Saturday, April 12, 2008

Financial Advisor: Personal Finance Budgeting

Financial Freedom Mini Series: Lesson 2 - Part 1

I wanted to start out this lesson by giving a quick recap of lesson 1. Lesson 1 was about the importance of having a personal finance budget and personal finance budgeting. As we saw in lesson 1 without a personal finance budget people have no way to track their income and expenses to be sure they are being personally financially responsible. Setting up and sticking to a personal finance budget is probably the biggest key in achieving financial freedom. If you would like to get caught up on Lesson 1 of the series you can see is here: Personal Finance Budgeting.

The concept behind a personal finance budget is to determine how much you make and spend accordingly. Once you begin personal finance budgeting you can then begin to live within your means. Living within your means is the topic for today's lesson and now that you have the foundation for living within yours means (a personal finance budget) we can move on to the concept of living within your means. Simply put, living within your means means that you can pay for the things you need without having to take on debt to do it.

As stated in a previous post, Americans on average now have a negative savings rate (Usually unknowingly because they do not know anything about personal bugeting finance). This means that on average Americans spends more money that they bring in. In my mind this is astounding and certainly is not the way to achieve financial freedom. Living this way is also clearly not living within your means. When you spend more than you make the extra money has to come from somewhere and more often than not, for Americans, it comes in the way of credit card debt. Without a personal budgeting finance plan in place it is almost impossible for someone to achieve success in this area.

Another problem here is that most Americans have seriously confused the two words want and need. Americans think that getting the next designer label shirt or brand new car is a NEED and not simply a WANT. The more depressing part of this is that a lot of Americans think that their self-worth is somehow attached to these expensive, yet pointless, things. Americans need to put aside their wants and instead live responsibly and stick to a personal budgeting finance plan.

When someone establishes a personal finance budget they are able to consider all factors and realize how much money they are spending and better live within their means and control their personal finances. Most people do not realize all of the small expenses that add up and this ends up causing them to spend more than they take in. It's a coffee here, a soda there, some fast food after work and before you know it you have dropped an extra $200 a month on junk.

The main concept of living within your means is to spend less money that you bring in. When you set up a personal budgeting finance plan and stick to it you can track these expenses better and it will allow you to live within your means.

When you are not living within your means you are robbing yourself of financial freedom. Instead of funding your dreams your money fills the pockets of credit card companies. It would be better if the money you paid in interest could go into a savings account or an investment account. Paying for items by going into debt limits your choices because you are stuck paying for yesterday instead of moving toward tomorrow.

As I have said before, the best way to live within your means is to establish a personal finance budget for yourself and stick do it. Most people do not have the self-control to live with their means unless they have a specific plan laid out for how they are going to do it and this is where personal budgeting finance is so important.

That's all for today's lesson. In the next post I am going to continue lesson 2 by giving you all some real life examples of things you can do to help you stay within your personal finance budget and live within your means.


How to achieve Financial Freedom: Summary of Lessons 1-6

Financial Freedom Mini Series: Lesson 1

Financial Freedom Mini Series: Lesson 2 - Part 1

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