Today I’m here to talk about something a little different. I’ve been talking a good deal about investing, dividend growth, and stock analyses; but today we’re going to discuss budgeting.
Without proper budgeting, there wouldn’t be any investing.
By budgeting and living below our means, which creates a cash overflow, one that can be either minuscule or substantial, we are able to put capital to work for us. The cornerstone of the independent investor is to budget at a level that he is comfortable with; to provide him with the necessary cash with which he can use to invest in well-researched and analyzed businesses that will accommodate his financial goals.
I only created a budget for myself a month ago and so this is my first month of following this process; looking at where my money’s been going, and trying to regulate it to the best of my abilities. So many people spend more than they make, get themselves into debt, either by taking loans or credit card debt, and spend years of their lives trying to pay for all that. When you’re in debt without the cash to pay it off, you have a net worth of less than $0. You’ve lived for so many years, 20, 30, 40 and yet you’re worth less than a newborn baby in terms of finances.
There are many things we, as adults, must pay for month in and month out, whether we are employed or not; whether we have cash flow or not. Of course, some people can choose not to use certain things: like cell phones (data plans), cars (gas & car insurance) and internet (who doesn’t have this?) while other things are very necessary such as: housing (mortgage & rent), utilities (water, heating, electricity), and groceries.
While many of these expenses are necessities, the prices you pay for them are definitely flexible. Unless you’ve recently done so, I’m sure you could find a new provider or go to restaurants less, etc. to lower your monthly costs. Proper research into making the best choices in selecting your necessities can go a long way.
Just this past month I lowered my car insurance from an average of $75 / month down to $24 / month by switching from Mobiliz to CIBC Auto Insurance. That represents a $51 / month savings; which equates to saving $612 this year! I could go on vacation with that money, or invest in some nice dividend growth stocks. This whole process took me about an hour. I basically made $612 in an hour this year.
The point is you should take a cold, hard look at what you’re spending now and see where you can trim the unnecessary fat. If you’re anything like I’ve been for all my years up until now, you don’t even really keep track of where your money is going, you just know it’s disappearing.
For my own personal budget I’ve taken to using Mint.com, This program links to your bank accounts and centralized them in the web software on the site. You can then set budgets for all your monthly expenses (phone bills, car insurance, mortgage, fast food, restaurants, internet, etc), and it will alert you when you go over budget. You can also create goals (you can bet I have a retirement goal programmed into Mint already), and it’ll tell you how much you need to save per month to reach that goal. It’s extremely rewarding to see yourself making progress month after month; which is one big reason I started writing this blog.
Another great way to help saving for investing is to set aside an amount, after you’ve taken your budget into account, that you could successfully put into a brokerage account for investing at a time of your choosing. Currently I’m attempting to save 60% of my after-tax salary and put it into my brokerage account for dividend growth investing. This will allow me to supercharge my dividend income stream with a great start. I know this isn’t possible for everyone; and it’s especially possible for me considering I still live with my parents, but even putting aside 10% or 25% means you’re doing a lot better than a lot of people! You’re not in a race against anyone else; all that you should be concerned with is being consistent in your savings rate and goal. You’ll keep yourself much more motivated if it’s realistic.
I could go on about the importance of budgeting; it’s an entirely other topic to dividend investing with a ton of separate intricacies, but they also intertwine in a beautiful way. For example, how incredible would it be if your entire monthly budget was paid for by dividend stocks? It’s very possible, and many people are living proof of this.
I’ll be posting a little more about budgeting every once in a while in addition to the investing and stock analyses posts as it’s just as, if not more, important. I’m also playing around with the idea of posting my monthly budgets and recording my savings rate on the blog here to keep myself focused.
Until next time my fellow savers & investors,
Thanks so much for taking the time to read.