Account for Everything  I can’t say for sure but I’ll be willing to bet that most people really don’t know how much they really spend on a monthly basis. So that is why budgeting is one of the financial foundation pieces that set us up for Financial Freedom. Essentially at its core, it’s a simple subject. We add up all of our monthly expenses and subtract them from our monthly net income. Hopefully, the result is a positive number to which can be used for savings and investing. True self-analysis of your spending is vital in determining your average expense number. This step may take a few days or weeks to know what exactly you spend your money on.  Our living expenses such as house, grocery, car, insurance, utility, transportation, credit card payments should be easy to determine. But the other expenses such as entertainment, shopping for clothes, vacations, hair care, car maintenance, and other miscellaneous expenses are usually not accounted for. What we stressed is to account for these expenses, and budget for them accordingly. Once we have a true and accurate monthly expense number from there we look in terms of percentages when comparing to our net income.     The 50% Expense to Income Ratio Goal  The target ratio of 50% monthly net income to expenses is aggressive, but the goal is to get as close to it as possible. If we are close to 100% (meaning 100% of our income is going to expenses) then we are setting ourselves up for imminent financial disaster.  An example of financial disaster is a car break-down, and we need $1,000 to fix it. If we are closer to the 100% end of the ratio then our options to resolve the problem usually leads to high interest credit cards/predatory lending; which will be discussed in another Podcast. But by operating at this 50% ratio we can quickly build up an emergency fund, and build up capital to invest.  That is why it’s vital to analyze our spending with pin-point accuracy. This will enable us to quickly determine where unnecessary spending is occurring, and make adjustments accordingly to fix it.        Tools That Can Be Utilized For Budgeting   The most basic tool to analyze your income/outcome cash flows is simply grabbing a pencil and a piece of paper and writing each item down. Personally I use a spreadsheet, but there are various budgeting tools out there on the Internet that can assist in creating a budget.  We may want to go the personal financial manager route to assist with this task.  But whatever preference we may have; the bottom line is having disposable income available for getting educated on investing, and eventually investing on the potential cash producing asset.  Below is an example of a monthly budget that provides us a high level view. This will assist with easily verifying what specific types of income and expenses that gives us our number, and income to expense ratio percentage.     Example of a Budget

Tools To Create a Budget/Income Statement -Online budgeting applications (Perform a search via a search engine to find a good fit for your needs)  -Personal Finance Manager/Bookkeeper Assistance

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