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The one thing that most people aren’t willing to do to win financially is sacrifice. They are willing to sacrifice the little extra’s in their life that keep them from gaining control of their spending. They aren’t willing to say no (today) to their children, so they can eliminate the cloud of debt that keeps them down.

On this day of Independence, remember those that willingly sacrificed for your freedom. Remember those that willingly volunteer to step into harms way each and every day, so you can feel safe at home. Understand that without sacrifice, it is almost impossible to enjoy freedom.

We hear so much about the future of our children and grandchildren being mortgaged away because of the spending of the government. I say that for a lot of families that future was already mortgaged because of the spending of the individual family.

Today, commit to a new level of sacrifice so you can gain independence in the area of personal finance. Commit to a new level of sacrifice so your children will not have to experience the bondage of debt. Enjoy this 4th of July, but do not forget the sacrifice that is required for independence both from a financial and from a country perspective.

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We hear a lot about the importance of starting retirement savings early, but for those that are late coming to the ‘retirement savings’ dance, what do they need to do differently? Someone asked me that very question just yesterday. The answer for the most part is nothing. Whether you start early or late the desired results are the same…dignity during retirement. Unless you are going to inherit a retirement account (or you play the lottery), dignity means saving/earning enough money so that you can retire.

I receive Dave Ramsey’s “Investing Minute” newsletter. This month, Dave dealt with this very topic. The following three points are from Dave Ramsey, not me…although I agree with them 100%.

Delay retirement for two more years.
The more you work, the more you save. According to the Center for Retirement Research at Boston College, most people who work two extra years after qualifying for retirement can lower the amount of savings they need by about 25%. Plus, the extra income will be an added bonus!

Get serious about investing.
Don’t give up. It’s time to put all you can towards your retirement. Even if you’re 40 or 50 and don’t have a retirement account, it’s never too late to start. If you are 40 and save just $2,000 a year in a 12% mutual fund, you will have nearly $334,000 by age 65—or more than $425,000 if you wait until 67 to retire! While you won’t have the most luxurious retirement, you can draw a decent yearly income—about $48,000—from the interest by leaving that money alone.

Stay out of debt!
Think of all the extra money you could be putting toward retirement if you didn’t have those car payments, student loans, and ridiculous credit cards! The average car payment is $464 a month. You could be using that $464 to build wealth for the future, rather than putting it toward a vehicle that declines in worth every day. If you’re not “gazelle intense” about paying off your debt, now is the time to get started.

So where are you? Are you starting your retirement savings early in your career? Maybe you did start early, but the downturn in the economy has taken a chunk out of your nest egg. What are you doing to correct the situation? Remember, personal finance is your responsibility. The government cannot take care of everyone. Decide today to increase your retirement savings. If you haven’t started yet, then commit to getting out of debt, fully funding an emergency fund, and then start putting away money for your retirement future.

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I am sure there are people out there that have gone through debt consolidation loans and everything worked out very well. I would say that if that is you, then you are the exception not the rule. For most people everything that is wrong with debt consolidation begins a month or so after you complete the deal.

First, let’s look at why debt consolidation loans are so attractive. All of these benefits are offered in a general sense. There may be some outliers, but for the most part, the following list is what is promised and what draws people into the debt consolidation trap.

1. you will have single loan rate that is lower than the average of the debts you are consolidating
2. you will have a single payment that is lower than the sum of the payments you are consolidating
3. you will be working with a single creditor – often a bank – instead of credit card companies
4. you will have extra money each month, to do those things that make you happy

After reading that list again, I can really understand why so many people use the debt consolidation as a means of managing their financial picture. However, the problem isn’t what is on the list, the problem is what is left off of the above list. The problem is what gets people into trouble in the first place – overspending.

People that need debt consolidation loans are people that have more debt than they can (reasonably) pay back. They have either dealt with an emergency situation that caused them to borrow money (because they didn’t have an emergency fund) or they simply have been living a lifestyle that exceeds their paycheck. Either way, the one thing that gets most people in trouble with debt consolidation is lack of discipline.

Not having creditors calling anymore, not having to worry about which bill to pay, and the feeling that you are finally on the right track to getting things under control is all an illusion. Unless you have dealt with the overspending that caused you to need the debt consolidation loan in the first place, it is very likely that you will continue with the same lifestyle. That lifestyle will in just a few short months look like three credit cards with a monthly balance and you wondering what just happened.

So what should you do? Run! Run away from the idea that a debt consolidation loan is a wise decision. Run away from the lifestyle that is out of control with spending. Run away from the friends that aren’t looking out for your best interest…and while you are running, look for someone that will hold you accountable for your decisions. The best alternative to a debt consolidation loan is a budget and if necessary a second (temporary/part-time) job.

Financial freedom is possible, without debt consolidation. Either way it will take time, but the first step must begin with a decision to start living on a budget that is designed around your actual take-home pay. Don’t think that borrowing money is the way to get out of debt. That is the plan the government is on right now, and look how that is working out for your tax bill.

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There are four rules of cash flow that YNAB is based on. We covered Rule #1 which states that you should live this month on last months income. If you are wondering if all the rules are going to be this tough, the answer is no. After Rule #1, things get a lot easier. So let talk about Rule #2.

Once you have saved enough money to equal last months income, you are ready to start spending that money. The most common cause of overspending from month to month, is not having a plan on where your money is going. We have already talked about how the budget is the foundation of your financial plan. The question is, ‘how do you set up a budget?’ Actually, the answer to that question is very easy, and it is the basis for the next rule.

YNAB Rule #2 says that you should Give Every Dollar a Job. That means that when you look at last months income, you are going to spend each and every dollar before the month begins. Assigning your money a job is the same as you going to work each day. With your assignment in hand, you are more likely to be successful. With no plan, you are preparing to fail. The Bible speaks of this principle in the Book of Proverbs.

Go to the ant, you sluggard! Consider her ways and be wise, ⁷ Which, having no captain, Overseer or ruler, ⁸ Provides her supplies in the summer, And gathers her food in the harvest. Proverbs 6:6-8

We are reminded to observe the ant and model her desire to work towards a goal. Each month the goal is to allocate your money in a way that will provide the best use of your income. Start with the important things like giving, food, housing, transportation, etc. Once you have determined that all of your monthly expenses are covered move on to other aspects of your budget like paying off debt and savings.

The most important aspect of Rule #2 is not leaving any money without a job. If you do, it is a pretty good bet that you will simply waste that money. If you are married, hopefully both you and your spouse are working on this new plan and you are agreeing on where your money is going.

There are a lot of ways to manage your budget, and obviously we recommend using whatever method works for you. However, if you are looking for a tool guaranteed to make budgeting simpler then we recommend YNAB. If you are still not sure but would like to learn more about what YNAB can do, then sign up for the YNAB online course, and get to work.

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By managing our resources we have found that we no longer have to say, “we can’t afford that”. However, what we have found is that quite often we don’t want to buy a lot of those items anymore. There are still times when we find things that don’t fit into our budget, but instead of saying “we can’t afford that”, we now say, “we have decided to spend our money on more important things”.

By putting the focus on what we have decided to do (instead of what we can’t do), we keep a positive attitude with regard to our finances. If there is something that we really want (like a cruise next January), we simply decide on how much we need to save to make it happen.

A positive attitude is extremely important when things begin to slow down or the light at the end of the tunnel seems to be getting dimmer. Anyone that tells you living financially free is easy hasn’t ever had to struggle to make ends meet. The ideas we talk about on this site are simple, but implementation of those ideas is anything but easy. The next time you find yourself wondering if it is worth it, just remind yourself that you have decided to be in control of your future. Remind yourself that you have decided to no longer make poor decisions based on emotion. Remind yourself that just because it doesn’t fit into today’s budget, doesn’t mean you can’t afford it. It simply means that you have decided to spend your money on more important things.

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Is a little white lie, still a lie? Is a little bit annoying, still annoying? Is a small purchase still a purchase? Hopefully you answered yes to all three of these questions. If you did, then you are well on your way to understanding all there is to being successful with money. You see, for most people, little things don’t count. For example, if you stop at the ATM to withdraw money during the middle of the month, do you record the ATM fee in your checkbook? When you get home from getting gas, do you remember to count the $1.50 soda you purchased inside (while you were at the ATM)?

The most basic understanding of personal finance is the understanding of income and outgo. When you get paid, that is income. If you get birthday money or a rebate in the mail, that is income. Income is used to purchase the things you need everyday to support your lifestyle. The things you purchase are considered outgo. No matter how small.

A lot of people forget about the small outgo items they experience during the month, and then can’t seem to understand where their money has gone. During Day 4 of the YNAB online course, you will learn about the ins and outs of these basic principles. You will also begin to see that if you dedicate just a small amount of time to maintaining your budget each week, it becomes a small item on your to-do list.

Have you signed up yet? If not, why not?

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Ready to get to work? Here is where the real meat and potato part of the YNAB budgeting system begins. The YNAB design is built around Four Rules of cash flow. Rule #1 will help you stop living paycheck to paycheck. That is right! The idea of living paycheck to paycheck is out the window. The pains of not knowing exactly how much money you are going to have to spend this month is over.The idea is simple, but implementing the rule will take a firm commitment to changing the way you look at money.

Most people budget for the month, based on what they expect to see coming into their bank account. This will work for a lot of people, but if you have an irregular income, due to commissions or bonuses, you may not know exactly how much you will be earning for the month.

You must live by the rules

YNAB Rule #1 says that you should live on last month’s income. How can you do that? Simple…you work up to it. Basically, you need to make enough extra income so that you have a one month reserve in the bank. Once you do that, you live off of the reserve, and each month following, you will be able to live off of last month’s income. You no longer have to worry about how to set up a budget with your irregular income.

I will be honest with you. Getting a one month reserve won’t be easy, but it is doable. As a matter of fact, everyone that is winning in the area of finance has what is called an Emergency Fund. An emergency fund is basically a buffer designed to cover 1 or more months without an income. That is what you need; a one month buffer.

We’ve only just begun

Don’t think that a one month buffer is the end, it is only the beginning. The buffer eliminates the unknown part of budgeting that prevents a lot of people from ever trying. As soon as you have your buffer, you can no longer use the ‘unknown’ as an excuse. Each month you will construct your budget based on last month’s income.

Of course your big question is how do I get this one month buffer. Like I said, it won’t be easy, but you can do it. The online course will give you eighteen different ideas on how you can find some extra cash each month. For a short time period you will need to be really crazy coming up with ideas on how to either cut back on your spending or earn extra income. I am not going to give you the list here, but you can get it by signing up for the free YNAB online course. However, I am sure that you are already coming up with some ideas…aren’t you.

Tomorrow we will discuss how simple budgeting really can be.

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Yesterday we started looking at the 10-day online course designed around the YNAB budgeting software. We discussed the importance of building a house on a strong foundation. In your financial world, the budget is your foundation. By laying a solid foundation, you have control of where your money goes and you get to decide how much you save. If you have never set aside money each month, just for emergencies, then your financial foundation is not as solid as it needs to be.

Excuses, Reasons or Lies?

In day 2 of the YNAB online course, you will take a look at why you aren’t living on a budget. We all have a reason – or excuse – as to why we don’t do the right thing. For some, they feel like a budget would be too restrictive. Others think that a budget would require too much time. Maybe you don’t think you have enough time or money to budget. All of these reasons are just plain wrong.

A budget doesn’t restrict you, it actually provides freedom. A good budget shouldn’t take more than 30-60 minutes a week to manage. If you are short on money each month then you really need to get on a budget.

Maybe you have some other reason for not wanting to live on a budget. In this lesson you will be challenged to write down some of those reasons and take each one individually and change the “I can’t” to a “I will”. If you are tired of living the way you are today, then tomorrow you can begin living a different way.

You need a budget and this 10-day online course will help you understand why. If you haven’t signed up yet, go ahead; it’s free.

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If you have always wanted to start using a budget or maybe you have used one in the past, but didn’t stay with it, there is no time like the present to dust yourself off and get back on the horse. Over the next few days, I will be sharing with you some of my thoughts on the course. However, these posts will be cliff notes compared to the actual course, so go ahead and sign up. It is free and because you will get each of the lessons via email you can read them at your leisure.

Day 1: Your Budget – Your Rock

No house is safe unless it is built on a solid foundation. I remember years ago in Sunday School we would sing a song about the Wise Man that built his house on a rock, and the Foolish Man that built his house on the sand. What happens when the rains came? You got, the house on the sand fell flat and the house on the rock stood firm.

Your financial house is the same. You need a solid foundation and your budget is that foundation. A budget gives you freedom to decide how to spend your money. By deciding how you are going to spend your money, you begin to take control of your situation. You decide whether you want to go to the movies or pay extra on the credit card. You decide whether you want to pay for 5 movie channels or start saving for college.

Your Future Starts Now

It is up to you. Do you want to stop worrying about how you are going to replace the dishwasher once it finally quits? Do you want to have confidence that your mortgage payment will be made on time? Come back tomorrow and we will look at how a budget relieves stress in your life.

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