To become a Millionaire Real Estate Investor, you must learn to budget your expenses.
In other words, once you learn the path of money, you must get on it and stay on it.
To achieve your financial goals, you have to have some money left over at the end of the month. There have to be some left over to invest. And the best way to ensure this is to budget for it. It’s the only way you can build wealth and maintain it.
Your ability to budget successfully is directly related to your ability to differentiate between discretionary spending and required spending.
In other words, you need to be able to tell the difference between want and need. They are not the same.
Consumers look at their monthly expense and decide that they can’t afford to invest. By the time they have paid for their necessities there isn’t anything left over for investing.
Consumers often complain that they never have enough income to cover their needs when it’s their spending, not their income that is the problem. Look at the chart below for a detail depiction.
In contrast, investors take an honest look at their expenses and separate the discretionary spending from the required spending. See the diagram below.
Daily, weekly and monthly spending can add up to a lot. Your willingness to make small sacrifices today will provide you big rewards down the road. You must see investing spending as required spending. This way you will always have money to invest. Sacrifice can be fun when you connect it to a reward.
Here’s a simple and effect way to keep a personal budget and start behaving like a Millionaire Real Estate Investor.
Download the PDF of a Sample Budget.
Your goal will be to increase your monthly unearned income over time. Total the earned and unearned income to get your gross monthly income.
- How much you will tide to your charity or church?
- How much you will save for emergency funds or reserves?
- How much you will invest for the future?
- What will you hold back for taxes?
What’s left is your net spendable income. The ideal is to pay yourself first by taking care of your big goals upfront.
Charity, security and investing always come first. Taxes comes first because it’s the law.
Now it’s time to figure out where your net spendable income (your expenses) goes each month. Sort through your monthly bills. Tally how much you spend on big expenses like housing and food each month. Once you get a grasp of your current expenses it will take very little time to update this form as your income and expenses change.
This is where your goals meet your resolve. You must hold yourself accountable to live within your prescribed means.
In the expenses section of the personal budget worksheet, you will notice that it’s broken into 3 areas:
Take a look at your actual spending and ask yourself whether a percentage of those expenses may actually be discretionary.
For example, a monthly TV cable bill cost $50. You might decide that the $35 basic monthly service is all you really need. That brings up $15 per month in discretionary income.
You must hold yourself accountable to live within your prescribed means…the amount of money you allow yourself to spend.
At the bottom of the worksheet is your budget analysis, where you subtract required expenses from net spendable income to arrive at any surplus or deficit in your monthly budget.
If you show a deficit, you need to spend more time analyzing your required and discretionary spending priorities.
A surplus is generally good news. That’s money you can use for emergency funds, fund money or investing.
You should separate money into different accounts based on a predetermined budget to work as a failsafe alarm. Anytime your actual spending exceed your budget, you have to transfer money from your reserves to cover it.
It’s about awareness and adding an extra step in the process to reconsider your spending decision.
However, to become a Millionaires Real Estate Investor, creating a personal budget to maximize the amount you have to invest is just one step in the process to becoming financially independent.
You must also consistently measure and review the results you’re getting to maximize your net worth.
In the next lesson I’m going to show you how to track your net worth so that you will gain a better understanding of how real wealth is built.
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Tarence Wade, M.D. – Founder & Manager
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