In the last few posts we have been discussing the reality of creating a budget. Many people don’t like to do this because they feel it is restrictive to what they do on a daily basis. Another reason they don’t do it is because they are afraid of what they will find out about their finances. They instead choose to bury their head in the sand and ignore the challenge.

Free Family Budget Worksheet

How would you like to have a free worksheet where you can review where you are and where you want to be financially so that you won’t wake up at your time to retire and find out your screwed. If you would like to have a template to work by, then download the Free Retirement Audio Training that Retirement Cures offers its readers.

Using this template will help you see areas that you can improve on and ways to effective save for a happier retirement.

Until Next Time…

Why would you want to set up a personal budget? Isn’t that for accountants and nerds? Actually no. Every business that wants to be successful has to have a budget and compare itself to it on a regular basis. They use what are called key performances indicators to see how well they are performing their annual objectives. Those that are successful use this information to know what actions they need to take in order to correct any areas of their business.

The same thing applies to you individually. Wouldn’t it be great to know where you are today in relation to your goals for retirement? Wouldn’t it be better to find out now that you need to take action instead of 10 years from now when it might dawn on you that you should have done a certain task in the previous decade?

What Goals Should You Determine?

The first objective is to determine how much you will need to live to retire. What will it cost each month? How much will you spend on the items you buy now. Once you add all of those up, you will need to adjust for inflation. This is a simple math calculation of taking the inflation rate (assume 4%) and adding it to one or 1.04. Now you will need to raise it to the power of the number of years it will be until you retire.

Assume you will retire in 10 years and this number would be 1.48. Another way of looking at this is that it will cost 1.5 times more to buy the same things ten years from now. Knowing this will help you determine the amount of steady income you will need to cover those expenses. (i.e. wealth ratio > 1)

Calculating The Income From Personal Budget

For example, let’s say you need $2000/month today to cover your living expenses. In ten years, that will cost you $3000/month to cover the same living expenses. So you will need to make sure you have at least this amount in your retirement income in ten years along with a means to grow your retirement income that you receive. This may not sound good to the average fixed income person. How can you grow you retirement income? (See our 4 posts on Automatic Retirement Income) To learn more on this whole process, be sure to get the FREE Retirement Audio Training from Retirement Cures.

We hope you can see the benefits of setting up a personal budget.

Until Next Time…

Over the last few weeks, we have focused on ways to create automatic retirement income to increase your wealth ratio. However, today our focus will be on the denominator of the wealth ratio. The focus will be on reducing expenses. I know that the first thing that comes to mind is “don’t take my favorite _____ away from me. I can’t go without it each month.” That is a natural reaction. The real question you should ask yourself is this…what can I live without today, so I can have more of tomorrow?

Make Personal Budget

To do this, you have to start with making your personal budget. Start with the list of things you spend money on each month such as rent or mortgage, food, utilities, phone, gasoline, car payments, clothes, etc. The idea behind this is to get you to look at the reality of your situation. Assume you have a take home pay of $2000/month. When you start adding up these items, you will quickly see how much of your income is dedicated to pay for each of these items. The other issue is you will soon realize that you may be spending more on areas you should not be and could save a lot of money.

You, Inc.

You really should think of yourself as if you are a company. You want to develop your financial statements. One of those statements are called the expense sheet. This is what we are developing in the exercise above. If any company is to have success, it must get its expenses under control. Many people get upset at companies when they let people go. This is not an easy decision to make, but some times it has to be made to keep the company on sound financial ground so they will be able to stay in business. You may have to make similar decisions, but you won’t know you have a problem, unless you do the exercise of building your expense statement.

Your Task For This Week

We challenge you to take time this week and write out your expenses. The more detailed you can get, the better. One way to find out where all your money is being spent is to carry some paper and a pen with you. Every time you buy something, write it down. Do this for a week or even the whole month to get a good handle on where your money goes. If you do this simple task, you will have the ability to make sound decisions on which expenses should be eliminated.

We will continue the focus on the denominator of the retirement wealth ratio in the next few posts.

Until Next Time…