5 Steps to Creating a Budget

If you’ve ever read Robert Kiyosaki’s Rich Dad, Poor Dad, you know there’s a difference between being rich and being wealthy. A rich person is in a high tax bracket, but probably couldn’t pay his bills if he lost his job. Think MC Hammer. A wealthy person, however, manages his money in a way that gives him a little bit of a cushion if things make a turn for the worst. My goal is to get a new car and a Labrador, but I want to gain wealth in the process.

The first unfortunate step to wealth is to make a budget. I say unfortunate because, to me at least, it’s the most tedious and boring financial task I can come up with. You may not like budgets, but like vegetables, they are good for you. They help you to find out where you are spending your money so you are more informed about your spending habits. You’ll be able to save cash without worrying if you can survive the month without that money.

It may suck, but you can’t save money and pay down debt unless you know how much money you have. Here are the steps I took to make my budget.

Look at your all financial documents. I gathered every possible financial document I could find. Credit card statements, bank statements, bills, and etc. all need to be gathered. You have no idea how much money you spend until you do this. If you’re anything like me, then you will realize you spend more money in a month than you actually make. You may still have money in the bank at the end of the month, but you’re in debt.

Found out how much money you make. List all of your sources of income. This was easy for me; I only get one check, and the occasional payment for writing and editing. I’ll change this soon enough, however.

Make a list of every possible way you’ll spend money.  Yes, every possible way. Groceries, gas, toll money, utilities, alcohol, movies… Everything. You can collapse your list in any way you see fit (like combining fast food and groceries into a simple “food” category), but make sure everything is covered.

Find out where you spend your money. You need to be able to find out how much money you spend in each category. How much are your bills? What about utilities? Do you eat out too much like I do? Go through your financial documents line by line and figure out how you spend your money and where. Compare the total to your income. You’ll begin to see where you could make improvements in your spending and whether or not you come out in the red each month. I was a little depressed after this step. I was spending a lot of money on fast food and had nothing to show for it but a bigger gut.

Make a realistic budget. Using your categories and armed with the knowledge of where you spend your cash, make a budget. All you have to do is allocate money to each category based on your spending habits and where you would like to save money. That’s it. Every possible dime should be accounted for. Some things may have you scratching your head over how much money to allocate, but for most things you’ll already have a good idea. Make sure you budget money for saving.

Now that a budget is made, it’s probably a good idea to follow it. I’m giving up on most of my fast food spending to cut expenses. It hurts me to give up something that seems so integral to my existence, but it’s necessary and I’ll save more money because of it. Your budget should also be reevaluated monthly. It will keep you from over-spending in areas where you don’t have to. Also, you should avoid the temptation of using your credit card to save your budget. It doesn’t make since to go into debt while trying to save money.

Maxine the Invincible

It’s hard to believe that it has been nearly seven years since Maxine, my ’97 Nissan Maxima, became mine. I was in high school at the time and was the proud owner of a Mazda 626 my father had given me. He bought a Trailblazer for himself, and instead of trading in the 626 he gave it to me. I drove it around for a few months, proud to have it, until my mom realized the joy of owning an SUV. She traded in my car and gave me her Maxima.

At first I wasn’t too pleased with Maxine. She had been used for years to drive my sister and me around, so the upholstery was stained and dirty. The once-beige carpet was black nearly black with dirt and even the ceiling had black handprints. The leather seats were ripped in certain areas and the door panels in the rear were sticky. My mom was by no means dirty, but my sister and I were and now I had to pay the price. I was used to an immaculate vehicle, so I broke out the rag and various cleaners and detailed the hell out of Maxine.

Maxine served me with little problems until the beginning of 2004. In a three month span I had three accidents. In the first, she slid out of her lane during a rain storm and was struck in the rear quarter panel by a pick-up truck. Her rear-end was completely smashed, but the truck only had a cracked headlight. I was ticketed and, to add insult to injury, my mom had changed my insurance to liability the week before, so Maxine was stuck that way.

Maxine in all her glory

Only a few weeks later, I got into my second accident. I had begun work for Starbucks and was on my way to orientation. I lived on the Westbank, a suburban area near New Orleans, but orientation was in the city. It seemed like every street in the city was one-way and I became hopelessly lost. While trying to figure out where to go, Maxine and I rode into an intersection. I was broadsided by a jeep before I even knew what happened. My poor car looked undrivable, but she still rode perfectly. I drove her home and skipped orientation.

After weeks of riding around with trash bags duct-taped to the passenger side windows of my car, she was fixed by a backyard mechanic. He pulled out the frame and replaced the doors and windows. Yes the doors whistled now and the sunroof leaked when it rained, but she looked new again. Except for the fact that her right side was primed, but never painted. It was cool, though, I thought, I would just save the money to make her look like herself.

But about a month after that, Maxine was hit again. I was stopped behind another car when I looked into my rearview mirror. I saw a green Nissan Titan speeding down the road on a direct collision course with Maxine. I had just enough time to say “Oh, shit” before I was hit. At least it wasn’t my fault right? She could get fixed this time. I didn’t actually have the time to fix her for a while, but when I did I asked my mom about the process.

“How does the body shop get paid? Does the insurance company pay them directly?”

She's taken more poundings to the rear-end than a porn star.

“They already sent me a check for that,” my mom said as though I should have known it already. It turns out that since the car was still in my mom’s name, the insurance company sent her a check meant to pay to fix Maxine. She used it to put down new flooring in the house. My car’s bumper was now hanging off and painting her now just seemed like a waste of time and money.

Maxine has been in two more accidents since then. In one, a rich man in a brand spankin’ new Mercedes crossed over three lanes and hit me from behind. A cop witnessed the accident and he admitted he was looking at something in the backseat when he hit me, but he wasn’t ticketed for it. Did I mention his lawyer came out to the scene of the accident, which occurred at about midnight? A week later the insurance company said I was at fault.

I last I consider a complete act of God, or perhaps self-mutilation by my car; it occurred on an up-ramp, on a slippery road, at 20mph, after a cop cut off the jeep in front of me. The jeep barely had a scratch, but Maxine’s hood was curled up and the frame and radiator were bent backwards nearly to the engine block. She still works perfectly.

Maxine looks like a rolling pile of scrap metal, but she has taken hits that would cripple other cars and has outlasted younger cars. She has stuck by me through all of the abuse and has been my lifeline for seven years. She drove me to and fro after Hurricane Katrina. She was driven nearly six hours a day between four jobs in completely different areas of the city during the time after my girlfriend’s car burst into flames (it’s a long story). Maxine has never complained and lives with the satisfaction of knowing she is the best on the road. I love her, but it’s time for her to go.

The Hamburger Factor

In the spirit of the great book The Automatic Millionaire, I decided to take a look at my finances and pick out the one thing I could spend less money on. My latte factor, in other words. I found out that in the month of October I spent $168.48 on fast food. It sounds like a lot when it’s all totaled up, but really I only spent about $5.42 on eating out. That includes hamburgers, tacos, food for friends, and dates.

I can easily spend less money a month by cooking more often. I’m a pretty good cook and my cooking tends to lean more on the healthy side, so it’s an all around win. It’s just that fast food is so convenient, and the taste…

Anyway, it looks like I’ll be making good use of sites like AllRecipes.com and FoodNetwork.com.

Being a Grown-up Sucks

One day I woke up and I had an epiphany. “I’m 24 years old,” I remember thinking. “I’m a grown-up.” It was a horrible feeling. The life of a grown-up is too damn stressful. You have to worry about bills and money and work and too many other things. When you’re young, you never believe your parents when they tell you to enjoy being a kid. Being an adult looks fun because you can do whatever you want. Little do you know that freedom only applies to people with money.

I have no freedom because I’m broke as hell. My bed is held up by books on one side, I haven’t gone out in months, and my car… My poor car… It just ain’t right. At least I like my apartment, but I need more than that. I need a new damn car, a bed with four legs, a night life, and let’s throw in a Labrador for good measure. Why? Because Labradors are cool. What I need is money.

I’ve read a few “How to get rich” books, so I know the basic plan to gain wealth, but it’s easier said than done. First, spend below your means. Second, invest. Third, stop working for the man and become the man. Easy, right? That’s why everyone is a millionaire.

However hard it might be to get wealthy, I need to do it. I want my new car and my Labrador.