Debt and Taxes – part 2

In this second installment of the personal financial freedom series, I will discuss budgeting.  To most people, a budget is how much money they have left to spend until the next check.  This is dangerous and keeps families and individuals from finding areas where they may be wasting their hard-earned cash.

Why budget?  If you admit that your financial picture is broken and you never seem to “get ahead”, then it is obvious the way you do things now just isn’t working.  If you can see that the way you are doing things now doesn’t move you toward financial freedom, logically a change is in order.  The only way to make financial changes is to measure the way things are now.  Measurement means you will have to track your current behavior.  My tax clients always push back when I advise them to keep a mileage journal because it’s “too much hassle.”  Eventually, they see the benefit though and find that it’s not that tough.

Along those lines, the best way to start a budget is to record all purchases for 30 days in a journal or using personal financial software.  Quicken and Microsoft Money are the most familiar commercial packages.  With some quick internet searching, you can find many shareware and open source packages to try as well.  Once the 30 days are up, objectively look at all the places you spent your money.  Are you going out to eat too often?  Preparing food at home to bring to lunch the next day can save a bundle of money each month.  Preparing evening meals at home not only saves money, it can be a fun together time for your family and friends.  Is “four-bucks” (another name for a high-end coffee retail shop) taking tons of your cash?  Preparing your own coffee to bring to work each morning is another way to chop out significant expenses.  Do you buy clothes just to keep up with the latest styles?  Remember, your closet is not a department store.  It’s more important to have classic, durable clothing that can last for awhile than it is to buy the newest fashion accessory that will be “so yesterday” next year.

Tomorrow, I’ll cover some guidelines for paying off debt.  Once you find the wasted cash, you can use it to move forward on the path to financial freedom.

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