3 Ways Budgeting Can Make You Richer
Why the Rich Dad way of budgeting always beats the standard way
It's no secret that the average American isn't good with money. As "The Motley Fool" reports, almost 70 percent of Americans don't have even $1,000 in the bank. And "almost half of Americans claim that to cover a $400 emergency, they'd need to borrow the money or sell something quickly to round up the cash."
"The Motley Fool" goes on to share a U.S. Bank study that states only 41 percent of Americans budget their money. This, writer Maurie Backman thinks, is a big reason why money problems are so big in the US.
I agree that having a budget is an important first step to gaining ground in your personal finances. But having a budget alone won't fix the underlying problems that most Americans have when it comes to money.
First and foremost, there is a great need for financial intelligence. The problem with most budgets is that they cater to the old rules of money that simply don't work anymore, like save money, get out of debt, and live below your means.
Ultimately, budgeting, as it's usually taught, is a vehicle for cutting expenses, not making money. I wrote a while back on how budgeting like a business can turn a budget into a vehicle for growing your assets, not saving your expenses.
Ultimately, your budget is a plan. As such, it can be a good plan or a bad plan. A bad plan is one that requires you to cut expenses and save money. You don't enjoy the things you're used to enjoying and you make little to no money on the money you save. Ultimately, it won't get you where you need to be financially.
A good plan, however, is one that spurs action for the better. And a good budget is one that will inspire you to make more money so you can do what you love and grow your money exponentially.
With that in mind, here are three tips on how your budget is a helpful a tool to grow your cash flow the right way, through investments.
1. A budget shows you your monthly outflow
A common exercise we do when working with people who want to be financially free is to have them write down all their monthly expenses in one column on a piece of paper and then write down their salary on the other. Then, we have them cover the salary column with their hand.
"What," we ask, "would you do if you didn't have your salary?" The result is often a momentary flutter of panic.
This is helpful because it is a quick splash of reality-that is, most people have a lot of expenses and are reliant on a salary to pay for them.
But how great would it be if you had passive income coming in every month that covered your living expenses? What would you do then? Would you retire? That's what Kim and I did when we reached that point in the 1990s.
But to get to that point, we had to know how much we were spending each month. Why? So we knew how much we'd need to make in cash flow to be financially free.
2. A budget helps you understand what kind of cash flow you need
Once we understood our monthly expenses, we then were able to make a plan to acquire the assets we needed in order to cover those expenses. And here's where things got really interesting. Instead of cutting expenses, we created a new one-an investing expense. We called this paying ourselves first, the financial golden rule.
3. A budget inspires action to get your cash flow
By making it an expense to invest each month, we made it a priority to grow our assets. We worked our butts off to make the extra cash we needed. We started teaching classes on the weekends. We got creative in how we paid our creditors. We dreamed up and launched new products. We found amazing real estate deals. All of this was made possible by shifting our mindset when it came to budgeting away from saving money to making money. Our budget gave us the roadmap to financial freedom, and we were inspired to make it happen.
So, if you're ready to begin your journey towards a better financial future, then yes it's time to start with budgeting. But don't do it the old school way; do it the rich dad way. Only then will you be really successful.