Wealth Pillar Two: Learn to budget

Most people cringe when they hear the word budget. 

This is primarily due to a scarcity thinking and the belief that a budget 'limits' what one can do with their income. 

The first thing you need to do in relation to budgets is to change your mindset. Believe there are benefits, and that a budget can help you to achieve your dreams of wealth.

The next step is to begin using the three main financial statements to track your personal financial details, namely:

  • Profit and Loss (PNL, or Income Statement).
  • The Balance Sheet.
  • The Cash Flow Statement.
These spreadsheets allow you to track where your money is coming from and going to (Note: if you do a search on Google for templates of these, you should be able to find some you can use effectively for your individual purposes).

The third step is to trim the fat. Reduce or eliminate any expenses where possible and begin to save the difference. Examples might include reducing the withdrawals you make of cash from an atm or reducing your car insurance or phone plan. Find out what you can reduce (without limiting your lifestyle) and save the difference.

The final step is to project the financial statements for the future and budget income to meet expenses and savings requirements. Doing this will ensure that you properly allocate money for bigger expenses (such as registration, insurance, etc.) rather than being surprised when it shows up.

This is the basics of budgeting. It is a useful tool which aids in ensuring that you can save 10%+ of your income. Keep using it and adjusting to improve as you proceed along with your wealth building journey.