The Rich Get Richer, The Poor Get Poorer, And The Middle Class Gets Broker (Part 3: Budgeting Basics)

It seems that whenever a conversation turns to money people seem to duck and run. Here at Advice To Change Lives, we are trying to change that. We already know that money is very important, but more important than that is how you manage your money.

"No, not money talk!!"

Money management is something that should come right after not peeing your pants in public and learning to how to brush your teeth on the list of things that you should teach your kids at a young age. But the problem is that most grown adults don't know how to manage their own money much less teach their kids! And I don't know about you but "Money Management 101" or "Personal Finance" weren't classes that were offered in high school or in college. Instead I was required to learn important things like how to analyze poetry. Which, I can assure you, I use every day. So since school didn't teach us and our parents didn't teach us then we have to do this weird thing called "get off the couch and teach ourselves" for now. Not to worry though! I have summarized some really basic budgeting skills that are simple and easy to digest.

Budgeting Basics

Budgeting your money and setting up financial goals requires some of the most simple mathematics on the planet. Addition, subtraction, and maybe multiplication and division if you really want to live life on the edge. So why does the majority of America not budget and manage their money? Because it is not a question of difficulty but rather a question of willpower. So before you even think about how to budget you first need to answer the question "Why the hell would I need a budget?"

Budget Fo Stuntin'

So why the hell do you need a budget. I mean you have survived to this point, right? You might have a nice car or a big house and all was done without a budget so why even bother? Well the answer is really another question, do you really just want to "survive" financially? Imagine what you could do a large surplus of money every month. Would you give more to people in need? Could you take more vacations? Could you stunt harder on the weekends with your bros (that is a valid goal)?

"Lets budget for our mollies and sweat responsibly, woo!"

Dave Ramsey sums it up best, "budgeting is telling your money what to do rather than wondering where it went". It allows you to reach whatever financial goals you set. It relieves the stress of wondering if you are going to make your bills this month. You will know exactly how much money you have coming in and going out and exactly how long it will take you to get to get out of debt or to get that gold chain that hangs to yo dingalang (just ask 2 Chainz).

Three Mandatory Budget Categories

So now that you are all pumped up about budgetin fo stuntin, where do we begin? Well there is three things that you should get in the habit of doing with every dollar you earn if you want to make this work and become more wealthy and more awesome at the same time: Give, Spend, and Save.

Giving is probably the most fun thing you can do with your money. Ask any millionaire if they give and I guarantee you just about every single one of them does. "But Josh, they have tons of money. They should give! I will give when I become wealthy." I have used that same logic myself for a long time. The problem is that with that logic you will probably never become wealthy. The weird thing about giving is that the more you give the more you receive. So even if you make $7.50 an hour, giving a little bit of that money will not only make you more happy but will make you more wealthy!

Saving for your future is not something that you should hate. But I don't think it is something you should really get super excited about. It should just be what it is. You have to do. If you are young then the money you put in today will make the greatest impact on what you have later. So just do it. The standard recommendation of 10% off the top of every dollar you earn will work for now.

Spending a certain amount of every dollar you make is equally as important as the other two. Have you ever tried or know someone who has tried some super intense diet to lose weight? Like "No Carbs!" or whatever else is out there. How long did that work for? Probably not very long. Because that kind of intensity can not be sustained for a long period of time. Then when they get off of the diet they go hog wild and probably gain more weight than they lost. Trying to budget without spending is like trying to diet without a cheat day. It will just never be sustained for a long period of time. You need to be able to spend some of the money that you worked so hard to get! You just have to put a cap on it.

"We lost 100 pounds on zero carb diets! Then we remembered pizza, soda, and ranch are awesome"

Budgeting Mechanics

So now that we understand why and what we are doing, it is time to do it. This is how I got started on my budget. I use a system I like to call....

The Young Whipper Snapper

"Well guys, the gig is up. Time to find a real job."

Lets face it, electronics have taken over our lives. The days of having reading material in bathrooms is over. We just whip out our smartphones and angry bird away. Which can bring about other issues... ew. Turns out there are some actual smart things you can do with your smart phone like manage your money!

There is an awesome FREE app called Mint.com which goes along with this website: https://www.mint.com. The basic idea is that the website accesses your bank account, credit card account, or any other account that you have and stores all the info in one place. So when I use my debit card, the transaction is automatically imported and categorized. You can change the category of any transaction at any time and then look at real time spending reports to see where your money is really going. The best thing is that you can set up your own budget so that you can track how much you are spending in each category over the month. Here are some steps to get started.

1. Go through you last month's bank statement and categorize all of your transactions and keep a running tally. You can lump them into general categories like groceries, eating out, rent/bills, alcohol, etc. This can be a scary time because you might not really want to know how bad you've managed your money but you will have to get past that if you ever want to succeed financially.
2. Take your totals of all of those categories and subtract it from your monthly income. If your total is negative then be happy that you have caught this in time! If the number is positive then you might just need to rebalance your budget. You might find that some things you were buying were adding up and those items don't really do you any good.
3. Once you have that, sign up for your Mint account and load the online login information for all the accounts that you own.
4. Use the budgeting tool in Mint to set up a more detailed budget of your expenses and financial goals, not spending just yet. Do things like split eating out, groceries, mollies, you get the idea. Make sure you are putting aside money for giving and long term savings before the dollars even hit your checking account. I suggest creating totally different accounts for those things.
5. Create a separate line in your budget for spending. I like to call this the "Get Rowdy" fund. You can come up with your own names for this fund too and leave them in the comments section below. The point of this fund is to spend it on yourself every month. The rule is you have to spend ALL of it every month. You can't save it. If you are saving up for something then put it as a financial goal and budget for it. This is for basically spoiling yourself. It doesn't matter how much is in there just as long as you spend all of it. Whether it is a crazy night on the town with your homies or you walk up in the massage parlor and slam your money on the counter and say "give me the two hottest girls you got and I want to hot rocks and mud bath and that crap you put on people's faces". You are going feel like Birdman but at the same time you know that all of your finances are taken care of. This way you get all of that "I need to spend money to be cool" out of your system while still being responsible.

That is just one of many different budgeting systems that can be used and you can always come up with your own. Most likely the system that one person uses will not be the best one for other people. But like anything else, the principles stay the same. Tell your money what to do instead of wonder where it went. 

Here are some other really good resources on money management and budgeting:

http://www.daveramsey.com/

http://ideas.thenest.com/money-advice/getting-out-of-debt/slideshows/budgeting-help.aspx

http://www.investopedia.com/university/budgeting/

https://www.manilla.com

Well that ends off this series on finances! I hope you guys have enjoyed it and have taken some stuff away that you can use in your own life. Stay tuned for more awesome stuff and remember to go to the link on your right for the Facebook page and give it a "like".