There are no shortcuts to building wealth.
It’s been my experience that people who have wealth have it because they:
- Inherited it.
- Started working for a company at the right time and place –– likely at a startup or hi-tech company.
- Created it through innovation, crazy smart ideas, being a founder (which also involves some luck and good timing), etc., or…
- Had earning potential, understood the value of hard work, and learned to save and invest (rather than spend it).
The ones who have the most control over wealth are the fourth group.
So, how can you build a path to Better Wealth?
Luckily, it isn't rocket science. I remember when I got my first paycheck. My Dad sat me down with a small box of envelopes and we wrote a budget item on each envelope: gas, car insurance, entertainment, eating out, etc. When I eventually moved out, we added budget categories for rent, utilities, food, car maintenance, etc. When I cashed my weekly paycheck, I set aside the money I needed for each category in its envelope.
I quickly learned that most of "my" paycheck had already been spent and I had a lot less money available than I had thought. Also, if I wanted to go to a movie and there wasn’t any money available in the envelope, I had to “borrow” it from another envelope. If I took money from “my rent” envelope to go to a movie, it was pretty easy to see that might not be a wise financial decision.
Not too many people use envelopes and cash any more, but the fundamentals are the same. And for some people, it’s a lot harder to see whether you’re making good financial decisions until it’s too late and your credit card balance is out of control. Then you usually end up taking funds from your longer-term financial goals (buying a home, saving for retirement, etc.) to pay off your credit card. This is where a good financial plan can help you stay on track with your monthly spending. That way, you’ll still be able to save for your long-term goals (See previous article in proactive panning).
The first step is take a hard look at your monthly expenses. Here are six tools that can help you get started.
1. Mint – One of the most popular budgeting tools, Mint is free and will track not only your income and expenses, but also your assets, liabilities and net worth. We use this one ourselves at BetterWealth, ,and recommend it. Mint.com, a member of the Intuit family, provides useful information on your spending, assists with budgeting, and tracks trends. Once you link your outside accounts, your information will be neatly categorized and displayed in minutes. The benefit: there’s no need for monthly uploading or manual entry of your transactions. Your data automatically flows through to the Mint platform.
2. YNAB - Short for “You Need A Budget”, YNAB is a powerful budgeting tool in a familiar format. YNAB uses spreadsheets. It’s based on Four Rules, which they clearly outline on their website. All of this is anchored to the concept of “giving every dollar a job.” YNAB is unique in that it focuses on creating a budget from income you’ve earned, rather than predicting future income. If you’re uncomfortable with giving your banking and other personal user IDs, this is the tool for you. It doesn’t talk directly to your accounts. So, it will take you a little more time to upload transactions, but you can streamline this process in no time. The recent launch of the all-new YNAB offers a monthly subscription of $5, or $45/year.
3. EveryDollar – This is a relatively new web-based budgeting tool launched by Dave Ramsey’s company. It’s clean and easy to use, so your budget will be up and running in no time. They offer two options––one is free and the other has a one-year subscription for $99. This allows you to link your banking accounts and other personal outside accounts, such as 401(k)s. Otherwise, the free version will allow you to use the budgeting tool by manually entering your income and expenses each month. EveryDollar is based on a simple formula: Income – Expenses = 0. You assign each and every dollar in your budget to a category. Whether it is spending, saving, giving, or investing, you should account for every dollar so that your income, minus your expenses and planned savings, will equal zero.
4. Quicken – Quicken is another budgeting tool that’s been around for a while. It does require you to purchase software, with three different options beginning with the starter edition for $39.99 on up to the Premier edition for $104.99. All three options will help you create a budget, import bank transactions, and project income and expenses. With their newest release, they allow users to view, track and pay upcoming bills conveniently in one place.
5. Spreadsheet – Not interested in all the bells and whistles? No problem. You can always stick with the tried and true spreadsheet. You’ll have control over the information that is tracked and how it’s done. You can adapt it to best suit your needs. Additionally, you’re not giving out any of your passwords to any 3rd party aggregating tools. There are free templates available for both Microsoft Excel and Google Sheets.
6. BetterWealth Monthly Budget Sheet – If you prefer to use good ol’ pen and paper, we’re more than happy to supply you with copies of our own BetterWealth Monthly Budget spreadsheet. We typically provide these for financial planning purposes to establish an estimate of monthly expenses both now and in retirement. You can fill one out each month and file them in a binder or scan them and send them to us and we’ll assist you..