FIRE-Invest – Investing in your Financial Independence and Retire Early

In my youth I didn’t do much budgeting thinking this was just a waste of time, I just guessed my expenses and lived accordingly with lots of surprises. Over the last ten years, my views have changed and I have started using a budget actively thereby giving me a full overview of all my income and expenses giving me an ability to plan! With an UpToDate budget, you are able to plan your expenses, avoid most negative surprises, and make a savings plan, which in turn gives you control of your life and less stress. Also, with a good overview of your personal finances, you can also start setting measurable goals. Well, a budget should basically show your income and your expenses, but you get the same from looking at your bank statement so why do they work? The budget adds time into the equation and gives a clear overview of when the different expenses are due. This will ensure that you have the right amount of money available when you need it and reduces the necessity for loans and creating dept since you have the time to prepare for the expense. Also, the visualization of your finances on paper, can help you see where all your hard-earned income is going, are you using too much money on silly things, do you have a very high food budget. This analysis is where you can breakdown your budget and optimize your expenses, thus creating the possibilities for creating financial goals like a new house, car or even a huge wedding. What should a budget contain at a minimum? Below in the chart, you will find some of the many items the budget may contain and there is no limit to the list. The more detailed you get, in your expenses and when they are due the better you can plan your personal finance. So basically, your budget shows your income and your expenses over time. But what division in time should I use? Well, in my opinion, you should focus on income. If you are paid every week, 14 days or month, the division in time should follow this. In that way, you can ensure that your paycheck will cover the following period (positive totality), and also to clarify which periods your paycheck does not cover (negative totality). This overview allows you to plan either saving for the negative periods or a need for additional income to cover the additional costs. Examples of items in a budget IncomeExpensesSalaryMortgagesRoyaltiesRentInterest incomeHealthcare insurancePassive incomePhoneInvestmentsElectricityLoans to peopleGasChild supportWater and sewerAlimonyCable Internet Child care Maintenance and repair Supplies Vehicle payments Bus/taxi fare Insurance Licensing Fuel Vehicle maintenance Groceries Dining out Entertainment Personal Loans Child support Alimony Taxes Federal, state and local A Budget makes it easier to control and organize your spending How much money do you need at the end of the month? Do you have enough? By building a budget and comparing income and expenses over the entire year, it is possible to predict which months are good for buying things other than the bare necessities and when to just maintain your spending. I also clearly recommend, always comparing your planned and actual expenses making it your private game to always make the difference in favor of the actual expense. When having a complete overview of your finances, you can much easier, and with a good feeling buy the things you want. Or know when you can visit the nice restaurant you have been wanting to dine at for years. Another advantage of building your savings is that when you buy the bigger thing you often do more consideration of; do you really need it? In general, never but things right away, especially with things that are nice and not need. Firstly, do you really need it or is your money better for reducing loans or mortgages? Secondly, are you sure you have the best price for it, could you do a little research and maybe get it at a discount some were else? A budget Impacts your daily habits Once you have an overview of all your expenses, and you see the impact they have on your personal finances it will have an impact on your daily habits. Do I really need that candy bar, is it really necessary to buy a new phone when the old one is still working, etc.? Or maybe it will help you eat more healthily and reducing all the small snacks you eat during the day. Actually, since I started budgeting my health has improved and I don’t eat as much candy as I used to! 😊 I find it motivational to reduce unnecessary purchases when you are able to see the direct impact on your finances. Several times when I have been tempted to buy stuff that I deep down knew quite well that I didn’t need, the impact on that month’s budget stopped me. Knowing that the item would reduce the amount that I could add to my savings, and really would improve my quality of life. A budget optimizes your expenses and saving money Another advantage of having a clear overview of all your expenses is the ability to actually optimize all your loans, mortgages, insurances and other necessary expenses. Often identifying where you may get your services cheaper can over time increase your ability to increase your savings. Recently, I changed my internet provider and reduced my monthly expense by 13 dollars, that is 156 dollars a year strait into my investments for future projects. Every month I run through all my fixed expenses and use about 5 minutes on each, looking for better service providers that deliver the same quality at a lower price. I also sometimes use 5 minutes to contact the different providers and try to negotiate a better deal, always optimizing my personal finance. Do remember, when changing between insurance policies there are may detail you must really understand and consider. I always recommend that you always seek professional counsel before deciding on such important subjects. A budget establishes and accelerate goals in life When I first started budgeting, I also started setting financial goals. The initial goals were small, establishing emergency funds, having a list of items that I really would like to have/try including computers, and different trips around the world. Now after 10 years, I see my budget as a game against myself trying every month to reduce the actual expenses compared to the planned. Also, I’ve joined the F.I.R.E. Movement and thereby focusing on being able to see the world while I’m still young. One of my main goals is reaching financial independence in order to retire early, this pursuit has been vastly improved by my personal budget. Currently, I’m still trading time for money and building a passive income. The budget visualizes my goal, clearly showing the minimum amount needed to cover my monthly expenses to be able to retire early. A budget improves your quality of life The more clarity you have of your concerns and better understanding, the better you plan. Overtime when you see that the budget you have made that actually works, it will reduce stress and over time increase your quality of life. Also, you suddenly get the ability to plan and set goals in life which hopefully will make you excel in your wellbeing. For me establishing a budget and keeping it updated has changed my life and the financial control that follows. By having a clear overview of my finances, it has helped me optimize my expenses and actually cut services that I didn’t need. Also, when contacted by different salespersons from various insurance agencies I’ve been able to quickly see if there was money to save. I wish you the best of luck with making a budget or if you have one already updating it and keeping it current.

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