is left over at the end of the month, I’ll put into savings”? How many times did you get to the end of the month and realize there wasn’t anything left to put into savings? This happens too often, and it’ll completely destroy your chances of ever reaching financial independence.
Depending on where you’re at financially, maybe you only put the money you’re now saving from the Canceling and Renegotiating Everything effort. Maybe you can add an extra $20 to it each payday. Just start with something and slowly build up.
Once you’ve set the pay yourself first amount, complete the rest of the Income/Expenses sections, and pray that the little number under Total Projected Surplus/Deficit doesn’t turn red. If it does, start screaming, pull out a little hair, drink a red bull, and get busy figuring out where the expenses can be cut to match the remaining disposable income.
The most important thing in my mind is to remember why you’re doing this. Living frugally isn’t always easy. Seeing friends and neighbors driving around $50,000 cars while you’re cruising around in your mid 90’s multi-color jalopy can be embarrassing. Just remember, the ultimate goal is that you’ll be retired from the rat race 9-5 job years, if not decades, before they will be. Now imagine what you’ll be able to do with that kind of free time. Imagine the travels you’ll be able to take. There is no better motivation than that.