Simple Techniques To Master Your Budget

In order to accurately assess your budget, you have to assess your assets and liabilities and make sure your assets are greater than your liabilities .

Figuring out your budget is the first step to start in any project whether it’s business whether it’s at home or for students.

As soon as you are able to master budget techniques, you will be able to always figure out your exact income and spending. It gives you a very clear understanding of what you can and cannot do with your family’s finances. 

One of the most common mistakes families make is not budgeting  according to what they can afford. This can lead to unpaid bills and more debt so mastering this technique is essential.

Assets versus liabilities

First we need to define what’s an asset, and what’s a liability. 

Simply speaking assets are things that generate income for you e.g. your work, investments, and other passive income sources. Liabilities are things that withdraw from your income e.g bills, car, mortgage, groceries etc.

Sometimes identifying which is which, is good enough to build your budget but you need to identify things correctly. Not everything you think is an asset is correct because it isn’t generating income directly.

Correct budgeting makes sure your assets are always more than your liability. e.g if you have an income of $4000 and your expenditures are $3000, you have a positive income of $1000 in savings . simple !

What are the most common assets

To most of us, are our jobs and our investments. Passive income is part of this equation however not all of us have extra passive income but we will mention some passive income ideas in the future.

Investments are actually the best assets to half because depending on the vessel of your investments i.e. 401(k)s, Roth IRAs, HSA’s, etc. These are all Money making money machines all for zero extra time and effort .

So what other assets are there? you could have a side hustle driving for Uber, or equipment based on a hobby you have e.g photography. Even computers has the potential to be an asset if you use it to generate income online or by work .

What do you think is an asset but is actually a liability

This is probably the most important part of this article.

Your car, whether new or used , is a liability that mask as an asset. You might think it’s necessary to get to your work, but your car has its own payments and expenses that need to be paid from your paycheck, so it does not generate income directly.

That being said, if you work as a ride share part time, and use your car to generate some income that covers your expenses for gas then your car would be considered an asset.

The next most common liability – and we get heat from women about this- is clothes and jewelry in all of its cases ,except gold. 

No matter how much you think a diamond necklace is valuable, it is unfortunately only valuable if someone buys it at that price. The reason is horrible resale value.

Just try reselling a diamond necklace to the place you bought it from, or another vendor and if you’re lucky you will get 50% back. 

It doesn’t have any intrinsic value, or income generating ability and is actually a money sink that we were led to believe all our lives is a good investment. Most countries outside the United States do not consider diamonds as valuable jewelry !

Gold, and other precious metals are an exception to this rule, because of its historical value.

Every civilization since the beginning of known history has valued gold in one extent or another. And depending on who you ask in this day and age some would still consider gold a great hedge against inflation and preservation of capital along with real estate and other precious metals. 

What are the most common liabilities

So the most common liabilities could be put into three broad classifications: 

absolute necessities; these are your bills (Utilities, rent, tuition, debt) Without paying these, you’ll get in a lot of trouble. They are considered the most absolute priorities when budgeting your liabilities and they take precedence over everything else.

the semi necessary; these are things that pop up every now and then but are considered very important when they do e.g Doctors visits, Insurance payments, car trouble, hospital visits.They take a priority in your budgeting or even your Emergency fund in some cases.

 Fun money. This should be the least amount of the three. This includes food as you could either go the expensive eating out route or the very cheap, route of eating at home. Also, going out to drink at bars, entertainment, and movies, you will not essentially need them in your budgets and these can also add up and eat into your savings.

Now,we’re not against having fun. However, it doesn’t need to be so often or extravagant i.e eating out once a week, Watching movies online. This allows saving up some of these non-essential expenses and use them for other adventures or business ventures.

It is also important to identify correct liabilities. Some people mistakenly consider investments liabilities because they are taken from your paycheck and can’t use the money directly.

This is far from the truth, they are generating income for you constantly. The Problem is you cannot access it until your retirement – unless in a taxable account.

What can you turn from liability to asset 

This would apply to any car used to generate extra income via ride shares, or putting Ads on it.

This would also apply to businesses that lose money at first ,but end up generating income in the long run.

By planting a seed in the business you would end up reaping the fruits off the tree later on.

Net worth = Assets – Liabilities

Net worth itself is all your assets minus all your liabilities.

This applies to your job, business,home mortgage and also any appreciating assets like stocks and other real estate. You subtract from this number all your liabilities and your expenses.

Little known fact, as soon as you buy your first house you will notice a jump in your net worth if you were able to get it a wedge deal.

Free Budgeting Template

Here is a Free Budgeting Excel Document to help you in the beginning of your Budgeting journey !

Even if you don’t have Microsoft excel you can still open this file Via your web browser using Google drive absolutely for free.

Follow the instructions on the first tab , and fill in every piece of information and detail you can think of . You would be surprised how much wasted money goes on little things and how quickly it adds up .

Final Thoughts 

We provided a budget template in an Excel sheets just fill it out with the different items that you could find from your statements and keep track of your spending every month .

You might be thinking ” Oh its only $10 a month , what harm is that ? ” Well if you have 5 of those “Harmless” little items , that’s $50 /Month which equals to $600 /Year . Now if you have not met the Company Matching in your 401(K), that $600 could potentially be losing you another $400 free money !

This is not even considering the lost opportunity cost of those dollars acting as an investment and bringing in %8 per year extra. It can Compound and add up very quickly and the losses will leave a bad taste .

On the Contrary , Doing these simple techniques and your future self 10, 20 , even 30 years will be thanking past you for ensuring your best financial future !

With time you will notice what Assets are bringing in income and what is falling through the cracks . Slowly you can improve on those aspects and cut your spending in multiple areas and you will see and feel the difference .

We also recommend using a budgeting aggregate like personal capital or  mint.com. This allows in an app on your smartphone, to visualize how much you are worth, where your money is coming from, and where is it going.

There is always a concern of privacy when putting all this information online. However, in this day and age it is almost impossible to get the benefits of technology without using these sites. It is up to you what you wish to use.

Thank you for reading up this point and consider reading more posts here.