Your Money_ The Missing Manual - J. D. Roth [27]
Remember: Your goal isn't to keep a budget, it's to live a rich and happy life. Your budget is merely a tool to help you build a successful financial life. Just as you have to tinker with your lawnmower—adjust the belts, change the oil, sharpen the blade—so too you'll need to adjust your budget from time to time.
On The Money: Make It a Habit
In Chapter 1, you learned that habits and routines make people happier (Living a Rich Life). In Chapter 2, you learned that habits help you achieve your goals. Let's go for the habit trifecta. When you first start using a budget, it's easy to be overwhelmed. The best way to avoid this? That's right: Make budgeting a habit.
Designate a time and a place every week to review your budget (you can call it "doing your finances" if you think that makes you sound nice and grown up). This routine will help you cope when something unexpected comes up—and you know it will. Remember: When your goals are specific, you know exactly what you're supposed to do—and you're more likely to do it. So make budgeting once a week one of your goals and you'll be more likely to follow through. Without such a plan, it's all too easy to slip back into the habit of not budgeting at all.
How you think you spend money is likely very different from how you want to spend it—and how you actually spend it. A budget can help you bring these three into alignment.
The next chapter will teach you how to defeat your debt so that you can begin to save for the things you really want.
Chapter 4. Defeating Debt
"It gives much more pain to the mind to be in debt, than to do without any article which we may seem to want."
—Thomas Jefferson
Let's be honest: There's no quick and easy way to get out of debt; it takes time and effort. That said, it can be done—and has been done by millions of people just like you.
Before you can begin to destroy debt, you have to understand the basics of cash flow, since cash flow problems were what got you into debt in the first place. After you've got that concept under your belt, you can begin to focus on reducing debt. Although there's just one basic debt-elimination process, you can apply it in a couple of ways. The key is to find the method that works best for you. This chapter explains your options.
The Power of Positive Cash Flow
"The first step to happiness is spending less than you earn," write Arun Abey and Andrew Ford in How Much is Enough? (Greenleaf, 2009). You've probably heard that before, and if you're in debt, you might think it's lame advice. But the truth is, spending less than you earn is the key to all personal finance.
When you spend more than you earn, there's never enough money to go around. You're always $50 or $100 short of what you need, and you fall further behind every month. You end up spending money you don't have—using credit cards, taking out loans—which leads to more debt, which puts you deeper in the hole.
You can't possibly get ahead when you spend like that. The math simply doesn't work. In order to save money and pay off debt, you need to spend less than you earn. Although it's easy to understand this intellectually, it's only when you actually see the concept applied to your own life that you'll be able to appreciate the power of positive cash flow.
Cash Flow Basics
If "cash flow" sounds like an accounting term, that's because it is. But don't let that scare you—it's easy to understand. For any given time period:
Cash Flow = What you earn - What You Spend
Simple, right? That's second-grade math. But don't let the simplicity fool you—this is a powerful concept. This formula tells us two things:
If you spend more than you earn, you have a negative cash flow. You're losing wealth and in danger of going into debt—or, if you're already in debt, you're digging the hole deeper.
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